BRICK BREWING CO. LIMITED Q REPORT

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1 BRICK BREWING CO. LIMITED Q REPORT

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3 TABLE OF CONTENTS TO OUR SHAREHOLDERS... 3 MANAGEMENT S DISCUSSION & ANALYSIS... 4 STATEMENTS OF COMPREHENSIVE INCOME STATEMENTS OF FINANCIAL POSITION STATEMENTS OF CHANGES IN EQUITY STATEMENTS OF CASH FLOWS NOTES TO FINANCIAL STATEMENTS BRICK BREWING CO. LIMITED THIRD QUARTER FISCAL 2015

4 To Our Shareholders, Net revenues were $9.3 million for the third quarter while EBITDA for the third quarter was $1.4 million. Year- to- date, EBITDA was $3.6 million, vs $3.2 million for the prior year. Waterloo craft brands performed well, posting volume growth exceeding 50%. Waterloo growth was broad based, with the introduction of Waterloo Grapefruit Radler being supported by growth in the core product offerings - Dark, IPA, Pilsner and Amber- as well as the Summer seasonal mix pack. Seagram vodka cooler volume was negatively impacted by discontinued product listings in the LCBO, however both Seagram cider and Seagram malt- based coolers generated strong growth in the quarter. Laker volume declined in the quarter, driven by a Laker 12 pack launch promotion in the prior year that did not repeat and an overall decline in industry volume. Additionally, the quarter benefited from strong year- over- year improvement in co- pack production. Gross margin in the quarter was impacted primarily by shifts in product mix and higher costs of brewing materials. Through the first three quarters, gross margin % has improved to 27.1% vs. 26.1% in the comparable period for the prior year. We're very pleased with the results we're reporting today, particularly in Waterloo craft. Our focus on driving growth in this important and growing category is paying dividends. Also, last year s results were somewhat volatile quarter to quarter, and this year we expected a return to more normalized quarterly performance. This is what we ve seen, with Q3 results reflecting a more traditional seasonal decline coming out of the peak summer months. The exceptional growth in our Waterloo craft premium brands, along with improvement in pricing, the attention to cost control and operating efficiency, all contributed to our strong year- to- date performance. Financial highlights are as follows: Ø Net Revenues for the third quarter of fiscal 2015 were $9.3 million compared to $9.6 million in the third quarter of fiscal Ø Gross profit margin for the quarter finished at 26.6%, down from 31.6% in the third quarter of fiscal Year- to- date gross margin is 27.1%, up from 26.1% prior year. Ø Selling, Marketing and Administration ("SM&A") expenses were $1.9 million, up nominally from $1.8 million in the prior year. Ø EBITDA* for the third quarter of fiscal 2015 of $1.4 million compared to EBITDA in the third quarter of fiscal 2014 of $1.9 million. Year- to- date EBITDA is $3.6 million, up from $3.2 million prior year. Yours truly, George H. Croft President and CEO, Brick Brewing Co. Limited 3 BRICK BREWING CO. LIMITED THIRD QUARTER FISCAL 2015

5 MANAGEMENT S DISCUSSION & ANALYSIS THIRD QUARTER FISCAL 2015 Quarter Ended October 26, BRICK BREWING CO. LIMITED THIRD QUARTER FISCAL 2015

6 MANAGEMENT S DISCUSSION AND ANALYSIS The following management s discussion and analysis ( MD&A ) provides a review of the activities, results of operations and financial condition of Brick Brewing Co. Limited ( Brick or the Company ) for the quarterly period ended October 26, 2014 ( the third quarter of fiscal 2015 ) in comparison with the quarterly period ended October 27, 2013 ( the third quarter of fiscal 2014 ). These comments should be read in conjunction with: (i) the unaudited condensed interim financial statements for the third quarters of fiscal 2015 and 2014 and accompanying notes included therein; and (ii) the annual report for the year ended January 31, 2014, including the sections on risks and uncertainties within the MD&A for fiscal The interim financial statements for the third quarter of fiscal 2015 have not been audited or reviewed by the Company s auditors, KPMG LLP. The comments were prepared as of December 10, Additional information relating to the Company, including its annual information form, is available at or in the investor relations section of the Company s website at FORWARD- LOOKING STATEMENTS Except for the historical information contained herein, the discussion in this MD&A contains certain forward- looking statements that involve risks and uncertainties, such as statements of the Company s plans, objectives, strategies, expectations and intentions and include, for example, the statements concerning expected volumes, EBITDA, operating efficiencies and costs. Forward- looking statements generally can be identified by the use of forward- looking terminology such as may, will, expect, intend, anticipate, seek, plan, believe or continue or the negatives of these terms or variations of them or similar terminology. Although the Company believes that the expectations and assumptions reflected in these forward- looking statements are reasonable, undue reliance should not be placed on these forward- looking statements. These forward- looking statements are not guarantees and reflect the Company s views as of December 10, 2014 with respect to future events. Future events are subject to certain risks, uncertainties and assumptions, which may cause actual performance and financial results to differ materially from such forward- looking statements. The forward- looking statements, including the statements regarding expected volumes, EBITDA, operating efficiencies and costs are based on, among other things, the following material factors and assumptions: sales volumes in the fiscal year ending January 31, 2015 ( fiscal 2015 ) will decrease versus the prior year; no material changes in consumer preferences; brewing, blending, and packaging efficiencies will improve; the cost of input materials for brewing and blending will increase; the cost of packaging materials will decrease; competitive activity from other manufacturers will continue; no material change to the regulatory environment in which the Company operates and no material supply, cost or quality control issues with vendors. Readers are urged to consider the foregoing factors and assumptions when reading the forward- looking statements and for more information regarding the risks, uncertainties and assumptions that could cause the Company s actual financial results to differ from the forward- looking statements, to also refer to the remainder of the discussion in this MD&A, the Company s annual information form and various other public filings as and when released by the Company. The forward- looking statements included in this MD&A are made only as of December 10, 2014 and, except as required by applicable securities laws, the Company does not undertake to publicly update such forward- looking statements to reflect new information, future events or otherwise. 5 BRICK BREWING CO. LIMITED THIRD QUARTER FISCAL 2015

