Magnotta Winery Corporation
TSX : MGN

Magnotta Winery Corporation

December 14, 2007 09:10 ET

Magnotta Winery Corporation Announces October 31, 2007 Results

VAUGHAN, ONTARIO--(Marketwire - Dec. 14, 2007) - Magnotta Winery Corporation (TSX:MGN), is pleased to announce the release of its financial results for the third quarter ended October 31, 2007.

Net sales for the quarter ended October 31, 2007 increased 2.2% to $7,150,558 from $6,993,865 for the corresponding period of the prior year and for the nine month period increased 3.2% to $18,792,078 from $18,201,445 for the corresponding period of the prior year. Net earnings increased 1.0% to $917,671 from $908,440 for the three month period and increased 1.4% to $2,516,540 from $2,482,150 for the nine month period ended October 31, 2007. This steady and gradual increase in sales is consistent with management expectations.

Overall gross profit margin for the quarter ended October 31, 2007 increased to 48.1% from 47.9% for the corresponding period of the prior year, and for the nine month period ended October 31, 2007, decreased to 49.6% from 50.0%. The change in the overall gross profit margin is due to cost pressures from raw and packaging materials as well as higher Ontario grape prices which have been mitigated during the current quarter by the strength of the Canadian dollar. However, for the nine month period, price pressures have not been entirely mitigated by the strength of the Canadian dollar.

Selling, administration and other expenses were $1,415,688 for the three months ended October 31, 2007 compared to $1,305,553 for the corresponding period of the prior year. For the nine month period ended October 31, 2007, selling, administration and other expenses were $3,489,601 compared to $3,279,769 for the corresponding period of the prior year. As a percentage of net sales, selling, administration and other expenses increased to 19.8% from 18.7% for the quarter and for the nine month period increased to 18.6% from 18.0% for the corresponding period of the prior year.

Earnings before interest, income taxes and amortization decreased slightly to $2,024,848 from $2,045,115 for the three months ended October 31, 2007 and for the nine month period ended October 31, 2007 was $5,823,663 compared to $5,828,768 for the corresponding period of the prior year.

Additional details and information are found in the Interim Unaudited Consolidated Financial Statements, the Management Discussion and Analysis for October 31, 2007 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

Nine months ended October 31, 2007


MAGNOTTA WINERY CORPORATION

Notice To Reader of the Interim Consolidated Financial Statements

Nine months ended October 31, 2007

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The consolidated financial statements of Magnotta Winery Corporation and the accompanying interim consolidated balance sheet as at October 31, 2007 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, 2007, with comparative figures for
January 31, 2007 and October 31, 2006

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October 31 January 31 October 31
2007 2007 2006
(unaudited) (unaudited)
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Assets

Current assets:
Accounts receivable $ 1,898,452 $ 396,397 $ 1,527,747
Inventories 22,887,380 22,760,567 21,020,599
Prepaid expenses and deposits 659,271 280,142 649,446
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25,445,103 23,437,106 23,197,792

Capital assets 21,844,530 21,768,993 22,018,829
Winery licenses 251,516 251,516 251,516
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$ 47,541,149 $ 45,457,615 $ 45,468,137
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Liabilities and Shareholders'
Equity

Current liabilities:
Bank indebtedness $ 4,584,887 $ 5,400,368 $ 4,327,856
Accounts payable and accrued
liabilities 1,436,122 790,565 1,406,465
Income taxes payable 6,772 176,790 18,154
Current portion of
long-term debt 714,135 783,886 940,772
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6,741,916 7,151,609 6,693,247

Long-term debt 7,510,547 7,949,860 8,276,606
Future income taxes 1,382,404 966,404 1,461,517

Shareholders' equity:
Share capital 6,961,617 6,961,617 6,961,617
Notes receivable for share
capital (465,000) (465,000) (465,000)
Other paid-in capital 210,000 210,000 210,000
Retained earnings 25,199,665 22,683,125 22,330,150
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31,906,282 29,389,742 29,036,767
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$ 47,541,149 $ 45,457,615 $ 45,468,137
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Segmented information on
identifiable capital assets
by geographic region
Canada $ 19,040,061 $ 18,949,551 $ 19,193,854
Chile 2,804,469 2,819,442 2,824,975
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$ 21,844,530 $ 21,768,993 $ 22,018,829
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On behalf of the Board:

Gabe Magnotta, Executive Chairman and Director


Rossana DiZio Magnotta, CEO/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
2007 2006 2007 2006
(unaudited) (unaudited) (unaudited) (unaudited)
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Net sales $ 7,150,558 $ 6,993,865 $ 18,792,078 $ 18,201,445

Cost of goods
sold 3,710,022 3,643,197 9,478,814 9,092,908
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Gross profit 3,440,536 3,350,668 9,313,264 9,108,537

Expenses:
Selling,
administration
and other 1,415,688 1,305,553 3,489,601 3,279,769
Amortization 318,365 346,666 952,111 969,488
Interest 105,859 95,138 312,572 290,120
Interest -
long-term debt 127,953 142,871 392,440 445,010
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1,967,865 1,890,228 5,146,724 4,984,387
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Earnings before
income taxes 1,472,671 1,460,440 4,166,540 4,124,150

Income taxes:
Current 421,000 418,000 1,234,000 1,228,000
Future 134,000 134,000 416,000 414,000
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555,000 552,000 1,650,000 1,642,000
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Net earnings
for the period 917,671 908,440 2,516,540 2,482,150

Retained earnings,
beginning
of period 24,281,994 21,421,710 22,683,125 19,848,000
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Retained earnings,
end of period $ 25,199,665 $ 22,330,150 $ 25,199,665 $ 22,330,150
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Earnings
per share :
Basic $ 0.07 $ 0.07 $ 0.18 $ 0.18
Diluted $ 0.07 $ 0.07 $ 0.18 $ 0.18
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Weighted average
number of
common shares
outstanding 13,932,005 13,932,005 13,932,005 13,850,257
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 $ 6,974,253 $ 6,833,953 $ 18,368,517 $ 17,718,842
Chile 48,602 - 106,201 143,649
Other 127,703 159,912 317,360 338,954
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$ 7,150,558 $ 6,993,865 $ 18,792,078 $ 18,201,445
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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
2007 2006 2007 2006
(unaudited) (unaudited) (unaudited) (unaudited)
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Cash flows from
(used in):

Operating activities:
Net earnings $ 917,671 $ 908,440 $ 2,516,540 $ 2,482,150
Items not
involving cash:
Amortization 318,365 346,666 952,111 969,488
Future income taxes 134,000 134,000 416,000 414,000
Unrealized foreign
exchange (gain) loss (14,434) 9,401 (29,704) (34,700)
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1,355,602 1,398,507 3,854,947 3,830,938

Changes in non-cash
operating working
capital:
Accounts receivable (354,877) 25,663 (1,502,055) (1,180,078)
Inventories 56,600 (398,300) (126,813) (514,930)
Prepaid expenses
and deposits (73,894) (22,279) (379,129) 22,515
Accounts payable and
accrued liabilities 228,481 96,177 645,557 116,651
Income taxes payable (93,900) (49,245) (170,018) (112,600)
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1,118,012 1,050,523 2,322,489 2,162,496

Financing activities:
Decrease in
long-term debt (160,959) (243,165) (479,360) (906,654)
Decrease in bank
indebtedness (631,117) (461,388) (815,481) (429,325)
Increase in share
capital - - - 330,800
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(792,076) (704,553) (1,294,841) (1,005,179)

Investing activities:
Purchases of capital
assets (325,936) (345,970) (1,027,648) (1,157,317)
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Cash, end of period - - - -
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Supplemental cash
flow information:
Cash paid for
interest $ 219,686 $ 218,467 $ 661,269 $ 665,321
Cash paid for
income taxes 514,900 467,245 1,404,018 1,340,600

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MAGNOTTA WINERY CORPORATION

Notes to Consolidated Interim Financial Statements - Unaudited

Nine months ended October 31, 2007

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 accordingly, the unaudited interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements for the year ended January 31, 2007.

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, 2007.

3 NOTES RECEIVABLE INCLUDED IN SHARE CAPITAL

The 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.

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