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Q1 2022 Financial Results

Diamond Estates Wines & Spirits Reports Q1 2022 Financial Results and Announces Stock Option Grants

August 26, 2021, Niagara-on-the-Lake, Ontario – Diamond Estates Wines & Spirits Inc. (TSXV: DWS) ("Diamond Estates" or "the Company") today announced its financial results for the three-month period ending June 30, 2021 ("Q1 2022").

Q1 2022 Summary:

Revenue for Q1 2022 was $7.4 million, an increase of $1.5 million from $5.9 million in Q1 2021. Winery revenue for Q1 2022 was $3.3 million, an increase of 25.4% or $0.7 million from $2.6 million in Q1 2021, specifically related to increased operations of most private retail and on-premise accounts nationally as a result of partial removal of government-imposed restrictions from COVID-19. Agency revenue for Q1 2022 was $4.2 million, a increase of 27.0% or $0.9 million from $3.3 million in Q1 2021, due to continued strength in Western Canada and Ontario of represented brands;
Gross margin for Q1 2022 was $3.1 million, an increase of $0.4 million from $2.7 million in Q1 2021, while gross margin as a percentage of revenue was 41.9% for Q1 2022 compared to 45.6% in Q1 2021. Overall, there has continued to be a shift in the sales mix to higher volume, lower priced and lower margin brands as consumers curb spending during the pandemic and look to less costly brand alternatives;
EBITDA was $0.4 million in Q1 2022, consistent with $0.4 million in Q1 2021, as the increase in gross margin was offset by an increase in employee compensation of $0.4 million; and
Net loss was $0.4 million, compared to a net loss of $0.4 million in Q1 2021.
The Company experienced strong sales in both the Winery and Agency Business. Throughout the first quarter the Company's sales continued to be impacted in the hospitality, contracts, and licensee channels due to government-mandated closures and restricted international and domestic travel. While some of these restrictions were lifted during Q1 2022, the Company expects sales to continue to be impacted by COVID-19 measures.

Gross margin in Q1 2022 declined due to revenue declines in high margin channels, more specifically, retail hospitality, and licensee channels. However, gross margins increased overall, due of the increase in sales experienced from the relief of COVID-19 measures. As the pandemic eases, gross margins should strengthen over the long term as the Company's businesses return to more normal operations.

Subsequent Events:

On August 5, 2021, the Company announced that it is finalizing definitive purchase agreements to acquire (i) all of the issued and outstanding securities of Equity Wine Group Inc., owners of the Creekside Estate Winery and Queenston Mile Vineyards, and (ii) the Shiny Apple craft cider brand from Stonechurch Vineyards and Winery Holdings. The purchase consideration is anticipated to total approximately $14.1 million, including:
Equity Wine Group: (i) $1.5 million in cash, payable on closing, (ii) assumption of term and line-of-credit debt of approximately $4.1 million, (iii) $5.5 million in common shares of Diamond at a deemed price of $0.18 per share, payable on closing, and (iv) 22,916,667 share purchase warrants (with an estimated value of $0.5 million), each entitling the holder to acquire three quarters (¾) of one common share of the Company at an exercise price of $0.22 for a period of 36 months from their date of issuance; and
Shiny Apple brand: $2.5 million payable in cash.
The acquisitions are to be financed with a proposed best efforts private placement for total gross proceeds of up to approximately $8.5 million. The financing will consist of up to 47,223,000 units at $0.18 per unit, with each unit consisting of one common share and three-quarters (¾) of one common share purchase warrant, exercisable at $0.22 per common share for 36 months following the closing of the financing. Completion of the acquisitions will be subject to Diamond closing of the financing noted above, execution of definitive agreements and customary closing conditions, including the approval of the TSX Venture Exchange (the "TSXV") and Bank of Montreal. "We are now beginning to see the business impacts as COVID-19 measures begin to ease with sales increasing significantly in both our wine and agency divisions. While industry conditions still remain challenging in the fiscal first quarter, we were pleased to report stronger EBITDA even with reduced gross margins compared to the same period last year," said Murray Souter, President and CEO. "We have made progress in our efforts to align our business to capitalize on the changing customer buying patterns. We believe that our increased focus on emerging retail channels, including the Ontario grocery channel, is positioning Diamond Estates for long-term success as the pandemic restrictions ease. We are fortunate to have a strong stable of both value-priced wines and recognized brands, which have been preferred options for customers during the pandemic."

Option Grants:

The Company is also announcing the issuance of 750,000 options pursuant to its stock option plan to certain employees of the Company. All options being granted are exercisable at a price of $0.18 per share and expire 5 years from their date of grant.