7 DESCRIPTION OF THE BUSINESS Products The Company produces, sells, markets and distributes packaged and draft premium beer under the Waterloo brand name, and value beer under the Laker, Red Baron, Red Cap, and Formosa brand names (collectively, the Brick Brands ). The Company produces, sells, markets and distributes the Seagram Coolers across Canada. The Seagram Coolers family consists of vodka- based coolers, malt- based coolers and ciders. Under its co- packaging agreements, the Company produces, sells, markets and distributes various beer products on behalf of Loblaws Inc. ( Loblaws ) under the licensed President s Choice ( PC ) trademark. The Company produces the Mott s Caesar brand in bottles under a contract with Canada Dry Mott s, Inc. ( CDMI ). In addition to production, the Company also acts as the sales agent in Ontario for CDMI. The Company also has brewing and co- packaging agreements with other beer manufacturers. These customers are not separately identified, as per the terms of those contracts. Geographic Distribution The Company s products are sold primarily in Ontario. The Company s Waterloo packaged beer is also sold in Atlantic Canada, Western Canada and the USA. Seagram Coolers are sold across Canada. Seagram Coolers are manufactured and distributed in Quebec under a licensing agreement with Blue Spike Beverages. Distribution Channels In Ontario, distribution of packaged beer occurs through The Beer Store ( TBS ) and the Liquor Control Board of Ontario ( LCBO ). Consumers can purchase the Company s products through these channels as well as through licensed establishments (bars and restaurants) in Ontario. Seagram Coolers are sold through the provincial liquor boards and The Beer Store in Ontario. Operating Facilities The Company s brewing facilities are located in Waterloo and Formosa, Ontario. The Company s primary packaging and warehousing facility is located in Kitchener, Ontario. The Company has a blending and packaging facility in Formosa which is primarily dedicated to co- packing and production of Seagram Coolers. The Company s head and registered office is in Kitchener, Ontario. During the third quarter of fiscal 2015, the Company sold its facility located in Waterloo, Ontario and began expanding its facility in Kitchener, Ontario. The Company will lease back the Waterloo location until the expansion is complete. 6 BRICK BREWING CO. LIMITED THIRD QUARTER FISCAL 2015

8 SELECTED QUARTERLY INFORMATION The following table summarizes certain financial information of the Company for the third quarters indicated below: (in thousands of dollars, except per share amounts) Income Statement Data October 26, 2014 October 27, 2013 October 28, 2012 [Revised 1 ] Gross Revenue $ 19,055 $ 19,927 $ 16,826 Net Revenue (after production taxes and distribution fees) $ 9,261 $ 9,562 $ 7,425 Earnings before interest, taxes, depreciation and amortization, and share- based payments $ 1,355 $ 1,892 $ 272 Net income (loss) $ 609 $ 683 $ (507) Earnings (loss) per share Basic $ 0.02 $ 0.02 $ (0.02) Diluted $ 0.02 $ 0.02 $ (0.02) Balance Sheet Data Total Assets $ 46,427 $ 47,541 $ 44,306 Total Term Debt & Promissory Note $ 5,132 $ 6,807 $ 7, The comparative figures for the quarter ended October 28, 2012 have been revised as a result of the correction for Ontario beer taxes payable on cans inserted into specially marked bottle packages during fiscal 2012 and Refer to note 27 in the Company s fiscal 2014 Annual Report for further details. 7 BRICK BREWING CO. LIMITED THIRD QUARTER FISCAL 2015

