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					                                          LIQUOR STORES INCOME FUND




                                                 FORM 51-102F4
                                          BUSINESS ACQUISITION REPORT

Item 1 Identity of Company

1.1       Name and Address of Company

          Liquor Stores Income Fund (the "Fund")
          Suite 1120, 10235 – 101 Street
          Edmonton, Alberta T5J 3G1

1.2       Executive Officer

          The name of the executive officer of Liquor Stores GP Inc. (the "GP"), the administrator of the
          Fund, who is knowledgeable about the significant acquisition and this Report is Tom Orysiuk,
          Vice President, Finance and Chief Financial Officer and his business telephone number is
          (780) 917-4179.

Item 2 Details of Acquisition

2.1       Nature of Business Acquired

          The Fund indirectly acquired a 50.6% indirect interest in Liquor Stores Limited Partnership
          ("Liquor Stores LP") which, in turn, acquired 50 retail liquor stores and related assets (the
          "Purchased Assets") from The Liquor Depot Corporation ("Liquor Depot") and Liquor World
          Group Inc. ("LWGI") and certain entities associated with or managed by LWGI or an affiliate of
          LWGI (the LWGI entities or affiliates are collectively referred to as "Liquor World") for total
          consideration consisting of $56,481,398 in cash (subject to adjustment), 2,075,000 exchangeable
          units of Liquor Stores LP, 2,125,000 subordinated exchangeable units of Liquor Stores LP and
          4,200,000 common shares of the GP, and the assumption of the accounts payable and certain
          current liabilities relating to the Purchased Assets (the "Acquisition").

          A more detailed description of the nature of the business indirectly acquired by the Fund is
          contained under the heading "Business of the Company" beginning on page 33 of the Fund's long
          form initial public offering prospectus dated September 17, 2004 (the "Prospectus"), which
          section of the Prospectus is incorporated by reference in this Report.




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                                                       2


2.2       Date of Acquisition

          September 28, 2004.

2.3       Consideration

          The total consideration for the Acquisition was $56,481,398 in cash (subject to adjustment),
          2,075,000 exchangeable units of Liquor Stores LP, 2,125,000 subordinated exchangeable units of
          Liquor Stores LP and 4,200,000 common shares of the GP, and the assumption of the accounts
          payable and certain current liabilities relating to the Purchased Assets.

          A more detailed description of the consideration for the Acquisition is contained under the
          heading "Principal Agreements – Acquisition Agreement – Consideration" beginning on page 44
          of the Prospectus and "Funding, Acquisition and Related Transactions" beginning on page 87 of
          the Prospectus, which sections of the Prospectus are incorporated by reference in this Report.

2.4       Effect on Financial Position

          The effect of the Acquisition on the Fund's financial position is outlined in the Fund's pro forma
          consolidated financial statements, which financial statements are attached to this Report.

          The Fund does not presently have any plans or proposals for material changes in its business
          affairs or the affairs of the Purchased Assets which may have a significant effect on the results of
          operations and financial position of the Fund, including any proposal to liquidate the Purchased
          Assets, to sell, lease or exchange all or a substantial part of the Purchased Assets, to amalgamate
          the Purchased Assets with any other business organization or to make any material changes to the
          Fund's business or the Purchased Assets, such as changes in corporate structure, management or
          personnel.

2.5       Prior Valuations

          Not applicable.

2.6       Parties to Transaction

          The Acquisition was not with an informed person (as such term is defined in Section 1.1 of
          National Instrument 51-102 – Continuous Disclosure Obligations), associate or affiliate of the
          Fund. Liquor Depot and LWGI became informed persons of the Fund as a consequence of the
          Acquisition.

2.7       Date of Report

          November 10, 2004.

Item 3 Financial Statements

          The financial statements and other information required by Part 8 of National Instrument 51-102
          are attached hereto and form a part hereof.

          The auditors of the audited financial statements attached hereto and that form a part hereof have
          given their consent to include their audit reports in this Report.


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Liquor Stores Income Fund
Pro Forma Consolidated Financial Statements
(Unaudited - See Compilation Report)
June 30, 2004
                                                                                                          PricewaterhouseCoopers LLP
                                                                                                          Chartered Accountants
                                                                                                          Suite 1501, TD Tower
                                                                                                          10088 - 102 Avenue
                                                                                                          Edmonton, Alberta
                                                                                                          Canada T5J 3N5
                                                                                                          Telephone +1 (780) 441 6700
September 17, 2004                                                                                        Facsimile +1 (780) 441 6776




Compilation Report

To the Trustees of
Liquor Stores Income Fund


We have read the accompanying unaudited pro forma consolidated balance sheet of Liquor Stores Income Fund (the
“Fund”) as at June 30, 2004 and the unaudited pro forma consolidated statement of income for the twelve-month period
ended June 30, 2004, and have performed the following procedures:

     1.   Compared the figures in the column in the unaudited pro forma consolidated balance sheet captioned “Fund
          Historical” to the audited balance sheet of the Fund as at August 10, 2004, and found them to be in agreement.

     2.   Compared the figures in the column in the unaudited pro forma consolidated balance sheet captioned “Liquor
          Depot” to the audited consolidated financial statements of The Liquor Depot Corporation (“Liquor Depot”)
          for the eleven-month period ended June 30, 2004, and compared the figures in the columns in note 5 to the
          unaudited pro forma consolidated financial statements captioned “Eleven-month period ended June 30, 2004”
          and “Year ended July 31, 2003” to the audited consolidated financial statements of Liquor Depot for the
          eleven-month period ended June 30, 2004 and year ended July 31, 2003, respectively, and found them to be in
          agreement.

     3.   Compared the figures in the column in note 5 to the unaudited pro forma consolidated financial statements
          captioned “Eleven-month period ended June 30, 2003” to a schedule prepared by the management of the Fund
          containing the consolidated results of operations of Liquor Depot for the eleven-month period ended June 30,
          2003 that has been derived from the audited consolidated financial statements of Liquor Depot for the year
          ended July 31, 2003, and found them to be in agreement.

     4.   Compared the figures in the column in the unaudited pro forma consolidated balance sheet captioned “Liquor
          World” to the audited combined consolidated financial statements of Liquor World Group Inc. (“Liquor
          World”) for the six-month period ended June 30, 2004, and compared the figures in the columns in note 6 to
          the unaudited pro forma consolidated financial statements to the audited combined consolidated financial
          statements of Liquor World for the six-month period ended June 30, 2004, the accompanying comparative
          figures for the six-month period ended June 30, 2003 and year ended December 31, 2003, and found them to
          be in agreement.




PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP and the other member firms of PricewaterhouseCoopers
International Limited, each of which is a separate and independent legal entity.
    5.   Made enquiries of certain officials of the Fund who have responsibility for financial and accounting matters
         about:

         (a)     the basis for determination of the unaudited pro forma adjustments; and
         (b)     whether the unaudited pro forma consolidated financial statements comply as to form in all material
                 respects with requirements of the various securities commissions and similar regulatory authorities in
                 Canada.

         The officials:

         (a)     described to us the basis for determination of the unaudited pro forma adjustments, and
         (b)     stated that the unaudited pro forma consolidated financial statements comply as to form in all material
                 respects with the requirements of the various securities commissions and similar regulatory authorities
                 in Canada.

    6.   Read the notes to the unaudited pro forma consolidated financial statements, and found them to be consistent
         with the basis described to us for determination of the unaudited pro forma adjustments. We agreed the
         figures in the right-hand columns in notes 5 and 6 to the respective columns in the unaudited pro forma
         consolidated statement of income.

    7.   Recalculated the summation of the columns in notes 5 and 6 to the unaudited pro forma consolidated financial
         statements captioned “Twelve-month period ended June 30, 2004” and found the columns to be arithmetically
         correct.

    8.   Recalculated the application of the unaudited pro forma adjustments to the aggregate of the amounts in the
         columns in the unaudited pro forma consolidated balance sheet captioned “Fund Historical”, “Liquor Depot”
         and “Liquor World” and found the amounts in the column in the unaudited pro forma consolidated balance
         sheet captioned “Liquor Stores Income Fund Pro Forma Consolidated” to be arithmetically correct.

    9.   Recalculated the application of the unaudited pro forma adjustments to the aggregate of the amounts in the
         columns in the unaudited pro forma consolidated statement of income for the twelve-month period ended June
         30, 2004, and found the amounts in the column in the unaudited pro forma consolidated statement of income
         captioned “Liquor Stores Income Fund Pro Forma Consolidated” to be arithmetically correct.

A pro forma financial statement is based on management assumptions and adjustments which are inherently subjective.
The foregoing procedures are substantially less than either an audit or a review, the objective of which is the expression
of assurance with respect to management’s assumptions, the unaudited pro forma adjustments, and the application of
the adjustments to the historical financial information. Accordingly, we express no such assurance. The foregoing
procedures would not necessarily reveal matters of significance to the unaudited pro forma consolidated financial
statements, and we therefore make no representation about the sufficiency of the procedures for the purposes of a
reader of such statements.




Chartered Accountants

Edmonton, Alberta
Liquor Stores Income Fund
Pro Forma Consolidated Balance Sheet
(Unaudited - See Compilation Report)
As at June 30, 2004


                                                                                                                        Liquor
                                                                                                                         Stores
                                                          Fund        Liquor       Liquor                               Income
                                                      Historical       Depot        World                                 Fund
                                                      August 10,     June 30,     June 30,     Pro forma             pro forma
                                                           2004         2004         2004    adjustments           consolidated
                                                               $           $            $               $                     $
                                                                                                 (Note 3)

Assets
Current assets
Cash                                                         10       336,975      758,080     (1,004,578)   (a)        90,487
Accounts receivable                                           -       237,364      418,429         25,941    (e)       681,734
Inventory                                                     -    10,940,822    6,431,658        563,102    (e)    17,935,582
Prepaid expenses and deposits                                 -       266,487      485,618         22,925    (e)       775,030

                                                             10    11,781,648    8,093,785      (392,610)           19,482,833
Equity investments                                            -       128,879       63,338      (192,217)    (e)             -
Note receivable                                               -        82,000            -       (82,000)    (e)             -
Advances to Liquor World Group Inc.                                   470,980            -      (470,980)    (e)             -
Advances to affiliates                                         -      594,145            -      (594,145)    (e)             -
Advances to shareholders                                                    -      552,581      (552,581)    (e)             -
Deferred transaction costs                                            228,585            -      (228,585)    (e)             -
Property and equipment                                         -    4,078,993    1,699,158     6,557,219     (e)    12,335,370
Intangibles                                                    -            -            -       429,000     (e)       429,000
Goodwill                                                       -    1,173,801            -    66,254,769     (e)    67,428,570

                                                             10    18,539,031   10,408,862    70,727,870            99,675,773

Liabilities
Current liabilities
Operating loan                                                 -            -            -    10,714,571     (d)    10,714,571
Bank indebtedness                                              -    2,591,673    3,050,792    (5,588,070)    (e)             -
                                                                                                 (54,395)    (f)
Accounts payable and accrued liabilities                       -      952,104     532,467       (344,601)    (e)      1,139,970
Income taxes payable                                           -    1,225,134     471,001     (1,696,135)    (e)              -
Current portion of long-term debt                              -    1,842,729      32,143     (1,874,872)    (e)              -
Current portion of obligations under capital leases            -       52,115       2,079        (54,194)    (e)              -

                                                               -    6,663,755    4,088,482      1,102,304           11,854,541
Capital asset loan                                             -            -            -      7,401,222    (d)     7,401,222
Long-term debt                                                 -       86,827      157,589       (244,416)   (e)             -
Obligations under capital leases                               -      206,016        1,921       (207,937)   (e)             -
Advances from related parties                                  -    8,292,818            -     (8,292,818)   (e)             -
Advances from The Liquor Depot
     Corporation                                                           -       613,474       (613,474)   (e)              -
Unamortized lease inducements                                  -      46,477       255,753       (302,230)   (e)              -
Future income taxes                                            -      52,000       407,300       (459,300)   (e)              -
Non-controlling interest                                       -       7,286     1,922,440     (1,929,726)   (e)              -

                                                               -   15,355,179    7,446,959     (3,546,375)          19,255,763

Shareholders’ Equity
Fund Units                                                   10             -            -    43,000,000     (b)    38,420,010
                                                                                              (4,580,000)    (c)
Liquor Stores LP Exchangeable LP Units                         -            -            -    20,750,000     (e)    20,750,000
Liquor Stores LP Subordinated LP Units                         -            -            -    21,250,000     (e)    21,250,000
Share capital                                                  -      425,287            2      (425,289)    (e)             -
Retained earnings                                              -    2,758,565    2,961,901    (5,720,466)    (e)             -

                                                             10     3,183,852    2,961,903    74,274,245            80,420,010

                                                             10    18,539,031   10,408,862    70,727,870            99,675,773
Liquor Stores Income Fund
Pro Forma Consolidated Statement of Income
(Unaudited - See Compilation Report)
For the twelve-month period ended June 30, 2004



                                               Liquor          Liquor
                                                Depot           World
                                              Twelve-         Twelve-                               Liquor
                                               month            month                                Stores
                                         period ended    period ended                         Income Fund
                                              June 30,        June 30,                           pro forma
                                                 2004            2004      Pro forma           consolidated
                                                     $               $   adjustments                      $
                                              (Notes 2        (Notes 2              $
                                                and 5)          and 6)       (Note 4)

