BIG ROCK BREWERY INC.

Big Rock Brewery Inc. Page 1 of 19 Q2 - 2016

BIG

ROCK BREWERY INC.

QUARTERLY REPORT

SECOND

QUARTER 2016 HIGHLIGHTS

Three months ended

June 30

Six months ended

June 30

$ thousands (unless otherwise stated)

2016

2015

2016

2015

Sales volumes (hectolitres or hl)

57,084 50,051 99,228 84,032

Net revenue 12,291 11,105 21,335 18,242

Operating profit (loss)

656 (304) (462) (1,135)

Net income (loss)

382 (473) (400) (1,097)

Earnings (loss) per share (basic and diluted)

$ 0.06 $ (0.07) $ (0.06) $ (0.16)

MANAGEMENT’S DISCUSSION AND ANALYSIS

The following is Management’s Discussion and Analysis (“MD&A”) of the financial condition and results

of operations of Big Rock Brewery Inc. (the “Corporation” or “Big Rock”) for the six months ended June

30, 2016, as compared to the same period in 2015.

This MD&A should be read in conjunction with the unaudited consolidated financial statements of the

Corporation and accompanying notes as at and for the six months ended June 30, 2016 (the “Financial

Statements”) and in conjunction with the December 30, 2015 audited consolidated financial statements

and MD&A contained within our 2015 Annual Report. The financial statements have been prepared

using International Financial Reporting Standards (“IFRS”). All amounts are reported in thousands of

Canadian dollars and comparative figures have been restated using IFRS, unless otherwise noted.

Readers should also read the “Forward-Looking Information” contained at the end of this document.

The MD&A is dated August 4, 2016.

CORPORATE

PROFILE

Big Rock Brewery—headquartered in Calgary, Alberta—produces premium, all-natural craft beers. As

Canada's leading craft brewer, Big Rock has a broad family of permanent ales and lagers, the Rock

Creek series of craft ciders, and a continually changing variety of seasonal and limited-edition beers.

Big Rock stands out as a Canadian producer, marketer, and distributor of premium quality specialty

craft beers. The Corporation has sales and distribution facilities in Calgary and Edmonton, sales staff

resident in Alberta, British Columbia, Saskatchewan, Manitoba and an agency arrangement for product

sales in Ontario. Big Rock products are sold across Canada and also exported to Korea.

Big Rock Brewery Inc. Page 2 of 19 Q2 - 2016

In April 2015, Big Rock expanded its physical presence to British Columbia (“BC”) when it officially

opened its brewery and eatery in Vancouver’s thriving craft beer district. This combined brewery and

brewpub serves on-premise consumers in downtown Vancouver and provides distribution for Big Rock’s

beers throughout BC.

INDUSTRY

TRENDS AND INDICATORS

The beer industry in Canada has become increasingly polarized, with growth occurring in value-priced

products at one end of the spectrum and in premium craft beers at the other end. This growth is

largely at the expense of products in the middle of the spectrum, which have been declining steadily

over the past several years. In Alberta specifically, the ongoing difficult economic conditions have

caused consumer demand to move to more value-priced products. Additionally, there is significantly

more competitive activity in Alberta than in other Canadian markets, as represented by faster growth

in the number of products listed in Alberta than the growth in sales volumes. In other major craft beer

markets, such as BC and Ontario, volume growth in craft beer has outpaced growth in product listings.

For the three and six months ended June 30, 2016, Big Rock grew volumes and gross profit nationally,

including in Alberta, the region where the fierce competition in the craft beer industry has been most

keenly felt. This is mainly due to the success of new private label beers which were launched late last

year. These products more closely align with the tastes of contemporary drinkers together with the

rebranding of AGD, Big Rock’s most approachable lager.

The enthusiastic response to the rebranding and relaunching of these lower-priced products has

compressed average margins. Additionally, margins in Alberta remain under sustained pressure as a

result of two changes to markup rates in 2015, which combined represented a 20.5% increase in Alberta

Gaming and Liquor Commission (“AGLC”) markup rates as compared to the previous year. This

increased beer and cider costs to consumers, which hampered Big Rock’s ability to implement a

planned price increase to cover rising input costs. The Corporation has not introduced a general price

increase in Alberta since November 2012.

Subsequent changes announced on July 12 and July 28, 2016 will replace Alberta’s graduated mark-up

rate with a flat rate of $1.25 per litre plus a new grant program for Alberta breweries that will be

administered by Alberta Agriculture and Forestry. These changes are due to take effect on August 5,

2016. Although the combined impact of the flat mark-up rate and the grant program is expected to

result in an effective net rate that is not materially different from the graduated rate which has

applied to Big Rock’s business in Alberta, the longer-term implications are being assessed.

In Ontario, Big Rock has been building brand awareness in anticipation of the forthcoming brewery and

restaurant, including sales and marketing initiatives and collaboration events. In addition to raising Big

Rock’s profile, these activities have translated to a year-to-date 22% increase in sales volumes

compared to the same period in 2015. The Etobicoke brewery is expected to commence operations

during the third quarter with the Liberty Village brewpub following in the fourth quarter.

Big Rock Brewery Inc. Page 3 of 19 Q2 - 2016

SELECTED QUARTERLY FINANCIAL INFORMATION

The following is a summary of selected financial information of the Corporation for the last eight

completed quarters:

2016 2015 2014

$ thousands (unless

otherwise stated)

Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3

Sales volumes (hl) 57,084 42,143 42,787 55,132 50,051 33,980 39,194 48,376

Net revenue 12,291 9,044 9,642 11,834 11,105 7,137 8,638 10,556

Operating profit (loss) 656 (1,118) (55) 104 (304)

(831) (224) 1,017

Net income (loss) 382 (782) (54) 76 (473)

(624) (106) 764

Per hl net revenue 215.31 214.60 225.35 214.65 221.87 210.04 220.39 218.21

Per hl cost of sales 117.88 129.53 124.57 120.11 126.21 109.95 121.88 109.70

Per hl selling expenses 58.53 71.73 73.36 65.37 75.04 80.08 73.17 64.87

Per hl general and

administrative

25.65 35.83 28.12 25.94 23.40 41.17 29.01 21.08

Per hl operating profit (loss) 11.49 (26.53) (1.29) 1.89 (6.07) (24.46) (5.72) 21.02

Per hl net income (loss) 6.69 (18.56) (1.26) 1.38 (9.45) (18.36) (2.70) 15.79

Earnings per share (basic

and diluted)

$ 0.06 $ (0.11) $ (0.01) $ 0.01 $(0.07) $ (0.09) $ (0.02) $ 0.11

Dividends per share $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.20 $ 0.20

Big Rock experiences seasonal fluctuations in volumes, net sales revenue and net income with the

second and third quarters typically being the highest and the first and fourth being the lowest. These

seasonal variations are dependent on numerous factors, including weather, timing of community

events, consumer behaviour, customer activity and overall industry dynamics, specifically in western

Canada. The selected quarterly information is consistent with these expectations and industry trends.

RESULTS

OF OPERATIONS

For the three months ended June 30, 2016, Big Rock’s net revenue from beer and cider sales increased

11.5% and sales volumes increased 14.1% as compared to the same period in 2015.

For the six months ended June 30, 2016, Big Rock’s net revenue from beer and cider sales increased

15.3% and sales volumes increased 18.1% as compared to the same period in 2015.