9 RESULTS OF OPERATIONS Results for the period ended: (in thousands of dollars except per share amounts) Quarter ended Fiscal year- to- date ended October 26, 2014 October 27, 2013 October 26, 2014 October 27, 2013 Gross revenue $ 19,055 $ 19,927 $ 55,025 $ 60,692 Less: Production taxes and distribution fees 9,794 10,365 27,809 30,973 Net revenue 9,261 9,562 27,216 29,719 Cost of sales 6,802 6,538 19,842 21,948 Gross profit 2,459 3,024 7,374 7, % 31.6% 27.1% 26.1% Selling, marketing and administration 1,896 1,772 5,902 6,433 Income before the undernoted 563 1,252 1,472 1,338 Other expenses Finance costs Gain on disposal of property, plant and equipment (446) - (439) - Income before tax , Income tax expense Net income Earnings per share Basic $ 0.02 $ 0.02 $ 0.02 $ 0.01 Diluted $ 0.02 $ 0.02 $ 0.02 $ 0.01 Net revenue increase (decrease) (3.1%) 26.8% (8.4%) 7.5% Net volume increase (decrease) 12.0% 18.4% (7.2%) 7.9% Consisting of: Increase (decrease) in Brick beer brand volume (9.9%) 10.5% (15.1%) 4.1% Increase in co- pack volume (1) 82.2% 40.6% 11.9% 15.1% Increase (decrease) in Seagram volume (2) (15.9%) 51.4% (17.9%) 15.4% (1) Includes beer packaged under the licensed PC trademark on behalf of Loblaws Inc. and Mott's Caesar packaged on behalf of CDMI. (2) Includes volume sold under the licensed Seagram Trademark by Blue Spike Beverages in Quebec. 8 BRICK BREWING CO. LIMITED THIRD QUARTER FISCAL 2015

10 Reconciliation of Net Earnings to Earnings Before Interest Taxes Depreciation and Amortization, and Share Based Payments (EBITDA)* Quarter ended Fiscal year- to- date ended (in thousands of dollars) October 26, 2014 October 27, 2013 October 26, 2014 October 27, 2013 Net income $ 609 $ 683 $ 848 $ 280 Add (deduct): Income tax expense Depreciation and amortization ,424 2,272 Loss (gain) on disposal of property, plant and equipment (446) - (439) (15) Share- based payments Finance costs Subtotal 746 1,209 2,743 2,967 EBITDA* 1,355 1,892 3,591 3,247 NET REVENUE Gross revenues were $19.1 million and $55.0 million for the third quarter and fiscal year- to- date periods ended October 26, 2014 compared to $19.9 million and $60.7 million in the same periods ended October 27, Net revenues for the third quarter and fiscal year- to- date periods ended October 26, 2014 were $9.3 million and $27.2 million compared to $9.6 million and $29.7 million in the same periods ended October 27, Net revenues are calculated by deducting from gross revenues the costs of distribution fees paid to TBS and provincial liquor boards and production taxes. In the third quarter of fiscal 2015, the Company s overall sales volume was approximately 79,000 hectolitres, comprised of 44,800 hectolitres of Brick Beer Brands, 31,100 hectolitres of co- packaged product, and 3,200 hectolitres of Seagram Coolers sales volume. Quarter ended Fiscal year- to- date ended (in hectolitres rounded to nearest 100) October 26, 2014 October 27, 2013 October 26, 2014 October 27, 2013 Laker Brands 38,700 44, , ,600 Waterloo Brands 4,000 2,500 10,600 8,100 Other Beer Brands 2,100 3,100 6,700 10,000 Total Brick Beer Brands 44,800 49, , ,700 Seagram Coolers 1 3,200 3,900 13,300 16,200 Co- packaged Products 31,100 17,100 80,300 71,800 Total Sales Volume 79,100 70, , ,700 1 Inc ludes vo lume s o ld under the lic ens ed S eagram T rademark by B lue S pike B everages in Quebec. BRICK BEER BRANDS Sales volumes of Brick Beer Brands decreased in the third quarter of fiscal 2015 by 9.9% from the same quarter in fiscal Ontario industry volumes were down approximately 2% during the third quarter of fiscal During the quarter- ended October 26, 2014, the Laker family brand sales volumes decreased by 12.1% over the same quarter in fiscal The promotion of a free can within 12 pack bottles, which was offered throughout approximately half of the third quarter of fiscal 2014, did not repeat during the same quarter of fiscal BRICK BREWING CO. LIMITED THIRD QUARTER FISCAL 2015

