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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, 2006.



| ̈ | 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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes ̈No  x

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act. (as defined in Rule 12b-2 of the Act).

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  x

Indicate by check mark whether the registrant is a
shell company (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 and non-voting stock held by non-affiliates of the registrant.

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

Documents Incorporated by Reference: None



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##### Table of Contents

TABLE OF CONTENTS



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



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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 58% market share and Michigan with 51% market share. NWS market share in Illinois is
approximately 20%. 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 are operating, and the trend toward consolidation in
the industry is continuing. The United States wholesale wine and spirits market was approximately $35 billion during 2005 and is projected to be approximately $37 billion for 2006 according to industry projections. The Companys revenue,
including the wholesale dollar sales for its fee operations, places NWS as the tenth largest wholesaler in the United States, according to industry surveys.

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



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Substantially all of NWS revenue results from product sales of liquor, beer and wine, or from
distribution and brokerage fees. During fiscal 2006, NWS total revenue was $717.6 million, which was a $164.0 million increase from the prior fiscal year, primarily due to the growth in the Companys product sales segment, and driven by
additional brands represented in the State of Illinois. Although the Company experienced significant increases in revenue and case volume, the effect on operating and net income was minimized by the management services agreement with Glazers
Wholesale Drug Company, Inc. (Glazers). The Companys net income increased during fiscal 2006, as compared to the prior fiscal year, primarily from a supplier termination payment of $8.3 million that did not occur in the prior
fiscal year. The Companys long term debt increased $34.8 million from March 31, 2005 primarily due to increased working capital needs of $25.0 million in the product sales segment and the funding of a $14.9 million deposit made in
connection with the proposed acquisition of the stock of a Michigan wine wholesaler, L & L Wine and Liquor Corporation (L&L). The Companys availability at March 31, 2006 under its $60.0 million revolving credit
facility was $22.1 million.

Recent Developments

On March 31, 2006 the Company received a vendor termination payment of $8.3 million related to a distribution agreement in the product sales segment that had an original expiration date of December 31, 2006.
The Company does not expect the loss of the distribution rights to materially affect the future financial performance of the product sales segment.

The Company has entered into a series of agreements under which it has sold, or committed to sell or surrender, its intangible distribution rights related to certain malt beverage products distributed within the state of Illinois. In
exchange for the release and sale of these distribution rights the Company expects to receive approximately $20.7 million by September 30, 2006. Aside from the proceeds, the release and sale of these intangible distribution rights are not
expected to materially affect the future cash flows and profitability of the Companys product sales operations.

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

Following the May 2006 notice, Glazers objected to the
proposed sale of the aforementioned distribution rights. The Company considered the objection but concluded that the sale was in the best interest of the Company. Glazers attempted to impede the sale through legal proceedings, but the Company
recently received a favorable ruling. It is possible that Glazers will proceed with additional objections through legal channels, but the Company intends to continue with its plans to sell or surrender the identified distribution rights.



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Industry Overview

The United States alcohol-based beverage industry generated total retail sales of approximately $164.3 billion during calendar 2005 versus $154.6 billion in calendar 2004, an increase of 6.3%. Sales of wine and
spirits, in which NWS primarily competes, accounted for approximately 15% and 33%, respectively, or $78.2 billion of total retail beverage alcohol sales in 2005. The growth in the retail sales of spirits was primarily attributable to the premium and
high end brands which included flavored and imported vodkas, rums, and an expansion of flavors in the cordial and liqueur product offerings. Wine consumption rose by 2.2% in calendar 2005 versus 2004, and the increase was primarily attributable to
imported wine which grew by 5.4% while domestic products were up by 1.1% over the prior year. The increase in the import category during 2005 was responsible for approximately 60% of 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 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.



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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 2006, 2005 and 2004 is as follows:



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

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

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

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



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



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



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

NWS has entered into 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.

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



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

Related Operations

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

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



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

Industry-wide the percentage of case sales of wine and spirits for off-premise and on-premise in the United States for 2005 were approximately 76.9% and 23.1%, respectively. While the vast majority of case sales are from the off-premise
outlets, approximately 55.0% of industry-wide retail wine and spirits dollar sales in the United States during 2005 were from on-premise outlets. The following table summarizes NWS customer base for NWS-Illinois and NWS-Indiana.



|                                                   |  |                                                  |   |  |                                                                                              
|-------------------------------------------------- |  | ------------------------------------------------ | - |  | ---------------------------------------------------------------------------------------------
|Type of Customer                                   |  | Percentage of Tier 22005 Revenue by TradeChannel |   |  | Representative Customers                                                                     
|Off-Premise                                        |  |                                                  |   |  |                                                                                              
|Package Stores                                     |  | 36.3                                             | % |  | Gold Standard and Capn Cork                                                                 
|Grocery stores, drug stores and mass merchandisers |  | 32.8                                             |   |  | Marsh, Dominicks, Kroger, American Stores (Osco), CVS, Sams Club, Meijer, Costco            
|Other                                              |  | 5.1                                              |   |  |                                                                                              
|                                                   |  |                                                  |   |  |                                                                                              
|Percent of total                                   |  | 74.2                                             | % |  |                                                                                              
|                                                   |  |                                                  |   |  |                                                                                              
|On-Premise                                         |  |                                                  |   |  |                                                                                              
|Restaurants and Bars                               |  | 21.2                                             | % |  | Charlie Trotters, House of Blues, Applebees, Lettuce Entertain U, TGI Fridays, Ruths Chris
|Hotels, Entertainment                              |  | 1.8                                              |   |  | Four Seasons, Hyatt, Hilton, Marriott, United Center                                         
|Other                                              |  | 2.8                                              |   |  | Crooked Stick Golf Course, American Legion                                                   
|                                                   |  |                                                  |   |  |                                                                                              
|Percent of total                                   |  | 25.8                                             | % |  |                                                                                              
|                                                   |  |                                                  |   |  |                                                                                              

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



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Marketing and Sales

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

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

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

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



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

Warehousing and Distribution

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

Competition

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

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

Environmental Matters

The Company currently owns and leases a number of properties, and historically it has owned and/or leased others. Under applicable environmental laws, the
Company may be responsible for remediation of environmental conditions relating to the presence of hazardous



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

Employees

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

In Illinois, NWS has relationships with three unions:



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



| | (2) | Teamsters Union Local 525, expiring August 31, 2009; and
| | --- | --------------------------------------------------------



| | (3) | Teamsters Union Local 744, expiring May 31, 2008.
| | --- | -------------------------------------------------

In Michigan, NWS has relationships with four unions:



| | (1) | Teamsters Union Local 299, expiring March 2, 2007;
| | --- | --------------------------------------------------



| | (2) | Teamsters Union Local 337, expiring March 8, 2008;
| | --- | --------------------------------------------------



| | (3) | Teamsters Union Local 406, annual agreements expiring September 10, 2006 and March 7, 2008; and
| | --- | -----------------------------------------------------------------------------------------------



| | (4) | Teamsters Union Local 486, expiring March 2, 2007.
| | --- | --------------------------------------------------

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

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

Regulatory Considerations

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



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



| | (1) | Tier one is comprised of suppliers that produce alcohol-based beverages and/or importers of alcohol-based beverages, such as USB.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------



| | (2) | Tier two is comprised of distributors, such as NWS-Indiana, NWS-Illinois, NWS-Michigan, and NWSM-LLC.
| | --- | -----------------------------------------------------------------------------------------------------



| | (3) | Tier three is comprised of retail licensees.
| | --- | --------------------------------------------

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

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

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.



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##### Table of Contents

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 1A. Risk Factors

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

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

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

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

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

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



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##### Table of Contents

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

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

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

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

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

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

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

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



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##### Table of Contents

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

Item 1B. Unresolved Staff Comment

None.

Item 2. Properties

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

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

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



|              |  |             |  |                      |  |               |  |                   |  |                              
|------------- |  | ----------- |  | -------------------- |  | ------------- |  | ----------------- |  | -----------------------------
|Segment       |  | State       |  | Location             |  | Owned/ Leased |  | Total Square Feet |  | Principal Function           
|Product sales |  |             |  |                      |  |               |  |                   |  |                              
|              |  | Indiana     |  | Indianapolis         |  | Owned         |  | 351,000           |  | Master Warehouse/Office      
|              |  |             |  | South Bend           |  | Owned         |  | 76,900            |  | Hyper-Terminal/Office        
|              |  |             |  | Evansville           |  | Owned         |  | 5,800             |  | Cross-Docking Facility       
|              |  |             |  | Evansville           |  | Owned         |  | 2,400             |  | Office                       
|              |  |             |  | Ft. Wayne            |  | Leased        |  | 5,500             |  | Office                       
|              |  |             |  | Crown Point          |  | Leased        |  | 7,900             |  | Office                       
|              |  |             |  | Indianapolis         |  | Owned         |  | 3,500             |  | Office-Leased to Perrier     
|              |  |             |  | Indianapolis         |  | Owned         |  | 15,000            |  | Warehouse-Leased to Perrier  
|              |  |             |  | Indianapolis         |  | Owned         |  | 19,500            |  | Office                       
|              |  |             |  |                      | 
|              |  | Connecticut |  | Stamford             |  | Leased        |  | 5,700             |  | Office                       
|              |  |             |  |                      | 
|              |  | Illinois    |  | Chicago              |  | Owned         |  | 715,000           |  | Master Warehouse/Office      
|              |  |             |  | Chicago              |  | Leased        |  | 1,840             |  | Leased Office Property       
|              |  |             |  | Champaign            |  | Leased        |  | 50,000            |  | Hyper-Terminal/Office        
|              |  |             |  | Peoria               |  | Leased        |  | 56,000            |  | Cross-Docking Facility/Office
|              |  |             |  | Collinsville         |  | Leased        |  | 14,200            |  | Cross-Docking Facility/Office
|              |  |             |  | Rockford             |  | Leased        |  | 5,000             |  | Cross-Docking Facility/Office
|              |  |             |  |                      | 
|All other     |  |             |  |                      |  |               |  |                   |  |                              
|              |  | Michigan    |  | Detroit (Brownstown) |  | Leased        |  | 238,000           |  | Master Warehouse/Office      
|              |  |             |  | Grand Rapids         |  | Leased        |  | 97,000            |  | Hyper-Terminal/Office        
|              |  |             |  | Escanaba             |  | Leased        |  | 7,500             |  | Cross-Docking Facility/Office
|              |  |             |  | Saginaw              |  | Leased        |  | 1,000             |  | Cross-Docking Facility       
|              |  |             |  | Traverse City        |  | Leased        |  | 5,000             |  | Cross-Docking Facility       



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##### Table of Contents

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

Item 3. Legal Proceedings

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

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

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

None.



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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 7, 2006, the number of record holders of each of the classes of the Companys common stock were as follows:



| |  |                         |  |   |  | 
| |  | ----------------------- |  | - |  | 
| |  | Voting common stock     |  | 2 |  | 
| |  | Non-voting common stock |  | 3 |  | 

Dividends. The ability of the Company to pay dividends to its shareholders is restricted by
certain covenants contained in its credit facility as well as certain restrictions contained in the Companys indentures relating to its senior notes. Subject to these limitations, the Company has historically paid dividends to its shareholders
for tax liabilities and for limited other purposes. In fiscal 2006 and 2005, the amounts of the dividends totaled $8.3 million and $0.2 million, respectively, in the aggregate.

