Magnotta Winery Corporation
TSX : MGN

Magnotta Winery Corporation

December 14, 2006 11:05 ET

Magnotta Winery Corporation Announces October 31, 2006 Results

VAUGHAN, ONTARIO--(CCNMatthews - Dec. 14, 2006) - Magnotta Winery Corporation (TSX:MGN), is pleased to announce the release of its financial results for the third quarter ended October 31, 2006.

Net sales for the quarter ended October 31, 2006 increased 2.5% to $6,993,865 from $6,820,249 for the corresponding period of the prior year and for the nine month period increased 2.7% to $18,201,445 from $17,716,332 for the corresponding period of the prior year. Net earnings increased 2.9% to $908,440 from $883,068 for the three month period and increased 2.5% to $2,482,150 from $2,420,536 for the nine month period ended October 31, 2006. This slow steady increase in sales is consistent with management expectations.

Overall gross profit margin for the quarter ended October 31, 2006 decreased to 47.9% from 49.7% for the corresponding period of the prior year, and for the nine month period ended October 31, 2006, decreased to 50.0% from 51.0%. The changes in the overall gross profit margin are due to cost pressures from raw and packaging materials.

Selling, administration and other expenses were $1,305,553 for the three months ended October 31, 2006 compared to $1,438,425 for the corresponding period of the prior year. For the nine month period ended October 31, 2006, selling, administration and other expenses were $3,279,769 compared to $3,451,842 for the corresponding period of the prior year. As a percentage of net sales, selling, administration and other expenses decreased to 18.7% from 21.1% for the quarter and decreased for the nine month period to 18.0% from 19.5% for the corresponding period of the prior year. This change is predominately due to reduced marketing and advertising, favourable insurance and maintenance costs, and better and more conscious overall cost controls.

Amortization for the three months ended October 31, 2006 was $346,666 compared to $311,766 for the corresponding period of the prior year and for the nine month period ended October 31, 2006 was $969,488 compared to $864,758 for the corresponding period of the prior year. The increase resulted from capital asset investments, made over the prior year, in the Company's production equipment, building expansion, vineyards and retail locations.

Interest expense for the three months ended October 31, 2006 increased slightly to $238,009 from $236,906 for the corresponding period of the prior year and for the nine month period ended October 31, 2006 was $735,130 compared to $670,245 for the corresponding period of the prior year. The change is due to higher average variable interest rates, as well as the long-term debt from the Vaughan building expansion completed in fiscal 2006.

Additional details and information are found in the Management Discussion and Analysis for October 31, 2006.

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

Nine months ended October 31, 2006



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

Nine months ended October 31, 2006

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The consolidated financial statements of Magnotta Winery Corporation and
the accompanying interim consolidated balance sheet as at October 31, 2006
and the interim consolidated statement of earnings and retained earnings
and cash flows for the nine 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 October 31, 2006, with comparative figures for
January 31, 2006 and October 31, 2005

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October 31 January 31 October 31
2006 2006 2005
(unaudited) (unaudited)
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Assets

Current assets:
Accounts receivable $ 1,527,747 $ 347,669 $ 1,570,500
Inventories 21,020,599 20,505,669 20,627,469
Prepaid expenses and deposits 649,446 671,961 789,787
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23,197,792 21,525,299 22,987,756


Capital assets 22,018,829 21,831,000 22,222,301
Winery licenses 251,516 251,516 251,516
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$ 45,468,137 $ 43,607,815 $ 45,461,573


Liabilities and Shareholders' Equity

Current liabilities:
Bank indebtedness $ 4,327,856 $ 4,757,181 $ 5,844,721
Accounts payable and accrued
liabilities 1,406,465 1,289,814 1,662,638
Income taxes payable 18,154 130,754 13,853
Current portion of long-term debt 940,772 1,477,404 1,687,189
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6,693,247 7,655,153 9,208,401

Long-term debt 8,276,606 8,681,328 8,698,301
Future income taxes 1,461,517 1,047,517 1,485,315

Shareholders' equity:
Share capital 6,961,617 6,630,817 6,630,817
Notes receivable for share capital (465,000) (465,000) (465,000)
Other paid-in capital 210,000 210,000 210,000
Retained earnings 22,330,150 19,848,000 19,693,739
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29,036,767 26,223,817 26,069,556
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$ 45,468,137 $ 43,607,815 $ 45,461,573
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Segmented information on
identifiable capital assets
by geographic region
Canada $ 19,193,854 $ 18,989,432 $ 19,433,423
Chile 2,824,975 2,841,568 2,788,878
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$ 22,018,829 $ 21,831,000 $ 22,222,301
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On behalf of the Board:

"Gabe Magnotta" signed
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Gabe Magnotta - CEO and Director

"Rossana DiZio Magnotta" signed
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Rossana DiZio Magnotta - President and Director



