UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ~~for the fiscal year ended March 31, 2005.~~

For the fiscal year ended March 31, 2006.

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 333-74589

NATIONAL WINE & SPIRITS, INC.

(Exact name of registrant as specified in its charter)

Indiana		35-2064429
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
700 West Morris Street, P.O. Box 1602 Indianapolis, Indiana		46206
(Address of principal executive offices)		(Zip Code)

700 West Morris Street, P.O. Box 1602 Indianapolis, Indiana		46206
(Address of principal executive offices)		(Zip Code)

(317) 636-6092

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act. Yes x No ¨

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any Amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (as defined in Rule 12b-2 of the Act). ~~Yes ¨ No x~~

~~The~~Large ~~registrant~~accelerated isfiler ¨ Accelerated ~~a privately held corporation. As such, there is no practicable method to determine the aggregate market value of the voting stock held by non~~filer ¨ Non-~~affiliates~~accelerated offiler x ~~the registrant.~~

~~The~~Indicate ~~number~~by ofcheck ~~shares~~mark ~~of Common~~whether ~~Stock,~~the ~~$.01~~registrant ~~par~~is ~~value,~~a shell ofcompany ~~National Wine & Spirits, Inc. outstanding~~ (as ofdefined ~~June~~in 8,Rule ~~2005~~12b-2 ~~was 5,330,521,~~ of ~~which~~the ~~104,520 were voting stock~~Act). Yes ¨ No x

The registrant is a privately held corporation. As such, there is no practicable method to determine the aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant.

The number of shares of Common Stock, $.01 par value, of National Wine & Spirits, Inc. outstanding as of June 7, 2006 was 5,330,521, of which 104,520 were voting stock.

Documents Incorporated by Reference: None

TABLE OF CONTENTS

		Page
Part I		3
Item 1.	Business	3
Item 2.	Properties	12
Item 1A.	Risk Factors	13
Item 3.	Legal Proceedings	13
Item 1B.	Unresolved Staff Comment	15
Item 4.	Submission of Matters to a Vote of Security Holders	14
Item 2.	Properties	15
Part II		15
Item 3.	Legal Proceedings	16
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	15
Item 4.	Submission of Matters to a Vote of Security Holders	16
Item 6.	Selected Consolidated Financial Data	15
Part II
Item 7.	Management’s Discussion And Analysis Of Financial Condition And Results Of Operations	18
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	17
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 6.	Selected Consolidated Financial Data	17
Item 8.	Financial Statements and Supplementary Data	34
Item 7.	Management’s Discussion And Analysis Of Financial Condition And Results Of Operations	20
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	59
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 9A.	Controls and Procedures	59
Item 8.	Financial Statements and Supplementary Data	37
Item 9B.	Other Information	59
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	62
Part III		60
Item 9A.	Controls and Procedures	62
Item 10.	Directors & Executive Officers of the Registrant	60
Item 9B.	Other Information	63
Item 11.	Executive Compensation	64
Part III
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	65
Item 10.	Directors & Executive Officers of the Registrant	64
Item 13.	Certain Relationships and Related Transactions	66
Item 11.	Executive Compensation	68
Item 14.	Principal Accountant Fees and Services	68
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	69
PART IV		69
Item 13.	Certain Relationships and Related Transactions	70
Item 15.	Exhibits and Financial Statement Schedules	69
Item 14.	Principal Accountant Fees and Services	72
PART IV
Item 15.	Exhibits and Financial Statement Schedules	73

Part I

Disclosure Regarding Forward-Looking Statements

This Form 10-K, including, but not limited to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology, such as “may,” “ intend,” “ will,” “ expect,” “ anticipate,” “ should,” “plans to,” “ estimate” or “continue” or the negative thereof or other variations thereon or comparable terminology. In particular, any statement, express or implied, concerning future operating results or the ability to generate revenues, income or cash flow to service the Company’s debt are forward-looking statements. Such statements are necessarily estimates reflecting the Company’s best judgment and expectations based upon current information. Although the Company believes that the expectations will prove to have been correct, all forward-looking statements are expressly qualified by the cautionary statements set forth on Exhibit 99.1 to this Form 10-K, and the Company undertakes no obligation to update such forward-looking statements.

Item 1. Business

General

National Wine & Spirits, Inc. (NWS or the Company) is one of the largest distributors of wine and spirits in the United States. NWS’ markets include, among others, Illinois and Michigan, which are the fifth largest and the sixth largest markets for spirits in the United States, respectively. NWS is the largest distributor of spirits in Indiana with 5958% market share and Michigan with 51% market share. NWS’ market share in Illinois is ~~estimated at~~ approximately 1020% ~~before the additional representation of the Brown Forman brands that commenced during March 2005~~. NWS was incorporated in the state of Indiana in 1998 and conducts its operations through its wholly owned subsidiaries, National Wine & Spirits Corporation in Indiana (NWS-Indiana), NWS-Illinois, LLC (NWS-Illinois), NWS Michigan, Inc. (NWS-Michigan), National Wine & Spirits, LLC (NWSM-LLC) and United States Beverage, L.L.C. (USB). USB distributes and markets malt based products along with import and craft beer products throughout the United States.

The wine and spirits wholesale industry has undergone significant changes in recent years. Rapid consolidation has occurred in the supplier sector, and distributors have expanded their operations to cover a larger number of states, resulting in consolidation among distributors. In several states, only two major distributors ~~continue~~are tooperating, ~~operate~~and the trend toward consolidation in the industry is continuing. The United States wholesale wine and spirits market was approximately $3335 billion during ~~2004~~2005 and is projected to be approximately $3437 billion for ~~2005~~2006 according to industry projections. The Company’s revenue, including the wholesale dollar sales for its fee operations, places NWS as the tenth largest wholesaler in the United States, according to industry surveys. The top twenty wholesalers in the United States accounted for approximately 68% of the market during 2004 and are estimated to account for 72% of the market during 2005 according to industry surveys, as compared to approximately 49% in 1995.

According to industry reports, consumption for distilled spirits increased 2.7% during 2005, slightly less than the 4.1% increase during 2004, but was primarily driven by the higher end products. During 2005, United States wine consumption increased 2.2% and was attributable to growth in both the domestic and import categories. Consumers spent $9.7 billion more on spirits, wine, and beer products during 2005 versus the previous year, while the on-premise segment of the industry accounted for $6.1 billion of the retail dollar sales increase.

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Substantially all of NWS’ revenue results from product sales of liquor, beer and wine, or from distribution and brokerage fees. During fiscal ~~2005~~2006, NWS’ total revenue was $~~553~~717.76 million, which was a $13164.0 million increase from the prior fiscal year, primarily due to the growth in the Company’s product sales segment~~. Spirits~~, and ~~wine~~driven ~~case~~by additional ~~volume~~brands ~~for~~represented in the ~~Company’s~~State ~~products~~of ~~sales~~Illinois. ~~segment~~Although ~~and~~the ~~product~~Company ~~sales~~experienced significant increases in revenue ~~during~~and case volume, the ~~most~~effect ~~recent~~on ~~fiscal~~operating ~~year~~and ~~grew~~net income was minimized by ~~3.0%~~the ~~and~~management ~~2.1%,~~services ~~respectively.~~agreement ~~The~~with ~~Company~~Glazer’s Wholesale ~~growth~~Drug ~~was~~Company, ~~consistent~~Inc. ~~with~~(“Glazer’s”). ~~the~~The ~~beverage~~Company’s ~~alcohol~~net ~~industry~~ income increased during ~~calendar~~fiscal ~~2004~~2006, ~~when~~as ~~according~~compared to ~~industry~~the ~~reports~~prior fiscal year, ~~consumption~~primarily ~~for~~from ~~distilled~~a ~~spirits~~supplier ~~increased~~termination 4payment of $8.1%3 ~~and~~million ~~wine~~that ~~consumption~~did ~~increased~~not ~~3.4%~~occur in the ~~United~~prior fiscal ~~States~~year. ~~Consumers~~The ~~spent~~Company’s long term debt increased $934.28 ~~billion~~million ~~more~~from ~~on spirits~~March 31, ~~wine,~~2005 ~~and~~primarily ~~beer~~due ~~products~~to ~~than~~increased working capital needs of $25.0 million in the ~~previous~~ ~~year~~product sales segment and the ~~growth~~funding of a $14.9 million deposit made in connection ~~spirits~~with ~~consumption~~the ~~was~~proposed acquisition of the ~~largest~~stock ~~annual~~of ~~increase~~a inMichigan ~~more~~wine ~~than~~wholesaler, ~~twenty~~L ~~years~~& ~~according~~L toWine ~~industry~~and ~~reports~~Liquor Corporation (“L&L”). The Company’s availability at March 31, 2006 under its $60.0 million revolving credit facility was $22.1 million.

Recent Developments

On ~~June 1~~March 31, ~~2005,~~2006 ~~it was announced that~~ the Company ~~had~~received ~~reached~~a anvendor ~~agreement~~termination inpayment ~~principle~~of to$8.3 ~~acquire~~million ~~certain~~related ~~assets~~to ofa ~~Johnson Brothers’~~distribution ~~wine~~agreement ~~wholesaler business~~ in ~~Illinois.~~the ~~The~~product ~~final~~sales ~~terms~~segment ~~and~~that ~~conditions~~had ~~are~~an ~~being~~original ~~finalized~~expiration bydate ~~the parties. As a result~~ of ~~the proposed acquisition~~December 31, ~~which~~2006. The isCompany ~~anticipated~~does tonot ~~close~~expect bythe ~~August~~loss 1,of ~~2005,~~ the ~~Company~~distribution ~~expects~~rights to ~~add~~materially ~~the~~affect ~~E&J Gallo Winery brands to~~ the ~~Company’s~~future ~~operations~~financial inperformance ~~Illinois~~of ~~under~~ the ~~Union~~product ~~Beverage~~sales ~~company name~~segment.

The ~~Supreme~~Company ~~Court~~has entered into a series of ~~the~~agreements ~~United~~under ~~States~~which it has sold, inor ancommitted ~~opinion~~to ~~dated~~sell ~~May~~or 16surrender, ~~2005,~~its ~~invalidated~~intangible ~~decisions~~distribution inrights ~~Michigan~~related ~~and~~to ~~New~~certain ~~York~~malt ~~which~~beverage ~~had~~products distributed within the ~~effect~~ state of ~~discriminating~~Illinois. ~~between~~In exchange infor the release and ~~out~~sale of ~~state~~these ~~wineries~~distribution ~~and~~rights ~~limiting~~the ~~interstate~~Company ~~commerce~~expects to receive approximately $20.7 ~~The~~million ~~majority~~by ~~opinion~~September 30, ~~affirmed~~2006. Aside from the ~~broad~~proceeds, ~~power~~the release and sale of ~~the~~these ~~states~~intangible todistribution ~~regulate~~rights ~~beverage~~are ~~alcohol~~not expected ~~trade~~to ~~consistent~~materially ~~with~~affect the ~~Twenty~~future ~~First~~cash ~~Amendment~~flows ~~including~~and ~~the legitimacy~~profitability of the ~~three-tier~~Company’s ~~system~~product sales operations.

~~Industry~~During ~~Overview~~May 2006 the Company received a notice from Glazer’s indicating that Glazer’s was exercising its right to form a new joint venture that will result in the sale of substantially all of the net assets of the Company’s Illinois business with cash proceeds based upon 80% of the then current net book value of the Company’s Illinois business. The Company would own 20% of the new joint venture and Glazer’s would own 80%. The transaction is currently expected to close before December 31, 2006 and is subject to a number of closing conditions.

~~The~~Following ~~United~~the ~~States~~May ~~alcohol-based~~2006 ~~beverage industry generated total retail sales of approximately $154.6 billion during calendar 2004 versus $145.4 billion in calendar 2003~~notice, anGlazer’s ~~increase~~objected ofto ~~6.3%. Sales of wine and spirits, in which NWS primarily competes, accounted for approximately 15% and~~the ~~32%,~~proposed ~~respectively,~~sale ~~or $72.4 billion~~ of ~~total~~the ~~retail~~aforementioned ~~beverage~~distribution ~~alcohol sales in 2004~~rights. The ~~growth~~Company inconsidered the ~~retail~~objection ~~sales~~but ~~were~~concluded ~~primarily~~that ~~attributable to~~ the ~~premium~~sale ~~and~~was ~~high~~in ~~end~~the ~~brands~~best ~~which~~interest ~~included~~of ~~Canadian~~the ~~whisky, flavored and imported vodkas, rums, and tequilas which rebounded after a decline during 2001 due to product shortages~~Company. ~~The~~Glazer’s ~~wine~~attempted ~~consumption increase was primarily attributable~~ to ~~imported~~impede ~~wine, including~~ the ~~Australian~~sale ~~Yellow~~through ~~Tail~~legal ~~brand~~proceedings, ~~which~~but ~~is represented by~~ the Company ~~in its Illinois~~ ~~business.~~recently ~~The~~received ~~increase~~a infavorable ~~the~~ruling. ~~import~~It ~~category~~is ~~during~~possible ~~2004~~that ~~was~~Glazer’s ~~responsible~~will ~~for~~proceed ~~approximately~~with ~~half~~additional ~~the~~objections ~~increase~~through inlegal ~~wine~~channels, ~~consumption~~but ~~while accounting for one quarter of~~ the ~~wine~~Company ~~case~~intends ~~sales~~to incontinue ~~the~~with ~~United~~its ~~States,~~plans ~~according~~ to ~~industry~~sell ~~surveys.~~or ~~The Company~~surrender ~~believes~~ the ~~current~~identified ~~trend~~distribution ~~of consumer preference for premium brands will continue~~rights.

Since the repeal of Prohibition in 1933, the federal and state governments have regulated the sale of spirits, wine, and beer. State regulatory frameworks fall into two types: control and

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~~open.~~Industry InOverview nearly all circumstances, suppliers may not legally sell directly to retailers. In the 18 control states, the state controls either the distribution or the retail sale, or both. In open states, including Indiana, Illinois, and Kentucky, the distributors and retailers are privately owned businesses. In the open-franchise states, there are laws and regulations that restrict the suppliers’ ability to change distributors.

~~Under~~The ~~the~~United ~~three~~States alcohol-~~tier~~based ~~regulatory~~beverage ~~framework~~industry ~~established~~generated bytotal ~~federal~~retail ~~and~~sales ~~state~~of ~~law,~~approximately ~~suppliers~~$164.3 ofbillion ~~alcohol-based~~during ~~beverages~~calendar ~~are~~2005 ~~generally~~versus ~~prohibited~~$154.6 ~~from~~billion ~~selling~~in ~~their~~calendar ~~products~~2004, ~~directly~~an toincrease ~~retail~~of 6.3%. Sales of wine and ~~outlets~~spirits, orin ~~consumers~~which NWS primarily competes, ~~effectively~~accounted ~~requiring~~for ~~suppliers~~approximately to15% ~~use~~and ~~distributors~~33%, ~~such~~respectively, asor ~~NWS~~$78.2 ~~This~~billion ~~regulatory~~of ~~framework~~total ~~effectively~~retail ~~insulates~~beverage ~~distributors~~alcohol ~~from~~sales ~~vertical~~in ~~competition~~2005. ~~from~~The ~~suppliers~~growth orin the retail ~~customers.~~sales ~~Certain~~of ~~large~~spirits ~~chain~~was ~~retailers~~primarily ~~have challenged~~attributable to the ~~three~~premium ~~tier~~and high ~~structure~~end inbrands ~~particular~~which ~~states~~included flavored and imported vodkas, inrums, and an ~~attempt~~expansion toof ~~gain~~flavors ~~favorable~~in ~~pricing~~the ~~directly~~cordial ~~from~~and ~~wineries~~liqueur ~~and~~product ~~breweries~~offerings. AWine ~~successful~~consumption ~~challenge~~rose toby ~~the~~2.2% ~~three~~in ~~tier~~calendar ~~system~~2005 ~~has~~versus ~~not occurred~~2004, ~~but~~and isthe aincrease ~~potential~~was ~~long~~primarily ~~term~~attributable ~~threat~~ to ~~the~~ ~~current~~imported ~~framework.~~wine Inwhich ~~some~~grew ~~states,~~by ~~referred~~5.4% towhile asdomestic ~~“control~~products ~~states,”~~were ~~state~~up ~~law~~by ~~has~~1.1% ~~historically~~over ~~mandated~~ the ~~state~~prior toyear. ~~act~~The asincrease in the ~~exclusive~~import ~~wholesale~~category ~~distributor~~during ~~and/or~~2005 ~~retailer~~was ofresponsible ~~alcohol-based~~for ~~beverages.~~approximately In60% ~~1996,~~of ~~Michigan~~the ~~became~~increase ~~the~~in ~~first control~~wine ~~state~~consumption towhile ~~privatize~~accounting ~~aspects~~for one quarter of the ~~wholesale~~wine ~~distribution~~case ofsales ~~spirits~~in the United States, ~~and~~according ~~NWS~~to ~~has~~industry ~~become~~surveys. ~~the~~The ~~leading~~Company ~~Authorized~~believes ~~Distribution~~the ~~Agent~~current ~~(ADA)~~trend of ~~spirits~~consumer inpreference ~~that~~for ~~state~~premium brands will continue.

Since the repeal of Prohibition in 1933, the federal and state governments have regulated the sale of spirits, wine, and beer. State regulatory frameworks fall into two types: control and open. In nearly all circumstances, suppliers may not legally sell directly to retailers. In the 18 control states, the state controls either the distribution or the retail sale, or both. In open states, including Indiana, Illinois, and Kentucky, the distributors and retailers are privately owned businesses. In the open-franchise states, there are laws and regulations that restrict the suppliers’ ability to change distributors.

Under the three-tier regulatory framework established by federal and state law, suppliers of alcohol-based beverages are generally prohibited from selling their products directly to retail outlets or consumers, effectively requiring suppliers to use distributors such as NWS. This regulatory framework effectively insulates distributors from vertical competition from suppliers or retail customers. Certain large chain retailers have challenged the three tier structure in particular states, in an attempt to gain favorable pricing directly from wineries and breweries. A successful challenge to the three tier system has not occurred, but is a potential long term threat to the current framework. In some states, referred to as “control states,” state law has historically mandated the state to act as the exclusive wholesale distributor and/or retailer of alcohol-based beverages. In 1996, Michigan became the first control state to privatize aspects of the wholesale distribution of spirits, and NWS has become the leading Authorized Distribution Agent (“ADA”) of spirits in that state.

Given the three tier regulatory structure, the wine and spirits distribution industry varies greatly from other industries such as food, drugs, non-alcohol-based beverages and paper products. As suppliers can compete directly with the distributors in these other industries by shipping directly to retailers, distributor margins can be much lower than those in the wine and spirits industry. In addition, the liquor industry as a whole has shown a remarkable resilience to economic downturns relative to other industries.

Suppliers and Products

NWS represents many of the largest suppliers of wine and spirits in the United States, and offers hundreds of brands and more than 12,000 individual products. The breakdown of sales among wine, spirits and other products distributed by NWS in 2005, 2004 and 2003 is as follows:

	Wine (in thousands)									Spirits (in thousands)									Other (in thousands) (1)
	2005			2004			2003			2005			2004			2003			2005			2004			2003
Product sales	$	137,355		$	140,874		$	165,388		$	267,540		$	241,175		$	392,580		$	119,504		$	131,566		$	131,891
Distribution fees		—			—			—			29,268			27,045			22,999			—			—			—
Percentage of total Company revenue		24.9	%		26.1	%		23.2	%		53.8	%		49.6	%		58.3	%		21.4	%		24.3	%		18.5	%

(1) Other includes beer, tobacco, malt based, and non-alcoholic products

In each of the last three fiscal years, sales of wine and spirits accounted for more than seventy five percent of consolidated revenue. The financial statements contained in Item 8 of this Form 10-K set forth the Company revenues from external customers, profit, and total assets for each of the last three fiscal years.

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~~NWS’~~Suppliers ~~overall product mix. For purposes of illustrating the scale of NWS’ operations in Michigan, the total wholesale prices of products delivered by NWS for Michigan in 2005, 2004~~ and ~~2003~~Products ~~was approximately $404.0 million, $389.0 million and $334.0 million, respectively, based on the average fixed wholesale prices of the spirits delivered by NWS.~~

NWS’ ~~products~~represents ~~include~~ many of the ~~leading~~largest ~~brands~~suppliers of ~~spirits~~wine and ~~wine.~~spirits ~~The~~in ~~Company~~the ~~represents~~United ~~nine~~States, ofand ~~the~~offers ~~top~~hundreds ~~ten~~of brands and ~~distributes~~more ~~products~~than ~~from~~12,000 ~~eight~~individual ~~of the top ten suppliers~~products. The ~~following~~breakdown ~~table~~of ~~lists~~sales ~~the~~among ~~top~~wine, ~~ten brands of~~ spirits ~~during~~and ~~2004~~other products ~~and~~distributed ~~the~~by NWS ~~business or~~in ~~affiliate~~2006, ~~that~~2005 ~~distributes~~and or2004 ~~markets~~is ~~that~~as ~~particular~~follows: ~~brand.~~


	Wine (in thousands)									Spirits (in thousands)									Other (in thousands) (1)
	2006			2005			2004			2006			2005			2004			2006			2005			2004
Product sales	$	195,413		$	137,355		$	140,874		$	353,907		$	267,540		$	241,175		$	137,340		$	119,504		$	131,566
Distribution fees		—			—			—			30,964			29,268			27,045			—			—			—
Percentage of total Company revenue		27.2	%		24.9	%		26.1	%		53.6	%		53.8	%		49.6	%		19.1	%		21.4	%		24.3	%

(1)	Other includes beer, tobacco, malt based, and non-alcoholic products

In each of the last three fiscal years, sales of wine and spirits accounted for more than 75% of consolidated revenue. The financial statements contained in Item 8 of this Form 10-K set forth the Company revenues from external customers, profit, and total assets for each of the last three fiscal years.

In Michigan, ADA’s have exclusive relationships with suppliers by law, and receive distribution fees from suppliers as set by the state, rather than purchasing from the suppliers for resale to customers. This arrangement has the effect of understating the importance of spirits in NWS’ overall product mix. For purposes of illustrating the scale of NWS’ operations in Michigan, the total wholesale prices of products delivered by NWS for Michigan in 2006, 2005 and 2004 was approximately $399.0 million, $404.0 million and $389.0 million, respectively, based on the average fixed wholesale prices of the spirits delivered by NWS.

NWS’ products include many of the leading brands of spirits and wine. The Company represents nine of the top ten brands and distributes products from eight of the top ten suppliers. The following table lists the top ten brands of spirits during 2005 and the NWS business or affiliate that distributes or markets that particular brand:


Brand & Category	Supplier	NWS representation
Bacardi Rum	Bacardi USA	None
Smirnoff Vodka	Diageo	IN, MI
Captain Morgan Rum	Diageo	IN, MI
Absolut Vodka	Absolut Spirits/Future Brands	IN, MI, KY
Jack Daniel’s Straight Whiskey	Brown-Forman Beverages	IL, KY
Crown Royal Canadian Whiskey	Diageo	IN, MI
Jose Cuervo Tequila	Diageo	IN, MI
Jim Beam Straight Whiskey	Jim Beam Brands	IN, MI, KY
DeKuyper Cordials	Jim Beam Brands	IN, MI, KY
Seagram’s Gin	Pernod Ricard USA	IN

NWS represents many of the leading domestic and imported wine brands including the following, among many others.

Brand Supplier NWS representation Almaden Canandaiqua Wine IN Beringer Beringer Blass Wine Estates IN Yellow Tail W.J. Deutsch & Sons IL Arbor Mist Canandaigua Wine IN Inglenook Canandaigua Wine IN Vendange Canandaigua Wine IN Kendall-Jackson Kendall-Jackson Wine Estates IN, KY Concha y Toro Banfi Vintners IN, IL Cavit Palm Bay Imports IL, IN Riunite Banfi Vintners IL, IN Lindemans Southcorp Wines USA IN, KY

NWS has entered into written distribution agreements with several of its principal suppliers that generally may be extended on an annual basis but are terminable upon 30 days or 60 days written notice to NWS. NWS has entered into various long-term agreements with certain suppliers as disclosed in the consolidated financial statements. In addition, NWS has informal arrangements with many of its suppliers whereby NWS distributes the suppliers’ products pursuant to purchase orders without written distribution agreements. Although the terminable written agreements provide NWS with the non-exclusive right to distribute the suppliers’ products in a particular state, in practice the suppliers have generally selected a distributor to be the exclusive distributor of specified products in each state. In each of Indiana and Michigan, NWS is presently acting as the exclusive distributor with respect to virtually all of the products it distributes.

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NWS ~~has~~represents ~~entered~~many ~~into distribution agreements with certain~~ of ~~its~~the ~~suppliers~~leading indomestic ~~Indiana, Illinois, Michigan,~~ and ~~USB.~~imported ~~The~~wine ~~following~~brands ~~figures~~including ~~represent approximate aggregate case sales and net sales for fiscal 2005 from suppliers with which~~ the ~~Company entered into such agreements~~following, ~~and~~among ~~brands for which the Company owns the distribution~~many ~~rights~~others:

Case sales:			11,461,000
Net sales:		$	332,534,000


Brand	Supplier	NWS representation
Almaden	Centerra Wine Company	IN
Beringer	Beringer Blass Wine Estates	IN
Carlo Rossi	E&J Gallo Winery	IL
Yellow Tail	W.J. Deutsch & Sons	IL
Arbor Mist	Centerra Wine Company	IN
Inglenook	Centerra Wine Company	IN
Vendange	Centerra Wine Company	IN
Kendall-Jackson	Kendall-Jackson Wine Estates	IL, IN, KY
Concha y Toro	Banfi Vintners	IN, IL
Cavit	Palm Bay Imports	IN
Riunite	Banfi Vintners	IL, IN
Lindemans	Southcorp Wines USA	IN, KY
Jacob’s Creek	Pernod Ricard USA	IN

NWS has entered into distribution agreements with certain of its suppliers in Indiana, Illinois, Michigan, and USB. The following figures represent approximate aggregate case sales and net sales for fiscal 2006 from suppliers with which the Company entered into such agreements, and brands for which the Company owns the distribution rights:


Case sales:		11,901,000
Net sales:	$	407,051,000

Related Operations

During 1998 NWS formed a distributorship in Kentucky (Commonwealth Wine & Spirits, LLC) in partnership with two existing Kentucky-based distributors, The Vertner Smith Company (“Vertner”) and Kentucky Wine & Spirits (“Kentucky W&S”). NWS has a 25% interest in the partnership and the interest is reflected in the Company’s recorded equity in income of Commonwealth Wine & Spirits, LLC in the accompanying consolidated statement of operations.

In addition to its core alcohol-based beverage distribution operations, NWS has conducted related beverage operations through a division, Cameron Springs Water Company, and through NWS’ USB operations. Cameron Springs, a bottled water supplier in Indiana, was sold to Perrier Group during June 2000 for approximately $10.4 million in cash, which was in excess of net book value. USB commenced operations as a division of NWS in March 1997 to market and sell malt based products, imported, specialty and microbrewed beers nationally. In select markets, NWS sells and distributes premium cigars primarily as a complement to NWS’ distribution of fine wines and spirits.

Customers

Most states, including Indiana, Illinois and Michigan, require wine and spirits retailers to purchase alcohol-based beverages from licensed distributors. Suppliers in these states may not legally sell directly to retail customers. NWS’ customers fall into two broad categories depending on where the alcohol-based beverage ultimately will be consumed: on-premise and off-premise. Off-premise customers include package liquor stores, grocery stores, drug stores and mass merchandisers. On-premise customers include hotels, restaurants and bars, and similar establishments. NWS currently serves over 32,000 retail locations in Indiana, Illinois and Michigan. No single customer represented more than 3.0% of NWS’ 2005 total revenue. As is customary in the industry, NWS’ products are generally purchased under standard purchase orders and not under long-term supply contracts. As a result, backlog is not meaningful in the wholesale distribution industry.

Industry-wide the percentage of case sales of wine and spirits for off-premise and on-premise in the United States for 2004 were approximately 77.3% and 22.7%, respectively. While the vast majority of case sales are from the off-premise outlets, approximately 54.1% of industry-wide retail wine and spirits dollar sales in the United States during 2004 were from on-premise outlets. The following table summarizes NWS’ customer base for NWS-Illinois, NWS-Indiana, and NWS-Michigan:

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Type of Customer	Percentage of Tier 22005 Revenue by TradeChannel	Representative Customers
Off-Premise
Package Stores	39.4%	Gold Standard and Cap’n Cork Marsh, Dominicks, Kroger, American Stores (Osco), CVS, Sam’s Club, Meijer, Costco
Grocery stores, drug stores and mass merchandisers	27.3
Other	6.6
Percent of total	73.3%
On-Premise Restaurants and Bars	21.3	Charlie Trotter’s, House of Blues, Applebee’s, Lettuce Entertain U, TGI Fridays, Ruth’s Chris
Hotels, Entertainment	1.0	Four Seasons, Hyatt, Hilton, Marriott, United Center
Other	4.4	Crooked Stick Golf Course, American Legion
Percent of total	26.7%

depending on where the alcohol-based beverage ultimately will be consumed: on-premise and off-premise. Off-premise customers include package liquor stores, grocery stores, drug stores and mass merchandisers. On-premise customers include hotels, restaurants and bars, and similar establishments. NWS currently serves over 35,000 retail locations in Indiana, Illinois and Michigan. No single customer represented more than 10.0% of NWS’ 2006 product sales and distribution fee revenue, respectively. As is customary in the industry, NWS’ products are generally purchased under standard purchase orders and not under long-term supply contracts. As a result, backlog is not meaningful in the wholesale distribution industry.