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

Item 6. Selected Consolidated Financial Data

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

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

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



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|                                             |  |                                                                                          |         |   |      |   |         |      |  |   |         |    |  |      |         |   |  |   |         |  
|-------------------------------------------- |  | ---------------------------------------------------------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -- |  | ---- | ------- | - |  | - | ------- | -
|                                             |  | Year Ended March 31, (Dollars and cases in thousands, except ratios and per case amount) |        
|                                             |  | 2006                                                                                     |         |   | 2005 |   |         | 2004 |  |   | 2003    |    |  | 2002 |        
|Statement of Operations Data:                |  |                                                                                          |         |   |      |   |         |      |  |   |         |    |  |      |         |   |  |   |         |  
|Net product sales                            |  | $                                                                                        | 686,660 |   |      | $ | 524,399 |      |  | $ | 513,615 |    |  | $    | 689,859 |   |  | $ | 659,594 |  
|Distribution fees                            |  |                                                                                          | 30,964  |   |      |   | 29,268  |      |  |   | 27,045  |    |  |      | 22,999  |   |  |   | 21,963  |  
|                                             |  |                                                                                          |         |   |      |   |         |      |  |   |         |    |  |      |         |   |  |   |         |  
|Total revenue                                |  |                                                                                          | 717,624 |   |      |   | 553,667 |      |  |   | 540,660 |    |  |      | 712,858 |   |  |   | 681,557 |  
|Cost of products sold                        |  |                                                                                          | 558,999 |   |      |   | 428,576 |      |  |   | 421,468 |    |  |      | 552,833 |   |  |   | 530,910 |  
|                                             |  |                                                                                          |         |   |      |   |         |      |  |   |         |    |  |      |         |   |  |   |         |  
|Gross profit                                 |  |                                                                                          | 158,625 |   |      |   | 125,091 |      |  |   | 119,192 |    |  |      | 160,025 |   |  |   | 150,647 |  
|Selling, general and administrative expenses |  |                                                                                          | 144,098 |   |      |   | 112,988 |      |  |   | 120,270 |    |  |      | 144,550 |   |  |   | 131,025 |  
|                                             |  |                                                                                          |         |   |      |   |         |      |  |   |         |    |  |      |         |   |  |   |         |  
|Income (loss) from operations                |  |                                                                                          | 14,527  |   |      |   | 12,103  |      |  |   | (1,078  | )  |  |      | 15,475  |   |  |   | 19,622  |  
|Interest expense                             |  |                                                                                          | (11,375 | ) |      |   | (9,535  | )    |  |   | (8,826  | )  |  |      | (9,308  | ) |  |   | (11,934 | )
|Other income (expense)(1)                    |  |                                                                                          | 9,313   |   |      |   | 2,871   |      |  |   | 780     |    |  |      | 9,622   |   |  |   | (228    | )
|                                             |  |                                                                                          |         |   |      |   |         |      |  |   |         |    |  |      |         |   |  |   |         |  
|Net income (loss)                            |  | $                                                                                        | 12,465  |   |      | $ | 5,439   |      |  | $ | (9,124  | )  |  | $    | 15,789  |   |  | $ | 7,460   |  
|                                             |  |                                                                                          |         |   |      |   |         |      |  |   |         |    |  |      |         |   |  |   |         |  
|Other Financial Data:                        |  |                                                                                          |         |   |      |   |         |      |  |   |         |    |  |      |         |   |  |   |         |  
|EBITDA (2)                                   |  | $                                                                                        | 36,032  |   |      | $ | 25,525  |      |  | $ | 11,778  |    |  | $    | 34,704  |   |  | $ | 27,669  |  
|Net income (loss) margin                     |  |                                                                                          | 1.7     | % |      |   | 1.0     | %    |  |   | (1.7    | )% |  |      | 2.2     | % |  |   | 1.1     | %
|Cash (used) provided by operating activities |  | $                                                                                        | (1,048  | ) |      | $ | 12,054  |      |  | $ | 16,005  |    |  | $    | 15,185  |   |  | $ | 22,030  |  
|Cash (used) provided by investing activities |  |                                                                                          | (21,277 | ) |      |   | (3,133  | )    |  |   | 64      |    |  |      | (2,489  | ) |  |   | (5,307  | )
|Cash provided (used) by financing activities |  |                                                                                          | 21,950  |   |      |   | (7,430  | )    |  |   | (20,423 | )  |  |      | (18,611 | ) |  |   | (9,082  | )
|Depreciation and amortization                |  |                                                                                          | 12,192  |   |      |   | 10,551  |      |  |   | 12,076  |    |  |      | 9,607   |   |  |   | 8,275   |  
|Capital expenditures (3)                     |  | $                                                                                        | 4,831   |   |      | $ | 1,211   |      |  | $ | 985     |    |  | $    | 2,337   |   |  | $ | 4,332   |  
|Ratio of earnings to fixed charges           |  |                                                                                          | 1.8x    |   |      |   | 1.4x    |      |  |   | 0.1x    |    |  |      | 2.2x    |   |  |   | 1.6x    |  
|Operating Statistics:                        |  |                                                                                          |         |   |      |   |         |      |  |   |         |    |  |      |         |   |  |   |         |  
|Product Sales Operations                     |  |                                                                                          |         |   |      |   |         |      |  |   |         |    |  |      |         |   |  |   |         |  
|Gross profit margin                          |  |                                                                                          | 18.6    | % |      |   | 18.3    | %    |  |   | 17.9    | %  |  |      | 19.9    | % |  |   | 19.5    | %
|Cases shipped (spirits and wine)             |  |                                                                                          | 6,471   |   |      |   | 4,630   |      |  |   | 4,496   |    |  |      | 6,295   |   |  |   | 6,351   |  
|Fee Operations                               |  |                                                                                          |         |   |      |   |         |      |  |   |         |    |  |      |         |   |  |   |         |  
|Cases shipped (spirits)                      |  |                                                                                          | 2,985   |   |      |   | 2,907   |      |  |   | 2,912   |    |  |      | 2,549   |   |  |   | 2,721   |  
|Distribution fee per case as of March 31     |  | $                                                                                        | 8.10    |   |      | $ | 7.78    |      |  | $ | 7.78    |    |  | $    | 7.60    |   |  | $ | 7.48    |  
|                                             | 
|                                             |  | As of March 31 (in thousands)                                                            |        
|                                             |  | 2006                                                                                     |         |   | 2005 |   |         | 2004 |  |   | 2003    |    |  | 2002 |        
|Balance Sheet Data:                          |  |                                                                                          |         |   |      |   |         |      |  |   |         |    |  |      |         |   |  |   |         |  
|Cash                                         |  | $                                                                                        | 2,582   |   |      | $ | 2,957   |      |  | $ | 1,466   |    |  | $    | 5,820   |   |  | $ | 11,735  |  
|Total assets                                 |  |                                                                                          | 234,417 |   |      |   | 193,789 |      |  |   | 187,100 |    |  |      | 203,814 |   |  |   | 201,405 |  
|Total debt                                   |  |                                                                                          | 117,907 |   |      |   | 83,157  |      |  |   | 86,357  |    |  |      | 98,303  |   |  |   | 109,805 |  
|Total long-term liabilities                  |  |                                                                                          | 137,840 |   |      |   | 107,855 |      |  |   | 108,475 |    |  |      | 110,676 |   |  |   | 111,678 |  
|Stockholders equity                         |  |                                                                                          | 21,603  |   |      |   | 17,738  |      |  |   | 12,593  |    |  |      | 27,854  |   |  |   | 23,095  |  



---

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



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NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA



|(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 2002 through 2006:



|                  |  |                                    |        |      |   |        |  |   |        |   |      |   |        |  |   |       
|----------------- |  | ---------------------------------- | ------ | ---- | - | ------ |  | - | ------ | - | ---- | - | ------ |  | - | ------
|                  |  | Year Ended March 31 (in thousands)
|                  |  | 2006                               |        | 2005 |   | 2004   |  |   | 2003   |   | 2002
|Net Income (loss) |  | $                                  | 12,465 |      | $ | 5,439  |  | $ | (9,124 | ) |      | $ | 15,789 |  | $ | 7,460 
|Interest expense  |  |                                    | 11,375 |      |   | 9,535  |  |   | 8,826  |   |      |   | 9,308  |  |   | 11,934
|Depreciation      |  |                                    | 3,738  |      |   | 4,590  |  |   | 5,947  |   |      |   | 7,188  |  |   | 6,561 
|Amortization      |  |                                    | 8,454  |      |   | 5,961  |  |   | 6,129  |   |      |   | 2,419  |  |   | 1,714 
|                  |  |                                    |        |      |   |        |  |   |        |   |      |   |        |  |   |       
|EBITDA            |  | $                                  | 36,032 |      | $ | 25,525 |  | $ | 11,778 |   |      | $ | 34,704 |  | $ | 27,669
|                  |  |                                    |        |      |   |        |  |   |        |   |      |   |        |  |   |       

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



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



|                    |  |                                    |       |      |   |       |  |      |     |      |   |       |  |   |      
|------------------- |  | ---------------------------------- | ----- | ---- | - | ----- |  | ---- | --- | ---- | - | ----- |  | - | -----
|                    |  | Year Ended March 31 (in thousands)
|                    |  | 2006                               |       | 2005 |   | 2004  |  | 2003 |     | 2002
|Business expansion  |  | $                                  | 2,711 |      | $ |      |  | $    |    |      | $ | 140   |  | $ | 1,144
|Information systems |  |                                    | 789   |      |   | 501   |  |      | 490 |      |   | 1,121 |  |   | 1,418
|Equipment           |  |                                    | 1,331 |      |   | 710   |  |      | 495 |      |   | 1,076 |  |   | 1,770
|                    |  |                                    |       |      |   |       |  |      |     |      |   |       |  |   |      
|                    |  | $                                  | 4,831 |      | $ | 1,211 |  | $    | 985 |      | $ | 2,337 |  | $ | 4,332
|                    |  |                                    |       |      |   |       |  |      |     |      |   |       |  |   |      



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

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

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



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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 2002 through 2006:



|                  |  |                                    |        |      |   |        |  |   |        |   |      |   |        |  |   |       
|----------------- |  | ---------------------------------- | ------ | ---- | - | ------ |  | - | ------ | - | ---- | - | ------ |  | - | ------
|                  |  | Year Ended March 31 (in thousands)
|                  |  | 2006                               |        | 2005 |   | 2004   |  |   | 2003   |   | 2002
|Net Income (loss) |  | $                                  | 12,465 |      | $ | 5,439  |  | $ | (9,124 | ) |      | $ | 15,789 |  | $ | 7,460 
|Interest expense  |  |                                    | 11,375 |      |   | 9,535  |  |   | 8,826  |   |      |   | 9,308  |  |   | 11,934
|Depreciation      |  |                                    | 3,738  |      |   | 4,590  |  |   | 5,947  |   |      |   | 7,188  |  |   | 6,561 
|Amortization      |  |                                    | 8,454  |      |   | 5,961  |  |   | 6,129  |   |      |   | 2,419  |  |   | 1,714 
|                  |  |                                    |        |      |   |        |  |   |        |   |      |   |        |  |   |       
|EBITDA            |  | $                                  | 36,032 |      | $ | 25,525 |  | $ | 11,778 |   |      | $ | 34,704 |  | $ | 27,669
|                  |  |                                    |        |      |   |        |  |   |        |   |      |   |        |  |   |       

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

Executive Summary

The Companys expanded brand representation in certain markets resulted in greater total product sales revenue and case volume during the fiscal year ended March 31, 2006. Offsetting the increased revenue and gross margin,
however, were higher operating costs and increased interest expense, when compared to the prior fiscal year. The Companys gross profit increased by $33.5 million while operating expenses increased by $31.1 million during the twelve months
ended March 31, 2006 from the prior fiscal year primarily due to increased personnel and operational costs related to additional brands represented in the Companys product sales segment. The increase in the Companys net income
during the current fiscal year of $7.0 million was primarily the result of an $8.3 million vendor termination payment received during fiscal 2006.

The Companys long term debt increased $34.8 million from March 31, 2005 primarily due to increased working capital needs of $25.0 million in the product sales segment and the funding of a $14.9 million deposit made in connection
with the proposed acquisition of the stock of a Michigan wine wholesaler, L & L Wine and Liquor Corporation (L&L). The Companys availability at March 31, 2006 under its $60.0 million revolving credit facility was $22.1
million.