For both the three and six months ended June 30, 2016, volumes increased due primarily to the

increase in sales of the entry-level all-natural lager, AGD, market success of new private label products

and targeted limited-time offer (“LTO”) activity.

Net income for the six months ended June 30, 2016 included $413 of costs associated with the

establishment of the forthcoming Ontario Etobicoke brewery and Toronto brewpub which will be

located in Toronto’s vibrant Liberty Village.

Big Rock Brewery Inc. Page 4 of 19 Q2 - 2016

Gross Profit

Three months ended

June 30

Six months ended

June 30

$ thousands (unless otherwise stated)

2016 2015 Change 2016 2015 Change

Wholesale revenue 11,746 10,532 1,214 20,294 17,596 2,698

Retail revenue

545 573 (28) 1,041 646 395

Net sales revenue

12,291 11,105 1,186 21,335 18,242 3,093

Wholesale cost of sales:

Ingredients and packaging materials

3,283 3,144 139 5,774 5,066 708

Labour

1,313 1,191 122 2,787 2,399 388

Overhead

1,214 865 349 2,027 1,574 453

Inventory movement

(14) 74 (88) (265)

(460) 195

Depreciation

481 467 14 913 865 48

Retail cost of sales

452 576 (124) 952 609 343

Cost of sales

6,729 6,317 412 12,188 10,053 2,135

Gross profit 5,562 4,788 774 9,147 8,189 958

Sales volumes (hl) 57,084 50,051 7,033 99,228 84,032 15,196

Net sales revenues include wholesale product sales for beer and cider, together with retail restaurant

and store sales from Big Rock’s Vancouver and Calgary locations.

Net sales revenue increased $1,186 (10.7%) and $3,093 (17.0%) for the three months and six months

ended June 30, 2016, respectively, compared to the same periods in 2015. The increases were mainly

attributable to increased beer and cider revenue on increased sales volumes. For the three and six

months ended June 30, 2016, beer and cider revenue increased by $1,214 and $2,698, respectively,

which was less than the increase in sales volumes due to the shift in the product mix towards lower

priced and private label brands. Geographically, Alberta and BC continued to represent the largest

shares of the Corporation’s sales.

For the three and six months ended June 30, 2016, total cost of sales increased by $412 and $2,135

compared to the same periods last year, as described below:

 Costs relating to ingredients and packaging materials increased $139 for the quarter and $708

for the year to date June 30, 2016 due to increased brewing volumes and higher priced

ingredients.

 When compared to the same periods in 2015, labour charges for the second quarter of 2016

increased $122 and for the year to date increased $388, primarily due to increased headcount

and severance costs arising from restructuring in Calgary.

 Overhead costs include utilities, repairs and maintenance and other production related

amounts, which are primarily fixed in nature. Overhead costs increased by $349 and $453 for

the three and six months ended June 30, 2016, respectively, when compared to the same

periods in 2015. The increases are mainly due to increases in utilities charges, lease expenses

and other production consumables.

 Inventory valuation comprises timing differences relating to the absorption of production costs

into finished goods inventory on the statement of financial position, and the eventual charge to

income for those costs as finished goods inventory is sold. Additionally, it includes the

absorption of changes in standard cost to inventory. For the quarter, charges relating to

inventory movement decreased by $88 and increased by $195 for the year to date, compared

with the same periods last year.

 Big Rock includes depreciation

charges on production equipment used to convert raw materials

to finished goods as part of its cost of sales and finished goods inventory. Depreciation

Big Rock Brewery Inc. Page 5 of 19 Q2 - 2016

increased $14 and $48 for the three months and six months ended June 30, 2016, respectively,

compared with the same periods last year. The increases were driven by inventory movement

as well as machinery additions.

On a per hectolitre basis, cost of sales decreased by $4.74 per hl (4.1%) for the three months ended

June 30, 2016 compared to the same period in 2015. For the six months ended June 30, 2016, cost of

sales increased by $0.84 per hl (0.7%). Decreased overhead costs was the primary driver of the

decrease for the quarter, while inventory movement was the primary driver of the increase for the

year to date, as detailed in the following table:

Per hectolitre cost of sales

Three months ended

June 30

Six months ended

June 30

2016 2015 Change 2016 2015 Change

Net wholesale sales revenue 205.77 210.43 (4.66) 204.52 209.40 (4.88)

Wholesale cost of sales:

Ingredients and packaging materials

57.51 62.82 (5.31) 58.19 60.29 (2.10)

Labour

23.00 23.80 (0.80) 28.09 28.55 (0.46)

Overhead

21.27 17.27 4.00 20.42 18.73 1.69

Inventory movement

(0.25)

1.48 (1.73) (2.67) (5.47)

2.80

Depreciation

8.43 9.33 (0.90) 9.20 10.29 (1.09)

Wholesale cost of sales

109.96 114.70 (4.74) 113.23 112.39 0.84

Selling expenses

Three months ended

June 30

Six months ended

June 30

$ thousands (unless otherwise stated)

2016 2015 Change 2016 2015 Change

Selling:

Delivery and distribution

967 921 46 1,694 1,574 120

Salaries and benefits

860 776 84 1,712 1,583 129

Marketing

294 290 4 558 506 52

Regional sales

960 1,381 (421) 1,962 2,220 (258)

Community sponsorship and other 260 388 (128) 438 594 (156)

Total selling expenses 3,341 3,756 (415) 6,364 6,477 (113)

Selling expenses have decreased for the quarter by $415 and $113 for the six months ended June 30,

2016, when compared to the same periods in the prior year, as detailed below:

 Delivery and distribution costs increased $46 in the quarter and $120 for the six months ended

June 30, 2016 primarily as a result of higher volumes delivered.

 Salaries and benefit costs increased by $84 for the second quarter and $129 for the year to due

to increases in marketing headcount.

 Marketing increased $4 in the quarter and $52 on a year to date basis primarily as a result of

increased advertising activity and market research.

 Regional sales expenses, when compared to the same periods in the prior year, decreased by

$421 for the quarter and $258 for the year to date mainly as a result of reduced sales program

activity and lower promotional materials spending.

 Community sponsorship and other expenses decreased $128 and $156 for the three and six

months ended June 30, 2016, respectively, due to the timing of sponsorship related payments.

Big Rock Brewery Inc. Page 6 of 19 Q2 - 2016

On a per hectolitre basis, selling expenses decreased by $16.51 per hl (22%) for the three months ended

June 30, 2016 compared to the same period in 2015. For the six months ended June 30, 2016, selling

expenses decreased by $12.95 per hl (16.8%). Decreased regional sales and community expenses were

primary drivers of the decrease, as detailed in the following table:

Per hectolitre selling expenses

Three months ended

June 30

Six months ended

June 30

2016 2015 Change 2016 2015 Change

Selling:

Delivery and distribution

16.94 18.40 (1.46) 17.07 18.73 (1.66)

Salaries and benefits

15.07 15.50 (0.43) 17.25 18.84 (1.59)

Marketing

5.15 5.79 (0.64) 5.62 6.02 (0.40)

Regional sales

16.82 27.60 (10.78) 19.78 26.42 (6.64)

Community sponsorship and other

4.55 7.75 (3.20) 4.41 7.07 (2.66)

Selling expenses

58.53 75.04 (16.51) 64.13 77.08 (12.95)

General and Administrative expenses

Three months ended

June 30

Six months ended

June 30

$ thousands (unless otherwise stated)

2016 2015 Change 2016 2015 Change

General and Administrative:

Salaries and benefits 767 578 189 1,541 1,217 324

Professional fees

155 138 17 316 314 2

Building maintenance and taxes

238 128 110 501 348 153

Office, administrative and other

179 220 (41)

349 407 (58)

Reporting and filing fees 32 25 7 74 82 (8)

Insurance 57 62 (5)

112 119 (7)

Bank charges 36 20 16 81 83 (2)

Total general and administrative expenses 1,464 1,171 293 2,974 2,570 404

For the three months and six months ended June 30, 2016, general and administrative expenses

increased by $293 and $404 when compared with the same periods in 2015 as detailed below:

 Salaries and benefit costs increased by $189 for three months ended June 30, 2016 when

compared to the same period in 2015 primarily as a result of the timing of accruals under Big

Rock’s bonus plan and $324 for the six months ended June 30, 2016 when compared to the

same period in 2015 as a result of adjustments to the valuation of awards under the

Corporation’s stock appreciation rights (“SAR”) program.