11 Waterloo brand sales volumes increased by 57.9% during the third quarter of fiscal 2015 from the same period last fiscal year. The increase is largely attributable to the Waterloo Grapefruit Radler, which was launched in the second quarter of fiscal 2015, and continued to perform very well during the third quarter of fiscal Feedback from the LCBO indicated that Waterloo Grapefruit Radler was noted as the number one new product at the LCBO this summer. Overall, each of the products within the Waterloo family have achieved double digit growth. The Company also launched Waterloo Vanilla Porter in the third quarter of fiscal 2015; a new specialty brew available within a craft beer mix pack. In the third quarter of fiscal 2015, the Company s total packaged beer volume consisted of 8.8% in the premium beer category which represents a 3.8% increase from the same quarter in fiscal The Company s total market share by volume of TBS retail sales in Ontario was approximately 4% during the third quarter in fiscal 2015, consistent with the same period in fiscal SEAGRAM COOLERS During the quarter ended October 26, 2014, sales volumes of the Seagram Coolers decreased by 15.9% compared to the same period ended October 27, The Seagram volumes have been negatively impacted by the LCBO discontinuing certain vodka- based coolers and the cider mix pack, however, the volume decline has been mitigated by volume growth of malt- based coolers sold at The Beer Store, as well as Seagram coolers sold in Quebec under license by Blue Spike Beverages. CO- PACKING The volume of co- pack business in total increased by 82.2% during the third quarter of fiscal 2015 attributable to increased Motts production, as well as production for other co- pack customers. PC sales volumes declined by 6.1% in the third quarter of fiscal PRODUCTION TAXES & DISTRIBUTION FEES During the third quarter of fiscal 2015, the Company s production tax decreased by 5.7% compared to the third quarter of fiscal 2014 due to the decrease in sales volume of the Company s beer brands offset by annual increases to the rate of beer tax. There were no significant changes to the rates for distribution fees during the third quarter of fiscal 2015 and therefore, the cost of distribution fees remained fairly consistent with the same period in fiscal 2014 at approximately 17% of gross revenues. COST OF SALES Cost of sales was $6.8 million for the third quarter of fiscal 2015, an increase of $0.3 million from the third quarter of fiscal Cost of sales represented 73.4% of net revenue in the third quarter of fiscal 2015 compared to 68.4% in the third quarter of fiscal 2014; an increase of 5.0% due to the negative impact of product mix, increased cost of brewing materials, and one- time accelerated depreciation on equipment to be disposed of as a result of the sale of the property in Waterloo, Ontario. On a fiscal year- to- date basis, cost of sales has decreased $2.1 million. The decrease in cost of sales is due primarily to the decrease in sales volumes during the quarter in comparison to the same period in fiscal SELLING, MARKETING AND ADMINISTRATION In the third quarter of fiscal 2015, selling, marketing and administration ( SM&A ) expenses totalled $1.9 million and represents an increase of $0.1 million from the third quarter of fiscal SM&A expenses have decreased by $0.5 million on a year- to- date basis. The decrease in SM&A is due to reduced spending on advertising activities, as well as lower can- in- case promotional spending. The Company entered a sponsorship agreement for its Seagram brands with the Hamilton Tiger Cats during fiscal As a percentage of net revenue, selling, marketing and administration expenses were 20.5% and 21.7% in the third quarter and fiscal year- to- date periods ended October 26, 2014 compared to 18.5% and 21.6% in the same periods of fiscal 2014 ended October 27, BRICK BREWING CO. LIMITED THIRD QUARTER FISCAL 2015

12 DEPRECIATION AND AMORTIZATION Total depreciation and amortization expense for the third quarter and fiscal year- to- date periods ended October 26, 2014 were $0.9 million and $2.4 million, respectively. This is consistent with the third quarter and fiscal year- to- date periods ended October 27, FINANCE COSTS In the third quarter ended October 26, 2014, finance costs were $0.1 million, and $0.4 million on a fiscal year- to- date basis. This is consistent with the same periods ended October 27, 2013 in fiscal GAIN ON DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT In the third quarter of fiscal 2015, the Company sold its Waterloo land and building to HIP Developments with a selling price of $4.0 million. The sale generated a gain of $0.4 million. INCOME TAX EXPENSE In the third quarter of fiscal 2015, the Company recorded an income tax provision of $0.2 million compared to a provision of $0.2 million in the third quarter of fiscal On a fiscal year- to- date basis, the income tax expense is $0.3 million in fiscal 2015, and $0.1 million in fiscal NET EARNINGS The Company had net income of $0.6 million in the third quarter of fiscal 2015 compared to a net income of $0.7 million in the third quarter of fiscal On a fiscal year- to- date period ended October 26, 2014, net income was $0.8 million compared to net income of $0.3 million for the fiscal year- to- date period ended October 27, While overall sales volumes have declined in comparison to the prior year, the Company generated incremental income during the period as a result of improved margins, both as a result of sales volumes shifting to premium brands, and discontinuing the free can within Laker 12 packs (a promotion which was offered in the prior year), as well as a one time gain on sale. The improvement to income is also attributable to increases in pricing in comparison to the prior year. The basic and diluted earnings per share for the third quarter and fiscal year- to- date periods ended October 26, 2014 were both $0.02 per share. The basic and diluted earnings per share for the third quarter and fiscal year- to- date periods ended October 27, 2013 were $0.02 per share and $0.01 per share, respectively. LIQUIDITY AND CAPITAL RESOURCES FINANCIAL POSITION The Company has an operating line of credit, term debt, and promissory note outstanding at October 26, As at October 26, 2014, the Company is in compliance with all its covenants to its lenders. The Company expects to continue to be in compliance with these covenants at January 31, The Company has an operating line of credit which provides for a maximum of $8.0 million credit (margined against accounts receivable and inventory of the Company) at an interest rate of prime plus 1.5%. At October 26, 2014, the Company had no bank indebtedness compared to $1.7 million at January 31, The Company reduced the balance outstanding with the proceeds received from the sale of its Waterloo facility in the third quarter of fiscal The Company has a positive working capital position of $5.2 million at October 26, 2014 compared to a positive working capital position of $4.3 million at January 31, BRICK BREWING CO. LIMITED THIRD QUARTER FISCAL 2015

