Magnotta Winery Corporation 2011 Annual Report http://www.sedar.com/CheckCode.

do;jsessionid=0000GnqdJFLE_Mboqno7N1rWUDq:-1 Wholly-Owned Subsidiaries: Magnotta Winery Estates Limited Vaughan, Ontario Magnotta Cellars Corporation Beamsville, Ontario Magnotta Vintners Ltd. Cambridge, Ontario Magnotta Vineyards Ltd. Mississauga, Ontario Magnotta Wines Ltd. Scarborough, Ontario Magnotta Distillery Ltd. Beamsville, Ontario Magnotta Brewery (Vaughan) Ltd. Vaughan, Ontario Festa Juice Co. Ltd. Vaughan, Ontario Magnotta Chile Limitada Melipilla, Chile Magnotta Winery Corporation is Ontarios third largest winery by volume of sales. 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 website and from export markets. The Company produces wines from grapes grown on its four vineyards totaling 180 acres in Ontarios Niagara Peninsula, on its 351 acre vineyard in Chiles Maipo Valley, and from purchased wines, wine juices and grapes. Grapes grown on its Ontario vineyards are entirely processed and vinified for the Companys own use. The grapes grown on the Chilean vineyard are also used by the Company for its own requirements, with excess being sold to Chilean wineries. However, since the Companys own

vineyards do not satisfy all of its total wine and grape requirements, quality grapes, juices and wines are sourced from other Ontario Niagara Peninsula growers and from other countries and regions around the world. Festa Juice Co. Ltd., one of the Companys wholly-owned subsidiaries, is one of Ontarios largest producers and suppliers of fresh juice to home wine-makers. The Company is not dependent on any one single customer for a significant portion of its revenues. Most of the Companys revenues and cash flows are generated from its retail winery locations with the balance being principally generated from wholesale accounts such as provincial liquor boards, and wholesale juice customers. The Company purchases its raw materials and products from many local and international suppliers. The nature of these products allows Magnotta to select the supplier based on the best quality, service and cost. As a result, the Company is not dependent on a single supplier for any of its raw materials and products. Risks and Uncertainties (to Supply): Magnotta relies upon a consistent high-quality supply of reasonably priced wines, juices and grapes both through domestic and foreign production. Cost and supply may be affected by factors such as weather, regional wine supplies, the general economic climate, as well as other conditions. The Company owns various vineyards which it relies upon to supply products to the market. Adverse weather conditions could affect crop yields and quality. The Company has taken steps to ensure that its required supplies are available to meet its requirements. Strategic acquisitions of vineyards in Ontarios Niagara Peninsula and Chiles Maipo Valley, as well as strong relationships with domestic and foreign growers and suppliers have aided the Company in attaining these goals. If any of the Companys vineyards or the vineyards of our grape suppliers experience certain weather variations, natural disasters, pestilence, other severe environmental problems or other occurrences, the Company may not be able to secure a sufficient supply of grapes and there could be a decrease in our production of certain products from those regions and/or an increase in costs. In the past, where there has been a significant reduction in domestically sourced grapes, the Government of Ontario, in conjunction with the Ontario Grape Growers Marketing Board, has agreed to temporarily increase the blending of imported wines, which would enable the Company to continue to supply products to the market. The inability to secure premium quality grapes could impair the ability of the Company to supply certain wines to our customers. The Company has developed programs to ensure it has access to a consistent supply to premium quality grapes and wine. The price of Ontario grapes is determined through negotiations with the Ontario Grape Growers Marketing Board in Ontario and the Ontario wine industry.

The Company purchases glass, bag-in-box, and other components used in the bottling and packaging of wine. The largest component in the packaging of wine is glass, of which there are few domestic or international suppliers. There is currently only one commercial supplier of glass in Canada and any interruption in supply could have an adverse impact on the Companys ability to supply its markets. The Company has taken steps to reduce its dependence on domestic suppliers through the development of relationships with several international producers of glass and through carrying increased inventories of selected bottles. The Company has experienced increases in energy and other costs. Additional increases in the cost of energy would result in higher transportation, freight and other operating costs. The Companys future operating expenses and margins are dependent on its ability to manage the impact of cost increases. The Company cannot guarantee that it will be able to pass along increased energy and other costs to its customers through increased prices. Risks and Uncertainty to Reliance on Manufacturing Facilities: Magnotta recognizes the importance of its manufacturing facilities. The significant stock, production capabilities and storage facilities would require some time to replace. Magnotta has comprehensive insurance to cover profit loss and building replacement at all its locations. Risk and Uncertainty (Product Development) Magnotta remains committed to developing new products and adjusting to the ever-changing markets within which it operates and competes. Failure to successfully develop new products in the future could have a material impact on the business.

The Company purchases some bulk wine, wine juice, concentrates and some production equipment in US dollars (effected by exchange rate). Competitive Outlook and Direction The Company is a producer and marketer of quality wines, and its strategy of growth is expected to be achieved primarily through the continued development of its brands and primarily through sales in its existing seven retail locations in Ontario. Expansion by opening additional retail stores will be considered, but success in this area will be predicated on the purchase/acquisition of additional retail licenses, which are not being issued by Ontario provincial regulators. Efforts are being made to obtain additional product listings at Ontario government controlled and regulated retailers but such listings are not easy to obtain and maintain in a competitive marketplace, and profitability of such listings will occur only with substantial sales volume.