 Professional fees, which include legal, audit, tax, accounting and other advisory and consulting

services, were $17 higher for the second quarter and $2 higher for the year to date, compared

to the same periods last year, primarily due to slight increases in tax and consulting fees.

 Building maintenance and taxes increased $110 and $153 for the three and six months ended

June 30, 2016 when compared to the 2015 comparative periods, due to an increase in building

and utilities expenses related to the Ontario sites.

 Office, administration and other decreased $41 and $58 for the three and six months ended

June 30, 2016 when compared to the 2015 comparative periods, due to Big Rock Vancouver

pre-opening costs no longer being included in the balance as they were in 2015. This was offset

slightly by the inclusion of start-up costs incurred for the establishment of the Toronto

brewpub.

Big Rock Brewery Inc. Page 7 of 19 Q2 - 2016

 Reporting and filing fees increased $7 for the quarter and decreased $8 for the six months

ended June 30, 2016, due to timing of TSX filing fees.

 Bank charges increased $16 for the three months and decreased $2 for the year to date ended

June 30, 2016 when compared to the same periods last year as a result of withdrawals on Big

Rock’s term loan and operating loan facilities during the quarter.

For the three months ended June 2016, excluding $139 (2015 - $108) of expenses related to share

based compensation and $206 (2015 - $91) costs for the new Toronto facilities, general and

administrative expenses would have increased by $147 (15.1%) compared to the same period in 2015.

For the six months ended June 2016, excluding $364 (2015 - $4) of expenses related to share based

compensation and $413 costs for the new Toronto facilities (2015 - $386 costs for Vancouver and

Toronto), general and administrative expenses would have increased by $17 (0.8%) compared to the

same period in 2015.

Finance expenses

Three months ended

June 30

Six months ended

June 30

$ thousands (unless otherwise stated)

2016 2015 Change 2016 2015 Change

Interest on long-term debt 91 26 65 136 26 110

Interest on operating facility

1 46 (45)

13 63 (50)

Total finance expenses 92 72 20 149 89 60

Weighted average effective interest rate 6.45% 4.20% 5.58% 4.24%

The principal amount of long-term debt and bank indebtedness was $7,251 as at June 30, 2016

compared to $6,351 as at June 30, 2015. The interest rates applicable to all loans and borrowings are

based on the lender’s prime rate. The increase in interest expense for the three and six months ended

June 30, 2016 compared to the same periods last year is due to changes in the mix of facilities

combined with higher balances outstanding.

Depreciation and amortization

Three months ended

June 30

Six months ended

June 30

$ thousands (unless otherwise stated)

2016 2015 Change 2016 2015 Change

Depreciation included in wholesale cost of sales

481 467 14 913 865 48

Depreciation included in retail cost of sales

37 — 37 74 — 74

Depreciation - other

61 156 (95) 191 260 (69)

Amortization

40 9 31 80 17 63

Total

619 632 (13) 1,258 1,142 116

For the quarter ended June 30, 2016 depreciation expense included in cost of sales increased by $51

while for the six months ended, depreciation expense included in cost of sales increased by $122

compared with the same period last year due to asset additions and inventory movement.

Other depreciation, which relates to non-production assets, decreased primarily due to

reclassifications of Big Rock’s Vancouver restaurant assets since June 2015.

Amortization expense, which relates to intangible assets, which include software, naming rights and

website costs, increased due to software additions since June 2015.

Big Rock Brewery Inc. Page 8 of 19 Q2 - 2016

Other

Three months ended

June 30

Six months ended

June 30

$ thousands (unless otherwise stated)

2016 2015 Change 2016 2015 Change

Other income 3 142 (139) 82 143 (61)

Other expenses

— — — — — —

Other income includes rental income arising from use of yard space and gains or losses on asset

disposals.

Income taxes

Three months ended

June 30

Six months ended

June 30

$ thousands (unless otherwise stated)

2016 2015 Change 2016 2015 Change

Deferred income tax expense (recovery) 260 79 181 18 (89) 107

Current income tax expense (recovery)

(75) 160 (235) (147)

105 (252)

A current income tax recovery of $75 was recorded for the three months ended June 30, 2016 (2015 –

expense of $160) bringing the year to date current tax recovery to $147 (2015 – expense of $105).

These taxes arise from the transitional provisions on the taxation of partnership deferral structures

which are expected to conclude in 2017.

During the three months ended June 30, 2016, the Corporation recorded a deferred income tax

expense of $260, bringing the year to date deferred tax expense to $18 compared to a recovery of $89

for the same six month period last year.

The deferred income tax provision differs from the statutory rate of 26.91% (2015 – 26.04%) due to

permanent differences between the carrying amounts of assets and liabilities for accounting purposes

and the amounts used for income tax purpose, as well as the effect of non-deductible amounts.

FINANCIAL CONDITION

The following chart highlights significant changes in the Consolidated Balance Sheets from December

30, 2015 to June 30, 2016:

$ thousands (unless otherwise stated)

Increase/

(Decrease)

Primary factors explaining change

Property, plant and equipment 1,924

AB and ON brewery and machinery additions, net of

amortization

Intangible assets (57) Amortization in excess of additions

Inventories 391

Increase in raw materials and finished goods due to

increased Big Rock Vancouver production and stockpiling

in anticipation of summer seasonal demand

Accounts receivable

1,059

Higher day sales outstanding from AB combined with

increased GST receivable

Prepaid expenses and other

Increase in prepaid insurance expenses and sponsorship

deposits, offset by a reduction in machinery deposits

Long term debt 2,317 Draws on term loan

Deferred income taxes 18 Tax effect of changes in temporary differences

Share based payments liability 285

Higher SAR valuation

Current income taxes 121 Tax payments in 2015

Accounts payable and accrued liabilities 1,139 Timing of supplier payments

Bank indebtedness (202)

Combined balance of certain bank accounts in overdraft

position moved towards a debit position

Big Rock Brewery Inc. Page 9 of 19 Q2 - 2016

LIQUIDITY AND CAPITAL RESOURCES

Capitalization

$ thousands (unless otherwise stated)

June 30,

2016

December 30,

2015

Bank indebtedness (cash)

(311) (540)

Total debt 7,251 5,136

Shareholders’ equity:

Shareholders’ capital

113,121 113,121

Contributed surplus

1,334 1,255

Accumulated deficit

(77,236) (76,836)

Total shareholders’ equity

37,219 37,540

Total capitalization (total debt plus

shareholders’ equity, net of cash balances)

44,159 42,136

Total debt to capitalization ratio 16.4% 12.2%

Capital Strategy

The Corporation includes as capital its common shares plus short-term and long-term debt, net of cash

balances, and has no externally imposed capital requirements. The Corporation’s objectives are to

safeguard the Corporation’s ability to continue as a going concern, in order to support the

Corporation’s normal operating requirements and to maintain a flexible capital structure which

optimizes the costs of capital at an acceptable risk. This allows management to maximize the

profitability of its existing assets and create long-term value and enhance returns for its shareholders.