13 Current assets of the Company were $13.6 million at October 26, 2014 compared to $13.6 million at January 31, At October 26, 2014, the Company had cash on hand of $2.7 million compared to a balance of nil at January 31, The increase in cash is a result of the proceeds received from the sale of the Company s land and building located in Waterloo, Ontario. At October 26, 2014, the Company s balance of accounts receivable increased by $0.8 million compared to the balance at January 31, The sale of the Company s Waterloo facility included a $0.5 million mortgage receivable due from HIP Developments which has been included in accounts receivable as at October 26, Inventory at October 26, 2014 decreased by $0.2 million compared to the balance at January 31, At January 31, 2014, the Company had $3.4 million of assets held for sale which represented the land and building located at its Waterloo, Ontario location. These assets were sold during the third quarter of fiscal 2015 for proceeds of $4.0 million. Property, plant and equipment increased by $0.1 million at October 26, 2014 compared to the balance at January 31, The balance of property, plant and equipment included purchases of $2.5 million offset by depreciation of $2.4 million for the nine months ended October 26, Intangible assets increased by $0.3 million at October 26, 2014 from January 31, This is due to the purchase of new product listings. Deferred income taxes at October 26, 2014 decreased by $0.3 million from January 31, The Company s current liabilities were $8.3 million at October 26, 2014 compared to $9.3 million at January 31, 2014; a decrease of $1.0 million due primarily to the repayment of bank indebtedness. At October 26, 2014, the Company had an obligation under finance lease of $1.0 million. The Company entered into a finance lease agreement with HSBC Bank Canada for the installation of a new state- of- the- art brew house at its Kitchener, Ontario facility. The funds are disbursed to a maximum of $5.0 million. As at October 26, 2014, $1.0 million has been disbursed. Until it is fully disbursed, the outstanding balance bears interest at the Prime Rate plus 1.5% after which it will be subject to interest at approximately 4.75% for 84 months. The Company anticipates that the balance of the funds will be disbursed throughout fiscal Long- term debt and promissory note (including the current portions) at October 26, 2014 decreased by $0.7 million from the balance at January 31, 2014 due to repayments made during the nine months ended October 26, As at October 26, 2014, the Company had 34,898,110 common shares, and 1,002,735 stock options outstanding. Each stock option is exercisable for one common share. During the second quarter of fiscal 2015, 500,000 stock options were exercised and 100,000 stock options were forfeited. 5,500 common shares were issued to date in fiscal 2015 under the employee share purchase program. The Company granted 166,000 options with an exercise price of $1.29 per option to key employees during the second quarter of fiscal During the first quarter of fiscal 2015, 30,000 options with an exercise price of $1.36 per option were granted. CASH FLOW During the third quarter of fiscal 2015, the Company generated $2.3 million of cash from operations (generated $3.2 million on a fiscal year- to- date basis) compared to $0.1 million in the third quarter of fiscal 2014 (generating $1.0 million on a fiscal year- to- date basis). The Company s cash flow from operations in the third quarter improved by approximately $2.2 million from the third quarter in the prior year primarily due to the change in non- cash working capital. In the first quarter of fiscal 2015, the Company made a payment resulting from the correction for Ontario beer taxes payable on cans inserted into specially marked bottle packages during fiscal 2012, 2013, and BRICK BREWING CO. LIMITED THIRD QUARTER FISCAL 2015

14 The amount of cash generated from investing activities in the third quarter of fiscal 2015 was $2.0 million ($3.1 million on a fiscal year- to- date basis) compared to a use of cash of $0.5 million in the third quarter of fiscal 2014 ($2.5 million on a fiscal year- to- date basis). The spending in fiscal 2015 includes new blending equipment, a new can packer, and initial costs associated with the expansion of the Kitchener, Ontario facility of approximately $1.0 million. During the third quarter of fiscal 2015, the Company sold its land and building located in Waterloo, Ontario for $4.0 million, less legal costs and commissions. Proceeds of $0.5 million will be paid in the third quarter of fiscal The cash used in financing activities in the third quarter of fiscal 2015 was $1.8 million ($1.0 million used on a fiscal year- to- date basis) compared to $0.3 million of cash generated in the third quarter of fiscal 2014 ($1.5 million generated on a fiscal year- to- date basis). In the first quarter of fiscal 2014, the Company received financing from GE Capital for the installation of a new canning line, as well as term debt from HSBC Bank Canada in the second quarter to finance the purchase of equipment. Additionally, proceeds of $2.8 million were received from the exercise of the remaining warrants outstanding during the second quarter of fiscal In fiscal 2015, on a fiscal year- to- date basis, the cash used in financing activities was for the repayment of the operating line, and to make principal repayments of $0.7 million on outstanding long- term debt. The Company received $0.3 million from the exercising of stock options in the second quarter and in the third quarter, $1.0 million from HSBC Bank Canada for the funding of the expansion at the Kitchener facility. The Company has an authorized operating line of credit of $8.0 million at prime plus 1.5%. The Company is in compliance with the financial covenants required for the operating line of credit facility. At October 26, 2014, no amount was drawn on the operating line of credit. Bank indebtedness on the statement of financial position includes outstanding cheques. COMMITMENTS The Company utilizes several operating leases to finance office and computer equipment and software, warehouse and manufacturing equipment, and vehicles. The Company also leases the building in Kitchener where it has its warehousing and packaging operations. By entering into operating leases, the Company is able to update its equipment more frequently, not utilize its cash to invest in these assets and in so doing lower its overall average cost compared with purchasing the assets. All leases are evaluated at inception for appropriate accounting treatment. The total of the Company s future lease payments can be found in note 21 to the Company s condensed interim unaudited financial statements for the quarter ended October 26, The Company has other purchase commitments which include amounts for natural gas, syrup, malt, and packaging materials. A summary of the Company s contractual obligations for future periods is as follows: (in thousands of dollars) Long- term debt Operating leases Other purchase commitments Total Due within one year 2,112 1,652 3,312 7,076 Due in one to five years 3,020 5, ,148 Due in over five years - 6, ,925 5,132 13,496 4,521 23,149 The Company does not currently pay dividends on its common shares. At the present time, the Board of Directors of the Company believes that the cash flow of the Company should be reinvested to finance current activities. 13 BRICK BREWING CO. LIMITED THIRD QUARTER FISCAL 2015