July 1, 2010, as part of the Harmonized Sales Tax (HST). This tax came in the form of a special wine levy on CIC wines sold through the Companys retail store network. CIC is wine that is made through the blending of wine made from domestic and foreign content. Imported and domestic wine sold through the provincially owned LCBO will not incur any additional taxation, regardless of the blend, creating an uneven pricing market. This special CIC wine levy has put pressure on the Companys gross profit, as well as on domestic grape prices and purchases. To date the Company has absorbed the majority of the CIC tax and has not fully passed on the tax to the consumer due to concern over creating non-competitive pricing. Historically, the Company has developed and retained a loyal customer base by not increasing prices unreasonably. It is uncertain what the impact will be on customer buying patterns if the Company increased prices to levels above its competitors. The Company is continuing to diligently develop new products and ways to mitigate the impact of the tax. Consolidated Balance Sheets January 31, 2011 and 2010 Rossana Di Zio Magnotta Director Owen McManamon Director 2011 2010 Assets Current assets: Accounts receivable 2011: $ 616,797 2010: $ 590,322 Inventories (note 2) 2011: 30,810,133 2010: 29,878,758 Income taxes receivable 2011:534,686 2010: 137,511 Future income taxes (note 8) 2011: 58,188 2010: 83,130 Prepaid expenses and deposits 2011: 243,221 2010: 268,306 Subtotal Current Assets:

2011: 32,263,025 2010: 30,958,027 Property, plant and equipment (note 3) 2011: 20,085,113 2010: 20,468,725 Winery licenses 2011: 251,516 2010: 251,516 Current Assets Total: 2011: $ 52,599,654 2010: $ 51,678,268 Liabilities and Shareholders Equity (/ divides 2011, and 2010) Current liabilities: Bank indebtedness (note 4) $ 4,979,570 / $ 5,249,398 Accounts payable and accrued liabilities 1,167,308 / 1,568,495 Current portion of long-term debt (note 5) 1,669,600 / 1,041,811 Current portion of retirement allowance (note 10) 300,000 / 300,000 Total: 8,116,478/ 8,159,704 Long-term debt (note 5) 4,277,798 / 5,665,914 Long-term retirement allowance (note 10) 440,000 / 740,000 Future income taxes (note 8) 697,252 / 482,856 Shareholders equity: Share capital (note 6) 6,961,617 / 6,961,617 Notes receivable for share capital (note 9(b)) - (116,250) Other paid-in capital 210,000 / 210,000 Retained earnings 31,896,509 / 29,574,427 Total Shareholder Equity: 39,068,126 / 36,629,794 Commitments (note 13) $ 52,599,654 / $ 51,678,268 See accompanying notes to consolidated financial statements. On behalf of the Board:

Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings (/ divides 2011 and 2010) Net sales $ 23,223,804 / $ 24,172,809 Cost of goods sold, excluding amortization of property, plant and equipment 13,720,915 / 13,935,458 Amortization of property, plant and equipment (production) 434,852 / 524,864 Total cost of goods sold 14,155,767 / 14,460,322 Gross profit 9,068,037 / 9,712,487 Expenses: Selling, administration and other 4,629,071 / 4,717,334 Retirement allowance (note 10) - / 1,600,000 Amortization of property, plant and equipment (non-production) 581,722 / 595,471 Interest: Long-term debt 335,430 / 372,567 Bank indebtedness 83,957 / 128,232 Total Interest: 5,630,180 / 7,413,604 Earnings before income taxes 3,437,857 / 2,298,883 Income taxes (recovery) (note 8): Current 876,437 / 1,131,422 Future 239,338 / (422,653) Total: 1,115,775 / 708,769 Net earnings and comprehensive income 2,322,082 / 1,590,114 Retained earnings, beginning of year 29,574,427 / 27,984,313 Retained earnings, end of year $ 31,896,509 / $ 29,574,427 Earnings per common share (note 7): Basic $ 0.17 / $ 0.12 Diluted 0.17 / 0.11 Notes to Consolidated Financial Statements 2. Inventories: 2011 / 2010 Supplies and raw materials $ 6,802,584 / $ 7,735,020

Work in process 17,684,578 / 15,462,538 Finished goods 6,322,971 / 6,681,200 Total: $ 30,810,133 / $ 29,878,758 3. Property, plant and equipment: (2011) Cost / Accumulated amortization / Net Book value (/ divides the 3)

Land $ 1,675,182 / $ / $ 1,675,182 Land and vineyards 8,103,326 / 176,800 / 7,926,526 Buildings 7,588,888 / 2,861,421 / 4,727,467 Equipment 18,014,633 / 12,420,336 / 5,594,297 Leasehold improvements 2,144,693 / 1,983,052 /161,641 $ 37,526,722 / $ 17,441,609 / $ 20,085,113 Segmented information: Magnottas sole significant business segment is the production and sale of wine and wine juice products. Magnotta operates primarily in Canada and has a vineyard in Chile. Information on net sales and identifiable property, plant and equipment by geographic region is as follows: 2011 / 2010 Net sales: Canada $ 22,089,670 / $ 23,310,594 Chile 779,145 / 757,859 Other 354,989 / 104,356 Total: $ 23,223,804 / $ 24,172,809 Property, plant and equipment: Canada $ 17,109,493 / $ 17,443,050 Chile 2,975,620 / 3,025,675 Total: $ 20,085,113 / $ 20,468,725 Commitments: Magnotta leases facilities under long-term operating leases. The aggregate minimum future annual lease payments are as follows: 2012; $ 89,820 2013: 80,688 2014: 80,688 2015: 67,246 2016:

Total: $ 318,442 **** Most of this information is also on: (also describes some of the financials) File name on sedar: MD&A English Sept 14 2011 MAGNOTTA WINERY CORPORATION MANAGEMENT DISCUSSION AND ANALYSIS SIX MONTHS ENDED JULY 31, 2011 Rossana Magnotta Chief Executive Officer and President Vaughan, Ontario September 14, 2011