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##### Table of Contents

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

Results of Operations

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



|                            |  |                                          |  |                |      |  |        |      |                |    |  |       
|--------------------------- |  | ---------------------------------------- |  | -------------- | ---- |  | ------ | ---- | -------------- | -- |  | ------
|                            |  | Year Ended March 31 (Cases in thousands)
|                            |  | 2006                                     |  |                | 2005 |  |        | 2004
|                            |  | Cases                                    |  | Percent Change |      |  | Cases  |      | Percent Change |    |  | Cases 
|Wine (product sales)        |  | 3,604                                    |  | 65.3           | %    |  | 2,180  |      | (5.4           | )% |  | 2,304 
|Spirits (product sales)     |  | 2,867                                    |  | 23.4           | %    |  | 2,323  |      | 6.0            | %  |  | 2,192 
|Spirits (distribution fees) |  | 2,985                                    |  | 2.7            | %    |  | 2,907  |      | (0.2           | )% |  | 2,912 
|                            |  |                                          |  |                |      |  |        |      |                |    |  |       
|Total wine and spirits      |  | 9,456                                    |  | 27.6           | %    |  | 7,410  |      | 0.0            | %  |  | 7,408 
|                            |  |                                          |  |                |     
|Other                       |  | 8,728                                    |  | 3.4            | %    |  | 8,443  |      | (7.6           | )% |  | 9,139 
|                            |  |                                          |  |                |      |  |        |      |                |    |  |       
|Total                       |  | 18,184                                   |  | 14.7           | %    |  | 15,853 |      | (4.2           | )% |  | 16,547
|                            |  |                                          |  |                |      |  |        |      |                |    |  |       

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

Fiscal 2006 Compared with Fiscal 2005

Revenue

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

Gross Profit

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



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##### Table of Contents

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

Operating Expenses

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

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

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

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

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

Income From Operations

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



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##### Table of Contents

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

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

Interest Expense

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

Other Income or Expense

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

Net Income

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



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##### Table of Contents

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

EBITDA

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

Fiscal 2005 Compared with Fiscal 2004

Revenue

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

Gross Profit

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



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##### Table of Contents

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

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.

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 Future Brands and Diageo brokerage fee operations as compared to the prior fiscal year.

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

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

Income From Operations

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



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##### Table of Contents

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

Interest Expense

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

Other Income or Expense

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

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.

Liquidity and Capital Resources

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

The Company amended its revolving credit
agreement on September 28, 2005 to extend the line of credit for borrowings up to $47.0 million, including standby or commercial letters of credit, to fund working capital. The Company used the increased availability in part to fund the
acquisition of certain inventory and equipment from Johnson Brothers on August 1, 2005.



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##### Table of Contents

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

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

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

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

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. Of the $34.0 million of advances outstanding at March 31, 2006, $9.0 million bore interest at 8.00% based upon prime rate pricing, and $25.0 million bore interest at an average of 6.64% based upon
LIBOR pricing. The line of credit borrowings are collateralized by and based upon eligible accounts receivable and inventories, as defined in the credit agreement, 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, 2006. The Company anticipates that the revolving credit facility and other financial resources will provide adequate availability
to fund operations and working capital needs during fiscal 2007.

Cash used in operating activities was $1.0 million for the fiscal year
ended March 31, 2006, as compared to cash provided by operating activities of $12.9 million during the prior fiscal year. This comparative decrease in operating cash flow was primarily the result of increased working capital funding in the
product sales segment for accounts receivable of $15.8 million and additional inventories of $11.8 million. The additional accounts receivable and inventories were the result of sales growth and inventory requirements due to the additional brand
representation in the product sales segment. The Company funded the additional working capital needs through advances on the revolving line of credit and cash generated from additional net income of approximately $7.0 million.

Net cash used in investing activities was $21.3 million for the fiscal year ended March 31, 2006, compared to cash used of $4.0 million during the
prior fiscal year. The Company funded $14.9 million to an escrow account as part of a stock purchase agreement for the acquisition of the stock of L&L. The Companys purchases of property and equipment of $4.8 million included $2.0 million
of equipment that was acquired from the Johnson Brothers wine wholesale operation. Additionally, $1.6 million was funded for the expansion of the Companys facilities in Indiana.



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##### Table of Contents

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

The Companys Fiscal 2007 capital expenditures are expected to include the completion of an upgrade to its material handling system in Indiana
and total capital expenditures are expected to be approximately $7.0 to $10.0 million.

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

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 transaction, in exchange for a note. As part of that transfer, the Company has distributed funds to Mr. LaCrosse, the family trust, and Ms. Johnston during the prior fiscal years and the distributions 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 issued a shareholder distribution on July 15, 2005 which provided $2.5 million to the family trust described above and $0.5 million
to Ms. Johnston. The trust remitted $2.5 million to Mr. Lacrosse in full satisfaction of the note for the transfer and sale of the non-voting stock, and Mr. LaCrosse then loaned $2.0 million to the Company as subordinated debt.
Mr. LaCrosse used $0.3 million of the proceeds to pay income tax estimates and he retained approximately $0.2 million. Ms. Johnston also loaned $0.5 million to the Company as subordinated debt as part of this same shareholder distribution.

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



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##### Table of Contents

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 2007.

Aggregate Contractual Commitments

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



|                                 |  |                        |             |                  |   |            |  |           |             |                   |   |           |  |   |        
|-------------------------------- |  | ---------------------- | ----------- | ---------------- | - | ---------- |  | --------- | ----------- | ----------------- | - | --------- |  | - | -------
|                                 |  | 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       |  | $                      | 117,907,000 |                  |   |           |  | $         | 111,079,000 |                   | $ | 6,828,000 |  |   |       
|Future interest commitments(2)   |  |                        | 30,157,000  |                  | $ | 10,713,000 |  |           | 19,047,000  |                   |   | 397,000   |  |   |       
|Operating lease obligations      |  |                        | 8,111,000   |                  |   | 3,901,000  |  |           | 2,879,000   |                   |   | 992,000   |  | $ | 339,000
|Distribution rights obligations  |  |                        | 24,354,000  |                  |   | 6,252,000  |  |           | 11,447,000  |                   |   | 6,655,000 |  |   |       
|Purchase obligations             |  |                        | 80,789,000  |                  |   | 80,789,000 |  |           |            |                   |   |          |  |   |       
|Defined benefit plan funding(1)  |  |                        | 1,100,000   |                  |   | 1,100,000  |  |           |            |                   |   |          |  |   |       
|Brand promotion(3)               |  |                        | 4,492,000   |                  |   | 1,100,000  |  |           | 2,200,000   |                   |   | 1,192,000 |  |   |       
|Employment agreement obligations |  |                        | 3,226,000   |                  |   | 411,000    |  |           | 1,102,000   |                   |   | 828,000   |  |   | 885,000

---

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

|(2) | The interest component was estimated using an average revolving credit facility balance of $34 million with an assumed interest rate of 7.0%, subordinated debt in the amount of $6.8
million with an assumed interest rate of 7.75% and senior notes in the amount of $77.1 million with a fixed interest rate of 10.125%.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Off-Balance Sheet Arrangements

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

Other

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



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##### Table of Contents

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

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 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.



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##### Table of Contents

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

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

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

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

Vendor Allowances Received. The Company records vendor allowances and
discounts in accordance with EITF 02-16: Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor. The Company receives promotional funds from numerous suppliers by credit memos that the Company may
apply to future payments, by receipt of product without charge, or by direct payment from the supplier. The promotional funds reimburse the Company for specific and incremental product promotional costs that the Company would not have otherwise
undertaken or to fund future promotional activities. As outlined in EITF 02-16, these funds are classified as a current liability and are then applied to offset a specific operating cost for which the funds were received or classified as a reduction
of cost of products sold upon the sale of the product to which the funds relate. In accordance with this guidance, allowances and discounts received from suppliers are recognized at different times depending upon the timing and type of
allowance or discount received. When the Company incurs promotional costs and invoices the supplier for reimbursement, the recognition of the supplier allowance is recorded at the time the Company invoices the supplier. In instances in which the
supplier supplies product at a discounted cost, or supplies product without charge, the Company records the allowance when the product is sold. Additionally, in circumstances in which the supplier advances funds for future promotional activities,
the Company defers the recognition of the allowance until the promotional activities occur or when products are sold at a discounted price.

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



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##### Table of Contents

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

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

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



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

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

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



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##### Table of Contents

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

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

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

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

Recently Issued Accounting Pronouncements

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

In 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 has
determined the effect of SFAS No. 151 did not have a material effect on its financial position, results of operations and cash flows.



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##### Table of Contents

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

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

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

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



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##### Table of Contents

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 tables present the principal cash repayments and related
weighted average interest rates by maturity date for the Companys long-term fixed-rate debt and other types of long-term debt at March 31, 2006 and March 31, 2005:



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

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

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



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##### Table of Contents

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.

Indianapolis, Indiana

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

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

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

DELOITTE & TOUCHE LLP

Indianapolis, Indiana

June 26, 2006



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##### Table of Contents

National Wine & Spirits, Inc.

Consolidated Balance Sheets



|                                                                                                              |  |                |             |   |      |   |             |  
|------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ---- | - | ----------- | -
|                                                                                                              |  | As of March 31 |            
|                                                                                                              |  | 2006           |             |   | 2005 |  
|Assets                                                                                                        |  |                |             |   |      |   |             |  
|Current assets:                                                                                               |  |                |             |   |      |   |             |  
|Cash and cash equivalents                                                                                     |  | $              | 2,582,000   |   |      | $ | 2,957,000   |  
|Accounts receivable:                                                                                          |  |                |             |   |      |   |             |  
|Trade, less allowance for doubtful accounts of $949,000 and $761,000                                          |  |                | 41,032,000  |   |      |   | 28,558,000  |  
|Vendor, less allowance for doubtful accounts of $232,000 and $250,000                                         |  |                | 9,832,000   |   |      |   | 3,754,000   |  
|Inventory                                                                                                     |  |                | 92,779,000  |   |      |   | 80,568,000  |  
|Prepaid expenses and other current assets                                                                     |  |                | 5,386,000   |   |      |   | 4,997,000   |  
|                                                                                                              |  |                |             |   |      |   |             |  
|Total current assets                                                                                          |  |                | 151,611,000 |   |      |   | 120,834,000 |  
|                                                                                                              |  |               
|Property and equipment, net                                                                                   |  |                | 28,645,000  |   |      |   | 27,691,000  |  
|Other assets:                                                                                                 |  |                |             |   |      |   |             |  
|Cash surrender value of life insurance                                                                        |  |                | 5,404,000   |   |      |   | 4,892,000   |  
|Investment in Commonwealth Wine & Spirits, LLC                                                                |  |                | 5,673,000   |   |      |   | 5,284,000   |  
|Intangible assets, net of amortization                                                                        |  |                | 25,823,000  |   |      |   | 32,681,000  |  
|Goodwill                                                                                                      |  |                | 1,246,000   |   |      |   | 1,246,000   |  
|Deferred pension costs                                                                                        |  |                | 497,000     |   |      |   | 569,000     |  
|Deposits on acquisition                                                                                       |  |                | 14,923,000  |   |      |   |            |  
|Deposits and other                                                                                            |  |                | 595,000     |   |      |   | 592,000     |  
|                                                                                                              |  |                |             |   |      |   |             |  
|Total other assets                                                                                            |  |                | 54,161,000  |   |      |   | 45,264,000  |  
|                                                                                                              |  |                |             |   |      |   |             |  
|Total assets                                                                                                  |  | $              | 234,417,000 |   |      | $ | 193,789,000 |  
|                                                                                                              |  |                |             |   |      |   |             |  
|Liabilities And Stockholders Equity                                                                          |  |                |             |   |      |   |             |  
|Current liabilities:                                                                                          |  |                |             |   |      |   |             |  
|Accounts payable                                                                                              |  | $              | 44,717,000  |   |      | $ | 39,851,000  |  
|Outstanding checks in excess of bank balance                                                                  |  |                | 316,000     |   |      |   |            |  
|Accrued payroll and payroll taxes                                                                             |  |                | 9,461,000   |   |      |   | 8,837,000   |  
|Excise taxes payable                                                                                          |  |                | 4,581,000   |   |      |   | 4,286,000   |  
|Current portion of distribution rights obligations                                                            |  |                | 5,312,000   |   |      |   | 5,136,000   |  
|Other accrued expenses                                                                                        |  |                | 10,587,000  |   |      |   | 10,086,000  |  
|                                                                                                              |  |                |             |   |      |   |             |  
|Total current liabilities                                                                                     |  |                | 74,974,000  |   |      |   | 68,196,000  |  
|                                                                                                              |  |               
|Deferred pension liability                                                                                    |  |                | 3,332,000   |   |      |   | 3,073,000   |  
|Distribution rights obligations                                                                               |  |                | 16,601,000  |   |      |   | 21,625,000  |  
|Long-term debt                                                                                                |  |                | 117,907,000 |   |      |   | 83,157,000  |  
|                                                                                                              |  |                |             |   |      |   |             |  
|Total liabilities                                                                                             |  |                | 212,814,000 |   |      |   | 176,051,000 |  
|                                                                                                              |  |               
|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                                                                                           |  |                | (625,000    | ) |      |   | (4,822,000  | )
|Accumulated other comprehensive loss-unrealized net pension loss                                              |  |                | (2,835,000  | ) |      |   | (2,503,000  | )
|                                                                                                              |  |                |             |   |      |   |             |  
|Total stockholders equity                                                                                    |  |                | 21,603,000  |   |      |   | 17,738,000  |  
|                                                                                                              |  |                |             |   |      |   |             |  
|Total liabilities and stockholders equity                                                                    |  | $              | 234,417,000 |   |      | $ | 193,789,000 |  
|                                                                                                              |  |                |             |   |      |   |             |  

