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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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(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.
|- | ------------------------------------------------------------------------------------------------------------------------------



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



Commission File Number: 333-74589



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NATIONAL WINE & SPIRITS, INC.

(Exact name of registrant as specified in
its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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)



(317) 636-6092

(Registrants telephone number, including area code)



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



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



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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 an accelerated filer (as defined in Rule 12b-2 of the 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 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 8, 2005 was 5,330,521, of which 104,520 were voting stock.



Documents Incorporated by Reference: None



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TABLE OF CONTENTS



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



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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 59% market share and Michigan with 51% market share. NWS market share in Illinois is estimated at approximately 10% 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 to operate. The United States wholesale wine and spirits market was approximately $33 billion during 2004 and is projected to be approximately $34 billion for 2005 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.



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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, NWS total revenue was $553.7 million, which was a $13.0 million increase from the prior fiscal year, primarily due to the growth in the Companys product sales segment.
Spirits and wine case volume for the Companys products sales segment and product sales revenue during the most recent fiscal year grew by 3.0% and 2.1%, respectively. The Companys growth was consistent with the beverage alcohol industry
during calendar 2004, when according to industry reports, consumption for distilled spirits increased 4.1% and wine consumption increased 3.4% in the United States. Consumers spent $9.2 billion more on spirits, wine, and beer products than the
previous year and the growth in spirits consumption was the largest annual increase in more than twenty years according to industry reports.



Recent Developments



On June 1, 2005, it was announced that the Company had reached an agreement in principle to acquire certain assets of Johnson
Brothers wine wholesaler business in Illinois. The final terms and conditions are being finalized by the parties. As a result of the proposed acquisition, which is anticipated to close by August 1, 2005, the Company expects to add the E&J
Gallo Winery brands to the Companys operations in Illinois under the Union Beverage company name.



The Supreme Court of the United States, in an opinion dated May 16, 2005, invalidated decisions in Michigan and New York which had the
effect of discriminating between in and out of state wineries and limiting interstate commerce. The majority opinion affirmed the broad power of the states to regulate beverage alcohol trade consistent with the Twenty First Amendment including the
legitimacy of the three-tier system.



Industry Overview



The United States alcohol-based beverage
industry generated total retail sales of approximately $154.6 billion during calendar 2004 versus $145.4 billion in calendar 2003, an increase of 6.3%. Sales of wine and spirits, in which NWS primarily competes, accounted for approximately 15% and
32%, respectively, or $72.4 billion of total retail beverage alcohol sales in 2004. The growth in the retail sales were primarily attributable to the premium and high end brands which included Canadian whisky, flavored and imported vodkas, rums, and
tequilas which rebounded after a decline during 2001 due to product shortages. The wine consumption increase was primarily attributable to imported wine, including the Australian Yellow Tail brand which is represented by the Company in its Illinois
business. The increase in the import category during 2004 was responsible for approximately half the increase in wine consumption while accounting for one quarter of the wine case sales in the United States, according to industry surveys. The
Company believes the current trend of consumer preference for 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



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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    | %

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|(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.



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



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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 2005, 2004 and 2003 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 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 2004 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 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 2005 from suppliers with which the Company entered into such agreements, and brands for which the Company owns the distribution
rights:



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



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 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%                                            |  |                                                                                                               
|                                                   |  |                                                  |  |                                                                                                               



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 years has been less than 0.10% of revenue.



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



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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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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 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 and Romano). None of the ten largest United
States distributors competes with NWS in Michigan. 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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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 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.



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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##### Table of Contents

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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##### Table of Contents

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 |  | 351,00076,9005,8002,4005,5007,9003,50015,00019,500 |  | Master Warehouse/Office Hyper-Terminal/Office Cross-Docking Facility Office Office Office Office - Leased to Perrier Warehouse-Leased to Perrier Office
|              |  |             |  |                                                                                                            | 
|              |  | Connecticut |  | Stamford                                                                                                   |  | Leased                                          |  | 5,700                                              |  | Office                                                                                                                                                 
|              |  |             |  |                                                                                                            | 
|              |  | Illinois    |  | Chicago Chicago Champaign Peoria Collinsville Rockford                                                     |  | OwnedLeasedLeasedLeasedLeasedLeased             |  | 650,0001,84050,00056,00014,2005,000                |  | Master Warehouse/Office Leased Office Property Hyper-Terminal/Office Cross-Docking Facility/Office Cross-Docking Facility/Office Office                
|              |  |             |  |                                                                                                            | 
|All other     |  |             |  |                                                                                                            |  |                                                 |  |                                                    |  |                                                                                                                                                        
|              |  |             |  |                                                                                                            | 
|              |  | Michigan    |  | Detroit (Brownstown) Grand Rapids Escanaba Saginaw Traverse City                                           |  | LeasedLeasedLeasedLeasedLeased                  |  | 238,00097,0007,5001,0005,000                       |  | Master Warehouse/Office Hyper-Terminal/Office Cross-Docking Facility/Office Cross-Docking Facility Cross-Docking Facility                              



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



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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##### Table of Contents

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



On October 8, 2004, the shareholders of National Wine & Spirits, Inc. voted unanimously, via written consent, to remove J. Smoke Wallin from the Board of Directors, effective October 8, 2004.



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##### Table of Contents

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, 2005, 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 and 2004, the amounts of the dividends totaled $0.2 million and $6.0
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 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 |        
|Statement of Operations Data:                |  |                                                                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net product sales                            |  | $                                                                                        | 524,399 |   |      | $ | 513,615 |      |  | $ | 689,859 |   |  | $    | 659,594 |   |  | $ | 636,879 |  
|Distribution fees                            |  |                                                                                          | 29,268  |   |      |   | 27,045  |      |  |   | 22,999  |   |  |      | 21,963  |   |  |   | 21,573  |  
|                                             |  |                                                                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total revenue                                |  |                                                                                          | 553,667 |   |      |   | 540,660 |      |  |   | 712,858 |   |  |      | 681,557 |   |  |   | 658,452 |  
|                                             |  |                                                                                          |         |   |     
|Cost of products sold                        |  |                                                                                          | 428,576 |   |      |   | 421,468 |      |  |   | 552,833 |   |  |      | 530,910 |   |  |   | 513,928 |  
|                                             |  |                                                                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Gross profit                                 |  |                                                                                          | 125,091 |   |      |   | 119,192 |      |  |   | 160,025 |   |  |      | 150,647 |   |  |   | 144,524 |  
|Selling, general and administrative expenses |  |                                                                                          | 112,988 |   |      |   | 120,270 |      |  |   | 144,550 |   |  |      | 131,025 |   |  |   | 125,034 |  
|                                             |  |                                                                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Income (loss) from operations                |  |                                                                                          | 12,103  |   |      |   | (1,078  | )    |  |   | 15,475  |   |  |      | 19,622  |   |  |   | 19,490  |  
|Interest expense                             |  |                                                                                          | (9,535  | ) |      |   | (8,826  | )    |  |   | (9,308  | ) |  |      | (11,934 | ) |  |   | (13,214 | )
|Other income (expense)(1)                    |  |                                                                                          | 2,871   |   |      |   | 780     |      |  |   | 9,622   |   |  |      | (228    | ) |  |   | 7,849   |  
|                                             |  |                                                                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income (loss)                            |  | $                                                                                        | 5,439   |   |      | $ | (9,124  | )    |  | $ | 15,789  |   |  | $    | 7,460   |   |  | $ | 14,125  |  
|                                             |  |                                                                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Other Financial Data:                        |  |                                                                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|EBITDA (2)                                   |  | $                                                                                        | 25,525  |   |      | $ | 11,778  |      |  | $ | 34,704  |   |  | $    | 27,669  |   |  | $ | 36,229  |  
|Net income (loss) margin                     |  |                                                                                          | 1.0     | % |      |   | (1.7    | )%   |  |   | 2.2     | % |  |      | 1.1     | % |  |   | 2.1     | %
|Cash provided by operating activities        |  | $                                                                                        | 12,054  |   |      | $ | 16,005  |      |  | $ | 15,185  |   |  | $    | 22,030  |   |  | $ | 7,357   |  
|Cash provided (used) by investing activities |  |                                                                                          | (3,133  | ) |      |   | 64      |      |  |   | (2,489  | ) |  |      | (5,307  | ) |  |   | 2,717   |  
|Cash used by financing activities            |  |                                                                                          | (7,430  | ) |      |   | (20,423 | )    |  |   | (18,611 | ) |  |      | (9,082  | ) |  |   | (9,539  | )
|Depreciation and amortization                |  |                                                                                          | 10,551  |   |      |   | 12,076  |      |  |   | 9,607   |   |  |      | 8,275   |   |  |   | 8,890   |  
|Capital expenditures (3)                     |  | $                                                                                        | 1,211   |   |      | $ | 985     |      |  | $ | 2,337   |   |  | $    | 4,332   |   |  | $ | 6,083   |  
|Ratio of earnings to fixed charges           |  |                                                                                          | 1.4x    |   |      |   | 0.1x    |      |  |   | 2.2x    |   |  |      | 1.6x    |   |  |   | 2.0x    |  
|Operating Statistics:                        |  |                                                                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Product Sales Operations                     |  |                                                                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Gross profit margin                          |  |                                                                                          | 18.3    | % |      |   | 17.9    | %    |  |   | 19.9    | % |  |      | 19.5    | % |  |   | 19.3    | %
|Cases shipped (spirits and wine)             |  |                                                                                          | 4,630   |   |      |   | 4,496   |      |  |   | 6,295   |   |  |      | 6,351   |   |  |   | 6,425   |  
|Fee Operations                               |  |                                                                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Cases shipped (spirits)                      |  |                                                                                          | 2,907   |   |      |   | 2,912   |      |  |   | 2,549   |   |  |      | 2,721   |   |  |   | 2,684   |  
|Distribution fee per case as of March 31     |  | $                                                                                        | 7.78    |   |      | $ | 7.78    |      |  | $ | 7.60    |   |  | $    | 7.48    |   |  | $ | 7.32    |  
|                                             | 
|                                             |  | As of March 31 (in thousands)                                                            |        
|                                             |  | 2005                                                                                     |         |   | 2004 |   |         | 2003 |  |   | 2002    |   |  | 2001 |        
|Balance Sheet Data:                          |  |                                                                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Cash                                         |  | $                                                                                        | 2,957   |   |      | $ | 1,466   |      |  | $ | 5,820   |   |  | $    | 11,735  |   |  | $ | 4,094   |  
|Total assets                                 |  |                                                                                          | 193,789 |   |      |   | 187,100 |      |  |   | 203,814 |   |  |      | 201,405 |   |  |   | 192,290 |  
|Total debt                                   |  |                                                                                          | 83,157  |   |      |   | 86,357  |      |  |   | 98,303  |   |  |      | 109,805 |   |  |   | 110,571 |  
|Total long-term liabilities                  |  |                                                                                          | 107,855 |   |      |   | 108,475 |      |  |   | 110,676 |   |  |      | 111,678 |   |  |   | 110,487 |  
|Stockholders equity                         |  |                                                                                          | 17,738  |   |      |   | 12,593  |      |  |   | 27,854  |   |  |      | 23,095  |   |  |   | 24,669  |  