~~Management~~Industry-wide ~~believes that~~ the ~~large~~percentage ~~number~~of ~~and~~case ~~diversity~~sales of ~~NWS’~~wine ~~customers~~ and ~~the~~spirits ~~regulatory~~for ~~nature~~off-premise ofand ~~NWS’~~on-premise ~~business~~in ~~strengthens~~the ~~NWS’~~United ~~liquidity.~~States ~~Indiana~~for ~~has~~2005 awere ~~15-day~~approximately ~~credit~~76.9% ~~law~~and ~~beyond~~23.1%, ~~which~~respectively. ~~retail~~While ~~customers~~the ~~are~~vast ~~restricted from~~majority ~~buying~~of ~~alcohol-based~~case ~~beverages~~sales are from ~~any distributor in~~ the ~~market. Illinois has a similar 30~~off-~~day~~premise outlets, ~~credit~~approximately ~~law~~55.0% ~~Typically,~~of ~~NWS’~~industry-wide ~~bad~~retail ~~debt~~wine ~~expenses~~and ~~are~~spirits ~~incurred~~dollar ~~less~~sales ~~than~~in 30the ~~days~~United ~~after~~States ~~shipment~~during ~~since~~2005 ~~the~~were ~~credit~~from ~~laws~~on-premise ~~prohibit extension of terms~~outlets. ~~Average~~ ~~bad~~The ~~debt~~following ~~expense~~table ~~for~~summarizes ~~the~~NWS’ ~~past~~customer ~~five~~base ~~years~~for ~~has~~NWS-Illinois ~~been~~and ~~less than 0~~NWS-Indiana.~~10%~~ ~~of revenue.~~


Type of Customer	Percentage of Tier 2 2005 Revenue by Trade Channel		Representative Customers
Off-Premise
Package Stores	36.3	%	Gold Standard and Cap’n Cork
Grocery stores, drug stores and mass merchandisers	32.8		Marsh, Dominicks, Kroger, American Stores (Osco), CVS, Sam’s Club, Meijer, Costco
Other	5.1

Percent of total	74.2	%

On-Premise
Restaurants and Bars	21.2	%	Charlie Trotter’s, House of Blues, Applebee’s, Lettuce Entertain U, TGI Fridays, Ruth’s Chris
Hotels, Entertainment	1.8		Four Seasons, Hyatt, Hilton, Marriott, United Center
Other	2.8		Crooked Stick Golf Course, American Legion

Percent of total	25.8	%

Management believes that the large number and diversity of NWS’ customers and the regulatory nature of NWS’ business strengthens NWS’ liquidity. Indiana has a 15-day credit law beyond which retail customers are restricted from buying alcohol-based beverages from any distributor in the market. Illinois has a similar 30-day credit law. Typically, NWS’ bad debt expenses are incurred less than 30 days after shipment since the credit laws prohibit extension of terms. Average bad debt expense for the past five fiscal years has been approximately 0.06% of total NWS revenue.

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Marketing and Sales

Brand Management. NWS was one of the first distributors to recognize the benefits of a dedicated approach to brand management and separating it from sales execution which has contributed to the Company’s success. Suppliers appreciate and depend upon the local expertise and understanding of the intricacies of the market. The Company’s brand managers, through interaction with NWS’ sales teams and analysis of the competitive landscape, adjust suppliers’ national brand strategies to plans that work in the Company’s respective states.

Multiple Sales Divisions. NWS has adapted to industry changes and product portfolio growth through the creation of multiple sales divisions. Under this structure, potentially competitive products are placed in separate sales divisions to gain focus and grow the business. Though NWS has utilized this structure for more than 15 years in Indiana, recent supplier consolidation has led to the creation of separate sales divisions in Michigan, as well as an expanded organization in Indiana.

Sales Teams. NWS sales organizational design is predicated upon category knowledge and expertise, trade channel knowledge ~~and effectiveness~~, and geographic coverage. Through its marketing and sales force, NWS acts as the field marketing and merchandising arm of its suppliers by maintaining regular contact with NWS’ customers. NWS sales organizational strategy is to focus on the various on and off premise trade channels such as independents, national chains, membership clubs, and grocery. This trade focused strategy is implemented through a performance based compensation structure that aligns the goals of the customer and supplier with internal profitability. Additionally, NWS provides its customers with a wide variety of services in addition to order taking, merchandising, and delivery. These services include item selection and SKU optimization using space and financial tools, fact-based business presentations to capitalize on fair share, consumer pull-through marketing programs and communicating business-building solutions.

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suppliers by maintaining regular contact with NWS’ off-premise and on-premise customers. NWS provides its customers with a wide variety of services in addition to order taking, merchandising, and delivery. These services include item selection and SKU optimization using space and financial tools, fact-based business presentations to capitalize on fair share, consumer pull-through marketing programs and communicating business-building solutions.

Sales, Marketing and Information Systems. NWS’ investment in technology in the areas of sales and marketing is a critical factor in its success and customer satisfaction. NWS is generally recognized as an industry innovator and leader in MIS in the wine and spirits distribution tier. NWS’ proprietary sales system manages sales data to the SKU level in all retail accounts that it services and is refreshed nightly based on deliveries. This system provides brand teams the necessary information to develop targeted, effective brand plans. Moreover, the Company’s sales managers depend on the information to monitor and control retail execution within their sales teams. Most recently NWS has moved this information to the Internet to allow for greater speed and accessibility to management, retail, and supplier partners. NWS has also invested resources to significantly improve category management expertise, and this has improved service and effectiveness, particularly in the off-premise national and regional chain accounts.

NWS’ sales force and management is equipped with laptop computers, which expedites order entry and provides instant feedback to customers regarding order activity. NWS provides its customers and suppliers with the ability to directly enter and track orders via electronic data interchange. In addition, NWS’ proprietary information systems provide its sales and marketing personnel, customers and suppliers with access to a database of information regarding the purchase and sale of alcohol-based beverages in specific geographic markets. NWS’ suppliers have immediate access to information regarding product and demographic trends within specific geographic markets and NWS’ customers have access to information regarding popular products or other trends from similarly situated retail locations. Management believes that its management information systems enhance its operating performance and improve its relationships with customers and suppliers.

Warehousing and Distribution

NWS utilizes a series of three master warehouses, three hyper-terminals and six cross-docking facilities strategically located throughout Indiana, Illinois and Michigan to store and ship its products pending sale to customers. NWS’ customers ordinarily receive either next day or second-day delivery. In general, orders are collected during the day for batch routing and order “picking” at night. The Chicago and Detroit master warehouses each use an automated material handling system, including scanners, automated conveyors, dispensers and sorters. Products from the master warehouses are then shuttled nightly to either a hyper-terminal or a cross-docking facility where the orders are consolidated and loaded onto delivery trucks. Cross-docking facilities further extend the service areas of the master warehouses. Orders for delivery out of the various cross-docking facilities are picked in the master warehouses, shipped in during the night, and then transferred onto local delivery trucks for final delivery. NWS owns or leases a total fleet of approximately 307 delivery vehicles, consisting of 229 delivery trucks, 14 tractors, 24 trailers and 40 vans. As a result of a number of factors including state laws and regulations, NWS maintains independent distribution networks in Indiana, Illinois and Michigan.

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purchase and sale of alcohol-based beverages in specific geographic markets. NWS’ suppliers have immediate access to information regarding product and demographic trends within specific geographic markets and NWS’ customers have access to information regarding popular products or other trends from similarly situated retail locations. Management believes that the Company’s management information systems enhance its operating performance and improve its relationships with customers and suppliers.

Warehousing and Distribution

NWS utilizes a series of three master warehouses, three hyper-terminals and seven cross-docking facilities strategically located throughout Indiana, Illinois and Michigan to store and ship its products pending sale to customers. NWS’ customers ordinarily receive either next day or second-day delivery. In general, orders are collected during the day for batch routing and order “picking” at night. The Chicago and Detroit master warehouses each use an automated material handling system, including scanners, automated conveyors, dispensers and sorters. Products from the master warehouses are then shuttled nightly to either a hyper-terminal or a cross-docking facility where the orders are consolidated and loaded onto delivery trucks. Cross-docking facilities further extend the service areas of the master warehouses. Orders for delivery out of the various cross-docking facilities are picked in the master warehouses, shipped in during the night, and then transferred onto local delivery trucks for final delivery. NWS owns or leases a total fleet of approximately 319 delivery vehicles, consisting of 240 delivery trucks, 15 tractors, 24 trailers and 40 vans. As a result of a number of factors including state laws and regulations, NWS maintains independent distribution networks in Indiana, Illinois and Michigan.

Competition

There are significant barriers to entry into the wholesale wine and spirits distribution business. These barriers include established supplier-distributor relationships, specialized distribution equipment such as material handling systems and delivery vehicles, important industry knowledge regarding pricing, inventory management, and distribution logistics. Historically, it is extremely rare for organizations not already engaged as wine and spirits distributors to enter the business. New distributors typically enter existing markets through acquisition.

The wine and spirits wholesale distribution business is ~~highly~~ highly competitive. NWS’ primary competition in Illinois includes Judge & Dolph and Southern Wine & Spirits. In Indiana, the only significant competitor is Olinger (a partnership of Glazer’s and Romano). None of the ten largest ~~United~~ United States distributors currently competes with NWS in Michigan. Given the ongoing consolidation among distributors, as well as suppliers, the competitive landscape is subject to continuing change. Distributors compete for new suppliers or brands based on reputation, market share, access to customers and ability to satisfy supplier demands.

Environmental Matters

The Company currently owns and leases a number of properties, and historically it has owned and/or leased others. Under applicable environmental laws, the Company may be responsible for remediation of environmental conditions relating to the presence of hazardous substances on such properties. The liability imposed by such laws is often joint and several without regard for whether the property owner or operator knew of, or was responsible for, the presence of such hazardous substances. In addition, the presence of such hazardous substances, or the failure to properly remediate such substances, may adversely affect the property owner’s ability to borrow using the real estate as collateral and to transfer its interest in the real estate. Although the Company is not aware of the presence of hazardous substances requiring remediation, there can be no assurance that releases unknown to the Company have not occurred. The Company does not manufacture any of the wine or spirit products it sells and believes that it has conducted its business in substantial compliance with applicable environmental laws and regulations. Compliance with environmental laws has not had a material effect upon the Company’s capital expenditures, earnings or competitive position.

Employees

As of March 31, 2005, NWS had approximately 1,435 employees. Approximately 164 employees in Michigan and 322 employees in Illinois are represented by labor unions. In Illinois, NWS has relationships with three unions:

(1) Liquor and Allied Workers Union Local 3, annual agreements expiring September 30, 2007 and October 31, 2007;

(2) Teamsters Union Local 525, expiring August 31, 2005; and

(3) Teamsters Union Local 744, expiring May 30, 2008.

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substances on such properties. The liability imposed by such laws is often joint and several without regard for whether the property owner or operator knew of, or was responsible for, the presence of such hazardous substances. In addition, the presence of such hazardous substances, or the failure to properly remediate such substances, may adversely affect the property owner’s ability to borrow using the real estate as collateral and to transfer its interest in the real estate. Although the Company is not aware of the presence of hazardous substances requiring remediation, there can be no assurance that releases unknown to the Company have not occurred. The Company does not manufacture any of the wine or spirit products it sells and believes that it has conducted its business in substantial compliance with applicable environmental laws and regulations. Compliance with environmental laws has not had a material effect upon the Company’s capital expenditures, earnings or competitive position.

Employees

As of March 31, 2006, NWS had approximately 1,725 employees. Approximately 164 employees in Michigan and 507 employees in Illinois are represented by labor unions.

In Illinois, NWS has relationships with three unions:

(1)

Liquor and Allied Workers Union Local 3, annual agreements expiring September 30, 2007 and October 31, 2007;

(2)

Teamsters Union Local 525, expiring August 31, 2009; and

(3)

Teamsters Union Local 744, expiring May 31, 2008.

In Michigan, NWS has relationships with four unions:

(1)

Teamsters Union Local 299, expiring March 2, 2007;

(2)

Teamsters Union Local 337, expiring March 8, 2008;

(3)

Teamsters Union Local 406, annual agreements expiring September 10, 2006 and March 7, 2008; and

(4)

Teamsters Union Local 486, expiring March 2, 2007.

Employees of NWS in Indiana are not represented by any labor unions.

NWS has not experienced any work stoppages in more than 22 23 years as a result of labor disputes and considers its employee relations to be good.

Regulatory Considerations

The manufacturing, importation, distribution and sale of alcohol-based beverages are subject to regulation by the federal government through the Alcohol and Tobacco Tax and Trade Bureau, as well as by state and local regulatory agencies. Suppliers, distributors and retailers must be properly licensed in order to sell alcohol-based beverages.

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In most states, the alcohol-based beverage industry operates within what is commonly referred to as a three-tier system of distribution. The three tiers are identified as follows:

(1)

Tier one is comprised of suppliers that produce alcohol-based beverages and/or importers of alcohol-based beverages, such as USB.

(2)

Tier two is comprised of distributors, such as NWS-Indiana, NWS-Illinois, NWS-Michigan, and NWSM-LLC.

(3)

Tier three is comprised of retail licensees.

Under this system, suppliers sell to distributors, distributors sell to retailers, and retailers sell to consumers. For the most part, suppliers may not sell to retailers or consumers and distributors may not sell directly to consumers. All states prohibit suppliers or distributors from having an interest in retail licensees. NWS directly and through its affiliates holds federal basic permits and state permits/licenses as a distributor and importer. Also, NWS-Illinois holds out-of-state shipper permits that allow it to ship products from one state to a licensed distributor in any one of the other states.

NWS is required to have each of its officers, directors and principal stockholders who own 5% or more of the issued and outstanding stock qualified by federal and state governmental agencies to have an interest in a licensed company. NWS’ officers, directors and principal stockholders have been qualified by the Alcohol and Tobacco Tax and Trade Bureau and state regulatory agencies to hold licenses/permits as a wholesaler/importer.

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Distributors like NWS face scrutiny in a number of important areas, including initial licensing or permitting and sales and marketing activities with or on behalf of retail customers. The distributors may not give or transfer anything of value to their customers in exchange for business or other consideration. The definition of “value” differs from state to state. NWS participates in significant promotional activities for suppliers and customers. Suppliers also are increasingly asking distributors to be responsible for activities and related costs formerly undertaken by suppliers as suppliers pursue ways to reduce their operating costs. These increased demands will likely challenge distributors, including NWS, which desire to meet the wishes of their suppliers and customers. As a result, NWS regularly provides training and education programming for its sales and marketing personnel.

NWS believes that it is in compliance with applicable regulations in all material respects. Consistent with industry practice, the sales and marketing activities permitted by distributors for the benefit of tier one suppliers are generally regulated by state licensing authorities, which authorize various trade practice activities by statute, regulation or administrative bulletin. NWS relies on such enforcement guidance, which is subject to change at the discretion of the regulatory authorities, in determining the scope of its permitted sales and marketing activities.

As part of its regulatory compliance program, NWS is in frequent contact with regulatory agencies so that NWS can: (1) be kept current on regulatory developments affecting NWS; (2) obtain answers from the agencies to questions from company personnel regarding compliance issues; (3) encourage enforcement of applicable laws and regulations on a consistent basis throughout its markets. NWS believes that prompt and consistent enforcement by the regulatory agencies is important and benefits NWS.

The Company files reports with the SEC and the public can read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains all of the Company’s reports at http://www.sec.gov. The Company maintains an Internet site at http://www.nwscorp.com which contains reports that were filed with the SEC.

Item 2. Properties

NWS’ distribution facilities consist of three master warehouses, three hyper-terminals and six cross-docking facilities. NWS’ corporate headquarters are located in Indianapolis, Indiana.

The master warehouses, located in Indianapolis, Chicago, and Detroit, serve as the primary storage facilities and regional offices for NWS. The Chicago warehouse contains approximately 650,000 square feet of warehousing space, including a designated temperature controlled area for temperature-sensitive products. The Indianapolis warehouse contains approximately 351,000 square feet of warehousing space, including a designated temperature controlled area for temperature-sensitive products. The Detroit warehouse consists of approximately 238,000 square feet of warehousing space.

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Item 1A. Risk Factors

The risks and uncertainties affecting the Company and its business include, but are not limited to, those described below. These risk factors should be reviewed carefully along with the other information set forth in this Form 10-K. Additionally, to the extent any forward-looking information is presented, actual results may vary since many of these factors are outside of the Company’s control and are difficult to predict. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

The Company faces significant competition. The wine and spirits wholesale distribution industry is highly competitive both for brand emphasis at the customer level and for the right to distribute important brands for key suppliers. The principal competitive factors in the Company’s business include service, breadth and availability of products, and price. Certain of the Company’s competitors have substantially greater financial and other resources than the Company.

The wine and spirits wholesale distribution industry has undergone significant changes in recent years. Rapid consolidation has occurred in the supplier sector, and consolidation has led to extensive realignment of distributor relationships. This realignment has resulted in the loss of certain distribution rights, and could result in further adverse changes in the future. In addition, consolidation among distributors is ongoing and expected to continue.

The Company is dependent upon certain key suppliers. Written distribution agreements with several suppliers are typically extended on an annual basis but are terminable upon 30 days or 60 days written notice. Several agreements have longer terms but may also be terminated in certain circumstances.

From time to time, distributors pay suppliers for the rights to add key brands or enter new markets. As noted above, certain of the Company’s competitors have greater financial resources. Additionally, in recent years several major suppliers have undertaken broad programs designed to consolidate and realign their distributor relationships. As a result of those programs, the Company no longer represents certain suppliers in certain markets.

The Company may lose additional suppliers in the future although it is also certainly possible that the Company will gain additional supplier relationships as a result of many of these same industry factors.

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The Company is subject to extensive regulation and litigation. The distribution of alcohol-based beverages is subject to extensive regulation, requiring the Company to obtain and renew various permits and licenses to import, warehouse, transport, distribute and sell wine and spirits. As a condition to holding these permits and licenses, compliance with applicable federal and state regulations is necessary. Various governmental regulations applicable to the alcohol-based beverage industry may be changed so as to impose more stringent requirements on the Company’s operations.

There has also been increased litigation potentially impacting the industry’s three tier regulatory structure. For example, direct shipment of wine across state lines to consumers has been authorized now by many states as a result of this litigation. It is likely that there will continue to be challenges to the three tier system.

The Company’s business is concentrated in three states. The Company’s business is conducted primarily in the states of Indiana, Illinois and Michigan, and possibly impacted by the general economic conditions in those states.

Price increases or lack of product availability can affect the Company’s results. The Company is subject to suppliers’ price determinations and may not be able to pass on any price increases to customers. From time to time, the Company is also impacted by certain products not being available or having product supplied under an allocation arrangement.

The Company relies on its ability to properly manage operating costs. As a distribution company, controlling warehouse, delivery and selling expenses remains a top priority. Controlling administrative costs is also very important. The Company’s ability to control these costs in the future will be impacted by a number of factors, including higher fuel costs and employee benefit plans.

The Company has unionized employees. As of March 31, 2006, 48% of the Company’s non-supervisory work force was covered under collective bargaining agreements, and the number of employees covered by collective bargaining agreements could increase in the future. Although the Company believes that relations with the unions are generally good, a prolonged work stoppage or strike by its unionized employees could have a material adverse affect on the Company.

The Company relies upon a third party to manage the day-to-day operation of its business in the state of Illinois. The Company has a strategic alliance with Glazer’s for the purpose of conducting business in the state of Illinois. The Company has also entered into an agreement that would allow the Company and Glazer to conduct operations in Illinois through an entity that would be 80% owned by Glazer and 20% owned by the Company and, under certain circumstances, to sell its Illinois assets to Glazer. The success of the relationship and strategic alliance with Glazer will likely continue to have a significant impact on the Company’s financial condition and results of operation.

The Company depends upon certain key management personnel. The Company’s success is dependent upon the continued services of certain senior management, particularly James E. LaCrosse, the Chairman, President and Chief Executive Officer. Mr. LaCrosse and other senior

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management personnel have long and well-established relationships with key suppliers and customers. The loss of the services of Mr. LaCrosse or any other member of senior management could adversely affect customer and supplier relationships.

Item 1B. Unresolved Staff Comment

None.

Item 2. Properties

NWS’ distribution facilities consist of three master warehouses, three hyper-terminals and seven cross-docking facilities. NWS’ corporate headquarters are located in Indianapolis, Indiana.

The master warehouses, located in Indianapolis, Chicago, and Detroit, serve as the primary storage facilities and regional offices for NWS. The Chicago warehouse contains approximately 650,000 square feet of warehousing space, including a designated temperature controlled area for temperature-sensitive products. The Indianapolis warehouse contains approximately 300,000 square feet of warehousing space, including a designated temperature controlled area for temperature-sensitive products. The Detroit warehouse consists of approximately 230,000 square feet of warehousing space.

The following chart lists NWS’ warehouses and delivery, production and office facilities:

Segment	State	Location	Owned/ Leased	Total Square Feet	Principal Function
Product sales
	Indiana	Indianapolis ~~South Bend Evansville Evansville Ft. Wayne Crown Point Indianapolis Indianapolis Indianapolis~~	~~OwnedOwnedOwnedOwnedLeasedLeasedOwnedOwnedOwned~~Owned	351,~~00076,9005,8002,4005,5007,9003,50015,00019,500~~000	Master Warehouse/Office ~~Hyper-Terminal/Office Cross-Docking Facility Office Office Office Office - Leased to Perrier Warehouse-Leased to Perrier Office~~
		South Bend	Owned	76,900	Hyper-Terminal/Office
		Evansville	Owned	5,800	Cross-Docking Facility
		Evansville	Owned	2,400	Office
		Ft. Wayne	Leased	5,500	Office
		Crown Point	Leased	7,900	Office
		Indianapolis	Owned	3,500	Office-Leased to Perrier
		Indianapolis	Owned	15,000	Warehouse-Leased to Perrier
		Indianapolis	Owned	19,500	Office
	Connecticut	Stamford	Leased	5,700	Office
	Illinois	Chicago ~~Chicago Champaign Peoria Collinsville Rockford~~	~~OwnedLeasedLeasedLeasedLeasedLeased~~Owned	~~650~~715,~~0001,84050,00056,00014,2005,~~000	Master Warehouse/Office ~~Leased Office Property Hyper-Terminal/Office Cross-Docking Facility/Office Cross-Docking Facility/Office Office~~
		Chicago	Leased	1,840	Leased Office Property
		Champaign	Leased	50,000	Hyper-Terminal/Office
		Peoria	Leased	56,000	Cross-Docking Facility/Office
		Collinsville	Leased	14,200	Cross-Docking Facility/Office
		Rockford	Leased	5,000	Cross-Docking Facility/Office
All other
	Michigan	Detroit (Brownstown) ~~Grand Rapids Escanaba Saginaw Traverse City~~	~~LeasedLeasedLeasedLeasedLeased~~Leased	238,~~00097,0007,5001,0005,~~000	Master Warehouse/Office ~~Hyper-Terminal/Office Cross-Docking Facility/Office Cross-Docking Facility Cross-Docking Facility~~
		Grand Rapids	Leased	97,000	Hyper-Terminal/Office
		Escanaba	Leased	7,500	Cross-Docking Facility/Office
		Saginaw	Leased	1,000	Cross-Docking Facility
		Traverse City	Leased	5,000	Cross-Docking Facility

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NWS’ lease agreements for the Detroit master warehouse and the Grand Rapids hyper-terminal each have a ten-year term, expiring April 20, 2007 and January 31, 2007, respectively, and provide NWS with an option to purchase the properties. The facilities in Michigan are used to operate the Company’s distribution fee business.

Item 3. Legal Proceedings

On May 30, 2006, Glazer’s, through Glazer’s Distributors of Illinois, Inc., filed a complaint against the Company and NWS-Illinois in the Circuit Court of Cook County, Illinois. In its complaint, Glazer’s alleged that the proposed sale or surrender of certain distribution rights related to malt beverage products distributed by NWS-Illinois in Chicago and the state of Illinois violates the terms of the management services agreement and the conditional sales agreement between the Company and Glazer’s. The complaint seeks injunctive relief, declaratory judgment or, in the alternative, damages, attorneys’ fees, costs and other relief. Glazer’s also requested a temporary restraining order to enjoin the proposed sales, but the court denied that motion. The Company believes the claims are without merit and intends to vigorously defend the lawsuit.

The Company is a party to various lawsuits and claims arising in the normal course of business. While the ultimate resolution of lawsuits or claims against the Company cannot be predicted with certainty, management is vigorously defending all claims and does not expect that these matters will have a material adverse effect on the financial position or results of operations of the Company.

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Item 4. Submission of Matters to a Vote of Security Holders

~~On October 8, 2004, the shareholders of National Wine & Spirits, Inc~~None. ~~voted unanimously, via written consent, to remove J. Smoke Wallin from the Board of Directors, effective October 8, 2004.~~

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Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information. There is no established trading market for the common stock of NWS.

Holders. As of June 8 7, ~~2005~~2006, the number of record holders of each of the classes of the Company’s common stock were as follows:


		Voting common stock		2
		Non-voting common stock		3

Dividends. The ability of the Company to pay dividends to its shareholders is restricted by certain covenants contained in its credit facility as well as certain restrictions contained in the Company’s indentures relating to its senior notes. Subject to these limitations, the Company has historically paid dividends to its shareholders for tax liabilities and for limited other purposes. In fiscal ~~2005~~2006 and ~~2004~~2005, the amounts of the dividends totaled $08.23 million and $6.0 .2 million, respectively, in the aggregate.

Equity Compensation Plans. The Company does not have any equity compensation plans.

Item 6. Selected Consolidated Financial Data

The following summary historical financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, the consolidated financial statements and notes thereto included in Item 8 and the financial statement schedules accompanying this report.

Distribution fees include the per case distribution and brokerage fees for cases of spirits delivered in and on behalf of the State of Michigan, and as such, NWS does not take title to or finance inventory as part of its distribution and brokerage fee business. Please also note that NWS has elected “S” corporation status under the Internal Revenue Code and consequently, it does not incur liability for federal and state income taxes.

For purposes of calculating earnings to fixed charges, earnings consist of net income plus fixed charges. Fixed charges consist of interest expense, amortization of debt issue cost and discount or premium relating to indebtedness and the portion (30%) of rental expense on operating leases which NWS estimates to be representative of the interest factor attributable to rental expense.

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	Year Ended March 31, (Dollars and cases in thousands, except ratios and per case amount)
	2005			2004			2003			2002			2001
	2006			2005			2004			2003			2002
Statement of Operations Data:
Net product sales	$	~~524~~686,~~399~~660		$	~~513~~524,~~615~~399		$	~~689~~513,~~859~~615		$	~~659~~689,~~594~~859		$	~~636~~659,~~879~~594
Distribution fees		2930,~~268~~964			2729,~~045~~268			2227,~~999~~045			2122,~~963~~999			21,~~573~~963
Total revenue		~~553~~717,~~667~~624			~~540~~553,~~660~~667			~~712~~540,~~858~~660			~~681~~712,~~557~~858			~~658~~681,~~452~~557
Cost of products sold		~~428~~558,~~576~~999			~~421~~428,~~468~~576			~~552~~421,~~833~~468			~~530~~552,~~910~~833			~~513~~530,~~928~~910
Gross profit		~~125~~158,~~091~~625			~~119~~125,~~192~~091			~~160~~119,~~025~~192			~~150~~160,~~647~~025			~~144~~150,~~524~~647
Selling, general and administrative expenses		~~112~~144,~~988~~098			~~120~~112,~~270~~988			~~144~~120,~~550~~270			~~131~~144,~~025~~550			~~125~~131,~~034~~025
Income (loss) from operations		1214,~~103~~527			(112,~~078~~103	)		15(1,~~475~~078	)		1915,~~622~~475			19,~~490~~622
Interest expense		(911,~~535~~375	)		(89,~~826~~535	)		(98,~~308~~826	)		(119,~~934~~308	)		(1311,~~214~~934	)
Other income (expense)(1)		29,~~871~~313			~~780~~2,871			~~9,622~~780			~~(228~~9,622	)		~~7,849~~(228	)
Net income (loss)	$	512,~~439~~465		$	(95,~~124~~439	)	$	15(9,~~789~~124	)	$	715,~~460~~789		$	147,~~125~~460
Other Financial Data:
EBITDA (2)	$	2536,~~525~~032		$	1125,~~778~~525		$	3411,~~704~~778		$	2734,~~669~~704		$	3627,~~229~~669
Net income (loss) margin		1.07	%		(1.70	)%		2(1.27	)%		12.12	%		21.1	%
Cash provided by operating activities	$	12,054		$	16,005		$	15,185		$	22,030		$	7,357
Cash (used) provided by operating activities	$	(1,048	)	$	12,054		$	16,005		$	15,185		$	22,030
Cash provided (used) by investing activities		(3,133	)		64			(2,489	)		(5,307	)		2,717
Cash (used) provided by investing activities		(21,277	)		(3,133	)		64			(2,489	)		(5,307	)
Cash used by financing activities		(7,430	)		(20,423	)		(18,611	)		(9,082	)		(9,539	)
Cash provided (used) by financing activities		21,950			(7,430	)		(20,423	)		(18,611	)		(9,082	)
Depreciation and amortization		1012,~~551~~192			1210,~~076~~551			912,~~607~~076			89,~~275~~607			8,~~890~~275
Capital expenditures (3)	$	14,~~211~~831		$	~~985~~1,211		$	~~2,337~~985		$	42,~~332~~337		$	64,~~083~~332
Ratio of earnings to fixed charges		1.4x8x			01.1x4x			20.2x1x			12.6x2x			21.0x6x
Operating Statistics:
Product Sales Operations
Gross profit margin		18.36	%		1718.93	%		1917.9	%		19.59	%		19.35	%
Cases shipped (spirits and wine)		46,~~630~~471			4,~~496~~630			64,~~295~~496			6,~~351~~295			6,~~425~~351
Fee Operations
Cases shipped (spirits)		2,~~907~~985			2,~~912~~907			2,~~549~~912			2,~~721~~549			2,~~684~~721
Distribution fee per case as of March 31	$	78.7810		$	7.78		$	7.6078		$	7.4860		$	7.3248
	As of March 31 (in thousands)
	2005			2004			2003			2002			2001
	2006			2005			2004			2003			2002
Balance Sheet Data:
Cash	$	2,~~957~~582		$	12,~~466~~957		$	51,~~820~~466		$	115,~~735~~820		$	411,~~094~~735
Total assets		~~193~~234,~~789~~417			~~187~~193,~~100~~789			~~203~~187,~~814~~100			~~201~~203,~~405~~814			~~192~~201,~~290~~405
Total debt		83117,~~157~~907			8683,~~357~~157			9886,~~303~~357			~~109~~98,~~805~~303			~~110~~109,~~571~~805
Total long-term liabilities		~~107~~137,~~855~~840			~~108~~107,~~475~~855			~~110~~108,~~676~~475			~~111~~110,~~678~~676			~~110~~111,~~487~~678
Stockholders’ equity		1721,~~738~~603			1217,~~593~~738			2712,~~854~~593			2327,~~095~~854			2423,~~669~~095

-(1) 16The -increase in Other income (expense) in 2006, 2005 and 2003 resulted from payments from suppliers in connection with a vendor termination payment of $8.3 million, receipt of an arbitration award of $2.3 million and one time payments of $9.2 million, respectively.

