Black Diamond Holdings Corporation



|December 31, 2006 and 2005(Expressed in Canadian Dollars)
|---------------------------------------------------------

Consolidated Financial Statements

PageManagements Responsibility for Financial Reporting
     
     2Auditors Report
     
     3Comments by Auditors for U.S. Readers on Canada-U.S. Reporting Difference
     
     4Consolidated Balance Sheets
     
     5Consolidated Statements of Operations and Deficit
     
     6Consolidated Statements of Cash Flows
     
     7Notes to the Consolidated Financial Statements
     
     8-21


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Managements Responsibility for Financial Reporting

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The consolidated financial statements have been prepared by and are the responsibility of the management of the Company. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada, using managements best estimates and judgments based on currently available information. When alternative accounting methods exist, management has chosen those it considers most appropriate in the circumstances.

The Company maintains an appropriate system of internal controls to provide reasonable assurance that financial information is accurate and reliable and that the Companys assets are appropriately accounted for and adequately safeguarded.

The Companys independent auditors, Watson Dauphinee & Masuch, Chartered Accountants, were appointed by the shareholders to conduct an audit in accordance with generally accepted auditing standards in Canada and the Public Company Accounting Oversight Board (United States), and their report follows.



|Bradley J. MoynesBradley J. MoynesPresident and Chief Executive Officer
|-------------------------------------------------------------------------



|Brian CameronBrian CameronChief Financial Officer
|---------------------------------------------------

2

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|Auditors ReportTo the Shareholders of:Black Diamond Holdings Corporation
|-------------------------------------------------------------------------

We have audited the Consolidated Balance Sheets ofBlack Diamond Holdings Corporationas at December 31, 2006 and 2005 and the Consolidated Statements of Operations and Deficit and Cash Flows for the years then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards and standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2006 and 2005 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.



|Watson Dauphinee & MasuchChartered Accountants
|------------------------------------------------



|Vancouver, B.C.June 13, 2007
|----------------------------

3

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Comments by Auditors for U.S. Readers on Canada-U.S. Reporting Difference

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In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when the financial statements are affected by conditions and events that cast substantial doubt on the Companys ability to continue as a going concern, such as those described in Note 1 to the consolidated financial statements. Our report to the shareholders dated June 13, 2007 is expressed in accordance with Canadian reporting standards which do not permit a reference to such events and conditions in the auditors report when they are adequately disclosed in the consolidated financial statements.



|Watson Dauphinee & MasuchChartered Accountants
|------------------------------------------------



|Vancouver, B.C.June 13, 2007
|----------------------------

4

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BLACK DIAMOND HOLDINGS CORPORATION



| | Consolidated Balance SheetsAs at December 31, 2006 and 2005(Expressed in Canadian Dollars)
| | ------------------------------------------------------------------------------------------



|                                                             |  | 2006        |  | 2005     
|------------------------------------------------------------ |  | ----------- |  | ---------
|                                                             |  | $           |  | $        
|ASSETS                                                       |  |             |  |          
|                                                            
|CURRENT                                                      |  |             |  |          
|Cash                                                         |  | 23,283      |  | 20,347   
|Accounts Receivable                                          |  |             |  |          
|(Allowance for Doubtful Accounts: 2006 and 2005  Nil)       |  | 15,867      |  | 10,418   
|Inventory                                                    |  | 64,825      |  | 15,115   
|Prepaid Expenses                                             |  | 270         |  | 270      
|                                                             |  |            
|                                                            
|                                                             |  | 104,245     |  | 46,150   
|                                                            
|Due from Related Party - Black Diamond Trading Ltd. (Note 3) |  | 6,883       |  | 6,883    
|Property and Equipment (Note 4)                              |  | 2,017       |  | 2,484    
|                                                            
|                                                             |  | 113,145     |  | 55,517   
|                                                             |  |            
|                                                            
|                                                            
|LIABILITIES                                                  |  |             |  |          
|                                                            
|CURRENT                                                      |  |             |  |          
|Accounts Payable and Accrued Liabilities                     |  | 182,259     |  | 147,752  
|Current Portion of Promissory Notes Payable (Note 7)         |  | 41,777      |  | 29,075   
|Due to Shareholders (Note 5)                                 |  | 45,895      |  | 17,548   
|                                                             |  |            
|                                                            
|                                                             |  | 269,931     |  | 194,375  
|                                                            
|Promissory Notes Payable (Note 7)                            |  | 149,914     |  | 149,914  
|Due to Related Party - Paseo Investments Ltd. (Note 6)       |  | 49,542      |  | 62,342   
|                                                             |  |            
|                                                            
|                                                             |  | 469,387     |  | 406,631  
|                                                             |  |            
|                                                            
|                                                            
|SHAREHOLDERS DEFICIENCY                                     |  |             |  |          
|                                                            
|Share Capital (Note 8(b))                                    |  | 1,025,342   |  | 599,198  
|Contributed Surplus (Note 8(d))                              |  | 9,400       |  | -        
|Deficit                                                      |  | (1,390,984) |  | (950,312)
|                                                             |  |            
|                                                            
|                                                             |  | (356,242)   |  | (351,114)
|                                                             |  |            
|                                                            
|                                                             |  | 113,145     |  | 55,517   
|                                                             |  |            

Nature and Continuance of Operations (Note 1) Subsequent Event (Note 14)

Approved on Behalf of the Board:

|Bradley J. Moynes         |  | Brian Cameron        
|--------------------------- |  | -----------------------
|                            |  |                        
|Bradley J. Moynes, Director |  | Brian Cameron, Director