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##### Table of Contents

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 through 2005:



|                                                                                                                    |  |                                    |        |      |   |        |      |  |      |        |      |   |        |  |   |       
|------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------- | ------ | ---- | - | ------ | ---- |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                                                                                                                    |  | Year Ended March 31 (in thousands)
|                                                                                                                    |  | 2005                               |        | 2004 |   |        | 2003 |  | 2002 |        | 2001
|Net Income (loss)                                                                                                   |  | $                                  | 5,439  |      | $ | (9,124 | )    |  | $    | 15,789 |      | $ | 7,460  |  | $ | 14,125
|Interest expense                                                                                                    |  |                                    | 9,535  |      |   | 8,826  |      |  |      | 9,308  |      |   | 11,934 |  |   | 13,214
|Depreciation                                                                                                        |  |                                    | 4,590  |      |   | 5,947  |      |  |      | 7,188  |      |   | 6,561  |  |   | 7,046 
|Amortization                                                                                                        |  |                                    | 5,961  |      |   | 6,129  |      |  |      | 2,419  |      |   | 1,714  |  |   | 1,844 
|                                                                                                                    |  |                                    |        |      |   |        |      |  |      |        |      |   |        |  |   |       
|EBITDA                                                                                                              |  | $                                  | 25,525 |      | $ | 11,778 |      |  | $    | 34,704 |      | $ | 27,669 |  | $ | 36,229
|                                                                                                                    |  |                                    |        |      |   |        |      |  |      |        |      |   |        |  |   |       
|                                                                                                                   
|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 
|                                                                                                                    |  |                                    |        |      |   |        |      |  |      |        |      |   |        |  |   |       



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##### Table of Contents

Item 7. Managements Discussion And Analysis Of Financial Condition And Results Of 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 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



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##### Table of Contents

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 through 2005:



|                  |  |                                    |        |      |   |        |      |  |      |        |      |   |        |  |   |       
|----------------- |  | ---------------------------------- | ------ | ---- | - | ------ | ---- |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                  |  | Year Ended March 31 (in thousands)
|                  |  | 2005                               |        | 2004 |   |        | 2003 |  | 2002 |        | 2001
|Net Income (loss) |  | $                                  | 5,439  |      | $ | (9,124 | )    |  | $    | 15,789 |      | $ | 7,460  |  | $ | 14,125
|Interest expense  |  |                                    | 9,535  |      |   | 8,826  |      |  |      | 9,308  |      |   | 11,934 |  |   | 13,214
|Depreciation      |  |                                    | 4,590  |      |   | 5,947  |      |  |      | 7,188  |      |   | 6,561  |  |   | 7,046 
|Amortization      |  |                                    | 5,961  |      |   | 6,129  |      |  |      | 2,419  |      |   | 1,714  |  |   | 1,844 
|                  |  |                                    |        |      |   |        |      |  |      |        |      |   |        |  |   |       
|EBITDA            |  | $                                  | 25,525 |      | $ | 11,778 |      |  | $    | 34,704 |      | $ | 27,669 |  | $ | 36,229
|                  |  |                                    |        |      |   |        |      |  |      |        |      |   |        |  |   |       



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



Executive Summary



The Companys net income and EBITDA increased from the prior year due to greater gross profit on spirits case volume, reduced marketing and administration expense, and increased management
fees. Net income and EBITDA increased to $5.4 million and $25.5 million, respectively, for the year ended March 31, 2005. The Company was able to increase net income during the current fiscal year by $14.6 million primarily from increased gross
profit of $5.9 million, the strategic alliance with Glazers Distributors of Illinois, Inc. (Glazer) in Illinois which resulted in greater management fees (as described in footnote 15) of $6.1 million, and reductions in
administrative expenses of $2.3 million, as compared to the prior fiscal year.



The Companys total fiscal 2005 revenue increased by $13.0 million primarily due to increased product sales and distribution fees of $10.8 million and $2.2 million, respectively. Gross profit from product sales
for the fiscal year ended March 31, 2005 increased by $3.7 million from the prior fiscal year primarily due to increased spirits volume of $26.4 million and price increases put in place during the fiscal year. An increase in the distribution fees
during the current fiscal year of $2.2 million, as compared to the prior fiscal year, were primarily the result of greater brokerage commissions of $1.4 million and an increase in the per-case delivery fee from $7.60 to $7.78 in February 2004.



The Companys 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.



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##### Table of Contents

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, 2004 and 2003:



|                            |  |                                          |  |                |    |  |        |  |                |    |  |       
|--------------------------- |  | ---------------------------------------- |  | -------------- | -- |  | ------ |  | -------------- | -- |  | ------
|                            |  | Year Ended March 31 (Cases in thousands)
|                            |  | 2005                                     |  | 2004           |    |  | 2003  
|                            |  | Cases                                    |  | Percent Change |    |  | Cases  |  | Percent Change |    |  | Cases 
|Wine (product sales)        |  | 2,307                                    |  | 0.1            | %  |  | 2,304  |  | (21.5          | )% |  | 2,934 
|Spirits (product sales)     |  | 2,323                                    |  | 6.0            | %  |  | 2,192  |  | (34.8          | )% |  | 3,361 
|Spirits (distribution fees) |  | 2,907                                    |  | (0.2           | )% |  | 2,912  |  | 14.2           | %  |  | 2,549 
|                            |  |                                          |  |                |    |  |        |  |                |    |  |       
|Total wine and spirits      |  | 7,537                                    |  | 1.7            | %  |  | 7,408  |  | (16.2          | )% |  | 8,844 
|                            |  |                                          |  |                |   
|Other                       |  | 8,316                                    |  | (9.0           | )% |  | 9,139  |  | 2.3            | %  |  | 8,933 
|                            |  |                                          |  |                |    |  |        |  |                |    |  |       
|Total                       |  | 15,853                                   |  | (4.2           | )% |  | 16,547 |  | (6.9           | )% |  | 17,777
|                            |  |                                          |  |                |    |  |        |  |                |    |  |       



USBs results are included in the other category for the current and prior years.



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



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



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.



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



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 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.



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.



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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 2004 Compared with Fiscal 2003



Revenue



Total revenue decreased $172.2 million to $540.7 million as a result of decreased product sales revenue, partially offset by an increase
in fee revenue. Total product sales revenue decreased $176.2 million to $513.6 million for the year ended March 31, 2004. The decrease in product sales segment revenue for the year ended March 31, 2004 as compared to the prior years annual
period was primarily due to the reduced sales volume in the Companys Illinois market. Spirits, wine, and other product sales in all of the Companys other operations were up due to growth of existing brands and the addition of the Diageo
and S&S brands. Product sales revenue in the other operations increased approximately $30 million from the prior annual period due to acquisition or expansion of the Diageo and S&S brands, as well as increased sales of existing brands.
Product sales revenue decreased approximately $206 million from the prior annual period due to the termination of certain brand distribution rights in the product sales segment. The addition of the S&S, Fortune, and expansion of the Diageo
brands in the fee operations segment were primarily responsible for the $4.0 million, or 17.6%, increase from the prior years annual period.



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



Gross Profit



Gross profit decreased $40.8 million to $119.2 million as a
result of decreased product sales, partially offset by an increase in distribution fees. Gross margin on product sales decreased $44.9 million for the year ended March 31, 2004 as compared 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, 2004, as compared to the prior years annual period. Gross profit percentage on product sales of 17.9% was below the
prior years comparable period of 19.9% primarily due to increased brand support by USB of approximately $5.1 million, amortization of distribution rights of approximately $3.6 million, and competitive pricing in the Companys Illinois
operations due to the reduced brand representation. Incremental gross margin from the fee operations segment of $4.0 million was primarily due to the addition of the S&S, Fortune and increased volume of the Diageo and Allied Domecq brands.