- 18 -

NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA

(1) The increase in Other income (expense) in 2005, 2003 and 2001 resulted from receipt of an arbitration award of $2.3 million, one time payments of $9.2 million, and gain on sale of bottled water division of $7.5 million, respectively.

(2)

EBITDA is defined as net income or loss plus interest expense, depreciation and amortization. EBITDA is a non-GAAP financial measure within the meaning of Regulation G. EBITDA is presented because it is a widely accepted financial indicator used by investors and analysts to analyze and compare companies on the basis of debt service capability. Management uses EBITDA to set targets and monitor and assess financial performance. EBITDA is not intended to represent cash flows for the periods presented, nor has it been presented as an alternative to net income (loss) as an indicator of operating performance and should not be considered in isolation or as a substitute for measures of performance and cash flow prepared in accordance with generally accepted accounting principles.

The most comparable GAAP measure for EBITDA is net income (loss). Following is a reconciliation between net income (loss) and EBITDA for the fiscal years ~~2001~~2002 through ~~2005~~2006:

	Year Ended March 31 (in thousands)
	2005		2004				2003		2002		2001
	2006		2005			2004			2003		2002
Net Income (loss)	$	512,~~439~~465	$	(95,~~124~~439	)	$	$(9,124	~~15,789~~)	$	715,~~460~~789	$	147,~~125~~460
Interest expense		911,~~535~~375		89,~~826~~535			8,826	~~9,308~~		119,~~934~~308		1311,~~214~~934
Depreciation		43,~~590~~738		54,~~947~~590			5,947	~~7,188~~		67,~~561~~188		76,~~046~~561
Amortization		58,~~961~~454		65,~~129~~961			6,129	~~2,419~~		12,~~714~~419		1,~~844~~714
EBITDA	$	2536,~~525~~032	$	1125,~~778~~525		$	$11,778	~~34,704~~	$	2734,~~669~~704	$	3627,~~229~~669
The EBITDA information reflected herein may not be comparable to similarly titled measures used by other companies.
(3) The components of capital expenditures by type is set forth below.
	Year Ended March 31 (in thousands)
	2005		2004				2003		2002		2001
Business expansion	$	—	$	—			$	140	$	1,144	$	2,374
Information systems		501		490				1,121		1,418		1,750
Equipment		710		495				1,076		1,770		1,959
	$	1,211	$	985			$	2,337	$	4,332	$	6,083

-The 17EBITDA -information reflected herein may not be comparable to similarly titled measures used by other companies.

(3)	The components of capital expenditures by type are set forth below:


	Year Ended March 31 (in thousands)
	2006		2005		2004		2003		2002
Business expansion	$	2,711	$	—	$	—	$	140	$	1,144
Information systems		789		501		490		1,121		1,418
Equipment		1,331		710		495		1,076		1,770

	$	4,831	$	1,211	$	985	$	2,337	$	4,332

- 19 -

Item 7. Management’s Discussion ~~And~~and Analysis Ofof Financial Condition ~~And~~and Results Ofof Operations

The following discussion should be read in conjunction with “Selected Consolidated Financial Data” and NWS’ historical consolidated financial statements and the accompanying notes included elsewhere in this Form 10-K. Unless otherwise indicated, all references to years are to NWS’ fiscal year ended March 31.

Disclosure Regarding Forward-Looking Statements

This Form 10-K, including, but not limited to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” sections, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology, such as “may,” “intend,” “will,” “expect,” “anticipate,” “should,” “plans to,” “estimate” or “continue” or the negative thereof or other variations thereon or comparable terminology. In particular, any statement, express or implied, concerning future operating results or the ability to generate revenues, income or cash flow to service the Company’s debt are forward-looking statements. Although the Company believes that the expectations will prove to be correct, all forward-looking statements are expressly qualified by such cautionary statements, and the Company undertakes no obligation to update such forward-looking statements.

Overview

National Wine & Spirits, Inc. (the “Company”) is one of the largest distributors of wine and spirits in the United States. Substantially all of the Company’s current operations are in Illinois, Indiana, Michigan, Kentucky (through its investment in an affiliate), and from USB, the Company’s national import, craft and specialty beer marketing and distribution business. The Company’s reported revenues include net product sales in Illinois, Indiana, Michigan, and from USB, with distribution fees from the Michigan distribution and brokerage operation.

The Company evaluates its operations and liquidity ~~upon~~based upon two reportable segments, which are business units that engage in product sales and all other activities. Product sales operations are conducted in Indiana, Illinois, Michigan, and from the USB distribution business. The majority of other activities relate to distribution and brokerage fee operations in Michigan.

EBITDA is used throughout this Item as a financial indicator. Each reference to EBITDA herein is qualified by reference to, and should be read in conjunction with, this paragraph and the following two paragraphs and the reconciliation below. EBITDA, as used herein, is defined as net income or loss plus interest expense, depreciation and amortization. EBITDA should not be construed as an alternative to income or net cash flow from operating activities and should not be construed as an indication of operating performance or as a measure of liquidity.

EBITDA is a non-GAAP financial measure within the meaning of Regulation G. EBITDA is presented because it is a widely accepted financial indicator used by investors and analysts to analyze and compare companies on the basis of debt service capability. Management uses EBITDA to set targets and monitor and assess financial performance. EBITDA is not

- 1820 -

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

intended to represent cash flows for the periods presented, nor has it been presented as an alternative to net income or loss as an indicator of operating performance and should not be considered in isolation or as a substitute for measures of performance and cash flow prepared in accordance with generally accepted accounting principles.

The most comparable GAAP measure for EBITDA is net income or loss. Following is a reconciliation between net income or loss and EBITDA for the fiscal years ~~2001~~2002 through ~~2005~~2006:

	Year Ended March 31 (in thousands)
	2005		2004				2003		2002		2001
	2006		2005			2004			2003		2002
Net Income (loss)	$	512,~~439~~465	$	(95,~~124~~439	)	$	$(9,124	~~15,789~~)	$	715,~~460~~789	$	147,~~125~~460
Interest expense		911,~~535~~375		89,~~826~~535			8,826	~~9,308~~		119,~~934~~308		1311,~~214~~934
Depreciation		43,~~590~~738		54,~~947~~590			5,947	~~7,188~~		67,~~561~~188		76,~~046~~561
Amortization		58,~~961~~454		65,~~129~~961			6,129	~~2,419~~		12,~~714~~419		1,~~844~~714
EBITDA	$	2536,~~525~~032	$	1125,~~778~~525		$	$11,778	~~34,704~~	$	2734,~~669~~704	$	3627,~~229~~669

The EBITDA information reflected herein may not be comparable to similarly titled measures used by other companies.

Executive Summary

The Company’s ~~net~~expanded ~~income~~brand ~~and~~representation ~~EBITDA~~in ~~increased~~certain ~~from~~markets ~~the~~resulted ~~prior~~in ~~year due to~~ greater ~~gross~~total ~~profit~~product onsales ~~spirits~~revenue and case volume, ~~reduced~~during ~~marketing~~the ~~and~~fiscal ~~administration~~year ~~expense~~ended March 31, ~~and~~2006. ~~increased~~Offsetting ~~management fees.~~the ~~Net~~increased ~~income~~revenue and ~~EBITDA~~gross ~~increased~~margin, however, towere ~~$5.4~~higher ~~million~~operating costs and ~~$25.5~~increased ~~million,~~interest ~~respectively~~expense, ~~for~~when ~~the~~compared ~~year~~to ~~ended~~the ~~March~~prior ~~31,~~fiscal ~~2005~~year. The Company’s ~~was~~gross ~~able~~profit toincreased ~~increase~~by ~~net~~$33.5 ~~income~~million ~~during~~while ~~the~~operating ~~current~~expenses ~~fiscal~~increased ~~year~~ by $1431.61 million ~~primarily~~during ~~from~~the ~~increased~~twelve ~~gross~~months ~~profit~~ended ofMarch 31, ~~$5.9~~2006 ~~million,~~from the ~~strategic~~prior ~~alliance~~fiscal ~~with~~year ~~Glazer’s~~primarily ~~Distributors~~due ofto ~~Illinois,~~increased ~~Inc.~~personnel ~~(“Glazer”)~~and inoperational ~~Illinois~~costs ~~which~~related ~~resulted~~to additional brands represented in ~~greater~~the ~~management~~Company’s ~~fees~~product ~~(as~~sales ~~described~~segment. The increase in ~~footnote~~the ~~15)~~Company’s net income during the current fiscal year of $67.10 million, ~~and~~was ~~reductions~~primarily ~~in administrative~~the ~~expenses~~result of an $28.3 million, asvendor ~~compared~~termination topayment ~~the~~received ~~prior~~during fiscal ~~year~~2006.

The Company’s ~~total~~long ~~fiscal~~term ~~2005~~debt ~~revenue~~ increased by $1334.08 million from March 31, 2005 primarily due to increased ~~product~~working ~~sales~~capital ~~and~~needs ~~distribution fees~~ of $1025.80 million ~~and~~in ~~$2.2~~the ~~million, respectively. Gross profit from~~ product sales ~~for~~ ~~the~~segment ~~fiscal~~and ~~year ended March 31, 2005 increased by $3.7 million from~~ the ~~prior~~funding ~~fiscal year primarily due to increased spirits volume~~ of a $2614.49 million ~~and~~deposit ~~price~~made ~~increases put~~ in ~~place~~connection with ~~during~~ the ~~fiscal~~proposed ~~year.~~acquisition Anof ~~increase in~~ the ~~distribution~~stock ~~fees during~~of ~~the~~a ~~current~~Michigan ~~fiscal~~wine ~~year of $2.2 million~~wholesaler, asL ~~compared~~& toL ~~the~~Wine ~~prior~~and ~~fiscal~~Liquor ~~year,~~Corporation ~~were~~(“L&L”). ~~primarily~~The ~~the~~Company’s ~~result~~availability ofat ~~greater~~March 31, ~~brokerage~~2006 ~~commissions~~under ofits $160.40 million ~~and~~revolving ancredit ~~increase~~facility inwas ~~the per-case delivery fee from~~ $722.~~60 to $7~~1 million.78 ~~in February 2004.~~

~~The~~- ~~Company’s~~21 ~~operating~~- ~~expenses during the current fiscal year were primarily reduced by the increased management fees of $6.1 million related to the Company’s Illinois business.~~

- 19 -

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

These increased fees from the prior fiscal year were due to the modification of the agreement during the current fiscal year and the related financial performance of NWS-Illinois in 2005. The Company was able to reduce administrative expenses by $2.3 million during the current fiscal year compared to the prior annual period, including reductions in health costs of $0.8 million, reduced professional fees of $0.6 million, reduced amortization expense of $0.4 million, and lower casualty insurance costs of $0.4 million.

Cash flow from operations for the year ended March 31, 2005 were $12.1 million, a decrease of $3.9 million from the prior fiscal year. This comparative decrease in operating cash flow was primarily the result of a reduction in working capital of $29.5 million from the Company’s Illinois business during the prior fiscal year which did not occur during the current fiscal year. The Company was able to reduce debt by $3.2 million during the current fiscal year while increasing cash balances by $1.5 million from March 31, 2004. Stockholder distributions for the year ended March 31, 2005 were $0.2 million as compared to $6.0 million during the prior fiscal year primarily due to lower income tax obligations of the shareholders.

Results of Operations

The following table includes information regarding total cases shipped by NWS in ~~2005~~2006, ~~2004~~2005 and ~~2003~~2004:

	Year Ended March 31 (Cases in thousands)
	2005	2004					2003
	2006			2005			2004
	Cases	Percent Change		Cases	Percent Change		Cases
Wine (product sales)	23,~~307~~604	065.13	%	2,~~304~~180	(~~21.~~5.4	)%	2,~~934~~304
Spirits (product sales)	2,~~323~~867	623.04	%	2,~~192~~323	~~(34~~6.80	)%	32,~~361~~192
Spirits (distribution fees)	2,~~907~~985	~~(0.~~2.7	)%	2,~~912~~907	14(0.2	)%	2,~~549~~912
Total wine and spirits	79,~~537~~456	127.76	%	7,~~408~~410	~~(16~~0.20	)%	87,~~844~~408
Other	8,~~316~~728	(93.04	)%	98,~~139~~443	2(7.36	)%	89,~~933~~139
Total	1518,~~853~~184	(414.27	)%	1615,~~547~~853	(64.92	)%	1716,~~777~~547

The Company has reclassified 127,000 cases of Wine products to Other case sales for the twelve months ended March 31, 2005. The affected items are reported as Other case sales during the current fiscal year and the reclassification was necessary to properly compare case volumes by category. USB’s results are included in the ~~other~~ Other category for the current and prior years.

-Fiscal 202006 -Compared with Fiscal 2005

Revenue

The Company’s product sales revenue for the year ended March 31, 2006 increased by $162.3 million primarily due to increased brand representation in the Company’s Illinois business as compared to the prior fiscal year. The increase was primarily the result of the addition of the Brown Forman, E&J Gallo, and certain other brands during the current fiscal year in the product sales segment. Greater distribution fee revenue of $1.7 million was primarily due to the delivery fee that was increased from $7.78 per case to $8.10 per case effective October 30, 2005.

Gross Profit

Gross profit increased $33.5 million to $158.6 million due to increased product sales revenue, primarily from additional brand representation in the Company’s Illinois market. Distribution fees increased $1.7 million, primarily from greater brokerage fees of $0.5 million and greater delivery fees of $1.2 million for the year March 31, 2006, as compared to the prior fiscal year.

- 22 -

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Operating Expenses

Total operating expenses for the fiscal year ended March 31, 2006 increased $31.1 million as compared to the prior fiscal year, primarily due to increased personnel and operational costs related to the additional brands represented in the Company’s product sales segment.

Warehouse and delivery expenses increased by $8.0 million during the fiscal year ended March 31, 2006 as compared to the prior fiscal year, and were the result of the increased case volume in the product sales segment. The increase in warehouse and delivery expenses was primarily from the product sales segment, as compared to the prior fiscal year, and was driven by increased labor expense of approximately $5.0 million, fuel costs of $0.6 million, rental expense of $0.5 million, and greater supply and maintenance expenses of $1.2 million. Warehouse and delivery expense in the distribution fee segment increased by $0.2 million primarily due to increased fuel costs of $0.2 million, greater wages of $0.3 million, greater supply and maintenance expense of $0.3 million, offset by a $0.6 million reduction in depreciation expense as compared to the prior fiscal year.

Selling expenses increased $15.6 million for the year ended March 31, 2006 as compared to the prior fiscal year, primarily due to the product sales segment which increased personnel and related wages and commissions by approximately $9.3 million, brand promotion costs of approximately $4.8 million, and greater auto expenses of $0.8 million. The increased costs were the result of supporting the additional brands that are represented in the product sales segment that were not distributed by the Company in the prior fiscal year.

Administrative expenses increased by $7.7 million for the year ended March 31, 2006 as compared to the prior fiscal year. The increase primarily resulted from increased head count noted previously and professional services, and consisted of greater health care costs of $2.4 million, increased payroll taxes of $1.8 million, increased wages of $1.1 million, greater professional fees of $0.6 million, increased retirement fund expenses of $0.8 million, and greater casualty insurance costs of $0.3 million.

Management fees from Glazer, as part of the management services agreement, were $18.8 million for the year ended March 31, 2006, as compared to $18.7 million for the prior fiscal year. The management fees are based upon the financial performance of the Illinois business whereby the Company receives management fees equal to 100% of any operating losses of its Illinois business. During the fiscal year ended March 31, 2005, the Company received fees equal to 80% of such losses through August 2005 and 100% of such losses thereafter.

Income From Operations

The Company’s operating income increased by $2.4 million for the fiscal year ended March 31, 2006 versus the prior fiscal year. The Company’s operating income from product sales increased by $2.1 million as compared to the prior fiscal year. The additional brand representation and related increase in gross profit exceeded the incremental operating expenses

- 23 -

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

for the year ended March 31, 2006 as compared to the prior fiscal year. Operating income for the distribution fee segment increased by $0.3 million for the year ended March 31, 2006 as compared to the prior fiscal year, primarily due to an increase in the per case delivery fee that was effective October 30, 2005 which offset increased administrative and operational expenses during the current year.

Interest Expense

Interest expense increased by $1.8 million during the fiscal year ended March 31, 2006 as compared to the prior fiscal year, as a result of increased balances on the Company’s revolving credit facility to fund working capital and increases in the prime and LIBOR interest rates that are the basis for the facility’s interest rate. The Company utilized the revolving credit facility to fund the expansion of working capital needs in the product sales segment of approximately $25.0 million primarily due to increased personnel and operational costs related to additional brand representation and to fund a deposit, currently in escrow, of $14.9 million in connection with a stock purchase agreement executed on September 1, 2005. The applicable prime based interest rate on the revolving line of credit at March 31, 2006 was 8.00%, while the comparable rate at March 31, 2005 was 6.00%.

Other Income or Expense

During 2006, other income increased by $6.4 million versus the prior fiscal year, primarily due to the receipt of an $8.3 million vendor settlement that was received in the product sales segment. The vendor settlement represents compensation received from a vendor that terminated its distribution contract before the contractual expiration date. During 2005, the Company received an arbitration award of $2.3 million which did not recur. The Company’s share of income from Commonwealth Wine & Spirits, LLC for the fiscal year ended March 31, 2006 was $1.2 million, which was $0.7 million greater than the prior fiscal year.

Net Income

Net income was $12.5 million for the fiscal year ended March 31, 2006, which was $7.0 million greater than the prior fiscal year. The $7.0 million variance in net income was primarily due to the receipt of payments of $8.3 million in connection with the vendor settlement during the current year.

- 24 -

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

EBITDA

For financial analysis purposes only, the Company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) for the fiscal year ended March 31, 2006 was $36.0 million as compared to $25.5 million for the prior fiscal year. Please see the discussion and reconciliation regarding EBITDA as a non-GAAP financial measure set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview”. EBITDA should not be construed as an alternative to operating income or loss, or net cash flow from operating activities, and should not be construed as an indication of operating performance or as a measure of liquidity.

Fiscal 2005 Compared with Fiscal 2004

Revenue

Total revenue increased $13.0 million to $553.7 million for the year ended March 31, 2005 as compared to the prior fiscal year. Product sales case volume in the spirits category increased 6.0%, which resulted in an increase of $26.4 million in product sales revenue, and the case volume in the wine category was stable for the current fiscal year as compared to the prior year. Revenue from wine decreased by $3.5 million, primarily due to the Company not representing certain wine brands in its Illinois business during the last six months of the current fiscal year. Distribution fee revenue increased by $2.2 million for the year ended March 31, 2005, primarily due to greater brokerage commissions of $1.4 million and an increase in the per case distribution fees effective during February 2004. Other case volume declined from the prior year period, which resulted in a decrease of $12.1 million in product sales revenue when compared to the prior year period.

Gross Profit

Gross profit increased $5.9 million to $125.1 million due to the increased product sales revenue resulting from the additional brand representation in certain markets on an exclusive basis and increased distribution and brokerage revenue. Gross profit percentage on product sales of 18.3% for the current fiscal year was above the 17.9% for the prior year, primarily the result of price increases that were enacted in certain product sales markets which offset the effect of competitive conditions in the Company’s Illinois market and the settlement of a purchase commitment of $1.0 million during the Company’s first fiscal quarter. Distribution fees increased by $2.2 million during the current year’s period, primarily due to an increase in the per-case distribution fee and increased brokerage fees of $1.4 million on additional brands that are represented during the current year compared to the prior year’s comparable period.

~~Operating~~- ~~Expenses~~25 -

Total operating expenses declined by $7.3 million from the prior year, primarily from increased management fees related to the Company’s Illinois business of $6.1 million and reduced administrative costs of approximately $2.3 million, which more than offset increased expenses in the Company’s sales area of $1.0 million. Excluding management fees, operating expenses in the product sales segment during the current fiscal year decreased $2.7 million from the prior year, primarily from reduced administrative expenses of $2.6 million and reduced sales expenses of approximately $0.5 million. Operating expenses in the Company’s fee operations for the current year increased by approximately $1.6 million primarily due to greater sales expense of $1.6 million during the current fiscal year as compared to the prior fiscal year.

- 21 -

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Operating Expenses

Warehouse and delivery expenses were flat during the current fiscal year as compared to the prior year. Reductions in depreciation expense of $1.1 million offset increased costs of wages of $0.6 million and greater fuel costs of $0.4 million.

Selling expenses for the product sales segment decreased $0.5 million from the prior fiscal year, primarily due to reductions in brand promotion costs of $2.8 million which offset increased wages of approximately $2.1 million. Sales salaries and associated travel expenses for the fee operations increased during the current fiscal year by approximately $1.3 million due to the addition of the Moet Hennessy brands and expansion of the ~~Fortune~~Future Brands and Diageo brokerage fee operations as compared to the prior fiscal year.

Administrative expenses decreased by $2.3 million from the prior fiscal year. The decrease was primarily from reduced health care costs of $0.8 million, lowered professional fees of $0.6 million, reduced casualty insurance of $0.4, and reduced expenses for information services of $0.4 million.

Management fees from Glazer, as part of the management services agreement, were $18.7 million for the fiscal year, as compared to $12.6 million for the prior fiscal year. These increased fees from the prior year’s annual period were due to the modification of the agreement during September 2004 and the impact of NWS-Illinois’ financial performance.

Income From Operations

Operating income increased by $13.2 million for the fiscal year ended March 31, 2005 to $12.1 versus the prior year fiscal year. The Company’s increased gross profit by $5.9 million, reduced administrative expenses by $2.3 million, and greater management fees of $6.1 million were the primary reasons for the increase in operating income as compared to the prior fiscal year. Operating income for the fee operations segment increased $0.6 million for the current fiscal year, primarily due to the increased distribution and brokerage fees of $2.2 million that more than offset increased selling costs of $1.6 million.

- 26 -

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Interest Expense

Interest expense increased $0.7 million to $9.5 million for the fiscal year ended March 31, 2005 as compared to the prior fiscal year, primarily due to gains from the repurchase of the Company’s senior notes of $0.7 million which occurred during the prior year period. The Company repurchased $1.95 million of its senior notes during the current fiscal year for $1.8 million, which resulted in a gain of $0.1 million after the write-off of unamortized debt issuance costs.

Other Income or Expense

The receipt of an arbitration award of $2.3 million was primarily responsible for the Company’s increase in Other income for the fiscal year ended March 31, 2005 as compared to the prior fiscal year.

- 22 -

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Net Income or Loss

Net income was $5.4 million for current fiscal year ended March 31, 2005, which increased by $14.6 million from the prior fiscal year. Improvement in the net income from the product sales segment of $13.7 million was primarily the reason for the increase in net income for the current fiscal year as compared to the prior fiscal year.

EBITDA

For financial analysis purposes only, the Company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) for the fiscal year ended March 31, 2005 was $25.5 million as compared to $11.8 million for the prior fiscal year. Please see the discussion and reconciliation regarding EBITDA as a non-GAAP financial measure set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview”. EBITDA should not be construed as an alternative to operating income or loss, or net cash flow from operating activities and should not be construed as an indication of operating performance or as a measure of liquidity.

~~Fiscal~~Liquidity ~~2004~~and ~~Compared~~Capital ~~with~~Resources ~~Fiscal 2003~~

~~Revenue~~The Company’s primary cash requirements have been to fund accounts receivable and inventories for the product markets in Illinois, Indiana, Michigan, and its USB operation. The Company has historically satisfied its cash requirements principally through cash flow from operations, trade terms, bank borrowings and existing cash balances.

~~Total~~The ~~revenue~~Company ~~decreased~~amended ~~$172.2~~its ~~million~~revolving tocredit agreement ~~$540.7~~on ~~million as a result of decreased product sales revenue~~September 28, ~~partially~~2005 ~~offset~~to byextend anthe ~~increase in~~line ~~fee~~of ~~revenue.~~credit ~~Total~~for ~~product~~borrowings ~~sales~~up ~~revenue decreased $176.2 million~~ to $~~513~~47.60 million ~~for the year ended March 31~~, ~~2004.~~including ~~The~~standby ~~decrease~~or incommercial ~~product~~letters ~~sales~~of ~~segment revenue for the year ended March 31~~credit, ~~2004 as compared~~ to ~~the~~fund ~~prior~~working ~~year’s annual period was primarily due to the reduced sales volume in the Company’s Illinois market~~capital. ~~Spirits,~~The ~~wine, and other product sales in all of the~~ Company’s ~~other~~used ~~operations were up due to growth of existing brands and~~ the ~~addition~~increased ofavailability ~~the Diageo and S&S brands. Product sales revenue~~ in ~~the~~part ~~other operations increased approximately $30 million from the prior annual period due~~ to ~~acquisition~~fund ~~or expansion of~~ the ~~Diageo and S&S brands, as well as increased sales of existing brands.~~ ~~Product~~acquisition ~~sales revenue decreased approximately $206 million from the prior annual period due to the termination~~ of certain ~~brand~~inventory ~~distribution rights in the product sales segment. The addition of the S&S, Fortune,~~ and ~~expansion~~equipment offrom ~~the~~Johnson ~~Diageo brands~~Brothers inon ~~the fee operations segment were primarily responsible for the $4.0 million~~August 1, ~~or 17~~2005.~~6%,~~ ~~increase from the prior year’s annual period.~~

- 2327 -

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

~~Gross~~The ~~Profit~~Company amended its revolving credit agreement on October 25, 2005, effective as of September 30, 2005, to extend the line of credit for borrowings up to $60.0 million, including standby or commercial letters of credit. The Company used the increased availability to fund working capital and a deposit, currently in escrow, related to a proposed acquisition of the stock of L&L.

~~Gross~~The ~~profit~~Company ~~decreased~~amended ~~$40.8~~its ~~million~~revolving tocredit ~~$119.2~~agreement ~~million~~on ~~as a result of decreased product sales~~February 8, ~~partially offset by an increase in distribution fees. Gross margin on product sales decreased $44.9 million for the year ended March 31~~2006, ~~2004~~effective as ~~compared~~of ~~to the prior annual period. The sales volume decline in the Company’s Illinois business was primarily responsible for the drop in gross margin dollars during the year ended March 31~~December 30, ~~2004~~2005, ~~as compared~~ to extend the ~~prior~~line ~~year’s annual period. Gross profit percentage on product sales~~ of ~~17.9% was below the~~ ~~prior~~credit ~~year’s~~for ~~comparable~~borrowings ~~period~~up ~~of 19.9% primarily due~~ to ~~increased brand support by USB of approximately~~ $570.10 million until March 31, ~~amortization~~2006, ofincluding ~~distribution~~standby ~~rights~~or ofcommercial ~~approximately~~letters ~~$3.6~~of ~~million~~credit, and ~~competitive~~to ~~pricing~~increase in the ~~Company’s~~annual ~~Illinois operations~~capital ~~due~~expenditures limit to ~~the reduced brand representation~~$10.0 ~~Incremental~~million ~~gross margin~~ from ~~the fee operations segment of~~ $45.0 million ~~was primarily due to the addition of the S&S, Fortune and increased volume of the Diageo and Allied Domecq brands~~.

~~Operating~~At ~~Expenses~~March 31, 2006, the maximum available under the line of credit was $60.0 million, subject to borrowing base calculations. The Company had $34.0 million of outstanding advances and $4.0 million in letters of credit outstanding, and had availability of approximately $22.0 million at March 31, 2006. Commercial letters of credit of $4.0 million are issued for the self-insured portion of NWS’ casualty insurance policies.

~~Operating~~Interest ~~expenses~~is ~~for~~payable monthly at the ~~product~~LIBOR ~~sales~~rate ~~segment~~or ~~decreased~~the higher of the prime lending rate or the ~~$26.8~~federal ~~million~~funds torate, ~~$95~~plus a margin percentage.1 ~~million,~~Of orthe 22$34.0% ~~for~~million ~~the~~of ~~year~~advances ~~ended~~outstanding ~~March~~at March 31, ~~2004~~2006, as$9.0 ~~compared~~million tobore ~~the~~interest ~~prior~~at ~~year’s~~8.00% ~~annual~~based ~~period.~~upon ~~Management~~prime ~~fees~~rate ~~received~~pricing, ~~from~~and ~~Glazer~~$25.0 inmillion ~~the~~bore ~~Company’s~~interest ~~Illinois~~at ~~business,~~an ~~staffing~~average ~~adjustments,~~of ~~and~~6.64% ~~cost~~based ~~reduction~~upon ~~initiatives~~LIBOR ~~were~~pricing. ~~primarily~~The ~~responsible~~line ~~for~~of ~~the~~credit ~~reduction~~borrowings inare ~~product~~collateralized ~~sales~~by ~~operating~~and ~~expenses~~based ~~during~~upon ~~the~~eligible ~~year~~accounts ~~ended~~receivable ~~March~~and 31inventories, ~~2004~~ as ~~compared~~defined toin the ~~prior~~credit ~~year’s~~agreement, ~~annual~~and ~~period.~~are ~~Operating~~guaranteed ~~expenses~~by in the Company’s ~~fee~~subsidiaries. ~~operations~~The ~~increased by~~Company ~~approximately~~must ~~$2.5~~maintain certain ~~million~~interest ~~due~~coverage toand ~~the~~funded ~~increased~~debt ~~case~~coverage ~~volume~~ratios, ~~over~~with which the ~~year~~Company ~~ended~~was ~~March~~in compliance at March 31, ~~2004~~2006. asThe ~~compared~~Company toanticipates that the ~~prior~~revolving ~~year’s~~credit ~~annual~~facility ~~period~~and other financial resources will provide adequate availability to fund operations and working capital needs during fiscal 2007.