MAGNOTTA WINERY CORPORATION
Consolidated Interim Statements of Earnings and Retained Earnings

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For The Three Months For The Nine Months
Ended October 31 Ended October 31
2006 2005 2006 2005
(unaudited) (unaudited) (unaudited) (unaudited)
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Net sales $ 6,993,865 $ 6,820,249 $ 18,201,445 $ 17,716,332

Cost of goods sold 3,643,197 3,428,084 9,092,908 8,681,951
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Gross profit 3,350,668 3,392,165 9,108,537 9,034,381

Expenses:
Selling, administration
and other 1,305,553 1,438,425 3,279,769 3,451,842
Amortization 346,666 311,766 969,488 864,758
Interest 95,138 86,735 290,120 250,670
Interest - long-term
debt 142,871 150,171 445,010 419,575
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1,890,228 1,987,097 4,984,387 4,986,845
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Earnings before income
taxes 1,460,440 1,405,068 4,124,150 4,047,536

Income taxes:
Current 418,000 391,250 1,228,000 1,220,000
Future 134,000 130,750 414,000 407,000
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552,000 522,000 1,642,000 1,627,000
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Net earnings for the
period 908,440 883,068 2,482,150 2,420,536

Retained earnings,
beginning of period 21,421,710 18,810,671 19,848,000 17,273,203
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Retained earnings,
end of period $ 22,330,150 $ 19,693,739 $ 22,330,150 $ 19,693,739
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Earnings per share :
Basic $ 0.07 $ 0.07 $ 0.18 $ 0.18
Diluted $ 0.07 $ 0.06 $ 0.18 $ 0.17
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Weighted average
number of common
shares outstanding 13,932,005 13,670,005 13,850,257 13,395,758
Weighted average
number of diluted
shares outstanding 13,932,005 13,932,005 13,932,005 13,932,005

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Segmented information
on net sales by
geographic region
Canada $ 6,833,953 $ 6,641,523 $ 17,718,842 $ 16,879,618
Chile - - 143,649 451,381
Other 159,912 178,726 338,954 385,333
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$ 6,993,865 $ 6,820,249 $ 18,201,445 $ 17,716,332
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MAGNOTTA WINERY CORPORATION
Consolidated Interim Statements of Cash Flow

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For The Three Months For The Nine Months
Ended October 31 Ended October 31
2006 2005 2006 2005
(unaudited) (unaudited) (unaudited) (unaudited)
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Cash flows from (used in):

Operating activities:
Net earnings $ 908,440 $ 883,068 $ 2,482,150 $ 2,420,536
Items not involving
cash:
Amortization 346,666 311,766 969,488 864,758
Future income taxes 134,000 130,750 414,000 407,000
Unrealized foreign
exchange (gain) loss 9,401 12,202 (34,700) 6,992
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1,398,507 1,337,786 3,830,938 3,699,286

Changes in non-cash
operating working
capital:
Accounts receivable 25,663 (402,718) (1,180,078) (935,517)
Inventories (398,300) (204,285) (514,930) (512,468)
Prepaid expenses and
deposits (22,279) (32,058) 22,515 (167,266)
Accounts payable and
accrued liabilities 96,177 535,274 116,651 365,303
Income taxes payable (49,245) (158,328) (112,600) (57,897)
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1,050,523 1,075,671 2,162,496 2,391,441

Financing activities:
Increase (decrease)
in long-term debt (243,165) 189,415 (906,654) 744,590
Increase in share
capital - - 330,800 66,660
Increase (decrease)
in bank indebtedness (461,388) (120,185) (429,325) 137,697
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(704,553) 69,230 (1,005,179) 948,947

Investing activities:
Purchases of capital
assets (345,970) (1,144,901) (1,157,317) (3,340,388)
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Cash, end of period - - - -
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Supplemental cash
flow information:
Cash paid for interest $ 218,467 $ 213,904 $ 665,321 $ 607,679
Cash paid for income
taxes 467,245 549,578 1,340,600 1,277,897

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MAGNOTTA WINERY CORPORATION
Notes to Consolidated Interim Financial Statements - Unaudited

Nine months ended October 31, 2006

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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.

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, 2006.

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, 2006.

3 NOTES RECEIVABLE INCLUDED IN SHARE CAPITAL

Five year notes receivable were received 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 monthly interest 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.



4 SHARE CAPITAL

(a) Common Shares

Number Amount
-----------------------------------

Balance, January 31, 2006 13,670,005 $ 6,630,817
Exercise of options 262,000 330,800
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Balance, October 31, 2006 13,932,005 $ 6,961,617
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(b) Options
Weighted average
Number exercise price
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Outstanding, January 31, 2006 262,000 $ 1.26
Exercised (262,000) 1.26
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Outstanding, October 31, 2006 - $ -
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