Sales                                     65,459,036      51,276,491      5,070,443 (a)       121,805,970

Cost of sales                             50,708,275      41,989,589      4,352,645 (a)        97,050,509

Gross margin                              14,750,761       9,286,902        717,798            24,755,461

Expenses
Amortization of intangibles                        -               -          90,000    (d)        90,000
Amortization of property and equipment       589,533         340,080          56,289    (a)       938,902
                                                                             (47,000)   (d)
Administrative and operating               9,484,729       5,974,699         448,562    (a)    15,907,990
Charitable donations                          11,928          69,996               -               81,924
Management fees and bonuses                        -       1,994,899      (1,994,899)   (e)             -
Management salaries to directors and
    officers                               3,160,964                 -    (3,160,964) (e)         100,000
                                                                             100,000 (f)

                                          13,247,154       8,379,674      (4,508,012)          17,118,816

Income from operations                     1,503,607         907,228      5,225,810             7,636,645

Interest expense                            (636,586)       (145,848)       (56,147) (a)         (824,224)
                                                                            838,581 (b)
                                                                           (824,224) (c)

Equity income                                   3,849           7,286        (11,135) (g)                 -

Non-controlling interest                       (7,286)      (524,203)       531,489 (g)                   -

Income before income taxes                   863,584         244,463      5,704,374             6,812,421

Provision for income taxes                   344,771          61,608         26,962 (a)                   -
                                                                           (433,341) (h)

Net income for the period                    518,813         182,855      6,110,753             6,812,421
Liquor Stores Income Fund
Notes to Pro Forma Consolidated Financial Statements
(Unaudited - See Compilation Report)
June 30, 2004



1   The Fund

    Liquor Stores Income Fund (the “Fund”) is an unincorporated open-ended trust established under the laws of
    the Province of Alberta pursuant to the Fund Declaration of Trust dated August 10, 2004. The Fund has been
    created to invest in the retail liquor business, through an indirect acquisition of the controlling interest of Liquor
    Stores Limited Partnership (“Liquor Stores LP”) and its general partner, Liquor Stores GP Inc. (“GP”)
    (collectively the “Company”), and such other investments as the Trustees may determine. Income tax
    obligations related to the distributions of the Fund are obligations of the Unitholder.


2   Basis of presentation and proposed transactions

    The accompanying unaudited pro forma consolidated balance sheet and unaudited pro forma consolidated
    statement of income of the Fund (collectively the “pro forma consolidated financial statements”) have been
    prepared by management of the Fund using the accounting principles disclosed in the consolidated financial
    statements of The Liquor Depot Corporation (“Liquor Depot”) and the combined consolidated financial
    statements of Liquor World Group Inc. (“Liquor World”). With respect to the amortization of property and
    equipment, the pro forma consolidated financial statements have been prepared using the policy of Liquor
    Depot.

    The unaudited pro forma consolidated financial statements may not be indicative of the financial position and
    results of operations that would have occurred if the transactions had taken place on the dates indicated or of
    the financial position or operating results which may be obtained in the future. The unaudited pro forma
    consolidated financial statements are not a forecast or projection of future results. The actual financial position
    and results of operations of the Fund for any period following the closing of the transactions contemplated by
    this prospectus will likely vary from the amounts set forth in the unaudited pro forma consolidated financial
    statements and such variation may be material.

    The unaudited pro forma consolidated financial statements should be read in conjunction with the audited
    consolidated balance sheet of the Fund as at August 10, 2004, the audited consolidated financial statements of
    Liquor Depot for the eleven-month period ended June 30, 2004 and the year ended July 31, 2003, and the
    audited combined consolidated financial statements of Liquor World for the six-month period ended June 30,
    2004 and the year ended December 31, 2003.

    The unaudited pro forma consolidated balance sheet of the Fund as at June 30, 2004 has been prepared from
    information derived from the audited consolidated balance sheet of the Fund as at August 10, 2004, the audited
    consolidated balance sheet of Liquor Depot as at June 30, 2004, the audited combined consolidated balance
    sheet of Liquor World as at June 30, 2004, and the adjustments and assumptions outlined below. The
    unaudited pro forma consolidated statement of income of the Fund for the twelve-month period ended June 30,
    2004 has been prepared as described in notes 5 and 6 and the adjustments and assumptions outlined below.




                                                                                                                      (1)
Liquor Stores Income Fund
Notes to Pro Forma Consolidated Financial Statements
(Unaudited - See Compilation Report)
June 30, 2004



    The Fund has filed a prospectus for an initial public offering of its units (the “Offering”). Concurrent with the
    closing of this offering, the Fund will use the gross proceeds of the Offering to capitalize the Liquor Stores
    Operating Trust (the “Trust”) which will then acquire all of the Ordinary LP Units in Liquor Stores LP and all
    of the common shares in GP. The Company will use the proceeds from the issuance of its Ordinary LP Units
    and common shares, and will draw down approximately $18,115,793 under a new credit facility to pay the
    expenses of the Offering and to acquire substantially all of the assets and assume certain liabilities of Liquor
    Depot and Liquor World (collectively the “Vendors”) (the “Acquisition”). As consideration for the
    Acquisition, the Company will pay cash, and issue Subordinated LP Units and Exchangeable LP Units to the
    Vendors.

    A Canadian chartered bank has agreed to provide new credit facilities to the Company, which include, at the
    election of the Company, an $18,000,000 demand revolving loan (the “Operating Loan”), a $7,500,000 non-
    revolving loan (the “Capital Asset Loan”) and a $10,000,000 non-revolving loan (the “Acquisition Loan”)
    (collectively the “Credit Facility”). The Operating Loan will be to assist in financing the day-to-day operating
    requirements of the Company, the Capital Asset Loan will be for the financing of capital assets and the
    Acquisition Loan will be for the financing of future acquisitions and development of liquor stores. Collateral
    for the Credit Facility will be a first security interest in all present and after acquired personal property of the
    Company, a floating charge over all of the Company’s present and after acquired real property and an
    assignment of the Company’s real and personal insurance. Interest on the Operating Loan will be payable at
    the lenders’ prime rate plus 0.25% or at the banker’s acceptance rate plus 1.50% and interest on the Capital
    Asset Loan and Acquisition Loan will be payable at the lenders’ prime rate plus 0.50% or at the banker’s
    acceptance rate plus 1.75%.

    The Company will also acquire two stores that have been acquired by the Vendors subsequent to the date of the
    Fund’s unaudited pro forma consolidated balance sheet but prior to the closing of the Offering and one store
    and certain other assets from an affiliated company of Liquor Depot (collectively the “Future Acquisitions”).


3   Unaudited pro forma consolidated balance sheet of the Fund

    The following assumptions and adjustments have been made to reflect the proposed transactions described in
    note 2 as if the transactions had occurred on June 30, 2004:

    (a) Cash received and paid in connection with the transactions described in (b), (c), (d), (e) and (f) below.

    (b) The issuance of 4,300,000 Units for total proceeds of $43,000,000 on the closing of the Offering.

    (c) The payment of the underwriters fee and other costs of the Offering, estimated to be $4,580,000.




                                                                                                                      (2)
Liquor Stores Income Fund
Notes to Pro Forma Consolidated Financial Statements
(Unaudited - See Compilation Report)
June 30, 2004



    (d) $10,714,571 and $7,401,222 of drawings on the Operating Loan and Capital Asset Loan, respectively, as
        described in note 2.

    (e) Purchase accounting – Acquisition and Future Acquisitions

        The Acquisition and Future Acquisitions will be accounted for using the purchase method with the assets
        acquired and liabilities assumed recorded at preliminary estimates of fair value. The final allocation of the
        purchase price will be based on the assets acquired and liabilities assumed at the effective dates of the
        Acquisition and Future Acquisitions based upon internal and/or independent asset valuations. A
        preliminary allocation of the consideration is as follows:

                                                                                            $

             Net assets acquired – Acquisition
                  Net working capital                                             17,762,444
                  Property and equipment                                          11,797,763
                  Intangibles                                                        429,000
                  Goodwill                                                        66,998,951

             Net assets acquired – Future Acquisitions
                  Net working capital                                                526,014
                  Property and equipment                                             537,607
                  Goodwill                                                           429,619

             Consideration
                 Cash from the Offering and Credit Facility                       56,481,398
                 Liquor Stores LP Exchangeable LP Units                           20,750,000
                 Liquor Stores LP Subordinated LP Units                           21,250,000

        As a result of the Acquisition and Future Acquisitions, amortization expense related to property and
        equipment would decrease by $47,000 and would increase on intangibles by $90,000 for the twelve-month
        period ended June 30, 2004.

        Net working capital acquired on the Acquisition includes cash floats, accounts receivable, inventory,
        prepaid expenses and deposits and certain accounts payable and accrued liabilities, the carrying value of
        which approximate their fair values.

        Net working capital acquired on the Future Acquisitions includes cash, accounts receivable, inventory,
        prepaid expenses and deposits, bank indebtedness and accounts payable and accrued liabilities, the
        carrying value of which approximate their fair values.




                                                                                                                  (3)
Liquor Stores Income Fund
Notes to Pro Forma Consolidated Financial Statements
(Unaudited - See Compilation Report)
June 30, 2004



        Included in the balance sheets of Liquor Depot and Liquor World as at June 30, 2004 are the following
        intercompany amounts:

                                                                              Liquor Depot        Liquor World
                                                                                         $                   $

             Balance sheet line
                  Accounts receivable                                               101,411                    -
                  Accounts payable and accrued liabilities                                -             (101,411)
                  Equity investments                                                142,494               56,051
                  Advances to Liquor World Group Inc.                               470,980                    -
                  Advances from related parties                                     (56,051)                   -
                  Advances from The Liquor Depot Corporation                              -             (613,474)

                                                                                    658,834             (658,834)

    (f) Repayment of bank indebtedness of $54,395 assumed by the Company in (e) above.


4   Unaudited pro forma consolidated statement of income of the Fund

    The unaudited pro forma consolidated statement of income of the Fund has been prepared assuming that the
    Fund was in operation during the twelve-month period ended June 30, 2004 and as if the proposed transactions
    described in note 2 had occurred on July 1, 2003. The unaudited pro forma consolidated statement of income
    of the Fund reflects the following assumptions and adjustments to the sales and expenses of the Fund:

    (a) The results of operations of Future Acquisitions for the twelve-month period ended June 30, 2004 are as
        follows:

                                                                                          $

             Sales                                                                5,070,443
             Cost of sales                                                        4,352,645

                                                                                    717,798

             Expenses
                 Amortization of property and equipment                              56,289
                 Administrative and operating                                       448,562

                                                                                    504,851

             Income from operations                                                 212,947
             Interest expense                                                       (56,147)

             Income before income taxes                                             156,800
             Provision for income taxes                                              26,962

             Net income for the period                                              129,838



                                                                                                                (4)
Liquor Stores Income Fund
Notes to Pro Forma Consolidated Financial Statements
(Unaudited - See Compilation Report)
June 30, 2004



    (b) The reduction in interest expense of $838,581 for the twelve-month period ended June 30, 2004 to reflect
        interest expense on the bank indebtedness, long-term debt, obligations under capital leases, advances from
        related parties and advances from The Liquor Depot Corporation that will not be assumed by the
        Company.

    (c) The increase in interest expense of $824,224 for the twelve-month period ended June 30, 2004 to reflect
        interest at 4.25% and 4.50% per annum on the Operating Loan and Capital Loan, respectively, as if the
        loans described in note 3(d) had been drawn at July 1, 2003. Included in interest expense is a 0.25% per
        annum stand-by fee on the unutilized balance of the Acquisition Loan described in note 2, and a bank
        administration fee.

    (d) Additional amortization of intangibles expense of $90,000 and the reduction in amortization of property
        and equipment expense of $47,000, respectively, for the twelve-month period ended June 30, 2004 as
        described in note 3(e).

    (e) The reversal of management compensation of $5,155,863 for the twelve-month period ended June 30,
        2004 included in management fees and bonuses and management salaries to directors and officers relating
        to existing management compensation arrangements that will be terminated in connection with the
        Offering.

    (f) $100,000 of management salaries to directors and officers for the twelve-month period ended June 30,
        2004 to reflect the salaries that would be paid to the Chief Executive Officer and Director of Store
        Acquisitions and Development. Pursuant to the long-term incentive plan (“LTIP”), the Company will set
        aside a pool of funds based upon the amount by which the Fund’s per Unit distributions will exceed
        certain per Unit distributable cash threshold amounts. Key senior management of the Company and the
        directors, officers and management of the affiliates of the Company will be eligible to participate in the
        LTIP. It is assumed for the purposes of the pro forma consolidated financial statements that no amounts
        will be payable in connection with the LTIP and that the Trustees of the Fund will not approve additional
        salaries for the Chief Executive Officer and Director of Store Acquisitions and Development for the
        twelve-month period ended June 30, 2004.

    (g) The reversal of equity income of $11,135 and distributions to non-controlling interests of $531,489 for the
        twelve-month period ended June 30, 2004 relating to interests that are jointly-owned by the Vendors or are
        limited partner interests that will become wholly-owned interests in connection with the Acquisition.

    (h) The reversal of income taxes of $433,341 for the twelve-month period ended June 30, 2004 reflecting that
        income tax obligations related to the distributions of the Liquor Stores LP and the Fund are obligations of
        the ultimate Unitholders. It is assumed that income tax obligations of the GP will be minimal.