~~Warehouse~~Cash ~~and~~used ~~delivery~~in ~~expenses~~operating inactivities was $1.0 million for the ~~product~~fiscal ~~sales~~year ended ~~segment~~March 31, ~~were~~2006, ~~reduced~~as compared to cash provided by operating activities of $312.69 million during the prior fiscal year. ~~ended~~This ~~March~~comparative ~~31,~~decrease ~~2004~~in asoperating ~~compared to~~cash flow was primarily the ~~prior~~result ~~annual~~of ~~period,~~increased ~~due~~working tocapital ~~reductions~~funding in ~~personnel~~the product sales segment for accounts receivable of $15.8 million and ~~case~~additional ~~volume~~inventories inof $11.8 million. The additional accounts receivable and inventories were the ~~Company’s~~result ~~Illinois~~of ~~business.~~sales ~~Warehouse~~growth and ~~delivery~~inventory ~~expenses~~requirements ~~for~~due to the ~~Company’s~~additional ~~fee~~brand representation ~~operations~~in ~~increased~~the byproduct ~~approximately~~sales $1segment.0 ~~million,~~The ~~primarily~~Company ~~from increased~~funded ~~labor~~the ~~expense,~~additional ~~equipment~~working ~~repair~~capital ~~and~~needs ~~supplies~~through ~~that~~advances ~~resulted~~on the revolving line of credit and cash generated from ~~the~~additional ~~increased~~net ~~case~~income ~~volume~~of approximately $7.0 million.

~~Selling~~Net ~~expenses~~cash ~~for~~used ~~the~~in ~~product~~investing ~~sales~~activities ~~segment~~was ~~decreased~~ $921.23 million ~~from~~for the ~~prior~~fiscal year’s ~~annual~~ended ~~period~~March 31, ~~primarily~~2006, ascompared ato ~~result~~cash used of ~~significant~~$4.0 ~~cost~~million ~~reductions~~during in the prior ~~Company’s~~fiscal ~~Illinois operation~~year. The Company’s ~~Illinois~~funded ~~expense~~$14.9 ~~reduction~~million ~~for~~to ~~sales~~an ~~salaries,~~escrow ~~commissions,~~account ~~travel,~~as ~~entertainment,~~part ~~and promotion costs~~ of ~~approximately~~a ~~$9.7~~stock ~~million~~purchase ~~was~~agreement for the ~~result~~acquisition of the ~~reduced~~stock ~~sales~~of ~~volume~~L&L. ~~Sales~~The ~~salaries~~Company’s ~~and~~purchases ~~associated~~of ~~travel expenses~~property ~~for~~and ~~the~~equipment ~~fee~~of ~~operations~~$4.8 ~~increased~~million byincluded ~~approximately~~ $12.40 million of ~~due~~equipment tothat ~~the~~was ~~addition~~acquired offrom the ~~S&S~~Johnson ~~brands~~Brothers ~~and~~wine wholesale operation. Additionally, $1.6 million was funded for the expansion of the ~~Fortune~~Company’s ~~and~~facilities ~~Diageo~~in ~~brokerage operations~~Indiana.

~~Administrative~~- ~~expenses~~28 ~~for~~- the product sales segment decreased by $2.2 million for the year ended March 31, 2004 as compared to the prior year’s annual period. The decrease was primarily the result of expense reductions in the MIS area of $0.7 million, office wages and taxes of $0.8 million, property taxes of $0.6 million, and reduced depreciation expense of $0.3 million.

- 24 -

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

~~Management~~The ~~fees~~Company’s ~~from~~Fiscal ~~Glazer~~2007 ascapital ~~part~~expenditures ofare ~~the management~~expected ~~services~~to ~~agreement~~include ~~were $12.6 million for~~ the ~~year~~completion ~~ended~~of ~~March~~an ~~31,~~upgrade ~~2004.~~to ~~These~~its ~~payments~~material ~~were~~handling ~~$11.7~~system ~~million~~in ~~greater~~Indiana and ~~than~~total ~~the~~capital ~~fees~~expenditures ~~during~~are ~~the~~expected ~~prior~~to ~~fiscal~~be ~~year~~approximately ~~because~~$7.0 ~~the~~to ~~agreement~~$10.0 ~~was put in place near the end of 2003~~million.

~~Loss~~Net ~~From~~cash ~~Operations~~provided by financing activities was $22.0 million for the fiscal year ended March 31, 2006, versus $7.4 million used in financing activities during the prior fiscal year. Net advances under the Company’s revolving line of credit were $31.0 million greater during the current fiscal year compared to the prior fiscal year, and were used to fund the product sales working capital needs as well as the acquisition of the Johnson Brothers wine wholesale assets and the deposit of $14.9 million in connection with the proposed acquisition of the stock of L&L. Distributions to stockholders during the fiscal year ended March 31, 2006 were $8.3 million. Of the $8.3 million of stockholder distributions, $5.3 million was used to fund shareholder income tax estimates and $3.0 was retained by stockholders, as described in detail below. The Company’s revolving credit agreement and indenture limit the Company’s ability to declare certain stockholder distributions. Stockholder distributions are generally permitted for quarterly income tax estimates, and distributions for other purposes are subject to terms and conditions with which the Company was in compliance at March 31, 2006.

~~Operating~~During ~~income~~1998, ~~for~~Mr. LaCrosse, Chairman of the ~~product~~Company, ~~sales~~transferred ~~segment~~substantially ~~declined $18.1~~all ~~million~~of ~~for~~his ~~the~~non-voting ~~year~~stock ~~ended~~to ~~March~~a ~~31,~~family ~~2004~~trust, toas anpart ~~operating loss~~ of ~~$3.0~~an estate-planning ~~million~~transaction, ~~versus~~in ~~$15~~exchange for a note.1 ~~million~~As part of ~~operating~~that ~~income~~transfer, ~~for~~ the ~~prior~~Company ~~annual~~has ~~period.~~distributed ~~The~~funds ~~decline~~to inMr. LaCrosse, ~~revenue~~the ~~and~~family ~~gross~~trust, ~~profit~~and ~~from~~Ms. Johnston during the ~~Company’s~~prior ~~Illinois~~fiscal ~~division,~~years and the distributions were made within the ~~increased~~terms ~~brand~~and ~~promotion~~conditions ~~costs~~contained in the Company’s ~~USB~~indenture ~~division,~~governing ~~were~~its ~~primarily~~senior ~~responsible~~notes ~~for~~(including the ~~decrease~~limitation inon ~~operating~~restricted ~~income.~~payments) ~~Fee~~and ~~operations~~the ~~experienced~~revolving ancredit ~~increase~~facility. As of March 31, 2005 there was approximately $12.5 million inowed ~~operating~~to Mr. LaCrosse ~~income~~by ~~during~~ the ~~year~~family ~~ended~~trust ~~March~~related ~~31,~~to ~~2004~~the ~~as compared~~1998 totransfer and sale of the ~~prior~~non-voting ~~annual~~stock. ~~period,~~The ~~primarily~~Company ~~due~~issued toa ~~the~~shareholder ~~increased~~distribution ~~fee~~on ~~revenue~~July 15, of2005 which provided $42.05 million ~~with~~to anthe ~~operating~~family ~~expense~~trust ~~increase~~described ofabove and $20.5 million to Ms. Johnston. The ~~Company~~trust ~~was~~remitted ~~able~~$2.5 million to ~~achieve~~Mr. Lacrosse ~~fee~~in ~~revenue~~full ~~increases~~satisfaction ~~prior~~of tothe note for the ~~addition~~transfer and sale of the ~~incremental~~non-voting ~~sales staffing~~stock, and ~~brand~~Mr. LaCrosse ~~promotion~~then ~~costs~~loaned ~~associated~~$2.0 ~~with~~million to the ~~newly~~Company ~~acquired~~as ~~brands~~subordinated debt. Mr. LaCrosse used $0.3 million of the proceeds to pay income tax estimates and he retained approximately $0.2 million. Ms. Johnston also loaned $0.5 million to the Company as subordinated debt as part of this same shareholder distribution.

~~Interest~~The ~~Expense~~Company’s total assets of $234.4 million at March 31, 2006 increased by $40.6 million from March 31, 2005. The increase in assets was primarily due to an increase in trade and supplier accounts receivable of $18.6 million, inventories of $12.2 million, and the acquisition deposit of $14.9 million in connection with the proposed acquisition of the stock of L&L. The Company funded these expenditures by increased cash flow from earnings and utilizing and expanding the revolving credit facility from $40.0 million to $60.0 million. Total debt of $117.9 million at March 31, 2006 was $34.8 million higher than at March 31, 2005. Equity increased to $21.6 million at March 31, 2006 from $17.7 million at March 31, 2005. The $3.9 million increase was primarily due to net income of $12.5 million offset by stockholder distributions of $8.3 million.

~~Interest~~- ~~expense~~29 ~~declined~~- $0.5 million to $8.8 million for the year ended March 31, 2004 as compared to the prior annual period. Reduced debt levels due to the repurchase of $28.8 million of the Company’s senior notes during fiscal years 2003 and 2004 reduced interest expense by approximately $1.7 million. Gains from the discounted repurchases of the Company’s senior notes during the year ended March 31, 2004 were $0.7 million versus $2.0 million during fiscal 2003. The Company expects the fiscal 2005 interest expense to be approximately $10.0 million for all long term obligations, including the senior notes, revolving credit facility, and imputed interest on the distribution rights obligations.

Other Income

The reduction in other income for the year ended March 31, 2004 was primarily due to the one time payments of $9.2 million received during fiscal 2003. Equity in income from Commonwealth Wine & Spirits, LLC increased $0.4 million during the year ended March 31, 2004 as compared to the prior annual period.

Net Loss

Net income declined from $15.8 million during the prior year’s annual period to a net loss of $9.1 million for the year ended March 31, 2004. Net losses in the product sales segment from the Company’s Illinois and USB operations as compared to the prior annual period, and the one time payments of $9.2 million during fiscal 2003 were the primary reasons for the decrease in income during the current fiscal year.

- 25 -

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

~~EBITDA~~The Company expects to maintain adequate cash balances, collateral, and revolving credit facility availability to satisfy the Company’s anticipated working capital and debt service requirements during fiscal 2007.

For financial analysis purposes only, the Company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) for the year ended March 31, 2004 was $11.8 million as compared to $34.7 million for the prior year’s annual reporting period. Please see the discussion and reconciliation regarding EBITDA as a non-GAAP financial measure set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview”. EBITDA should not be construed as an alternative to operating income or loss, or net cash flow from operating activities and should not be construed as an indication of operating performance or as a measure of liquidity.

Liquidity and Capital Resources

The Company’s primary cash requirements have been to fund accounts receivable, inventories, and payment of distribution rights obligations for the product markets in Illinois, Indiana, Michigan, and USB. The Company has historically satisfied its cash requirements principally through cash flow from operations, trade terms, bank borrowings and existing cash balances.

The Company amended its $40 million revolving credit facility as of June 30, 2004. The amendment permits the Company to repurchase up to $10.0 million of its senior notes subject to certain availability levels. The Company repurchased $1.95 million of its senior notes during the fiscal year ended March 31, 2005 for $1.8 million, which resulted in a gain of $0.1 million after the write-off of unamortized debt issuance costs.

At March 31, 2005, the Company had $1.8 million of outstanding advances on its $40.0 million revolving line of credit facility and also had $4.0 million in letters of credit outstanding, resulting in availability of $34.2 million. Interest is payable monthly at the LIBOR rate or the higher of the prime lending rate or the federal funds rate, plus a margin percentage. The Company did not have any advances priced at the LIBOR based rate at March 31, 2005 and the Company’s prime based revolver rate of interest on March 31, 2005 was 5.75%. The line of credit borrowings are collateralized by and based upon eligible accounts receivable and inventories, as defined, and are guaranteed by the Company’s subsidiaries. The Company must maintain certain interest coverage and funded debt coverage ratios, with which the Company was in compliance at March 31, 2005. The Company anticipates that the collateral base for the revolving credit facility will provide adequate availability to fund operations and working capital needs during fiscal 2006.

- 26 -

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Cash provided by operating activities was $12.1 million for the fiscal year ended March 31, 2005 versus cash provided of $15.9 million for the prior fiscal year. This comparative decrease in operating cash flow was primarily the result of a reduction in working capital of $29.5 million from the Company’s Illinois business during the prior fiscal year which did not occur during the current year. Cash used by working capital for the fiscal year ended March 31, 2005 was approximately $3.0 million, primarily due to the funding of accounts receivable for the product sales segment of $3.0 million. Cash provided by net income (loss) and adjustments for depreciation and amortization were $16.0 million for the current fiscal year and $3.0 million for the prior fiscal year.

Net cash used by investing activities was $3.1 million for the fiscal year ended March 31, 2005 compared to cash provided of $0.1 million during the prior fiscal year. Purchases of intangibles were $3.3 million greater during the current fiscal year that the prior year, and were primarily related to an agreement with a supplier to receive certain future contractual benefits. The Company’s capital expenditures during the current fiscal year were approximately $0.2 million greater than the prior fiscal year, but were below the spending level of previous fiscal years.

Net cash used by financing activities was $7.4 million for the fiscal year ended March 31, 2005, a decrease of $12.9 million from the prior fiscal year. The Company repurchased approximately $9.9 million of its senior notes during the prior fiscal year while repurchasing $1.8 million during the current fiscal year. Additionally, distributions to stockholders during the current fiscal year were $0.2 million, while distributions to stockholders were $6.0 million during the prior fiscal year. Stockholder distributions other than for tax liabilities are limited by the revolving credit facility and indenture.

During 1998 Mr. LaCrosse, Chairman of the Company, transferred substantially all of his non-voting stock to a family trust, as part of an estate-planning plan, in exchange for a note. As part of that transfer, the Company has distributed funds to Mr. LaCrosse, the family trust, and Mrs. Johnston during the prior fiscal years and were made within the terms and conditions contained in the Company’s indenture governing its senior notes (including the limitation on restricted payments) and the revolving credit facility. As of March 31, 2005 there was approximately $2.5 million owed to Mr. LaCrosse by the family trust related to the 1998 transfer and sale of the non-voting stock.

The Company’s total assets of $193.8 million at March 31, 2005 increased by $6.7 million from March 31, 2004. The increase in assets was primarily due to an increase in distribution rights of approximately $5.7 million, greater accounts receivable of $3.1 million and additional cash balances of $1.5 million, which were offset by a decrease in net property and equipment of $3.8 million. The increase in accounts receivable balances was primarily in the product sales segment and due to an increase in net sales of $8.0 million during the last quarter of the current fiscal year as compared to the prior year’s comparable period. Total debt of $83.2 million at March 31, 2005 was $3.2 million lower than at March 31, 2004, primarily from the repurchase of the Company’s senior notes of $1.9 million during the fiscal year ended March 31, 2005. Equity increased by $5.1 million during the current fiscal year to $17.7 million at March 31, 2005 primarily due to net income of $5.4 million.

- 27 -

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

The Company expects to maintain adequate cash balances, collateral, and revolving credit facility availability to satisfy the Company’s anticipated working capital and debt service requirements during fiscal 2006.

Aggregate Contractual Commitments

The following table sets forth NWS’ contractual obligations for the periods set forth as of March 31, ~~2005~~ 2006:

	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		~~1-3 years~~	1-3 years	~~3-5 years~~		3-5 years	~~More than 5 years~~	More than 5 years
Long-term debt obligations (2)	$	83,157,000	—		—		$	83,157,000		—
Long-term debt obligations	$	117,907,000		—		$	111,079,000		$	6,828,000		—
Operating lease obligations		11,081,000	3,980,000		5,121,000			1,443,000		537,000
Future interest commitments(2)		30,157,000	$	10,713,000			19,047,000			397,000		—
Distribution rights obligations		28,610,000	4,729,000		11,754,000			10,802,000		1,325,000
Operating lease obligations		8,111,000		3,901,000			2,879,000			992,000	$	339,000
Purchase obligations		58,093,000	58,093,000		—			—		—
Distribution rights obligations		24,354,000		6,252,000			11,447,000			6,655,000		—
Defined benefit plan funding (1)		1,100,000	1,100,000		—			—		—
Purchase obligations		80,789,000		80,789,000			—			—		—
Brand promotion (3)		7,700,000	3,083,000		2,325,000			2,200,000		92,000
Defined benefit plan funding (1)		1,100,000		1,100,000			—			—		—
Brand promotion (3)		4,492,000		1,100,000			2,200,000			1,192,000		—
Employment agreement obligations		3,226,000		411,000			1,102,000			828,000		885,000

(1) The amounts for funding of the defined benefit plan include only those amounts due within fiscal ~~2006~~2007, as future amounts are not estimable at this time.

(2) The interest component ~~related~~was toestimated ~~long-term~~using ~~debt~~an ~~obligations~~average ~~are~~revolving ~~not~~credit ~~included~~facility balance of $34 million with an assumed interest rate of 7.0%, subordinated debt in the ~~table~~amount ~~due~~of to$6.8 ~~the~~million ~~variable~~with ~~nature~~an assumed interest rate of ~~certain~~7.75% ~~debt~~and ~~instruments~~senior notes in the ~~Company~~amount ~~holds~~of $77.1 million with a fixed interest rate of 10.125%.

(3)	Brand promotion obligations are based on contractual commitments with certain suppliers to provide marketing support for the supplier’s brands.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

Other

As a matter of policy, the Company plans to review and evaluate all professional services firms every three to four years. This review will include but is not limited to legal, audit and information systems services.

~~Inflation~~- 30 -

Inflation has not had a significant impact on the Company’s operations but there can be no assurance that inflation will not have a negative effect on the Company’s financial condition, results of operations or debt service capabilities in the future.

Environmental Matters

- 28 -

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

~~hazardous~~Inflation substances on such properties. The liability imposed by such laws is often joint and several without regard for whether the property owner or operator knew of, or was responsible for, the presence of such hazardous substances. In addition, the presence of such hazardous substances, or the failure to properly remediate such substances, may adversely affect the property owner’s ability to borrow using the real estate as collateral and to transfer its interest in the real estate. Although the Company is not aware of the presence of hazardous substances requiring remediation, there can be no assurance that releases unknown to the Company have not occurred. Except for blending and bottling of a few of the Company’s private label brands, the Company does not manufacture any of the wine or spirit products it sells and believes that it has conducted its business in substantial compliance with applicable environmental laws and regulations. Compliance with environmental laws has not had a material effect upon NWS’ capital expenditures, earnings or competitive position.

Inflation has not had a significant impact on the Company’s operations, but there can be no assurance that inflation will not have a negative effect on the Company’s financial condition, results of operations or debt service capabilities in the future.

Environmental Matters

The Company currently owns and leases a number of properties, and historically it has owned and/or leased others. Under applicable environmental laws, the Company may be responsible for remediation of environmental conditions relating to the presence of certain hazardous substances on such properties. The liability imposed by such laws is often joint and several without regard for whether the property owner or operator knew of, or was responsible for, the presence of such hazardous substances. In addition, the presence of such hazardous substances, or the failure to properly remediate such substances, may adversely affect the property owner’s ability to borrow using the real estate as collateral and to transfer its interest in the real estate. Although the Company is not aware of the presence of hazardous substances requiring remediation, there can be no assurance that releases unknown to the Company have not occurred. Except for blending and bottling of a few of the Company’s private label brands, the Company does not manufacture any of the wine or spirit products it sells and believes that it has conducted its business in substantial compliance with applicable environmental laws and regulations. Compliance with environmental laws has not had a material effect upon NWS’ capital expenditures, earnings or competitive position.

Critical Accounting Policies

The Company’s consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses during the reporting periods.

The Company continually evaluates its accounting policies and estimates it uses to prepare the consolidated financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

The Company believes its critical accounting policies and estimates, as reviewed and discussed with the audit committee of the Board of Directors, include accounting for impairment of long-lived assets, accounts receivable valuation, inventory valuation, vendor allowances, and pensions.

~~Impairment of Long~~-~~lived~~ ~~Assets.~~31 ~~The Company evaluates long~~-~~lived~~ assets, intangibles subject to amortization, and goodwill whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review of recoverability, the Company estimates future cash flows expected to result from the use of the asset and its eventual disposition. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management’s subjective judgments. The time periods for estimating future cash flows is often lengthy, which increases the sensitivity to assumptions made. Depending on the assumptions and estimates used, the estimated future cash flows projected in the evaluation of long-lived assets can vary within a wide range of outcomes. The Company considers the probability of possible outcomes in determining the best estimate of future cash flows.

- 29 -

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Impairment of Long-lived Assets. The Company evaluates long-lived assets and intangibles subject to amortization, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review of recoverability, the Company estimates future cash flows expected to result from the use of the asset and its eventual disposition. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management’s subjective judgments. The time periods for estimating future cash flows is often lengthy, which increases the sensitivity to assumptions made. Depending on the assumptions and estimates used, the estimated future cash flows projected in the evaluation of long-lived assets can vary within a wide range of outcomes. The Company considers the probability of possible outcomes in determining the best estimate of future cash flows.

Receivables and Credit Policies. The carrying amount of accounts receivable is reduced by an allowance that reflects management’s best estimate of the amounts that will not be collected. Management individually reviews all accounts receivable balances and creates an allowance for doubtful accounts based on the credit worthiness of specific accounts and an estimate of other uncollectible accounts based on historical performance.

Inventory Valuation. The carrying amount of inventories is reduced by an allowance that reflects management’s best estimate of inventory at net realizable value. Management reviews inventory turnover, sales activity, individual product spoilage, and historical destruction data to calculate an allowance for obsolescence.

Vendor Allowances Received. The Company records vendor allowances and discounts in accordance with EITF 02-16: Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor. The Company receives ~~allowances~~promotional funds from ~~vendors~~numerous assuppliers aby ~~result~~credit ofmemos ~~purchasing~~that ~~and~~the ~~promoting~~Company may ~~their~~apply ~~products.~~to ~~Vendor~~future ~~allowances~~payments, ~~provided~~by asreceipt aof ~~reimbursement~~product ofwithout ~~specific~~charge, ~~incremental,~~or by direct payment from the supplier. The promotional funds reimburse the Company for specific and ~~identifiable~~incremental product promotional costs ~~incurred~~that the Company would not have otherwise undertaken or to ~~promote~~fund afuture ~~vendor’s~~promotional ~~products~~activities. As outlined in EITF 02-16, these funds are ~~recorded~~classified as ana ~~expense~~current ~~reduction~~liability ~~when~~and are then applied to offset a specific operating cost for which the funds were received or classified as a reduction of cost isof ~~incurred~~products sold upon the sale of the product to which the funds relate. In ~~All~~accordance ~~other~~with ~~vendor~~this ~~allowances~~guidance, allowances and discounts received from suppliers are recognized at different times depending upon the timing and type of ~~including~~allowance ~~vendor~~or ~~allowances~~discount received. inWhen ~~excess~~the Company incurs promotional costs and invoices the supplier for reimbursement, the recognition of the supplier allowance is recorded at the time the Company’s ~~cost~~invoices tothe ~~promote~~supplier. aIn ~~vendor’s~~instances in which the supplier supplies product at a discounted cost, or ~~vendor~~supplies ~~allowances~~product ~~directly~~without ~~related~~charge, tothe ~~purchase~~Company ofrecords athe ~~vendor’s~~allowance ~~product~~when ~~are~~the ~~initially~~product ~~deferred~~is sold. ~~The~~Additionally, ~~deferred~~in ~~amounts~~circumstances ~~are~~in ~~then~~which ~~recorded~~the supplier advances funds for future promotional activities, asthe aCompany ~~reduction~~defers ofthe ~~cost~~recognition of ~~good~~the ~~sold~~allowance ~~when~~until the ~~related~~promotional ~~product~~activities isoccur or when products are sold at a discounted price.

Many of the vendor allowance programs are not part of written contracts and collectibility of amounts owed to NWS under such agreements cannot be assured. Management reviews vendor accounts receivable balances for collectibility and records an allowance for management’s best estimate of uncollectible accounts.

~~Payments~~- to32 ~~Customers. The Company records certain payments to customers as a reduction of revenue in accordance with EITF 01~~-~~09:~~ Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Product). The company accrues a liability and records a reduction to revenue based on expected payments to be made to customers for specific programs. Management’s estimate of amounts expected to be paid to customers is determined by applying a product’s depletion rate that contemplates customers’ historical sales performance and current customer support programs to the current period’s product sales. Upon receiving an invoice from the customer, the Company then records the payment and reduces the liability accordingly.

Defined Benefit Pension Plan. The most significant element in determining the Company’s pension income (cost) in accordance with SFAS No. 87 is the expected return on plan assets. In 2004, the Company reduced its expected long-term rate of return on plan assets to 7.5% from 8.5% during the prior fiscal year. The assumed long-term rate of return on assets reflects the weighted average rate of earnings expected on the classes of funds invested, or to be invested to provide for the plan benefits. An analysis of the composition of the plan’s investments and investment policy compared against the investment’s expected returns results in

- 30 -

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

~~the~~The ~~expected~~Company ~~return on plan assets that~~ is ~~included~~unable ~~in pension~~to ~~income~~estimate ~~(cost).~~with ~~The~~any ~~difference~~degree ~~between~~of ~~this~~certainty ~~expected return and~~ the ~~actual~~effect ~~return~~ on ~~plan~~the ~~assets~~Company’s isrevenue ~~deferred.~~or ~~The~~gross ~~net~~profit ~~deferral~~if ofthese ~~past~~promotional activities ~~asset~~are ~~gains~~curtailed ~~(losses)~~due ~~can~~to ~~affect~~lack ~~future~~of ~~pension~~supplier ~~income (cost)~~support. ~~Over~~It ~~the~~is ~~long~~possible ~~term,~~that the ~~Company’s pension~~nature ~~plan~~and ~~assets~~amount ~~have~~of ~~earned~~such anvendor ~~average~~allowances ~~annual~~could ~~return~~change ofin ~~9.5%.~~the ~~However~~future, including the ~~plan~~possibility ~~assets~~that ~~have~~certain ~~lost~~vendors ancould ~~average~~reduce ofor ~~2.9%~~eliminate ~~per year during the last four years~~allowances. ~~The~~In ~~investment return on plan assets has been positive for the previous two years~~such event, ~~but should~~it ~~the~~is ~~negative~~likely ~~trend~~that ~~continue,~~ the Company ~~will~~would ~~again~~reduce ~~be required to reconsider~~ its ~~assumed~~spending ~~expected rate of return~~ on ~~plan~~brand ~~assets.~~promotion Ifwhich, ~~the~~in ~~Company were to lower this rate~~turn, ~~future~~could ~~pension~~adversely ~~cost~~affect ~~would~~product ~~increase~~sales.

AtThe ~~the~~amounts ~~end~~ of ~~each~~vendor ~~year,~~promotional ~~the~~funds ~~Company~~that ~~determines~~were ~~the discount rate to be~~ used to ~~calculate~~reimburse ~~the~~product ~~present~~promotional ~~value~~expenses ofand ~~plan~~reduce liabilities. The discount rate is an estimate of the current interest rate at which the pension liabilities could be effectively settled at the end of the year. In estimating this rate, the Company uses the preceding November’s Moody’s AA Corporate Bond Index rounded down to the nearest ¼ of a percentage point. At March 31, 2005, the Company determined this rate to be 5.75%, a decrease of 25 basis points from the rate used at March 31, 2004. Changes in discount rates over the past three years have not materially affected pension income (cost), ~~and the net effect~~ of ~~changes~~products insold ~~the~~were ~~discount rate,~~ as ~~well~~follows: ~~as the net effect of other changes in actuarial assumptions and experience, have been deferred, in accordance with SFAS No. 87.~~

The Company’s accumulated pension obligation exceeded the fair value of the related plan assets primarily due to the difference in the actual return on assets compared to the expected return on assets and the reduction in the discount rate assumption. As a result, in 2005 the Company recorded an increase to accrued pension liability and a non-cash charge to equity of approximately $0.1 million. This charge may be reversed in future periods if asset returns improve or interest rates rise. For the year ended March 31, 2005, the Company recognized consolidated pretax pension cost of $0.7 million, up from $0.6 million in 2004. The Company currently expects that the consolidated pension cost for 2006 will not be materially different from 2005. The Company’s required minimum amount of 2006 contributions are approximately $1.1 million. However, the Company may elect to increase the minimum level of contributions in 2006 based on a number of factors, including performance of pension investments, changes in interest rates, and the funded percentage of the plan.


	Years Ended March 31,
	2006		2005		2004
Vendor promotional funds that were used to offset specific and incremental product promotional expenses.	$	23,896,000	$	14,743,000	$	20,282,000
Vendor promotional funds recorded as a reduction of cost of products sold		20,656,000		7,520,000		8,522,000

Payments to Customers. The Company records certain payments to customers as a reduction of revenue in accordance with EITF 01-09: Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Product). The Company accrues a liability and records a reduction to revenue based on expected payments to be made to customers for specific programs. Management’s estimate of amounts expected to be paid to customers is determined by applying a product’s depletion rate that contemplates customers’ historical sales performance and current customer support programs to the current period’s product sales. Upon receiving an invoice from the customer, the Company then records the payment and reduces the liability accordingly.

Defined Benefit Pension Plan. The most significant element in determining the Company’s pension income (cost) in accordance with SFAS No. 87 is the expected return on plan assets. In 2004, the Company reduced its expected long-term rate of return on plan assets to 7.5% from 8.5% during the prior fiscal year. The assumed long-term rate of return on assets reflects the weighted average rate of earnings expected on the classes of funds invested, or to be invested to provide for the plan benefits. An analysis of the composition of the plan’s investments and investment policy compared against the investment’s expected returns results in the expected return on plan assets that is included in pension income (cost). The difference between this expected return and the actual return on plan assets is deferred. The net deferral of past asset gains (losses) can affect future pension income (cost). Over the long term, the Company’s pension plan assets have earned an average annual return of 9.4%. However, the

- 33 -

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

plan assets have earned an average of 4.2% per year during the last four years. Although the investment return on plan assets has been positive for each of the previous three years, should this recent trend continue, the Company will again be required to reconsider its assumed expected rate of return on plan assets. If the Company were to lower this rate, future pension cost would increase.