15 RISK FACTORS, STRATEGIES AND OUTLOOK Risk Factors Licensing The Company requires various permits, licenses, and approvals from several government agencies in order to operate in its market areas. The Alcohol and Gaming Commission of Ontario ( AGCO ) and the Canada Revenue Agency provide the necessary licensing approvals. Management believes that the Company is in compliance with all licenses, permits and approvals. Consumer preference/trends The beer industry is highly competitive and has experienced an overall decline in beer sales over the past several years. In Ontario, a recent trend has been towards canned beer. Prior to fiscal 2011, the Company was under- represented in cans. The installation of the canning line in fiscal 2010 has provided the Company with control over production and distribution and the result has been considerable growth in canned volume. A canning line upgrade was completed in fiscal 2014 to further expand capacity. Pricing environment Annual increases in the minimum retail price ( MRP ) serve to reduce the price gap between value and mainstream brands, creating intense price competition. The MRP for beer was increased effective March 3, The Company s key competitors have continued to increase the price for value beer to a level above the legal minimum. The Company has historically positioned its brands at the same price point to achieve additional profit margin per unit. The Company expects future legislated price increases to erode the price gap between value brands and mainstream brands. Management believes that the Company will stay relevant and profitable by delivering a product that is consistently superior in look and taste to other domestic brands with comparable price. An example of the required innovation and differentiation is the Company s launch of Laker Lager, Light, and Ice 24- bottle packs with a free tall can in every case. The Company will continue to mitigate ongoing pressure on beer volumes by actively pursuing co- packing contracts that provide incremental volume and gross margin. As required, profits from co- pack arrangements will be reinvested in selling and marketing initiatives to maintain brand loyalty. Quality With the backdrop of intense price competition driven by MRP changes, the quality of the Company s product is more important than ever. The Company continues to invest significantly in technologies to improve overall product quality. The Company continues to receive recognition for its brewing quality and brands through both local and international brewing communities and expert panels. In April 2014, the Company announced that Waterloo Pilsner was awarded a gold medal at the Ontario Brewing Awards, and Waterloo Dark and IPA received silver and bronze medals, respectively. Waterloo IPA and Amber were also recently awarded gold at Monde Selection in Belgium, an international recognition of product quality. Waterloo Dark and Pilsner were awarded silver. The Company successfully completed its annual re- certification audit under the internationally recognized British Retail Consortium (BRC) Global Food Safety Standard in the third quarter of fiscal 2015 and received an A- rating the highest rating possible under the standard. Quality improvement resonates with existing and potential co- pack customers and will be a key factor in maintaining and growing co- pack business to utilize excess capacity. 14 BRICK BREWING CO. LIMITED THIRD QUARTER FISCAL 2015

16 The Beer Store/LCBO TBS and LCBO are unionized organizations and a strike could have a significantly negative impact on the Company. In fiscal 2013, the TBS union contract was up for renewal and was ratified in March 2013 for a three year period. The LCBO contract was ratified during the second quarter of fiscal There can be no assurance that a TBS or LCBO strike will not occur in the future. The retail channel in Ontario is currently under review. The Premier s advisory Council, chaired by Ed Clark, is currently engaged in a review of beverage alcohol retailing in the province. The recommendations of the council, the public reaction to the work of the council, and the extent to which the council s recommendations are adopted within the province, could impact the company s performance, either positively or negatively. Company management is closely monitoring the progress of the council, and will continue to share views and opinions for consideration by the council and the government of Ontario. There are no assurances that the government will not change the retail channel structure in the future. Availability of financing The Company requires continued support from its lenders to maintain its financial condition. The loss of this support could limit expansion opportunities and put strain on the Company s continuing operations. The ability to maintain current arrangements and secure future financing will depend, in part, upon the prevailing capital market conditions as well as the Company s business performance. There can be no assurance that the Company will be successful in its efforts to arrange additional financing on satisfactory terms. Commodity price risk The Company is exposed to commodity price risk with respect to agricultural and other raw materials used to produce the Company s products, including malted barley, hops, corn syrup, water, and packaging materials (including glass, aluminum, cardboard and other paper products), where fluctuations in the market price or availability of these items could impact the Company s cash flow and production. The supply and price can be affected by a number of factors beyond management s control, including market demand, global events, frosts, droughts and other weather conditions, economic factors affecting growth decisions, plant diseases, and theft. To the extent any of the foregoing factors affect the prices of ingredients or packaging, the Company s results of operations could be materially and adversely impacted. To minimize the impact of this risk, the Company enters into contracts which secure supply and set pricing to manage the exposure to availability and pricing. Strategy & Outlook The Company continues to focus on filling excess capacity and optimizing its brand mix. While ensuring the Company s flagship brand, Laker, remains strong, the Company will continue to focus on the Waterloo and Seagram Coolers trademarks. Both of these brands contribute a higher amount of profit per unit sold, and the Company recognizes the importance of growing these brands. The Laker family will require a sustained marketing investment to ensure retention of existing customers. The Company continues to offer a free can within its 24- pack bottles and expects to continue this promotional activity during the balance of fiscal Management expects volume decline of the Seagram vodka- based Coolers in comparison to the prior year during the balance of fiscal 2015 due to the delisting of products by the LCBO. However, the decline should be mitigated by growth of the Seagram malt- based Coolers which continue to grow by double digits. The Company will continue to participate in LCBO programming which management expects will have a positive impact on raising awareness of new Seagram brands introduced in fiscal 2015 and beyond. 15 BRICK BREWING CO. LIMITED THIRD QUARTER FISCAL 2015