                                                                                                                (5)
Liquor Stores Income Fund
Notes to Pro Forma Consolidated Financial Statements
(Unaudited - See Compilation Report)
June 30, 2004



5   Liquor Depot consolidated statement of income for the twelve-month period ended June 30,
    2004

                                          Eleven-                             Eleven-          Twelve-
                                           month                               month             month
                                           period                              period           period
                                           ended         Year ended            ended             ended
                                         June 30,           July 31,         June 30,          June 30,
                                             2004              2003              2003             2004
                                                $    +            $    -            $    =           $

    Sales                              59,616,553        64,183,803        58,341,320        65,459,036

    Cost of sales                      46,168,920        50,102,771        45,563,416        50,708,275

    Gross margin                       13,447,633        14,081,032        12,777,904        14,750,761

    Expenses
        Amortization of property and
             equipment                    566,778            567,480          544,725           589,533
        Administrative and operating    8,669,764          9,207,911        8,392,946         9,484,729
        Charitable donations               11,928             99,114           99,114            11,928
        Management salaries to
             directors and officers      298,113           3,162,176         299,325          3,160,964

                                        9,546,583        13,036,681         9,336,110        13,247,154

    Income from operations              3,901,050          1,044,351        3,441,794         1,503,607

    Interest expense                     (574,126)         (660,422)         (597,962)         (636,586)
    Equity income                           3,214             8,864             8,229             3,849
    Non-controlling interest               (7,286)                -                 -            (7,286)

    Income before income taxes          3,322,852           392,793         2,852,061          863,584

    Provision for income taxes          1,166,921           182,318         1,004,468          344,771

    Net income for the period           2,155,931           210,475         1,847,593          518,813




                                                                                                     (6)
Liquor Stores Income Fund
Notes to Pro Forma Consolidated Financial Statements
(Unaudited - See Compilation Report)
June 30, 2004



6   Liquor World combined consolidated statement of income for the twelve-month period ended
    June 30, 2004

                                                                                                 Twelve-
                                       Six-month                             Six-month             month
                                           period                                period           period
                                           ended          Year ended             ended             ended
                                         June 30,        December 31,          June 30,          June 30,
                                            2004                2003              2003              2004
                                                $    +             $     -            $    =           $

    Sales                              24,050,317          49,548,819        22,322,645        51,276,491

    Cost of sales                      19,658,099          40,724,721        18,393,231        41,989,589

    Gross margin                        4,392,218           8,824,098         3,929,414         9,286,902

    Expenses
        Amortization of property and
             equipment                    167,613             323,010           150,543           340,080
        Administrative and operating    2,959,455           5,708,324         2,693,080         5,974,699
        Charitable donations               37,077              61,282            28,363            69,996
        Management fees and
             bonuses                     336,799            2,023,875          365,775          1,994,899

                                        3,500,944           8,116,491         3,237,761         8,379,674

    Income from operations               891,274              707,607          691,653           907,228

    Interest expense                      (63,371)           (152,595)          (70,118)         (145,848)
    Equity income                           7,268                  18                 -             7,286
    Non-controlling interest             (267,889)           (517,918)         (261,604)         (524,203)

    Income before income taxes           567,282               37,112          359,931           244,463

    Provision for income taxes
         (recovery)                      196,958              (22,724)         112,626            61,608

    Net income for the period            370,324               59,836          247,305           182,855




                                                                                                       (7)
The Liquor Depot Corporation
Consolidated Financial Statements
September 27, 2004, June 30, 2004,
July 31, 2003 and 2002
                                                                                                          PricewaterhouseCoopers LLP
                                                                                                          Chartered Accountants
                                                                                                          Suite 1501, TD Tower
                                                                                                          10088 – 102 Avenue
                                                                                                          Edmonton, Alberta
                                                                                                          Canada T5J 3N5
                                                                                                          Telephone +1 (780) 441 6700
                                                                                                          Facsimile +1 (780) 441 6776




July 23, 2004
(except as to note 23, which is as of September 17, 2004)




Auditors’ Report

To the Directors of
The Liquor Depot Corporation


We have audited the consolidated balance sheet of The Liquor Depot Corporation as at June 30,
2004 and the consolidated statements of income and retained earnings and cash flows for the eleven-
month period then ended. These financial statements are the responsibility of the company’s
management. Our responsibility is to express an opinion on these financial statements based on our
audit.

We conducted our audit in accordance with Canadian generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the
financial position of the company as at June 30, 2004 and the results of its operations and its cash flows
for the eleven-month period then ended in accordance with Canadian generally accepted accounting
principles.

The financial statements as at July 31, 2003 and July 31, 2002 and for the years ended July 31, 2003,
2002 and 2001 were audited by other auditors whose report is dated September 24, 2003 (except as to
note 4, which is as of June 11, 2004).


(Signed) “PricewaterhouseCoopers LLP”

Chartered Accountants

Edmonton, Alberta




PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP and the other member firms of PricewaterhouseCoopers
International Limited, each of which is a separate and independent legal entity.
The Liquor Depot Corporation
Consolidated Balance Sheets
As at September 27, 2004, June 30, July 31, 2003 and 2002



                                                                September 27,      June 30,      July 31,      July 31,
                                                                        2004          2004          2003          2002
                                                                            $            $             $             $
                                                                  (Unaudited)

Assets
Current assets
Cash                                                                533,831        336,975       324,266       540,129
Accounts receivable                                                 594,263        237,364       121,715        71,117
Inventory                                                        10,627,373     10,940,822     9,799,928     9,524,695
Prepaid expenses and deposits                                       442,896        266,487       240,941       299,956

                                                                 12,198,363     11,781,648    10,486,850    10,435,897
Equity investments (note 6)                                         115,467        128,879       143,086        71,445
Note receivable (note 7)                                             82,000         82,000       224,000       350,000
Advances to Liquor World Group Inc. (note 8)                        450,978        470,980             -             -
Advances to affiliates (note 12(b))                                 763,549        594,145         5,478         2,276
Deferred transaction costs                                          583,497        228,585             -             -
Property and equipment (note 9)                                   4,344,780      4,078,993     3,947,626     3,893,473
Goodwill (note 10)                                                1,530,051      1,173,801     1,158,801     1,158,801

                                                                 20,068,685     18,539,031    15,965,841    15,911,892

Liabilities
Current liabilities
Bank indebtedness (note 11)                                       3,164,361      2,591,673       756,463     4,307,356
Accounts payable and accrued liabilities (note 12(c))             2,473,841        952,104     2,046,172     1,726,609
Income taxes payable                                                 28,824      1,225,134        16,484        14,714
Current portion of advances from related parties
     (note 12(c))                                                          -             -     1,624,193      240,420
Current portion of long-term debt (note 13)                        1,524,323     1,842,729     2,285,070      997,581
Current portion of obligations under capital leases (note 14)              -        52,115        49,478            -

                                                                  7,191,349      6,663,755     6,777,860     7,286,680
Long-term debt (note 13)                                                  -         86,827       229,241     2,147,838
Obligations under capital leases (note 14)                                -        206,016       253,900             -
Advances from related parties (note 12(c))                       10,817,818      8,292,818     7,449,185     5,498,561
Unamortized lease inducements (note 15)                              34,663         46,477        95,734       153,262
Future income taxes (note 19)                                       169,000         52,000       132,000         8,105
Non-controlling interest                                             13,166          7,286             -             -

                                                                 18,225,996     15,355,179    14,937,920    15,094,446

Commitments (note 16)

Shareholders’ Equity
Share capital (note 17)                                             425,287        425,287      425,287       425,287
Retained earnings                                                 1,417,402      2,758,565      602,634       392,159

                                                                  1,842,689      3,183,852     1,027,921      817,446

                                                                 20,068,685     18,539,031    15,965,841    15,911,892



Approved by the Board of Directors

(Signed) “Irving Kipnes”
___________________________________ Director
The Liquor Depot Corporation
Consolidated Statements of Income and Retained Earnings
For the period from July 1, 2004 to September 27, 2004, 11-month period ended June 30, 2004 and
years ended July 31, 2003, 2002 and 2001



                           For the period
                             from July 1          3-month      11-month
                                  2004 to    period ended   period ended
                           September 27,    September 30,        June 30,                          Years ended July 31,

                                   2004             2003            2004          2003          2002              2001
                                       $                $              $             $             $                 $
                             (Unaudited)      (Unaudited)

Sales                       16,641,912       16,636,273     59,616,553      64,183,803    60,489,645      52,737,710

Cost of sales               12,856,677       12,958,837     46,168,920      50,102,771    47,499,467      41,898,217

Gross margin                 3,785,235        3,677,436     13,447,633      14,081,032    12,990,178      10,839,493

Expenses
Amortization of goodwill                -               -               -            -      192,933          167,580
Amortization of property
     and equipment             156,925          130,643        566,778        567,480       564,087          473,053
Administrative and
     operating               2,240,776        2,283,426      8,669,764       9,207,911     8,737,127       7,949,067
Charitable donations           100,550                -         11,928          99,114       653,663         436,414
Management salaries to
     directors and
     officers                3,536,078        2,914,979        298,113       3,162,176     2,243,000         962,000

                             6,034,329        5,329,048      9,546,583      13,036,681    12,390,810       9,988,114

Income (loss) from
    operations              (2,249,094)      (1,651,612)     3,901,050       1,044,351      599,368          851,379

Interest expense
     (note 18)                (157,262)        (156,234)      (574,126)       (660,422)     (621,468)       (793,629)

Equity income (loss)               (403)            635           3,214          8,864       41,512            22,753

Non-controlling
    interest                     (5,913)                -        (7,286)             -             -                  -

Income (loss) before
    income taxes            (2,412,672)      (1,807,211)     3,322,852        392,793        19,412            80,503

Income taxes
    (recovery)
     (note 19)
Current                     (1,188,509)        (946,045)     1,246,921         58,423         65,376           68,012
Future                         117,000          132,895        (80,000)       123,895        (44,585)           3,502

                            (1,071,509)        (813,150)     1,166,921        182,318        20,791            71,514

Net income (loss) for
     the period             (1,341,163)        (994,061)     2,155,931        210,475         (1,379)           8,989

Retained earnings –
    Beginning of
    period                   2,758,565        2,239,751        602,634        392,159       514,871          553,547

Dividends paid                          -               -               -            -      (121,333)         (47,665)

Retained earnings –
    End of period            1,417,402        1,245,690      2,758,565        602,634       392,159          514,871
The Liquor Depot Corporation
Consolidated Statements of Cash Flows
For the period from July 1, 2004 to September 27, 2004, 11-month period ended June 30, 2004 and
years ended July 31, 2003, 2002 and 2001


                                   For the period
                                     from July 1,          3-month       11-month
                                          2004 to     period ended    period ended
                                   September 27,     September 30,         June 30,                          Years ended July 31,

                                           2004              2003             2004         2003          2002               2001
                                               $                 $               $            $             $                  $
                                     (Unaudited)       (Unaudited)

Cash provided by
    (used in)
Operating activities
Net income (loss) for the period       (1,341,163)        (994,061)      2,155,931      210,475         (1,379)            8,989
Items not affecting cash
      Amortization                       156,925           130,643         566,778      567,480       757,020            640,633
      Future income taxes                117,000           132,895         (80,000)     123,895       (44,585)             3,502
      Equity income (loss)                   403              (635)         (3,214)      (8,864)      (41,512)           (22,753)
      Loss on disposal of
              property and
              equipment                         -                -           2,894       50,770         5,113             92,844
      Amortization of
              leasehold
              inducements                (11,813)          (14,651)        (49,257)     (57,528)      (54,194)            (65,579)
      Non-controlling interest             5,913                 -           7,286            -             -                   -
      Other                                  (28)             (526)              -            -       (10,645)            (67,610)

                                       (1,072,763)        (746,335)      2,600,418      886,228       609,818            590,026

Net change in non-cash working
      capital items                      404,532         1,829,951        (885,564)      43,705     (1,386,837)           (22,797)

                                        (668,231)        1,083,616       1,714,854      929,933      (777,019)           567,229

Financing activities
Proceeds of bank indebtedness                   -                -                -            -    1,499,872                   -
Repayment of bank
      indebtedness                             -                 -               -    (3,984,408)            -         (1,344,469)
Proceeds of long-term debt                     -                 -         166,140       396,534       578,294          1,001,552
Long-term debt repayments               (405,233)         (203,041)       (750,895)   (1,027,640)   (1,212,242)          (636,531)
Repayment of note receivable                                               142,000       126,000        75,000                  -
Proceeds of obligations under
      capital leases                            -          308,830                -     308,830              -                  -
Repayment of obligations under
      capital leases                    (258,131)          (13,506)        (45,247)       (5,452)            -                  -
Advances from (to) related
      parties                          2,525,000          (238,369)       (780,560)   3,334,397     1,428,047            720,214
Lease inducement received                      -                 -               -       10,810             -                  -
Dividends paid                                 -                 -               -            -      (121,333)           (47,665)

                                       1,861,636          (146,086)     (1,268,562)    (840,929)    2,247,638           (306,899)

Investing activities
Business acquisitions (note 5)          (994,254)                -        (616,944)            -     (814,579)          (317,017)
Advances to Liquor World
      Group Inc.                          20,002                 -        (470,980)            -             -                  -
Advances to affiliates                  (169,404)           (1,143)       (588,667)       (3,202)       (2,276)                 -
Deferred transaction costs              (354,912)                -        (228,585)            -             -                  -
Purchase of property and
      equipment                           (83,672)         (10,191)       (396,302)    (675,352)     (435,697)          (669,018)
Proceeds on disposal of
      property and equipment                    -                -          15,264        2,949              -             1,500
Equity investment – net of
      distributions                       13,003                 -          17,421      (62,777)       22,883             25,347

                                       (1,569,237)         (11,334)     (2,268,793)    (738,382)    (1,229,669)         (959,188)

(Decrease) increase in cash
     and cash equivalents               (375,832)          926,196      (1,822,501)    (649,378)      240,950           (698,858)

Cash and cash equivalents
     (bank indebtedness)
     – Beginning of period             (2,254,698)      (1,962,223)       (432,197)     217,181       (23,769)           675,089

Cash and cash equivalents
     (bank indebtedness)
     – End of period                   (2,630,530)      (1,036,027)     (2,254,698)    (432,197)      217,181             (23,769)

Cash and cash equivalents
     (bank indebtedness)
     are comprised of
      Cash                                533,831          309,013         336,975      324,266       540,129            392,135
      Bank indebtedness                (3,164,361)      (1,345,040)     (2,591,673)    (756,463)     (322,948)          (415,904)

                                       (2,630,530)      (1,036,027)     (2,254,698)    (432,197)      217,181             (23,769)
The Liquor Depot Corporation
Notes to Consolidated Financial Statements
September 27, 2004, June 30, 2004, July 31, 2003, 2002 and 2001



1   Nature of operations and basis of presentation

    The Liquor Depot Corporation (the “company”) operates retail liquor stores throughout the province of Alberta.