Operating Expenses



Operating expenses for the product sales segment decreased
$26.8 million to $95.1 million, or 22.0% for the year ended March 31, 2004 as compared to the prior years annual period. Management fees received from Glazer in the Companys Illinois business, staffing adjustments, and cost reduction
initiatives were primarily responsible for the reduction in product sales operating expenses during the year ended March 31, 2004 as compared to the prior years annual period. Operating expenses in the Companys fee operations increased
by approximately $2.5 million due to the increased case volume over the year ended March 31, 2004 as compared to the prior years annual period.



Warehouse and delivery expenses in the product sales segment were reduced by $3.6 million during the year ended March 31, 2004 as compared
to the prior annual period, due to reductions in personnel and case volume in the Companys Illinois business. Warehouse and delivery expenses for the Companys fee operations increased by approximately $1.0 million, primarily from
increased labor expense, equipment repair and supplies that resulted from the increased case volume.



Selling expenses for the product sales segment decreased $9.2 million from the prior years annual period, primarily as a result of significant cost reductions in the Companys Illinois
operation. The Companys Illinois expense reduction for sales salaries, commissions, travel, entertainment, and promotion costs of approximately $9.7 million was the result of the reduced sales volume. Sales salaries and associated travel
expenses for the fee operations increased by approximately $1.4 million due to the addition of the S&S brands and expansion of the Fortune and Diageo brokerage operations.



Administrative expenses 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.



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



Management fees from Glazer as part of the
management services agreement were $12.6 million for the year ended March 31, 2004. These payments were $11.7 million greater than the fees during the prior fiscal year because the agreement was put in place near the end of 2003.



Loss From Operations



Operating income for the product sales segment declined
$18.1 million for the year ended March 31, 2004, to an operating loss of $3.0 million, versus $15.1 million of operating income for the prior annual period. The decline in revenue and gross profit from the Companys Illinois division, and the
increased brand promotion costs in the Companys USB division, were primarily responsible for the decrease in operating income. Fee operations experienced an increase of $1.5 million in operating income during the year ended March 31, 2004 as
compared to the prior annual period, primarily due to the increased fee revenue of $4.0 million with an operating expense increase of $2.5 million. The Company was able to achieve fee revenue increases prior to the addition of the incremental sales
staffing and brand promotion costs associated with the newly acquired brands.



Interest Expense



Interest expense 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.



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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 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.



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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.



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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:



|                                |  |                        |            |                  |            |           |            |           |   |                   |  |          
|------------------------------- |  | ---------------------- | ---------- | ---------------- | ---------- | --------- | ---------- | --------- | - | ----------------- |  | ---------
|                                |  | Payments Due by Period
|Contractual Obligations         |  | Total                  |            | Less than 1 year |            | 1-3 years |            | 3-5 years |   | More than 5 years
|Long-term debt obligations(2)   |  | $                      | 83,157,000 |                  |           |           |           |           | $ | 83,157,000        |  |         
|Operating lease obligations     |  |                        | 11,081,000 |                  | 3,980,000  |           | 5,121,000  |           |   | 1,443,000         |  | 537,000  
|Distribution rights obligations |  |                        | 28,610,000 |                  | 4,729,000  |           | 11,754,000 |           |   | 10,802,000        |  | 1,325,000
|Purchase obligations            |  |                        | 58,093,000 |                  | 58,093,000 |           |           |           |   |                  |  |         
|Defined benefit plan funding(1) |  |                        | 1,100,000  |                  | 1,100,000  |           |           |           |   |                  |  |         
|Brand promotion(3)              |  |                        | 7,700,000  |                  | 3,083,000  |           | 2,325,000  |           |   | 2,200,000         |  | 92,000   

---

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

|(2) | The interest component related to long-term debt obligations are not included in the table due to the variable nature of certain debt instruments the Company
holds.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



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



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



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



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. 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.



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



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 from vendors as a result of purchasing and promoting
their products. Vendor allowances provided as a reimbursement of specific, incremental, and identifiable costs incurred to promote a vendors products are recorded as an expense reduction when the cost is incurred. All other vendor allowances,
including vendor allowances received in excess of the Companys cost to promote a vendors product, or vendor allowances directly related to purchase of a vendors product are initially deferred. The deferred amounts are then recorded
as a reduction of cost of good sold when the related product is sold.



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 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



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



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 9.5%. However, the plan assets have lost an average of 2.9% per year during the last four years. The investment return on plan assets has been positive for the previous two years, but
should the negative 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, 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 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 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.



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.



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##### Table of Contents

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



In November 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 is currently assessing, but has not yet determined the effect of SFAS No. 151 on its financial position, results of operations and cash flows.



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Item 7A. Quantitative and Qualitative Disclosures About Market Risk



Interest Rate Risk



The Company uses long-term debt as a primary source of capital in its business. The following table presents 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, 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 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.



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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, Inc. 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 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 and 2004 and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2005, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial statement schedule, 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 14, 2005



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##### Table of Contents

National Wine & Spirits, Inc.

Consolidated Balance Sheets



|                                                                                                              |  |                |             |   |      |   |             |  
|------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ---- | - | ----------- | -
|                                                                                                              |  | As of March 31 |            
|                                                                                                              |  | 2005           |             |   | 2004 |  
|Assets                                                                                                        |  |                |             |   |      |   |             |  
|Current assets:                                                                                               |  |                |             |   |      |   |             |  
|Cash and cash equivalents                                                                                     |  | $              | 2,957,000   |   |      | $ | 1,466,000   |  
|Accounts receivable:                                                                                          |  |                |             |   |      |   |             |  
|Trade, less allowance for doubtful accounts of $761,000 and $1,081,000                                        |  |                | 28,558,000  |   |      |   | 25,427,000  |  
|Vendor, less allowance for doubtful accounts of $250,000 and $125,000                                         |  |                | 3,754,000   |   |      |   | 3,745,000   |  
|Inventory                                                                                                     |  |                | 80,568,000  |   |      |   | 80,196,000  |  
|Prepaid expenses and other current assets                                                                     |  |                | 4,997,000   |   |      |   | 4,493,000   |  
|                                                                                                              |  |                |             |   |      |   |             |  
|Total current assets                                                                                          |  |                | 120,834,000 |   |      |   | 115,327,000 |  
|                                                                                                              |  |               
|Property and equipment, net                                                                                   |  |                | 27,691,000  |   |      |   | 31,484,000  |  
|Other assets:                                                                                                 |  |                |             |   |      |   |             |  
|Notes receivable, less reserve of $0 and $221,000                                                             |  |                |            |   |      |   | 197,000     |  
|Cash surrender value of life insurance                                                                        |  |                | 4,892,000   |   |      |   | 4,366,000   |  
|Investment in Commonwealth Wine & Spirits, LLC                                                                |  |                | 5,284,000   |   |      |   | 5,593,000   |  
|Intangible assets, net of amortization                                                                        |  |                | 32,681,000  |   |      |   | 27,646,000  |  
|Goodwill                                                                                                      |  |                | 1,246,000   |   |      |   | 1,246,000   |  
|Deferred pension costs                                                                                        |  |                | 569,000     |   |      |   | 642,000     |  
|Deposits and other                                                                                            |  |                | 592,000     |   |      |   | 599,000     |  
|                                                                                                              |  |                |             |   |      |   |             |  
|Total other assets                                                                                            |  |                | 45,264,000  |   |      |   | 40,289,000  |  
|                                                                                                              |  |                |             |   |      |   |             |  
|Total assets                                                                                                  |  | $              | 193,789,000 |   |      | $ | 187,100,000 |  
|                                                                                                              |  |                |             |   |      |   |             |  
|Liabilities And Stockholders Equity                                                                          |  |                |             |   |      |   |             |  
|Current liabilities:                                                                                          |  |                |             |   |      |   |             |  
|Accounts payable                                                                                              |  | $              | 39,851,000  |   |      | $ | 40,503,000  |  
|Outstanding checks in excess of bank balance                                                                  |  |                |            |   |      |   | 91,000      |  
|Accrued payroll and payroll taxes                                                                             |  |                | 8,837,000   |   |      |   | 7,018,000   |  
|Excise taxes payable                                                                                          |  |                | 4,286,000   |   |      |   | 4,813,000   |  
|Current portion of distribution rights obligations                                                            |  |                | 5,136,000   |   |      |   | 4,115,000   |  
|Other accrued expenses                                                                                        |  |                | 10,086,000  |   |      |   | 9,492,000   |  
|                                                                                                              |  |                |             |   |      |   |             |  
|Total current liabilities                                                                                     |  |                | 68,196,000  |   |      |   | 66,032,000  |  
|                                                                                                              |  |               
|Deferred pension liability                                                                                    |  |                | 3,073,000   |   |      |   | 3,061,000   |  
|Distribution rights obligations                                                                               |  |                | 21,625,000  |   |      |   | 19,057,000  |  
|Long-term debt                                                                                                |  |                | 83,157,000  |   |      |   | 86,357,000  |  
|                                                                                                              |  |                |             |   |      |   |             |  
|Total liabilities                                                                                             |  |                | 176,051,000 |   |      |   | 174,507,000 |  
|                                                                                                              |  |               
|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                                                                                           |  |                | (4,822,000  | ) |      |   | (10,051,000 | )
|Accumulated other comprehensive loss-unrealized net pension loss                                              |  |                | (2,503,000  | ) |      |   | (2,419,000  | )
|                                                                                                              |  |                |             |   |      |   |             |  
|Total stockholders equity                                                                                    |  |                | 17,738,000  |   |      |   | 12,593,000  |  
|                                                                                                              |  |                |             |   |      |   |             |  
|Total liabilities and stockholders equity                                                                    |  | $              | 193,789,000 |   |      | $ | 187,100,000 |  
|                                                                                                              |  |                |             |   |      |   |             |  



See accompanying
notes.