5

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| | BLACK DIAMOND HOLDINGS CORPORATIONConsolidated Statements of Operations and DeficitFor the Years Ended December 31, 2006 and 2005(Expressed in Canadian Dollars)
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                       |  | 2006        |  | 2005     
|-------------------------------------- |  | ----------- |  | ---------
|                                       |  | $           |  | $        
|                                      
|SALES                                  |  | 5,105       |  | 124,847  
|COST OF SALES                          |  | 1,901       |  | 88,671   
|                                       |  |            
|                                      
|GROSS PROFIT                           |  | 3,204       |  | 36,176   
|                                       |  |            
|                                      
|EXPENSES                               |  |             |  |          
|Accounting and Legal                   |  | 98,113      |  | 18,923   
|Advertising and Promotion              |  | 53,346      |  | 44,236   
|Amortization                           |  | 467         |  | 692      
|Automobile                             |  | 5,883       |  | 3,991    
|Consulting Fees (Note 10(b))           |  | 52,954      |  | 41,086   
|Distributor Fees                       |  | 11,253      |  | 22,368   
|Interest and Bank Charges (Note 10(c)) |  | 28,416      |  | 21,808   
|Inventory Write-Down                   |  | -           |  | 31,800   
|Management Fees (Note 10(a))           |  | 136,116     |  | 69,360   
|Office                                 |  | 4,169       |  | 19,125   
|Office Rent                            |  | 14,099      |  | 8,378    
|Telephone                              |  | 9,145       |  | 8,281    
|Travel                                 |  | 15,832      |  | 11,977   
|Warehouse Rent                         |  | 5,518       |  | 14,535   
|                                       |  |            
|                                      
|                                       |  | 435,311     |  | 316,560  
|                                       |  |            
|                                      
|LOSS BEFORE OTHER ITEM                 |  | (432,107)   |  | (280,384)
|Foreign Exchange (Loss) Gain           |  | (8,565)     |  | 6,817    
|                                       |  |            
|                                      
|NET LOSS FOR THE YEAR                  |  | (440,672)   |  | (273,567)
|                                      
|Deficit, Beginning of the Year         |  | (950,312)   |  | (676,745)
|                                       |  |            
|                                      
|DEFICIT, END OF THE YEAR               |  | (1,390,984) |  | (950,312)
|                                       |  |            
|                                      
|WEIGHTED AVERAGE NUMBER OF SHARES      |  |             |  |          
|OUTSTANDING                            |  | 12,109,393  |  | 9,629,693
|                                       |  |            
|                                      
|                                      
|BASIC AND DILUTED LOSS PER SHARE       |  | (0.04)      |  | (0.03)   
|                                       |  |            

6

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|BLACK DIAMOND HOLDINGS CORPORATIONConsolidated Statements of Cash FlowsFor the Years Ended December 31, 2006 and 2005(Expressed in Canadian Dollars)
|----------------------------------------------------------------------------------------------------------------------------------------------------

|                                                         |  | 2006      |  | 2005     
|-------------------------------------------------------- |  | --------- |  | ---------
|                                                         |  | $         |  | $        
|CASH PROVIDED FROM (UTILIZED FOR)                        |  |           |  |          
|OPERATING ACTIVITIES                                     |  |           |  |          
|Net Loss for the Year                                    |  | (440,672) |  | (273,567)
|Non-Cash Items                                           |  |           |  |          
|Amortization                                             |  | 467       |  | 692      
|Consulting Fees                                          |  | 8,541     |  | -        
|Interest and Bank Charges                                |  | 8,882     |  | -        
|Inventory Write-Down                                     |  | -         |  | 31,800   
|Unrealized Foreign Exchange Loss (Gain)                  |  | 3,820     |  | (2,370)  
|Change in Non-Cash Working Capital Accounts (Note 11(a)) |  | (20,652)  |  | 34,312   
|                                                         |  |          
|                                                         |  | (439,614) |  | (209,133)
|                                                         |  |          
|FINANCING ACTIVITIES                                     |  |           |  |          
|Shares Issued for Cash, Net of Issuance Costs            |  | 427,003   |  | 189,759  
|Repayments to Related Party - Paseo Investments Ltd.     |  | (12,800)  |  | -        
|Advances from Shareholders                               |  | 28,347    |  | 28,818   
|Repayments of Promissory Notes                           |  | -         |  | (10,000) 
|                                                         |  |          
|                                                         |  | 442,550   |  | 208,577  
|                                                         |  |          
|INVESTING ACTIVITY                                       |  |           |  |          
|Acquisition of Property and Equipment                    |  | -         |  | (1,279)  
|                                                         |  |          
|INCREASE (DECREASE) IN CASH                              |  | 2,936     |  | (1,835)  
|Cash, Beginning of the Year                              |  | 20,347    |  | 22,182   
|                                                         |  |          
|CASH, END OF THE YEAR                                    |  | 23,283    |  | 20,347   
|                                                         |  |          

Supplemental Cash Flow Information (Note 11)

7

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BLACK DIAMOND HOLDINGS CORPORATION

Notes to the Consolidated Financial StatementsDecember 31, 2006 and 2005 
(Expressed in Canadian Dollars)

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NOTE 1  NATURE AND CONTINUANCE OF OPERATIONS

Black Diamond Holdings Corporation (the Company) was incorporated on December 28, 2000 under the Company Act of the Province of British Columbia. The Company is a distributor of liquor and wine products in the Province of British Columbia, Canada, and in the State of New York, United States.