    The accompanying financial statements include the accounts of the company and all wholly owned and
    controlled subsidiaries after elimination of intercompany transactions and balance.

    At August 1, 2002, The Liquor Depot Corporation, The Liquor Depot Holding Corporation, The Liquor Depot
    BHI Corporation and 859022 Alberta Ltd. were amalgamated and a new company that continued under the
    name The Liquor Depot Corporation was formed. The same group of shareholders controlled all of the
    amalgamated companies. The prior period financial statements have been restated to reflect the financial
    position and results of operations as if the companies had been combined since their inception. All balances
    and transactions between the amalgamated entities have been eliminated.

    Comparative financial statements of the period July 1, 2004 to September 27, 2004 (date of closing of
    disposition – see note 23(b)) include the full three month-period ended September 30, 2003.


2   Significant accounting policies

    These financial statements have been prepared by management in accordance with accounting principles
    generally accepted in Canada. The preparation of financial statements in conformity with Canadian generally
    accepted accounting principles requires management to make estimates and assumptions that affect the reported
    amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
    statements and the reported amounts of revenues and expenses during the reporting period. Actual results
    could differ from those estimates. For example, goodwill is assessed for impairment based on the expected
    discounted future cash flows of the related operations and amortization of property and equipment is based on
    their estimated useful lives. These estimates are reviewed periodically and, as adjustments become necessary,
    they are reported in income in the period which they become known. These financial statements have in
    management’s opinion, been properly prepared within reasonable limits of materiality and within the
    framework of the accounting policies summarized below.

    a)   Revenue recognition

         Revenue includes sales to customers through retail stores and is recognized at the point of sale.

    b)   Cash and cash equivalents

         Bank overdrafts which are included in bank indebtedness are due on demand and included in cash and
         cash equivalents.

    c)   Inventory

         Inventory is valued at the lower of cost, determined on the first in, first out basis, and net realizable value.

    d)   Property and equipment

         Property and equipment is recorded at cost. Amortization is provided for over estimated useful lives of
         the assets on the straight-line basis at rates disclosed in note 9.

    e)   Assessment for impairment

         The company tests for impairment of its long-lived assets when events or circumstances warrant such a
         review. The company evaluates the carrying value of long-lived assets at the individual store level using
         undiscounted estimated cash flows. An asset group is considered impaired when the anticipated separately
         identifiable cash flows from the asset group are less than the carrying value. An impaired asset is written
         down to estimated fair value.




                                                                                                                       (1)
The Liquor Depot Corporation
Notes to Consolidated Financial Statements
September 27, 2004, June 30, 2004, July 31, 2003, 2002 and 2001



    f)   Equity investments

         The company accounts for investments in which it has significant influence but not control using the
         equity method.

    g)   Goodwill

         Goodwill represents the excess of the cost of an acquired business over the estimated fair value of the
         identifiable net assets acquired. Goodwill is not amortized, but is tested at least annually for impairment.
         The company assesses impairment at the reporting unit level by comparing the fair value of the reporting
         unit, determined using estimated discounted cash flows, to the carrying value of the net assets of the
         reporting unit. If the carrying value of the goodwill exceeds the fair value, an impairment loss is reported
         in income of the current period.

    h)   Deferred transaction costs

         Costs incurred by the company in connection with a future transaction (note 23(b)) are being deferred and
         will either be offset against the eventual gain that would be recorded on the disposal of certain of the
         company’s assets or will be reimbursed by the Fund.

    i)   Non-controlling interest

         Non-controlling interest is calculated as the non-controlling party’s interest in the net income of The
         Liquor Depot At Memorial Drive Ltd.

    j)   Lease inducements

         Cash and other allowances are received from certain of the company’s landlords as inducements to lease.
         These amounts are recorded as unamortized leasehold inducement liabilities when received and are
         amortized as a reduction of rent expense on a straight-line basis over the related terms of the leases.

    k)   Future income taxes

         The company follows the asset and liability method of accounting for future income taxes. Under this
         method, future income tax assets and liabilities are recorded based on temporary differences between the
         carrying amount of balance sheet items and their corresponding tax bases. In addition, the future benefits
         of income tax assets, including unused tax losses, are recognized, subject to a valuation allowance, to the
         extent that it is more likely than not that such future benefits will ultimately be realized. Future income
         tax assets and liabilities are measured using enacted tax rates and laws expected to apply when the tax
         liabilities or assets are to be either settled or realized.


3   Changes in accounting policies

    a)   Goodwill

         Effective August 1, 2002, the company adopted the Canadian Institute of Chartered Accountant’s
         recommendations for goodwill. Pursuant to these recommendations, the change was not applied
         retroactively, and prior periods have not been restated.

         Previously, the company recorded goodwill at acquisition cost, and amortized this cost on a straight-line
         basis over five years. Under the new recommendations, goodwill is recorded at its carrying value at the
         date of adoption and not amortized as described in note 2. During the year ended July 31, 2003, goodwill
         was tested for impairment. A comparison of its book value to fair value at July 31, 2003 resulted in no
         charge to beginning retained earnings. No amortization has been recorded in 2003 or 2004.




                                                                                                                   (2)
The Liquor Depot Corporation
Notes to Consolidated Financial Statements
September 27, 2004, June 30, 2004, July 31, 2003, 2002 and 2001



         For the years ended July 31, 2002 and 2001, had goodwill not been amortized, the reported net income of
         the company would have been as follows:

                                                                                             Years ended July 31,

                                                                                         2002                   2001
                                                                                            $                      $

             Reported net income (loss) for the year                                   (1,379)               8,989
             Goodwill amortization                                                    192,933              167,580
             Tax effect of the goodwill amortization                                  (38,586)             (33,516)

             Adjusted net income for the year                                         152,968              143,053

    b)   Future income taxes

         Effective August 1, 2002, the company retroactively adopted the Canadian Institute of Chartered
         Accountants’ recommendations on accounting for income taxes. Under these recommendations, income
         taxes are accounted for using the asset and liability method, as described in note 2. Previously, the
         company accounted for income taxes using the deferred tax allocation method.

         There was no material impact on the financial statements from the retroactive application of the new
         accounting recommendations.

    c)   Term loans due on demand/term loans subject to refinancing

         Effective for the fiscal periods commencing August 1, 2002, the company adopted the new
         recommendations regarding the Balance Sheet Classification of Callable Debt Obligations and Debt
         Obligations Expected to be Refinanced. All borrowings where the lender has a right to demand repayment
         within 12 months (other than in the event of a default or breach of covenants) or where the lender may
         decide not to roll over the borrowing for a further lending period longer than 12 months, are required to be
         classified as current liabilities.

         The impact of this change has been to increase liabilities by the amount of any such borrowings then in
         place. At July 31, 2003, this change increased current liabilities by $1,497,951 and reduced long-term
         debt by a corresponding amount.


4   Changes to presentation and disclosure

    The financial statements for the three years ended July 31, 2003, were originally issued with the disclosures and
    presentation that management considered appropriate for a private company in accordance with Canadian
    generally accepted accounting principles. These statements have been reissued and include the following
    significant changes to presentation and disclosure:

    a)   Statement of cash flows

         The statement of cash flows was originally presented using the direct method and has been restated using
         the indirect method.

    b)   Future income taxes

         A reconciliation from the expected provision based on enacted federal and provincial corporate tax rates to
         the actual provision for income taxes as well as information on the components of the net future tax
         liability have been included in note 19.

    c)   Financial statement groupings

         Certain assets and liabilities on the balance sheet as well as certain expenses on the statement of income
         that have similar properties have been grouped together in order to condense the format of the statements.




                                                                                                                   (3)
The Liquor Depot Corporation
Notes to Consolidated Financial Statements
September 27, 2004, June 30, 2004, July 31, 2003, 2002 and 2001



5   Business acquisitions

    On July 25, 2004, July 23, 2004, March 1, 2004, November 5, 2003, October 15, 2003, November 26, 2001 and
    June 11, 2001, the company purchased the assets of retail liquor store businesses. The purchase prices totalling
    $994,254 for the period from July 1 to September 27, 2004, $616,944, $814,579 and $317,017, respectively,
    were allocated based on the fair values of the assets acquired, as follows:

                         For the period
                           from July 1,         3-month         11-month
                                2004 to    period ended      period ended
                         September 27,    September 30,           June 30,                               Years ended July 31,

                                 2004             2003               2004          2003           2002                  2001
                                     $                $                 $             $              $                     $
                           (Unaudited)      (Unaudited)

        Inventory           298,954                   -         281,944                  -   317,579              167,017
        Property and
          equipment         339,050                   -         320,000                  -   243,469              147,100
        Goodwill            356,250                   -          15,000                  -   253,531                2,900

                            994,254                   -         616,944                  -   814,579              317,017

    75% of the goodwill amount recorded on acquisition is deductible for income tax purposes.


6   Equity investments

                                                          September 27,       June 30,        July 31,               July 31,
                                                                  2004           2004            2003                   2002
                                                                      $             $               $                      $
                                                            (Unaudited)

    High River Liquor Store Inc. – 50%
        Shares – equity                                      (30,304)        (29,388)        (12,972)                      -
        Advances                                              87,003          87,003          86,995                       -

    Daly Grove Liquor Store Inc. – 50%
        Shares – equity                                       16,286          15,773          18,576                31,406
        Advances                                              42,482          55,491          50,487                40,039

                                                             115,467         128,879         143,086                71,445

    The advances are non-interest bearing and have no specified repayment terms.


7   Note receivable

    Effective August 1, 2001, shares representing a 7.5% interest in The Liquor Depot Corporation were issued to
    an employee for an aggregate purchase price of $425,000, of which $82,000 remains unpaid. The note for the
    balance of the issue price does not bear interest and is paid each year with the employee’s share of management
    bonuses and dividends. The note is collateralized by hypothecation of the shares.


8   Advances to Liquor World Group Inc.

    Included in advances to Liquor World Group Inc. as at September 27, 2004 is a non-interest bearing debenture
    for $360,000, which is payable on demand. The company has agreed not to demand payment of the non-
    interest bearing debenture and the other advances for at least one year from the balance sheet date.

    Included in accounts receivable and accounts payable as at September 27, 2004, are amounts totalling $244,570
    and $125,357, respectively, which are receivable from and payable to Liquor World Group Inc.




                                                                                                                           (4)
The Liquor Depot Corporation
Notes to Consolidated Financial Statements
September 27, 2004, June 30, 2004, July 31, 2003, 2002 and 2001



9   Property and equipment
                                                    September 27.                      June 30,                      July 31,                      July 31,
                                                            2004                          2004                          2003                          2002
                                                      (Unaudited)

                                Rate                Accumulated                 Accumulated                   Accumulated                     Accumulated
                                  %          Cost   amortization         Cost   amortization           Cost   amortization           Cost     amortization
                                                $              $            $              $              $              $              $                $

    Owned
       Leasehold improvements       7 5,001,295      1,851,084      4,406,412    1,743,249        3,997,156    1,555,984        3,826,839     1,293,877
       Operating equipment         10 1,222,912        761,527      1,181,451      739,251        1,065,456      655,209        1,040,583       563,911
       Office equipment and
          fixtures                 10    877,050       508,197       854,555        488,917        814,902      425,518          792,895        337,695
       Computer equipment          20    482,486       306,816       459,317        284,485        426,389      224,000          468,209        258,509
       Computer software           20     67,672        27,784        48,520         21,762         48,520       13,003           24,907         12,241
       Signage                     10    405,586       269,370       376,121        259,586        369,530      229,157          352,554        193,559
       Automotive                  20     73,122        60,565        73,122         55,938         81,647       49,074           97,897         50,619
    Leased assets                                            -
       Leasehold improvements       7           -            -       254,118         25,714        254,118           9,076              -                -
       Operating equipment         10           -            -         9,059          1,283          9,059             453              -                -
       Office equipment and
          fixtures                 10           -               -      6,994              991        6,994             450              -                -
       Computer equipment          20           -               -      8,253            2,338        8,253             825              -                -
       Computer software           20           -               -     10,666            3,024       10,666           1,067              -                -
       Signage                     10           -               -     19,739            2,796       19,739             987              -                -

                                        8,130,123    3,785,343      7,708,327    3,629,334        7,112,429    3,164,803        6,603,884     2,710,411

    Net book value                             4,344,780                   4,078,993                     3,947,626                     3,893,473




10 Goodwill

                                                                    September 27,                 June 30,                July 31,              July 31,
                                                                            2004                     2004                    2003                  2002
                                                                                $                       $                       $                     $
                                                                      (Unaudited)

    Goodwill – at cost                                               1,900,910                1,544,660           1,529,660                 1,529,660
    Less: Accumulated amortization                                     370,859                  370,859             370,859                   370,859

                                                                     1,530,051                1,173,801           1,158,801                 1,158,801


11 Bank indebtedness

    Bank indebtedness is collateralized by a general security agreement covering all assets of the company, an
    assignment of fire insurance on property and equipment and inventory and guarantees provided by the
    corporate directors. It is comprised of a bank overdraft at prime plus 0.875%, in the amount of $3,164,361
    (June 30, 2004 – $2,591,673; July 31, 2003 – $756,463; July 31, 2002 – $4,307,356 of which $3,984,408 were
    banker’s acceptances).