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##### Table of Contents

National Wine & Spirits, Inc.

Consolidated Statements of Operations



|                                                     |  |                     |             |   |      |   |             |      |  |   |             |  
|---------------------------------------------------- |  | ------------------- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                     |  | Year Ended March 31 |            
|                                                     |  | 2005                |             |   | 2004 |   |             | 2003 | 
|Net product sales                                    |  | $                   | 524,399,000 |   |      | $ | 513,615,000 |      |  | $ | 689,859,000 |  
|Distribution fees                                    |  |                     | 29,268,000  |   |      |   | 27,045,000  |      |  |   | 22,999,000  |  
|                                                     |  |                     |             |   |      |   |             |      |  |   |             |  
|Total revenue                                        |  |                     | 553,667,000 |   |      |   | 540,660,000 |      |  |   | 712,858,000 |  
|                                                     |  |                     |            
|Cost of products sold                                |  |                     | 428,576,000 |   |      |   | 421,468,000 |      |  |   | 552,833,000 |  
|                                                     |  |                     |             |   |      |   |             |      |  |   |             |  
|Gross profit                                         |  |                     | 125,091,000 |   |      |   | 119,192,000 |      |  |   | 160,025,000 |  
|                                                     |  |                     |            
|Selling, general and administrative expenses:        |  |                     |             |   |      |   |             |      |  |   |             |  
|Warehouse and delivery                               |  |                     | 37,196,000  |   |      |   | 37,147,000  |      |  |   | 39,833,000  |  
|Selling                                              |  |                     | 50,688,000  |   |      |   | 49,640,000  |      |  |   | 57,452,000  |  
|Administrative                                       |  |                     | 43,847,000  |   |      |   | 46,117,000  |      |  |   | 48,156,000  |  
|Management fees                                      |  |                     | (18,743,000 | ) |      |   | (12,634,000 | )    |  |   | (891,000    | )
|                                                     |  |                     |             |   |      |   |             |      |  |   |             |  
|                                                     |  |                     | 112,988,000 |   |      |   | 120,270,000 |      |  |   | 144,550,000 |  
|Income (loss) from operations                        |  |                     | 12,103,000  |   |      |   | (1,078,000  | )    |  |   | 15,475,000  |  
|                                                     |  |                     |            
|Interest expense:                                    |  |                     |             |   |      |   |             |      |  |   |             |  
|Related parties                                      |  |                     | (203,000    | ) |      |   | (176,000    | )    |  |   | (197,000    | )
|Third parties                                        |  |                     | (9,440,000  | ) |      |   | (9,366,000  | )    |  |   | (11,110,000 | )
|Gain from repurchase of long term debt               |  |                     | 108,000     |   |      |   | 716,000     |      |  |   | 1,999,000   |  
|                                                     |  |                     |             |   |      |   |             |      |  |   |             |  
|                                                     |  |                     | (9,535,000  | ) |      |   | (8,826,000  | )    |  |   | (9,308,000  | )
|                                                     |  |                     |            
|Other income (expense):                              |  |                     |             |   |      |   |             |      |  |   |             |  
|Arbitration award and vendor settlement income       |  |                     | 2,263,000   |   |      |   |            |      |  |   | 9,200,000   |  
|Interest income                                      |  |                     | 3,000       |   |      |   | 21,000      |      |  |   | 152,000     |  
|Rental and other income                              |  |                     | 67,000      |   |      |   | 17,000      |      |  |   | 118,000     |  
|Equity in income of Commonwealth Wine & Spirits, LLC |  |                     | 538,000     |   |      |   | 742,000     |      |  |   | 312,000     |  
|Equity in losses of eSkye Solutions, Inc.            |  |                     |            |   |      |   |            |      |  |   | (160,000    | )
|                                                     |  |                     |             |   |      |   |             |      |  |   |             |  
|                                                     |  |                     | 2,871,000   |   |      |   | 780,000     |      |  |   | 9,622,000   |  
|                                                     |  |                     |            
|Net income (loss)                                    |  | $                   | 5,439,000   |   |      | $ | (9,124,000  | )    |  | $ | 15,789,000  |  
|                                                     |  |                     |             |   |      |   |             |      |  |   |             |  



See accompanying
notes.



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##### Table of Contents

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 |  
|                              |  |                             |       |                            |   |                                        
|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 | )
|                              |  |                             |       |                            |   |                                        
|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    | )
|                              |  |                             |       |                            |   |                                         |  |   |                                      |  |   |                            |   |  |   |            |   |  |   |            |  
|Comprehensive income          |  |                             |       |                            |   |                                         |  |   |                                      |  |   |                            |   |  |   |            |   |  |   | 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 |  
|                              |  |                             |       |                            |   |                                         |  |   |                                      |  |   |                            |   |  |   |            |   |  |   |            |  



See accompanying
notes.



- 37 -



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##### Table of Contents

National Wine & Spirits, Inc.

Consolidated Statements of Cash Flows



|                                                                                         |  |                     |              |   |      |   |              |      |  |   |             |  
|---------------------------------------------------------------------------------------- |  | ------------------- | ------------ | - | ---- | - | ------------ | ---- |  | - | ----------- | -
|                                                                                         |  | Year Ended March 31 |             
|                                                                                         |  | 2005                |              |   | 2004 |   |              | 2003 | 
|Operating Activities:                                                                    |  |                     |              |   |      |   |              |      |  |   |             |  
|Net income (loss)                                                                        |  | $                   | 5,439,000    |   |      | $ | (9,124,000   | )    |  | $ | 15,789,000  |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                     |              |   |      |   |              |      |  |   |             |  
|Depreciation of property and equipment                                                   |  |                     | 4,590,000    |   |      |   | 5,947,000    |      |  |   | 7,188,000   |  
|Amortization of intangible assets                                                        |  |                     | 5,961,000    |   |      |   | 6,129,000    |      |  |   | 2,419,000   |  
|Equity in losses of eSkye Solutions, Inc.                                                |  |                     |             |   |      |   |             |      |  |   | 160,000     |  
|Equity in earnings of Commonwealth Wine & Spirits, LLC                                   |  |                     | (538,000     | ) |      |   | (742,000     | )    |  |   | (312,000    | )
|Provision for bad debt expense                                                           |  |                     | 193,000      |   |      |   | 547,000      |      |  |   | 329,000     |  
|Gain on repurchase of long term debt                                                     |  |                     | (108,000     | ) |      |   | (716,000     | )    |  |   | (1,999,000  | )
|(Gain) loss on sales of assets                                                           |  |                     | 11,000       |   |      |   | (270,000     | )    |  |   | (274,000    | )
|                                                                                         |  |                     |             
|Increase in cash surrender value of life insurance                                       |  |                     | (526,000     | ) |      |   | (551,000     | )    |  |   | (447,000    | )
|Changes in operating assets and liabilities                                              |  |                     |              |   |      |   |              |      |  |   |             |  
|Accounts receivable                                                                      |  |                     | (3,333,000   | ) |      |   | 13,865,000   |      |  |   | (1,970,000  | )
|Inventories                                                                              |  |                     | (372,000     | ) |      |   | 2,786,000    |      |  |   | (1,042,000  | )
|Prepaid expenses and other current assets                                                |  |                     | (504,000     | ) |      |   | (192,000     | )    |  |   | (994,000    | )
|Deposits and other                                                                       |  |                     | 7,000        |   |      |   | (4,000       | )    |  |   | (788,000    | )
|Accounts payable                                                                         |  |                     | (652,000     | ) |      |   | 742,000      |      |  |   | (1,245,000  | )
|Accrued expenses and taxes                                                               |  |                     | 1,886,000    |   |      |   | (2,503,000   | )    |  |   | (1,629,000  | )
|                                                                                         |  |                     |              |   |      |   |              |      |  |   |             |  
|Net cash and cash equivalents provided by operating activities                           |  |                     | 12,054,000   |   |      |   | 15,914,000   |      |  |   | 15,185,000  |  
|                                                                                         |  |                     |             
|Investing activities:                                                                    |  |                     |              |   |      |   |              |      |  |   |             |  
|Purchases of property and equipment                                                      |  |                     | (1,211,000   | ) |      |   | (985,000     | )    |  |   | (2,337,000  | )
|Purchases of intangible assets                                                           |  |                     | (3,519,000   | ) |      |   | (210,000     | )    |  |   | (2,170,000  | )
|Proceeds from sale of property and equipment                                             |  |                     | 453,000      |   |      |   | 106,000      |      |  |   | 365,000     |  
|Proceeds from sale of intangible assets                                                  |  |                     | 100,000      |   |      |   | 272,000      |      |  |   |            |  
|Distributions from Commonwealth Wine & Spirits, LLC                                      |  |                     | 847,000      |   |      |   | 786,000      |      |  |   | 1,286,000   |  
|Collections on notes receivable                                                          |  |                     | 197,000      |   |      |   | 95,000       |      |  |   | 367,000     |  
|                                                                                         |  |                     |              |   |      |   |              |      |  |   |             |  
|Net cash and cash equivalents provided (used) by investing activities                    |  |                     | (3,133,000   | ) |      |   | 64,000       |      |  |   | (2,489,000  | )
|                                                                                         |  |                     |             
|Financing activities:                                                                    |  |                     |              |   |      |   |              |      |  |   |             |  
|Cash provided (used) by outstanding checks in excess of bank balance                     |  |                     | (91,000      | ) |      |   | 91,000       |      |  |   |            |  
|Proceeds from line of credit borrowings                                                  |  |                     | 196,500,000  |   |      |   | 140,400,000  |      |  |   | 54,250,000  |  
|Principal payments on line of credit borrowings                                          |  |                     | (197,750,000 | ) |      |   | (141,400,000 | )    |  |   | (50,250,000 | )
|Principal payments on long-term debt, including purchases of senior notes                |  |                     | (1,842,000   | ) |      |   | (9,935,000   | )    |  |   | (15,317,000 | )
|Proceeds of borrowings from stockholder                                                  |  |                     |             |   |      |   |             |      |  |   | 197,000     |  
|Payments of distribution rights obligations                                              |  |                     | (4,037,000   | ) |      |   | (3,480,000   | )    |  |   | (529,000    | )
|Repayments on borrowings from stockholders                                               |  |                     |             |   |      |   |             |      |  |   | (175,000    | )
|Receipts on notes receivable from stockholders and others                                |  |                     |             |   |      |   |             |      |  |   | 2,628,000   |  
|Distributions to stockholders                                                            |  |                     | (210,000     | ) |      |   | (6,008,000   | )    |  |   | (9,415,000  | )
|                                                                                         |  |                     |              |   |      |   |              |      |  |   |             |  
|Net cash and cash equivalents used by financing activities                               |  |                     | (7,430,000   | ) |      |   | (20,332,000  | )    |  |   | (18,611,000 | )
|Net increase (decrease) in cash and cash equivalents                                     |  |                     | 1,491,000    |   |      |   | (4,354,000   | )    |  |   | (5,915,000  | )
|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.