These accompanying financial statements have been prepared using Canadian generally accepted accounting principles applicable to a going concern.

While these accompanying financial statements have been prepared on the assumption that the Company is a going concern and will be able to realize its assets and discharge its liabilities in the normal course of business, certain events and conditions cast substantial doubt on this assumption. The Company incurred a loss of $440,672 for the year ended December 31, 2006, and had a working capital deficiency of $165,686, an accumulated deficit of $1,390,984 and a shareholders deficiency of $356,242 at December 31, 2006. Operations for the year ended December 31, 2006 have been funded primarily from the issuance of share capital, the continued support of creditors and net changes in working capital balances.

The Companys ability to continue operations is uncertain and is dependent upon its ability to achieve profitability and obtain new sources of financing (Note 14). The outcome of these matters cannot be predicted at this time. These consolidated financial statements do not reflect any adjustments to the amounts and classifications of assets and liabilities, which would be necessary should the Company be unable to continue operations.

NOTE 2  SIGNIFICANT ACCOUNTING POLICIES

These consolidated financial statements are prepared using Canadian Generally Accepted Accounting Principles (Cdn GAAP). The significant accounting policies followed by the Company and its subsidiaries are summarized below:

|a) | Basis of Presentation                                                                                                                                                                                                                                                                                
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Black Diamond Importers Inc. and Liberty Valley Wines, LLC. All inter-company transactions and balances have been eliminated.                                                           
|  
|b) | Accounts Receivable                                                                                                                                                                                                                                                                                  
|  
|   | The Company records an allowance for doubtful accounts to reflect managements best estimate of losses that may occur on sales during the year. The allowance is recorded through a charge to earnings and takes into consideration the financial condition and recent payment patterns of customers.
|  
|c) | Inventory                                                                                                                                                                                                                                                                                            
|  
|   | Inventory consists of liquor products and is valued at the lower of cost and net realizable value. Cost of sales is determined on a weighted average cost basis. Warehousing, shipping and related costs are excluded from cost of sales, and are expensed as incurred.                              
|  
|d) | Revenue Recognition                                                                                                                                                                                                                                                                                  
|  

Revenue is recognized upon shipment of products to the purchaser and when reasonable assurance exists regarding the collectibility of the consideration that will be derived from the sale of the products.

8

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| | BLACK DIAMOND HOLDINGS CORPORATIONNotes to the Consolidated Financial StatementsDecember 31, 2006 and 2005(Expressed in Canadian Dollars)
| | -----------------------------------------------------------------------------------------------------------------------------------------

NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (Continued)

|e) | Property and Equipment
|-- | ----------------------
|  

Property and equipment are recorded at cost. Amortization is calculated using the following methods and annual rates, except in the year of acquisition when one-half the rate is used:

| |  | Computer Equipment      |  | 30% Per Annum, Declining Balance Basis
| |  | ----------------------- |  | --------------------------------------
| |  | Furniture and Equipment |  | 20% Per Annum, Declining Balance Basis

|   | Improvements, repairs and maintenance costs are expensed as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|f) | Share Capital and Stock-Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   | The Company records proceeds from share issuances net of commissions and issuance costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   | Employee stock options and other types of stock-based compensation are accounted for using the fair value based method. The fair value of an option is estimated on the date of grant and expensed over the vesting period. The fair value of an Agents warrant is determined on the date of grant and recorded as share issuance costs. The Company estimates the fair value using the Black-Scholes option-pricing model. Consideration received on the exercise of stock options or Agents warrants is recorded as share capital and the related contributed surplus amount is transferred to share capital. The Company has not awarded any stock options for the years ended December 31, 2006 and 2005.                                                                          
|  
|g) | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   | The Company uses the asset and liability method of accounting for income taxes. Under this method, future income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. Future income tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. Changes to these balances are recognized in income in the period in which they occur. The amount of future income tax assets recognized is limited to the amount that is more likely than not to be realized.
|  
|h) | Loss Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   | Loss per share is calculated using the weighted average number of common shares outstanding during the year. Diluted loss per share is the same as basic loss per share as the issuance of shares on the exercise of share purchase warrants would be anti-dilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|i) | Advertising and Promotion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   | The Company expenses the cost of advertising in the year in which the advertising space or airtime is used.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  

9

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| | BLACK DIAMOND HOLDINGS CORPORATION
| | ----------------------------------



|Notes to the Consolidated Financial StatementsDecember 31, 2006 and 2005(Expressed in Canadian Dollars)
|-------------------------------------------------------------------------------------------------------

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|j) | Impairment of Long-Lived Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | Long-lived assets are assessed for impairment when events and circumstances warrant. The carrying value of a long-lived asset is impaired when the carrying amount exceeds the estimated undiscounted net cash flow from use and fair value. In that event, the amount by which the carrying value of an impaired long-lived asset exceeds its fair value is charged to earnings. As at December 31, 2006 and 2005, management believes there has been no impairment of the Companys long-lived assets.
|  
|k) | Foreign Currency Translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   | Transactions in foreign currencies are translated to Canadian dollars at the rates in effect on the transaction date. Exchange gains or losses arising on translation or settlement of foreign currency denominated monetary items are charged to earnings in the period they arise.                                                                                                                                                                                                                    
|  

The accounts of integrated foreign operations, which are recorded in United States dollars, have been translated into Canadian dollars using the temporal method as follows:

|Monetary Assets and Liabilities     |  | At the exchange rate prevailing at the balance sheet date
|----------------------------------- |  | ---------------------------------------------------------
|Non-Monetary Assets and Liabilities |  | At historical exchange rates                             
|Revenue and Expense Items           |  | At the average exchange rate for the year                