The Corporation manages the capital structure through prudent levels of borrowing, cash-flow

forecasting and working capital management, and makes adjustments to it in light of changes in

economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust

the capital structure, the Corporation may issue new shares, issue new debt, acquire or dispose of

assets or adjust the amount of cash and cash equivalents. In order to facilitate the management of its

capital requirements, the Corporation prepares annual expenditure budgets, which are approved by the

Board of Directors. These budgets are updated as necessary depending on various factors, including

capital deployment, results from operations, and general industry conditions.

In addition, the Corporation monitors its capital using ratios of (i) earnings before interest, taxes,

depreciation and amortization (“EBITDA”) to net debt and (ii) EBITDA to interest, debt repayments and

dividends. EBITDA to interest, debt repayments and dividends is calculated by dividing the combined

interest, debt repayments and dividend amounts by EBITDA and EBITDA to net debt is calculated by

dividing debt minus cash by EBITDA. EBITDA is a non-GAAP measure. For a reconciliation of EBITDA to

net income, the nearest GAAP measure, see Cash Flows—Financing Activities later in this MD&A.

These capital policies provide Big Rock with access to capital at a reasonable cost.

As discussed later in this MD&A, all of the borrowing facilities have financial tests and other covenants

customary for these types of facilities and must be met at each reporting date.

Shareholders’ Capital

# of shares

$ Amount

(thousands)

As at December 30, 2015 and June 30, 2016 6,875,928 113,121

Big Rock is authorized to issue an unlimited number of common shares with no par value.

The Corporation’s shares trade on the Toronto Stock Exchange under the symbol BR. As at August 4,

2016 there were 6,875,928 issued and outstanding shares and the closing price was $5.56 per share.

Big Rock Brewery Inc. Page 10 of 19 Q2 - 2016

Based upon 6,875,928 issued shares, the Corporation has an approximate market capitalization of $38.2

million.

Share Based Compensation Plan

The weighted average fair value of the options issued during the three months ended June 30, 2016

was estimated using the Black-Scholes option pricing model.

The weighted average assumptions used for the calculation were:

March

2016

September

2015

May

2015

September

2014

Weighted average fair value per

option

1.35 1.33 1.60 1.54

Risk-free interest rate (%) 0.65 0.65 0.89 1.42

Expected life of the options (years)

4 4 4 4

Dividend rate (%)

0.00 0.00 0.00 5.06

Volatility in the price of the

Corporation's shares (%)

34.7 29.4 28.7 22.4

A share-based compensation charge of $79 (2015 - $94) for the options granted in the six months ended

June 30, 2016 was recognized in statement of comprehensive income. Share-based compensation costs

have been included in general and administrative expenses.

The following is a summary of option transactions under the Corporation’s share option plan:

2016 2015

# of options

Weighted

average

exercise

price # of options

Weighted

average

exercise

price

Balance, beginning of year

517,000 $ 13.10 508,000 $ 15.22

Expired (17,500) 16.60 — —

Issued

58,500 5.12 — —

Balance, March 31

558,000 $ 12.15 508,000 $ 15.22

Issued — — 58,500 $ 7.46

Balance, June 30

558,000 $ 12.15 566,500 $ 14.42

The following table summarizes information about share options outstanding and exercisable at June

30, 2016:

Exercise price

# of Options

outstanding at

June 30, 2016

Weighted

average

remaining

contractual

life (years)

Weighted

average

exercise

price

# of Options

exercisable at

June 30, 2016

$5.12 to $12.19 193,000 3.88 $ 6.65 193,000

$12.20 to $14.98 189,500 1.12 $ 13.88 189,500

$14.99 to $18.06 175,500 2.70 $ 16.34 175,500

Balance, June 30 558,000 2.57 $ 12.15 558,000

In March 2012, the Corporation introduced a share appreciation rights (“SAR”) plan as a component of

overall compensation of directors, officers and employees. These SARs vest immediately and are

exercisable for five years thereafter.

At the end of each reporting period, the fair value of the SARs, as determined by the Black-Scholes

model, is recorded as a liability on the balance sheet and recorded as compensation expense.

Big Rock Brewery Inc. Page 11 of 19 Q2 - 2016

As at June 30, 2016, 470,900 SARs were outstanding (December 30, 2015 – 391,900). During the three

months ended June 30, 2016, no SARs were issued (2015 – 57,000), no SARs were exercised (2015 – nil)

and no SARs expired (2015 – nil). As at June 30, 2016, the fair value of the SARs was calculated and

resulted in a liability of $419 (December 30, 2015 - $134) and an expense of $285 being recorded in

general and administrative expenses (December 30, 2015 – recovery of $82).

At June 30, 2016, the weighted average fair value of the SARs issued at the grant date was estimated

using the Black-Scholes option pricing model. The weighted average assumptions used for the

calculations were:

March

2016

September

2015

May

2015

Weighted average fair value per SAR

2.31 1.92 1.31

Risk-free interest rate (%)

0.56 0.55 0.54

Expected life of the SAR (years)

4.70 4.20 3.87

Dividend rate (%)

0.00 0.00 0.00

Volatility in the price of the

Corporation's shares (%)

34.8 34.8 34.8

Cash Flows

Three months ended

June 30

Six months ended

June 30

$ thousands 2016 2015 Change 2016 2015 Change

OPERATING ACTIVITIES

Net income (loss) for the period,

adjusted for items not affecting cash

1,411 251 1,160 1,186 (123) 1,309

Net change in non-cash working

capital related to operations

(1,328)

(157) (1,171) (474) (1,527) 1,053

Cash provided by (used in) operating

activities

83 94 (11) 712 (1,650) 2,362

FINANCING ACTIVITIES

Increase (decrease) in bank

indebtedness

680 (527) 1,207 (202) 4,401 (4,603)

Dividend payments

— — — — (1,375) 1,375

Proceeds from long-term debt

367 1,950 (1,583) 2,317 1,950 367

Cash provided by financing activities

1,047 1,423 (376) 2,115 4,976 (2,861)

INVESTING ACTIVITIES

Purchase of property, plant and

equipment

(1,390)

(718) (672) (3,165) (3,651) 486

Purchase of intangibles

(15)

(37) 22 (23) (266) 243

Proceeds from sale of equipment

30 101 (71) 132 101 31

Cash used in investing activities

(1,375)

(654) (721) (3,056) (3,816) 760

Net change in cash (245)

863 (1,108)

(229) (490) 261

Operating Activities

Cash provided by operating activities for the three months ended June 30, 2016 totalled $83, a

decrease of $11 compared to the same period last year, mainly as a result of lower non-cash working

capital related to operations. Cash provided by operating activities for the six months ended June 30,

2015 totalled $712, an increase of $2,362 compared to the same period last year, due to the increase

in both net income and non-cash working capital.

Big Rock Brewery Inc. Page 12 of 19 Q2 - 2016

Financing Activities

Cash provided by financing activities for the three months ended June 30, 2016 decreased by $376

compared with the same period in 2015. The decrease is a result of fewer draws on long term debt.