At the end of each year, the Company determines the discount rate to be used to calculate the present value of plan liabilities. The discount rate is an estimate of the current interest rate at which the pension liabilities could be effectively settled at the end of the year. In estimating this rate, the Company uses the preceding November’s Moody’s AA Corporate Bond Index rounded down to the nearest ¹/4 of a percentage point. At March 31, 2006, the Company determined this rate to be 5.50%, a decrease of 25 basis points from the rate used at March 31, 2005. Changes in discount rates over the past three years have not materially affected pension income (cost), and the net effect of changes in the discount rate, as well as the net effect of other changes in actuarial assumptions and experience, have been deferred, in accordance with SFAS No. 87.

The Company’s accumulated pension obligation exceeded the fair value of the related plan assets primarily due to the difference in the actual return on assets compared to the expected return on assets and the reduction in the discount rate assumption. As a result, in 2006 the Company recorded an increase to accrued pension liability and a non-cash charge to equity of approximately $0.3 million. This charge may be reversed in future periods if asset returns improve or interest rates rise. For the years ended March 31, 2006 and 2005, the Company recognized consolidated pretax pension cost of $0.7 million each year. The Company currently expects that the consolidated pension cost for 2007 will not be materially different from 2006. The Company’s required minimum amount of 2007 contributions are approximately $1.1 million. However, the Company may elect to increase the minimum level of contributions in 2007 based on a number of factors, including performance of pension investments, changes in interest rates, and the funded percentage of the plan.

Recently Issued Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46): Consolidation of Variable Interest Entities and during December 2003 issued Interpretation 46 (FIN 46R), Consolidation of Variable Interest Entities, and Interpretation of ARB 51. The term “variable interest” is defined in FIN 46 as “contractual, ownership or other pecuniary interest in an entity that change with changes in the entity’s net asset value.” Variable interests are investments or other interest that will absorb a portion of an entity’s expected losses if they occur or receive portions of the entity’s expected residual returns if they occur. FIN 46R defers the effective date of FIN 46 for certain entities and makes several other changes to FIN 46. The adoption of FIN 46R did not have a material impact on the Company’s financial position or results of operations.

-In 31November -2004, the Financial Accounting Standards Board issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). This statement is effective June 15, 2005. The Company has determined the effect of SFAS No. 151 did not have a material effect on its financial position, results of operations and cash flows.

- 34 -

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

In ~~November~~December 2004, the ~~Financial~~FASB ~~Accounting Standards Board~~ issued SFAS No. ~~151~~ 153, ~~Inventory~~Exchanges ~~Costs~~of Nonmonetary Assets, an amendment of ~~ARB~~APB Opinion No. 43 29, ~~Chapter~~Accounting 4,for Nonmonetary toTransactions. ~~clarify~~The ~~the~~amendments ~~accounting~~made ~~for~~by ~~abnormal~~Statement ~~amounts~~153 are based on the principle that exchanges of ~~idle~~nonmonetary ~~facility~~assets ~~expense,~~should ~~freight,~~be ~~handling~~measured ~~costs~~based ~~and~~on ~~wasted~~the ~~material~~fair ~~(spoilage)~~value of the assets exchanged. ~~This~~Further, ~~statement~~the isamendments eliminate the narrow ~~effective~~exception ~~June~~for ~~15,~~nonmonetary ~~2005.~~exchanges ~~The~~of ~~Company~~similar isproductive ~~currently~~assets ~~assessing,~~and ~~but~~replace ~~has~~it with a broader exception for exchanges of nonmonetary assets that do not ~~yet~~have commercial substance. The Company has determined the effect of SFAS No. 153 ~~151~~did not have a material effect on its financial position, results of operations and cash flows.

-In 32March -2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations. The Interpretation clarifies that the phrase “conditional asset retirement obligations” as used in SFAS No. 143, Accounting for Asset Retirement Obligations, refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The Interpretation states that conditional obligations meet the definition of an asset retirement obligation in SFAS No. 143 and therefore should be recognized if their value can be reasonably estimated. Interpretation No. 47 is effective no later than the end of fiscal years ending after December 15, 2005. The Company has determined the effect of Interpretation No. 47 did not have a material effect on its financial position, results of operations and cash flows.

In May 2005, the Financial Accounting Standards Board issued SFAS No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, changing the requirements for the accounting for and reporting of a change in accounting principle. This statement was effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company has determined the effect of SFAS No. 154 did not have a material effect on its financial position, results of operations and cash flows.

- 35 -

Item 7A. Quantitative and Qualitative Disclosures ~~About~~about Market Risk

Interest Rate Risk

The Company uses long-term debt as a primary source of capital in its business. The following ~~table~~tables ~~presents~~present the principal cash repayments and related weighted average interest rates by maturity date for the Company’s long-term fixed-rate debt and other types of long-term debt at March 31, 2006 and March 31, 2005:

	2006		2007		2008			2009				2010				Thereafter			Total				Fair Value
					At March 31, 2006
Fixed	$	—	$	—	$	—		$	77,079,000			$	—			$	—		$	77,079,000			$	77,079,000
	2007		2008		2009				2010				2011				Thereafter			Total				Fair Value
Avg. Rate		—		—		—			10.125	%			—				—			10.125	%
Fixed	$	—	$	—	$	77,079,000			$	—			$	—			$	—		$	77,079,000			$	77,658,000
Variable	$	—	$	—	$	—		$	1,750,000			$	4,328,000				—		$	6,078,000			$	6,078,000
Avg. Rate		—		—		10.125	%			—				—				—			10.125	%
Avg. Rate		—		—		—			6.00	%			5.75	%			—			5.82	%
Variable	$	—	$	—	$	34,000,000			$	6,828,000			$	—				—		$	40 828,000			$	40 828,000
Avg. Rate		—		—		7.00	%			7.75	%			—				—			7.13	%
					At March 31, 2005
	2006		2007		2008				2009				2010				Thereafter			Total				Fair Value
Fixed	$	—	$	—	$	—			$	77,079,000			$	—			$	—		$	77,079,000			$	77,079,000
Avg. Rate		—		—		—				10.125	%			—				—			10.125	%
Variable	$	—	$	—	$	—			$	1,750,000			$	4,328,000				—		$	6,078,000			$	6,078,000
Avg. Rate		—		—		—				6.00	%			5.75	%			—			5.82	%

The Company has not had any material quantitative changes in its market risk exposures between the current and preceding fiscal years.

The Company is exposed to fluctuations in interest rate risk as a result of its variable rate debt. A hypothetical 1% change in interest rates applied to the Company’s variable rate debt would not have a material impact on the Company’s earnings or cash flows. The Company’s objectives in managing its exposure to changes in interest rates are to limit the effect of interest rate changes on earnings and cash flows and to minimize the amount of borrowings under the Company’s revolving line of credit. This approach to managing interest rate risk does not consider the changes in the Company’s competitive environment indirectly related to changes in interest rates and management’s responses to these changes.

- 3336 -

Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

National Wine & Spirits, Inc.

~~We have audited the accompanying consolidated balance sheets of National Wine & Spirits~~Indianapolis, ~~Inc.~~Indiana and subsidiaries (the “Company”) as of March 31, 2005 and 2004 and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended March 31, 2005. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We have audited the accompanying consolidated balance sheets of National Wine & Spirits, Inc. and subsidiaries (the “Company”) as of March 31, 2006 and 2005 and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended March 31, 2006. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of National Wine & Spirits, Inc. and subsidiaries as of March 31, ~~2005~~2006 and ~~2004~~2005 and the results of their operations and their cash flows for each of the three years in the period ended March 31, ~~2005~~2006, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement ~~schedule~~schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

DELOITTE & TOUCHE LLP

Indianapolis, Indiana

June 1426, ~~2005~~2006

- 3437 -

National Wine & Spirits, Inc.

Consolidated Balance Sheets

	As of March 31
	2005			2004
	2006			2005
Assets
Current assets:
Cash and cash equivalents	$	2,~~957~~582,000		$	12,~~466~~957,000
Accounts receivable:
Trade, less allowance for doubtful accounts of $761,000 and $1,081,000		28,558,000			25,427,000
Trade, less allowance for doubtful accounts of $949,000 and $761,000		41,032,000			28,558,000
Vendor, less allowance for doubtful accounts of $250,000 and $125,000		3,754,000			3,745,000
Vendor, less allowance for doubtful accounts of $232,000 and $250,000		9,832,000			3,754,000
Inventory		8092,~~568~~779,000			80,~~196~~568,000
Prepaid expenses and other current assets		45,~~997~~386,000			4,~~493~~997,000
Total current assets		~~120~~151,~~834~~611,000			~~115~~120,~~327~~834,000
Property and equipment, net		2728,~~691~~645,000			3127,~~484~~691,000
Other assets:
Notes receivable, less reserve of $0 and $221,000		—			197,000
Cash surrender value of life insurance		5,404,000			4,892,000
Cash surrender value of life insurance		4,892,000			4,366,000
Investment in Commonwealth Wine & Spirits, LLC		5,673,000			5,284,000
Investment in Commonwealth Wine & Spirits, LLC		5,284,000			5,593,000
Intangible assets, net of amortization		25,823,000			32,681,000
Intangible assets, net of amortization		32,681,000			27,646,000
Goodwill		1,246,000			1,246,000
Deferred pension costs		~~569~~497,000			~~642~~569,000
Deposits and other		592,000			599,000
Deposits on acquisition		14,923,000			—
Total other assets		45,264,000			40,289,000
Deposits and other		595,000			592,000
Total assets	$	193,789,000		$	187,100,000
Total other assets		54,161,000			45,264,000
Total assets	$	234,417,000		$	193,789,000
Liabilities And Stockholders’ Equity
Current liabilities:
Accounts payable	$	3944,~~851~~717,000		$	4039,~~503~~851,000
Outstanding checks in excess of bank balance		—316,000			~~91,000~~—
Accrued payroll and payroll taxes		89,~~837~~461,000			78,~~018~~837,000
Excise taxes payable		4,~~286~~581,000			4,~~813~~286,000
Current portion of distribution rights obligations		5,~~136~~312,000			45,~~115~~136,000
Other accrued expenses		10,~~086~~587,000			910,~~492~~086,000
Total current liabilities		6874,~~196~~974,000			6668,~~032~~196,000
Deferred pension liability		3,~~073~~332,000			3,~~061~~073,000
Distribution rights obligations		2116,~~625~~601,000			1921,~~057~~625,000
Long-term debt		83117,~~157~~907,000			8683,~~357~~157,000
Total liabilities		~~176~~212,~~051~~814,000			~~174~~176,~~507~~051,000
Commitments and contingencies (Note 9)		—			—
Stockholders’ equity:
Voting common stock, $.01 par value. 200,000 shares authorized, 104,520 shares issued and outstanding		1,000			1,000
Nonvoting common stock, $.01 par value. 20,000,000 shares authorized, 5,226,001 shares issued and outstanding		53,000			53,000
Additional paid-in capital		25,009,000			25,009,000
Accumulated deficit		(4625,~~822,~~000	)		(104,~~051~~822,000	)
Accumulated other comprehensive loss-unrealized net pension loss		(2,~~503~~835,000	)		(2,~~419~~503,000	)
Total stockholders’ equity		1721,~~738~~603,000			1217,~~593~~738,000
Total liabilities and stockholders’ equity	$	~~193~~234,~~789~~417,000		$	~~187~~193,~~100~~789,000

See accompanying notes.

- 3538 -

National Wine & Spirits, Inc.

Consolidated Statements of Operations

	Year Ended March 31
	Years Ended March 31
	2005			2004			2003
	2006			2005			2004
Net product sales	$	~~524~~686,~~399~~660,000		$	~~513~~524,~~615~~399,000		$	~~689~~513,~~859~~615,000
Distribution fees		2930,~~268~~964,000			2729,~~045~~268,000			2227,~~999~~045,000
Total revenue		~~553~~717,~~667~~624,000			~~540~~553,~~660~~667,000			~~712~~540,~~858~~660,000
Cost of products sold		~~428~~558,~~576~~999,000			~~421~~428,~~468~~576,000			~~552~~421,~~833~~468,000
Gross profit		~~125~~158,~~091~~625,000			~~119~~125,~~192~~091,000			~~160~~119,~~025~~192,000
Selling, general and administrative expenses:
Warehouse and delivery		3745,~~196~~161,000			37,~~147~~196,000			3937,~~833~~147,000
Selling		5066,~~688~~240,000			4950,~~640~~688,000			5749,~~452~~640,000
Administrative		4351,~~847~~545,000			4643,~~117~~847,000			4846,~~156~~117,000
Management fees		(18,~~743~~848,000	)		(1218,~~634~~743,000	)		(~~891~~12,634,000	)
		112,988,000			120,270,000			144,550,000
		144,098,000			112,988,000			120,270,000
Income (loss) from operations		1214,~~103~~527,000			(112,~~078~~103,000	)		15(1,~~475~~078,000	)
Interest expense:
Related parties		(~~203~~410,000	)		(~~176~~203,000	)		(~~197~~176,000	)
Third parties		(910,~~440~~965,000	)		(9,~~366~~440,000	)		(119,~~110~~366,000	)
Gain from repurchase of long term debt		~~108,000~~—			~~716~~108,000			1716,~~999,~~000
		(9,535,000	)		(8,826,000	)		(9,308,000	)
		(11,375,000	)		(9,535,000	)		(8,826,000	)
Other income (expense):
Arbitration award and vendor settlement income		2,263,000			—			9,200,000
Vendor termination payment and arbitration award		8,250,000			2,263,000			—
Interest income		349,000			213,000			~~152~~21,000
Rental and other income		67,000			17,000			118,000
Rental and other income (loss)		(193,000	)		67,000			17,000
Equity in income of Commonwealth Wine & Spirits, LLC		~~538~~1,207,000			~~742~~538,000			~~312~~742,000
Equity in losses of eSkye Solutions, Inc.		—			—			(160,000	)
		9,313,000			2,871,000			780,000
		2,871,000			780,000			9,622,000
Net income (loss)	$	12,465,000		$	5,439,000		$	(9,124,000	)
Net income (loss)	$	5,439,000		$	(9,124,000	)	$	15,789,000

See accompanying notes.

- 3639 -

National Wine & Spirits, Inc.

Consolidated Statements of Stockholders’ Equity

	$.01 Par Value Common Stock				Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
	Voting		Non-Voting
Balance at April 1, 2002	$	1,000	$	53,000	$	25,009,000	$	(1,293,000	)	$	(675,000	)	$	23,095,000
Balance at March 31, 2003	$	1,000	$	53,000	$	25,009,000	$	5,081,000		$	(2,290,000	)	$	27,854,000
Net income		—		—		—		15,789,000			—			15,789,000
Unrealized net pension loss		—		—		—		—			(1,615,000	)		(1,615,000	)
Comprehensive Income														14,174,000
Distributions to Stockholders		—		—		—		(9,415,000	)		—			(9,415,000	)
Balance at March 31, 2003		1,000		53,000		25,009,000		5,081,000			(2,290,000	)		27,854,000
Net income (loss)		—		—		—		(9,124,000	)		—			(9,124,000	)
Unrealized net pension loss		—		—		—		—			(129,000	)		(129,000	)
Comprehensive loss														(9,253,000	)
Comprehensive Income														(9,253,000	)
Distributions to Stockholders		—		—		—		(6,008,000	)		—			(6,008,000	)
Balance at March 31, 2004		1,000		53,000		25,009,000		(10,051,000	)		(2,419,000	)		12,593,000
Net income		—		—		—		5,439,000			—			5,439,000
Unrealized net pension loss		—		—		—		—			(84,000	)		(84,000	)
Unrealized net Pension loss		—		—		—		—			(84,000	)		(84,000	)
Comprehensive income														5,355,000
Comprehensive loss														(5,355,000	)
Distributions to Stockholders		—		—		—		(210,000	)		—			(210,000	)
Balance at March 31, 2005	$	1,000	$	53,000	$	25,009,000	$	(4,822,000	)	$	(2,503,000	)	$	17,738,000
Net income		—		—		—		12,465,000			—			12,465,000
Unrealized net Pension loss		—		—		—		—			(332,000	)		(332,000	)
Comprehensive income														29,871,000
Distributions to Stockholders		—		—		—		(8,268,000	)		—			(8,268,000	)
Balance at March 31, 2006	$	1,000	$	53,000	$	25,009,000	$	(625,000	)	$	(2,835,000	)	$	21,603,000

See accompanying notes.

- 3740 -

National Wine & Spirits, Inc.

Consolidated Statements of Cash Flows

	Year Ended March 31
	Years Ended March 31
	2005			2004			2003
	2006			2005			2004
Operating Activities:
Net income (loss)	$	512,~~439~~465,000		$	(95,~~124~~439,000	)	$	15(9,~~789~~124,000	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Adjustments to reconcile net income (loss) to net cash provided by (used in)
Depreciation of property and equipment		4,590,000			5,947,000			7,188,000
Operating activities:
Amortization of intangible assets		5,961,000			6,129,000			2,419,000
Depreciation of property and equipment		3,738,000			4,590,000			5,947,000
Equity in losses of eSkye Solutions, Inc.		—			—			160,000
Amortization of intangible assets		8,454,000			5,961,000			6,129,000
Equity in earnings of Commonwealth Wine & Spirits, LLC		(538,000	)		(742,000	)		(312,000	)
Distributions from Commonwealth Wine & Spirits, LLC		818,000			847,000			786,000
Provision for bad debt expense		193,000			547,000			329,000
Equity in earnings of Commonwealth Wine & Spirits, LLC		(1,207,000	)		(538,000	)		(742,000	)
Gain on repurchase of long term debt		(108,000	)		(716,000	)		(1,999,000	)
Provision for bad debt expense		313,000			193,000			547,000
(Gain) loss on sales of assets		11,000			(270,000	)		(274,000	)
Gain on repurchase of long term debt		—			(108,000	)		(716,000	)
Increase in cash surrender value of life insurance		(526,000	)		(551,000	)		(447,000	)
(Gain) loss on sales of assets		63,000			11,000			(270,000	)
Increase in cash surrender value of life insurance		(512,000	)		(526,000	)		(551,000	)
Changes in operating assets and liabilities
Accounts receivable		(318,~~333~~865,000	)		13(3,~~865~~333,000	)		(113,~~970~~865,000	)
Inventories		(~~372~~12,211,000	)		2(372,~~786,~~000	)		(12,~~042~~786,000	)
Prepaid expenses and other current assets		(~~504~~389,000	)		(~~192~~504,000	)		(~~994~~192,000	)
Deposits and other		~~7,000~~—			(47,000	)		(~~788~~4,000	)
Accounts payable		~~(652~~4,866,000	)		~~742~~(652,000	)		(1742,~~245,~~000	)
Accrued expenses and taxes		1,~~886~~419,000			(21,~~503~~886,000	)		(12,~~629~~503,000	)
Net cash and cash equivalents provided by operating activities		12,054,000			15,914,000			15,185,000
Net cash and cash equivalents provided by (used in) operating activities		(1,048,000	)		12,901,000			16,700,000
Investing activities:
Purchases of property and equipment		(14,~~211~~831,000	)		(~~985~~1,211,000	)		(2985,~~337,~~000	)
Purchases of intangible assets		(31,~~519~~597,000	)		(~~210~~3,519,000	)		(2210,~~170,~~000	)
Proceeds from sale of property and equipment		~~453~~74,000			~~106~~453,000			~~365~~106,000
Proceeds from sale of intangible assets		100,000			272,000			—
Deposits on acquisitions		(14,923,000	)		—			—
Distributions from Commonwealth Wine & Spirits, LLC		847,000			786,000			1,286,000
Proceeds from sale of intangible assets		—			100,000			272,000
Collections on notes receivable		~~197,000~~—			95197,000			~~367~~95,000
Net cash and cash equivalents provided (used) by investing activities		(3,133,000	)		64,000			(2,489,000	)
Net cash and cash equivalents provided by (used in) investing activities		(21,277,000	)		(3,980,000	)		(722,000	)
Financing activities:
Cash provided (used) by outstanding checks in excess of bank balance		~~(91~~316,000	)		(91,000	)		—91,000
Proceeds from line of credit borrowings		~~196~~233,500,000			~~140~~196,~~400~~500,000			54140,~~250~~400,000
Principal payments on line of credit borrowings		(~~197~~201,~~750~~250,000	)		(~~141~~197,~~400~~750,000	)		(50141,~~250~~400,000	)
Principal payments on long-term debt, including purchases of senior notes		~~(1,842,000~~—	)		(91,~~935~~842,000	)		(159,~~317~~935,000	)
Proceeds of borrowings from stockholder		—2,500,000			—			~~197,000~~—
Payments of distribution rights obligations		(4,~~037~~848,000	)		(34,~~480~~037,000	)		(~~529~~3,480,000	)
Repayments on borrowings from stockholders		—			—			(175,000	)
Distributions to stockholders		(8,268,000	)		(210,000	)		(6,008,000	)
Receipts on notes receivable from stockholders and others		—			—			2,628,000
Net cash and cash equivalents provided by (used in) financing activities		21,950,000			(7,430,000	)		(20,332,000	)
Distributions to stockholders		(210,000	)		(6,008,000	)		(9,415,000	)
Net increase (decrease) in cash and cash equivalents		(375,000	)		1,491,000			(4,354,000	)
Net cash and cash equivalents used by financing activities		(7,430,000	)		(20,332,000	)		(18,611,000	)
Cash and cash equivalents, beginning of year		2,957,000			1,466,000			5,820,000
Net increase (decrease) in cash and cash equivalents		1,491,000			(4,354,000	)		(5,915,000	)
Cash and cash equivalents, end of year	$	2,582,000		$	2,957,000		$	1,466,000
Cash and cash equivalents, beginning of year		1,466,000			5,820,000			11,735,000
Cash and cash equivalents, end of year	$	2,957,000		$	1,466,000		$	5,820,000

See accompanying notes.

- 3841 -

National Wine & Spirits, Inc.

Notes to Consolidated Financial Statements

March 31, ~~2005~~2006

1. Nature of Business and Summary of Significant Accounting Policies

Nature of Business and Principles of Consolidation

National Wine & Spirits, Inc. (NWS or the Company), an S-Corporation, is a holding company which operates primarily in the wine and liquor wholesale distribution business. Based in Indianapolis, National Wine & Spirits Corporation (NWSC) is a wholesale distributor of liquor and wines throughout Indiana and also operates a division for the distribution of cigars and accessories. Based in Chicago, NWS-Illinois, LLC (NWS-LLC) is a wholesale distributor of liquor, wines, and beer throughout Illinois. NWS Michigan, Inc. (NWSM) distributes liquor throughout Michigan and National Wine & Spirits, LLC (NWSM-LLC) is a wholesale distributor of non-alcoholic and low proof products throughout Michigan. NWSM distributes spirits products as an Authorized Distribution Agent (ADA) for the State of Michigan and derives revenue from distribution and brokerage fees. Accordingly, NWSM’s results represent the entire “All Other” segment as described in Note 1312. Based in Connecticut, United States Beverage, LLC (USB) distributes and markets import and craft beer along with malt based products throughout the United States.

The consolidated financial statements include the accounts of NWS, NWSC, NWS-LLC, NWSM, NWSM-LLC, and USB, all of which NWS wholly owns or owns 100% of the voting stock. All significant intercompany accounts and transactions have been eliminated from the consolidated financial statements. Substantially all revenues result from the sale of liquor, beer and wine or distribution fees. NWS performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company’s cash, accounts receivable, accounts payable and certain other accrued liabilities are all short-term in nature and the carrying amounts approximate fair value. Long-term notes receivable and payable, except for the Company’s senior notes payable, have primarily variable interest rates, thus their carrying amounts approximate fair value. The fair value of the Company’s senior notes payable has been determined on the basis of the specific securities issued and outstanding and is estimated at $77,~~079~~658,000 at March 31, ~~2005~~2006.

- 3942 -

Cash and Cash Equivalents

For purposes of the Consolidated Statement of Cash Flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. The Company maintains its cash balances in bank deposit accounts which, at times, may exceed federally insured limits. The Company has experienced no such losses in these accounts.

Receivables and Credit Policies

Trade accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payments generally within 15 to 30 days from the invoice date. Vendor accounts receivable are due based on specific terms as required by the related vendor allowance program.

The carrying amounts of trade and vendor accounts receivable are reduced by an allowance that reflects management’s best estimate of the amounts that will not be collected. Management individually reviews all accounts receivable balances and creates an allowance for doubtful accounts based on the credit worthiness of specific accounts and an estimate of other uncollectible accounts based on historical performance and current economic conditions.

Inventory

Substantially all inventory is stated at the lower of cost, determined by the last-in, first-out (LIFO) method, or market and primarily consists of packaged beer, wine, liquor, cigars and accessories.

Advertising Costs

Advertising costs are charged to operations when incurred. Advertising expense was $610,~~063~~729,000, $86,~~432~~063,000 and $108,~~602~~432,000 in ~~2005~~2006, ~~2004~~2005 and ~~2003~~2004, respectively.

Property and Equipment

Property and equipment are recorded at cost and are depreciated using primarily the straight-line method over their expected useful lives as follows:


Buildings and improvements		10-40 years
Furniture and equipment		3-10 years
Warehouse equipment		7-10 years
Automobiles and trucks		5-7 years

- 4043 -

Intangible Assets

Intangible assets with definite lives are amortized by the straight-line method (which, for loan acquisition costs, also approximates the yield method) over the terms of the agreements or their estimated useful lives, which range from two to ten years.

Certain distribution rights are classified as indefinite-lived intangible assets which are not amortized but tested for impairment annually.

Goodwill

Goodwill consists of costs in excess of the net assets acquired in connection with an acquisition in April, 1999. Prior to April 2002, goodwill was amortized using the straight-line method over 15 years. Effective April 1, 2002, the Company adopted Statements of Financial Accounting Standards (“SFAS”) No. 142, Accounting for Goodwill and Other Intangible Assets. As such, the Company no longer amortizes goodwill and performs annual tests for impairment, which was performed as of March 31, ~~2005~~ 2006, and there was no indication of impairment. There was no change to ~~goodwill~~Goodwill during ~~2005~~2006 and ~~2004~~2005.

Long-lived Assets

The carrying value of long-lived assets, including intangible assets subject to amortization, is reviewed by management when indicators of impairment are present. If this review indicates that the carrying value may be impaired then the impaired amount will be written off. Impairment is determined by comparison of the carrying amount of the asset to the net undiscounted cash flows expected to be generated by the related asset group. An impairment loss is measured by the amount which the carrying amount of the asset group exceeds its fair value.

Income Taxes

There is no provision for federal or state income taxes reflected in the financial statements because the stockholders have consented to NWS’ election to be taxed as an S corporation under the applicable provisions of the Internal Revenue Code. NWS’ income is taxable directly to its stockholders.

Revenue Recognition

NWSC, NWS-LLC, NWSM-LLC, and USB purchase inventory items for resale to customers and are liable for payment to the suppliers, as well as collecting payment from customers. NWSM receives a fixed fee per case of liquor distributed for the State of Michigan (distribution fees) which is also responsible for payments to suppliers. All ~~revenue is recognized at the time of shipment. All~~ Michigan spirits shipments are cash on delivery.

- 4144 -

Net sales and distribution fees are recognized at the time product is ~~shipped~~delivered, which is when title passes. Shipping and handling charged to customers is included in Net Product Sales. For the years ended March 31, ~~2005~~2006, ~~2004~~2005, and ~~2003~~2004, the Company incurred delivery expenses of $1519,~~394~~573,000, $1415,~~739~~394,000 and $1614,~~342~~739,000, respectively, which are included in warehouse and delivery expenses in the accompanying Consolidated Statements of Income. ~~The Company’s gross profit may not be comparable to other entities whose shipping and handling expenses are a component of cost of sales.~~

Statement of Operations Classification

The Company calculates its gross profit as the difference between its revenue and the associated cost of products sold. Cost of products sold includes direct product costs, inbound freight, state and federal excise taxes, casualty insurance, import duties and broker fees, vendor allowances, and increases or decreases to the Company’s LIFO reserve. The Company’s gross profit may not be comparable to other entities whose shipping and handling expenses are a component of cost of sales.

The Company classifies the following expense categories separately on its statement of operations: warehouse and delivery; selling; and administrative. The Company’s costs to operate its warehousing and distribution network, including costs for purchasing, receiving, storing, internal product transfers, order fulfillment, and delivery are included in the warehouse and delivery expense category. The Company’s selling expenses primarily include sales commissions, wages, travel, entertainment, and product promotional costs. Administrative expenses of the Company primarily include officers’ wages, office salaries, legal costs, health and welfare expenses, payroll taxes, and general office expenses.

Payments to Customers

The Company records certain payments to customers as a reduction of revenue in accordance with EITF 01-09: Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Product). The Company recorded $12,~~299~~209,000, $1412,~~075~~299,000 and $814,~~925~~075,000 of consideration paid to customers as a reduction of revenue in the Consolidated Statements of Operations for the years ended March 31, ~~2005~~2006, ~~2004~~2005 and ~~2003~~2004, respectively.