Foreign exchange gains and losses from the translation of foreign operations are reflected in the statement of operations for the current year.

|l) | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | Financial instruments include cash, accounts receivable, amounts due from Black Diamond Trading Ltd., accounts payable and accrued liabilities, promissory notes payable, and amounts due to Paseo Investments Ltd. and shareholders. The Company is not exposed to significant interest, credit or exchange risk arising from these financial statements. The estimated fair value of these financial instruments approximates their carrying values because of the short term to maturity of these instruments. The carrying value of the promissory notes payable approximates their fair values due to the interest rate implicit in these instruments.                                                                                        
|  
|   | The Company undertakes certain transactions in foreign currencies denominated in U.S. dollars and as such is subject to risk due to fluctuations in exchange rates. The Company does not use derivative instruments to hedge exposure to foreign exchange rate risk.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|m) | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   | The preparation of financial statements in conformity with Cdn GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates include the determination of net recoverable amount of assets, the determination of the amortization period of property and equipment, the realization of future tax assets, the estimated amount of accrued liabilities, and the fair value of Agents warrants. Actual results could differ from those estimates.
|  

10

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BLACK DIAMOND HOLDINGS CORPORATION



|Notes to the Consolidated Financial StatementsDecember 31, 2006 and 2005(Expressed in Canadian Dollars)
|-------------------------------------------------------------------------------------------------------

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| | n) Comparative Figures
| | ----------------------

Certain items in the prior years financial statements have been reclassified to conform with current years financial statements presentation. Such reclassification is for presentation purposes only and has no effect on prior years net loss and deficit.

NOTE 3  DUE FROM RELATED PARTY - BLACK DIAMOND TRADING LTD.

Amounts due from Black Diamond Trading Ltd., a company controlled by the controlling shareholders (also Director and Officers) of the Company, are unsecured, non-interest bearing and have no specific terms of repayment.

|NOTE 4  PROPERTY AND EQUIPMENT |  |       |  |              |  |         
|------------------------------- |  | ----- |  | ------------ |  | --------
|                               
|                                |  |       |  | Accumulated  |  | Net Book
|                                |  | Cost  |  | Amortization |  | Value   
|                                |  | $     |  | $            |  | $       
|2006                            |  |       |  |              |  |         
|Computer Equipment              |  | 3,889 |  | 3,333        |  | 556     
|Furniture and Equipment         |  | 2,935 |  | 1,474        |  | 1,461   
|                                |  |       |  |              |  |         
|                               
|                                |  | 6,824 |  | 4,807        |  | 2,017   
|                                |  |       |  |              |  |         
|                               
|2005                            |  |       |  |              |  |         
|Computer Equipment              |  | 3,889 |  | 3,096        |  | 793     
|Furniture and Equipment         |  | 2,935 |  | 1,244        |  | 1,691   
|                                |  |       |  |              |  |         
|                               
|                                |  | 6,824 |  | 4,340        |  | 2,484   
|                                |  |       |  |              |  |         



| | NOTE 5  DUE TO SHAREHOLDERS
| | ----------------------------

Amounts due to shareholders are unsecured, non-interest bearing and have no specific terms of repayment. Included in this balance is $37,473 due to the President (also a Director) of the Company (2005 -$37,972), $9,422 due to the Vice-President of the Company (2005  receivable of $19,424), and $1,000 due from a person related to a Director of the Company (2005  $1,000).

NOTE 6  DUE TO RELATED PARTY - PASEO INVESTMENTS LTD.

Amounts due to Paseo Investments Ltd., a company controlled by relatives of the controlling shareholders (also Director and Officers) of the Company, are unsecured, non-interest bearing and are due on December 31, 2008.

11

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BLACK DIAMOND HOLDINGS CORPORATION



|Notes to the Consolidated Financial StatementsDecember 31, 2006 and 2005(Expressed in Canadian Dollars)
|-------------------------------------------------------------------------------------------------------