17 The Company completed the sale of its Waterloo, Ontario property during the third quarter of fiscal The Company is leasing the property back while it expands operations at its Kitchener, Ontario location to enable improved efficiency and lower costs. The expansion commenced during the third quarter of fiscal 2015 and is expected to be completed by the end of the third quarter of fiscal The expansion is anticipated to cost $9.0 million and management is targeting $1.0 million of recurring annual savings as a result of the expansion. Management expects that the overall beer industry sales volumes will continue to decline in comparison to the prior year during the balance of fiscal 2015, yet the Company will continue to strive to outpace the industry. In the balance of fiscal 2015, the Company will be focused on the following priorities: Organic growth Management is targeting organic growth. The Company is positioned well within its core Ontario beer business. Management continues to focus on growth of its premium brands, Waterloo and Seagram, driven by brand support and new products. The Company has expanded its Cooler portfolio under the Seagram brand name, with the launch of Seagram Extra Wildberry in a 473ml tall can, malt- based Lemon Lime and Orange Mango 6- pack cans, as well as a malt- based mix pack. The Waterloo brand family continues to offer its Small Batch Brew sampler packs and to introduce new varieties of beer such as the launch of Waterloo Grapefruit Radler, achieving growth at both TBS and the LCBO. The Company will continue to seek new co- packing relationships in fiscal Improvements in canning capabilities present further opportunities for the Company to expand its co- pack business with respect to canned products. In the fourth quarter of fiscal 2015, the Company completed the renewal of the sales agent agreement with CDMI which extends the contract to fiscal 2020, as well as the renewal of the agreement with Loblaws to extend the contract to fiscal Improving gross margin per unit The Laker brand margin has held up well despite the presence of many beer brands at the same or similar pricing. Laker s fit and finish is comparable with mainstream brands. Management believes that this share performance in a highly competitive pricing environment is the result of brand support, a compelling value proposition, and significant quality improvements at Brick in recent years. Growth of Seagram Coolers and Waterloo beer brands will also contribute to margin improvement due to higher revenue per unit. The Company will continue to maximize margin and minimize complexity within the organization by delisting underperforming brands. Cost reduction Management believes that cost reduction is an ongoing initiative and forms part of the culture at Brick. Cost reduction will be a continued focus throughout the balance of fiscal BRICK BREWING CO. LIMITED THIRD QUARTER FISCAL 2015

18 SUMMARY OF QUARTERLY RESULTS $000 s except per share amounts Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q Net Revenue $ 9,261 $ 10,417 $ 7,537 $ 7,955 $ 9,562 $ 11,372 $ 8,785 $ 8,010 Selling, marketing & administration 1,896 2,308 1,698 1,338 1,772 2,741 1,920 1,732 EBITDA* 1,355 1, ,332 1, Net Income (loss) (207) (458) 55 (395) EPS (Basic) $ 0.02 $ 0.01 $ (0.01) $ 0.01 $ 0.02 $ (0.01) $ 0.00 $ (0.01) EPS (Diluted) $ 0.02 $ 0.01 $ (0.01) $ 0.01 $ 0.02 $ (0.01) $ 0.00 $ (0.01) IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS The Company's accounting policies, and future accounting pronouncements, are discussed in detail within note 5 and 6, respectively, to the Company s annual audited financial statements for the year ended January 31, CRITICAL ACCOUNTING ESTIMATES The Company prepares its financial statements in accordance with IFRS, which requires management to make estimates, judgments, and assumptions that it believes are reasonable, based upon the information available. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates on historical experience and other assumptions, which it believes to be reasonable under the circumstances. Management also evaluates its estimates on an ongoing basis. Actual results could differ from those estimates. Property, plant and equipment The accounting for property, plant and equipment requires that management make estimates involving the life of the assets, the selection of an appropriate method of depreciation and determining whether an impairment of assets exists. The Company reviews the residual values, useful lives of depreciable assets and depreciation method on an annual basis and where revisions are made the Company applies such changes in estimates on a prospective basis. The net carrying amounts of property, plant and equipment are reviewed for impairment either individually or at the cash- generating unit level at the end of each reporting period. If there are indicators of impairment, an evaluation is undertaken to determine whether the carrying amounts are in excess of their recoverable amounts. An asset s recoverable amount is determined as the higher of its fair value less cost to sell and its value- in- use. To the extent that an asset s carrying amount exceeds its recoverable amount, the excess is fully provided for in the period in which it is determined to be impaired. Where an impairment loss subsequently reverses, the carrying amount of the asset 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 in prior periods. There is uncertainty in these estimates as the related recoverable amounts are projected for future years based on underlying assumptions such as volume growth, inflation factors and industry trends which may not materialize. Management uses its best estimates to forecast these amounts, but the actual amounts may vary from estimates. Should 17 BRICK BREWING CO. LIMITED THIRD QUARTER FISCAL 2015

