Magnotta Winery Corporation
TSX : MGN

Magnotta Winery Corporation

June 13, 2005 13:01 ET

Magnotta Winery Corporation Announces April 30, 2005 Results

VAUGHAN, ONTARIO--(CCNMatthews - June 13, 2005) -

Magnotta Winery Corporation (TSX:MGN), is pleased to announce the release of its financial results for the first quarter ended April 30, 2005.

Gross sales for the three months ended April 30, 2005 increased 5.1% to $7,249,724 from $6,900,059 in the same period last year. Net sales for the quarter ended April 30, 2005 increased 6.1% to $5,576,319 from $5,256,135 and net earnings increased 9.8% to $802,309 from $730,513. The overall growth in net sales for the quarter resulted from greater volumes due to an expanded customer base at its locations, increased licensee sales to restaurateurs, and more focused marketing campaigns.

Gross profit margin for the quarter ended April 30, 2005 increased to 51.3% from 50.9% for the corresponding period of the prior year. This increase is due to the level of the Canadian dollar which has caused foreign product priced in U.S. dollars to be relatively less expensive and, the change in the Company's sales product mix resulting in higher margin product sales.

Selling, administration and other expenses were $993,566 for the three months ended April 30, 2005 compared to $926,508 for the corresponding period of the prior year. As a percentage of net sales, selling, administration and other expenses increased marginally to 17.8% from 17.6% for the quarter.

Amortization for the first quarter ended April 30, 2005 was $276,496 from $281,385 for the corresponding period of the prior year.

Interest expense for the three months ended April 30, 2005 decreased to $215,595 from $238,466 at April 30, 2004. The decrease is due to reduced overall debt for the three months ended April 30, 2005 compared to April 30, 2004.

During the first quarter, Magnotta relocated its Brampton location from a 2,000 square foot facility to a 5,600 square foot facility. Early results from this relocation show encouraging sales growth.

Construction has started on the expansion of its head office, production, and warehouse facility in Vaughan, Ontario. The company is targeting the completion of this construction project for the summer of 2005.

Additional details and information are found in the Management Discussion and Analysis for April 30, 2005.

The common shares of Magnotta trade on the TSX under the symbol "MGN".

MAGNOTTA WINERY CORPORATION

Interim Consolidated Financial Statements - Unaudited

Three Months Ended April 30, 2005


MAGNOTTA WINERY CORPORATION

Notice To Reader of the Interim Consolidated Financial Statements

Three months ended April 30, 2005

The consolidated financial statements of Magnotta Winery Corporation and the accompanying interim consolidated balance sheet as at April 30, 2005 and the interim consolidated statement of earnings and retained earnings and cash flows for the three month period then ended are the responsibility of the Company's management. These consolidated financial statements have not been audited or reviewed on behalf of the shareholders by the independent external auditors of the Company, KPMG LLP.

The interim consolidated financial statements have been prepared by management and include the selection of appropriate accounting principles, judgments and estimates necessary to prepare these financial statements in accordance with Canadian generally accepted accounting principles.



MAGNOTTA WINERY CORPORATION
Consolidated Interim Balance Sheets

As at April 30, 2005, with comparative figures for
January 31, 2005 and April 30, 2004

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April 30 January 31 April 30
2005 2005 2004
(unaudited) (unaudited)
-----------------------------------------
-----------------------------------------

Assets

Current assets:
Accounts receivable $ 1,496,196 $ 634,983 $ 1,107,452
Inventories 20,101,901 20,115,001 18,945,000
Prepaid expenses and
deposits 705,251 622,521 636,727
-----------------------------------------
22,303,348 21,372,505 20,689,179


Capital assets 20,192,526 19,746,671 19,973,332
Winery licenses 251,516 251,516 251,516
-----------------------------------------
$ 42,747,390 $ 41,370,692 $ 40,914,027
-----------------------------------------
-----------------------------------------

Liabilities and
Shareholders' Equity

Current liabilities:
Bank indebtedness $ 6,265,078 $ 5,707,024 $ 5,843,850
Accounts payable and
accrued liabilities 1,377,976 1,297,335 903,562
Income taxes payable 115,000 71,750 381,004
Current portion of
long-term debt 1,433,212 1,417,906 1,400,652
-----------------------------------------
9,191,266 8,494,015 8,529,068

Long-term debt 7,883,730 8,216,002 9,352,160
Future income taxes 1,221,065 1,078,315 1,146,146

Shareholders' equity:
Share capital 6,630,817 6,099,157 6,099,157
Notes receivable for
share capital (465,000) - -
Other paid-in capital 210,000 210,000 210,000
Retained earnings 18,075,512 17,273,203 15,577,496
-----------------------------------------

24,451,329 23,582,360 21,886,653
-----------------------------------------

$ 42,747,390 $ 41,370,692 $ 40,914,027
-----------------------------------------
-----------------------------------------

Segmented information on
identifiable capital
assets by geographic region
Canada $ 17,484,650 $ 17,032,656 $ 17,238,841
Chile 2,707,876 2,714,015 2,734,491
-----------------------------------------
$ 20,192,526 $ 19,746,671 $ 19,973,332
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On Behalf of the Board:


Gabe Magnotta CEO & Director


Rossana DiZio President & Director



MAGNOTTA WINERY CORPORATION
Consolidated Interim Statements of Earnings and Retained Earnings

Three months ended April 30, 2005, with
comparative figures for April 30, 2004

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April 30 April 30
2005 2004
(unaudited) (unaudited)
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Revenue:
Gross sales $ 7,249,724 $ 6,900,059
Less product taxes levied 1,673,405 1,643,924
-----------------------------
Net sales 5,576,319 5,256,135

Cost of goods sold 2,717,353 2,581,263
-----------------------------
Gross profit 2,858,966 2,674,872

Expenses:
Selling, administration and other 993,566 926,508
Amortization 276,496 281,385
Interest 80,925 83,186
Interest - long-term debt 134,670 155,280
-----------------------------
1,485,657 1,446,359

Earnings before income taxes 1,373,309 1,228,513

Income taxes:
Current 428,250 373,000
Future 142,750 125,000
-----------------------------
571,000 498,000
-----------------------------
Net earnings for the period 802,309 730,513

Retained earnings, beginning of period 17,273,203 14,846,983
-----------------------------
Retained earnings, end of period $ 18,075,512 $ 15,577,496
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Earnings per share :
Basic $ 0.06 $ 0.06
Diluted $ 0.06 $ 0.05
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Weighted average number of common shares
outstanding 13,107,408 13,084,591
Weighted average number of diluted
shares outstanding 13,926,005 14,001,005
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Segmented information on net sales by
geographic region
Canada $ 4,994,782 $ 4,727,178
Chile 451,381 411,630
Other 130,156 117,327
-----------------------------
$ 5,576,319 $ 5,256,135
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MAGNOTTA WINERY CORPORATION
Consolidated Interim Statements of Cash Flow

Three months ended April 30, 2005, with
comparative figures for April 30, 2004

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April 30 April 30
2005 2004
(unaudited) (unaudited)
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Cash flows from (used in):

Operating activities:
Net earnings $ 802,309 $ 730,513
Items not involving cash:
Amortization 276,496 281,385
Future income taxes 142,750 125,000
Unrealized foreign exchange gain / (loss) (7,680) 39,917
----------------------------
1,213,875 1,176,815

Changes in non-cash operating working
capital:
Accounts receivable (861,213) (280,574)
Inventories 13,100 55,607
Prepaid expenses and deposits (82,730) (17,953)
Accounts payable and accrued liabilities 80,641 6,289
Income taxes payable 43,250 72,727
----------------------------

406,923 1,012,911

Financing activities:
Decrease in long-term debt (309,286) (375,573)
Increase in share capital 66,660 14,760
Increase (decrease) in bank indebtedness 558,054 (201,729)
----------------------------

315,428 (562,542)
Investing activities:
Purchases of capital assets (722,351) (450,369)
----------------------------

Cash, end of period - -
----------------------------
----------------------------

Supplemental cash flow information:
Cash paid for interest $ 191,878 $ 211,947
Cash paid for income taxes 385,000 300,273

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MAGNOTTA WINERY CORPORATION

Notes to Consolidated Interim Financial Statements - Unaudited

Three months ended April 30, 2005

1 DESCRIPTION OF BUSINESS

The Company develops, grows, produces, imports, markets, distributes and retails wines, beer, spirits and "must" (juice for making wine) through its seven locations in Ontario. Products are also sold through representatives, an e-commerce site, in other Canadian provinces, and through export markets.

The Company experiences some seasonal variations in sales with sales typically being highest in the third and fourth quarters and lowest in the first quarter of the fiscal year.

2 SIGNIFICANT ACCOUNTING POLICIES

The disclosures contained in the unaudited interim consolidated financial statements do not include all the requirements of generally accepted accounting principles for annual financial statements, and accordinly, the unaudited interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements for the year ended January 31, 2005.

The unaudited interim consolidated financial statements are based upon accounting principles consistent with those used and described in the annual consolidated financial statements for the year ended January 31, 2005.

The Company has adopted the following new recently issued accounting standard:

In December 2001, the CICA issued Handbook Section 3870 "Stock-based Compensation and Other Stock-based Payments". This standard encouraged, but did not require the use of the fair value-based method to account for all stock-based transactions with employees. The Company chose to account for employee stock options that are settled by the issuance of common shares as capital transactions. In October 2003, the CICA reissued Section 3870, requiring the use of the fair value-based method for transactions whereby goods and services are received in exchange for stock-based compensation and other stock-based payments subsequent to February 1, 2002. The effect of this new section is that any new stock options granted to employees will be expensed in the future. The change in section 3870 is applicable for fiscal years beginning on or after January 1, 2004. There will be no adjustment to the financial statements of the Company to reflect the adoption of this new standard since no options have been granted since February 1, 2002.

3 NOTES RECEIVABLE INCLUDED IN SHARE CAPITAL

The five year notes receivable were taken back from two senior officers who were provided with the financing to exercise their options on 500,000 common shares of Magnotta at a price of $0.93 per share. These notes are secured by the acquired common shares, bear interest that is paid monthly at the rate charged to Magnotta on its operating line of credit, and provide for repayment of $116,250 in each of the years 2007, 2008, 2009 and 2010. These have been included as a component of shareholders' equity for presentation purposes.

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