NOTE 7  PROMISSORY NOTES PAYABLE

|   |  |                                                                   |  |         |  | 2006     |  | 2005    
|-- |  | ----------------------------------------------------------------- |  | ------- |  | -------- |  | --------
|   |  |                                                                   |  |         |  | $        |  | $       
|  
|a) |  | On August 22, 2003, the Company issued a promissory note          |  |         |  |         
|   |  | payable to a relative of the President and Vice-President of the  |  |         |  |         
|   |  | Company for cash advanced to the Company in the amount of         |  |         |  |         
|   |  | $159,914. The note is unsecured, bears interest at 12% per        |  |         |  |         
|   |  | annum (Note 10(c)) and payable monthly. Subsequent to year        |  |         |  |         
|   |  | end, the due date of the note was extended from January 31,       |  |         |  |         
|   |  | 2007 to December 31, 2008.                                        |  | 149,914 |  | 149,914 
|  
|b) |  | On October 14, 2004, the Company issued a promissory note         |  |         |  |         
|   |  | payable to an arms length party for cash advanced to the         |  |         |  |         
|   |  | Company in the amount of $62,890 (US$50,000). The note is         |  |         |  |         
|   |  | secured by inventory and personal guarantees of the controlling   |  |         |  |         
|   |  | shareholders of the Company and was due on January 14, 2006.      |  |         |  |         
|   |  | The Company was also required to make an additional payment       |  |         |  |         
|   |  | to the lender in the amount of the greater of US$4.50 per case of |  |         |  |         
|   |  | La Joya wine sold or US$6,750 on maturity of the promissory       |  |         |  |         
|   |  | note.                                                             |  |         |  |         
|  
|   |  | During the year ended December 31, 2005, the Company issued       |  |         |  |         
|   |  | 250,000 common shares in settlement of $31,445 (US$25,000)        |  |         |  |         
|   |  | of the outstanding amount and paid $4,281 in interest to the      |  |         |  |         
|   |  | lender.                                                           |  |         |  |         
|  
|   |  | During the year ended December 31, 2006, the Company              |  |         |  |         
|   |  | accrued interest expense in the amount of $8,882 (US$6,750)       |  |         |  |         
|   |  | pursuant to the agreement.  As at December 31, 2006, the          |  |         |  |         
|   |  | outstanding principal and accrued interest totalled $41,777       |  |         |  |         
|   |  | (US$31,750) which the Company and the lender agreed to settle     |  |         |  |         
|   |  | at a fixed exchange rate of $0.76 Canadian dollar to one United   |  |         |  |         
|   |  | States dollar. As at auditors report date, the loan has not been |  |         |  |         
|   |  | repaid.                                                           |  | 41,777  |  | 29,075  
|   |  |                                                                   |  |         |  |          |  |         
|  
|   |  |                                                                   |  |         |  | 191,691  |  | 178,989 
|  
|   |  | Less: Current Portion                                             |  |         |  | (41,777) |  | (29,075)
|   |  |                                                                   |  |         |  |          |  |         
|  
|   |  |                                                                   |  |         |  | 149,914  |  | 149,914 
|   |  |                                                                   |  |         |  |          |  |         

NOTE 8  SHARE CAPITAL

|a) |  | Authorized                                 
|-- |  | -------------------------------------------
|   |  | 100,000,000 common shares without par value



|12
|--

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BLACK DIAMOND HOLDINGS CORPORATION



|Notes to the Consolidated Financial StatementsDecember 31, 2006 and 2005(Expressed in Canadian Dollars)
|-------------------------------------------------------------------------------------------------------

NOTE 8  SHARE CAPITAL (Continued)

|b) |  | Issued and Outstanding                                    |  |               |  |          
|-- |  | --------------------------------------------------------- |  | ------------- |  | ---------
|   |  |                                                           |  | Number of     |  | Amount   
|   |  |                                                           |  | Common Shares |  | $        
|  
|   |  | Balance, December 31, 2004                                |  | 9,168,780     |  | 369,170  
|  
|   |  | Issued During the Year                                    |  |               |  |          
|   |  | For Cash  Private Placement, Net of Issuance Costs (i)   |  | 1,266,667     |  | 189,759  
|   |  | For Accounts Payable (ii)                                 |  | 50,000        |  | 8,824    
|   |  | For Promissory Note (iii)                                 |  | 250,000       |  | 31,445   
|   |  |                                                           |  |               |  |          
|  
|   |  | Balance, December 31, 2005                                |  | 10,735,447    |  | 599,198  
|  
|   |  | Issued During the Year                                    |  |               |  |          
|   |  | For Cash  Private Placements, Net of Issuance Costs (iv) |  | 2,791,776     |  | 417,603  
|   |  | For Accounts Payable (v)                                  |  | 50,000        |  | 8,541    
|   |  |                                                           |  |               |  |          
|  
|   |  | Balance, December 31, 2006                                |  | 13,577,223    |  | 1,025,342
|   |  |                                                           |  |               |  |          

| | (i)   | The Company issued 1,266,667 units at US$0.15 per unit for total gross proceeds of $230,962 (US$190,000). One unit consists of one common share and one share purchase warrant. One warrant entitles the holder to purchase one additional common share of the Company exercisable at a price of US$0.30 per share until July 31, 2007. Share issuance costs totalling $41,203 have been charged against share capital.                                                                                                                  
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      
| | (ii)  | The Company issued 50,000 common shares at $0.176 per share for settlement of accounts payable in the amount of $8,824.                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      
| | (iii) | The Company issued 250,000 common shares at US$0.10 per share for partial settlement of a promissory note in the amount of $31,455 (US$25,000) (Note 7(b)).                                                                                                                                                                                                                                                                                                                                                                              
| |      
| | (iv)  | On April 28, 2006, the Company completed a brokered private placement of 1,591,776 units at a price of US$0.15 per unit, raising gross proceeds of $269,810 (US$238,766). One unit consists of one common share and one share purchase warrant. One warrant entitles the holder to purchase one additional common share of the Company exercisable at a price of US$0.30 per share until December 31, 2007. The Company issued to the Agent 100,000 Agents warrants exercisable at a price of US$0.30 per share until December 31, 2007.
| |      
| |       | On October 24, 2006, the Company completed a brokered private placement of 1,200,000 units at a price of US$0.175 per unit, raising gross proceeds of $236,481 (US$210,000). One unit consists of one common share and one-half share purchase warrant. One warrant entitles the holder to purchase one additional common share of the Company exercisable at a price of US$0.30 per share until June 30, 2008. The Company issued to the Agent 120,000 Agents warrants exercisable at a price of US$0.30 per share until June 30, 2008.
| |      
| |       | In connection with these two private placements, the Company incurred share issuance costs totalling $88,688: finders fees of $40,615 (US$36,000), legal and professional fees of $38,673, and the fair value of Agents warrants of $9,400 (Note 8(d)).                                                                                                                                                                                                                                                                                
| |      
| | (v)   | On April 20, 2006, the Company issued 50,000 common shares at US$0.15 per share for settlement of outstanding consulting fees in the amount of $8,541 (US$7,500) owing to the Chief Financial Officer (also a Director) of the Company.                                                                                                                                                                                                                                                                                                  
| |      