Vendor Allowances Received

The Company records vendor allowances and discounts in ~~the statement of operations in~~ accordance with EITF 02-16: Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor. The Company receives ~~allowances~~promotional funds from ~~vendors~~numerous assuppliers aby ~~result~~credit ofmemos ~~purchasing~~that ~~and~~the ~~promoting~~Company ~~their~~may ~~products.~~apply ~~Vendor~~to ~~allowances~~future ~~provided~~payments, asby areceipt ~~reimbursement~~ of product ~~specific~~without charge, ~~incremental~~or ~~and identifiable~~by ~~costs~~direct ~~incurred~~payment tofrom ~~promote~~the asupplier. The ~~vendor’s~~promotional ~~products~~funds ~~are~~reimburse ~~recorded~~the asCompany anfor ~~expense~~specific ~~reduction~~and ~~when~~incremental product promotional costs that the ~~cost~~Company iswould ~~incurred.~~not ~~All~~have ~~other~~otherwise ~~vendor~~undertaken ~~allowances,~~or ~~including~~to ~~vendor~~fund ~~allowances~~future promotional ~~received~~activities. As outlined in ~~excess~~EITF of02-16, ~~the~~these ~~Company’s~~funds ~~cost~~are toclassified ~~promote~~as a ~~vendor’s~~ ~~product,~~current orliability ~~vendor~~and ~~allowances~~are ~~directly~~then ~~related~~applied to ~~purchase~~offset of a ~~vendor’s~~specific ~~product~~operating ~~are~~cost ~~initially~~for ~~deferred.~~which ~~The~~the ~~deferred~~funds ~~amounts~~were ~~are~~received ~~then~~or ~~recorded~~classified as a reduction of cost of ~~good~~products sold upon ~~when~~ the ~~related~~sale of the product isto ~~sold~~which the funds relate. In accordance with this guidance, allowances and discounts received from suppliers are recognized at different times depending upon the timing and type of allowance or discount received. When the Company incurs promotional costs and invoices the supplier for reimbursement, the recognition of the supplier allowance is recorded at the time the Company

- 45 -

invoices the supplier, as an offset to operating cost. In instances in which the supplier supplies product at a discounted cost, or supplies product without charge, the Company records the allowance when the product is sold, as an offset to cost of products sold. Additionally, in circumstances in which the supplier advances funds for future promotional activities, the Company defers the recognition of the allowance until the promotional activities occur or when products are sold at a discounted price.

Many of the vendor allowance programs are not part of written contracts and collectibility of amounts owed to NWS under such agreements is not assured. Management reviews vendor accounts receivable balances for collectibility and records an allowance for management’s best estimate of uncollectible accounts.

The Company is unable to estimate with any degree of certainty the effect on the Company’s revenue or gross profit if these promotional activities are curtailed due to lack of supplier support. It is possible that the nature and amount of such vendor allowances could change in the future, including the possibility that certain vendors could reduce or eliminate allowances. In such event, it is likely that the Company would reduce its spending on brand promotion which, in turn, could adversely affect product sales.

The amounts of vendor promotional funds that were used to reimburse product promotional expenses and reduce cost of products sold were as follows:


	Years Ended March 31,
	2006		2005		2004
Vendor promotional funds that were used to offset specific and incremental product promotional expenses.	$	23,896,000	$	14,743,000	$	20,282,000
Vendor promotional funds recorded as a reduction of cost of products sold		20,656,000		7,520,000		8,522,000

Recently Issued Accounting Pronouncements

In ~~January~~November ~~2003~~2004, the ~~FASB~~Financial ~~issued~~Accounting ~~FASB~~Standards ~~Interpretation~~Board ~~No. 46 (FIN 46): Consolidation of Variable Interest Entities and during December 2003~~ issued ~~Interpretation~~SFAS ~~46 (FIN 46R)~~No. 151, ~~Consolidation~~Inventory ~~of Variable Interest Entities~~Costs, ~~and~~an ~~Interpretation~~amendment of ARB 51No. 43, ~~The~~Chapter ~~term “variable interest” is defined in FIN 46 as “contractual~~4, ~~ownership~~to orclarify ~~other pecuniary interest in an entity that change with changes in~~ the accounting ~~entity’s~~for ~~net~~abnormal ~~asset~~amounts ~~value.” Variable interests are investments or other interest that will absorb a portion~~ of anidle ~~entity’s expected~~facility ~~losses~~expense, iffreight, ~~they~~handling ~~occur~~costs orand ~~receive~~wasted ~~portions~~material of(spoilage). This ~~the~~statement ~~entity’s~~is ~~expected~~effective ~~residual~~June 15, ~~returns if they occur~~2005. The ~~FIN~~Company ~~46R~~has ~~defers~~determined the ~~effective~~effect ~~date~~ of ~~FIN~~SFAS ~~46 for certain entities and makes several other changes to FIN 46~~No. 151 ~~The adoption of FIN 46R~~ did not have a material ~~impact~~effect on ~~the~~its ~~Company’s~~ financial position, or results of operations and cash flows.

-In 42December -2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions. The amendments made by Statement 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. The Company has determined the effect of SFAS No. 153 did not have a material effect on its financial position, results of operations and cash flows.

- 46 -

In ~~November~~May ~~2004~~2005, the Financial Accounting Standards Board issued SFAS No. ~~151~~ 154, ~~Inventory~~Accounting ~~Costs,~~Changes anand Error ~~amendment~~Corrections, a replacement of ~~ARB~~APB Opinion No. 43 20, ~~Chapter~~Accounting 4Changes, toand ~~clarify~~FASB ~~the~~Statement ~~accounting~~No. 3, ~~for~~Reporting ~~abnormal~~Accounting ~~amounts~~Changes ofin ~~idle~~Interim ~~facility~~Financial ~~expense~~Statements, ~~freight,~~changing ~~handling~~the ~~costs~~requirements for the accounting for and ~~wasted~~reporting of ~~material~~a ~~(spoilage)~~change in accounting principle. This statement iswas effective ~~June~~for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company ~~is currently assessing, but~~ has ~~not yet~~ determined the effect of SFAS No. 154 ~~151~~did not have a material effect on its financial position, results of operations and cash flows.

In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations. The Interpretation clarifies that the phrase “conditional asset retirement obligations” as used in SFAS No. 143, Accounting for Asset Retirement Obligations, refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The Interpretation states that conditional obligations meet the definition of an asset retirement obligation in SFAS No. 143 and therefore should be recognized if their value can be reasonably estimated. Interpretation No. 47 is effective no later than the end of fiscal years ending after December 15, 2005. The Company has determined the effect of Interpretation No. 47 did not have a material effect on its financial position, results of operations and cash flows.

Reclassifications

Certain amounts from the prior year’s consolidated ~~financial~~statements ~~statement~~of cash flows have been reclassified to conform to the current year presentation.

2. Investment in Unconsolidated Subsidiaries

eSkye Solutions, Inc.

The Company accounts for its investment in eSkye Solutions, Inc. (eSkye) on the equity method in accordance with Accounting Principles Board Opinion No. 18 The Equity Method of Accounting for Investments in Common Stock (APB 18). Losses under the equity method for the year ended March 31, 2003 were in excess of the remaining book value of the investment in eSkye. ~~The Company recorded $160,000 in losses for the year ended March 31, 2003, reducing its investment to $0.~~ At March 31, ~~2005~~2006, the Company’s share of eSkye’s voting stock was 8.7%.

Commonwealth Wine & Spirits, LLC

In December 1998, NWSC formed a new distributorship in Kentucky (Commonwealth Wine & Spirits, LLC) in partnership with two existing Kentucky-based distributors, The Vertner Smith Company (“Vertner”) and Kentucky Wine & Spirits (“Kentucky W&S”). NWSC has accounted for its investment in Commonwealth Wine & Spirits, LLC using the equity method. Under the terms, NWSC invested $7,500,000 in exchange for a 25% interest in the new company. Vertner and Kentucky W&S equally own the remaining 75%. A portion of NWSC’s initial investment related to a franchise fee paid by NWSC on behalf of the new distributorship. As part of the operating agreement, NWSC’s initial cash distributions from the new distributorship are treated as return of NWSC’s original investment. As a result, the amortization of this franchise fee iswas ~~allocated 100%~~ to NWSC during the for the fiscal years 1999 through 2004, and is reflected in the Company’s recorded equity in income of Commonwealth Wine & Spirits, LLC in the accompanying consolidated statement of operations. The Company received distributions of $847,000, $786,000 and $1,286,000 and recorded equity in earnings of $538,000, $742,000 and $312,000 from Commonwealth Wine & Spirits, LLC in 2005, 2004 and 2003, respectively.

- 4347 -

allocated 100% to NWSC for the fiscal years 1999 through 2004, and is reflected in the Company’s recorded equity in income of Commonwealth Wine & Spirits, LLC in the accompanying consolidated statement of operations. The Company received distributions of $818,000, $847,000 and $786,000 and recorded equity in earnings of $1,207,000, $538,000 and $742,000 from Commonwealth Wine & Spirits, LLC in 2006, 2005 and 2004, respectively.

Summary financial information for eSkye Solutions, Inc. and Commonwealth Wine & Spirits, LLC is as follows:

	Years Ended March 31,
	2005		2004				2003
	2006		2005			2004
Sales	$	8287,~~674~~035,000	$	8182,~~355~~674,000		$	$81,355,000	~~84,780,000~~
Operating income (loss)		23,~~426~~672,000		(2,~~222~~426,000	)		(2,222,000	~~(2,444,000~~)	)
Net income (loss)		13,~~138~~296,000		(21,~~020~~138,000	)		(2,020,000	~~(134,000~~)	)

	March 31,
	2005		2004
	2006		2005
Current assets	$	1718,~~576~~539,000	$	1917,~~529~~576,000
Non-current assets		1,~~790~~273,000		21,~~010~~790,000
Current liabilities		7,~~744~~043,000		67,~~698~~744,000
Non-current liabilities		23,~~875~~176,000		2,875,000
Minority interest		~~3,000~~—		3,000
Redeemable stock		2318,~~584~~466,000		23,~~164~~584,000

3. Inventory

Inventory at March 31 is comprised of the following:

	2005			2004
	2006			2005
Inventory at FIFO	$	92105,~~228~~882,000		$	9192,~~070~~228,000
Less: LIFO reserve		(1113,~~660~~103,000	)		(1011,~~874~~660,000	)
	$	8092,~~568~~779,000		$	80,~~196~~568,000

The Company utilizes the LIFO method of accounting for inventory for substantially all of its inventory. The amounts accounted for under LIFO as of March 31, ~~2005~~2006 and March 31, ~~2004~~2005 ~~was~~were $88102,~~873~~471,000 and $8988,~~296~~873,000, respectively.

~~During~~- ~~the~~48 ~~fiscal~~- years ended March 31, 2005, 2004 and 2003, certain inventory quantities were reduced, which resulted in a partial liquidation of LIFO inventory layers carried at a cost that prevailed in a prior year. For the fiscal year ended March 31, 2004, the effect of the liquidation of inventory was a decrease in the cost of products sold and a decrease in the net loss by $1,145,000. For fiscal years ended March 31, 2005 and 2003, the effect of the liquidation of inventory was a decrease in the cost of products sold and an increase in the net income by $25,000 and $205,000, respectively.

- 44 -

4. Property and Equipment

Property and equipment at March 31 is comprised of the following:

	2005		2004
	2006		2005
Land and improvements	$	1,173,000	$	1,173,000
Buildings and improvements		31,~~687~~088,000		31,~~977~~687,000
Furniture and equipment		14,~~174~~923,000		14,~~815~~174,000
Warehouse equipment		2832,~~304~~199,000		28,~~334~~304,000
Automobiles and trucks		5,~~295~~646,000		5,~~956~~295,000
		80,633,000		82,255,000
		85,029,000		80,633,000
Less: Accumulated depreciation		5256,~~942~~384,000		5052,~~771~~942,000
	$	2728,~~691~~645,000	$	3127,~~484~~691,000

5. Supplemental Cash Flow Information

During the years ended March 31, ~~2005~~ 2006, ~~2004~~2005 and ~~2003~~2004, the Company purchased intangible assets, principally distribution rights of $111,~~146~~597,000, $1511,~~797~~146,000 and $1315,~~605~~797,000, respectively, by incurring other liabilities of $7-0-,~~626,000,~~ $157,~~587~~626,000 and $1115,~~435~~587,000, respectively.

Cash paid for interest was $911,~~683~~038,000, $9,~~935~~683,000 and $119,~~657~~935,000 in ~~2005~~2006, ~~2004~~2005 and ~~2003~~2004, respectively.

6. Intangible Assets

Intangible assets at March 31 are comprised of the following:

		2005				2004
		2006				2005
Intangible Assets Subject to Amortization	WeightedAverage Life	GrossCarryingAmount		AccumulatedAmortization		GrossCarryingAmount		AccumulatedAmortization
Distribution rights	7	$	4042,~~859~~400,000	$	1018,~~486~~365,000	$	3040,~~820~~859,000	$	610,~~170~~486,000
Loan acquisition costs	10		4,~~065~~061,000		2,~~427~~828,000		4,~~076~~065,000		2,~~011~~427,000
Non-compete agreements	5		—		—		200,000		193,000
Total		$	46,461,000	$	21,193,000	$	44,924,000	$	12,913,000
Total	7	$	44,924,000	$	12,913,000	$	35,096,000	$	8,374,000
Intangible Assets Not Subject to Amortization		CarryingAmount				CarryingAmount
Distribution rights		$	555,000			$	670,000

Intangible Assets Not Subject to Amortization		CarryingAmount			CarryingAmount
Distribution rights		$	670,000		$	924,000

Consolidated amortization expense related to intangible assets subject to amortization for 2006, 2005, and 2004 was $8,349,000, $5,731,000 and $5,513,000, respectively.

-As 45a -result of the declining demand and lower than expected sales performance for a product line in the Company’s product sales segment, management performed impairment analyses of the related distribution rights. Management determined that the related distribution rights were impaired and recorded a charge of $105,000, $267,000 and $846,000 to amortization expense

- 49 -

~~Consolidated~~during ~~amortization~~the ~~expense~~twelve ~~related~~month toperiods ~~intangible~~ended ~~assets~~March 31, ~~subject~~2006, to2005 ~~amortization~~and ~~for 2005~~2004, ~~2004~~respectively, to write the intangible asset ~~and~~down ~~2003~~to fair value. Fair value was ~~$5,731,000,~~calculated ~~$5,513,000,~~based ~~and~~on ~~$2,419,000,~~the ~~respectively~~discounted future cash flows of the product line’s expected contribution margin.

As a result of the declining demand and lower than expected sales performance for a product line in the Company’s product sales segment, management performed impairment analyses of the related distribution rights. Management determined that the related distribution rights were impaired and recorded a charge of $267,000 and $846,000 to amortization expense during the twelve month period ended March 31, 2005 and 2004, respectively, to write the intangible asset down to fair value. Fair value was calculated based on the discounted future cash flows of the product line’s expected contribution margin.

The estimated amortization expense for each of the next five years is as follows:

2006	$	7,244,000
2007	$	7,059,000
2007		7,136,000
2008		6,217,000
2008		6,067,000
2009		5,626,000
2009		5,587,000
2010		4,971,000
2010		4,965,000
2011		935,000
	$	3024,~~999~~808,000

- 46 -

7. Debt

Long-term debt at March 31 is comprised of the following:

	2005		2004
	2006		2005
Senior notes payable (A)	$	77,079,000	$	7977,~~029~~079,000
Bank revolving line of credit (B)		134,~~750~~000,000		31,~~000~~750,000
Notes payable to stockholders, net (see Note 12)		4,328,000		4,328,000
Notes payable to stockholders, net (C) (also see Note 11)		6,828,000		4,328,000
		83,157,000		86,357,000
		117,907,000		83,157,000
Less: current maturities		—		—
	$	83117,~~157~~907,000	$	8683,~~357~~157,000

(A) On January 25, 1999, the Company issued $110~~,000,000~~.0 million of unsecured senior notes with a maturity of January 15, 2009. Interest on the senior notes is 10.125% and is payable semiannually. These senior notes are guaranteed by the Company’s subsidiaries. The guarantors are either wholly owned or the Company owns 100% of the voting stock and there are no non-guarantor subsidiaries. The guarantees are full, unconditional and joint and several. NWS is a holding company and has no independent assets or operations.

The bond indenture restricts the ability of the Company and its subsidiaries to incur additional indebtedness, pay dividends, engage in mergers or consolidations, make capital expenditures and otherwise restrict corporate activities.

OnThe ~~or after January 15, 2004, the~~ Company may redeem some or all of the senior notes at any time at stated redemption prices plus accrued interest and liquidated damages.

The Company purchased $17,900,000 of its senior notes on the open market during fiscal year 2003. The notes were purchased for $15,317,000 plus accrued interest of $275,000. Related unamortized issuance costs of $584,000 were written off due to the purchase of the senior notes. The net gain on the purchase of $1,999,000 is included in interest expense.

The Company purchased $10,946,000 of its senior notes on the open market during fiscal 2004. The notes were purchased for $9,935,000 plus accrued interest of $333,000. Related unamortized issuance costs of $294,000 were written off due to the purchases of the senior notes. The net gain on the purchases of $716,000 of the senior notes is included in interest expense.

The Company purchased $1,950,000 of its senior notes on the open market during fiscal 2005. The notes were purchased for $1,799,000 plus accrued interest of $96,000. Related ~~unamortized issuance costs of $43,000 were written off due to the purchases of the senior notes. The net gain on the purchases of $108,000 of the senior notes is included in interest expense.~~

~~(B)~~- On50 ~~March~~- 31, 2003, NWS entered into a credit agreement with LaSalle Bank National Association, as lender and agent, and National City Bank of Indiana that provides a revolving line of credit for borrowings of up to $40 million, including standby or

- 47 -

~~commercial~~unamortized ~~letters~~issuance ofcosts ~~credit~~ of ~~up to~~ $~~5 million~~43,000 ~~through April 1, 2008. Commercial letters of credit of $4.0 million~~ were ~~outstanding~~written atoff ~~March~~due ~~31,~~to ~~2005 for~~ the ~~self-insured~~purchases ~~portion~~ of ~~NWS’~~the ~~casualty~~senior ~~insurance policies~~notes. ~~Line~~The ~~of credit borrowings are collateralized by and based upon eligible accounts receivable and inventories,~~net asgain ~~defined,~~on ~~and are guaranteed by all NWS’ subsidiaries. Interest is payable monthly at~~ the ~~LIBOR~~purchases ~~rate or the higher~~ of ~~the prime lending rate or the federal funds rate~~$108,000 ~~plus~~of ~~a margin percentage. In addition,~~ the ~~agreement~~senior ~~places~~notes ~~restrictions on~~is ~~the~~included ~~Company~~in ~~and its subsidiaries regarding additional indebtedness, dividends, mergers or consolidations and capital expenditures. As of March 31, 2005, the applicable~~ interest ~~rate on the revolving line of credit was 6~~expense.~~00%.~~

~~The~~(B) ~~Company~~On ~~amended~~March ~~its~~31, 2003, NWS entered into a credit agreement with LaSalle Bank National Association, as lender and agent, and National City Bank of Indiana that provides a revolving line of credit for borrowings of up to $40.0 million, ~~revolving~~including standby or commercial letters of credit ~~facility~~ asof up to $5.0 million, through April 1, 2008. Commercial letters of credit of $4.0 million were outstanding at March 31, ~~2004~~2006 for the self-insured portion of NWS’ casualty insurance policies. ~~The~~Line ~~amendment~~of ~~(i)~~credit ~~decreased~~borrowings are collateralized by and based upon eligible accounts receivable and inventories, as defined, and are guaranteed by all NWS’ subsidiaries. Interest is payable monthly at the ~~minimum~~LIBOR ~~interest~~rate ~~coverage~~or ~~ratio~~the ~~(ii)~~higher ~~increased~~of the ~~maximum~~prime ~~funded~~lending ~~debt~~rate ~~ratio~~or ~~(iii)~~the ~~reduced~~federal funds rate, plus a margin percentage. In addition, the ~~permitted~~agreement ~~annual~~places restrictions on the Company and its subsidiaries regarding additional indebtedness, dividends, mergers or consolidations and capital expenditures. ~~(iv)~~As ~~restricted~~of March 31, 2006, the ~~repurchases~~applicable interest rate on $9.0 million of the ~~Company’s senior~~revolving ~~notes~~line ~~and~~of ~~(v)~~credit ~~adjusted~~was ~~certain~~8.00%, ~~interest~~based upon prime rate pricing. ~~terms~~The ~~and~~applicable ~~other~~rate ~~financial~~on ~~covenants~~$25.0 million of the revolving line of credit was 6.64%, based upon LIBOR pricing.

The Company ~~was~~amended inits ~~compliance~~revolving atcredit ~~March~~agreement 31on September 28, 2005 ~~with~~to extend the ~~restrictive~~line ~~covenants,~~of ascredit ~~amended~~for borrowings up to $47.0 million, including standby or commercial letters of credit, to fund working capital. The Company used the ~~revolving~~increased ~~credit~~availability ~~facility~~in part to fund the acquisition of certain inventory and equipment from another distributor in Illinois on August 1, 2005.

~~Principal~~The ~~payments~~Company ~~due~~amended onits ~~debt~~revolving atcredit agreement ~~March~~on 31October 25, 2005, ~~are~~effective as ~~follows:~~of September 30, 2005, to extend the line of credit for borrowings up to $60.0 million, including standby or commercial letters of credit. The Company used the increased availability to fund working capital and a deposit, currently in escrow, related to a proposed acquisition.

2006		—
2007		—
2008		—
2009	$	78,829,000
2010	$	4,328,000
Thereafter		—
	$	83,157,000

The Company amended its revolving credit agreement on February 8, 2006, effective as of December 30, 2005, to extend the line of credit for borrowings up to $70.0 million until March 31, 2006, including standby or commercial letters of credit, and to increase the annual capital expenditures limit to $10.0 million from $5.0 million.

At March 31, 2006, the maximum available under the line of credit was $60.0 million, subject to borrowing base calculations. The Company had $34.0 million of outstanding advances and $4.0 million in letters of credit outstanding, and had availability of approximately $22.0 million at March 31, 2006. Commercial letters of credit of $4.0 million are issued for the self-insured portion of NWS’ casualty insurance policies.

(C)

On July 19, 2005, two shareholders of the Company loaned a total of $2.5 million to the Company on an unsecured basis. The notes are subordinated to both the Company’s senior notes and revolving credit facility. Interest on the notes is variable and equal to the prime rate of interest that is announced by LaSalle Bank National Association, 7.75% at March 31, 2006. Payment of interest by the Company to the shareholders is subject to the terms of the indenture and revolving credit facility.

- 51 -

The Company’s revolving credit facility and indenture limit the Company’s ability to declare certain shareholder distributions. Distributions to shareholders are generally permitted for quarterly income tax estimates, but distributions for other purposes are subject to other terms and conditions including the level of consolidated net income of the Company and its subsidiaries. There are no restrictions on the Company’s subsidiaries’ ability to transfer cash or other assets to the Company.

The credit agreement and the indenture governing the senior notes contain cross-default provisions. Under the credit agreement, an event of default will occur if the Company fails to make timely payment, beyond any applicable grace period, on any indebtedness in excess of $1.0 million or if the Company or its restricted subsidiaries fails to perform any other agreement relating to such indebtedness if such failure results, or could result, in acceleration of the indebtedness or permits the holders of the indebtedness to elect a majority of the board of directors of the Company. Under the indenture, in the case of indebtedness in an aggregate amount of $5.0 million or more (including all indebtedness with respect to which an event of default has occurred), an event of default will occur if the Company fails to make timely payment, beyond any applicable grace period, or commits any other event of default that results in acceleration of the indebtedness. If the Company fails to meet its covenants under the indenture governing the senior notes, the Company could be in default under the indenture and the credit agreement which could, in turn, result in the acceleration of the indebtedness under each agreement.

The Company was in compliance at March 31, 2006 with the restrictive covenants, as amended, of the revolving credit facility.

Principal payments due on debt at March 31, 2006 are as follows:


2007		—
2008		—
2009	$	111,079,000
2010	$	6,828,000
2011		—
Thereafter		—

	$	117,907,000

8. Common Stock

The Company has two authorized classes of capital stock: voting $0.01 par value common shares and non-voting $0.01 par value common shares. Both classes of stock have the same relative rights, performance limitations and restrictions, except that non-voting shares are not entitled to vote on any matters submitted to a vote of the stockholders, except as provided by law.

- 4852 -

9. Commitments and Contingencies

The Company leases office and warehouse space under noncancellable operating leases ranging from two to ten years, some of which include renewal and purchase options and escalation clauses, expiring on various dates through 2015. The Company also leases certain trucks and equipment pursuant to noncancellable operating leases with terms ranging from three to seven years. Future minimum rent payments as of March 31, ~~2005~~2006 are as follows:

2006	$	3,992,000
2007	$	3,901,000
2007		3,598,000
2008		1,746,000
2008		1,553,000
2009		1,133,000
2009		962,000
2010		674,000
2010		496,000
2011		318,000
Thereafter		~~537~~339,000
	$	118,~~138~~111,000

Rent expense was $45,~~941~~648,000, $4,~~797~~941,000, and $4,~~747~~797,000 in ~~2005~~2006, ~~2004~~2005 and ~~2003~~2004, respectively.

The Company engages in brand promotional activities with certain suppliers and has committed to continue these efforts while representing the suppliers’ brands. Future minimum promotional commitments as of March 31, ~~2005~~2006 are as follows:

2006	$	3,083,000
2007	$	1,100,000
2007		1,225,000
2008		1,100,000
2009		1,100,000
2010		1,100,000
Thereafter		92,000
2011		92,000
	$	7,700,000
Thereafter		—
	$	4,492,000

- 4953 -

10. Employee Benefit Plans

The Company funds a noncontributory defined benefit pension plan covering substantially all of its warehousemen and drivers. Eligible employees can participate after one year of service and the attainment of age 21 with entry on January 1 and July 1. Benefits are based on length of eligible service, form of payment, and vest after five years of employment. The Company makes quarterly contributions to the plan based on amounts permitted by law as well as voluntary contributions to maintain or increase the funded percentage of the plan. The Company uses a December 31 measurement date. The following table is a reconciliation of the projected benefit obligation and the fair value of the deferred benefit pension plan assets.

	2005			2004
	2006			2005
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	78,~~255~~210,000		$	67,~~012~~255,000
Service cost		~~489~~540,000			~~398~~489,000
Interest cost		~~428~~465,000			~~384~~428,000
Actuarial changes		~~261~~347,000			~~668~~261,000
Benefits paid		(~~223~~270,000	)		(~~207~~223,000	)
Benefit obligation at end of year	$	89,~~210~~292,000		$	78,~~255~~210,000
Change in plan assets:
Fair value of plan assets at beginning of year	$	46,~~872~~010,000		$	34,~~773~~872,000
Actual gain on plan assets		~~460~~394,000			~~759~~460,000
Employer contributions		~~901~~1,060,000			~~547~~901,000
Benefits paid		(~~223~~270,000	)		(~~207~~223,000	)
Fair value of plan assets at measurement date	$	67,~~010~~192,000		$	46,~~872~~010,000
Reconciliation of funded status:
Funded (Unfunded) status	$	(2,~~200~~100,000	)	$	(2,~~383~~200,000	)
Unrecognized actuarial loss		2,~~503~~835,000			2,~~420~~503,000
Unrecognized prior service cost		~~541~~489,000			~~594~~541,000
Unrecognized transition obligation		288,000			4828,000
Prepaid benefit cost at measurement date		~~872~~1,232,000			~~679~~872,000
Contributions made after measurement date		200,000			200,000
Prepaid benefit cost at end of year	$	1,~~072~~432,000		$	~~879~~1,072,000
Amounts recognized in the consolidated balance sheet:
Prepaid benefit cost	$	1,~~072~~432,000		$	~~879~~1,072,000
Non-current deferred additional liability		(3,~~073~~332,000	)		(3,~~061~~073,000	)
Deferred pension costs - intangible asset		~~569~~497,000			~~642~~569,000
Accumulated other comprehensive loss	$	2,~~503~~835,000		$	2,~~419~~503,000
Increase in minimum liability included in other comprehensive income	$	84332,000		$	~~129~~84,000

- 5054 -

As of March 31, ~~2005~~2006 and ~~2004~~2005, the Company has recorded an additional minimum pension liability of $3,~~073~~332,000 and $3,~~061~~073,000, respectively. As the additional liability exceeds the intangible asset, the excess is recorded in Accumulated Other Comprehensive Loss in the amounts of $2,~~503~~835,000 and $2,~~419~~503,000 as of March 31, ~~2005~~2006 and ~~2004~~2005, respectively. An intangible asset of $~~569~~497,000 and $~~642~~569,000 was reflected in the Company’s consolidated balance sheet at March 31, ~~2005~~2006 and ~~2004~~2005, respectively. The change in the pension liability at March 31, ~~2005~~2006 as compared to the liability at March 31, ~~2004~~2005 was primarily caused by the 0.25% decrease in the discount rate assumption.

The projected benefit obligation and accumulated benefit obligation exceeded the fair value of plan assets as of the Company’s fiscal ~~2005~~2006 and ~~2004~~2005 measurement dates, as illustrated in the following table:

	2005		2004
	2006		2005
Projected benefit obligation	$	89,~~210~~292,000	$	78,~~255~~210,000
Accumulated benefit obligation	$	89,~~210~~292,000	$	78,~~255~~210,000
Plan assets at fair value	$	67,~~010~~192,000	$	46,~~872~~010,000

Estimated benefit payments from the plan for each of the next five ~~plan~~ years ending ~~June~~on 30the measurement date at December 31, and in the aggregate for the five years thereafter, are as follows:

Plan Year	Benefit Payments
2006	$	238,519
2007	$	259,000
2007		257,877
2008		277,000
2008		285,390
2009		290,000
2009		296,174
2010		292,000
2010		297,718
2011		318,000
Years 2011 to 2015		1,971,236
Years 2012 to 2016		2,113,000

It is the Company’s policy to make quarterly contributions to the plan sufficient to meet the funding requirements of applicable laws and regulations, plus such additional voluntary amounts as deemed appropriate. The components of net periodic pension cost of the defined benefit plan are as follows for the years ended March 31:

	2005			2004			2003
	2006			2005			2004
Service cost-benefits earned during the year	$	~~489~~540,000		$	~~398~~489,000		$	~~347~~398,000
Interest on projected benefit obligation		~~428~~465,000			~~384~~428,000			~~340~~384,000
Expected return on plan assets		(~~385~~482,000	)		(~~323~~385,000	)		(~~314~~323,000	)
Amortization of unrecognized net transition asset		20,000			20,000			20,000
Amortization of loss		~~103~~104,000			~~101~~103,000			34101,000
Amortization of prior service cost		53,000			53,000			53,000
Net periodic pension cost	$	~~708~~700,000		$	~~633~~708,000		$	~~480~~633,000

- 5155 -

The Company’s discount rate assumption is based upon the ~~preceding~~average ~~year’s~~monthly yield of the Moody’s AA Corporate Bond Index rounded down to the nearest 1/4 of a percentage point,. ~~and~~The isdiscount ~~assumed~~rate torepresents bethe Company’s estimate of the rate ~~at which~~of return on invested assets that would provide the ~~benefit~~necessary ~~obligations~~future ~~could~~cash beflows ~~settled~~to pay the expected future benefit payments. The return on plan assets reflects the weighted-average of the long term rates of return for the broad categories of investments held in the Company’s defined benefit pension plan. The expected rate of return is adjusted when there are fundamental changes in expected returns on the Company’s defined benefit pension plan’s assets. The actuarial assumptions used in accounting for the Company’s defined benefit retirement plan were as follows:

	2005		2004
	2006		2005
Discount rate	5.7550	%	65.0075	%
Expected return on plan assets	7.50	%	7.50	%
Benefit increases	0.00	%	0.00	%

The Company’s investment strategy for its defined benefit pension plan is to maximize the long-term rate of return on plan assets within reasonable and prudent levels of risk, control costs, and maintain a high level of funding with regard to the projected benefit obligation. Investment results are the critical element in achieving the investment objectives, while reliance on contributions is a secondary element. The Company’s range of asset holdings as a percentage of market value, with a strategic allocation for each, is as follows:


	Lower Limit		Strategic Allocation		Upper Limit
Domestic large cap equities	20	%	25	%	30	%
Domestic mid cap equities	10	%	15	%	20	%
Domestic small cap equities	5	%	10	%	15	%
International equities	5	%	10	%	15	%
Domestic fixed income	30	%	38	%	46	%
Cash equivalents	0	%	2	%	10	%

This asset allocation range was used for the year ended March 31, ~~2005~~2006 and is the allocation to be used for the year ended March 31, ~~2006~~2007. As of the Company’s ~~2005~~2006 and ~~2004~~2005 measurement dates, the percentage of fair value of total assets by asset category was as follows:

	2005		2004
	2006		2005
Asset category:
Equity securities	6164.3688	%	61.5036	%
Debt securities	2132.7176	%	3721.4071	%
Cash and cash equivalents	162.9336	%	116.1093	%

The Company expects to contribute approximately $1,100,000 to its defined benefit pension plan during the fiscal year ending March 31, ~~2006~~2007.

