Mr. J. Murray Souter reports

DIAMOND ESTATES WINES AND SPIRITS INC. REPORTS SECOND QUARTER FISCAL 2015 RESULTS

Diamond Estates Wines & Spirits Inc. is releasing its second quarter results for the fiscal period ending Sept. 30, 2014.

The company generated a profit in the second quarter of 2015 of $116,320, a substantial improvement from the second quarter 2014 loss of $2,431,770. Sales for the second quarter of 2015 were $5,863,300, compared with $5,255,155 for the second quarter of 2014, representing an increase of 11.6 per cent. Gross profit for the second quarter of 2015 was up 28.2 per cent over the prior year to $3,065,401, from $2,391,051. Gross margin for the second quarter of 2015 was 52.3 per cent, an increase of almost 15 per cent compared with 45.5 per cent for the second quarter of 2014. Operating expenses for the second quarter of 2015 decreased by $476,718, compared with the same period in the prior year.

On a year-to-date (YTD) basis, the company had a net loss in 2015 of $81,360, compared with $2,770,544 in 2014. YTD 2015 sales were $11,029,876, compared with $11,244,785 in YTD 2014, representing a minimal decline of 1.9 per cent. YTD gross profit for 2015 increased to $5,651,598 in 2015, from $5,185,715 in YTD 2014, while gross margin for YTD 2015 was up 5.0 per cent to 51.2 per cent, compared with 46.2 per cent for YTD 2014. Operating expenses decreased by $436,729 in YTD 2015, over YTD 2014.

The company generated positive cash flow from operations for YTD 2015, of $462,054, compared with negative cash flow from operations for YTD 2014, of $1,312,919, an increase of $1,774,973, comprising the following major components:

• Increase in gross profit of $465,883;
• Decrease in operating expense of $436,729;
• Decrease in interest expense of $229,977;
• Decrease in financing expenses of $347,079;
• Other, $295,305.

Sales for the second quarter of 2015 were up $608,000 over the second quarter of 2014, with the winery division accounting for the majority of the increase from export sales. Sales for YTD 2015 are very consistent with YTD 2014, showing a small decline of 1.9 per cent, attributable to the timing of export sales. Overall winery sales in YTD 2015 are up $146,000 (1.9 per cent) from YTD 2014. The timing of export sales is more evenly spread than in the prior year, which explains the apparent small year-over-year decline. This was offset by domestic sales increases, including direct sales from the winery, which were up significantly as a result of a contract to supply wine to VIA Rail, and increased sales to bars and restaurants. Gross margin for the winery division for YTD 2015 was up 2.7 per cent, compared with YTD 2014, on the combined impact of price increases, product mix and higher throughput. Gross margin for the agency division for YTD 2015 was up 5.6 per cent, compared with YTD 2014, largely as a result of the strong sales performance in Ontario and Atlantic Canada.

"We are pleased that Diamond Estates was profitable in this quarter," stated J. Murray Souter, president and chief executive officer of Diamond Estates. "Over the past 12 months, we committed to making this company profitable and we are now achieving what we set out to do. Our continued focus on profitability and cost management has resulted in improved margins and positive cash flow from operations. Adjusted for seasonality, we anticipate the improvement to continue into future periods. The recent merger of our agency business with the Kirkwood Group to form Kirkwood Diamond Canada should result in improved operating margins, and increased sales and distribution of our products and brands, through the balance of the year and beyond. Additionally, many of the new brands that we have recently launched are beginning to gain traction in the marketplace and will contribute to the improving financial position of the Diamond Estates."

We seek Safe Harbor.