13

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BLACK DIAMOND HOLDINGS CORPORATION



|Notes to the Consolidated Financial StatementsDecember 31, 2006 and 2005(Expressed in Canadian Dollars)
|-------------------------------------------------------------------------------------------------------

NOTE 8  SHARE CAPITAL (Continued)

|c) |  | Share Purchase Warrants                                      |  |           |  |               
|-- |  | ------------------------------------------------------------ |  | --------- |  | --------------
|   |  | The Company has the following warrants outstanding:          |  |           |  |               
|   |  |                                                              |  | Number of |  | Exercise Price
|   |  |                                                              |  | Warrants  |  | Per Share     
|   |  |                                                              |  |           |  | US$           
|   |  | Balance, December 31, 2004                                   |  | -         |  | -             
|   |  | Issued During the Year (Note 8(b)(i))                        |  | 1,266,667 |  | 0.30          
|   |  |                                                              |  |           |  |               
|   |  | Balance, December 31, 2005                                   |  | 1,266,667 |  | 0.30          
|   |  | Issued During the Year (Note 8(b)(iv))                       |  |           |  |               
|   |  | Private Placement Warrants                                   |  | 2,191,776 |  | 0.30          
|   |  | Agents Warrants                                             |  | 220,000   |  | 0.30          
|   |  |                                                              |  |           |  |               
|   |  | Balance, December 31, 2006                                   |  | 3,678,443 |  | 0.30          
|   |  |                                                              |  |           |  |               
|   |  | The warrants expire between July 31, 2007 and June 30, 2008. |  |           |  |               
|d) |  | Contributed Surplus and Stock Based Compensation             |  |           |  |               
|   |  |                                                              |  | 2006      |  | 2005          
|   |  |                                                              |  | $ $      
|   |  | Balance, Beginning of the Year                               |  | -         |  | -             
|   |  | Stock-Based Compensation on Agents Warrants                 |  | 9,400     |  | -             
|   |  |                                                              |  |           |  |               
|   |  | Balance, End of the Year                                     |  | 9,400     |  | -             
|   |  |                                                              |  |           |  |               

The weighted average fair value of Agents warrants issued during the year ended December 31, 2006 was $0.04 per option. This amount was estimated on the grant date using the Black-Scholes option pricing model using the following assumptions: a risk-free interest rate of 4%; dividend yield of 0%; a stock price volatility of 78%; and an expected life of 20 months. Total stock-based compensation charged against share capital was $9,400.

Option pricing models require the input of highly subjective assumptions. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models may not necessarily provide a single reliable measure of the fair value of the Companys Agents warrants.



|NOTE 9  ACQUISITION
|--------------------

On May 23, 2005, the Company acquired all of the issued and outstanding shares of Liberty Valley Wines, LLC (Liberty Valley) from an Officer (also a shareholder) of the Company for cash consideration of US$1.00. Liberty Valley is a corporation incorporated in the State of Delaware, United States.

The acquisition has been accounted for by the purchase method and the operating results are included in the consolidated financial statements commencing from the date of the acquisition.

14

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BLACK DIAMOND HOLDINGS CORPORATION



|Notes to the Consolidated Financial StatementsDecember 31, 2006 and 2005(Expressed in Canadian Dollars)
|-------------------------------------------------------------------------------------------------------

NOTE 10  RELATED PARTY TRANSACTIONS

In addition to those transactions disclosed elsewhere in these financial statements (Notes 3, 5, 6, 7(a) and 9), the Company had the following transactions with related parties:

|   |  |                                                                    |  | 2006    |  | 2005  
|-- |  | ------------------------------------------------------------------ |  | ------- |  | ------
|   |  |                                                                    |  | $       |  | $     
|a) |  | Management fees charged by the President (also Chief               |  |         |  |       
|   |  | Executive Office and Director) and the Vice-President, both        |  |         |  |       
|   |  | major shareholders of the Company, for management,                 |  |         |  |       
|   |  | administration, supervision and company development services.      |  |         |  |       
|  
|   |  | On January 01, 2003, the Company entered into management           |  |         |  |       
|   |  | agreements with the President and the Vice-President of the        |  |         |  |       
|   |  | Company for general management and operational services.           |  |         |  |       
|   |  | Under the terms of the agreements, which were for terms of ten     |  |         |  |       
|   |  | years, the Company agreed to pay combined management fees of       |  |         |  |       
|   |  | US$72,000 per annum. Actual management fees accrued totalled       |  |         |  |       
|   |  | $69,360 in 2005 as the Officers waived receipt of the non-accrued  |  |         |  |       
|   |  | portion of the management fees.                                    |  |         |  |       
|  
|   |  | On January 01, 2006, the Company revised the January 01, 2003      |  |         |  |       
|   |  | management agreements and entered into one-year management         |  |         |  |       
|   |  | agreements with the President and the Vice-President of the        |  |         |  |       
|   |  | Company for general management and operational services.           |  |         |  |       
|   |  | Under the terms of the new agreements, the Company agreed to       |  |         |  |       
|   |  | pay combined management fees of US$120,000 per annum. On           |  |         |  |       
|   |  | January 01, 2007, the agreements were renewed for another one-     |  |         |  |       
|   |  | year term.                                                         |  | 136,116 |  | 69,360
|  
|b) |  | Consulting fees charged by a company controlled by the Chief       |  |         |  |       
|   |  | Financial Officer (also a Director) of the Company for             |  |         |  |       
|   |  | management and administration services.                            |  | 33,116  |  | 30,526
|  
|c) |  | Interest paid to a relative of the President and Vice-President of |  |         |  |       
|   |  | the Company for cash advanced to the Company (Note 7(a))           |  | 17,965  |  | 17,911
|   |  |                                                                    |  |        

All related party transactions were in the normal course of operations and were measured at the exchange value, which represented the fair value established and agreed to by the related parties.