See accompanying notes.



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##### Table of Contents

National Wine & Spirits, Inc.

Consolidated Statements of Operations



|                                                     |  |                      |             |   |      |   |             |      |  |   |             |  
|---------------------------------------------------- |  | -------------------- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                     |  | Years Ended March 31 |            
|                                                     |  | 2006                 |             |   | 2005 |   |             | 2004 | 
|Net product sales                                    |  | $                    | 686,660,000 |   |      | $ | 524,399,000 |      |  | $ | 513,615,000 |  
|Distribution fees                                    |  |                      | 30,964,000  |   |      |   | 29,268,000  |      |  |   | 27,045,000  |  
|                                                     |  |                      |             |   |      |   |             |      |  |   |             |  
|Total revenue                                        |  |                      | 717,624,000 |   |      |   | 553,667,000 |      |  |   | 540,660,000 |  
|                                                     |  |                      |            
|Cost of products sold                                |  |                      | 558,999,000 |   |      |   | 428,576,000 |      |  |   | 421,468,000 |  
|                                                     |  |                      |             |   |      |   |             |      |  |   |             |  
|Gross profit                                         |  |                      | 158,625,000 |   |      |   | 125,091,000 |      |  |   | 119,192,000 |  
|                                                     |  |                      |            
|Selling, general and administrative expenses:        |  |                      |             |   |      |   |             |      |  |   |             |  
|Warehouse and delivery                               |  |                      | 45,161,000  |   |      |   | 37,196,000  |      |  |   | 37,147,000  |  
|Selling                                              |  |                      | 66,240,000  |   |      |   | 50,688,000  |      |  |   | 49,640,000  |  
|Administrative                                       |  |                      | 51,545,000  |   |      |   | 43,847,000  |      |  |   | 46,117,000  |  
|Management fees                                      |  |                      | (18,848,000 | ) |      |   | (18,743,000 | )    |  |   | (12,634,000 | )
|                                                     |  |                      |             |   |      |   |             |      |  |   |             |  
|                                                     |  |                      | 144,098,000 |   |      |   | 112,988,000 |      |  |   | 120,270,000 |  
|                                                     |  |                      |            
|Income (loss) from operations                        |  |                      | 14,527,000  |   |      |   | 12,103,000  |      |  |   | (1,078,000  | )
|                                                     |  |                      |            
|Interest expense:                                    |  |                      |             |   |      |   |             |      |  |   |             |  
|Related parties                                      |  |                      | (410,000    | ) |      |   | (203,000    | )    |  |   | (176,000    | )
|Third parties                                        |  |                      | (10,965,000 | ) |      |   | (9,440,000  | )    |  |   | (9,366,000  | )
|Gain from repurchase of long term debt               |  |                      |            |   |      |   | 108,000     |      |  |   | 716,000     |  
|                                                     |  |                      |             |   |      |   |             |      |  |   |             |  
|                                                     |  |                      | (11,375,000 | ) |      |   | (9,535,000  | )    |  |   | (8,826,000  | )
|                                                     |  |                      |            
|Other income (expense):                              |  |                      |             |   |      |   |             |      |  |   |             |  
|Vendor termination payment and arbitration award     |  |                      | 8,250,000   |   |      |   | 2,263,000   |      |  |   |            |  
|Interest income                                      |  |                      | 49,000      |   |      |   | 3,000       |      |  |   | 21,000      |  
|Rental and other income (loss)                       |  |                      | (193,000    | ) |      |   | 67,000      |      |  |   | 17,000      |  
|Equity in income of Commonwealth Wine & Spirits, LLC |  |                      | 1,207,000   |   |      |   | 538,000     |      |  |   | 742,000     |  
|                                                     |  |                      |             |   |      |   |             |      |  |   |             |  
|                                                     |  |                      | 9,313,000   |   |      |   | 2,871,000   |      |  |   | 780,000     |  
|                                                     |  |                      |            
|Net income (loss)                                    |  | $                    | 12,465,000  |   |      | $ | 5,439,000   |      |  | $ | (9,124,000  | )
|                                                     |  |                      |             |   |      |   |             |      |  |   |             |  

See accompanying notes.



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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 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 Income          |  |                             |       |                            |   |                                         |  |   |                                      |  |   |                            |   |  |   |            |   |  |   | (9,253,000 | )
|                              |  |                             |       |                            |   |                                        
|Distributions to Stockholders |  |                             |      |                            |   |                                        |  |   |                                     |  |   | (6,008,000                 | ) |  |   |           |   |  |   | (6,008,000 | )
|                              |  |                             |       |                            |   |                                         |  |   |                                      |  |   |                            |   |  |   |            |   |  |   |            |  
|Balance at March 31, 2004     |  |                             | 1,000 |                            |   | 53,000                                  |  |   | 25,009,000                           |  |   | (10,051,000                | ) |  |   | (2,419,000 | ) |  |   | 12,593,000 |  
|                              |  |                             |       |                            |   |                                        
|Net income                    |  |                             |      |                            |   |                                        |  |   |                                     |  |   | 5,439,000                  |   |  |   |           |   |  |   | 5,439,000  |  
|Unrealized net Pension loss   |  |                             |      |                            |   |                                        |  |   |                                     |  |   |                           |   |  |   | (84,000    | ) |  |   | (84,000    | )
|                              |  |                             |       |                            |   |                                         |  |   |                                      |  |   |                            |   |  |   |            |   |  |   |            |  
|Comprehensive loss            |  |                             |       |                            |   |                                         |  |   |                                      |  |   |                            |   |  |   |            |   |  |   | (5,355,000 | )
|                              |  |                             |       |                            |   |                                        
|Distributions to Stockholders |  |                             |      |                            |   |                                        |  |   |                                     |  |   | (210,000                   | ) |  |   |           |   |  |   | (210,000   | )
|                              |  |                             |       |                            |   |                                         |  |   |                                      |  |   |                            |   |  |   |            |   |  |   |            |  
|Balance at March 31, 2005     |  |                             | 1,000 |                            |   | 53,000                                  |  |   | 25,009,000                           |  |   | (4,822,000                 | ) |  |   | (2,503,000 | ) |  |   | 17,738,000 |  
|                              |  |                             |       |                            |   |                                        
|Net income                    |  |                             |      |                            |   |                                        |  |   |                                     |  |   | 12,465,000                 |   |  |   |           |   |  |   | 12,465,000 |  
|Unrealized net Pension loss   |  |                             |      |                            |   |                                        |  |   |                                     |  |   |                           |   |  |   | (332,000   | ) |  |   | (332,000   | )
|                              |  |                             |       |                            |   |                                         |  |   |                                      |  |   |                            |   |  |   |            |   |  |   |            |  
|Comprehensive income          |  |                             |       |                            |   |                                         |  |   |                                      |  |   |                            |   |  |   |            |   |  |   | 29,871,000 |  
|                              |  |                             |       |                            |   |                                        
|Distributions to Stockholders |  |                             |      |                            |   |                                        |  |   |                                     |  |   | (8,268,000                 | ) |  |   |           |   |  |   | (8,268,000 | )
|                              |  |                             |       |                            |   |                                         |  |   |                                      |  |   |                            |   |  |   |            |   |  |   |            |  
|Balance at March 31, 2006     |  | $                           | 1,000 |                            | $ | 53,000                                  |  | $ | 25,009,000                           |  | $ | (625,000                   | ) |  | $ | (2,835,000 | ) |  | $ | 21,603,000 |  
|                              |  |                             |       |                            |   |                                         |  |   |                                      |  |   |                            |   |  |   |            |   |  |   |            |  

See accompanying notes.



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##### Table of Contents

National Wine & Spirits, Inc.