The Company also sponsors a defined contribution benefit plan for substantially all employees not covered by the defined benefit plan. Contributions to the plan are made at the discretion of ~~the Company and may not exceed 5% of a participant’s compensation. The Company recorded $1,823,000, $1,588,000 and $1,598,000 of expense for the defined contribution plan in 2005, 2004 and 2003,~~ ~~respectively.~~

- 5256 -

~~NWS-LLC contributes to union-sponsored multi-employer pension plans, which provide for contributions~~ ~~based~~the onCompany aand ~~specified~~may ~~rate~~not ~~per~~exceed ~~labor hour. Union employees constitute approximately 64~~5% of ~~NWS-LLC’s~~a ~~workforce and 52% of NWSM~~participant’s ~~workforce~~compensation. ~~Contributions~~The ~~charged~~Company torecorded ~~expense were~~ $~~621~~2,237,000, $~~575~~1,823,000 and $~~757~~1,588,000 ~~in 2005, 2004 and 2003, respectively. Information as to NWS-LLC’s portion~~ of ~~accumulated~~expense ~~plan~~for ~~benefits and plan net assets is not available. Under~~ the ~~Employee Retirement Income Security Act of 1974 as amended, an employer upon withdrawal from a multi-employer plan is~~defined ~~required~~contribution ~~to continue funding its proportionate share of the~~ plan’s ~~unfunded~~in ~~vested~~2006, ~~benefits.~~2005 ~~NWS-LLC~~and ~~has~~2004, ~~no intention of withdrawing from the plans~~respectively.

~~During~~NWS-LLC ~~the~~contributes ~~twelve~~to ~~months~~union-sponsored ~~ended~~multi-employer ~~March~~pension 31plans, ~~2005,~~which ~~the~~provide ~~Company~~for contributions ~~established~~based on a ~~nonqualified~~specified ~~deferred~~rate ~~compensation~~per ~~plan~~labor ~~for~~hour. ~~certain~~Union ~~selected~~ employees ~~who~~constitute ~~may elect~~approximately ~~to defer up to 50~~64% of ~~their~~NWS-LLC’s ~~annual~~workforce ~~compensation~~and ~~upon~~52% ~~maximization~~ of ~~their deferrals to the Company~~NWSM’s ~~established~~workforce. ~~qualified~~Contributions ~~401k~~charged ~~plan.~~to ~~The~~expense ~~Company~~were ~~does~~$1,043,000, ~~not~~$621,000 ~~match~~and ~~employee~~$575,000 ~~contributions~~in to2006, ~~the~~2005 and ~~nonqualified~~2004, ~~plan~~respectively. AtInformation ~~March~~as ~~31,~~to ~~2005 the Company~~NWS-LLC’s ~~accrued~~portion ~~obligation~~of ~~under~~accumulated ~~this~~plan ~~supplemental~~benefits and plan ~~was~~net ~~$250,000~~assets is not available. ~~The~~Under ~~Company~~the ~~has~~Employee ~~set~~Retirement ~~aside~~Income ~~investment~~Security ~~assets,~~Act ~~which~~of ~~are~~1974 ~~carried~~as atamended, ~~fair~~an ~~value~~employer ~~and~~upon ~~reported~~withdrawal infrom ~~prepaid~~a multi-employer ~~expenses~~plan ~~and~~is ~~other~~required ~~current~~to ~~assets,~~continue ~~which~~funding itits ~~intends~~proportionate toshare ~~use~~of tothe ~~fund these~~plan’s ~~obligations~~unfunded invested ~~the~~benefits. ~~amount~~NWS-LLC ofhas ~~$250,000~~no atintention ~~March~~of ~~31,~~withdrawing ~~2005~~from the plans.

The Company sponsors a nonqualified deferred compensation plan for certain selected employees who may elect to defer up to 50% of their annual compensation. The Company does not match employee contributions to the nonqualified plan. The Company’s accrued obligations under this supplemental plan were $587,000 and $250,000 at March 31, 2006 and 2005, respectively. The Company has set aside investment assets, which are carried at fair value and reported in prepaid expenses and other current assets, which it intends to use to fund these obligations in the amounts of $587,000 and $250,000 at March 31, 2006 and 2005, respectively.

11. Related Party Transactions

In 1998, the Company and its stockholders executed subordinated notes payable to stockholders and the total of subordinated notes payable was $6,828,000 and $4,328,000 at March 31, ~~2005~~2006 and ~~2004~~2005, with the principal balance due in December 2009. These notes bear interest at ~~the~~ the prime lending rate. Interest expense on these notes was $~~203~~410,000, $~~176~~203,000 and $~~197~~176,000 in ~~2005~~2006, ~~2004~~2005, and ~~2003~~2004, respectively.

NWSC had notes receivable from its two stockholders totaling $2,628,000 at March 31, 2002. The notes earned interest at the prime lending rate and were paid in full during September 2002. Interest income earned was $62,000 in 2003. Proceeds of the notes were used by the stockholders to purchase additional capital stock of NWSC and to make loans to NWS-LLC.

The Company did not pay consulting fees to a minority stockholder of NWS-LLC during the years ended March 31, 2005 and 2004, but paid $117,000 during 2003.

The Chairman of NWS individually purchased $1,700,000 of the Company’s senior notes from the open market during the fourth quarter of fiscal year 2004.

A former Director of the Company is the Chairman and Chief Executive Officer of eSkye. The Company received 6,000,000 shares of common stock in eSkye upon inception, representing founders stock. The Company accounts for its investment in eSkye using the equity method. The Company’s investments in 1999 and 2000 in convertible preferred stock of eSkye totaled $2,513,000. and the investment has been recognized as having no value on the Company’s consolidated balance sheet since March 31, 2003.

-NWS 53leased facilities and certain office equipment to eSkye under the terms of a three-year operating lease that expired September, 2004. NWS did not charge or receive any rent from eSkye during the years ended March 31, 2006, 2005 and 2004 in order to maintain a tenant in an unused portion of the office building of the Company’s corporate headquarters. The Company paid eSkye fees for computer services of $0, $35,000 and $50,000 during the years ended March 31, 2006, 2005 and 2004, respectively.

- 57 -

NWS leased facilities and certain office equipment to eSkye under the terms of a three-year operating lease that expired September, 2004. NWS did not charge or receive any rent from eSkye during the year ended March 31, 2005 and 2004 but received $137,000 during the year ended March 31, 2003. The Company paid eSkye fees for computer services of $35,000, $50,000 and $150,000 during the years ended March 31, 2005, 2004 and 2003, respectively.

- 54 -

12. Segment Reporting

The Company’s reportable segments are business units that engage in product sales and all other activities. The majority of the all other activities relate to distribution fee operations conducted by NWSM. The Company evaluates performance and allocates resources based on these segments. Non operating gains or losses not directly related to the operating segment are reported in the product sales segment. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in Note 1.

	2005		2004				2003
	2006		2005			2004
Revenue from external customers
Product sales	$	~~524~~686,~~399~~660,000	$	~~513~~524,~~615~~399,000		$	$513,615,000	~~689,859,000~~
All other		2930,~~268~~964,000		2729,~~045~~268,000			27,045,000	~~22,999,000~~
Interest expense
Product sales		79,~~968~~253,000		78,~~110~~063,000			7,110,000	~~7,654,000~~
All other		12,~~472~~122,000		1,~~716~~472,000			1,716,000	~~1,654,000~~
Depreciation expense
Product sales		3,~~412~~299,000		43,~~041~~412,000			4,041,000	~~5,212,000~~
All other		1439,~~178,~~000		1,~~906~~178,000			1,906,000	~~1,976,000~~
Amortization expense
Product sales		58,~~954~~454,000		65,~~088~~954,000			6,088,000	~~2,245,000~~
All other		~~7,000~~—		417,000			41,000	~~174,000~~
Equity in earnings of Commonwealth Wine & Spirits, LLC
Product sales		~~538~~1,207,000		~~742~~538,000			742,000	~~312,000~~
All other		—		—			—	—
Equity in losses of eSkye Solutions, Inc.
Segment income (loss) from operations
Product sales		—11,660,000		—9,562,000			(2,970,000	~~(160,000~~)	)
All other		—2,867,000		—2,541,000			1,892,000	—
Segment income (loss)
Segment assets
Product sales		4210,~~215~~431,000		(9185,~~439~~087,000	)		177,042,000	~~17,111,000~~
All other		123,~~224~~986,000		~~315~~8,702,000			10,058,000	~~(1,322,000~~	)
Segment assets
Investments in equity method investees
Product sales		~~185~~5,~~087~~673,000		~~177~~5,~~042~~284,000			5,593,000	~~193,757,000~~
All other		~~8,702,000~~—		~~10,058,000~~—			—	~~9,951,000~~
Investments in equity method investees
Goodwill
Product sales		~~5,284,000~~—		~~5,593,000~~—			—	~~5,637,000~~
All other		—1,246,000		—1,246,000			1,246,000	—
Goodwill
Expenditures on long-lived assets
Product sales		—4,735,000		—1,029,000			769,000	—
All other		196,~~246,~~000		1182,~~246,~~000			216,000	~~1,246,000~~
Expenditures on long-lived assets
Product sales		4,548,000		979,000				4,449,000
All other		182,000		216,000				58,000

13. Concentration of Risk

Products purchased from four suppliers amounted to approximately 4644%, 46% and 5946% of all purchases in ~~2005~~2006, ~~2004~~2005 and ~~2003~~2004, respectively.

- 5558 -

14. Vendor Distribution Agreements

During the year ended March 31, 2004, NWSC entered into distribution contracts with two vendors, both on an exclusive basis for their respective products distributed in Indiana. Total payments of $17,500,000 are required for these agreements, and $14,077,000 is unpaid as of March 31, 2005. Payments are required on a quarterly basis through June 30, 2010. NWSC has imputed interest for the obligations at 4.0% and recorded a discount on the obligation which reduced the related intangible asset by $1,913,000. These assets will be amortized over the life of their respective contracts.

In July 2004, realignment of certain Company represented brands caused the revision of the distribution periods of the brands. Because of these revisions, the Company revalued those contracts using the current discount rate and recorded an addition to intangibles and distribution right obligations of $1,080,000.

Future cash payments for all of the Company’s distribution rights obligations for the years ended March 31 are as follows:

2006	$	5,854,000
2007	$	6,252,000
2007		6,229,000
2008		5,923,000
2008		5,900,000
2009		5,524,000
2009		5,501,000
2010		5,324,000
2010		5,301,000
2011		1,331,000
Thereafter		~~1,325,000~~—
Total distribution rights obligations		3024,~~110~~354,000
Imputed interest		(32,~~349~~441,000	)
Present value of minimum distribution rights payments		2621,~~761~~913,000
Current portion		(5,~~136~~312,000	)
Long-term distribution rights obligation	$	2116,~~625~~601,000

The Company received $8,250,000 during the quarter ended March 31, 2006 from a vendor that terminated its distribution contract before the contractual expiration date. The Company reported approximately $29,300,000 in product sales revenue from the vendor during the fiscal year ended March 31, 2006.

15. Management Fees

NWS-LLC entered into a management services agreement with a nationwide wholesaler of wine and spirits during the year ended March 31, 2003 and, effective December 1, 2003, NWS modified certain terms of the agreement related to NWS’s operations in the State of Illinois. NWS formerly shared profits and losses of NWS-LLC equally with the other wholesaler. Under ~~the new~~ terms of the agreement, effective December 1, 2003, the other wholesaler committed to fund 80% of operating losses and receive 80% of operating profits. NWS funded ~~funds~~ 20% of any such losses and ~~receives~~received 20% of any such profits.

Effective August 28, 2004, the parties modified the terms of the management services agreement, whereas, the other wholesaler committed to fund 100% of operating losses and receive 100% of operating profits until the cumulative incremental difference between funding 80% and 100% of operating losses is recouped in operating profits. The agreement will then revert back to the 80% terms. Ownership of NWS-LLC or the NWS-LLC’s operating assets has not changed. However, if certain conditions are met, the other wholesaler may purchase NWS-LLC’s assets for a purchase price based upon 80% of the then current net assets of NWS-LLC and a 20% equity interest in the successor Illinois organization, as defined in the agreement.

-Pursuant 56to the agreement, NWS-LLC recorded approximately $18,848,000, $18,743,000 and $12,634,000 as a reduction of operating expenses during the twelve months ended March 31, 2006, 2005 and 2004, respectively. At March 31, 2006, a receivable from the wholesaler in the amount of approximately $1.4 million was recorded in Prepaid expenses and other current assets.

During May 2006 the Company received a notice from the wholesaler indicating that the wholesaler was exercising its right to form a new joint venture that will result in the sale of

- 59 -

~~Pursuant~~substantially toall of the ~~agreement,~~net ~~NWS-LLC~~assets ~~recorded~~of ~~approximately~~the ~~$18,743,000~~Company’s ~~and~~Illinois ~~$12,634,000~~business aswith acash ~~reduction~~proceeds ~~of operating~~based ~~expenses~~upon ~~during~~80% of the ~~twelve~~then current ~~months~~net ~~ended~~book ~~March~~value ~~31,~~of ~~2005~~the ~~and~~Company’s ~~2004,~~Illinois ~~respectively~~business. AtThe ~~March~~Company ~~31,~~would ~~2005,~~own a20% ~~receivable~~of ~~from~~ the ~~wholesaler~~new injoint ~~the~~venture ~~amount~~and ofthe ~~approximately~~transaction ~~$1.5~~is ~~million~~currently ~~was~~expected ~~recorded~~to inclose ~~Prepaid~~before ~~expenses~~December 31, 2006 and ~~other~~is ~~current~~subject ~~assets~~to a number of closing conditions.

- 57 -

16. Quarterly Data (Unaudited)

The following table sets forth certain quarterly income statement information of the Company for the fiscal years ended ~~March~~ March 31, 2006, 2005 and 2004. The Company’s fiscal year begins on April 1 and ends on March 31 of the year stated. The Company reports results using a fiscal quarter method whereby each quarter is reported as of the last Friday of the thirteen week period.

	2006
	Q1			Q2			Q3			Q4			Total
Total revenue	$	166,117,000		$	166,794,000		$	218,068,000		$	166,645,000		$	717,624,000
Gross profit		36,600,000			37,752,000			46,772,000			37,501,000			158,625,000
Selling, general and administrative expenses		32,302,000			34,099,000			42,740,000			34,957,000			144,098,000
Income from operations		4,298,000			3,653,000			4,032,000			2,544,000			14,527,000
Interest expense		2,423,000			2,636,000			3,140,000			3,176,000			11,375,000
Other income (expense)		463,000			(192,000	)		498,000			8,544,000			9,313,000
Net income		2,338,000			825,000			1,390,000			7,912,000			12,465,000
	2005
(Dollars in thousands)	Q1			Q2			Q3			Q4			Total
	Q1			Q2			Q3			Q4			Total
Total revenue	$	144,661,000		$	130,647,000		$	159,102,000		$	119,257,000		$	553,667,000
Gross profit		33,205,000			31,700,000			34,356,000			25,830,000			125,091,000
Selling, general and administrative expenses		30,531,000			27,988,000			27,999,000			26,470,000			112,988,000
Income (loss) from operations		2,674,000			3,712,000			6,357,000			(640,000	)		12,103,000
Interest expense		2,404,000			2,251,000			2,416,000			2,464,000			9,535,000
Other income (expense)		(171,000	)		2,465,000			442,000			135,000			2,871,000
Net income (loss)		99,000			3,926,000			4,383,000			(2,969,000	)		5,439,000
	2004
(Dollars in thousands)	Q1			Q2			Q3			Q4			Total
	Q1			Q2			Q3			Q4			Total
Total revenue	$	144,034,000		$	128,705,000		$	156,530,000		$	111,391,000		$	540,660,000
Gross profit		34,885,000			29,045,000			32,291,000			22,971,000			119,192,000
Selling, general and administrative expenses		33,328,000			29,133,000			31,449,000			26,360,000			120,270,000
Income (loss) from operations		1,557,000			(88,000	)		842,000			(3,389,000	)		(1,078,000	)
Interest expense		1,730,000			2,133,000			2,463,000			2,500,000			8,826,000
Other income (expense)		134,000			(45,000	)		382,000			309,000			780,000
Net income (loss)		(39,000	)		(2,266,000	)		(1,239,000	)		(5,580,000	)		(9,124,000	)
	2003
(Dollars in thousands)	Q1			Q2			Q3			Q4			Total
Total revenue	$	182,732		$	175,536		$	214,872		$	139,718		$	712,858
Gross profit		43,163			39,444			44,917			32,501			160,025
Selling, general and administrative Expenses		36,130			36,099			36,710			35,611			144,550
Income (loss) from operations		7,033			3,345			8,207			(3,110	)		15,475
Interest expense		2,819			2,828			2,845			816			9,308
Other income (expense)		180			114			200			9,128			9,622
Net income (loss)		4,394			631			5,562			5,202			15,789

-17. 58Subsequent -Events

The Company has entered into a series of agreements under which it sold or surrendered its intangible rights related to certain malt beverage products distributed within the state of Illinois.

- 60 -

In exchange for the release and sale of these distribution rights the Company expects to receive approximately $20.7 million by September 30, 2006.

On May 30, 2006, the nationwide wholesaler of wine and spirits and party to the management services agreement and conditional sales agreement filed a complaint against the Company and NWS-Illinois and alleged that the proposed sale or surrender of certain distribution rights related to malt beverage products distributed by NWS-Illinois in Chicago and the state of Illinois violates the terms of the agreements with the Company. The complaint seeks injunctive relief, declaratory judgment or, in the alternative, damages, attorneys’ fees, costs and other relief. Also requested was a temporary restraining order to enjoin the proposed sales, but the court denied that motion. The Company believes the claims are without merit and intends to vigorously defend the lawsuit.

18. Asset Purchases and Acquisitions

The Company completed the acquisition of certain inventory, accounts receivable, and equipment from an Illinois wine wholesaler on August 1, 2005. Assets purchased were inventory and accounts receivable of $6.6 million and equipment of $2.0 million, all of which have been incorporated into the Company’s operations.

The Company entered into a stock purchase agreement on September 1, 2005 for the acquisition of the stock of a Michigan wine wholesaler. The acquisition is pending and its consummation is subject to a number of normal and customary conditions. In connection with the proposed acquisition, the Company funded a $14.9 million deposit, currently in escrow, to be credited against the purchase price of $18.0 million, subject to adjustment, at the closing of the transaction. All or part of the escrowed funds will be returned to the Company, subject to certain conditions, if the purchase agreement is terminated prior to closing. No closing date has been scheduled, and completion remains subject to various closing conditions.

- 61 -

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

As of March 31, ~~2005~~2006, the Company ~~carried~~performed ~~out~~ an evaluation, under the supervision of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, and the Company’s Corporate Controller, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e). Based upon that evaluation, the Company’s Chief Executive Officer, Chief Financial Officer, and the Company’s Corporate Controller concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings.

The matters identified below involved immaterial amounts, have been reflected in the financial statements that accompany this report, and did not result in any material adjustment that requires the restatement of the Company’s financial statements.

During the preparation of the Company’s Annual Report on Form 10-K, management identified the following issues as significant deficiencies:

•

The Company’s preventive controls related to revenue cut-off of product shipments in its Indiana market did not operate effectively at period end.

•

Certain of the Company’s preventive programming change and access controls, as well as certain detective programming change controls, were not designed and implemented effectively.

•

The Company’s monitoring controls over inventory in transit in its Illinois market did not operate effectively.

The Company’s independent registered public accounting firm reported to management and the Audit Committee the issues described above as significant deficiencies.

According to standards established by the Public Company Accounting Oversight Board, a significant deficiency is an internal control deficiency that, by itself or in combination with other internal control deficiencies, results in more than a remote likelihood that a misstatement of a company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected.

The Company is addressing the revenue cut-off deficiency in the Indiana market by restructuring the preventative controls, restricting system access and transactional authorization to selected management personnel, and developing more comprehensive detective controls around recording sales transactions at the end of a period.

- 62 -

The Company is addressing the information system deficiencies by implementing updated systems controls, including additional systems change controls. The Company also has enhanced system access controls to eliminate general user accounts and limit programmers’ access to only areas required to perform specific tasks. Finally, procedures and system updates are being implemented to track and document changes to the production software.

Updated authorization and review procedures have been implemented to ensure appropriate reporting of inventory in transit and management is undertaking a full review of the reporting process in relation to inventory in transit.

There were no changes in the Company’s internal control over financial reporting as of the end of the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information

None .

- 5963 -

Part III

Item 10. Directors & Executive Officers of the Registrant

Directors and Executive Officers

The following table sets forth information concerning the directors and executive officers of NWS as of June 30, ~~2005~~2006:

Name	Age	Position
James E. LaCrosse	7273	Chairman, President, Chief Executive Officer, Chief Financial Officer and Director
Catherine M. LaCrosse	3839	Vice President of Sales-Indiana Fine Wine Division and Director
John J. Baker	3536	Chief Operating Officer, Secretary and Director
Gregory J. Mauloff	5354	Corporate Executive Vice President, Sales & Marketing
James R. Beck	6162	Director
John Wittig	4546	President, NWS-Illinois LLC
Joseph J. Fisch	5657	President, U.S. Beverage
Mitchell T. Stoltz	5152	Director
Norma M. Johnston	7677	Director
Stephen E. LaCrosse	3536	Director
William M. Cockrum	6768	Director
Vaughn D. Bryson	6667	Director
David W. Goodrich	5758	Director
Patrick A. Trefun	4546	Corporate Controller and Treasurer

James E. LaCrosse has served as Chairman, President, Chief Executive Officer and a Director of NWS since December, 1998. He assumed the responsibilities of Chief Financial Officer in May, 2000. Previously, Mr. LaCrosse served as Chairman and Director NWS-Indiana since its formation in 1973, and prior to 1973 was employed by various companies in a financial capacity. Mr. LaCrosse received an MBA from Harvard Business School in 1961 and a BA in economics from Wesleyan University in 1957.

Catherine M. LaCrosse has served as Director of NWS since December 1998 and is currently Vice President of Sales of the Indiana Fine Wine Division. Ms. LaCrosse joined NWS in 1991 and has served in various sales and marketing positions in NWS-Indiana, NWS-Illinois and NWS-Michigan. Ms. LaCrosse received a BA in history from Indiana University in 1990. She is James LaCrosse’s daughter.

John J. Baker has served as Chief Operating Officer and Treasurer since 2001 and was appointed Director of NWS in May 2004. Mr. Baker joined the Company in 1993 and has also held positions as Executive Vice President, Director of Corporate Logistics, Director of Purchasing, and Operations Specialist. Prior to that, he served as a Financial Analyst for Comdata Corporation and Freight Forwarding Assistant for A.W. Fenton Company. Mr. Baker received an MBA in operations from Vanderbilt University-Owen School of Management in 1994 and a BS in economics and international business from Miami University in 1992.

-Gregory 60J. -Mauloff has been Corporate Executive Vice President of Sales and Marketing since April 2003. Prior to that, he was President of the Illinois operations and Executive Vice President

- 64 -

~~Gregory J. Mauloff has been Corporate Executive Vice President of Sales and Marketing since April~~ ~~2003. Prior to that, he was President~~ of the ~~Illinois operations and Executive Vice President of the~~ Beer Division. He joined the company in 1991. Other experience includes Vice President of Sales, Heublein Spirits, and Division Manager, E.J. Gallo Wines. He received a BS in business administration from Norbert College in 1973.

James R. Beck has served as Director of NWS since December 1998 and as President of NWS-Indiana from 1992 to July 2002 when he retired. Mr. Beck joined NWS in 1972 and has served in various positions, including Executive Vice President of Sales for 14 years prior to being named President of NWS-Indiana. He has been a Director of NWS since December, 1998. Mr. Beck received a BS in education from Ball State University in 1968.

John Wittig, President of NWS-Illinois, joined the company in August 2004. Mr. Wittig previously was Managing Director of the Atlantic Division of Brown-Forman, which he joined in 2001. His experience in the industry began in 1986 with Seagram Americas, where his last position was General Manager of the Southwest Region. Mr. Wittig received a BA in education from Pfieffer College in 1982.

Joseph J. Fisch has served as President and CEO of USB, since its inception in 1997. His previous experience with Joseph E. Seagram Corporation from 1971 through 1996 includes Market Research Analyst; Vice President and Division Manager, General Wine & Spirits Company; Vice President/General Manager, eastern region, House of Seagram; Vice President/General Manager, House of Seagram; and President, Seagram Beverage Company. He received a BS in business administration and marketing from Bowling Green University, Ohio, in 1971.

Mitchell T. Stoltz has served as Director of NWS since December 1998. Mr. Stoltz served as President of NWS-Illinois from 1995 to April 2001, at which time he resigned from that position but continues as a Director of NWS. Prior to becoming President, he served as Executive Vice President of Sales and Marketing for NWS-Illinois. Before joining NWS in 1992, Mr. Stoltz served as Vice President and General Manager for Magnolia Marketing Company and as President for Admiral Wine Company. Mr. Stoltz received an M.M. from Northwestern University Kellogg Graduate School of Management in 1985 and a BA in business from Notre Dame University in 1976.

Norma M. Johnston has been a Director of NWS-Indiana since 1976, and a Director of NWS since December, 1998. ~~Mrs~~Ms. Johnston served as Secretary of NWS-Indiana from 1976 to 1998.

Stephen E. LaCrosse was appointed Director in May 2004. He has held various positions within the Company including Corporate Budget Director, Brand Manager, and Special Projects Manager. Prior to joining NWS in 2002, he served with Conseco Capital Management from 1998 to 2000 as a Financial Analyst, and as a Field Market Manager for McCormick Distilling from 1995 to 1996. Mr. LaCrosse received an MBA in Finance and Marketing from Indiana University in 2002 and a BS in Finance from Indiana University in 1998. He is James LaCrosse’s son.

William M. Cockrum has served as Director of NWS since July 1999. He has been an Adjunct Professor of Finance in the UCLA Anderson School of Business since 1985, teaching entrepreneurial finance, business ethics and investment management. Mr. Cockrum was recognized as top entrepreneurial professor in the nation by Business Week magazine in 1996.

- 6165 -

~~entrepreneurial finance, business ethics and investment management. Mr. Cockrum was recognized as top entrepreneurial professor in the nation by Business Week magazine in 1996.~~ Prior to joining UCLA, he spent 25 years in investment banking, serving as a corporate officer at Becker Paribas, Inc. until it was acquired by Merrill Lynch in 1984. Mr. Cockrum received an MBA in finance and marketing from Harvard Business School in 1961 and a BA in economics from DePauw University in 1959.

Vaughn D. Bryson has served as Director of NWS since July 1999. He serves on the boards of several public companies, particularly in the biotech industry. Mr. Bryson retired as Vice Chairman in 1996 from Vector Securities International. Prior to that, he worked for Eli Lilly and Company from 1961 to 1993 serving as President and CEO from 1991 to 1993, Executive Vice President from 1986 to 1990, and Board Member from 1984 to 1993. Mr. Bryson is a member of the board of directors of Atherogenics Inc., Amylin Pharmaceuticals Inc., Chiron Corp. and ICOS Corporation. Mr. Bryson is a graduate of the Stanford Sloan Program, Stanford Graduate School of Business in 1967 and received a BS in pharmacy from the University of North Carolina in 1960.

David W. Goodrich was appointed Director of NWS in May 2004. ~~Currently he is President and CEO of the Central Indiana Corporate Partnership, Inc.~~ He serves on the boards of several public companies and not-for-profit organizations. ~~Prior~~Mr. Goodrich toretired ~~his~~as ~~current~~President ~~position~~and CEO of the Central Indiana Corporate Partnership, MrInc. ~~Goodrich~~in ~~worked~~2005. Prior to that, he worked for Colliers Turley Martin Tucker’s Indianapolis office from 1998 to 1999 as President and Executive Vice President. From 1986 to 1998, he served in F.C. Tucker Company, Inc.’s Commercial Real Estate Services Division as President, Executive Vice President and Treasurer after specializing in industrial and office brokerage as a sales manager and sales associate from 1979 to 1986. He is a member of the board of directors of One American Financial Partners, Citizens Gas and Coke Utility, Clarian Health Partners and Irwin Financial Corporation. Mr. Goodrich received an MBA in Finance and Real Estate from the University of Virginia in 1973 and a BBA in Finance from the University of Michigan in 1970.