This was offset slightly by the increase in bank indebtedness.

Cash provided by financing activities for the six months ended June 30, 2016 decreased by $2,861

compared with the same period in 2015 mainly due to lower draw on the operating facility, which

decreased bank indebtedness.

On March 29, 2016, Big Rock signed a commitment letter to revise and extend the existing $5 million

revolving operating loan facility and $6 million 5-year term loan facility which is available for general

operating purposes and funding capital expenditure requirements. For prime-based loans, interest will

be payable at the financial institution’s prime plus 2.0–4.0 percent; for guaranteed notes, the

acceptance fee is payable at 3.75 percent; and for letters of credit, the fee is payable at 3.75 percent

with a minimum fee of $100. Both facilities mature after a term of 5 years and any undrawn amounts

under the facility will expire on March 29, 2021, if no extension has been granted. Collateral for these

borrowings is a general assignment of Big Rock’s assets.

The facility imposes a number of positive and negative covenants on Big Rock, including the

maintenance of certain financial ratios. At December 30, 2015 Big Rock was outside the required range

of one of its financial covenants and had received a waiver for that period and for the three months

ended June 30, 2016. Big Rock was in compliance with all other covenants at June 30, 2016.

As at June 30, 2016, $3,700 (December 30, 2015 - $1,850) was drawn on the term loan facility and

$1,045 (December 30, 2015 - $1,247) was outstanding on the operating loan facility.

On July 9, 2015 Big Rock signed a commitment letter for a $2.5 million lease financing facility which is

available to finance the purchase of equipment relating to Big Rock’s Ontario expansion. Interest will

be charged at the financial institution’s prime plus 3.67 per cent. The facility matures after a term of 5

years. As at June 30, 2016, $2,506 (December 30, 2015 - $2,039) was drawn on the facility.

The calculation of EBITDA is a non-GAAP measure, whose nearest GAAP measure is net income with the

reconciliation between the two as follows:

$ thousands (unless otherwise stated)

Six months ended

June 30, 2016

Six months ended

June 30, 2015

EBITDA

$ 878

$ 150

Deduct: Depreciation & Amortization 1,258 1,142

Earnings (loss) before interest and taxes

(380) (992)

Deduct: Interest

149 89

Deduct: Income tax charge

(129) 16

Net income

$ (400) $ (1,097)

Investing Activities

For the three and six months ended June 30, 2016, capital spending, net of dispositions, was $1,375

and $3,056, respectively, compared to $654 and $3,816 for the same periods in 2015. Capital spending

for the quarter ended June 30, 2016, net of dispositions, included net cash received of $29 in respect

of kegs (2015 – net cash received of $4), $nil relating to land (2015 - $9), $19 (2015 – $38) for the

purchase of new vehicles, $1,188 (2015 – $436) for brewing and packaging equipment, $170 (2015 –

$50) relating to buildings and warehouses, $11 (2015 – $88) for the purchase of office furniture and

equipment, $1 for leasehold improvements (2015 - $nil), and $15 (2015 - $37) for the purchase of

intangible assets.

Capital spending, net of dispositions, for the six months ended June 30, 2016 included $8 for the

purchase of kegs (2016 – net cash received of $25), $3 relating to land (2015 - $9), $72 (2015 – $70) for

the purchase of new vehicles, $1,901 (2015 – $1,035) for brewing and packaging equipment, $998 (2015

Big Rock Brewery Inc. Page 13 of 19 Q2 - 2016

– $1,627) relating to buildings and warehouses, $50 (2015 – $834) for the purchase of office furniture

and equipment, $1 for leasehold improvements (2015 - $nil), and $23 for the purchase of intangible

assets (2015 - $266).

Cash Dividends

In March 2015, Big Rock announced the suspension of the Corporation’s quarterly dividend until further

notice.

In determining dividend levels, if any, in the future, the Board will consider the financial performance,

capital plans, growth opportunities, expectations of future economic conditions and other factors.

Since the level of dividends is highly dependent upon cash flow generated from operations, which

fluctuates significantly in relation to changes in financial and operational performance, commodity

prices, interest and exchange rates and many other factors, future dividends cannot be assured.

Dividends are subject to the risk factors described herein and in the Corporation’s public disclosure

documents including its current Annual Information Form.

CRITICAL ACCOUNTING ESTIMATES

Share-based compensation

The Corporation recognizes compensation expense on options with no cash settlement feature at time

of grant as well as on changes in the fair value of any outstanding SARs at each reporting date. Stock

based compensation expense with respect to options recognized during the six months ended June 30,

2016 was $79 (2015 – $94), while the expense recognized with respect to SARs was $285 (2015 –

recovery of $90) as discussed earlier in this MD&A.

Property, Plant and Equipment

Accounting for PP&E involves making estimates of the life of the assets, selecting an appropriate

method of depreciation and determining whether an impairment of the assets exists. These

assessments are critical due to their potential impact on income.

At each date of the statement of financial position, the Corporation reviews the carrying amounts of its

tangible and intangible assets to determine whether there is an indication that those assets have

suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is

estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to

estimate the recoverable amount of an individual asset, the Corporation estimates the recoverable

amount of the cash-generating unit to which the assets belong.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in

use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate

that reflects current market assessments of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying

amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable

amount. An impairment loss is recognized immediately in the statement of comprehensive income.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating-

unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying

amount does not exceed the carrying amount that would have been determined had no impairment loss

been recognized for the asset (or cash-generating unit) in prior years.

Keg Deposits

The Corporation requires that customers pay a deposit for each keg purchased, which is subsequently

refunded to customers via invoice credits or cash payments when kegs are returned and these deposits

are reflected as a liability on the Corporation’s balance sheet. In the normal course of business there

are a percentage of kegs that are never returned for refund. As a result, the Corporation performs an

Big Rock Brewery Inc. Page 14 of 19 Q2 - 2016

analysis based on factors such as total kegs produced, current inventory rates and average keg

turnover. In addition, return percentages are calculated and tracked to estimate an average keg

turnover rate. Together this information is used to estimate a reasonable keg deposit liability at each

reporting date. Any adjustments required to the keg liability account are applied to revenue.

RISKS RELATED TO THE BUSINESS AND 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. It is also difficult to anticipate changes in government

regulation and legislation and the impact such changes might have on the Corporation’s operations.

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 craft brands now available, and the advertising initiatives of pseudo-craft

divisions of the major breweries, it is likely that competitive pressures on price will continue. As a

result, the selling price may vary more frequently.

Big Rock requires various permits, licenses, and approvals from several government agencies in order to

operate in its market areas. In Alberta, Big Rock’s largest market, the Alberta Gaming and Liquor

Commission provides the necessary licensing approvals. Other licenses have been obtained from various

other government authorities. Management believes that Big Rock is in compliance with all licenses,

permits, and approvals.

Each provincial authority has its own tax or “mark-up” structure by which fees are levied on brewers’

sales within that jurisdiction. These regulations may be changed from time to time, which may

positively or negatively impact Big Rock’s profitability.