Consolidated Statements of Cash Flows



|                                                                             |  |                      |              |   |      |   |              |      |  |   |              |  
|---------------------------------------------------------------------------- |  | -------------------- | ------------ | - | ---- | - | ------------ | ---- |  | - | ------------ | -
|                                                                             |  | Years Ended March 31 |             
|                                                                             |  | 2006                 |              |   | 2005 |   |              | 2004 | 
|Operating Activities:                                                        |  |                      |              |   |      |   |              |      |  |   |              |  
|Net income (loss)                                                            |  | $                    | 12,465,000   |   |      | $ | 5,439,000    |      |  | $ | (9,124,000   | )
|Adjustments to reconcile net income (loss) to net cash provided by (used in) |  |                      |              |   |      |   |              |      |  |   |              |  
|Operating activities:                                                        |  |                      |              |   |      |   |              |      |  |   |              |  
|Depreciation of property and equipment                                       |  |                      | 3,738,000    |   |      |   | 4,590,000    |      |  |   | 5,947,000    |  
|Amortization of intangible assets                                            |  |                      | 8,454,000    |   |      |   | 5,961,000    |      |  |   | 6,129,000    |  
|Distributions from Commonwealth Wine & Spirits, LLC                          |  |                      | 818,000      |   |      |   | 847,000      |      |  |   | 786,000      |  
|Equity in earnings of Commonwealth Wine & Spirits, LLC                       |  |                      | (1,207,000   | ) |      |   | (538,000     | )    |  |   | (742,000     | )
|Provision for bad debt expense                                               |  |                      | 313,000      |   |      |   | 193,000      |      |  |   | 547,000      |  
|Gain on repurchase of long term debt                                         |  |                      |             |   |      |   | (108,000     | )    |  |   | (716,000     | )
|(Gain) loss on sales of assets                                               |  |                      | 63,000       |   |      |   | 11,000       |      |  |   | (270,000     | )
|Increase in cash surrender value of life insurance                           |  |                      | (512,000     | ) |      |   | (526,000     | )    |  |   | (551,000     | )
|Changes in operating assets and liabilities                                  |  |                      |              |   |      |   |              |      |  |   |              |  
|Accounts receivable                                                          |  |                      | (18,865,000  | ) |      |   | (3,333,000   | )    |  |   | 13,865,000   |  
|Inventories                                                                  |  |                      | (12,211,000  | ) |      |   | (372,000     | )    |  |   | 2,786,000    |  
|Prepaid expenses and other current assets                                    |  |                      | (389,000     | ) |      |   | (504,000     | )    |  |   | (192,000     | )
|Deposits and other                                                           |  |                      |             |   |      |   | 7,000        |      |  |   | (4,000       | )
|Accounts payable                                                             |  |                      | 4,866,000    |   |      |   | (652,000     | )    |  |   | 742,000      |  
|Accrued expenses and taxes                                                   |  |                      | 1,419,000    |   |      |   | 1,886,000    |      |  |   | (2,503,000   | )
|                                                                             |  |                      |              |   |      |   |              |      |  |   |              |  
|Net cash and cash equivalents provided by (used in) operating activities     |  |                      | (1,048,000   | ) |      |   | 12,901,000   |      |  |   | 16,700,000   |  
|                                                                             |  |                      |             
|Investing activities:                                                        |  |                      |              |   |      |   |              |      |  |   |              |  
|Purchases of property and equipment                                          |  |                      | (4,831,000   | ) |      |   | (1,211,000   | )    |  |   | (985,000     | )
|Purchases of intangible assets                                               |  |                      | (1,597,000   | ) |      |   | (3,519,000   | )    |  |   | (210,000     | )
|Proceeds from sale of property and equipment                                 |  |                      | 74,000       |   |      |   | 453,000      |      |  |   | 106,000      |  
|Deposits on acquisitions                                                     |  |                      | (14,923,000  | ) |      |   |             |      |  |   |             |  
|Proceeds from sale of intangible assets                                      |  |                      |             |   |      |   | 100,000      |      |  |   | 272,000      |  
|Collections on notes receivable                                              |  |                      |             |   |      |   | 197,000      |      |  |   | 95,000       |  
|                                                                             |  |                      |              |   |      |   |              |      |  |   |              |  
|Net cash and cash equivalents provided by (used in) investing activities     |  |                      | (21,277,000  | ) |      |   | (3,980,000   | )    |  |   | (722,000     | )
|                                                                             |  |                      |             
|Financing activities:                                                        |  |                      |              |   |      |   |              |      |  |   |              |  
|Cash provided (used) by outstanding checks in excess of bank balance         |  |                      | 316,000      |   |      |   | (91,000      | )    |  |   | 91,000       |  
|Proceeds from line of credit borrowings                                      |  |                      | 233,500,000  |   |      |   | 196,500,000  |      |  |   | 140,400,000  |  
|Principal payments on line of credit borrowings                              |  |                      | (201,250,000 | ) |      |   | (197,750,000 | )    |  |   | (141,400,000 | )
|Principal payments on long-term debt, including purchases of senior notes    |  |                      |             |   |      |   | (1,842,000   | )    |  |   | (9,935,000   | )
|Proceeds of borrowings from stockholder                                      |  |                      | 2,500,000    |   |      |   |             |      |  |   |             |  
|Payments of distribution rights obligations                                  |  |                      | (4,848,000   | ) |      |   | (4,037,000   | )    |  |   | (3,480,000   | )
|Distributions to stockholders                                                |  |                      | (8,268,000   | ) |      |   | (210,000     | )    |  |   | (6,008,000   | )
|                                                                             |  |                      |              |   |      |   |              |      |  |   |              |  
|Net cash and cash equivalents provided by (used in) financing activities     |  |                      | 21,950,000   |   |      |   | (7,430,000   | )    |  |   | (20,332,000  | )
|                                                                             |  |                      |             
|Net increase (decrease) in cash and cash equivalents                         |  |                      | (375,000     | ) |      |   | 1,491,000    |      |  |   | (4,354,000   | )
|Cash and cash equivalents, beginning of year                                 |  |                      | 2,957,000    |   |      |   | 1,466,000    |      |  |   | 5,820,000    |  
|                                                                             |  |                      |              |   |      |   |              |      |  |   |              |  
|Cash and cash equivalents, end of year                                       |  | $                    | 2,582,000    |   |      | $ | 2,957,000    |      |  | $ | 1,466,000    |  
|                                                                             |  |                      |              |   |      |   |              |      |  |   |              |  

See accompanying notes.



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##### Table of Contents

National Wine & Spirits, Inc.

Notes to Consolidated Financial Statements

March 31, 2006

1. Nature of Business and Summary of Significant Accounting Policies

Nature of Business and Principles of Consolidation

National Wine & Spirits, Inc. (NWS or the Company), an S-Corporation, is
a holding company which operates primarily in the wine and liquor wholesale distribution business. Based in Indianapolis, National Wine & Spirits Corporation (NWSC) is a wholesale distributor of liquor and wines throughout Indiana and also
operates a division for the distribution of cigars and accessories. Based in Chicago, NWS-Illinois, LLC (NWS-LLC) is a wholesale distributor of liquor, wines, and beer throughout Illinois. NWS Michigan, Inc. (NWSM) distributes liquor throughout
Michigan and National Wine & Spirits, LLC (NWSM-LLC) is a wholesale distributor of non-alcoholic and low proof products throughout Michigan. NWSM distributes spirits products as an Authorized Distribution Agent (ADA) for the State of
Michigan and derives revenue from distribution and brokerage fees. Accordingly, NWSMs results represent the entire All Other segment as described in Note 12. 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 $77,658,000 at March 31, 2006.



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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 $10,729,000, $6,063,000 and $8,432,000 in 2006, 2005 and 2004, respectively.

Property and Equipment

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



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



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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,
2006, and there was no indication of impairment. There was no change to Goodwill during 2006 and 2005.

Long-lived Assets

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

Income Taxes

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

Revenue Recognition

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



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##### Table of Contents

Net sales and distribution fees are recognized at the time product is delivered, which is when title passes. Shipping and
handling charged to customers is included in Net Product Sales. For the years ended March 31, 2006, 2005, and 2004, the Company incurred delivery expenses of $19,573,000, $15,394,000 and $14,739,000, respectively, which are included in
warehouse and delivery expenses in the accompanying Consolidated Statements of Income.

Statement of Operations Classification

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

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

Payments to Customers

The Company records certain payments to
customers as a reduction of revenue in accordance with EITF 01-09: Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendors Product). The Company recorded $12,209,000, $12,299,000 and $14,075,000
of consideration paid to customers as a reduction of revenue in the Consolidated Statements of Operations for the years ended March 31, 2006, 2005 and 2004, respectively.

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 promotional funds from numerous suppliers by credit memos that the Company may apply to future payments, by receipt of
product without charge, or by direct payment from the supplier. The promotional funds reimburse the Company for specific and incremental product promotional costs that the Company would not have otherwise undertaken or to fund future
promotional activities. As outlined in EITF 02-16, these funds are classified as a current liability and are then applied to offset a specific operating cost for which the funds were received or classified as a reduction of cost of products sold
upon the sale of the product to which the funds relate. In accordance with this guidance, allowances and discounts received from suppliers are recognized at different times depending upon the timing and type of allowance or discount received.
When the Company incurs promotional costs and invoices the supplier for reimbursement, the recognition of the supplier allowance is recorded at the time the Company



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

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

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

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



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

Recently Issued Accounting Pronouncements

In 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 has determined the effect of SFAS No. 151 did not have a
material effect on its financial position, results of operations and cash flows.

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



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

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

Reclassifications

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

2. Investment in Unconsolidated Subsidiaries

eSkye Solutions, Inc.

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

Commonwealth Wine & Spirits, LLC

In December 1998, NWSC formed a new distributorship in Kentucky (Commonwealth Wine & Spirits, LLC) in partnership with two existing Kentucky-based distributors, The Vertner Smith Company (Vertner) and Kentucky
Wine & Spirits (Kentucky W&S). NWSC has accounted for its investment in Commonwealth Wine & Spirits, LLC using the equity method. Under the terms, NWSC invested $7,500,000 in exchange for a 25% interest in the new
company. Vertner and Kentucky W&S equally own the remaining 75%. A portion of NWSCs initial investment related to a franchise fee paid by NWSC on behalf of the new distributorship. As part of the operating agreement, NWSCs initial
cash distributions from the new distributorship are treated as return of NWSCs original investment. As a result, the amortization of this franchise fee was



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

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



|                        |  |                       |            |      |   |            |  |   |            |  
|----------------------- |  | --------------------- | ---------- | ---- | - | ---------- |  | - | ---------- | -
|                        |  | Years Ended March 31, |           
|                        |  | 2006                  |            | 2005 |   | 2004       | 
|Sales                   |  | $                     | 87,035,000 |      | $ | 82,674,000 |  | $ | 81,355,000 |  
|Operating income (loss) |  |                       | 3,672,000  |      |   | 2,426,000  |  |   | (2,222,000 | )
|Net income (loss)       |  |                       | 3,296,000  |      |   | 1,138,000  |  |   | (2,020,000 | )



|                        |  |           |            |      |   |           
|----------------------- |  | --------- | ---------- | ---- | - | ----------
|                        |  | March 31,
|                        |  | 2006      |            | 2005
|Current assets          |  | $         | 18,539,000 |      | $ | 17,576,000
|Non-current assets      |  |           | 1,273,000  |      |   | 1,790,000 
|Current liabilities     |  |           | 7,043,000  |      |   | 7,744,000 
|Non-current liabilities |  |           | 3,176,000  |      |   | 2,875,000 
|Minority interest       |  |           |           |      |   | 3,000     
|Redeemable stock        |  |           | 18,466,000 |      |   | 23,584,000

3. Inventory

Inventory at March 31 is comprised of the following:



|                   |  |      |             |   |      |   |             |  
|------------------ |  | ---- | ----------- | - | ---- | - | ----------- | -
|                   |  | 2006 |             |   | 2005 |  
|Inventory at FIFO  |  | $    | 105,882,000 |   |      | $ | 92,228,000  |  
|Less: LIFO reserve |  |      | (13,103,000 | ) |      |   | (11,660,000 | )
|                   |  |      |             |   |      |   |             |  
|                   |  | $    | 92,779,000  |   |      | $ | 80,568,000  |  
|                   |  |      |             |   |      |   |             |  

The Company utilizes the LIFO method of accounting for inventory for substantially all of its inventory. The
amounts accounted for under LIFO as of March 31, 2006 and March 31, 2005 were $102,471,000 and $88,873,000, respectively.



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4. Property and Equipment

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



|                               |  |      |            |      |   |           
|------------------------------ |  | ---- | ---------- | ---- | - | ----------
|                               |  | 2006 |            | 2005
|Land and improvements          |  | $    | 1,173,000  |      | $ | 1,173,000 
|Buildings and improvements     |  |      | 31,088,000 |      |   | 31,687,000
|Furniture and equipment        |  |      | 14,923,000 |      |   | 14,174,000
|Warehouse equipment            |  |      | 32,199,000 |      |   | 28,304,000
|Automobiles and trucks         |  |      | 5,646,000  |      |   | 5,295,000 
|                               |  |      |            |      |   |           
|                               |  |      | 85,029,000 |      |   | 80,633,000
|                               |  |     
|Less: Accumulated depreciation |  |      | 56,384,000 |      |   | 52,942,000
|                               |  |      |            |      |   |           
|                               |  | $    | 28,645,000 |      | $ | 27,691,000
|                               |  |      |            |      |   |           

5. Supplemental Cash Flow Information

During the years ended March 31, 2006, 2005 and 2004, the Company purchased intangible assets, principally distribution rights of $1,597,000, $11,146,000 and $15,797,000, respectively, by incurring other
liabilities of $-0-, $7,626,000 and $15,587,000, respectively.

Cash paid for interest was $11,038,000, $9,683,000 and $9,935,000 in 2006, 2005 and 2004,
respectively.

