Magnotta Winery Corporation
TSX : MGN

Magnotta Winery Corporation

June 12, 2008 11:03 ET

Magnotta Winery Corporation Announces April 30, 2008 Results

VAUGHAN, ONTARIO--(Marketwire - June 12, 2008) - Magnotta Winery Corporation (TSX:MGN), is pleased to announce the release of its financial results for the first quarter ended April 30, 2008.

Net sales for the quarter ended April 30, 2008 increased 1.9% to $6,063,409 from $5,949,046. Net earnings increased 2.9% to $867,790 from $843,295 and the basic and diluted earnings per share remained constant at $0.06. The overall growth in net sales for the quarter resulted from greater volumes due to an expanded customer base and a continued emphasis on branding through its marketing campaign supported by a strong media and print campaign. This has created more brand awareness. The Company also decided to sell more of its Chilean grapes to third parties in the first quarter ended April 30, 2008 versus April 30, 2007 as it was able to negotiate higher prices for its grapes in Chile. However, due to the snow storms and inclement weather during February and March in Southern Ontario, overall growth was tempered.

Overall gross profit margin for the quarter ended April 30, 2008 decreased to 48.6% from 49.9% for the corresponding period of the prior year. The change in the gross profit margin is due to increased cost pressures for raw and packaging materials, energy costs, as well as higher Ontario grape prices in the first quarter of fiscal 2009 versus fiscal 2008. These cost pressures were mitigated somewhat by the strength of the Canadian dollar.

Selling, administration and other expenses were $1,027,100 for the three months ended April 30, 2008 compared to $1,012,436 for the corresponding period of the prior year. As a percentage of net sales, selling, administration and other expenses decreased slightly to 16.9% for the quarter compared to 17.0% for the quarter of the previous year.

Interest expense for the three months ended April 30, 2008 decreased to $220,776 compared to $232,922 for the three month period ended April 30, 2007. The decrease is due to lower long-term debt outstanding during the respective period.

Earnings before interest, income taxes and depreciation decreased marginally to $1,921,965 from $1,955,090 at April 30, 2007. These changes were principally impacted by a small increase in selling, administration and other expenses and by a reduction in gross margin.

Additional details and information are found in the Management Discussion and Analysis for the quarter ended April 30, 2008 as well as on www.sedar.com.

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

Readers are cautioned that some of the statements contained in this release may be forward-looking statements, such as expectations, estimates and statements that describe the Company's future plans, objectives or goals, including words to the effect that the Company or management expects a stated condition to exist or occur. Generally, these forward-looking statements can be identified by the use of terminology such as "outlook", "anticipate", "believe", "estimate", "expect", "intend", "should", and similar expressions. Since forward-looking statements address future events and conditions, by their very nature, they involve inherent risks and uncertainties. Actual results in each case could differ from those currently anticipated in such statements by reason of factors such as, but not limited to, changes in general economic and market conditions. Magnotta disclaims any intention or obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or results, or otherwise.



MAGNOTTA WINERY CORPORATION
Interim Consolidated Financial Statements - Unaudited
Three Months Ended April 30, 2008


MAGNOTTA WINERY CORPORATION

Notice To Reader of the Interim Consolidated Financial Statements

Three months ended April 30, 2008

The consolidated financial statements of Magnotta Winery Corporation and the accompanying interim consolidated balance sheet as at April 30, 2008 and the interim consolidated statement of earnings, comprehensive income 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, 2008, with comparative figures for
January 31, 2008 and April 30, 2007


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April 30 January 31 April 30
2008 2008 2007
(unaudited) (unaudited)
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Assets

Current assets:
Cash and cash equivalents $ 326,933 $ 344,231 $ 70,254
Accounts receivable 1,725,888 285,995 1,467,725
Inventories 25,380,841 25,108,695 22,859,160
Income taxes receivable - 1,918 -
Future income taxes 59,812 51,208 64,612
Prepaid expenses and deposits 493,365 240,526 427,754
--------------------------------------------

27,986,839 26,032,573 24,889,505

Capital assets 21,143,569 21,141,229 21,737,566
Winery licenses 251,516 251,516 251,516
--------------------------------------------

$ 49,381,924 $ 47,425,318 $ 46,878,587
--------------------------------------------
--------------------------------------------

Liabilities and Shareholders'
Equity

Current liabilities:
Bank indebtedness $ 6,056,412 $ 5,536,786 $ 5,741,984
Accounts payable and accrued
liabilities 1,303,805 704,514 1,029,481
Income taxes payable 3,970 - 129,897
Current portion of long-term
debt 799,538 850,027 691,465
--------------------------------------------