                                                                                                                                                        (5)
The Liquor Depot Corporation
Notes to Consolidated Financial Statements
September 27, 2004, June 30, 2004, July 31, 2003, 2002 and 2001



12 Related party transactions and balances

    a)   The following summarizes the company’s related party transactions and balances:

                                For the period
                                  from July 1,         3-month         11-month
                                       2004 to    period ended      period ended
                                September 27,    September 30,           June 30,                            Years ended July 31,

                                        2004             2003               2004           2003       2002                  2001
                                            $                $                 $              $          $                     $
                                  (Unaudited)      (Unaudited)

         Interest paid on
             advances from
             shareholders,
             directors and
             entities under
             common
             control                   64,223           94,050           338,434        341,492    188,456               120,963
         Shared operating
             expenses paid
             to companies
             under common
             control                   29,085           87,753           275,021        432,525    256,397               155,503
         Rent paid to a
             company
             controlled by a
             shareholder                3,500            2,925            10,725         10,387     16,313                      -
         Management fees
             paid to
             companies
             under
             shareholder
             control                    6,300            6,300            23,100         25,200     63,000                64,000
         Professional fees
             and deferred
             transaction
             costs paid to a
             firm where one
             of the partners
             of the firm is a
             shareholder
             and director of
             the company               12,235            3,508           164,272         68,862     82,431                98,759
         Charitable
             donations paid
             to related
             charitable
             foundations                     -               -                   -       95,000    650,000               400,000


         These transactions are in the normal course of operations and are measured at the exchange amount, which
         is the amount of consideration established and agreed to by the related parties

    b)   Advances to affiliates

                                                                 September 27,        June 30,    July 31,               July 31,
                                                                         2004            2004        2003                   2002
                                                                             $              $           $                      $
                                                                   (Unaudited)

         ABC Pacific Spirits Ltd.                                   159,567           91,535          -                       -
         Liquor Depot Saanich Ltd.                                  553,050          480,979          -                       -
         Liquor Depot Richmond Ltd.                                  28,458           19,005          -                       -
         Other affiliates                                            22,474            2,626      5,478                   2,276

                                                                    763,549          594,145      5,478                   2,276

         Advances to affiliates are to companies controlled by common shareholders and a director of the company.
         The amounts are non-interest bearing and have no established terms of repayment.




                                                                                                                               (6)
The Liquor Depot Corporation
Notes to Consolidated Financial Statements
September 27, 2004, June 30, 2004, July 31, 2003, 2002 and 2001



    c)   Advances from related parties

                                                      September 27,        June 30,         July 31,        July 31,
                                                              2004            2004             2003            2002
                                                                  $              $                $               $
                                                        (Unaudited)

         Management bonuses payable                     3,455,000                -      2,834,000       2,180,000
         Less: Source deductions due within six
             months (included in accounts
             payable and accrued liabilities)          (1,350,000)                -    (1,134,000)       (872,000)
         Advances from parent companies and
             companies under common control(i)          8,656,767       8,236,767       7,294,185       3,589,386
         Advances from directors(ii)                            -               -          79,193         841,595
         Advances from non-controlling party(iii)          56,051          56,051               -               -

                                                      10,817,818        8,292,818       9,073,378       5,738,981
         Less: Portion included in current
             liabilities                                          -              -      1,624,193         240,420

                                                      10,817,818        8,292,818       7,449,185       5,498,561

         i)    Advances from parent companies and companies under common control have no specified repayment
               terms, but the parent companies and companies under common control have agreed not to demand
               payment for at least one year from the balance sheet date. $693,000 bears interest at rates of 8%
               (July 31, 2003 – $480,000, 8%; July 31, 2002 – $1,170,000, between 8% and 8.5%), $7,963,767
               (June 30, 2004 –$7,539,500) bears interest at prime plus 0.5%; (July 31, 2003 – $6,814,185 at prime
               plus 0.5%; and July 31, 2002 – $850,000, between prime plus 0.5% and 1.5%) and $nil is non-interest
               bearing (June 30, 2004 – $4,267; July 31, 2003 – $nil; July 31, 2002 – $1,569,386).

         ii)   Advances from directors are payable in monthly instalments of $nil (June 30, 2004 – $nil; July 31,
               2003 – $7,000; July 31, 2002 – $20,000) and bear interest at fixed rates (July 31, 2003 – between 8%
               and 9%; July 31, 2002 – between 8% and 9%).

         iii) Advances from non-controlling party is non-interest bearing and has no specified repayment terms
              but the non-controlling party has agreed not to demand payment for at least one year from the balance
              sheet date.


13 Long-term debt

                                                      September 27,        June 30,         July 31,        July 31,
                                                              2004            2004             2003            2002
                                                                  $              $                $               $
                                                        (Unaudited)

    HSBC Bank of Canada loans, $1,524,323 of
        which are due on demand (June 30, 2004
        – $1,686,107; July 31, 2003 –
        $2,117,777; July 31, 2002 – $1,546,700),
        repayable in monthly instalments of
        $53,278 plus interest, at rates ranging
        from prime plus 0.75% to prime plus
        1.75%, with varying maturity dates from
        October 2005 to April 2010                      1,524,323       1,686,107       2,117,777       2,592,442
    Long-term note, unsecured, repayable in
        blended monthly instalments of $15,847
        with interest at HSBC 30-day banker’s
        acceptance rate plus 2% to a maximum
        of 8%                                                     -       243,449         396,534         552,977

                                                        1,524,323       1,929,556       2,514,311       3,145,419
    Less: Current portion                               1,524,323       1,842,729       2,285,070         997,581

                                                                  -        86,827         229,241       2,147,838



                                                                                                                  (7)
The Liquor Depot Corporation
Notes to Consolidated Financial Statements
September 27, 2004, June 30, 2004, July 31, 2003, 2002 and 2001



    The HSBC Bank of Canada loans are collateralized by a general security agreement covering all assets of the
    company, an assignment of fire insurance on property and equipment and inventory and guarantees provided by
    the corporate directors.

    Although several of the HSBC Bank of Canada loans are demand in nature, if payment is not demanded and the
    loans are subject to the repayment terms in the agreements, the principal repayments of long-term debt over
    each of the next five years and, thereafter, are estimated as follows:

                                                                                           $

        Years ending June 30
            2005                                                                    1,093,629
            2006                                                                      406,523
            2007                                                                      251,349
            2008                                                                       94,865
            2009 and thereafter                                                        83,190


14 Obligations under capital leases

    The company has contracted to lease improvements and other equipment at two retail locations. The assets
    under lease and the related obligations have been capitalized in the accounts as follows:

                                                    September 27,        June 30,          July 31,      July 31,
                                                            2004            2004              2003          2002
                                                                $              $                 $             $
                                                      (Unaudited)

        HSBC Bank of Canada, lease obligations
           with an effective interest rate of
           5.86% requiring monthly payments
           of $5,452 until July 7, 2008                         -      258,131            303,378              -

        Less: Current portion                                   -       52,115             49,478              -

                                                                -      206,016            253,900              -


15 Unamortized lease inducements

                                                    September 27,        June 30,          July 31,      July 31,
                                                            2004            2004              2003          2002
                                                                $              $                 $             $
                                                      (Unaudited)

    Total allowance                                    658,405         658,405            658,405      647,595

    Less: Accumulated amortization                    (623,742)       (611,928)          (562,671)    (494,333)

                                                        34,663          46,477             95,734      153,262




                                                                                                               (8)
The Liquor Depot Corporation
Notes to Consolidated Financial Statements
September 27, 2004, June 30, 2004, July 31, 2003, 2002 and 2001



16 Commitments

    The company occupies its retail locations under lease agreements with varying terms from five to fifteen years,
    expiring from September 2004 to October 2019. In addition, the company leases automobiles. The leases
    provide for minimum annual lease payments over the next five years as follows:

                                                                                             $

        Years ending September 30
            2005                                                                      1,809,666
            2006                                                                      1,706,817
            2007                                                                      1,561,361
            2008                                                                      1,481,725
            2009 and thereafter                                                       3,747,892


17 Share capital

    Authorized
        Unlimited number of Classes A and B common, voting shares

    Issued

                                                      September 27,        June 30,          July 31,          July 31,
                                                              2004            2004              2003              2002
                                                                  $              $                 $                 $
                                                        (Unaudited)

        9,250 Class A common shares                          287             287                287              287
        750 Class B common shares                        425,000         425,000            425,000          425,000

                                                         425,287         425,287            425,287          425,287

    As disclosed in note 1, on August 1, 2002, The Liquor Depot Corporation, The Liquor Depot Holding
    Corporation, the Liquor Depot BHI Corporation and 859022 Alberta Ltd. were amalgamated and formed a new
    corporation that continued under the name The Liquor Depot Corporation. At that date, all of the outstanding
    shares of each of the amalgamated companies were cancelled and 9,250 Class A common shares and 750 Class
    B common shares were issued. The issued and outstanding share capital for each of these entities as at July 31,
    2002 were as follows:

                                                                                                        July 31, 2002

                                                                                             #                       $

        The Liquor Depot Corporation
            Class A common, voting shares                                                  100                   100
            Class B common, voting shares (i)                                                7               354,000

        The Liquor Depot Holding Corporation
            Class A common, voting shares                                                  100                   100
            Class B common, voting shares (ii)                                               7                39,000

        859022 Alberta Ltd.
            Class A common, voting shares                                               10,000                   100
            Class C common, voting shares (iii)                                            810                32,000

        The Liquor Depot BHI Corporation
            Class A common, non-voting shares                                              100                    100
            Class B common, voting shares                                                   25                     25
            Class A preferred, non-voting shares                                           100                     13




                                                                                                                     (9)
The Liquor Depot Corporation
Notes to Consolidated Financial Statements
September 27, 2004, June 30, 2004, July 31, 2003, 2002 and 2001



         i)    On August 1, 2001, The Liquor Depot Corporation issued 6,951 Class B common shares in exchange
               for a note receivable in the amount of $354,000 as disclosed in note 7.

         ii)   On August 1, 2001, The Liquor Depot Holding Corporation issued 6,951 Class B common shares in
               exchange for a note receivable in the amount of $39,000, as disclosed in note 7.

         iii) On August 1, 2001, 859022 Alberta Ltd. issued 810 Class C common shares for a note receivable in
              the amount of $32,000 as disclosed in note 7.