6. Intangible Assets

Intangible assets
at March 31 are comprised of the following:



|                                              |  |                      |  |                     |            |                         |   |                     |  |                         |            |  |   |           
|--------------------------------------------- |  | -------------------- |  | ------------------- | ---------- | ----------------------- | - | ------------------- |  | ----------------------- | ---------- |  | - | ----------
|                                              |  |                      |  | 2006                |            | 2005                   
|Intangible Assets Subject to Amortization     |  | WeightedAverage Life |  | GrossCarryingAmount |            | AccumulatedAmortization |   | GrossCarryingAmount |  | AccumulatedAmortization
|Distribution rights                           |  | 7                    |  | $                   | 42,400,000 |                         | $ | 18,365,000          |  | $                       | 40,859,000 |  | $ | 10,486,000
|Loan acquisition costs                        |  | 10                   |  |                     | 4,061,000  |                         |   | 2,828,000           |  |                         | 4,065,000  |  |   | 2,427,000 
|                                              |  |                      |  |                     |            |                         |   |                     |  |                         |            |  |   |           
|Total                                         |  |                      |  | $                   | 46,461,000 |                         | $ | 21,193,000          |  | $                       | 44,924,000 |  | $ | 12,913,000
|                                              |  |                      |  |                     |            |                         |   |                     |  |                         |            |  |   |           
|                                              |  |                      |  |                     |           
|Intangible Assets Not Subject to Amortization |  |                      |  | CarryingAmount      |            |                         |   | CarryingAmount      |  |                        
|Distribution rights                           |  |                      |  | $                   | 555,000    |                         |   |                     |  | $                       | 670,000    |  |   |           
|                                              |  |                      |  |                     |            |                         |   |                     |  |                         |            |  |   |           

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

As 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 $105,000, $267,000 and
$846,000 to amortization expense



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during the twelve month periods ended March 31, 2006, 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:



|     |  |   |           
|---- |  | - | ----------
|2007 |  | $ | 7,059,000 
|2008 |  |   | 6,217,000 
|2009 |  |   | 5,626,000 
|2010 |  |   | 4,971,000 
|2011 |  |   | 935,000   
|     |  |   |           
|     |  | $ | 24,808,000
|     |  |   |           

7. Debt

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



|                                                          |  |      |             |      |   |           
|--------------------------------------------------------- |  | ---- | ----------- | ---- | - | ----------
|                                                          |  | 2006 |             | 2005
|Senior notes payable (A)                                  |  | $    | 77,079,000  |      | $ | 77,079,000
|Bank revolving line of credit (B)                         |  |      | 34,000,000  |      |   | 1,750,000 
|Notes payable to stockholders, net (C) (also see Note 11) |  |      | 6,828,000   |      |   | 4,328,000 
|                                                          |  |      |             |      |   |           
|                                                          |  |      | 117,907,000 |      |   | 83,157,000
|Less: current maturities                                  |  |      |            |      |   |          
|                                                          |  |      |             |      |   |           
|                                                          |  | $    | 117,907,000 |      | $ | 83,157,000
|                                                          |  |      |             |      |   |           

---

|(A) | On January 25, 1999, the Company issued $110.0 million of unsecured senior notes with a maturity of January 15, 2009. Interest on the senior notes is 10.125% and is
payable semiannually. These senior notes are guaranteed by the Companys subsidiaries. The guarantors are either wholly owned or the Company owns 100% of the voting stock and there are no non-guarantor subsidiaries. The guarantees are full,
unconditional and joint and several. NWS is a holding company and has no independent assets or operations.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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 $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



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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 $40.0 million, including standby or commercial letters of credit of up to $5.0 million, through April 1, 2008. Commercial letters of credit of $4.0 million were outstanding at March 31, 2006 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, 2006, the applicable interest rate on $9.0 million of the revolving line of credit was 8.00%, based upon prime rate pricing. The applicable rate on $25.0 million of
the revolving line of credit was 6.64%, based upon LIBOR pricing.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company amended its revolving credit agreement on
September 28, 2005 to extend the line of credit for borrowings up to $47.0 million, including standby or commercial letters of credit, to fund working capital. The Company used the increased availability in part to fund the acquisition of
certain inventory and equipment from another distributor in Illinois on August 1, 2005.

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

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

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



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



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

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

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

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



|           |  |   |            
|---------- |  | - | -----------
|2007       |  |   |           
|2008       |  |   |           
|2009       |  | $ | 111,079,000
|2010       |  | $ | 6,828,000  
|2011       |  |   |           
|Thereafter |  |   |           
|           |  |   |            
|           |  | $ | 117,907,000
|           |  |   |            

8. Common Stock

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



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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, 2006 are as follows:



|           |  |   |          
|---------- |  | - | ---------
|2007       |  | $ | 3,901,000
|2008       |  |   | 1,746,000
|2009       |  |   | 1,133,000
|2010       |  |   | 674,000  
|2011       |  |   | 318,000  
|Thereafter |  |   | 339,000  
|           |  |   |          
|           |  | $ | 8,111,000
|           |  |   |          

Rent expense was $5,648,000, $4,941,000 and $4,797,000 in 2006, 2005 and 2004, 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, 2006 are as follows:



|           |  |   |          
|---------- |  | - | ---------
|2007       |  | $ | 1,100,000
|2008       |  |   | 1,100,000
|2009       |  |   | 1,100,000
|2010       |  |   | 1,100,000
|2011       |  |   | 92,000   
|Thereafter |  |   |         
|           |  |   |          
|           |  | $ | 4,492,000
|           |  |   |          



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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.



|                                                                     |  |      |            |   |      |   |            |  
|-------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                     |  | 2006 |            |   | 2005 |  
|Change in projected benefit obligation:                              |  |      |            |   |      |   |            |  
|Benefit obligation at beginning of year                              |  | $    | 8,210,000  |   |      | $ | 7,255,000  |  
|Service cost                                                         |  |      | 540,000    |   |      |   | 489,000    |  
|Interest cost                                                        |  |      | 465,000    |   |      |   | 428,000    |  
|Actuarial changes                                                    |  |      | 347,000    |   |      |   | 261,000    |  
|Benefits paid                                                        |  |      | (270,000   | ) |      |   | (223,000   | )
|                                                                     |  |      |            |   |      |   |            |  
|Benefit obligation at end of year                                    |  | $    | 9,292,000  |   |      | $ | 8,210,000  |  
|                                                                     |  |      |            |   |      |   |            |  
|Change in plan assets:                                               |  |      |            |   |      |   |            |  
|Fair value of plan assets at beginning of year                       |  | $    | 6,010,000  |   |      | $ | 4,872,000  |  
|Actual gain on plan assets                                           |  |      | 394,000    |   |      |   | 460,000    |  
|Employer contributions                                               |  |      | 1,060,000  |   |      |   | 901,000    |  
|Benefits paid                                                        |  |      | (270,000   | ) |      |   | (223,000   | )
|                                                                     |  |      |            |   |      |   |            |  
|Fair value of plan assets at measurement date                        |  | $    | 7,192,000  |   |      | $ | 6,010,000  |  
|                                                                     |  |     
|Reconciliation of funded status:                                     |  |      |            |   |      |   |            |  
|Funded (Unfunded) status                                             |  | $    | (2,100,000 | ) |      | $ | (2,200,000 | )
|Unrecognized actuarial loss                                          |  |      | 2,835,000  |   |      |   | 2,503,000  |  
|Unrecognized prior service cost                                      |  |      | 489,000    |   |      |   | 541,000    |  
|Unrecognized transition obligation                                   |  |      | 8,000      |   |      |   | 28,000     |  
|                                                                     |  |      |            |   |      |   |            |  
|Prepaid benefit cost at measurement date                             |  |      | 1,232,000  |   |      |   | 872,000    |  
|                                                                     |  |      |            |   |      |   |            |  
|Contributions made after measurement date                            |  |      | 200,000    |   |      |   | 200,000    |  
|                                                                     |  |      |            |   |      |   |            |  
|Prepaid benefit cost at end of year                                  |  | $    | 1,432,000  |   |      | $ | 1,072,000  |  
|                                                                     |  |      |            |   |      |   |            |  
|Amounts recognized in the consolidated balance sheet:                |  |      |            |   |      |   |            |  
|Prepaid benefit cost                                                 |  | $    | 1,432,000  |   |      | $ | 1,072,000  |  
|Non-current deferred additional liability                            |  |      | (3,332,000 | ) |      |   | (3,073,000 | )
|Deferred pension costs - intangible asset                            |  |      | 497,000    |   |      |   | 569,000    |  
|Accumulated other comprehensive loss                                 |  | $    | 2,835,000  |   |      | $ | 2,503,000  |  
|                                                                     |  |     
|Increase in minimum liability included in other comprehensive income |  | $    | 332,000    |   |      | $ | 84,000     |  



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

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



|                               |  |      |           |      |   |          
|------------------------------ |  | ---- | --------- | ---- | - | ---------
|                               |  | 2006 |           | 2005
|Projected benefit obligation   |  | $    | 9,292,000 |      | $ | 8,210,000
|Accumulated benefit obligation |  | $    | 9,292,000 |      | $ | 8,210,000
|Plan assets at fair value      |  | $    | 7,192,000 |      | $ | 6,010,000

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



|                   |  |                  |          
|------------------ |  | ---------------- | ---------
|Plan Year          |  | Benefit Payments
|2007               |  | $                | 259,000  
|2008               |  |                  | 277,000  
|2009               |  |                  | 290,000  
|2010               |  |                  | 292,000  
|2011               |  |                  | 318,000  
|Years 2012 to 2016 |  |                  | 2,113,000

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



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



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



|                               |  |      |   |  |      |  
|------------------------------ |  | ---- | - |  | ---- | -
|                               |  | 2006 |   |  | 2005 |  
|Discount rate                  |  | 5.50 | % |  | 5.75 | %
|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, 2006 and is the allocation to be used for
the year ended March 31, 2007. As of the Companys 2006 and 2005 measurement dates, the percentage of fair value of total assets by asset category was as follows:



|                          |  |       |   |  |       |  
|------------------------- |  | ----- | - |  | ----- | -
|                          |  | 2006  |   |  | 2005  |  
|Asset category:           |  |       |   |  |       |  
|Equity securities         |  | 64.88 | % |  | 61.36 | %
|Debt securities           |  | 32.76 | % |  | 21.71 | %
|Cash and cash equivalents |  | 2.36  | % |  | 16.93 | %

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

The Company also sponsors a defined contribution benefit plan for substantially all employees not covered by the defined
benefit plan. Contributions to the plan are made at the discretion of



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the Company and may not exceed 5% of a participants compensation. The Company recorded $2,237,000, $1,823,000 and $1,588,000 of expense for the defined
contribution plan in 2006, 2005 and 2004, respectively.

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 $1,043,000, $621,000 and $575,000 in 2006, 2005
and 2004, 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.

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

11. Related Party Transactions

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

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

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

NWS 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 years ended March 31, 2006, 2005 and 2004 in order to maintain a tenant in an unused portion of the office building of the Companys corporate headquarters. The Company paid eSkye fees for
computer services of $0, $35,000 and $50,000 during the years ended March 31, 2006, 2005 and 2004, respectively.