In 2012, the Alberta government commenced a review of its mark-up rates and on March 26, 2015,

announced an increase in the mark-up rate applicable to Big Rock with an immediate corresponding

increase in the prices of the Corporation’s products. On October 27, 2015, the Alberta government

announced a change to mark-up rates applicable to Big Rock which slightly reduced the impact of the

previous increase. In July 2016, the Alberta government announced that, effective August 5, 2016, the

graduated mark-up scheme will be replaced with a flat-rate mark-up of $1.25 per litre plus a new grant

program for Alberta breweries to be administered by Alberta Agriculture and Forestry. It is currently

expected that the effective net rate of these programs will not be materially different to Big Rock than

the graduated mark-up program that they replace. As Alberta is Big Rock’s predominant market,

changes to this mark-up rate structure could have significant impacts on the Corporation’s financial

results and the Corporation will continue to assess the longer-term implications of these changes.

While the immediate impact is favourable to Big Rock, the longer-term implications are currently being

assessed.

Financial Risk

The Corporation’s principal financial instruments are its outstanding amounts drawn from its credit

facilities, which, after cash flow from operations, are its main source of financing. Other financial

assets and liabilities arising directly from its operations and corporate activities include cash, accounts

receivable, bank indebtedness, accounts payable, long term debt and distributions payable. The

primary risks arising from the Corporation’s financial instruments are credit risk, liquidity risk,

commodity price risk, interest rate risk and foreign exchange risk, each of which are discussed below.

Management manages and monitors these exposures to ensure appropriate measures are implemented

in a timely and effective manner.

Big Rock Brewery Inc. Page 15 of 19 Q2 - 2016

Credit Risk

Credit risk is the risk that the counterparty to a financial asset will default, resulting in the Corporation

incurring a financial loss.

Big Rock has a concentration of credit risk because a majority of its accounts receivable are from

provincial liquor boards, under provincially regulated industry sale and payment terms. The

Corporation is not exposed to significant credit risk as payment in full is typically collected by

provincial liquor boards at the time of sale and receivables are with government agencies. While

substantially all of Big Rock’s accounts receivable are from provincial government liquor authorities,

the timing of receipts of large balances may vary significantly from period to period. The majority of

product sold outside of Canada, which is included in GST and other receivables, is done so on a ‘Cash

on Delivery’ basis with no credit risk.

Credit risk associated with the potential non-performance by financial instrument counterparties has

been minimized through the careful selection of vendors, the development of long term vendor

relationships and the selective use of written arrangements to guarantee supply and payment terms.

Liquidity Risk

Big Rock’s principal sources of liquidity are its cash flows from operations and existing or new credit

facilities. Liquidity risk is mitigated by maintaining banking facilities, continuously monitoring forecast

and actual cash flows and, if necessary, adjusting levels of dividends to shareholders and capital

spending to maintain liquidity.

Management closely monitors the liquidity position and expects to have adequate sources of funding to

finance the Corporation’s operations.

Commodity Price Risk

The Corporation is exposed to commodity price risk in the areas of utilities (primarily electricity and

natural gas), malted barley, water, glass and aluminum, where fluctuations in the market price or

availability of these items could impact Big Rock’s cash flow and production. To minimize the impact of

this risk, the Corporation enters into contracts which secure supply and set pricing to manage the

exposure to availability and pricing.

Big Rock’s profitability depends on the selling price of its products to provincial liquor boards, which

set minimum price thresholds. Although prices are otherwise controlled by the Corporation, they are

subject to such factors as regional supply and demand, and to a lesser extent inflation and general

economic conditions. As beer and cider sales are the only source of revenue for the Corporation, a 5%

increase or decrease in these prices will result in a corresponding increase or decrease in revenue.

Interest Rate Risk

Big Rock is exposed to interest rate risk on the variable rate of interest incurred on the amounts due

under operating and credit facilities and on interest earned on bank deposits. The cash flow required

to service the interest on these facilities will fluctuate as a result of changes to market rates.

The Corporation has not entered into any derivative instruments to manage interest rate fluctuations;

however, management monitors interest rate exposure and given the relatively low expected rate of

change in prime interest rates feels the risk is immaterial. Big Rock evaluates the policies surrounding

interest rates on an as needed basis and is confident that this policy is sufficient based on current

economic conditions, combined with the minimal amount of debt required by the Corporation.

The fair value interest rate risk on bank deposits is insignificant as the deposits are short-term and the

fair value of the Corporation’s long-term debt does not change as interest rates change.

Big Rock Brewery Inc. Page 16 of 19 Q2 - 2016

The weighted average interest rate incurred by the Corporation in the three and six months ended June

30, 2016 was 6.45% (2015 – 4.20%) and 5.58% (2015 – 4.24%) respectively.

Foreign Exchange Risk

The Corporation currently transacts with only a few foreign suppliers providing small amounts of goods

and thus has limited exposure to risk due to variations in foreign exchange rates. The Corporation has

not entered into any derivative instruments to manage foreign exchange fluctuations; however,

management monitors foreign exchange exposure.

The Corporation does not have any significant foreign currency denominated monetary liabilities.

For a more detailed discussion of risk factors that could materially affect Big Rock’s results of

operations and financial condition please refer to the Risk Factors section of the Corporation’s Annual

Information Form dated March 10, 2016 that is available on www.sedar.com.

FUTURE ACCOUNTING PRONOUNCEMENTS

IFRS Policies

The Corporation’s interim financial statements as at and for the three months ended June 30, 2016 and

2015 have been prepared using the IFRS standards and interpretations currently issued. Accounting

policies currently adopted under IFRS are subject to change as a result of new standards being issued

with an effective date of December 31, 2015 or prior. A change in an accounting policy used may result

in material changes to Big Rock’s reported financial position, results of operations and cash flows.

Future accounting pronouncements

The IASB has issued the following pronouncements:

 Amendments to IAS 7 Statement of cash flows are effective for annual periods beginning on or

after January 1, 2017. The amendments clarify that entities shall provide disclosures that

enable users of financial statements to evaluate changes in liabilities arising from financing

activities.

 Amendments to IAS 12 Income taxes are effective for annual periods beginning on or after

January 1, 2017. The amendments clarify several aspects of the standard including: deductible

temporary differences relating to unrealized losses on debt instruments, estimations of future

taxable profits, and how an entity assesses deferred tax assets.

 IFRS 9 Financial Instruments has been amended, effective for annual periods beginning January

1, 2018. The amended standard replaces IAS 39 Financial Instruments: Recognition and

Measurement and all previous versions of IFRS 9. The standard requires classification of

financial assets on the basis of the reporting entity’s business model objectives for managing

those financial assets and the characteristics of the contractual cash flows. As a result, both

the classification and measurement of certain financial assets may change. Additionally, for

liabilities designated at fair value through profit and loss, fair value changes attributable to

changes in credit risk will be presented through other comprehensive income instead of net

income.

 IFRS 15 Revenue from Contracts with Customers has been issued which will be required to be

adopted, with retrospective application, effective for annual periods beginning on or after

January 1, 2018. This standard establishes a five-step model that will apply to revenue earned

from a contract with a customer (with limited exceptions), regardless of the type of revenue

transaction or the industry. The standard also provides a model for the recognition and

measurement of sales of some non-financial assets (e.g., disposals of property, plant and

equipment).

Big Rock Brewery Inc. Page 17 of 19 Q2 - 2016

 IFRS 16 Leases has been issued which will be required to be adopted effective for annual

periods beginning on or after January 1, 2019. This standard provides a single lessee accounting

model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is

12 months or less or the underlying asset has a low value. Lessors continue to classify leases as

operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged

from its predecessor, IAS 17.

Early adoption of the above standards, amendment and interpretations is permitted. Big Rock has not

early adopted these; however, the Corporation is currently assessing what impact the application of

these standards or amendments will have on the financial statements of the Corporation.