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National Wine & Spirits, Inc.

Notes to Consolidated Financial Statements

March 31, 2005



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 13. 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 $77,079,000 at March 31, 2005.



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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 $6,063,000, $8,432,000 and $10,602,000 in 2005, 2004 and 2003, 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  





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##### Table of Contents

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, and there was no indication of impairment. There
was no change to goodwill during 2005 and 2004.



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.



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Net sales and distribution fees are recognized at the time product is shipped which is when title passes.
Shipping and handling charged to customers is included in Net Product Sales. For the years ended March 31, 2005, 2004, and 2003, the Company incurred delivery expenses of $15,394,000, $14,739,000 and $16,342,000, 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.



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 $12,299,000, $14,075,000 and $8,925,000 of consideration paid to customers
as a reduction of revenue in the Consolidated Statements of Operations for the years ended March 31, 2005, 2004 and 2003, 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 from vendors as a result of purchasing and promoting their products. Vendor allowances provided as a reimbursement of specific, incremental and
identifiable costs incurred to promote a vendors products are recorded as an expense reduction when the cost is incurred. All other vendor allowances, including vendor allowances received in excess of the Companys cost to promote a
vendors product, or vendor allowances directly related to purchase of a vendors product are initially deferred. The deferred amounts are then recorded as a reduction of cost of good sold when the related product is sold.



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.



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In November 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 is currently assessing, but
has not yet determined the effect of SFAS No. 151 on its financial position, results of operations and cash flows



Reclassifications



Certain amounts from prior years financial statement 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, 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 is 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.



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



|                        |  |                       |            |      |   |            |      |  |   |            |  
|----------------------- |  | --------------------- | ---------- | ---- | - | ---------- | ---- |  | - | ---------- | -
|                        |  | Years Ended March 31, |           
|                        |  | 2005                  |            | 2004 |   |            | 2003 | 
|Sales                   |  | $                     | 82,674,000 |      | $ | 81,355,000 |      |  | $ | 84,780,000 |  
|Operating income (loss) |  |                       | 2,426,000  |      |   | (2,222,000 | )    |  |   | (2,444,000 | )
|Net income (loss)       |  |                       | 1,138,000  |      |   | (2,020,000 | )    |  |   | (134,000   | )



|                        |  |           |            |      |   |           
|----------------------- |  | --------- | ---------- | ---- | - | ----------
|                        |  | March 31,
|                        |  | 2005      |            | 2004
|Current assets          |  | $         | 17,576,000 |      | $ | 19,529,000
|Non-current assets      |  |           | 1,790,000  |      |   | 2,010,000 
|Current liabilities     |  |           | 7,744,000  |      |   | 6,698,000 
|Non-current liabilities |  |           | 2,875,000  |      |   | 2,875,000 
|Minority interest       |  |           | 3,000      |      |   | 3,000     
|Redeemable stock        |  |           | 23,584,000 |      |   | 23,164,000



3. Inventory



Inventory at March 31 is comprised of the following:



|                   |  |      |             |   |      |   |             |  
|------------------ |  | ---- | ----------- | - | ---- | - | ----------- | -
|                   |  | 2005 |             |   | 2004 |  
|Inventory at FIFO  |  | $    | 92,228,000  |   |      | $ | 91,070,000  |  
|Less: LIFO reserve |  |      | (11,660,000 | ) |      |   | (10,874,000 | )
|                   |  |      |             |   |      |   |             |  
|                   |  | $    | 80,568,000  |   |      | $ | 80,196,000  |  
|                   |  |      |             |   |      |   |             |  



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 and March 31, 2004 was $88,873,000 and $89,296,000, respectively.



During the 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.



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4. Property and Equipment



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



|                               |  |      |            |      |   |           
|------------------------------ |  | ---- | ---------- | ---- | - | ----------
|                               |  | 2005 |            | 2004
|Land and improvements          |  | $    | 1,173,000  |      | $ | 1,173,000 
|Buildings and improvements     |  |      | 31,687,000 |      |   | 31,977,000
|Furniture and equipment        |  |      | 14,174,000 |      |   | 14,815,000
|Warehouse equipment            |  |      | 28,304,000 |      |   | 28,334,000
|Automobiles and trucks         |  |      | 5,295,000  |      |   | 5,956,000 
|                               |  |      |            |      |   |           
|                               |  |      | 80,633,000 |      |   | 82,255,000
|                               |  |     
|Less: Accumulated depreciation |  |      | 52,942,000 |      |   | 50,771,000
|                               |  |      |            |      |   |           
|                               |  | $    | 27,691,000 |      | $ | 31,484,000
|                               |  |      |            |      |   |           



5. Supplemental
Cash Flow Information



During the years ended March 31,
2005, 2004 and 2003, the Company purchased intangible assets, principally distribution rights of $11,146,000, $15,797,000 and $13,605,000, respectively, by incurring other liabilities of $7,626,000, $15,587,000 and $11,435,000, respectively.



Cash paid for interest was $9,683,000, $9,935,000 and
$11,657,000 in 2005, 2004 and 2003, respectively.



6.
Intangible Assets



Intangible assets at March 31 are
comprised of the following:



|                                          |  |                      |  |                     |            |                         |   |                     |  |                         |            |  |   |          
|----------------------------------------- |  | -------------------- |  | ------------------- | ---------- | ----------------------- | - | ------------------- |  | ----------------------- | ---------- |  | - | ---------
|                                          |  |                      |  | 2005                |            | 2004                   
|Intangible Assets Subject to Amortization |  | WeightedAverage Life |  | GrossCarryingAmount |            | AccumulatedAmortization |   | GrossCarryingAmount |  | AccumulatedAmortization
|Distribution rights                       |  | 7                    |  | $                   | 40,859,000 |                         | $ | 10,486,000          |  | $                       | 30,820,000 |  | $ | 6,170,000
|Loan acquisition costs                    |  | 10                   |  |                     | 4,065,000  |                         |   | 2,427,000           |  |                         | 4,076,000  |  |   | 2,011,000
|Non-compete agreements                    |  | 5                    |  |                     |           |                         |   |                    |  |                         | 200,000    |  |   | 193,000  
|                                          |  |                      |  |                     |            |                         |   |                     |  |                         |            |  |   |          
|Total                                     |  | 7                    |  | $                   | 44,924,000 |                         | $ | 12,913,000          |  | $                       | 35,096,000 |  | $ | 8,374,000
|                                          |  |                      |  |                     |            |                         |   |                     |  |                         |            |  |   |          



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



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Consolidated amortization expense related to intangible assets subject to amortization for 2005, 2004,
and 2003 was $5,731,000, $5,513,000, and $2,419,000, respectively.



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 |  |   | 7,136,000 
|2008 |  |   | 6,067,000 
|2009 |  |   | 5,587,000 
|2010 |  |   | 4,965,000 
|     |  |   |           
|     |  | $ | 30,999,000
|     |  |   |           



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7. Debt



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



|                                                 |  |      |            |      |   |           
|------------------------------------------------ |  | ---- | ---------- | ---- | - | ----------
|                                                 |  | 2005 |            | 2004
|Senior notes payable (A)                         |  | $    | 77,079,000 |      | $ | 79,029,000
|Bank revolving line of credit (B)                |  |      | 1,750,000  |      |   | 3,000,000 
|Notes payable to stockholders, net (see Note 12) |  |      | 4,328,000  |      |   | 4,328,000 
|                                                 |  |      |            |      |   |           
|                                                 |  |      | 83,157,000 |      |   | 86,357,000
|Less: current maturities                         |  |      |           |      |   |          
|                                                 |  |      |            |      |   |           
|                                                 |  | $    | 83,157,000 |      | $ | 86,357,000
|                                                 |  |      |            |      |   |           

---

|(A) | On January 25, 1999, the Company issued $110,000,000 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.