Patrick A. Trefun, CPA, has served as Corporate Controller and Treasurer since 2001. Mr. Trefun previously served as controller of NWS-Indiana. He began working in the industry in 1982 as an accountant and later controller for General Liquors, Inc., which was purchased by NWS in 1987 at which time he joined the Company. Mr. Trefun received a BS in business administration with a concentration in accounting from Indiana University in 1982. He is a member of the American Institute of Certified Public Accountants and the Indiana CPA Society.

The seven individuals who comprise NWS’ senior management team have an average of over 2324 years of experience in the alcohol-based beverage industry and 1415 years of experience with NWS.

Audit Committee

The audit committee of NWS is comprised of Mr. William Cockrum, Mr. Vaughn Bryson and Mr. David Goodrich, each of whom is independent of NWS. The Company’s Board of Directors has determined that the Company does not have an audit committee financial expert serving on the audit committee. Management believes that the members of the audit committee have a sufficient understanding of GAAP and practical experience with financial statements so that the addition of a person meeting the technical definition of an “audit committee financial expert” is not necessary to ensure that the audit committee fulfills its functions.

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Code of Business Conduct and Ethics

The Company has adopted a code of business conduct and ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, and all employees.

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Item 11. Executive Compensation

Compensation of Directors

Only outside directors of NWS receive annual compensation for serving as directors. Each outside director received $60,000 for the fiscal year ended March 31, ~~2005~~ 2006 for serving on the board.

Executive Compensation

The following table sets forth the compensation paid by NWS to James E. LaCrosse, Chief Executive Officer, and to each of the four most highly compensated executive officers of NWS for fiscal ~~2005~~2006, ~~2004~~2005 and ~~2003~~2004:

Summary Compensation Table

	Annual Compensation							~~All Other Compensation(1)~~
	Year	Salary		Bonus		Other Annual Compensation(3)
Name and Principal Position	Year	Salary		Bonus		Other AnnualCompensation(3)		All OtherCompensation(1)
Name and Principal Position
James E. LaCrosse	2006	$	450,000	$	-0-	$	4,101	$	394,079	(2)
James E. LaCrosse Chairman, President, Chief Financial Officer, and CEO	200520042003	$	420,000409,700407,000	$	20,300-0--0-	$	5,0079,0356,465	$	357,584344,615276,073	(2)(2)(2)
Chairman, President, Chief	2005		420,000		20,300		5,007		357,584	(2)
John J. Baker Chief Operating Officer and Secretary	200520042003		235,269199,769189,519		253,00050,00075,000		2,1297322,831		10,4619,9899,476
Financial Officer, and CEO	2004		409,700		-0-		9,035		344,615	(2)
Gregory Mauloff Corporate Executive Vice-President of Sales & Marketing	200520042003		358,817350,000237,942		130,00025,00075,000		-0--0-1,371		11,37911,20231,356	(4) (4)
John J. Baker	2006		300,000		220,000		1,799		11,538
Joseph J. Fisch President/CEO, U.S. Beverage	200520042003		350,000348,269275,000		60,000142,500117,500		-0--0--0-		9,9139,8215,481
Chief Operating Officer and Secretary	2005		235,269		253,000		2,129		10,461
John Wittig President, NWS-Illinois LLC	200520042003		163,322-0--0-		200,000-0--0-		-0--0--0-		6,559-0--0-	(5)
	2004		199,769		50,000		732		9,989
Gregory Mauloff	2006		370,000		150,000		1,139		11,472	(4)
Corporate Executive Vice-President	2005		358,817		130,000		-0-		11,379	(4)
of Sales & Marketing	2004		350,000		25,000		-0-		11,202
Joseph J. Fisch	2006		350,000		105,000		-0-		15,226	(5)
President/CEO, U.S. Beverage	2005		350,000		60,000		-0-		9,913
	2004		348,269		142,500		-0-		9,821
John Wittig	2006		268,269		100,000		-0-		13,937
President, NWS-Illinois LLC	2005		163,322		200,000		-0-		6,559	(6)
	2004		-0-		-0-		-0-		-0-

(1) Includes ~~2005~~2006 employer 401(k) Plan contributions in the following amounts: Mr. LaCrosse, $911,~~846~~279; Mr. Baker, $1011,~~461~~538; Mr. Mauloff, $10,~~014~~986; Mr. Fisch, $910,~~913~~836; and Mr. Wittig, $13,937.46. Includes ~~2004~~2005 employer 401(k) Plan contributions in the following amounts: Mr. LaCrosse, $109,~~000~~846; Mr. Baker, $910,~~989~~461; Mr. Mauloff, $1110,~~202~~014; and Mr. Fisch, $9,~~821~~913. Includes ~~2003~~2004 employer 401(k) Plan contributions in the following amounts: Mr. LaCrosse, $10,000; Mr. Baker, $9,~~476~~989; Mr. Mauloff, $11,~~181~~202; and Mr. Fisch, $59,~~481~~821.

(2) Includes $~~347~~382,~~738~~800, $~~334~~347,~~615~~738 and $~~266~~334,~~073~~615 for fiscal ~~2005~~2006, ~~2004~~2005 and ~~2003~~2004, respectively, of life insurance premiums paid by NWS on behalf of Mr. LaCrosse and for the benefit of the LaCrosse family trust for estate planning purposes. NWS expects the premiums paid on behalf of Mr. LaCrosse in the future will remain at their current annual rate. Upon the

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~~on behalf of Mr. LaCrosse in the future will remain at their current annual rate. Upon the~~ death of Mr. LaCrosse or termination of the life insurance policies, NWS is entitled to repayment out of the proceeds of the policies of all premiums paid on behalf of Mr. LaCrosse for the benefit of the LaCrosse family trust since the inception of the policy in 1994.

(3)	Represents personal use of a company supplied automobile.

(4) Includes $1486,~~365~~ ofthe ~~life~~personal ~~insurance~~portion ~~premiums~~of ~~paid~~business byexpenses ~~NWS~~paid onto ~~behalf of~~ Mr. Mauloff ~~for~~during fiscal year ~~2005~~2006. Includes ~~items~~$1,365 ~~valued~~of atlife ~~$20,175~~insurance ~~received~~premiums paid by ~~Mr.~~NWS ~~Mauloff~~on asbehalf ~~sales~~of ~~incentive~~Mr. ~~pay~~Mauloff for fiscal ~~2003~~year 2005.

(5) Includes $54,~~884~~388, ofthe ~~taxable~~personal ~~moving~~portion ~~expenses~~of ~~and~~business ~~$675,~~expenses ~~the~~paid ~~value~~to ofMr. aFisch ~~taxable~~during ~~sales~~fiscal ~~incentive,~~year ~~for Mr~~2006. ~~Wittig.~~

(6)	Includes $5,884 of taxable moving expenses paid to Mr. Wittig during fiscal year 2005, and $675, the value of a taxable sales incentive, also paid during fiscal 2005.

Compensation Committee Interlocks and Insider Participation

The compensation committee is comprised of Mr. Vaughn Bryson, Mr. William Cockrum, Ms. Catherine LaCrosse and Mr. James LaCrosse. There are no interlocking compensation committee relationships between NWS and any other entity.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

NWS has two authorized classes of capital stock, voting common stock and non-voting common stock. The following table sets forth the beneficial ownership of NWS’ voting common stock:

(1) By each person known by NWS to beneficially own 5% or more of NWS’ voting common stock, and

(2) By all executive officers and directors of NWS as a group.

Except for Mr. LaCrosse and ~~Mrs~~Ms. Johnston, who have sole voting and investment power with respect to their voting common stock, no other executive officer or director owns any shares of NWS’ voting common stock.

Name and Address	Number ~~of Shares~~ofShares	Percent
James E. LaCrosse
James E. LaCrosse 700 West Morris Street Indianapolis, Indiana 46225	86,520	83	%
700 West Morris Street
Norma M. Johnston 700 West Morris Street Indianapolis, Indiana 46225	18,000	17	%
Indianapolis, Indiana 46225	86,520	83	%
All executive officers and directors as a group (2 persons)	104,520	100	%
Norma M. Johnston
700 West Morris Street
Indianapolis, Indiana 46225	18,000	17	%
All executive officers and directors as a group
(2 persons)	104,520	100	%

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The stockholders of NWS have entered into stockholder agreements with each other and NWS. Such agreements contain restrictions relating to transfers of stock and provide for rights to purchase and sell stock of each corporation, among other matters. In particular, the stockholder agreement with NWS governs the transferability of ~~Mrs~~Ms. Johnston’s stock in NWS. The LaCrosse family is obligated to purchase ~~Mrs~~Ms. Johnston’s stock at her death or during her lifetime should she decide to sell. NWS becomes obligated to purchase only if the LaCrosse family refuses or fails to purchase. The LaCrosse family and NWS also have the right to purchase ~~Mrs~~Ms. Johnston’s stock at the death of Mr. LaCrosse. Any obligation of NWS to purchase the stock owned by ~~Mrs~~Ms. Johnston is subject to the terms of the indenture and the new credit facility. No right to purchase stock owned by Mr. LaCrosse or a trust for the benefit of his family exists in favor of ~~Mrs~~Ms. Johnston.

The stockholders have also agreed not to take any action or effect any transfer that would cause NWS or any of its subsidiaries to fail to qualify as an S corporation or other pass-through entity for federal income tax purposes. In addition, the stockholders have entered into a tax indemnification agreement whereby they have agreed to indemnify NWS and its subsidiaries for any loss that may arise in the event NWS or any of its subsidiaries should fail to maintain its pass-through status.

The LaCrosse family and NWS own life insurance policies on the life of ~~Mrs~~Ms. Johnston in face amounts of $4.0 million and $0.5 million, respectively.

The Company does not have any equity compensation plans.

Item 13. Certain Relationships and Related Transactions

J. Smoke Wallin, a former Director of the Company, is the Chairman and Chief Executive Officer of eSkye Solutions, Inc. The Company received 1,500,000 shares of common stock in eSkye Solutions Inc. upon inception, representing founders stock. eSkye Solutions, Inc. subsequently issued a 4 to 1 split, thus 6,000,000 shares are currently held by NWS. The Company accounts for its investment in eSkye Solutions, Inc. using the equity method. In October, 1999, the Company invested $500,000 in convertible preferred stock of eSkye Solutions, Inc. The Company invested an additional $2,012,500 in convertible preferred stock in May 2000.

NWS leased facilities and certain office equipment to eSkye Solutions, Inc. under the terms of a three-year operating lease that expired September 2004. NWS did not charge or receive any rent from eSkye during the years ended March 31, 2005 and 2004, but received rent from eSkye Solutions, Inc. of $137,000 during the year ended March 31, 2003. The Company granted this concession to eSkye in order to maintain a tenant in an unused portion of the office building which houses the Company’s corporate headquarters. The Company pays eSkye fees for computer services. NWS paid $350,~~000,~~ $5035,000 and $~~150~~50,000 during the years ended March 31, ~~2005~~2006, ~~2004~~2005, and ~~2003~~2004, respectively.

From time to time, NWS-Indiana has loaned money to its principal shareholders, James E. LaCrosse and Norma M. Johnston, the primary purpose of which was to provide the necessary funds to finance start-up expenses and working capital needs of NWS-Illinois, an affiliated company owned prior to the 1998 reorganization by Mr. LaCrosse, ~~Mrs~~Ms. Johnston and Martin H. Bart. The indebtedness was retired in September 2002 funded by shareholder distributions. The ~~proceeds of the loans were provided by Mr. LaCrosse and Mrs. Johnston to NWS-Illinois in the~~

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proceeds of the loans were provided by Mr. LaCrosse and Ms. Johnston to NWS-Illinois in the form of loans or additional capital contributions. This indebtedness to Mr. LaCrosse and ~~Mrs~~Ms. Johnston of $4.3 million matures in December 2009, and is subordinated to both the senior notes and the credit facility, and bears interest at the prime rate, which was 57.75% at March 31, 2006. During the year ended March 31, 2006, Mr. LaCrosse and Ms. Johnston loaned $2.0 million and $0.5 million, respectively, to the Company as part of a July 15, 2005 shareholder distribution and described below.

During 1998, Mr. LaCrosse, Chairman of the Company, transferred substantially all of his non-voting stock to a a family trust, as part of an estate-planning ~~plan~~transaction, in exchange for a note. As part of that transfer, the Company has distributed funds to Mr. LaCrosse, the family trust, and ~~Mrs~~Ms. Johnston during the prior fiscal years and the distributors were made within the terms and conditions contained in the Company’s indenture governing its senior notes (including the limitation on restricted payments) and the revolving credit facility. As of March 31, 2005 there was approximately $2.5 million owed to Mr. LaCrosse by the family trust related to the 1998 transfer and sale of the non-voting stock.

~~NWS-Indiana~~The ~~and~~Company ~~NWS-Illinois~~issued ~~have~~a ~~operated~~shareholder asdistribution Son ~~corporations under the Internal Revenue Code of 1986 (Code)~~July 15, ~~and~~2005 ~~their~~which ~~respective~~provided ~~subsidiaries have all operated as qualified subchapter S subsidiaries under the Code or other similarly taxed pass-through entities (the “S Corp~~$2.5 ~~Businesses”).~~million ~~NWS has elected~~ to bethe ~~treated~~family astrust andescribed Sabove ~~corporation under the Code~~ and ~~has~~$0.5 ~~elected~~million ~~or will elect for each of its subsidiaries~~ to ~~be treated as qualified subchapter S subsidiaries~~Ms. Johnston. The Strust ~~Corp~~remitted $2.5 ~~Businesses~~million ~~have not been subject~~ to ~~tax~~Mr. Lacrosse onin ~~their~~full satisfaction ~~respective~~of ~~net taxable incomes, and~~ the ~~shareholders~~note offor the Stransfer ~~Corp.~~and ~~Businesses~~sale ~~have been directly subject to tax on their respective proportionate shares~~ of ~~such~~the ~~net taxable income. NWS~~non-~~Indiana~~voting stock, and ~~NWS-Illinois have historically made cash distributions to~~ Mr. LaCrosse, ~~Mrs.~~then ~~Johnston~~loaned ~~and Mr~~$2.0 ~~Bart~~million ~~in amounts equal~~ to orthe ~~greater~~Company ~~than~~as ~~their~~subordinated ~~respective~~debt. ~~tax obligations related to the S Corp~~Mr. LaCrosse ~~Businesses~~used ~~and certain stockholder obligations as described above~~$0.3 ~~The~~million ~~aggregate~~of ~~amount~~the ofproceeds ~~these~~to ~~distributions~~pay ~~during~~income ~~2005,~~tax ~~2004~~estimates and ~~2003~~he retained ~~were~~approximately $0.2 million,. $6Ms.0 Johnston ~~million~~also ~~and~~loaned $90.45 million, ~~respectively.~~to ~~The terms of~~ the ~~senior~~Company ~~notes~~as ~~and~~subordinated ~~the credit~~debt ~~facility~~as ~~permit~~part ~~NWS~~of tothis ~~make~~same ~~distributions~~shareholder ~~to shareholders with respect to their tax liabilities and other purposes subject to certain conditions and limitations~~distribution.

~~During~~NWS-Indiana ~~1998,~~and NWS-~~Indiana~~Illinois ~~entered~~have ~~into~~operated aas ~~five-year~~S ~~non-compete~~corporations ~~agreement~~under ~~with~~the ~~James~~Internal ~~Beck~~Revenue Code of 1986 (Code), aand ~~director~~their ofrespective subsidiaries have all operated as qualified subchapter S subsidiaries under the Code or other similarly taxed pass-through entities (the “S Corp. Businesses”). NWS has elected to be treated as an S corporation under the Code and ~~former~~has elected or will elect for each of its subsidiaries to be treated as qualified subchapter ~~President~~S subsidiaries. The S Corp. Businesses have not been subject to tax on their respective net taxable incomes, and the shareholders of the S Corp. Businesses have been directly subject to tax on their respective proportionate shares of such net taxable income. NWS-Indiana and NWS-Illinois have historically made cash distributions to Mr. LaCrosse, ~~under~~Ms. Johnston ~~which~~and Mr. Bart ~~Beck~~in ~~was~~amounts ~~paid~~equal to or greater than their respective tax obligations related to the S Corp. Businesses and certain stockholder obligations as described above. The aggregate amounts of these distributions during 2006, 2005 and 2004 were $05.3 million, by$0.2 ~~the~~million ~~Company~~and $6.0 ~~NWS-Indiana~~million, ~~obtained~~respectively. ~~certain~~The ~~inventory~~terms of the senior notes and ~~other~~the ~~property~~credit ~~related~~facility permit NWS to ~~the~~make ~~wholesale~~distributions ~~cigar~~to ~~distribution~~shareholders ~~business~~with ~~previously~~respect ~~operated~~to bytheir ~~Mr.~~tax ~~Beck~~liabilities and other purposes subject to certain conditions and limitations.

NWS pays “split-dollar” insurance premiums on seven insurance policies with a fair value of $15.57 million on the lives of Mr. LaCrosse and ~~Mrs~~Ms. Johnston. See Item 11-Executive Compensation. NWS is entitled to receive reimbursement for all premiums paid out of the proceeds of these policies upon the death of Mr. LaCrosse and ~~Mrs~~Ms. Johnston. Split dollar premiums paid by NWS were $328,000 for each of the annual periods ended March 31, ~~2005~~2006, ~~2004~~2005 and ~~2003~~2004. The LaCrosse Family Trust is the beneficiary of those policies.

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Item 14. Principal Accountant Fees and Services

Audit Fees Aggregate fees billed by Deloitte & Touche LLP in connection with the audit of the ~~2005~~2006 and ~~2004~~2005 financial statements and review of financial statements included in NWS’ Forms 10-Q for ~~2005~~2006 and ~~2004~~ 2005 totaled $0.54 million and $0.45 million, respectively.

Audit Related Fees The Company has paid no fees to Deloitte & Touche LLP for audit related services.

Tax Fees and All Other Fees The Company paid no fees to the principal accountant for tax services or other services in fiscal ~~2005~~ 2006 and ~~2004~~2005.

The audit committee approves in advance all auditing services and permitted non-audit services performed for the Company by its independent auditing firm other than certain services exempted from the approval requirements under rules promulgated by the Securities and Exchange Commission. The audit committee evaluates the independent auditing firm and annually selects the internal auditors and the independent auditing firm for the next year. Audit engagement fees and terms of audit services are approved in advance. The audit committee may delegate authority to pre-approve the provision of services to one or more of its members provided that any decisions so made must be presented to the full audit committee at its next scheduled meeting.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Documents filed as part of this Report.


(a)	Documents filed as part of this Report.

	1.	Financial Statements

			Page(s) in this Report
		Report of Independent Registered Public Accounting Firm	37

		Consolidated balance sheets — March 31, 2006 & 2005	38

		Consolidated statements of operations — Years ended March 31, 2006, 2005 & 2004	39

		Consolidated statements of stockholders’ equity — Years ended March 31, 2006, 2005 & 2004	40

		Consolidated statements of cash flows — Years ended March 31, 2006, 2005 & 2004	41

		Notes to consolidated financial statements	42-61

	2.	Financial Statement Schedules

		Schedule II - Valuation and Qualifying Accounts and Reserves	74

		Schedules other than those listed above are omitted as they are not required, or not applicable, or the information is shown in the Notes to the Consolidated Financial Statements.

	3.	Exhibits

		See the Index to Exhibits on pages 77-79 of this Form 10-K, which is incorporated by reference herein.

		Page(s) in this Report
1.	Financial Statements
	Report of Independent Registered Public Accounting Firm	34
	Consolidated balance sheets — March 31, 2005 & 2004	35
	Consolidated statements of operations — Years ended March 31, 2005, 2004 & 2003	36
	Consolidated statements of stockholders’ equity — Years ended March 31, 2005, 2004 & 2003	37
	Consolidated statements of cash flows — Years ended March 31, 2005, 2004 & 2003	38
	Notes to consolidated financial statements	39-58
2.	Financial Statement Schedules
	Schedule II - Valuation & Qualifying Accounts & Reserves	70
	Schedules other than those listed above are omitted as they are not required, or not applicable, or the information is shown in the Notes to the Consolidated Financial Statements.
3.	Exhibits
	See the Index to Exhibits on pages 73-75 of this Form 10-K, which is incorporated by reference herein.

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NATIONAL WINE & SPIRITS, INC.

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

	Balance atBeginning of Period		Additions				Deductions			Balance atEnd of Period
			Additions
Description	Balance atBeginning of Period		Charged toCosts andExpenses		Charged toOtherAccounts		Deductions			Balance atEnd of Period
Year ended March 31, 2006
Deducted from asset account:
Allowance for doubtful accounts	$	761,000	$	313,000	$	—	$	125,000	(1)	$	949,000
Vendor allowance for doubtful accounts		250,000		—		—		18,000	(1)		232,000
Sales return and allowance reserve		159,000		72,000		—		—			231,000
Notes receivable reserve		—		—		—		—			—
Total	$	1,170,000	$	385,000	$	—	$	143,000		$	1,412,000
Year ended March 31, 2005
Deducted from asset account:
Allowance for doubtful accounts	$	1,081,000	$	68,000	$	—	$	388,000	(1)	$	761,000
Vendor allowance for doubtful accounts		125,000		125,000		—		—			250,000
Sales return and allowance reserve		332,000		—		—		173,000			159,000
Notes receivable reserve		221,000		—		—		221,000	(2)		—
Total	$	1,~~427~~759,000	$	193,000	$	—	$	~~609~~782,000		$	1,~~011~~170,000
Year ended March 31, 2004
Deducted from asset account:
Allowance for doubtful accounts	$	1,274,000	$	326,000	$	—	$	519,000	(1)	$	1,081,000
Vendor allowance for doubtful accounts		297,000		—		—		172,000	(2)		125,000
Sales return and allowance reserve		235,000		97,000		—		—			332,000
Notes receivable reserve		—		221,000		—		—			221,000
Total	$	1,~~571~~806,000	$	~~547~~644,000	$	—	$	691,000		$	1,~~427~~759,000
Year ended March 31, 2003
Deducted from asset account:
Allowance for doubtful accounts	$	1,291,000	$	329,000	$	—	$	346,000	(1)	$	1,274,000
Vendor allowance for doubtful accounts		—		297,000		—		—			297,000
Notes receivable reserve		—		—		—		—			—
Total	$	1,291,000	$	626,000	$	—	$	346,000		$	1,571,000

(1)	Uncollectible accounts written off, net of recoveries.

(2)	Collected funds

(Remainder of page intentionally left blank.)

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on June 8 23, ~~2005~~2006.


NATIONAL WINE & SPIRITS, INC.

By:		/s/ James E. LaCrosse
		James E. LaCrosse,
		Chairman, President,
		Chief Executive Officer, and
		Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity and on the dates indicated:

/s/ James E. LaCrosse				Date: June 823, ~~2005~~2006
James E. LaCrosse				Chairman, President, Chief Executive Officer (Principal Executive Officer), and Chief Financial Officer
/s/ John J. Baker				Date: June 823, ~~2005~~2006
John J. Baker				Chief Operating Officer, Secretary and Director
/s/ James R. Beck				Date: June 823, ~~2005~~2006
James R. Beck				Director
/s/ Mitchell T. Stoltz				Date: June 823, ~~2005~~2006
Mitchell T. Stoltz				Director
/s/ William Cockrum				Date: June 823, ~~2005~~2006
William Cockrum				Director
/s/ Norma M. Johnston				Date: June 823, ~~2005~~2006
Norma M. Johnston				Director
/s/ Vaughn D. Bryson				Date: June 823, ~~2005~~2006
Vaughn D. Bryson				Director

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/s/ Catherine M. LaCrosse	Date: June 23, 2006	~~Date: June 8, 2005~~
Catherine M. LaCrosse	Director	~~Director~~
/s/ Stephen E. LaCrosse	Date: June 23, 2006	~~Date: June 8, 2005~~
Stephen E. LaCrosse	Director	~~Director~~
/s/ David W. Goodrich	Date: June 23, 2006	~~Date: June 8, 2005~~
David W. Goodrich	Director	~~Director~~

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INDEX TO EXHIBITS


Exhibit No.		Description
3.1		Amended and Restated Articles of Incorporation of National Wine & Spirits, Inc. (Incorporated by reference to exhibit 3.1 to the Company’s annual report Form 10K for the year ended March 31, 2000.)

3.2		Amended and Restated Bylaws of National Wine & Spirits, Inc. (Incorporated by reference to exhibit 3.2 to the Company’s annual report Form 10K for the year ended March 31, 2000.)

3.3		Articles of Incorporation of National Wine & Spirits Corporation (incorporated by reference Exhibit 3.3 to the Company’s Registration Statement no. 333-74589 on Form S-4, filed May 13, 1999).

3.4		Bylaws of National Wine & Spirits Corporation (incorporated by reference Exhibit 3.4 to the Company’s Registration Statement no. 333-74589 on Form S-4, filed May 13, 1999).

3.5		Articles of Incorporation of NWS, Inc. (incorporated by reference Exhibit 3.5 to the Company’s Registration Statement no. 333- 74589 on Form S-4, filed May 13, 1999).

3.6		Bylaws of NWS, Inc. (incorporated by reference Exhibit 3.6 to the Company’s Registration Statement no. 333-74589 on Form S- 4, filed May 13, 1999).

3.7		Articles of Incorporation of NWS Michigan, Inc. (incorporated by reference Exhibit 3.7 to the Company’s Registration Statement no. 333-74589 on Form S-4, filed May 13, 1999).

3.8		Bylaws of NWS Michigan, Inc. (incorporated by reference Exhibit 3.8 to the Company’s Registration Statement no. 333-74589 on Form S-4, filed May 13, 1999).

3.9		Articles of Organization of NWS-Illinois, LLC (incorporated by reference Exhibit 3.9 to the Company’s Registration Statement no. 333-74589 on Form S-4, filed May 13, 1999).

3.10		Operating Agreement of NWS-Illinois, LLC (incorporated by reference Exhibit 3.10 to the Company’s Registration Statement no. 333-74589 on Form S-4, filed May 13, 1999).

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Exhibit No.		Description
4.1		Indenture relating to the Exchange Notes, dated as of January 25, 1999 among National Wine & Spirits, Inc., the Subsidiary Guarantors and Norwest Bank Minnesota, N.A., as trustee (including cross-reference sheet regarding sections 310 through 318 (a) of the Trust Indenture Act) (incorporated by reference Exhibit (4b) to the Company’s Registration Statement no. 333-74589 on Form S-4, filed March 17, 1999).
4.2		A/B Exchange Registration Rights Agreement, dated as of January 25, 1999, among National Wine & Spirits, Inc., the Subsidiary Guarantors and the Initial Purchasers (incorporated by reference Exhibit 4(b) to the Company’s Registration Statement no. 333-74589 on Form S-4, filed March 17, 1999).
4.3		Form of Exchange Notes (including related Subsidiary Guarantors) (incorporated by reference Exhibit 4(c) to the Company’s Registration Statement no. 333-74589 on Form S-4, filed March 17, 1999).
4.4		Guaranty entered into as of January 25, 1999 by all Subsidiary Guarantors (incorporated by reference Exhibit 4(d) to the Company’s Registration Statement no. 333-74589 on Form S-4, filed March 17, 1999).
10.1		Purchase Agreement, dated January 20, 1999, among National Wine & Spirits, Inc., the Subsidiary Guarantors and the Initial Purchasers (incorporated by reference to Exhibit 10(a) to the Company’s Registration Statement no. 333-74589 on Form S-4, filed March 17, 1999).
10.2		Credit Agreement, dated as of March 31, 2003, among National Wine & Spirits, Inc., LaSalle Bank National Association, National City Bank of Indiana and LaSalle Bank National Association, as agent (incorporated by reference to Exhibit 10-2 to the Company’s Annual Report on Form 10-K filed July 1, 2003).
10.3		Amendment No. 1 to the Credit Agreement dated June 30, 2003, among National Wine & Spirits, Inc., LaSalle Bank National Association, National City Bank of Indiana and LaSalle Bank National Association, as agent (incorporated by reference to Exhibit 10-2.3 to the Company’s Quarterly Report on Form 10-Q filed August 13, 2003).
10.4		Amendment No. 2 to the Credit Agreement dated March 31, 2004, among National Wine & Spirits, Inc., LaSalle Bank National Association, National City Bank of Indiana and LaSalle Bank National Association, as agent (incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K filed June 28, 2004).
12		Computation of Ratio of Earnings to Fixed Charges
10.5		Amendment No. 3 to the Credit Agreement dated June 30, 2004, among National Wine & Spirits, Inc., LaSalle Bank National Association, National City Bank of Indiana and LaSalle Bank National Association, as agent (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed August 12, 2004).
14		Code of Ethics (incorporated by reference to Exhibit 14 to the Company’s Annual Report on Form 10-K filed June 28, 2004).

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10.6		Amendment No. 4 to the Credit Agreement dated September 28, 2005, among National Wine & Spirits, Inc., LaSalle Bank National Association, National City Bank of Indiana and LaSalle Bank National Association, as agent (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed November 9, 2005).
10.7		Amendment No. 5 to the Credit Agreement dated October 25, 2005, among National Wine & Spirits, Inc., LaSalle Bank National Association, National City Bank of Indiana and LaSalle Bank National Association, as agent (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q filed November 9, 2005).
10.8		Amendment No. 6 to the Credit Agreement dated February 8, 2006, among National Wine & Spirits, Inc., LaSalle Bank National Association, National City Bank of Indiana and LaSalle Bank National Association, as agent (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q filed February 9, 2006).
12		Computation of Ratio of Earnings to Fixed Charges
14		Code of Ethics (incorporated by reference to Exhibit 14 to the Company’s Annual Report on Form 10-K filed June 28, 2004).
21		List of subsidiaries (incorporated by reference Exhibit 21 to the Company’s Registration Statement no. 333-74589 on Form S-4, filed March 17, 1999).
31		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
99.1		Forward – Looking Statements
99.2		Letter to SEC regarding representations of Arthur Andersen LLP (incorporated by reference to Exhibit 99.2 to the Company’s Annual Report on Form 10-K filed May 24, 2002).

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