DISCLOSURE CONTROLS AND PROCEDURES

The Corporation’s management under the supervision of, and with the participation of, the Chief

Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) of the Corporation, have designed and

evaluated the effectiveness and operation of its disclosure controls and procedures, as defined under

National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (“NI 52-

109”). Disclosure controls and procedures are designed to provide reasonable assurance that

information required to be disclosed in reports filed with Canadian securities regulatory authorities is

recorded, processed, summarized and reported in a timely fashion. The disclosure controls and

procedures are designed to ensure that information required to be disclosed by the Corporation in such

reports is then accumulated and communicated to management, including the CEO and the CFO, as

appropriate, to allow timely decisions regarding required disclosure. Due to the inherent limitations in

all control systems, an evaluation of the disclosure controls can only provide reasonable assurance over

the effectiveness of the controls. The disclosure controls are not expected to prevent and detect all

misstatements due to error or fraud. Based on the evaluation of disclosure controls and procedures,

the CEO and CFO have concluded that the Corporation’s disclosure controls and procedures are

effective as of June 30, 2016.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

The Corporation’s management under the supervision of, and with the participation of, the CEO and

CFO, has designed and implemented internal controls over financial reporting (“ICFR”), as defined

under NI 52-109. The Corporation’s management used as its framework the Internal Control—Integrated

Framework published by The Committee of Sponsoring Organizations of the Treadway Commission.

The process used involved four steps as follows: establishment of a foundation, which involved

assessing the tone at the top, the organization structure and baseline of current internal controls;

design and execution, which involved prioritizing risk, identifying controls and evaluation of control

effectiveness; assess and report, which involved summarizing and reporting on the findings; and

conclusion on controls supported by documented evidence.

The purpose of internal controls over financial reporting is to provide reasonable assurance regarding

the reliability of financial reporting and preparation of financial statements in accordance with GAAP,

focusing in particular on controls over information contained in the annual and interim financial

statements. The internal controls are not expected to prevent and detect all misstatements due to

error or fraud.

The CEO and CFO acknowledge responsibility for the design of ICFR and confirm that there were no

changes in the Corporation’s controls over financial reporting for the three months ended June 30,

2016, that have materially affected or are reasonably likely to materially affect the Corporation’s

internal control over financial reporting.

Based upon their evaluation of these controls as of June 30, 2016, the CEO and CFO have concluded

that the Corporation’s ICFR were effective as at that date. No material weaknesses existed within the

Corporation’s ICFR as of June 30, 2016. In addition, there were no material changes to Big Rock’s

internal controls over financial reporting since the most recent interim period.

Big Rock Brewery Inc. Page 18 of 19 Q2 - 2016

OUTLOOK

Competition continues unabated at the value-priced end of the beer spectrum and for premium craft

beer, particularly in Alberta, which, unlike most other Canadian jurisdictions, has relatively few

barriers to entry for out-of-province producers. This competition particularly affects Big Rock’s most

mature brands, Grasshopper and Traditional, and is expected to continue.

To diversify revenue base, management has identified opportunities to establish a local presence in

two other Canadian provinces, BC and Ontario. These markets have been targeted as they are

especially responsive to locally brewed, craft beer. The BC brewery, brewpub and retail space

commenced operations in April 2015, while management expects that the Ontario brewery and nearby

brewpub will open in third and fourth quarters of 2016, respectively.

In response to consumer-driven demand, management will continue to invest in targeted marketing

opportunities to create brand awareness and to emphasize its innovation, which will provide additional

great beers to the Big Rock portfolio.

In addition, management will continue to monitor and adjust the selling prices of its products, and will

continue to actively manage operating costs, assess regional profitability and focus on operating

efficiencies. Management also plans to continue to introduce new permanent and seasonal brands in

2016 and beyond.

FORWARD LOOKING INFORMATION

This MD&A contains forward-looking information that reflects management’s expectations related to

expected future events, financial performance and operating results of the Corporation. Investors

should not place undue reliance on forward-looking statements as the plans, intentions or expectations

upon which they are based might not occur.

All statements, other than statements of historical fact included in the MD&A, may be forward-looking

information. Forward-looking information are not facts, but only predictions and generally can be

identified by the use of statements that include words or phrases such as "seek", "anticipate", "plan",

"continue", "estimate", "expect", "may", "will", "project", "predict", “propose”, "potential", "targeting",

"intend", "could", "might", "should", "believe" and similar expressions. These statements are not

guarantees of our future performance and are subject to known and unknown risks, uncertainties and

other factors that may cause Big Rock’s actual results or events to differ materially from those

anticipated in such forward-looking statements.

Big Rock believes that the expectations reflected in these forward-looking statements are reasonable

but no assurance can be given that these expectations will prove to be correct and such forward-

looking statements included in this MD&A should not be unduly relied upon by investors as actual

results may vary. These statements speak only as of the date of this MD&A and are expressly qualified,

in their entirety, by this cautionary statement.

In particular this MD&A contains forward-looking statements pertaining to the following:

 the potential future resumption of quarterly dividends;

 expected volumes;

 projections of market prices and costs;

 treatment under governmental regulatory and taxation regimes;

 supply and demand of Big Rock’s products;

 the Corporation’s plans to establish a brewery and a brewpub in Ontario and the anticipated

opening dates there; and

 the impact of recent changes in Alberta markup rates.

With respect to forward-looking statements listed above and contained in this MD&A, Big Rock has

made assumptions regarding, among other things, the following:

Big Rock Brewery Inc. Page 19 of 19 Q2 - 2016

 volumes in the current fiscal year will remain constant or will increase;

 input costs for brewing and packaging materials will remain constant or will not significantly

increase or decrease;

 there will be no material change to the regulatory environment in which Big Rock operates;

 there will be no supply issues with Big Rock’s vendors; and

 construction costs associated with the planned Ontario facilities will fall within the range

budgeted by the Corporation.

Big Rock's actual results could differ materially from those anticipated in these forward-looking

statements as a result of the risk factors set forth above and as set out under the heading “Risk

Factors” in the Corporation’s 2015 Annual Information Form (as filed on SEDAR on March 10, 2016).

Readers are cautioned that the foregoing lists of factors are not exhaustive.

The forward-looking statements contained in this MD&A are expressly qualified by this cautionary

statement. Big Rock does not undertake any obligation to update or revise any forward-looking

statements, whether as a result of new information, future events or otherwise, unless required by

law.

ADDITIONAL INFORMATION

Additional information on the Corporation, including the Annual Information Form for the year ended

December 30, 2015, can be found on SEDAR at www.sedar.com. Information about Big Rock can also be

found on Big Rock’s corporate website at http://bigrockbeer.com.

Second Quarter 2016 Page 1 of 16

BIG ROCK BREWERY INC.