On 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) | On 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
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

commercial letters of credit of up to $5 million, through April 1, 2008. Commercial
letters of credit of $4.0 million were outstanding at March 31, 2005 for the self-insured portion of NWS casualty insurance policies. Line of credit 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 LIBOR rate or the higher of the prime lending rate or the federal funds rate, plus a margin percentage. In addition, the agreement places restrictions
on the Company 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 6.00%.



The Company amended its $40 million revolving credit
facility as of March 31, 2004. The amendment (i) decreased the minimum interest coverage ratio (ii) increased the maximum funded debt ratio (iii) reduced the permitted annual capital expenditures (iv) restricted the repurchases of the Companys
senior notes and (v) adjusted certain interest pricing terms and other financial covenants.



The Company was in compliance at March 31, 2005 with the restrictive covenants, as amended, of the revolving credit facility.



Principal payments due on debt at March 31, 2005 are as follows:



|           |  |   |           
|---------- |  | - | ----------
|2006       |  |   |          
|2007       |  |   |          
|2008       |  |   |          
|2009       |  | $ | 78,829,000
|2010       |  | $ | 4,328,000 
|Thereafter |  |   |          
|           |  |   |           
|           |  | $ | 83,157,000
|           |  |   |           



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.



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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 are as follows:



|           |  |   |           
|---------- |  | - | ----------
|2006       |  | $ | 3,992,000 
|2007       |  |   | 3,598,000 
|2008       |  |   | 1,553,000 
|2009       |  |   | 962,000   
|2010       |  |   | 496,000   
|Thereafter |  |   | 537,000   
|           |  |   |           
|           |  | $ | 11,138,000
|           |  |   |           



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



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.



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 are as follows:



|           |  |   |          
|---------- |  | - | ---------
|2006       |  | $ | 3,083,000
|2007       |  |   | 1,225,000
|2008       |  |   | 1,100,000
|2009       |  |   | 1,100,000
|2010       |  |   | 1,100,000
|Thereafter |  |   | 92,000   
|           |  |   |          
|           |  | $ | 7,700,000
|           |  |   |          





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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 |  
|Change in projected benefit obligation:                              |  |      |            |   |      |   |            |  
|Benefit obligation at beginning of year                              |  | $    | 7,255,000  |   |      | $ | 6,012,000  |  
|Service cost                                                         |  |      | 489,000    |   |      |   | 398,000    |  
|Interest cost                                                        |  |      | 428,000    |   |      |   | 384,000    |  
|Actuarial changes                                                    |  |      | 261,000    |   |      |   | 668,000    |  
|Benefits paid                                                        |  |      | (223,000   | ) |      |   | (207,000   | )
|                                                                     |  |      |            |   |      |   |            |  
|Benefit obligation at end of year                                    |  | $    | 8,210,000  |   |      | $ | 7,255,000  |  
|                                                                     |  |      |            |   |      |   |            |  
|Change in plan assets:                                               |  |      |            |   |      |   |            |  
|Fair value of plan assets at beginning of year                       |  | $    | 4,872,000  |   |      | $ | 3,773,000  |  
|Actual gain on plan assets                                           |  |      | 460,000    |   |      |   | 759,000    |  
|Employer contributions                                               |  |      | 901,000    |   |      |   | 547,000    |  
|Benefits paid                                                        |  |      | (223,000   | ) |      |   | (207,000   | )
|                                                                     |  |      |            |   |      |   |            |  
|Fair value of plan assets at measurement date                        |  | $    | 6,010,000  |   |      | $ | 4,872,000  |  
|                                                                     |  |     
|Reconciliation of funded status:                                     |  |      |            |   |      |   |            |  
|Funded (Unfunded) status                                             |  | $    | (2,200,000 | ) |      | $ | (2,383,000 | )
|Unrecognized actuarial loss                                          |  |      | 2,503,000  |   |      |   | 2,420,000  |  
|Unrecognized prior service cost                                      |  |      | 541,000    |   |      |   | 594,000    |  
|Unrecognized transition obligation                                   |  |      | 28,000     |   |      |   | 48,000     |  
|                                                                     |  |      |            |   |      |   |            |  
|Prepaid benefit cost at measurement date                             |  |      | 872,000    |   |      |   | 679,000    |  
|                                                                     |  |      |            |   |      |   |            |  
|Contributions made after measurement date                            |  |      | 200,000    |   |      |   | 200,000    |  
|                                                                     |  |      |            |   |      |   |            |  
|Prepaid benefit cost at end of year                                  |  | $    | 1,072,000  |   |      | $ | 879,000    |  
|                                                                     |  |      |            |   |      |   |            |  
|Amounts recognized in the consolidated balance sheet:                |  |      |            |   |      |   |            |  
|Prepaid benefit cost                                                 |  | $    | 1,072,000  |   |      | $ | 879,000    |  
|Non-current deferred additional liability                            |  |      | (3,073,000 | ) |      |   | (3,061,000 | )
|Deferred pension costs - intangible asset                            |  |      | 569,000    |   |      |   | 642,000    |  
|Accumulated other comprehensive loss                                 |  | $    | 2,503,000  |   |      | $ | 2,419,000  |  
|                                                                     |  |     
|Increase in minimum liability included in other comprehensive income |  | $    | 84,000     |   |      | $ | 129,000    |  



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As of March 31, 2005 and 2004, the Company has recorded an additional minimum pension liability of
$3,073,000 and $3,061,000, respectively. As the additional liability exceeds the intangible asset, the excess is recorded in Accumulated Other Comprehensive Loss in the amounts of $2,503,000 and $2,419,000 as of March 31, 2005 and 2004,
respectively. An intangible asset of $569,000 and $642,000 was reflected in the Companys consolidated balance sheet at March 31, 2005 and 2004, respectively. The change in the pension liability at March 31, 2005 as compared to the liability at
March 31, 2004 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 and 2004 measurement dates, as illustrated in the following table:



|                               |  |      |           |      |   |          
|------------------------------ |  | ---- | --------- | ---- | - | ---------
|                               |  | 2005 |           | 2004
|Projected benefit obligation   |  | $    | 8,210,000 |      | $ | 7,255,000
|Accumulated benefit obligation |  | $    | 8,210,000 |      | $ | 7,255,000
|Plan assets at fair value      |  | $    | 6,010,000 |      | $ | 4,872,000



Estimated benefit
payments from the plan for each of the next five plan years ending June 30, and thereafter, are as follows:



|                   |  |                  |          
|------------------ |  | ---------------- | ---------
|Plan Year          |  | Benefit Payments
|2006               |  | $                | 238,519  
|2007               |  |                  | 257,877  
|2008               |  |                  | 285,390  
|2009               |  |                  | 296,174  
|2010               |  |                  | 297,718  
|Years 2011 to 2015 |  |                  | 1,971,236



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 | 
|Service cost-benefits earned during the year      |  | $    | 489,000  |   |      | $ | 398,000  |      |  | $ | 347,000  |  
|Interest on projected benefit obligation          |  |      | 428,000  |   |      |   | 384,000  |      |  |   | 340,000  |  
|Expected return on plan assets                    |  |      | (385,000 | ) |      |   | (323,000 | )    |  |   | (314,000 | )
|Amortization of unrecognized net transition asset |  |      | 20,000   |   |      |   | 20,000   |      |  |   | 20,000   |  
|Amortization of loss                              |  |      | 103,000  |   |      |   | 101,000  |      |  |   | 34,000   |  
|Amortization of prior service cost                |  |      | 53,000   |   |      |   | 53,000   |      |  |   | 53,000   |  
|                                                  |  |      |          |   |      |   |          |      |  |   |          |  
|Net periodic pension cost                         |  | $    | 708,000  |   |      | $ | 633,000  |      |  | $ | 480,000  |  
|                                                  |  |      |          |   |      |   |          |      |  |   |          |  



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The Companys discount rate assumption is based upon the preceding years Moodys AA
Corporate Bond Index rounded down to the nearest 1/4of a percentage point, and is assumed to be the rate at
which the benefit obligations could be settled. 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 |  
|Discount rate                  |  | 5.75 | % |  | 6.00 | %
|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 |   |  | StrategicAllocation |   |  | 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 and is the allocation to be used for the year ended March 31, 2006. As of the Companys 2005 and 2004 measurement dates, the percentage of fair value of total assets by asset category was as
follows:



|                          |  |       |   |  |       |  
|------------------------- |  | ----- | - |  | ----- | -
|                          |  | 2005  |   |  | 2004  |  
|Asset category:           |  |       |   |  |       |  
|Equity securities         |  | 61.36 | % |  | 61.50 | %
|Debt securities           |  | 21.71 | % |  | 37.40 | %
|Cash and cash equivalents |  | 16.93 | % |  | 1.10  | %



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



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.



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NWS-LLC contributes to union-sponsored multi-employer pension plans, which provide for contributions
based on a specified rate per labor hour. Union employees constitute approximately 64% of NWS-LLCs workforce and 52% of NWSMs workforce. Contributions charged to expense were $621,000, $575,000 and $757,000 in 2005, 2004 and 2003,
respectively. Information as to NWS-LLCs portion of accumulated plan 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
required to continue funding its proportionate share of the plans unfunded vested benefits. NWS-LLC has no intention of withdrawing from the plans.