18 Interest expense

                           For the period
                             from July 1,         3-month      11-month
                                  2004 to    period ended   period ended
                           September 27,    September 30,        June 30,                      Years ended July 31,

                                   2004             2003            2004       2003         2002              2001
                                       $                $              $          $            $                 $
                             (Unaudited)      (Unaudited)

    Interest on long-
       term debt                 22,994          35,721        109,064      165,347     204,954          355,942
    Interest on
       obligations under
       capital leases             8,024            2,870         14,725        617             -                  -
    Interest on bank
       indebtedness              36,320          22,580        111,903      152,966     228,058          316,724
    Interest on advances
       from related
       parties                   89,924          95,063        338,434      341,492     188,456          120,963

                               157,262          156,234        574,126      660,422     621,468          793,629




                                                                                                               (10)
The Liquor Depot Corporation
Notes to Consolidated Financial Statements
September 27, 2004, June 30, 2004, July 31, 2003, 2002 and 2001



19 Income taxes

    The provision for income taxes is at an effective tax rate which differs from enacted corporate tax rates for the
    following reasons:

                               For the period
                                 from July 1,         3-month         11-month
                                      2004 to    period ended      period ended
                               September 27,    September 30,           June 30,                              Years ended July 31,

                                       2004             2003               2004          2003          2002                  2001
                                           $                $                 $             $             $                     $
                                 (Unaudited)      (Unaudited)

    Enacted federal and
      provincial
      corporate tax rates               36%             38%                36%           38%           39%                   39%

    Expected provision for
      income taxes based
      on the above rates           (868,561)        (686,740)         1,196,227      149,261         7,571                 31,396

    Increase (decrease)
       resulting from
          Equity income                 (145)               -            (1,157)       (3,368)      (16,190)               (8,874)
          Non-deductible
              items and
              permanent
              differences              1,800           4,560             21,535        16,248       31,722                 38,439
          Small business
              deduction                9,500           9,500            (36,994)      (34,609)      (48,982)              (31,112)
          Future income
              taxes set up
              at rates
              different than
              the effective
              rate                    (7,646)         (6,435)            14,716        58,606       40,000                 34,000
          Current income
              tax
              recoveries set
              up at rates
              different than
              the effective
              rate                 (152,020)        (141,700)                 -             -            -                      -
          Other                     (54,437)           7,665            (27,406)       (3,820)       6,670                  7,665

    Actual provision for
      income taxes               (1,071,509)        (813,150)         1,166,921      182,318        20,791                 71,514

    The nature and tax effect of items giving rise to the company’s future income tax liability are as follows:

                                                                September 27,       June 30,       July 31,               July 31,
                                                                        2004           2004           2003                   2002
                                                                            $             $              $                      $
                                                                  (Unaudited)

          Future income tax assets
              Non-capital loss carryforwards                             -         105,900        30,802                 22,800
              Goodwill                                              15,516          14,100        20,000                 28,495
              Unamortized lease inducements                          3,912          10,400        25,848                 30,700
              Other                                                      -             200             -                 13,900

                                                                    19,428         130,600        76,650                 95,895

          Future income tax liabilities
              Property and equipment                               183,600         182,600       162,500               104,000
              Other                                                  4,828               -        46,150                     -

                                                                   188,428         182,600       208,650               104,000

          Net future income tax liability                         (169,000)        (52,000)      (132,000)               (8,105)




                                                                                                                              (11)
The Liquor Depot Corporation
Notes to Consolidated Financial Statements
September 27, 2004, June 30, 2004, July 31, 2003, 2002 and 2001



20 Supplemental cash flow information

                          For the period
                            from July 1,         3-month      11-month
                                 2004 to    period ended   period ended
                          September 27,    September 30,        June 30,                            Years ended July 31,

                                  2004             2003            2004          2003            2002              2001
                                      $                $              $             $               $                 $
                            (Unaudited)      (Unaudited)

    Interest paid            164,892          155,787        574,990         716,171         607,840         748,930

    Income taxes paid            7,801         10,881          44,557         53,833          83,159           57,510


21 Economic dependence

    The company’s main source of supply of liquor and related products is the Alberta Gaming and Liquor
    Commission. As the company’s income is derived entirely from the sale of liquor and related products, its
    ability to continue viable operations is dependent upon maintaining its relationship with this main supplier.


22 Financial instruments

    The company, as part of its operations, carries a number of financial instruments. These financial instruments
    include cash, accounts receivable, advances to equity investees, note receivable, advances to Liquor World
    Group Inc., advances to affiliates, bank indebtedness, accounts payable and accrued liabilities, income taxes
    payable, advances from related parties, long-term debt and obligations under capital lease. It is management’s
    opinion that the company is not exposed to significant interest, currency or credit risk arising from these
    financial instruments, except as described below.

    Interest rate risk

    The company’s bank indebtedness, its long-term debt, as described in notes 11 and 13, respectively, and certain
    of the advances from related parties, as described in note 12, bear interest with floating rates over prime, thus
    exposing the company to interest rate fluctuations.

    Fair value disclosure

    The carrying amount of cash, accounts receivable, bank indebtedness, accounts payable and accrued liabilities,
    income taxes payable and the current portions of advances from related parties, long-term debt and obligations
    under capital lease, approximate their fair value either due to their relatively short-term maturities or interest
    rates which approximate market rates. The fair value of the note receivable approximates its carrying value due
    to the expected repayment of the note in the next year. The fair value of advances to equity investees, Liquor
    World Group Inc. and affiliates cannot be determined due to the fact that the advances do not have specified
    terms and no active market for advances exists. The carrying values of long-term debt, obligations under
    capital lease and advances from related parties approximate their fair values as the interest rates affecting these
    amounts approximate the market rates.




                                                                                                                    (12)
The Liquor Depot Corporation
Notes to Consolidated Financial Statements
September 27, 2004, June 30, 2004, July 31, 2003, 2002 and 2001



23 Subsequent events

    a)   On July 21, 2004 and July 26, 2004, the company acquired the operating assets of two liquor stores located
         in Edmonton and Red Deer, respectively. The aggregate price of $994,254 for both businesses was paid in
         cash.

    b)   On September 17, 2004, Liquor Stores Income Fund (the “Fund”) filed a prospectus relating to the initial
         public offering of units of the Fund (the “Offering”). The Fund is an unincorporated open-ended trust
         established under the laws of the Province of Alberta pursuant to the Fund Declaration of Trust dated
         August 10, 2004. The Fund has been created to invest in the retail liquor business, through an indirect
         acquisition of the controlling interest of Liquor Stores Limited Partnership and its general partner, Liquor
         Stores GP Inc. Concurrent with the closing of the offering, Liquor Stores Limited Partnership will acquire
         substantially all of the assets and assume certain liabilities of the company and Liquor World Group Inc.

         The closing of the acquisition as noted above took place after the close of business on September 27, 2004.




                                                                                                                 (13)
Liquor World Group Inc.
Combined Consolidated Financial Statements
September 27, 2004, June 30, 2004,
December 31, 2003 and 2002
                                                                                                          PricewaterhouseCoopers LLP
                                                                                                          Chartered Accountants
                                                                                                          Suite 1501, TD Tower
                                                                                                          10088 – 102 Avenue
                                                                                                          Edmonton, Alberta
                                                                                                          Canada T5J 3N5
                                                                                                          Telephone +1 (780) 441 6700
July 23, 2004                                                                                             Facsimile +1 (780) 441 6776
(except as to note 22, which is as of September 17, 2004)



Auditors’ Report

To the Directors of
Liquor World Group Inc.


We have audited the combined consolidated balance sheets of Liquor World Group Inc. as at
June 30, 2004 and December 31, 2003 and the combined consolidated statements of income and
retained earnings and cash flows for the periods then ended. These combined consolidated financial
statements are the responsibility of the company’s management. Our responsibility is to express an
opinion on these combined consolidated financial statements based on our audits.

Except as explained in the following paragraph, we conducted our audits in accordance with Canadian
generally accepted auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation.

Because we were appointed auditor of the company during 2004, we were not able to observe the
counting of physical inventories at the beginning of 2003 nor satisfy ourselves concerning those
inventory quantities by alternative means. Since opening inventories enter into the determination of
income and cash flows, we were unable to determine whether adjustments to cost of sales, income
taxes, net income for the year, beginning retained earnings and cash provided by operations might be
necessary for the year ended December 31, 2003.

In our opinion, except for the effect of adjustments, if any, which we might have determined to be
necessary to the combined consolidated financial statements for the year ended December 31, 2003 had
we been able to examine opening inventory quantities, as described in the preceding paragraph, the
combined consolidated statements of income and retained earnings and cash flows present fairly, in all
material respects, the results of operations and cash flows of the company for the periods ended
June 30, 2004 and December 31, 2003 in accordance with Canadian generally accepted accounting
principles. Further, in our opinion, the balance sheets present fairly, in all material respects, the
financial position of the company as at June 30, 2004 and December 31, 2003 in accordance with
Canadian generally accepted accounting principles.

The financial statements as at December 31, 2002 and for the years ended December 31, 2002 and
December 31, 2001 were audited by other auditors whose report is dated June 17, 2004, except as to
note 22 which is as of September 17, 2004.


(Signed) “PricewaterhouseCoopers LLP”


Chartered Accountants

Edmonton, Alberta




PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP and the other member firms of PricewaterhouseCoopers
International Limited, each of which is a separate and independent legal entity.
Liquor World Group Inc.
Combined Consolidated Balance Sheets
As at September 27, 2004, June 30, 2004, December 31, 2003 and 2002



                                               September 27,     June 30,   December 31,   December 31
                                                       2004         2004           2003          2002
                                                           $           $              $              $
                                                 (Unaudited)

Assets
Current assets
Cash                                                 339,134      758,080        984,532      1,181,273
Accounts receivable                                  287,514      418,429        519,292        388,072
Inventory                                          6,154,902    6,431,658      5,526,763      5,088,655
Prepaid expenses and deposits                        640,924      485,618        210,833        182,851

                                                   7,422,474    8,093,785      7,241,420      6,840,851
Advances to shareholders (note 5)                  1,224,330      552,581              -         19,782
Equity investments (note 6)                           69,260       63,338        171,070              -
Notes receivable                                      20,000            -              -              -
Deferred transaction costs                           104,389            -              -              -
Property and equipment (note 7)                    1,660,764    1,699,158      1,650,977      1,455,145
Goodwill (note 8)                                          -            -              -              -

                                                  10,501,217   10,408,862      9,063,467      8,315,778

Liabilities
Current liabilities
Bank indebtedness (note 9)                         2,978,110    3,050,792      2,529,329      2,161,669
Accounts payable and accrued liabilities
     (note 12)                                     1,002,723     532,467         480,230       348,914
Income taxes payable                                 510,001     471,001         355,568       302,343
Current portion of long-term debt (note 10)           32,143      32,143          32,143        20,563
Current portion of obligations under capital
     leases (note 11)                                      -        2,079          3,704         3,704

                                                   4,522,977    4,088,482      3,400,974      2,837,193
Long-term debt (note 10)                             152,232      157,589        173,661              -
Obligations under capital leases
     (note 11)                                             -       1,921           2,148         5,852
Advances from shareholders (note 5)                        -           -         167,631             -
Advances from The Liquor Depot
   Corporation (note 12)                             580,473     613,474         159,923        54,312
Unamortized lease inducements
     (note 13)                                       245,806      255,753        266,300        224,845
Future income taxes (note 17)                        353,200      407,300        349,200        452,100
Non-controlling interest                           1,691,054    1,922,440      1,952,051      2,209,733

                                                   7,545,742    7,446,959      6,471,888      5,784,035

Commitments (note 14)

Shareholders’ Equity
Share capital (note 15)                                    2            2              2              2
Retained earnings                                  2,955,473    2,961,901      2,591,577      2,531,741

                                                   2,955,475    2,961,903      2,591,579      2,531,743

                                                  10,501,217   10,408,862      9,063,467      8,315,778


Approved by the Board of Directors

(Signed) “Henry Bereznicki”
___________________________________ Director
Liquor World Group Inc.
Combined Consolidated Statements of Operations and Retained Earnings
For the period from July 1, 2004 to September 27, 2004, six-month period ended June 30, 2004 and
years ended December 31, 2003, 2002 and 2001



                                   For the
                              period from     Three-month
                           July 1, 2004 to    period ended          Six-month period ended
                            September 27,    September 30,                        June 30,                     Years ended December 31,

                                   2004              2003          2004             2003           2003          2002             2001
                                       $                 $            $                 $             $             $                $
                             (Unaudited)       (Unaudited)                    (Unaudited)

Sales                        13,656,866        13,240,816    24,050,317       22,322,645     49,548,819    46,662,911       43,729,852

Cost of sales                11,023,342        10,870,244    19,658,099       18,393,231     40,724,721    38,356,331       36,799,935

Gross margin                   2,633,524        2,370,572     4,392,218         3,929,414     8,824,098     8,306,580        6,929,917

Expenses
Amortization of goodwill                 -               -            -                  -            -             -           63,429
Amortization of property
      and equipment               88,000           72,258      167,613            150,543      323,010       309,988           334,679
Administrative and
      operating                1,692,338        1,434,124     2,959,455         2,693,080     5,708,324     5,091,326        4,737,710
Charitable donations              12,040           14,308        37,077            28,363        61,282        46,310           22,636
Management fees and
      bonuses                    643,351          140,531      336,799            365,775     2,023,875      851,186           387,465

                               2,435,729        1,661,221     3,500,944         3,237,761     8,116,491     6,298,810        5,545,919

Income from
     operations                  197,795          709,351      891,274            691,653      707,607      2,007,770        1,383,998

Interest expense
        (note 16)                (38,681)         (36,111)      (63,371)          (70,118)     (152,595)     (105,599)        (147,718)

Goodwill impairment
    loss (note 8)                        -               -            -                  -            -      (124,524)                -

Equity income                      5,922                 -        7,268                  -          18              -                 -

Non-controlling
     interest                   (176,114)         (93,307)     (267,889)         (261,604)     (517,918)     (669,526)        (382,631)

(Loss) income before
     income taxes                (11,078)         579,933      567,282            359,931       37,112      1,108,121          853,649

Income taxes (recovery)
       (note 17)
Current                           49,450          179,969      138,858            189,626        80,176      195,099           188,704
Future                           (54,100)          23,000       58,100            (77,000)     (102,900)     112,600           111,600

                                   (4,650)        202,969      196,958            112,626       (22,724)     307,699           300,304

Net (loss) income for
      the period                   (6,428)        376,964      370,324            247,305       59,836       800,422           553,345

Retained earnings –
     Beginning of
     period                    2,961,901        2,779,046     2,591,577         2,531,741     2,531,741     1,731,319        1,177,974

Retained earnings –
     End of period             2,955,473        3,156,010     2,961,901         2,779,046     2,591,577     2,531,741        1,731,319
Liquor World Group Inc.
Combined Consolidated Statements of Cash Flows
For the period from July 1, 2004 to September 27, 2004 and years ended December 31, 2003, 2002
and 2001



                                     For the
                                period from     Three-month
                             July 1, 2004 to    period ended        Six-month period ended
                              September 27,    September 30,                      June 30,                    Years ended December 31,