8,163,725 7,091,327 7,592,827

Long-term debt 7,098,508 7,238,694 7,876,707
Future income taxes 1,088,650 932,046 1,176,016

Shareholders' equity:
Share capital 6,961,617 6,961,617 6,961,617
Notes receivable for share
capital (348,750) (348,750) (465,000)
Other paid-in capital 210,000 210,000 210,000
Retained earnings 26,208,174 25,340,384 23,526,420
--------------------------------------------

33,031,041 32,163,251 30,233,037
--------------------------------------------

$ 49,381,924 $ 47,425,318 $ 46,878,587
--------------------------------------------
--------------------------------------------

Segmented information on
identifiable capital assets
by geographic region
Canada $ 18,348,599 $ 18,341,750 $ 18,923,115
Chile 2,794,970 2,799,479 2,814,451
--------------------------------------------
$ 21,143,569 $ 21,141,229 $ 21,737,566
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On behalf of the Board:

"Gabe Magnotta"
Gabe Magnotta - Executive Chairman and Director

"Rossana DiZio Magnotta"
Rossana DiZio Magnotta - CEO/President and Director



MAGNOTTA WINERY CORPORATION
Consolidated Interim Statements of Earnings, Comprehensive Income and
Retained Earnings

Three months ended April 30, 2008 and April 30, 2007


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April 30 April 30
2008 2007
(unaudited) (unaudited)
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Net sales $ 6,063,409 $ 5,949,046

Cost of goods sold 3,114,344 2,981,520
-----------------------------

Gross profit 2,949,065 2,967,526

Expenses:
Selling, administration and other 1,027,100 1,012,436
Depreciation 259,399 316,873
Interest 96,247 96,761
Interest - long-term debt 124,529 136,161
-----------------------------

1,507,275 1,562,231
-----------------------------

Earnings before income taxes 1,441,790 1,405,295

Income taxes:
Current 426,000 417,000
Future 148,000 145,000
-----------------------------

574,000 562,000
-----------------------------

Net earnings and comprehensive income for
the period 867,790 843,295

Retained earnings, beginning of period 25,340,384 22,683,125
-----------------------------

Retained earnings, end of period $ 26,208,174 $ 23,526,420
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Earnings per common share :
Basic $ 0.06 $ 0.06
Diluted $ 0.06 $ 0.06
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Weighted average number of common shares
outstanding 13,932,005 13,932,005
Weighted average number of diluted shares
outstanding 13,932,005 13,932,005

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Segmented information on net sales by
geographic region
Canada $ 5,753,637 $ 5,762,660
Chile 218,082 57,599
Other 91,690 128,787
-----------------------------
$ 6,063,409 $ 5,949,046

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MAGNOTTA WINERY CORPORATION
Consolidated Interim Statements of Cash Flows

Three months ended April 30, 2008 and April 30, 2007

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April 30 April 30
2008 2007
(unaudited) (unaudited)
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Cash provided by (used in):

Operating activities:
Net earnings $ 867,790 $ 843,295
Items not involving cash:
Depreciation 259,399 316,873
Future income taxes 148,000 145,000
Unrealized foreign exchange loss (gain) 5,490 (8,849)
Changes in non-cash operating working
capital:
Accounts receivable (1,439,893) (1,071,328)
Inventories (272,146) (98,593)
Prepaid expenses and deposits (252,839) (147,612)
Accounts payable and accrued liabilities 599,291 238,916
Income taxes receivable/payable 5,888 (46,893)
----------------------------

(79,020) 170,809

Financing activities:
Decrease in long-term debt (196,165) (156,725)
Increase in bank indebtedness 519,626 131,120
----------------------------

323,461 (25,605)

Investing activities:
Purchases of capital assets (261,739) (285,446)
----------------------------

Decrease in cash and cash equivalents (17,298) (140,242)

Cash and cash equivalents, beginning of
period 344,231 210,496
----------------------------

Cash and cash equivalents, end of period $ 326,933 $ 70,254
----------------------------
----------------------------

Supplemental cash flow information:
Cash paid for interest $ 210,205 $ 219,618
Cash paid for income taxes 420,112 463,893

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MAGNOTTA WINERY CORPORATION

Notes to Consolidated Interim Financial Statements - Unaudited

Three months ended April 30, 2008

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 AND CHANGES IN 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, 2008.