19 future results differ from management s estimates, an impairment of these assets and a related write- down may result. As at the date of this report, the Company believes that its estimates are materially correct. Returnable containers Returnable containers are recorded at cost net of deposit liabilities and are amortized over their useful lives. To estimate useful life, management uses historical trends and internal studies to obtain a reasonable estimate of the rates of return and usage. Actual results may vary from these estimates. As at the date of this report, the Company is not aware of any facts or circumstances that would cause it to believe that the estimates used are materially incorrect. Intangible assets Indefinite life intangible assets consist of trademarks and listing. These assets are recorded at cost and are not amortized but instead are reviewed for impairment at the end of each reporting period. If there are indicators of impairment, an evaluation is undertaken to determine whether the carrying amounts are in excess of their recoverable amounts. An asset s recoverable amount is determined as the higher of its fair value less cost to sell and its value- in- use. There is uncertainty in these estimates as the related recoverable amounts are projected for future years based on underlying assumptions such as volume growth, inflation factors and industry trends which may not materialize. Management uses its best estimates to forecast these amounts, but the actual amounts may vary from estimates. Should future results differ from management s estimates, an impairment of these assets and a related write- down may result. As at the date of this report, the Company believes that its estimates are materially correct. Deferred income tax assets Deferred income tax assets are recognized for all deductible temporary differences, carry- forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry- forward of unused tax assets and unused tax losses can be utilized. The carrying amount of deferred income tax assets are reviewed at each period end date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. There is uncertainty in management s estimation of probable as it is based upon underlying assumptions such as volume growth, inflation factors and industry trends which may not materialize. Management uses its best estimates to forecast these amounts, but the actual amounts may vary from estimates. As at the date of this report, the Company believes that its estimates are materially correct. Share- based reserves: share- based payments The Company recognizes compensation expense when options with no cash settlement feature are granted to employees and directors under the option plan. Assumptions regarding expected stock volatility and risk free interest rates are required to calculate the fair value of the consideration received. Provisions Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Given the uncertainty surrounding the nature of the underlying provision, actual results may vary from the estimates made by management. As at the date of this report, the Company believes that its estimates are materially correct. 18 BRICK BREWING CO. LIMITED THIRD QUARTER FISCAL 2015

20 DISCLOSURE CONTROLS AND PROCEDURES The Company s management, with the participation of the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer (collectively, the Officers ) are responsible for establishing and maintaining disclosure controls and procedures as defined under Multilateral Instrument for the Company. Management has designed such disclosure controls and procedures, or caused them to be designed under their supervision, to provide reasonable assurance that material information relating to the Company is made known to management by others within the Company. Management has evaluated the effectiveness of the Company s disclosure controls and procedures as of October 26, 2014 and has concluded that such procedures were effective, subject to the matters identified below under Internal Control Over Financial Reporting, in providing such reasonable assurance as of such date and for the quarter then ended. INTERNAL CONTROL OVER FINANCIAL REPORTING Management is responsible for establishing and maintaining adequate internal control over financial reporting ( ICFR ) to provide reasonable assurance regarding the reliability of the Company s financial reporting and the preparation of its financial statements in accordance with IFRS. The Company s internal control over financial reporting includes those policies and procedures that: pertain to maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company s assets that could have a material effect on the financial statements. Internal controls over financial reporting, no matter how well designed have inherent limitations. Therefore, internal control over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all misstatements. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management performed an assessment of the effectiveness of the Company s internal control over financial reporting as of October 26, 2014, based on the criteria set forth in the Internal Control Integrated Framework issued by the Committee of Sponsoring Organization of the Treadway Commission ( COSO ). Based on this assessment, management has concluded that internal control over financial reporting was effective as of October 26, In the course of evaluating its ICFR as at October 26, 2014, the Officers identified a disclosable weakness in the area of segregation of duties, caused by limited staffing resources. Specifically, given the size of the Company s staffing levels, certain duties within the accounting and finance department cannot be properly segregated. As a result there are identifiable instances where personnel had the ability to initiate transactions or accounting entries within certain financial reporting applications that may not be compatible with their other roles and responsibilities. However, none of the segregation of duty or access control deficiencies resulted in a misstatement to the financial statements as the Company relies on certain compensating controls, including periodic review of the financial statements by the Officers. This weakness is reported in accordance with National Instrument and is considered to be a common area of deficiency for many smaller listed companies in Canada. 19 BRICK BREWING CO. LIMITED THIRD QUARTER FISCAL 2015