                                     2004              2003        2004             2003          2003          2002             2001
                                         $                 $          $                 $            $             $                $
                               (Unaudited)       (Unaudited)                  (Unaudited)

Cash provided by
    (used in)
Operating activities
Net (loss) income for the
       period                        (6,428)        376,964    370,324            247,305      59,836       800,422           553,345
Items not affecting cash
       Amortization                 88,000           72,258    167,613            150,543     323,010       309,988           398,108
       Future income taxes         (54,100)          23,000     58,100            (77,000)   (102,900)      112,600           111,600
       Equity income                (5,922)               -     (7,268)                 -         (18)            -                 -
       Goodwill
              impairment
              loss                         -               -          -                  -           -      124,524                  -
       Amortization of
              lease
              inducements            (9,947)         (9,901)    (19,893)          (17,860)     (37,700)     (32,788)          (30,702)
       Non-controlling
              interest             176,114           93,307    267,889            261,604     517,918       669,526           382,631
       Distributions to
              Limited
              Partners            (407,500)        (180,000)   (297,500)         (437,100)   (775,600)     (454,310)         (142,815)

                                  (219,783)         375,628    539,265            127,492      (15,454)   1,529,962         1,272,167
Net change in non-cash
      working capital
      items                        761,621          (53,466)   (681,150)         (163,864)   (317,838)     (482,385)         (578,401)

                                   541,838          322,162    (141,885)          (36,372)   (333,292)    1,047,577           693,766

Financing activities
Net change in bank
      indebtedness                 (72,682)        (266,422)   521,463            706,656     367,661        70,825           334,188
Proceeds of lease
      inducements                         -               -       9,346            79,155      79,155             -           122,215
Proceeds of long-term debt                -               -           -           150,000     225,000             -                 -
Long-term debt repayments            (5,357)        (15,030)    (16,072)          (14,435)    (39,759)      (22,620)          (22,620)
Repayment of obligations
      under capital leases          (4,000)            (926)     (1,852)           (1,852)      (3,704)       8,796            26,929
Note receivable                    (20,000)               -           -                 -            -            -                 -
Advances from (to) The
      Liquor Depot
      Corporation                  (33,001)                -   453,551             83,177     105,611         (8,612)         (15,472)
Advances from (to)
      shareholder,
      directors and
      affiliates                  (671,749)        (291,833)   (720,212)         (940,755)    187,412      (463,219)          350,000
Repayment of initial
      investment to
      Limited Partners                     -               -          -                  -           -     (725,180)         (687,275)

                                  (806,789)        (574,211)   246,224             61,946     921,376     (1,140,010)         107,965

Investing activities
Business acquisitions                      -               -   (389,997)                 -   (189,931)             -                 -
Purchase of property and
      equipment                    (49,606)         (25,951)    (55,794)         (371,914)   (423,842)     (134,403)         (419,247)
Deferred transaction costs        (104,389)               -           -                 -           -             -                 -
Proceeds on disposal of
      property and
      equipment                            -               -          -                  -           -             -                 -
Equity investment – net of
      distributions                        -               -   115,000                   -   (171,052)             -                 -

                                  (153,995)         (25,951)   (330,791)         (371,914)   (784,825)     (134,403)         (419,247)

(Decrease) increase in
     cash                         (418,946)        (278,000)   (226,452)         (346,340)   (196,741)     (226,836)          382,484

Cash – Beginning of
     period                        758,080          834,933    984,532          1,181,273    1,181,273    1,408,109         1,025,625

Cash – End of period               339,134          556,933    758,080            834,933     984,532     1,181,273         1,408,109
Liquor World Group Inc.
Notes to Combined Consolidated Financial Statements
September 27, 2004, June 30, 2004 and December 31, 2003, 2002 and 2001



1   Nature of operations and basis of presentation

    Liquor World Group Inc. (the “company”) operates retail liquor stores throughout the province of Alberta.

    The accompanying financial statements combine the consolidated accounts of Liquor World Group Inc. and
    Liquor Stop Group Inc., companies under common control, and include the accounts of all wholly owned and
    controlled subsidiaries after elimination of inter-company transactions and balances.

    The company consolidates the financial statements of Liquor Stores No. 1 Limited Partnership (“LP1”), Liquor
    Stores No. 2 Limited Partnership (“LP2”) and Liquor Stores No. 3 Limited Partnership (“LP3”) (the “limited
    partnerships”) on the basis that, as the General Partner, it has the continuing power to determine the strategic
    operating, investing and financing policies, derives economic benefits and has unlimited liability for the debts,
    liabilities, losses and obligations of each.

    Comparative financial statements of the period July 1, 2004 to September 27, 2004 (date of closing of
    disposition – see note 22) include the full three-month period ended September 30, 2003.


2   June 30, 2003 comparative figures

    The financial information presented for the six-month period ended June 30, 2003 has not been audited.
    Certain comparative information for this period which otherwise might be required for audited financial
    statements has not been provided.


3   Significant accounting policies

    These financial statements have been prepared by management in accordance with accounting principles
    generally accepted in Canada. Because the precise determination of many assets, liabilities, revenues and
    expenses are dependent on future events, the preparation of financial statements for a period necessarily
    includes the use of estimates and approximations which have been made using careful judgment. Actual results
    could differ from those estimates. For example, amortization of property and equipment is based on their
    estimated useful lives. These estimates are reviewed periodically and, as adjustments become necessary, they
    are reported in income in the period in which they become known. These financial statements have, in
    management’s opinion, been properly prepared within reasonable limits of materiality and within the
    framework of the accounting policies summarized below.

    a)   Revenue recognition

         Revenue includes sales to customers through retail stores and is recognized at the point of sale.

    b)   Cash

         Cash consists of cash on hand and cash on deposit at Canadian financial institutions.

    c)   Inventory

         Inventory is valued at the lower of cost, determined on the first in, first out basis, and net realizable value.




                                                                                                                       (1)
Liquor World Group Inc.
Notes to Combined Consolidated Financial Statements
September 27, 2004, June 30, 2004 and December 31, 2003, 2002 and 2001



    d)   Property and equipment

         Property and equipment is recorded at cost. Amortization is provided for over estimated useful lives at the
         following rates and methods.

              Leasehold improvements                                life of lease – straight line
              Operating equipment                                       20% declining balance
              Office equipment and fixtures                             20% declining balance
              Computer equipment                                        20% declining balance
              Automotive                                                20% declining balance

    e)   Assessment for impairment

         The company tests for impairment of its long-lived assets when events or circumstances warrant such a
         review. The company evaluates the carrying value of long-lived assets at the individual store level using
         undiscounted estimated cash flows. An asset group is considered impaired when the anticipated separately
         identifiable cash flows from the asset group are less than the carrying value. An impaired asset is written
         down to estimated fair value.

    f)   Equity investments

         The company accounts for investments in which it has significant influence but not control using the
         equity method.

    g)   Goodwill

         Goodwill represents the excess of the cost of an acquired business over the estimated fair value of the
         identifiable net assets acquired. Effective January 1, 2002, the company adopted the new Canadian
         Institute of Chartered Accountants (CICA) Handbook Section 3062, Goodwill and Other Intangible assets.
         As a result of this section, the company no longer amortizes goodwill and indefinite life intangible assets.
         Goodwill is tested at least annually for impairment. The company assesses impairment at the reporting
         unit level by comparing the fair value of the reporting unit, determined using estimated discounted cash
         flows, to the carrying value of the net assets of the reporting unit. If the carrying value of the goodwill
         exceeds the fair value, an impairment loss is reported in income of the current period.

    h)   Non-controlling interest

         Non-controlling interest is calculated as the non-controlling party’s interest in the net income of Daly
         Grove Liquor Store Inc., High River Liquor Store Inc., LWLD Liquor Stores Inc. and the limited
         partnerships.

    i)   Lease inducements

         Cash and other allowances are received from certain of the company’s landlords as inducements to lease.
         These amounts are recorded as unamortized leasehold inducement liabilities when received and are
         amortized as a reduction of rent expense on a straight-line basis over the related terms of the leases.

    j)   Future income taxes

         The company follows the asset and liability method of accounting for future income taxes. Under this
         method, future income tax assets and liabilities are recorded based on temporary differences between the
         carrying amount of balance sheet items and their corresponding tax bases. In addition, the future benefits
         of income tax assets, including unused tax losses, are recognized, subject to a valuation allowance, to the
         extent that it is more likely than not that such future benefits will ultimately be realized. Future income
         tax assets and liabilities are measured using enacted tax rates and laws expected to apply when the tax
         liabilities or assets are to be either settled or realized.




                                                                                                                    (2)
Liquor World Group Inc.
Notes to Combined Consolidated Financial Statements
September 27, 2004, June 30, 2004 and December 31, 2003, 2002 and 2001



4   Business acquisitions

    On June 24, 2004 and December 18, 2003, the company purchased the assets of retail liquor store businesses.
    The purchase prices of $392,857 and $190,925, respectively, were allocated based on the fair values of the
    assets acquired, as follows:

                                                                                  Six-month
                                                                                period ended               Year ended
                                                                                     June 30,             December 31,
                                                                                        2004                     2003
                                                                                           $                        $

        Cash                                                                              2,860                     994
        Inventory                                                                       217,400                  94,025
        Prepaid expenses and deposits                                                    12,597                     906
        Property and equipment                                                          160,000                  95,000

                                                                                        392,857                190,925


5   Advances to and from shareholders

    The advances are non-interest bearing and have no specified repayment terms.


6   Equity investments

                                                     September 27,          June 30,      December 31,       December 31,
                                                             2004              2004              2003               2002
                                                                 $                $                 $                  $
                                                       (Unaudited)

    The Liquor Depot at Memorial Drive Ltd. –
        50%
            Shares – equity                              13,208              7,286                19                    -
            Advances                                     56,051             56,051           171,051                    -

                                                         69,259             63,337           171,070                    -

    Vines of Riverbend, Inc. – shares                           1                 1                   -                 -

                                                         69,260             63,338           171,070                    -

    The advances are non-interest bearing and have no specified repayment terms.


7   Property and equipment

                                                                                                   September 27, 2004

                                                                                Accumulated
                                                                     Cost       amortization                       Net
                                                                        $                  $                         $
                                                                                                           (Unaudited)

    Leasehold improvements                                   1,664,029                   870,505               793,524
    Operating equipment                                      1,553,000                 1,036,547               516,453
    Office equipment and fixtures                              289,596                   177,271               112,325
    Computer equipment                                         404,516                   234,094               170,422
    Automotive                                                  87,035                    18,995                68,040

                                                             3,998,176                 2,337,412             1,660,764




                                                                                                                       (3)
Liquor World Group Inc.
Notes to Combined Consolidated Financial Statements
September 27, 2004, June 30, 2004 and December 31, 2003, 2002 and 2001




                                                                                            June 30, 2004

                                                                        Accumulated
                                                             Cost       amortization                  Net
                                                                $                  $                    $

    Leasehold improvements                              1,664,029             833,624             830,405
    Operating equipment                                 1,541,098           1,005,094             536,004
    Office equipment and fixtures                         284,604             171,803             112,801
    Computer equipment                                    371,803             223,729             148,074
    Automotive                                             87,035              15,161              71,874

                                                        3,948,569           2,249,411           1,699,158

                                                                                        December 31, 2003

                                                                        Accumulated
                                                             Cost       amortization                  Net
                                                                $                  $                    $

    Leasehold improvements                              1,561,348             755,699             805,649
    Operating equipment                                 1,497,741             949,372             548,369
    Office equipment and fixtures                         240,511             162,617              77,894
    Computer equipment                                    354,551             206,223             148,328
    Automotive                                             85,182              14,445              70,737

                                                        3,739,333           2,088,356           1,650,977

                                                                                        December 31, 2002

                                                                        Accumulated
                                                             Cost       amortization                  Net
                                                                $                  $                    $

    Leasehold improvements                              1,341,796             619,039             722,757
    Operating equipment                                 1,301,743             830,638             471,105
    Office equipment and fixtures                         224,069             144,215              79,854
    Computer equipment                                    309,636             170,362             139,274
    Automotive                                             64,417              22,262              42,155

                                                        3,241,661           1,786,516           1,455,145

   The above amounts include $nil (June 30, 2004 – $22,484; December 31, 2003 – $22,484; December 31, 2002
   – $22,484) of property and equipment under capital leases and related accumulated amortization of $nil
   (June 30, 2004 – $13,715; December 31, 2003 – $12,115; December 31, 2002 – $9,426).




                                                                                                        (4)
Liquor World Group Inc.
Notes to Combined Consolidated Financial Statements
September 27, 2004, June 30, 2004 and December 31, 2003, 2002 and 2001



8   Goodwill

                                                      September 27,      June 30,    December 31,    December 31,
                                                              2004          2004            2003            2002
                                                                  $            $               $               $
                                                        (Unaudited)

    Delton Liquor Store Inc
        Opening                                                                 -               -         65,798
        Valuation impairment                                                    -               -        (65,798)

        Ending                                                    -             -               -               -

    Northgate Liquor Store Inc
        Opening                                                                 -               -         58,726
        Valuation impairment                                                    -               -        (58,726)

        Ending                                                    -             -               -               -

    Balance – End of period                                       -             -               -               -


9   Bank indebtedness

    Bank indebtedness is comprised of HSBC Bank of Canada and Toronto Dominion Bank operating lines in the
    aggregate amount of $2,978,110 (June 30, 2004 – $3,050,792; December 31, 2003 – $2,529,329; December 31,
    2002 – $2,161,669). Separate revolving demand credit facilities are collateralized by a general security
    agreement and an unlimited guarantee from each of the subsidiaries.