During the twelve months ended March 31, 2005, the Company established a nonqualified deferred compensation plan for certain selected employees who may
elect to defer up to 50% of their annual compensation upon maximization of their deferrals to the Companys established qualified 401k plan. The Company does not match employee contributions to the nonqualified plan. At March 31, 2005 the
Companys accrued obligation under this supplemental plan was $250,000. 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 amount of $250,000 at March 31, 2005.



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 $4,328,000 at March 31, 2005 and 2004, with the principal balance due in December 2009. These notes bear interest at the
prime lending rate. Interest expense on these notes was $203,000, $176,000 and $197,000 in 2005, 2004, and 2003, 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.



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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.



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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 | 
|Revenue from external customers                        |  |      |             |      |   |             |      |  |   |             |  
|Product sales                                          |  | $    | 524,399,000 |      | $ | 513,615,000 |      |  | $ | 689,859,000 |  
|All other                                              |  |      | 29,268,000  |      |   | 27,045,000  |      |  |   | 22,999,000  |  
|Interest expense                                       |  |      |             |      |   |             |      |  |   |             |  
|Product sales                                          |  |      | 7,968,000   |      |   | 7,110,000   |      |  |   | 7,654,000   |  
|All other                                              |  |      | 1,472,000   |      |   | 1,716,000   |      |  |   | 1,654,000   |  
|Depreciation expense                                   |  |      |             |      |   |             |      |  |   |             |  
|Product sales                                          |  |      | 3,412,000   |      |   | 4,041,000   |      |  |   | 5,212,000   |  
|All other                                              |  |      | 1,178,000   |      |   | 1,906,000   |      |  |   | 1,976,000   |  
|Amortization expense                                   |  |      |             |      |   |             |      |  |   |             |  
|Product sales                                          |  |      | 5,954,000   |      |   | 6,088,000   |      |  |   | 2,245,000   |  
|All other                                              |  |      | 7,000       |      |   | 41,000      |      |  |   | 174,000     |  
|Equity in earnings of Commonwealth Wine & Spirits, LLC |  |      |             |      |   |             |      |  |   |             |  
|Product sales                                          |  |      | 538,000     |      |   | 742,000     |      |  |   | 312,000     |  
|All other                                              |  |      |            |      |   |            |      |  |   |            |  
|Equity in losses of eSkye Solutions, Inc.              |  |      |             |      |   |             |      |  |   |             |  
|Product sales                                          |  |      |            |      |   |            |      |  |   | (160,000    | )
|All other                                              |  |      |            |      |   |            |      |  |   |            |  
|Segment income (loss)                                  |  |      |             |      |   |             |      |  |   |             |  
|Product sales                                          |  |      | 4,215,000   |      |   | (9,439,000  | )    |  |   | 17,111,000  |  
|All other                                              |  |      | 1,224,000   |      |   | 315,000     |      |  |   | (1,322,000  | )
|Segment assets                                         |  |      |             |      |   |             |      |  |   |             |  
|Product sales                                          |  |      | 185,087,000 |      |   | 177,042,000 |      |  |   | 193,757,000 |  
|All other                                              |  |      | 8,702,000   |      |   | 10,058,000  |      |  |   | 9,951,000   |  
|Investments in equity method investees                 |  |      |             |      |   |             |      |  |   |             |  
|Product sales                                          |  |      | 5,284,000   |      |   | 5,593,000   |      |  |   | 5,637,000   |  
|All other                                              |  |      |            |      |   |            |      |  |   |            |  
|Goodwill                                               |  |      |             |      |   |             |      |  |   |             |  
|Product sales                                          |  |      |            |      |   |            |      |  |   |            |  
|All other                                              |  |      | 1,246,000   |      |   | 1,246,000   |      |  |   | 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 46%, 46% and 59% of all purchases in 2005, 2004 and 2003, respectively.



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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                                                  |  |   | 6,229,000  |  
|2008                                                  |  |   | 5,900,000  |  
|2009                                                  |  |   | 5,501,000  |  
|2010                                                  |  |   | 5,301,000  |  
|Thereafter                                            |  |   | 1,325,000  |  
|                                                      |  |   |            |  
|Total distribution rights obligations                 |  |   | 30,110,000 |  
|Imputed interest                                      |  |   | (3,349,000 | )
|                                                      |  |   |            |  
|Present value of minimum distribution rights payments |  |   | 26,761,000 |  
|Current portion                                       |  |   | (5,136,000 | )
|                                                      |  |   |            |  
|Long-term distribution rights obligation              |  | $ | 21,625,000 |  
|                                                      |  |   |            |  



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 funds 20% of any such
losses and receives 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.



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Pursuant to the agreement, NWS-LLC recorded approximately $18,743,000 and $12,634,000 as a reduction of
operating expenses during the twelve months ended March 31, 2005 and 2004, respectively. At March 31, 2005, a receivable from the wholesaler in the amount of approximately $1.5 million was recorded in Prepaid expenses and other current assets.



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16. Quarterly Data (Unaudited)



The following table sets forth certain quarterly income statement information of the Company for the fiscal years ended
March 31, 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.



|                                             |  |      |         |   |    |   |         |    |  |   |         |   |  |       |         |   |  |   |         |  
|-------------------------------------------- |  | ---- | ------- | - | -- | - | ------- | -- |  | - | ------- | - |  | ----- | ------- | - |  | - | ------- | -
|                                             |  | 2005 |        
|(Dollars in thousands)                       |  | Q1   |         |   | Q2 |   |         | Q3 |  |   | Q4      |   |  | Total |        
|Total revenue                                |  | $    | 144,661 |   |    | $ | 130,647 |    |  | $ | 159,102 |   |  | $     | 119,257 |   |  | $ | 553,667 |  
|Gross profit                                 |  |      | 33,205  |   |    |   | 31,700  |    |  |   | 34,356  |   |  |       | 25,830  |   |  |   | 125,091 |  
|Selling, general and administrative expenses |  |      | 30,531  |   |    |   | 27,988  |    |  |   | 27,999  |   |  |       | 26,470  |   |  |   | 112,988 |  
|Income (loss) from operations                |  |      | 2,674   |   |    |   | 3,712   |    |  |   | 6,357   |   |  |       | (640    | ) |  |   | 12,103  |  
|Interest expense                             |  |      | 2,404   |   |    |   | 2,251   |    |  |   | 2,416   |   |  |       | 2,464   |   |  |   | 9,535   |  
|Other income (expense)                       |  |      | (171    | ) |    |   | 2,465   |    |  |   | 442     |   |  |       | 135     |   |  |   | 2,871   |  
|Net income (loss)                            |  |      | 99      |   |    |   | 3,926   |    |  |   | 4,383   |   |  |       | (2,969  | ) |  |   | 5,439   |  
|                                             | 
|                                             |  | 2004 |        
|(Dollars in thousands)                       |  | Q1   |         |   | Q2 |   |         | Q3 |  |   | Q4      |   |  | Total |        
|Total revenue                                |  | $    | 144,034 |   |    | $ | 128,705 |    |  | $ | 156,530 |   |  | $     | 111,391 |   |  | $ | 540,660 |  
|Gross profit                                 |  |      | 34,885  |   |    |   | 29,045  |    |  |   | 32,291  |   |  |       | 22,971  |   |  |   | 119,192 |  
|Selling, general and administrative expenses |  |      | 33,328  |   |    |   | 29,133  |    |  |   | 31,449  |   |  |       | 26,360  |   |  |   | 120,270 |  
|Income (loss) from operations                |  |      | 1,557   |   |    |   | (88     | )  |  |   | 842     |   |  |       | (3,389  | ) |  |   | (1,078  | )
|Interest expense                             |  |      | 1,730   |   |    |   | 2,133   |    |  |   | 2,463   |   |  |       | 2,500   |   |  |   | 8,826   |  
|Other income (expense)                       |  |      | 134     |   |    |   | (45     | )  |  |   | 382     |   |  |       | 309     |   |  |   | 780     |  
|Net income (loss)                            |  |      | (39     | ) |    |   | (2,266  | )  |  |   | (1,239  | ) |  |       | (5,580  | ) |  |   | (9,124  | )
|                                             | 
|                                             |  | 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  |  



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



None



Item 9A. Controls and Procedures



As of March 31, 2005, the Company carried 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. 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.



Item 9B. Other Information



None



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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:



|                      |  |     |  |                                                                                   
|--------------------- |  | --- |  | ----------------------------------------------------------------------------------
|Name                  |  | Age |  | Position                                                                          
|James E. LaCrosse     |  | 72  |  | Chairman, President, Chief Executive Officer, Chief Financial Officer and Director
|Catherine M. LaCrosse |  | 38  |  | Vice President of Sales-Indiana Fine Wine Division and Director                   
|John J. Baker         |  | 35  |  | Chief Operating Officer, Secretary and Director                                   
|Gregory J. Mauloff    |  | 53  |  | Corporate Executive Vice President, Sales & Marketing                             
|James R. Beck         |  | 61  |  | Director                                                                          
|John Wittig           |  | 45  |  | President, NWS-Illinois LLC                                                       
|Joseph J. Fisch       |  | 56  |  | President, U.S. Beverage                                                          
|Mitchell T. Stoltz    |  | 51  |  | Director                                                                          
|Norma M. Johnston     |  | 76  |  | Director                                                                          
|Stephen E. LaCrosse   |  | 35  |  | Director                                                                          
|William M. Cockrum    |  | 67  |  | Director                                                                          
|Vaughn D. Bryson      |  | 66  |  | Director                                                                          
|David W. Goodrich     |  | 57  |  | Director                                                                          
|Patrick A. Trefun     |  | 45  |  | Corporate Controller and Treasurer                                                



James E. LaCrossehas 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. LaCrossehas 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. Bakerhas 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.