NOTE 11  SUPPLEMENTAL CASH FLOW INFORMATION

a)    Change in Non-Cash Working Capital Accounts:

|                                         |  | 2006     |  | 2005    
|---------------------------------------- |  | -------- |  | --------
|                                         |  | $        |  | $       
|                                        
|Accounts Receivable                      |  | (5,449)  |  | (6,865) 
|Inventory                                |  | (49,710) |  | 97,765  
|Prepaid Expenses                         |  | -        |  | (270)   
|Accounts Payable and Accrued Liabilities |  | 34,507   |  | (56,318)
|                                         |  |          |  |         
|                                        
|                                         |  | (20,652) |  | 34,312  
|                                         |  |         



|15
|--

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BLACK DIAMOND HOLDINGS CORPORATION



|Notes to the Consolidated Financial StatementsDecember 31, 2006 and 2005(Expressed in Canadian Dollars)
|-------------------------------------------------------------------------------------------------------

NOTE 11  SUPPLEMENTAL CASH FLOW INFORMATION (Continued)

|b) |  | Significant Non-Cash Financing Activities:                    |  |         |  |       
|-- |  | ------------------------------------------------------------- |  | ------- |  | ------
|   |  |                                                               |  | 2006    |  | 2005  
|   |  |                                                               |  | $       |  | $     
|  
|   |  | Issuance of Shares for Settlement of Accounts Payable         |  | 8,541   |  | 8,824 
|   |  | Issuance of Shares for Settlement of Promissory Notes Payable |  | -       |  | 31,445
|   |  | Stock Based Compensation on Agents Warrants                  |  | (9,400) |  | -     
|   |  |                                                               |  |         |  |       
|  
|   |  |                                                               |  | (859)   |  | 40,269
|   |  |                                                               |  |         |  |       
|  
|c) |  | Other Information:                                            |  |         |  |       
|  
|   |  | Interest Paid                                                 |  | 18,379  |  | 21,008
|   |  |                                                               |  |         |  |       



| | NOTE 12  INCOME TAXES
| | ----------------------

|a) | Provision for Income Taxes                                                                      
|-- | ------------------------------------------------------------------------------------------------
|  
|   | A reconciliation of the statutory tax rates with the Companys income tax expense is as follows:
|  

|                                                          |  | 2006      |  | 2005     
|--------------------------------------------------------- |  | --------- |  | ---------
|Combined Canadian federal and provincial income tax rates |  | 17.62%    |  | 17.62%   
|                                                          |  |           |  |          
|                                                          |  | $         |  | $        
|Loss before income taxes                                  |  | (440,672) |  | (273,567)
|                                                          |  |           |  |          
|Expected income tax recovery                              |  | (77,646)  |  | (48,203) 
|Items not deductible for tax purposes                     |  | 474       |  | 451      
|Deductible share issuance costs                           |  | (4,246)   |  | -        
|Unrecognized tax benefits                                 |  | 81,418    |  | 47,752   
|                                                          |  |           |  |          
|Total income tax expense (recovery)                       |  | -         |  | -        
|                                                          |  |           |  |          

|b) | Future Income Taxes                                                                                 
|-- | ----------------------------------------------------------------------------------------------------
|  
|   | The tax effects of significant temporary differences that give rise to future income tax assets are:
|  

|                                                          |  | 2006      |  | 2005     
|--------------------------------------------------------- |  | --------- |  | ---------
|Combined Canadian federal and provincial income tax rates |  | 17.62%    |  | 17.62%   
|                                                          |  |           |  |          
|Future income tax assets resulting from:                  |  | $         |  | $        
|Non-capital losses carry-forward                          |  | 220,210   |  | 167,635  
|Share issuance costs                                      |  | 15,533    |  | 5,808    
|Tax value of assets in excess of net book values          |  | 204       |  | 122      
|Valuation allowance                                       |  | (235,947) |  | (173,565)
|                                                          |  |           |  |          
|Net future income tax assets                              |  | -         |  | -        
|                                                          |  |           |  |          

16

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BLACK DIAMOND HOLDINGS CORPORATION



|Notes to the Consolidated Financial StatementsDecember 31, 2006 and 2005(Expressed in Canadian Dollars)
|-------------------------------------------------------------------------------------------------------

NOTE 12  INCOME TAXES (Continued)

b)      Future Income Taxes (Continued)

As at December 31, 2006, the Company and its subsidiaries have non-capital losses of approximately $1,248,592 which may be applied to reduce taxable income of future years. The non-capital losses expire as follows:

|Year |  | $        
|---- |  | ---------
|    
|2007 |  | 15,622   
|2008 |  | 205,445  
|2009 |  | 186,429  
|2010 |  | 35,936   
|2014 |  | 116,183  
|2015 |  | 278,500  
|2026 |  | 410,477  
|     |  |          
|    
|     |  | 1,248,592
|     |  |          

Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements.



|NOTE 13  SEGMENTED INFORMATION
|-------------------------------

The Company is a distributor of liquor and wine products and considers itself to be a single-segment operator.