    The separate revolving demand credit facilities are as follows:

        Liquor Stop Group Inc. – operating line limit of $1,200,000 at prime plus 0.25%.

        Liquor Stores No. 1 Ltd. – operating line limit of $1,200,000 at prime plus 0.25%.

        Liquor Stores No. 2 Ltd. – operating line limit of $1,200,000 at prime plus 0.25%.

        Liquor Stores No. 3 Ltd. – operating line limit of $1,000,000 at prime plus 0.65%.

        Liquor Stores No. 5 Ltd. – operating line limit of $600,000 at prime plus 0.25%.

        LWLD Liquor Stores Inc. – operating line limit of $300,000 at prime plus 0.25%.

        Daly Grove Liquor Store Inc. – operating line limit of $200,000 at prime plus 0.75%.

        West Lethbridge Liquor Store Inc. – operating line limit of $300,000 at prime plus 0.65%.

    See note 10 for details of the company’s default of certain bank covenants regarding the revolving demand
    credit facilities of Liquor Stores No. 5 Ltd. and LWLD Liquor Stores Inc.




                                                                                                                (5)
Liquor World Group Inc.
Notes to Combined Consolidated Financial Statements
September 27, 2004, June 30, 2004 and December 31, 2003, 2002 and 2001



10 Long-term debt

                                                    September 27,        June 30,    December 31,       December 31,
                                                            2004            2004            2003               2002
                                                                $              $               $                  $
                                                      (Unaudited)

    HSBC Bank of Canada non-revolving loan
        repayable in monthly instalments of
        $1,885 plus interest at prime plus 1.75%,
        maturing November 30, 2003                              -               -                   -       20,563
    Toronto Dominion Bank loans, repayable in
        monthly instalments of $2,679 in
        aggregate plus interest at prime plus
        0.50%, with varying maturity dates from
        May 31, 2007 to December 31, 2007               184,375         189,732           205,804                  -

                                                        184,375         189,732           205,804           20,563
    Less: Current portion                                32,143          32,143            32,143           20,563

                                                        152,232         157,589           173,661                  -

   The HSBC non-revolving loan was collateralized by a first charge in all present property, an assignment of
   inventory of the West Lethbridge store, an assignment of insurance on property, an assignment and
   postponement of shareholder loans and a $200,000 guarantee from the company.

   The Toronto Dominion Bank loans are collateralized by a general security agreement covering all assets of the
   company, an assignment of fire insurance on property and equipment and inventory and guarantees provided by
   the corporate directors.

   The revolving demand credit facility and the long-term debt agreements for Liquor Stores No. 5 Ltd. and
   LWLD Liquor Stores Inc. require that the company maintain specified consolidated debt service coverage and
   consolidated debt to equity ratios. The consolidated debt service coverage and consolidated debt to equity
   covenants are calculated on an annual and quarterly basis, respectively. The aggregate bank indebtedness and
   debt owing under these agreements at September 27, 2004 was $476,699 and at June 30, 2004 and December
   31, 2003 was $435,893 and $305,305, respectively. As at September 27, 2004 and June 30, 2004, the company
   was in default of the consolidated debt to equity ratio and as at December 31, 2003, the company was in default
   of both of the ratios. The company has obtained a waiver from the bank for these defaults as at June 30, 2004
   and December 31, 2003. The indebtedness was fully paid subsequent to September 27, 2004.

   Principal repayments over the next four years are estimated as follows:

                                                                                          $

        Years ending September 30
            2005                                                                    32,143
            2006                                                                    32,143
            2007                                                                    85,268
            2008                                                                    34,821




                                                                                                                  (6)
Liquor World Group Inc.
Notes to Combined Consolidated Financial Statements
September 27, 2004, June 30, 2004 and December 31, 2003, 2002 and 2001



11 Obligations under capital leases

    The company has contracted to lease signage and office equipment. The assets under lease and the related
    lease obligations have been capitalized in the accounts as follows:

                                                    September 27,        June 30,    December 31,    December 31,
                                                            2004            2004            2003            2002
                                                                $              $               $               $
                                                      (Unaudited)

        Lease obligations requiring monthly
            payments of $230, including
            imputed monthly interest of $50,
            until September 2004                                -           542            1,626           3,793
        Lease obligations requiring quarterly
            payments of $450, including
            imputed monthly interest of $66,
            until July 2006                                     -          3,458           4,226           5,763

                                                                -          4,000           5,852           9,556
        Less: Current portion                                   -          2,079           3,704           3,704

                                                                -          1,921           2,148           5,852


12 Advances from The Liquor Depot Corporation

    Included in advances to The Liquor Depot Corporation as at September 27, 2004, is a non-interest bearing
    debenture for $360,000, which is payable on demand. The Liquor Depot Corporation has agreed not to demand
    payment of the non-interest bearing note and the other advances for at least one year from the balance sheet
    date.

    Included in accounts receivable and accounts payable as at September 27, 2004, are amounts totalling $125,357
    and $244,570, respectively, which are receivable from and payable to The Liquor Depot Corporation.


13 Unamortized lease inducements

                                                    September 27,        June 30,    December 31,    December 31,
                                                            2004            2004            2003            2002
                                                                $              $               $               $
                                                      (Unaudited)



    Total allowances                                    481,674          481,674        472,328          393,173
    Less: Accumulated amortization                     (235,868)        (225,921)      (206,028)        (168,328)

                                                        245,806         255,753         266,300         224,845



14 Commitments

    Limited Partners are entitled to receive priority distributions, equal to their initial investment, of up to
    $2,200,000 from LP1 and $2,775,000 in LP2. Limited Partners from LP3 are entitled to priority distributions
    of $1,700,000 (initial investment) and a preferred return of 10% on their outstanding initial investment.

    The initial investment in LP1 and LP2 was fully paid during 2002.




                                                                                                               (7)
Liquor World Group Inc.
Notes to Combined Consolidated Financial Statements
September 27, 2004, June 30, 2004 and December 31, 2003, 2002 and 2001



   The outstanding initial investment and preferred return in LP3 is as follows:

                                                              September 27,                June 30,       December 31,           December 31,
                                                                      2004                    2004               2003                   2002
                                                                          $                      $                  $                      $
                                                                (Unaudited)

          LP3 (initial investment)                              1,700,000             1,700,000               1,700,000           1,700,000
          LP3 (10% preferred return)                              234,512               283,914                 254,659             154,121

   The company occupies its retail locations under lease agreements with varying terms from five to fifteen years,
   expiring from 2004 to 2014. The leases provide for minimum annual lease payments over the next five years as
   follows:

                                                                                                                 $

          Years ending September 30
              2005                                                                                    1,351,785
              2006                                                                                    1,290,252
              2007                                                                                    1,238,661
              2008                                                                                    1,163,893
              2009 and thereafter                                                                     2,474,498


15 Share capital

    Authorized
        Unlimited number of common, voting shares

    Issued

                                                              September 27,                June 30,       December 31,           December 31,
                                                                      2004                    2004               2003                   2002
                                                                          $                      $                  $                      $
                                                                (Unaudited)

          2 common shares                                                  2                     2                    2                     2


16 Interest expense
                                    For the
                              period from      Three-month
                            July 1, 2004 to    period ended       Six-month period ended
                            September 27,     September 30,                     June 30,                               Years ended December 31,

                                    2004              2003       2004             2003                 2003               2002            2001
                                        $                 $         $                 $                   $                  $               $
                              (Unaudited)       (Unaudited)                 (Unaudited)

    Interest on long-term
           debt                     2,030            2,018      4,511             1,957               5,765            1,916             4,487
    Interest on bank
           indebtedness            35,910           33,878     58,431            67,732           145,971            102,824           142,570
    Interest on
           obligations
           under capital
           leases                     741              215       429                429                859                859              661

                                   38,681           36,111     63,371            70,118           152,595            105,599           147,718




                                                                                                                                            (8)
Liquor World Group Inc.
Notes to Combined Consolidated Financial Statements
September 27, 2004, June 30, 2004 and December 31, 2003, 2002 and 2001



17 Income taxes

   The provision for income taxes is at an effective tax rate which differs from enacted corporate tax rates for the
   following reasons:

                                    For the
                              period from      Three-month
                            July 1, 2004 to    period ended        Six-month period ended
                            September 27,     September 30,                      June 30,                  Years ended December 31,

                                    2004              2003        2004             2003          2003       2002              2001
                                        $                 $          $                 $            $          $                 $
                              (Unaudited)       (Unaudited)                  (Unaudited)

    Enacted federal and
       provincial
       corporate tax
       rates                         36%              38%         36%               38%         37%         39%               42%

    Expected (recovery)
       provision for
       income taxes
       based on the
       above rates                 (3,988)         220,375     203,671           136,774      13,731     432,167           358,533
    Increase (decrease)
       from
         Non-deductible
             items and
             permanent
             differences            2,478              950       2,922             1,901       4,004       3,705             3,990
         Small business
             deduction            (12,910)         (11,914)    (22,800)          (24,192)     (43,492)   (42,520)          (47,260)
         Future income
             taxes set up
             at rates
             different
             than the
             effective
             rate                  (3,178)           11,176      3,419            (4,786)      21,987    (23,245)          (31,277)
         Other                     12,948           (17,618)     9,746             2,929      (18,954)   (62,408)           16,318

    Actual (recovery)
       provision for
       income taxes                (4,650)         202,969     196,958           112,626      (22,724)   307,699           300,304


   The temporary timing differences which give rise to the future tax liability primarily relate to 50% of the
   distributable equity available in LP1 and LP2 which has been recorded as income by the company but has not
   yet been subject to income tax.


18 Related party transactions and balances

   The following summarizes the company’s related party transactions:

                                    For the
                              period from      Three-month
                            July 1, 2004 to    period ended        Six-month period ended
                            September 27,     September 30,                      June 30,                  Years ended December 31,

                                    2004              2003        2004             2003          2003       2002              2001
                                        $                 $          $                 $            $          $                 $
                              (Unauidted)       (Unaudited)                  (Unaudited)

    Management fees
        paid to a
        corporate
        shareholder or
        to companies
        related to a
        corporate
        shareholder                94,727           91,301     223,965           231,989    1,817,290    742,141           350,000


   These transactions are in the normal course of operations and are measured at the exchange amount, which is
   the amount of consideration established and agreed to by the related parties.




                                                                                                                                (9)
Liquor World Group Inc.
Notes to Combined Consolidated Financial Statements
September 27, 2004, June 30, 2004 and December 31, 2003, 2002 and 2001



19 Supplemental cash flow information

                                             For the
                                       period from      Three-month
                                     July 1, 2004 to    period ended
                                     September 27,     September 30,                          Years ended December 31,

                                             2004              2003           2003             2002              2001
                                                 $                $              $                $                 $
                                       (Unaudited)

    Interest paid                         38,679           36,111        152,595          105,599           147,718

    Income taxes paid                     10,450             9,013         26,951          46,242             35,218


20 Economic dependence

   The company’s main source of supply of liquor and related products is the Alberta Gaming and Liquor
   Commission. As the company’s income is derived entirely from the sale of liquor and related products, its
   ability to continue viable operations is dependent upon maintaining its relationship with this main supplier.


21 Financial instruments

   The company, as part of its operations, carries a number of financial instruments. These financial instruments
   include cash, accounts receivable, advances to equity investees, bank indebtedness, accounts payable and
   accrued liabilities, income taxes payable, advances to and from shareholders, advances from The Liquor Depot
   Corporation, long-term debt and obligations under capital leases. It is management’s opinion that the company
   is not exposed to significant interest, currency or credit risks arising from these financial instruments, due to
   their short-term natures, except as described below.

   Interest rate risk

   The company’s bank indebtedness and its long-term debt, as described in notes 9 and 10, respectively, bear
   interest with a floating rate over prime, thus exposing the company to interest rate fluctuations.

   Fair value disclosure

   The carrying amount of cash, accounts receivable, bank indebtedness, accounts payable and accrued liabilities,
   income taxes payable, and the current portion of long-term debt and obligations under capital leases
   approximate their fair value either due to their relatively short-term maturities or interest rates which
   approximate market rates. The fair value of long-term debt and obligations under capital leases approximate
   their carrying values as the interest rate affecting these amounts approximate the market rate. The fair value of
   advances to and from shareholders, advances to equity investees and advances from The Liquor Depot
   Corporation cannot be determined due to the fact that the advances do not have any specified terms and no
   active market for the advances exists.


22 Subsequent events

   On September 17, 2004, Liquor Stores Income Fund (the “Fund”) filed a prospectus relating to the initial public
   offering of units of the Fund (the “Offering”). The Fund is an unincorporated open-ended trust established
   under the laws of the Province of Alberta pursuant to the Fund Declaration of Trust dated August 10, 2004.
   The Fund has been created to invest in the retail liquor business, through an indirect acquisition of the
   controlling interest of Liquor Stores Limited Partnership and its general partner, Liquor Stores GP Inc.
   Concurrent with the closing of the offering, Liquor Stores Limited Partnership will acquire substantially all of
   the assets and assume certain liabilities of the company and The Liquor Depot Corporation.

   The closing of the acquisition as noted above took place after the close of business on September 27, 2004.




                                                                                                                   (10)

				
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