Condensed Interim Consolidated Statements of Comprehensive Income (Loss)

Unaudited

(In thousands of Canadian dollars, except per share amounts)

Three months ended

June 30

Six months ended

June 30

2016 2015 2016 2015

Net revenue (Note 3)

$ 12,291 $ 11,105 $ 21,335 $ 18,242

Cost of sales (Note 4) 6,729 6,317 12,188 10,053

Gross profit

5,562 4,788 9,147 8,189

Expenses

Selling expenses (Note 5)

3,341 3,756 6,364 6,477

General and administrative (Note 6)

1,464 1,171 2,974 2,570

Depreciation and amortization

101 165 271 277

Operating expenses

4,906 5,092 9,609 9,324

Operating profit (loss) 656 (304) (462) (1,135)

Finance expense (income) (Note 7) 92 72 149 89

Other income

3 142 82 143

Income (loss) before income taxes

567 (234) (529) (1,081)

Current income tax expense (recovery) (75) 160 (147) 105

Deferred income tax expense (recovery)

260 79 18 (89)

Net income (loss) and comprehensive income

(loss) for the period

$ 382 $ (473) $ (400) $ (1,097)

Net income (loss) per share (Note 8)

Basic and diluted

$ 0.06 $ (0.07)

$ (0.06) $ (0.16)

See accompanying notes to the condensed interim consolidated financial statements

Second Quarter 2016 Page 2 of 16

BIG ROCK BREWERY INC.

Condensed Interim Consolidated Statements of Financial Position

Unaudited

(In thousands of Canadian dollars)

June 30,

2016

December 30,

2015

ASSETS

Non-current assets

Property, plant and equipment

$ 43,514 $ 41,590

Intangible assets

399 456

43,913 42,046

Current

Inventories (Note 9) 5,326 4,935

Accounts receivable (Note 10)

3,280 2,221

Prepaid expenses and other (Note 11)

1,600 1,573

Current taxes receivable

66 —

Cash

311 540

10,583 9,269

Total assets $ 54,496 $ 51,315

LIABILITIES AND SHAREHOLDERS' EQUITY

EQUITY

Shareholders' capital (Note 12) $ 113,121 $ 113,121

Contributed surplus (Note 12 and 13)

1,334 1,255

Accumulated deficit

(77,236)

(76,836)

37,219 37,540

LIABILITIES

Non-current

Long term debt (Note 14) 5,305 3,485

Share based payment liabilities (Note 13)

419 134

Deferred income taxes

4,417 4,399

10,141 8,018

Current

Accounts payable and accrued liabilities (Note 15) 5,190 4,051

Current taxes payable

— 55

Current portion of long term debt (Note 14)

901 404

Bank indebtedness (Note 14)

1,045 1,247

7,136 5,757

Total liabilities and shareholders’ equity $ 54,496 $ 51,315

See accompanying notes to the condensed interim consolidated financial statements

Second Quarter 2016 Page 3 of 16

BIG ROCK BREWERY INC.

Condensed Interim Consolidated Statements of Cash Flow

Unaudited

(In thousands of Canadian dollars)

Three months ended

June 30

Six months ended

June 30

2016 2015 2016 2015

OPERATING ACTIVITIES

Net income (loss) for the period $ 382 $ (473) $ (400) $ (1,097)

Items not affecting cash:

Depreciation and amortization

619 632 1,258 1,142

Loss (gain) on sale of assets

11 (95) (54) (83)

Stock based compensation

139 108 364 4

Deferred income tax (recovery)

260 79 18 (89)

1,411 251 1,186 (123)

Net change in non-cash working capital related

to operations (Note 18)

(1,328) (157) (474) (1,527)

Cash provided by (used in) operating activities

83 94 712 (1,650)

FINANCING ACTIVITIES

Increase (decrease) in bank indebtedness

680 (527) (202) 4,401

Dividend payments

— — — (1,375)

Proceeds from long-term debt

367 1,950 2,317 1,950

Cash provided by financing activities

1,047 1,423 2,115 4,976

INVESTING ACTIVITIES

Purchase of property, plant and equipment

(1,390) (718) (3,165) (3,651)

Purchase of intangibles

(15) (37) (23) (266)

Proceeds from sale of equipment

30 101 132 101

Cash used in investing activities

(1,375) (654) (3,056) (3,816)

Net increase (decrease) in cash (245) 863 (229) (490)

Cash, beginning of period 556 131 540 1,484

Cash, end of period

$ 311 $ 994 $ 311 $ 994

Supplemental cash-flow information

Cash interest paid

$ 93 $ 53 $ 149 $ 72

Cash taxes paid

$ — $ — $ 57 $ 241

See accompanying notes to the condensed interim consolidated financial statements

Second Quarter 2016 Page 4 of 16

BIG ROCK BREWERY INC.

Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity

Unaudited

(In thousands of Canadian dollars)

Capital

Contributed

Surplus

Accumulated

Deficit

Total

Balance as at December 30, 2014 $ 113,121 $ 1,083 $ (75,761)

$ 38,443

Share-based payments — 94 — 94

Total comprehensive income (loss) — — (1,097)

(1,097)

Balance as at June 30, 2015 $ 113,121 $ 1,177 $ (76,858)

$ 37,440

Share-based payments — 78 — 78

Total comprehensive income — — 22

Balance as at December 30, 2015 $ 113,121 $ 1,255 $ (76,836)

$ 37,540

Share-based payments — 79 — 79

Total comprehensive income (loss) — — (400)

(400)

Balance as at June 30, 2016 $ 113,121 $ 1,334 $ (77,236)

$ 37,219

See accompanying notes to the condensed interim consolidated financial statements

Second Quarter 2016 Page 5 of 16

1. CORPORATE INFORMATION

Big Rock Brewery Inc. (“Big Rock” or the “Corporation”) is a publicly listed Corporation incorporated in

Canada with limited liability under the legislation of the Province of Alberta and its shares are listed on

the Toronto Stock Exchange and trade under the symbol “BR”.

Big Rock is a regional producer of premium, all-natural craft beers and cider which are sold in six

provinces and two territories in Canada, as well as exported to Korea. The head office, principal

address and records office of the Corporation are located at 5555 – 76

Avenue SE, Calgary, Alberta,

T2C 4L8.

These condensed interim consolidated financial statements (the “Financial Statements”) include the

accounts of Big Rock Brewery Inc. and all its wholly owned subsidiaries. Subsidiaries are those

enterprises controlled by the Corporation. The following entities have been consolidated with the Big

Rock financial statements:

Registered

Holding

Functional

Currency

Subsidiary

Big Rock Brewery Inc. Alberta

Parent

Company

Canadian

dollar

Big Rock Brewery Operations Corp. Alberta 100%

Canadian

dollar

Big Rock Brewery Limited Partnership Alberta 100%

Canadian

dollar

Inter-company balances and transactions, and any unrealized gains arising from inter-company

transactions, are eliminated in preparing the consolidated financial statements.

2. BASIS OF PREPARATION

2.1 Statement of compliance

These Financial Statements are unaudited and have been prepared in accordance with IAS 34 Interim

Financial Reporting (“IAS 34”) using accounting policies consistent with the IFRS issued by the

International Accounting Standards Board (“IASB”) and Interpretations of the International Financial

Reporting Interpretations Committee (“IFRIC”).

These Financial Statements should be read in conjunction with Big Rock’s 2015 annual consolidated

financial statements.

2.2 Basis of presentation

These Financial Statements have been prepared on a going concern basis, which contemplates the

realization of assets and settlement of liabilities in the normal course of business.

The Financial Statements have been prepared on the historical cost basis, presented in Canadian

dollars and all values are rounded to the nearest thousand dollars except where otherwise indicated.

2.3 Future accounting pronouncements

The IASB has issued the following pronouncements:

 Amendments to IAS 7 Statement of cash flows are effective for annual periods beginning on or

after January 1, 2017. The amendments clarify that entities shall provide disclosures that

enable users of financial statements to evaluate changes in liabilities arising from financing

activities.

Second Quarter 2016 Page 6 of 16