|Geographic Segment
|------------------

Information regarding geographic segments is as follows:

|                       |  | Total  |  | Canada  |  | USA   
|---------------------- |  | ------ |  | ------- |  | ------
|                       |  |        |  |         |  |       
|                       |  | 2006   |  | 2005    |  | 2006  
|                       |  | $      |  | $       |  | $     
|Sales                  |  | 5,105  |  | 124,847 |  | 5,105 
|Inventory              |  | 64,825 |  | 15,115  |  | 13,309
|Property and Equipment |  | 2,017  |  | 2,484   |  | 2,017 
|                       |  |        |  |         |  |       



|Major customer
|--------------

Sales generated from individual customers comprising 10% or more of the Companys revenues are as follows:

|                                            |  | 2006  |  | 2005   
|------------------------------------------- |  | ----- |  | -------
|                                            |  | $     |  | $      
|                                           
|British Columbia Liquor Distribution Branch |  | 5,105 |  | 108,240
|                                            |  |      

17

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BLACK DIAMOND HOLDINGS CORPORATION



|Notes to the Consolidated Financial StatementsDecember 31, 2006 and 2005(Expressed in Canadian Dollars)
|-------------------------------------------------------------------------------------------------------

---



NOTE 14  SUBSEQUENT EVENT

On May 23, 2007, the Company completed a brokered private placement of 500,000 units at a price of US$0.225 per unit, raising gross proceeds of US$112,500. One unit consists of one common share and one share purchase warrant. One warrant entitles the holder to purchase one additional common share of the Company exercisable at a price of US$0.40 per share until May 31, 2008. The Company paid finders fees in the amount of US$11,250.

NOTE 15  DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)

The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in Canada which would not differ in all material respects from those principles that the Company would have followed had its consolidated financial statements been prepared in accordance with accounting principles generally accepted in the United States and from practices prescribed by the United States Securities and Exchange Commission. Accordingly, there were no reported differences for the Company for the years ended December 31, 2006 and 2005 which would require reconciliation from Cdn GAAP to US GAAP.

|a) | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | The Company uses the asset and liability method to account for income taxes pursuant to Section 3465 of the Canadian CICA Handbook which is substantially consistent with Statement of Financial Accounting Standards (SFAS) No. 109 Accounting for Income Taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   | As described in note 12, the Company has future income tax assets related to its Canadian operations calculated at the substantively enacted rates in Canada at December 31, 2006 and 2005 of 17.62%. For US GAAP purposes, SFAS No. 109 requires deferred tax assets to be measured at only enacted tax rates. These assets would have been reduced to $nil by a valuation allowance, which is consistent with the accounting treatment under Cdn GAAP. Accordingly, there is no difference in the consolidated financial position or results of operations reported under Cdn GAAP and US GAAP for the years ended December 31, 2006 and 2005.                                                                                                                                                                                                                                    
|  
|b) | Comprehensive Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   | SFAS No. 130 Reporting Comprehensive Income, establishes standards for the reporting and display of comprehensive income and loss and its components including revenues, expenses, gains and losses in a full set of general purpose financial statements. Comprehensive income includes all changes in equity other than those resulting from investments by owners and distributions to owners.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   | Comprehensive income includes two components: (a) net income and (b) other comprehensive income which includes items that are recorded as an element of shareholders equity but are excluded from net income as these transactions or events are attributable to changes from non-owner sources. These items include minimum pension liability adjustments, holding gains and losses on certain investments, gains and losses on derivative instruments and foreign currency gains and losses related to self-sustaining foreign operations. Canadian accounting standards relating to comprehensive income are not effective until fiscal years beginning on or after October 1, 2006. The Company has determined, however, that there are no other comprehensive income items for the years ended December 31, 2006 and 2005 that affect these consolidated financial statements.
|  

18

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BLACK DIAMOND HOLDINGS CORPORATION



|Notes to the Consolidated Financial StatementsDecember 31, 2006 and 2005(Expressed in Canadian Dollars)
|-------------------------------------------------------------------------------------------------------

NOTE 15  DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) (Continued)

|c) | Recent United States Accounting Pronouncements
|-- | ----------------------------------------------
|  
|   | (i)                                           
|  
|   |                                               
|  
|   | (ii)                                          
|  
|   |                                               
|  
|   | (iii)                                         
|  
|   |                                               
|  
|   | (iv)                                          
|  
|   |                                               
|  

19

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BLACK DIAMOND HOLDINGS CORPORATION



|Notes to the Consolidated Financial StatementsDecember 31, 2006 and 2005(Expressed in Canadian Dollars)
|-------------------------------------------------------------------------------------------------------

NOTE 15  DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) (Continued)

|c) | Recent United States Accounting Pronouncements (Continued)
|-- | ----------------------------------------------------------
|  
|   | (v)                                                       
|  
|   |                                                           
|  
|   | (vi)                                                      
|  
|   |                                                           
|  
|   | (vii)                                                     
|  
|   |                                                           
|  
|   | (viii)                                                    
|  
|   |                                                           
|  

20

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BLACK DIAMOND HOLDINGS CORPORATION



|Notes to the Consolidated Financial StatementsDecember 31, 2006 and 2005(Expressed in Canadian Dollars)
|-------------------------------------------------------------------------------------------------------

NOTE 15  DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) (Continued)

|c) | Recent United States Accounting Pronouncements (Continued)
|-- | ----------------------------------------------------------
|  
|   | (ix)                                                      
|  
|   |                                                           
|  

21

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