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, 2008 except for the following:

The CICA has issued the following accounting standards effective for fiscal years beginning on or after January 1, 2008: Section 1535 "Capital Disclosures", Section 3862 "Financial Instruments - Disclosures", Section 3863 "Financial Instruments - Presentation", and Section 3031 "Inventories".

Section 1535 "Capital Disclosures" requires the Company to provide disclosures about the capital of the Company and how it is managed.

Section 3862 "Financial Instruments - Disclosures" and Section 3863 "Financial Instruments - Presentation" replace Section 3861 "Financial Instruments - Disclosure and Presentation" revising disclosures related to financial instruments, including hedging instruments, and carrying forward unchanged presentation requirements.

Section 3031, "Inventories" replaced the existing Section 3030 "Inventories" and the standard introduced changes to the measurement and disclosure of inventory and converges with international accounting standards.

The adoption of these new accounting standards did not impact the consolidated interim financial statements of the Company; however, it did result in expanded note disclosure outlined below.

Capital Disclosure:



The capital structure of the Company consists of shareholders' equity,
long-term debt, bank indebtedness and cash and cash equivalents as noted
below:


April 30, 2008 January 31, 2008 April 30, 2007
Components of Capital:
Shareholders' equity $ 33,031,041 $ 32,163,251 $ 30,233,037
Long-term debt $ 7,898,046 $ 8,088,721 $ 8,568,172
Bank indebtedness $ 6,056,412 $ 5,536,786 $ 5,741,984
Less:
Cash and cash equivalents $ 326,933 $ 344,231 $ 70,254
$ 46,658,566 $ 45,444,527 $ 44,472,939


The Company's objectives when managing capital are to manage capital in a manner which balances equity and debt, maintaining compliance with its financial covenants and maintaining a capital base so as to sustain future growth.

The Company manages its capital structure as determined by management and approved by the board of directors. The Company's policy is to make adjustments to its capital structure based on changes in economic conditions and planned requirements. The Company has the ability to adjust its capital structure by issuing new equity or debt, selling assets to reduce debt or balance equity, and making adjustments to its capital expenditures program.

The Company monitors capital using a Debt Service Coverage Ratio that has been externally imposed as part of its loan agreements. As at Aprl 30, 2008, the Company is in compliance with the terms of the credit facilities.

There have been no changes to the Company's capital structure, objectives, policies and processes over the prior year.

Financial Instruements:

Credit Risk - The Company is exposed to limited credit risk with respect to its accounts receivable. Exposure to credit risk varies due to the composition of individual balances. Monitoring of customers and balances is performed regularily and allowances are provided for any potentially uncollectible accounts receivable.

Interest Rate Risk - The Company is exposed to interest rate risk on its operating line of credit as well as on some long-term debt based on fluctuations in prime rates. The Company does not use any hedges or contracts to manage the exposure to interest rate fluctuations. A 1% change in interest rates would have impacted the cash flow of the Company during the quarter ended April 30, 2008 by approximately $22,000.

Foreign Exchange Risk - The Company purchases some bulk wine, wine juice, concentrates and some production equipment in U.S. dollars. It receives most of its revenues in Canadian dollars. As a result, it is impacted by fluctuations in foreign exchange rates. A $0.01 change in the Canadian/U.S. exchange rate would have impacted the cash flow of the Company for the three months ended April 30, 2008 by approximately $3,000. The Company considers this risk to be limited and does not hedge its foreign exchange risk.

Fair Value - The fair values of cash and cash equivalents, accounts receivable, bank indebtedness and accounts payable and accrued liabilities approximate their carrying amounts because of the short-term to maturity of these financial instruments. The fair value of long-term debt, which has variable and fixed interest rates based on market rates, approximates the carrying amount of those financial instruments.

International Financial Reporting Standards ("IFRS"):

In January 2006, the CICA Accounting Standards Board ("AcSB") adopted a strategic plan for the direction of accounting standards in Canada. As part of that plan, accounting standards in Canada for public companies are expected to converge with International Financial Reporting Standards ("IFRS") by 2011. The Company continues to monitor and assess the impact of convergence of Canadian GAAP and IFRS.

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 principal repayments of $116,250 in each of the calendar years 2007, 2008, 2009 and 2010. The notes receivable have been included as a reduction of shareholders' equity for presentation purposes.

4. COMPARATIVE FIGURES

Certain 2007 figures have been reclassified to conform with the financial statement presentation adopted in 2008.

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