In addition, the Company wishes to update its disclosure record in announcing the following deferred share units ("DSUs") previously issued and approved by the Board pursuant to its deferred share unit plan:

Date of Grant
No. of DSUs
Issuance Price
Oct. 19, 2019
185,255 DSUs
Jan. 22, 2020
111,079 DSUs
April 20, 2020
196,485 DSUs
Nov. 19, 2020
245,674 DSUs
March 8, 2021
188,543 DSUs
May 31, 2021
169,688 DSUs
July 26, 2021
146,873 DSUs

The DSUs were issued to officers, directors, or employees of the Company, and vested upon their date of issuance. The DSUs were approved by the Board at the time of their issuance, with issuance prices at or above the closing trading price of the Company's common shares on the TSXV on the day prior to their date of issuance.

The Company further wishes to update its disclosure record in announcing the following incentive stock options (the "Options") previously granted and approved by the Board pursuant to its incentive stock option plan:

Date of Grant
No. of Options
Exercise Price
Expiry Date
Sept. 2, 2020
7,050,000 Options
Sept. 2, 2025
Sept. 15, 2020
500,000 Options
Sept. 15, 2025
March 8, 2021
1,500,000 Options
March 8, 2026
May 31, 2021
500,000 Options
May 31, 2026

The Options were granted to officers, directors, or employees of the Company. The Options were approved by the Board at the time of their grant, with exercise prices at or above the closing trading price of the Company's common shares on the TSXV on the day prior to their date of granting.

About Diamond Estates Wines and Spirits Inc.

Diamond Estates Wines and Spirits Inc. is a producer of high-quality wines and a sales agent for over 120 beverage alcohol brands across Canada. The Company operates two wineries, one in Ontario and one in British Columbia, that produce predominantly VQA wines under such well-known brand names as 20 Bees, EastDell, Lakeview Cellars, Dan Aykroyd, Fresh, McMichael Collection, Benchmark, Seasons, Serenity, and Backyard Vineyards.

Through its commercial division, Trajectory Beverage Partners ("TBP"), the Company is the sales agent for many leading international brands in all regions of the country as well as being a distributor in the western provinces. These recognizable brands include Josh wines from California, Fat Bastard and Andre Lurton wines from France, Kaiken wines from Argentina, Blue Nun wines from Germany, Francois Lurton wines from France and Argentina, Felix Solis wines from Spain, Waterloo Brewing from Canada, Landshark Lager from the USA, Marston's beers from England, Edinburgh Gin from Scotland, Tamdhu, Glengoyne and Smokehead single-malt Scotch whiskies, Barcelo Rum from the Dominican Republic, C.K. Mondavi & Family wines including Charles Krug from Napa, Bols Vodka from Amsterdam, Koyle Family Wines from Chile, Pearse Lyons whiskies and gins from Ireland, Niagara Craft Distillers' beverages from Ontario, and Fontana di Papa wines from Italy.

Forward-Looking Statements

This press release contains forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "estimates", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Diamond Estates Wines and Spirits Inc. to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this press release. Such forward-looking statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to: the economy generally; consumer interest in the services and products of the Company; financing; competition; and anticipated and unanticipated costs. While the Company acknowledges that subsequent events and developments may cause its views to change, the Company specifically disclaims any obligation to update these forward-looking statements. These forward-looking statements should not be relied upon as representing the views of the Company as of any date subsequent to the date of this press release. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.

Non IFRS Financial Measure

Management uses net loss and comprehensive loss as presented in the unaudited interim condensed consolidated statements of net loss and comprehensive loss as well as "gross margin" and "EBITDA" as a measure to assess performance of the Company. The Company defines "gross margin" as gross profit excluding depreciation. EBITDA is another financial measure and both gross margins and EBITDA are reconciled to net loss and comprehensive loss below under "Results of Operations" in the Company's MD&A.

EBITDA is a supplemental financial measure to further assist readers in assessing the Company's ability to generate income from operations before taking into account the Company's financing decisions, depreciation of property, plant and equipment and amortization of intangible assets. EBITDA comprises gross margin less operating costs before financial expenses, depreciation and amortization, non-cash expenses such as share based compensation, one time and other unusual items, and income tax. Gross margin is defined as gross profit excluding depreciation on property, plant and equipment used in production. Operating expenses excludes interest, depreciation on property, plant and equipment used in selling and administration, and amortization of intangible assets.

EBITDA does not represent the actual cash provided by the operating activities nor is it a recognized measure of financial performance under IFRS. Readers are cautioned that this measure should not be considered as a replacement for those as per the unaudited interim condensed consolidated financial statements prepared under IFRS. The Company's definitions of this non IFRS financial measure may differ from those used by other companies.

For more information, please contact:

J. Murray Souter
President & CEO
Diamond Estates Wines & Spirits Inc.
905.641.1042 Ext 234

Ryan Conte, CPA, CA, CBV
Diamond Estates Wines & Spirits Inc.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Diamond Estates Wines & Spirits LTD

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