Magnotta Winery Corporation
TSX : MGN

Magnotta Winery Corporation

September 13, 2005 13:10 ET

Magnotta Winery Corporation Announces July 31, 2005 Results

VAUGHAN, ONTARIO--(CCNMatthews - Sept. 13, 2005) -

Magnotta Winery Corporation (TSX:MGN), is pleased to announce the release of its financial results for the second quarter ended July 31, 2005.

Gross sales for the three months ended July 31, 2005 increased 3.2% to $7,302,727 from $7,073,231 in the same period last year. For the six month period ended July 31, 2005, gross sales increased 4.1% to $14,552,451 from $13,973,290. Net sales for the quarter ended July 31, 2005 increased 1.6% to $5,319,764 from $5,233,704 and for the six month period increased 3.9% to $10,896,083 from $10,489,839. Net earnings increased 1.1% to $735,159 from $727,539 for the three month period and increased 5.5% to $1,537,468 from $1,458,052 for the six month period ended July 31, 2005. The maturing of many of the Company's locations and the regulatory restrictions on retail licenses has caused sales growth to slow. This slow steady increase in sales is consistent with management expectations.

Gross profit margin for the quarter ended July 31, 2005 increased to 52.3% from 51.1% for the corresponding period of the prior year while for the six month period ended July 31, 2005, increased to 51.8% from 51.0%. 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.

Selling, administration and other expenses were $1,019,851 for the three months ended July 31, 2005 compared to $980,890 for the corresponding period of the prior year. For the six month period ended July 31, 2005, selling, administration and other expenses were $2,013,417 compared to $1,907,398 for the corresponding period of the prior year. As a percentage of net sales, selling, administration and other expenses increased to 19.2% from 18.7% for the quarter and in the prior period increased for the six month period to 18.5% from 18.2% for the corresponding period of the prior year.

Amortization for the three months ended July 31, 2005 was $276,496 compared to $253,545 and for the six month period ended July 31, 2005 was $552,992 compared to $534,930 for the corresponding period of the prior year. The increase in amortization expense was due to increased equipment purchases in prior periods.

The Company incurred $1,473,136 in capital expenditures during the quarter. These expenditures primarily relate to the expansion of the Company's head office, production, and warehouse facility in Vaughan, Ontario. The expansion of the facility is necessary to support the operations of the Company. The construction project is scheduled to be completed by early fall of 2005.

Additional details and information are found in the Management Discussion and Analysis for July 31, 2005.

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



MAGNOTTA WINERY CORPORATION
Interim Consolidated Financial Statements - Unaudited
Six months ended July 31, 2005

MAGNOTTA WINERY CORPORATION
Notice To Reader of the Interim Consolidated Financial Statements

Six months ended July 31, 2005


The consolidated financial statements of Magnotta Winery Corporation and the accompanying interim consolidated balance sheet as at July 31, 2005 and the interim consolidated statement of earnings and retained earnings and cash flows for the six 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 July 31, 2005, with comparative figures for
January 31, 2005 and July 31, 2004

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July 31 January 31 July 31
2005 2005 2004
(unaudited) (unaudited)
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Assets

Current assets:
Accounts receivable $ 1,167,782 $ 634,983 $ 1,474,588
Inventories 20,423,184 20,115,001 18,855,817
Prepaid expenses and
deposits 757,729 622,521 735,157
------------------------------------------

22,348,695 21,372,505 21,065,562


Capital assets 21,389,166 19,746,671 20,038,021
Winery licenses 251,516 251,516 251,516
------------------------------------------

$ 43,989,377 $ 41,370,692 $ 41,355,099
------------------------------------------
------------------------------------------
Liabilities and
Shareholders' Equity

Current liabilities:
Bank indebtedness $ 5,964,906 $ 5,707,024 $ 5,655,174
Accounts payable and
accrued liabilities 1,127,364 1,297,335 960,326
Income taxes payable 172,181 71,750 450,135
Current portion of
long-term debt 1,538,753 1,417,906 1,413,308
------------------------------------------

8,803,204 8,494,015 8,478,943

Long-term debt 8,645,120 8,216,002 8,990,818
Future income taxes 1,354,565 1,078,315 1,271,146

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 18,810,671 17,273,203 16,305,035
------------------------------------------

25,186,488 23,582,360 22,614,192
------------------------------------------

$ 43,989,377 $ 41,370,692 $ 41,355,099
------------------------------------------
------------------------------------------
Segmented information on
identifiable capital assets
by geographic region
Canada $ 18,687,429 $ 17,032,656 $ 17,310,354
Chile 2,701,737 2,714,015 2,727,667
------------------------------------------
$ 21,389,166 $ 19,746,671 $ 20,038,021
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On behalf of the Board:

(signed),

Gabe Magnotta - Director

(signed),

Rossana DiZio Magnotta - Director



MAGNOTTA WINERY CORPORATION
Consolidated Interim Statements of Earnings and Retained Earnings
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For The Three Months For The Six Months
Ended July 31 Ended July 31
2005 2004 2005 2004
(unaudited) (unaudited) (unaudited) (unaudited)
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Revenue:
Gross sales $ 7,302,727 $ 7,073,231 $ 14,552,451 $ 13,973,290
Less product
taxes levied 1,982,963 1,839,527 3,656,368 3,483,451
------------------------------------------------------

Net sales 5,319,764 5,233,704 10,896,083 10,489,839

Cost of goods
sold 2,536,514 2,559,781 5,253,867 5,141,044
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Gross profit 2,783,250 2,673,923 5,642,216 5,348,795

Expenses:
Selling,
administration
and other 1,019,851 980,890 2,013,417 1,907,398
Amortization 276,496 253,545 552,992 534,930
Interest 83,010 82,015 163,935 165,201
Interest -
long-term debt 134,734 135,934 269,404 291,214
------------------------------------------------------

1,514,091 1,452,384 2,999,748 2,898,743
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Earnings before
income taxes 1,269,159 1,221,539 2,642,468 2,450,052

Income taxes:
Current 400,500 369,000 828,750 742,000
Future 133,500 125,000 276,250 250,000
------------------------------------------------------

534,000 494,000 1,105,000 992,000
------------------------------------------------------

Net earnings
for the period 735,159 727,539 1,537,468 1,458,052

Retained
earnings,
beginning of
period 18,075,512 15,577,496 17,273,203 14,846,983
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Retained
earnings,
end of
period $ 18,810,671 $ 16,305,035 $ 18,810,671 $ 16,305,035
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Earnings per
share :
Basic $ 0.05 $ 0.05 $ 0.11 $ 0.11
Diluted $ 0.05 $ 0.05 $ 0.11 $ 0.11
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Weighted average
number of common
shares
outstanding 13,670,005 13,098,005 13,251,583 13,095,368
Weighted average
number of
diluted shares
outstanding 13,926,005 14,001,005 13,926,005 14,001,005

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Segmented
information on
net sales by
geographic
region
Canada $ 5,243,313 $ 5,178,285 $ 10,238,095 $ 9,905,463
Chile - - 451,381 411,630
Other 76,451 55,419 206,607 172,746
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$ 5,319,764 $ 5,233,704 $ 10,896,083 $ 10,489,839
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MAGNOTTA WINERY CORPORATION
Consolidated Interim Statements of Cash Flow
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For The Three Months For The Six Months
Ended July 31 Ended July 31
2005 2004 2005 2004
(unaudited) (unaudited) (unaudited) (unaudited)
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Cash flows from
(used in):

Operating
activities:
Net earnings $ 735,159 $ 727,539 $ 1,537,468 $ 1,458,052
Items not
involving cash:
Amortization 276,496 253,545 552,992 534,930
Future income
taxes 133,500 125,000 276,250 250,000
Unrealized
foreign
exchange
gain (loss) 2,470 19,903 (5,210) 59,820
----------------------------------------------------

1,147,625 1,125,987 2,361,500 2,302,802

Changes in non-cash
operating working
capital:
Accounts
receivable 328,414 (367,136) (532,799) (647,710)
Inventories (321,283) 89,183 (308,183) 144,790
Prepaid expenses
and deposits (52,478) (98,430) (135,208) (116,383)
Accounts payable
and accrued
liabilities (250,612) 56,764 (169,971) 63,053
Income taxes
payable 57,181 69,131 100,431 141,858
----------------------------------------------------

908,847 875,499 1,315,770 1,888,410

Financing
activities:
Increase
(decrease) in
long-term debt 864,461 (368,589) 555,174 (744,162)
Increase in
share capital - - 66,660 14,760
Increase
(decrease)
in bank
indebtedness (300,172) (188,676) 257,882 (390,405)
----------------------------------------------------

564,289 (557,265) 879,716 (1,119,807)

Investing
activities:
Purchases of
capital assets (1,473,136) (318,234) (2,195,486) (768,603)
----------------------------------------------------

Cash, end of
period - - - -
----------------------------------------------------
----------------------------------------------------
Supplemental cash
flow information:
Cash paid for
interest $ 201,897 $ 197,602 $ 393,775 $ 409,549
Cash paid for
income taxes 343,319 399,869 728,319 700,142

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MAGNOTTA WINERY CORPORATION
Notes to Consolidated Interim Financial Statements - Unaudited

Six months ended July 31, 2005


1. DESCRIPTION OF BUSINESS

The Company grows grapes, produces, imports, exports and retails wines, beer, spirits and "must" (juice for making wine) primarily through its locations in Ontario, Canada. Additional sales are obtained through representatives in Canadian provinces, through an e-commerce site and from export markets.

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 accordingly, 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.

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 the Company 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 the Company on its operating line of credit, and provide for principal repayments 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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