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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.



|                                                       |  |      |             |      |   |             |  |   |             |  
|------------------------------------------------------ |  | ---- | ----------- | ---- | - | ----------- |  | - | ----------- | -
|                                                       |  | 2006 |             | 2005 |   | 2004        | 
|Revenue from external customers                        |  |      |             |      |   |             |  |   |             |  
|Product sales                                          |  | $    | 686,660,000 |      | $ | 524,399,000 |  | $ | 513,615,000 |  
|All other                                              |  |      | 30,964,000  |      |   | 29,268,000  |  |   | 27,045,000  |  
|Interest expense                                       |  |      |             |      |   |             |  |   |             |  
|Product sales                                          |  |      | 9,253,000   |      |   | 8,063,000   |  |   | 7,110,000   |  
|All other                                              |  |      | 2,122,000   |      |   | 1,472,000   |  |   | 1,716,000   |  
|Depreciation expense                                   |  |      |             |      |   |             |  |   |             |  
|Product sales                                          |  |      | 3,299,000   |      |   | 3,412,000   |  |   | 4,041,000   |  
|All other                                              |  |      | 439,000     |      |   | 1,178,000   |  |   | 1,906,000   |  
|Amortization expense                                   |  |      |             |      |   |             |  |   |             |  
|Product sales                                          |  |      | 8,454,000   |      |   | 5,954,000   |  |   | 6,088,000   |  
|All other                                              |  |      |            |      |   | 7,000       |  |   | 41,000      |  
|Equity in earnings of Commonwealth Wine & Spirits, LLC |  |      |             |      |   |             |  |   |             |  
|Product sales                                          |  |      | 1,207,000   |      |   | 538,000     |  |   | 742,000     |  
|All other                                              |  |      |            |      |   |            |  |   |            |  
|Segment income (loss) from operations                  |  |      |             |      |   |             |  |   |             |  
|Product sales                                          |  |      | 11,660,000  |      |   | 9,562,000   |  |   | (2,970,000  | )
|All other                                              |  |      | 2,867,000   |      |   | 2,541,000   |  |   | 1,892,000   |  
|Segment assets                                         |  |      |             |      |   |             |  |   |             |  
|Product sales                                          |  |      | 210,431,000 |      |   | 185,087,000 |  |   | 177,042,000 |  
|All other                                              |  |      | 23,986,000  |      |   | 8,702,000   |  |   | 10,058,000  |  
|Investments in equity method investees                 |  |      |             |      |   |             |  |   |             |  
|Product sales                                          |  |      | 5,673,000   |      |   | 5,284,000   |  |   | 5,593,000   |  
|All other                                              |  |      |            |      |   |            |  |   |            |  
|Goodwill                                               |  |      |             |      |   |             |  |   |             |  
|Product sales                                          |  |      |            |      |   |            |  |   |            |  
|All other                                              |  |      | 1,246,000   |      |   | 1,246,000   |  |   | 1,246,000   |  
|Expenditures on long-lived assets                      |  |      |             |      |   |             |  |   |             |  
|Product sales                                          |  |      | 4,735,000   |      |   | 1,029,000   |  |   | 769,000     |  
|All other                                              |  |      | 96,000      |      |   | 182,000     |  |   | 216,000     |  

13. Concentration of Risk

Products purchased from four suppliers amounted to approximately 44%, 46% and 46% of all purchases in 2006, 2005 and 2004, respectively.



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14. Vendor Distribution Agreements

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



|                                                      |  |   |            |  
|----------------------------------------------------- |  | - | ---------- | -
|2007                                                  |  | $ | 6,252,000  |  
|2008                                                  |  |   | 5,923,000  |  
|2009                                                  |  |   | 5,524,000  |  
|2010                                                  |  |   | 5,324,000  |  
|2011                                                  |  |   | 1,331,000  |  
|Thereafter                                            |  |   |           |  
|                                                      |  |   |            |  
|Total distribution rights obligations                 |  |   | 24,354,000 |  
|Imputed interest                                      |  |   | (2,441,000 | )
|                                                      |  |   |            |  
|Present value of minimum distribution rights payments |  |   | 21,913,000 |  
|Current portion                                       |  |   | (5,312,000 | )
|                                                      |  |   |            |  
|Long-term distribution rights obligation              |  | $ | 16,601,000 |  
|                                                      |  |   |            |  

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

15. Management Fees

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

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

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

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



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substantially all of the net assets of the Companys Illinois business with cash proceeds based upon 80% of the then
current net book value of the Companys Illinois business. The Company would own 20% of the new joint venture and the transaction is currently expected to close before December 31, 2006 and is subject to a number of closing conditions.

16. Quarterly Data (Unaudited)

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



|                                             |  |      |             |   |    |   |             |    |  |   |             |   |  |       |             |   |  |   |             |  
|-------------------------------------------- |  | ---- | ----------- | - | -- | - | ----------- | -- |  | - | ----------- | - |  | ----- | ----------- | - |  | - | ----------- | -
|                                             |  | 2006 |            
|                                             |  | Q1   |             |   | Q2 |   |             | Q3 |  |   | Q4          |   |  | Total |            
|Total revenue                                |  | $    | 166,117,000 |   |    | $ | 166,794,000 |    |  | $ | 218,068,000 |   |  | $     | 166,645,000 |   |  | $ | 717,624,000 |  
|Gross profit                                 |  |      | 36,600,000  |   |    |   | 37,752,000  |    |  |   | 46,772,000  |   |  |       | 37,501,000  |   |  |   | 158,625,000 |  
|Selling, general and administrative expenses |  |      | 32,302,000  |   |    |   | 34,099,000  |    |  |   | 42,740,000  |   |  |       | 34,957,000  |   |  |   | 144,098,000 |  
|Income from operations                       |  |      | 4,298,000   |   |    |   | 3,653,000   |    |  |   | 4,032,000   |   |  |       | 2,544,000   |   |  |   | 14,527,000  |  
|Interest expense                             |  |      | 2,423,000   |   |    |   | 2,636,000   |    |  |   | 3,140,000   |   |  |       | 3,176,000   |   |  |   | 11,375,000  |  
|Other income (expense)                       |  |      | 463,000     |   |    |   | (192,000    | )  |  |   | 498,000     |   |  |       | 8,544,000   |   |  |   | 9,313,000   |  
|Net income                                   |  |      | 2,338,000   |   |    |   | 825,000     |    |  |   | 1,390,000   |   |  |       | 7,912,000   |   |  |   | 12,465,000  |  
|                                             | 
|                                             |  | 2005 |            
|                                             |  | Q1   |             |   | Q2 |   |             | Q3 |  |   | Q4          |   |  | Total |            
|Total revenue                                |  | $    | 144,661,000 |   |    | $ | 130,647,000 |    |  | $ | 159,102,000 |   |  | $     | 119,257,000 |   |  | $ | 553,667,000 |  
|Gross profit                                 |  |      | 33,205,000  |   |    |   | 31,700,000  |    |  |   | 34,356,000  |   |  |       | 25,830,000  |   |  |   | 125,091,000 |  
|Selling, general and administrative expenses |  |      | 30,531,000  |   |    |   | 27,988,000  |    |  |   | 27,999,000  |   |  |       | 26,470,000  |   |  |   | 112,988,000 |  
|Income (loss) from operations                |  |      | 2,674,000   |   |    |   | 3,712,000   |    |  |   | 6,357,000   |   |  |       | (640,000    | ) |  |   | 12,103,000  |  
|Interest expense                             |  |      | 2,404,000   |   |    |   | 2,251,000   |    |  |   | 2,416,000   |   |  |       | 2,464,000   |   |  |   | 9,535,000   |  
|Other income (expense)                       |  |      | (171,000    | ) |    |   | 2,465,000   |    |  |   | 442,000     |   |  |       | 135,000     |   |  |   | 2,871,000   |  
|Net income (loss)                            |  |      | 99,000      |   |    |   | 3,926,000   |    |  |   | 4,383,000   |   |  |       | (2,969,000  | ) |  |   | 5,439,000   |  
|                                             | 
|                                             |  | 2004 |            
|                                             |  | Q1   |             |   | Q2 |   |             | Q3 |  |   | Q4          |   |  | Total |            
|Total revenue                                |  | $    | 144,034,000 |   |    | $ | 128,705,000 |    |  | $ | 156,530,000 |   |  | $     | 111,391,000 |   |  | $ | 540,660,000 |  
|Gross profit                                 |  |      | 34,885,000  |   |    |   | 29,045,000  |    |  |   | 32,291,000  |   |  |       | 22,971,000  |   |  |   | 119,192,000 |  
|Selling, general and administrative expenses |  |      | 33,328,000  |   |    |   | 29,133,000  |    |  |   | 31,449,000  |   |  |       | 26,360,000  |   |  |   | 120,270,000 |  
|Income (loss) from operations                |  |      | 1,557,000   |   |    |   | (88,000     | )  |  |   | 842,000     |   |  |       | (3,389,000  | ) |  |   | (1,078,000  | )
|Interest expense                             |  |      | 1,730,000   |   |    |   | 2,133,000   |    |  |   | 2,463,000   |   |  |       | 2,500,000   |   |  |   | 8,826,000   |  
|Other income (expense)                       |  |      | 134,000     |   |    |   | (45,000     | )  |  |   | 382,000     |   |  |       | 309,000     |   |  |   | 780,000     |  
|Net income (loss)                            |  |      | (39,000     | ) |    |   | (2,266,000  | )  |  |   | (1,239,000  | ) |  |       | (5,580,000  | ) |  |   | (9,124,000  | )

17. Subsequent Events

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



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

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

18. Asset
Purchases and Acquisitions

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

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



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

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

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



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



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



| |  |  | The Companys monitoring controls over inventory in transit in its Illinois market did not operate effectively.
| | - |  | ---------------------------------------------------------------------------------------------------------------

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

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

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



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

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

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

Item 9B. Other Information

None.



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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, 2006:



|                      |  |     |  |                                                                                   
|--------------------- |  | --- |  | ----------------------------------------------------------------------------------
|Name                  |  | Age |  | Position                                                                          
|James E. LaCrosse     |  | 73  |  | Chairman, President, Chief Executive Officer, Chief Financial Officer and Director
|Catherine M. LaCrosse |  | 39  |  | Vice President of Sales-Indiana Fine Wine Division and Director                   
|John J. Baker         |  | 36  |  | Chief Operating Officer, Secretary and Director                                   
|Gregory J. Mauloff    |  | 54  |  | Corporate Executive Vice President, Sales & Marketing                             
|James R. Beck         |  | 62  |  | Director                                                                          
|John Wittig           |  | 46  |  | President, NWS-Illinois LLC                                                       
|Joseph J. Fisch       |  | 57  |  | President, U.S. Beverage                                                          
|Mitchell T. Stoltz    |  | 52  |  | Director                                                                          
|Norma M. Johnston     |  | 77  |  | Director                                                                          
|Stephen E. LaCrosse   |  | 36  |  | Director                                                                          
|William M. Cockrum    |  | 68  |  | Director                                                                          
|Vaughn D. Bryson      |  | 67  |  | Director                                                                          
|David W. Goodrich     |  | 58  |  | Director                                                                          
|Patrick A. Trefun     |  | 46  |  | 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.

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



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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 and 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. Ms. Johnston served as Secretary of NWS-Indiana from 1976 to 1998.

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

William M. 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 entrepreneurial finance, business ethics and investment management. Mr. Cockrum was recognized as top entrepreneurial professor in the nation by Business Week magazine in 1996.



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

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

The
seven individuals who comprise NWS senior management team have an average of over 24 years of experience in the alcohol-based beverage industry and 15 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, 2006
for serving on the board.