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Gregory J. Mauloffhas 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. Beckhas 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. Fischhas 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; President, Seagram Beverage Company. He received a BS in business
administration and marketing from Bowling Green University, Ohio, in 1971.



Mitchell T. Stoltzhas 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. Johnstonhas been a Director of NWS-Indiana since 1976, and a
Director of NWS since December, 1998. Mrs. 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. Cockrumhas 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



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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. Brysonhas 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 to his current position, Mr. Goodrich 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 23 years of experience in the alcohol-based beverage industry and 14 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 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, 2004 and 2003:



Summary Compensation Table



|                                                                        |  |                     |  |                           |                       |       |   |                              |  |   |                 |  |   |                       |          
|----------------------------------------------------------------------- |  | ------------------- |  | ------------------------- | --------------------- | ----- | - | ---------------------------- |  | - | --------------- |  | - | --------------------- | ---------
|                                                                        |  | Annual Compensation |  | All Other Compensation(1) |                      
|                                                                        |  | Year                |  | Salary                    |                       | Bonus |   | Other Annual Compensation(3) | 
|Name and Principal Position                                             |  |                     |  |                           |                      
|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)
|                                                                        |  |                     |  |                           |                      
|John J. Baker Chief Operating Officer and Secretary                     |  | 200520042003        |  |                           | 235,269199,769189,519 |       |   | 253,00050,00075,000          |  |   | 2,1297322,831   |  |   | 10,4619,9899,476      |          
|                                                                        |  |                     |  |                           |                      
|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)   
|                                                                        |  |                     |  |                           |                      
|Joseph J. Fisch President/CEO, U.S. Beverage                            |  | 200520042003        |  |                           | 350,000348,269275,000 |       |   | 60,000142,500117,500         |  |   | -0--0--0-       |  |   | 9,9139,8215,481       |          
|                                                                        |  |                     |  |                           |                      
|John Wittig President, NWS-Illinois LLC                                 |  | 200520042003        |  |                           | 163,322-0--0-         |       |   | 200,000-0--0-                |  |   | -0--0--0-       |  |   | 6,559-0--0-           | (5)      

---

|(1) | Includes 2005 employer 401(k) Plan contributions in the following amounts: Mr. LaCrosse, $9,846; Mr. Baker, $10,461; Mr. Mauloff, $10,014; Mr. Fisch, $9,913.
Includes 2004 employer 401(k) Plan contributions in the following amounts: Mr. LaCrosse, $10,000; Mr. Baker, $9,989; Mr. Mauloff, $11,202; Mr. Fisch, $9,821. Includes 2003 employer 401(k) Plan contributions in the following amounts: Mr. LaCrosse,
$10,000; Mr. Baker, $9,476; Mr. Mauloff, $11,181; and Mr. Fisch, $5,481.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes $347,738, $334,615 and $266,073 for fiscal 2005, 2004 and 2003, 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
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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 $1,365 of life insurance premiums paid by NWS on behalf of Mr. Mauloff for fiscal year 2005. Includes items valued at $20,175 received by Mr. Mauloff as
sales incentive pay for fiscal 2003.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes $5,884 of taxable moving expenses and $675, the value of a taxable sales incentive, for Mr. Wittig.
|--- | ------------------------------------------------------------------------------------------------------------



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. 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 |  | Percent |  
|James E. LaCrosse                               |  |                  |  |         |  
|700 West Morris Street                          |  |                  |  |         |  
|Indianapolis, Indiana 46225                     |  | 86,520           |  | 83      | %
|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. Johnstons stock in NWS. The LaCrosse family is obligated to
purchase Mrs. 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. Johnstons stock at the death of Mr. LaCrosse. Any obligation of NWS to purchase the stock owned by Mrs. 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. 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. 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 pays eSkye fees for computer services. NWS paid $35,000, $50,000 and $150,000 during the years ended March 31, 2005, 2004, and 2003, 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. 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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form of loans or additional capital contributions. This indebtedness to Mr. LaCrosse and Mrs. 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 5.75% at March 31, 2005.



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.



NWS-Indiana and NWS-Illinois have operated as S corporations under the Internal Revenue Code of 1986 (Code), and their respective 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 has elected or will elect for each of its subsidiaries to be
treated as qualified subchapter 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, Mrs. Johnston and Mr. Bart in amounts equal to or greater than their respective tax obligations related to the S
Corp. Businesses and certain stockholder obligations as described above. The aggregate amount of these distributions during 2005, 2004 and 2003 were $0.2 million, $6.0 million and $9.4 million, respectively. The terms of the senior notes and the
credit facility permit NWS to make distributions to shareholders with respect to their tax liabilities and other purposes subject to certain conditions and limitations.



During 1998, NWS-Indiana entered into a five-year non-compete agreement with James Beck, a director of NWS and former
President of NWS-Indiana, under which Mr. Beck was paid $0.3 million by the Company. NWS-Indiana obtained certain inventory and other property related to the wholesale cigar distribution business previously operated by Mr. Beck.



NWS pays split-dollar insurance premiums on seven
insurance policies with a fair value of $15.5 million on the lives of Mr. LaCrosse and Mrs. 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. Johnston. Split dollar premiums paid by NWS were $328,000 for each of the annual periods ended March 31, 2005, 2004 and 2003. The LaCrosse Family Trust is the beneficiary of those policies.



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Item 14. Principal Accountant Fees and Services



Audit FeesAggregate fees billed by Deloitte & Touche in connection with the audit of the 2005 and 2004 financial statements and review of financial statements included in NWS Forms 10-Q for 2005 and
2004 totaled $0.5 million and $0.4 million, respectively.



Audit Related FeesThe Company has paid no fees to Deloitte & Touche 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
and 2004.



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.
| | --- | ---------------------------------------



|   |  |                                                                                                                                                                                     |  |                       
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------
|   |  |                                                                                                                                                                                     |  | 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
|Description                            |  |                               | Charged toCosts andExpenses |           | Charged toOtherAccounts |            | 
|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  
|Notes receivable reserve               |  |                               | 221,000                     |           |                         |           |  |   |                        |  |   | 221,000 | (2) |  |   |         
|                                       |  |                               |                             |           |                         |            |  |   |                         |  |   |         |     |  |   |          
|Total                                  |  | $                             | 1,427,000                   |           | $                       | 193,000    |  | $ |                        |  | $ | 609,000 |     |  | $ | 1,011,000
|                                       |  |                               |                             |           |                         |            |  |   |                         |  |   |         |     |  |   |          
|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  
|Notes receivable reserve               |  |                               |                            |           |                         | 221,000    |  |   |                        |  |   |        |     |  |   | 221,000  
|                                       |  |                               |                             |           |                         |            |  |   |                         |  |   |         |     |  |   |          
|Total                                  |  | $                             | 1,571,000                   |           | $                       | 547,000    |  | $ |                        |  | $ | 691,000 |     |  | $ | 1,427,000
|                                       |  |                               |                             |           |                         |            |  |   |                         |  |   |         |     |  |   |          
|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
|--- | ---------------



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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, 2005.



NATIONAL WINE & SPIRITS, INC.By:

/s/ James E. LaCrosseJames 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 8, 2005                                                                                     
|James E. LaCrosse      |  |  |  | Chairman, President, Chief Executive Officer (Principal Executive Officer), and Chief Financial Officer
|                       |  | 
|/s/ John J. Baker      |  |  |  | Date: June 8, 2005                                                                                     
|John J. Baker          |  |  |  | Chief Operating Officer, Secretary and Director                                                        
|                       |  | 
|/s/ James R. Beck      |  |  |  | Date: June 8, 2005                                                                                     
|James R. Beck          |  |  |  | Director                                                                                               
|                       |  | 
|/s/ Mitchell T. Stoltz |  |  |  | Date: June 8, 2005                                                                                     
|Mitchell T. Stoltz     |  |  |  | Director                                                                                               
|                       |  | 
|/s/ William Cockrum    |  |  |  | Date: June 8, 2005                                                                                     
|William Cockrum        |  |  |  | Director                                                                                               
|                       |  | 
|/s/ Norma M. Johnston  |  |  |  | Date: June 8, 2005                                                                                     
|Norma M. Johnston      |  |  |  | Director                                                                                               
|                       |  | 
|/s/ Vaughn D. Bryson   |  |  |  | Date: June 8, 2005                                                                                     
|Vaughn D. Bryson       |  |  |  | Director                                                                                               



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|                          |  |  |  |  |  |                   
|------------------------- |  |  |  |  |  | ------------------
|                          |  |  | 
|/s/ Catherine M. LaCrosse |  |  |  |  |  | Date: June 8, 2005
|Catherine M. LaCrosse     |  |  |  |  |  | Director          
|                          |  |  | 
|/s/ Stephen E. LaCrosse   |  |  |  |  |  | Date: June 8, 2005
|Stephen E. LaCrosse       |  |  |  |  |  | Director          
|                          |  |  | 
|/s/ David W. Goodrich     |  |  |  |  |  | Date: June 8, 2005
|David W. Goodrich         |  |  |  |  |  | Director          



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##### Table of Contents

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 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                                                                                                                                                                                                                                                                                                                                                                       
|            | 
|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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|     |  |                                                                                                                                                                           
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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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