Executive Compensation

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

Summary Compensation Table



|                                      |  |                     |  |        |         |       |   |                             |  |                          |       |  |   |         |    
|------------------------------------- |  | ------------------- |  | ------ | ------- | ----- | - | --------------------------- |  | ------------------------ | ----- |  | - | ------- | ---
|                                      |  | Annual Compensation |  |        |        
|Name and Principal Position           |  | Year                |  | Salary |         | Bonus |   | Other AnnualCompensation(3) |  | All OtherCompensation(1) |      
|James E. LaCrosse                     |  | 2006                |  | $      | 450,000 |       | $ | -0-                         |  | $                        | 4,101 |  | $ | 394,079 | (2)
|Chairman, President, Chief            |  | 2005                |  |        | 420,000 |       |   | 20,300                      |  |                          | 5,007 |  |   | 357,584 | (2)
|Financial Officer, and CEO            |  | 2004                |  |        | 409,700 |       |   | -0-                         |  |                          | 9,035 |  |   | 344,615 | (2)
|                                      |  |                     |  |        |        
|John J. Baker                         |  | 2006                |  |        | 300,000 |       |   | 220,000                     |  |                          | 1,799 |  |   | 11,538  |    
|Chief Operating Officer and Secretary |  | 2005                |  |        | 235,269 |       |   | 253,000                     |  |                          | 2,129 |  |   | 10,461  |    
|                                      |  | 2004                |  |        | 199,769 |       |   | 50,000                      |  |                          | 732   |  |   | 9,989   |    
|Gregory Mauloff                       |  | 2006                |  |        | 370,000 |       |   | 150,000                     |  |                          | 1,139 |  |   | 11,472  | (4)
|Corporate Executive Vice-President    |  | 2005                |  |        | 358,817 |       |   | 130,000                     |  |                          | -0-   |  |   | 11,379  | (4)
|of Sales & Marketing                  |  | 2004                |  |        | 350,000 |       |   | 25,000                      |  |                          | -0-   |  |   | 11,202  |    
|                                      |  |                     |  |        |        
|Joseph J. Fisch                       |  | 2006                |  |        | 350,000 |       |   | 105,000                     |  |                          | -0-   |  |   | 15,226  | (5)
|President/CEO, U.S. Beverage          |  | 2005                |  |        | 350,000 |       |   | 60,000                      |  |                          | -0-   |  |   | 9,913   |    
|                                      |  | 2004                |  |        | 348,269 |       |   | 142,500                     |  |                          | -0-   |  |   | 9,821   |    
|John Wittig                           |  | 2006                |  |        | 268,269 |       |   | 100,000                     |  |                          | -0-   |  |   | 13,937  |    
|President, NWS-Illinois LLC           |  | 2005                |  |        | 163,322 |       |   | 200,000                     |  |                          | -0-   |  |   | 6,559   | (6)
|                                      |  | 2004                |  |        | -0-     |       |   | -0-                         |  |                          | -0-   |  |   | -0-     |    

---

|(1) | Includes 2006 employer 401(k) Plan contributions in the following amounts: Mr. LaCrosse, $11,279; Mr. Baker, $11,538; Mr. Mauloff, $10,986; Mr. Fisch, $10,836;
and Mr. Wittig, $13,937.46. Includes 2005 employer 401(k) Plan contributions in the following amounts: Mr. LaCrosse, $9,846; Mr. Baker, $10,461; Mr. Mauloff, $10,014; and 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; and Mr. Fisch, $9,821.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



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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 $486, the personal portion of business expenses paid to Mr. Mauloff during fiscal year 2006. Includes $1,365 of life insurance premiums paid by NWS on behalf of
Mr. Mauloff for fiscal year 2005.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes $4,388, the personal portion of business expenses paid to Mr. Fisch during fiscal year 2006.
|--- | -----------------------------------------------------------------------------------------------------

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

Compensation Committee Interlocks and Insider Participation

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

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

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

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

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

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



|                                                                     |  |                 |  |         |  
|-------------------------------------------------------------------- |  | --------------- |  | ------- | -
|Name and Address                                                     |  | Number ofShares |  | 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 Ms. Johnstons
stock in NWS. The LaCrosse family is obligated to purchase Ms. Johnstons stock at her death or during her lifetime should she decide to sell. NWS becomes obligated to purchase only if the LaCrosse family refuses or fails to purchase. The
LaCrosse family and NWS also have the right to purchase Ms. Johnstons stock at the death of Mr. LaCrosse. Any obligation of NWS to purchase the stock owned by Ms. Johnston is subject to the terms of the indenture and the new
credit facility. No right to purchase stock owned by Mr. LaCrosse or a trust for the benefit of his family exists in favor of Ms. Johnston.

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

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

The Company does not have any equity compensation plans.

Item 13. Certain Relationships and Related Transactions

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

NWS leased facilities and certain office
equipment to eSkye Solutions, Inc. under the terms of a three-year operating lease that expired September 2004. NWS did not charge or receive any rent from eSkye during the years ended March 31, 2005 and 2004, but received rent from eSkye
Solutions, Inc. of $137,000 during the year ended March 31, 2003. The Company granted this concession to eSkye in order to maintain a tenant in an unused portion of the office building which houses the Companys corporate headquarters. The
Company pays eSkye fees for computer services. NWS paid $0, $35,000 and $50,000 during the years ended March 31, 2006, 2005, and 2004, respectively.

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



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proceeds of the loans were provided by Mr. LaCrosse and Ms. Johnston to NWS-Illinois in the form of loans or
additional capital contributions. This indebtedness to Mr. LaCrosse and Ms. Johnston of $4.3 million matures in December 2009, and is subordinated to both the senior notes and the credit facility, and bears interest at the prime rate,
which was 7.75% at March 31, 2006. During the year ended March 31, 2006, Mr. LaCrosse and Ms. Johnston loaned $2.0 million and $0.5 million, respectively, to the Company as part of a July 15, 2005 shareholder distribution
and described below.

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

The Company issued a shareholder distribution on July 15, 2005 which provided $2.5 million to the family trust described above and $0.5 million to Ms. Johnston. The trust remitted $2.5 million to Mr. Lacrosse in full
satisfaction of the note for the transfer and sale of the non-voting stock, and Mr. LaCrosse then loaned $2.0 million to the Company as subordinated debt. Mr. LaCrosse used $0.3 million of the proceeds to pay income tax estimates and he
retained approximately $0.2 million. Ms. Johnston also loaned $0.5 million to the Company as subordinated debt as part of this same shareholder distribution.

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, Ms. 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 amounts of these distributions during 2006, 2005 and 2004 were $5.3 million, $0.2 million and $6.0 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.

NWS pays split-dollar insurance premiums on seven insurance policies with a fair value of $15.7 million on the lives of Mr. LaCrosse and Ms. Johnston. See Item 11-Executive Compensation. NWS
is entitled to receive reimbursement for all premiums paid out of the proceeds of these policies upon the death of Mr. LaCrosse and Ms. Johnston. Split dollar premiums paid by NWS were $328,000 for each of the annual periods ended
March 31, 2006, 2005 and 2004. 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 LLP in connection with the audit of the 2006 and 2005 financial statements and review of financial statements included in NWS Forms 10-Q for 2006 and 2005 totaled $0.4 million and $0.5 million, respectively.

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

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

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



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PART IV

Item 15. Exhibits and Financial Statement Schedules



| |  |     |  |                                         |  |                                                                                                                                                                                     |  |                      
| |  | --- |  | --------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------
| |  | (a) |  | Documents filed as part of this Report. |  |                                                                                                                                                                                    
| |  |     |  |                                        
| |  |     |  | 1.                                      |  | Financial Statements                                                                                                                                                                |  |                      
| |  |     |  |                                        
| |  |     |  |                                         |  |                                                                                                                                                                                     |  | Page(s) inthis Report
| |  |     |  |                                         |  | Report of Independent Registered Public Accounting Firm                                                                                                                             |  | 37                   
| |  |     |  |                                        
| |  |     |  |                                         |  | Consolidated balance sheets  March 31, 2006 & 2005                                                                                                                                 |  | 38                   
| |  |     |  |                                        
| |  |     |  |                                         |  | Consolidated statements of operations  Years ended March 31, 2006, 2005 & 2004                                                                                                     |  | 39                   
| |  |     |  |                                        
| |  |     |  |                                         |  | Consolidated statements of stockholders equity  Years ended March 31, 2006, 2005 & 2004                                                                                           |  | 40                   
| |  |     |  |                                        
| |  |     |  |                                         |  | Consolidated statements of cash flows  Years ended March 31, 2006, 2005 & 2004                                                                                                     |  | 41                   
| |  |     |  |                                        
| |  |     |  |                                         |  | Notes to consolidated financial statements                                                                                                                                          |  | 42-61                
| |  |     |  |                                        
| |  |     |  | 2.                                      |  | Financial Statement Schedules                                                                                                                                                       |  |                      
| |  |     |  |                                        
| |  |     |  |                                         |  | Schedule II - Valuation and Qualifying Accounts and Reserves                                                                                                                        |  | 74                   
| |  |     | 
| |  |     |  |                                         |  | Schedules other than those listed above are omitted as they are not required, or not applicable, or the information is shown in the Notes to the Consolidated Financial
Statements.
| |  |     |  |                                        
| |  |     |  | 3.                                      |  | Exhibits                                                                                                                                                                            |  |                      
| |  |     | 
| |  |     |  |                                         |  | See the Index to Exhibits on pages 77-79 of this Form 10-K, which is incorporated by reference herein.                                                                             



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NATIONAL WINE & SPIRITS, INC.

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES



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

---

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

|(2) | Collected funds
|--- | ---------------

(Remainder of page intentionally left
blank.)



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SIGNATURES

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



NATIONAL WINE & SPIRITS, INC.By:

/s/ James E. LaCrosseJames E. LaCrosse,Chairman, President,Chief Executive Officer, andChief 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 23, 2006                                                                                     |  | 
|James E. LaCrosse      |  |  |  | Chairman, President, Chief Executive Officer (Principal Executive Officer), and Chief Financial Officer |  | 
|                       |  |  | 
|/s/ John J. Baker      |  |  |  | Date: June 23, 2006                                                                                     |  | 
|John J. Baker          |  |  |  | Chief Operating Officer, Secretary and Director                                                         |  | 
|                       |  |  | 
|/s/ James R. Beck      |  |  |  | Date: June 23, 2006                                                                                     |  | 
|James R. Beck          |  |  |  | Director                                                                                                |  | 
|                       |  |  | 
|/s/ Mitchell T. Stoltz |  |  |  | Date: June 23, 2006                                                                                     |  | 
|Mitchell T. Stoltz     |  |  |  | Director                                                                                                |  | 
|                       |  |  | 
|/s/ William Cockrum    |  |  |  | Date: June 23, 2006                                                                                     |  | 
|William Cockrum        |  |  |  | Director                                                                                                |  | 
|                       |  |  | 
|/s/ Norma M. Johnston  |  |  |  | Date: June 23, 2006                                                                                     |  | 
|Norma M. Johnston      |  |  |  | Director                                                                                                |  | 
|                       |  |  | 
|/s/ Vaughn D. Bryson   |  |  |  | Date: June 23, 2006                                                                                     |  | 
|Vaughn D. Bryson       |  |  |  | Director                                                                                                |  | 



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|                          |  |  |  |                     |  | 
|------------------------- |  |  |  | ------------------- |  | 
|/s/ Catherine M. LaCrosse |  |  |  | Date: June 23, 2006 |  | 
|Catherine M. LaCrosse     |  |  |  | Director            |  | 
|                          |  |  | 
|/s/ Stephen E. LaCrosse   |  |  |  | Date: June 23, 2006 |  | 
|Stephen E. LaCrosse       |  |  |  | Director            |  | 
|                          |  |  | 
|/s/ David W. Goodrich     |  |  |  | Date: June 23, 2006 |  | 
|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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##### Table of Contents

|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                         
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 10.3 to the Companys Quarterly Report on Form 10-Q filed August 13, 2003).                                                                                    
|     | 
|10.4 |  | Amendment No. 2 to the Credit Agreement dated March 31, 2004, among National Wine & Spirits, Inc., LaSalle Bank National Association, National City Bank of Indiana and LaSalle Bank National
Association, as agent (incorporated by reference to Exhibit 10.4 to the Companys Annual Report on Form 10-K filed June 28, 2004).                                                                                        
|     | 
|10.5 |  | Amendment No. 3 to the Credit Agreement dated June 30, 2004, among National Wine & Spirits, Inc., LaSalle Bank National Association, National City Bank of Indiana and LaSalle Bank National
Association, as agent (incorporated by reference to Exhibit 10.5 to the Companys Quarterly Report on Form 10-Q filed August 12, 2004).                                                                                    



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



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