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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, 2004.



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



Commission File Number: 333-74589



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NATIONAL WINE & SPIRITS, INC.

(Exact name of registrant as specified in its charter)



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



(317) 636-6092

(Registrants telephone number, including area code)



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



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



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



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



Indicate by check mark
whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes ̈No  x



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



The number of shares of Common Stock, $.01 par value, of National Wine & Spirits, Inc.
outstanding as of June 10, 2004 was 5,330,521, of which 104,520 were voting stock.



Documents Incorporated by Reference: None



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TABLE OF CONTENTS



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



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Part I



Disclosure Regarding Forward-Looking
Statements



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



Item 1. Business



General



National Wine & Spirits, Inc. (NWS or the Company) is one of the largest
distributors of wine and spirits in the United States. NWS markets include, among others, Chicago and Detroit, which are the fifth largest and the sixth largest metropolitan markets for spirits in the United States, respectively. NWS is the
largest distributor of spirits in Indiana with 60% market share and Michigan with 52% market share. NWS market share in Illinois dropped from approximately 32% to approximately 10% due to the loss of distribution rights during 2003. 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),
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. In several states, only two major distributors continue to operate. The United States wholesale wine and spirits market was approximately $31
billion during 2003 and is projected to be approximately $32 billion for 2004 according to industry projections. The Companys revenue, including the wholesale dollar sales for its fee operations, places NWS as the tenth largest wholesaler in
the United States, according to industry surveys. The top twenty wholesalers in the United States accounted for approximately 68% of the market during 2003, compared to approximately 49% in 1995.



Substantially all of NWS revenue results from product sales of liquor,
beer and wine, or from distribution and brokerage fees. During fiscal 2004, NWS total revenue was $540.7 million, which was a $172.2 million decrease from the prior fiscal year, primarily due to the



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Companys reduced Illinois revenue. This drop in volume during fiscal 2004 reversed a continuous trend of increasing
revenue and case growth during the previous 10 fiscal years. The Companys revenue and case sales growth in all other states were 9.5% and 7.2%, respectively. The strong sales in the Companys non-Illinois businesses were driven by the
addition of the Schieffelin & Somerset brands coupled with organic growth during the fiscal year in both the product sales and fee operations segment. This growth was consistent with the beverage alcohol industry during 2003, when according to
industry reports, consumers spent $8 billion more on spirits, wine, and beer products than the previous year and spirits consumption reached its highest point in more than a decade. The loss of business in the Companys Illinois market,
however, was not offset by the growth in other businesses and resulted in significantly lower net income in fiscal 2004 than the prior fiscal year.



Recent Developments



Diageo and Schieffelin & Somerset completed a process of state-by-state consolidation and realignment of their brands during 2003, including the
brands which Diageo acquired from Seagram in 2001. As a result, several changes occurred in the Companys distribution relationship with Diageo in the states of Indiana, Illinois and Michigan. The Company was selected as Diageos and
Schieffelin & Somersets exclusive distributor in Indiana and the exclusive distributor and authorized distribution agent for Diageo and Schieffelin & Somerset in Michigan. The Company no longer acts as Diageos distributor in the
state of Illinois.



The Company and Glazers Wholesale
Distributors (Glazer) modified the strategic partnership that has existed in the Illinois market since February 2003. While Glazer and the Company formerly shared profits and losses of the Illinois wine & spirits distribution
business equally, under the new terms of the alliance, Glazer has committed to fund eighty percent (80%) of operating losses and receive eighty percent (80%) of operating profits effective as of December 1, 2003. The Company will fund twenty percent
(20%) of any such losses and receive twenty percent (20%) of any such profits. Day to day management of the Illinois business is now the responsibility of Glazer, subject to certain rights and protective provisions in favor of the Company. Under the
terms of the alliance, ownership of the Illinois business or the Companys Illinois operating assets has not changed and neither party has the present right to buy or cause the sale of the other partys interest in the alliance or the
Companys Illinois operating assets. At any time after July 31, 2004, if certain conditions are met, Glazer may purchase the Illinois operating assets for a purchase price based upon 80% of the then current net assets of the Companys
Illinois operating company and a 20% equity interest in the successor Illinois organization.



Industry Overview



The
United States alcohol-based beverage industry generated total retail sales of approximately $145.4 billion during calendar 2003 versus $137.1 billion in calendar 2002, an increase of 6.0%. Sales of wine and spirits, in which NWS primarily competes,
accounted for approximately 15% and 31%, respectively, or $67.3 billion of total retail sales in 2003. In the United States wine and spirits markets, total consumption has increased for ten and six consecutive years, respectively. During 2003, wine
consumption in the United States grew 4.9% and spirits consumption in the United States grew 3.8%, as compared to 2002. Spirits growth



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was primarily driven by strong demand for tequila, imported gin and vodka, Irish whiskey, and rum. The wine consumption
increase was primarily attributable to the premium-priced products, however, the extreme value wines category showed gains and brought more consumers to the wine market. In both the wine and spirits industries, consumer preference during 2003
continued the trend towards higher quality products, evidenced by a five year annual compound growth rate for all beverage alcohol consumption of 1.3%, while retail dollar sales have experienced a 5.8% growth rate for the same time period. The
Company believes this trend 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. 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 of spirits in that state.



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



Suppliers and Products



NWS represents many of the largest suppliers of wine and spirits in the United States, and offers hundreds of brands and
more than 12,000 individual products. The breakdown of sales among wine, spirits and other products distributed by NWS in 2004, 2003 and 2002 is as follows:



|                                    |  |                     |         |   |                        |   |         |                      |  |   |         |   |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |   |  |   |        |  
|----------------------------------- |  | ------------------- | ------- | - | ---------------------- | - | ------- | -------------------- |  | - | ------- | - |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | - |  | - | ------ | -
|                                    |  | Wine (in thousands) |         |   | Spirits (in thousands) |   |         | Other (in thousands) | 
|                                    |  | 2004                |         |   | 2003                   |   |         | 2002                 |  |   | 2004    |   |  | 2003 |         |   | 2002 |   |         | 2004 |  |   | 2003    |   |  | 2002 |        
|Product sales                       |  | $                   | 140,874 |   |                        | $ | 165,388 |                      |  | $ | 161,445 |   |  | $    | 241,175 |   |      | $ | 392,580 |      |  | $ | 408,199 |   |  | $    | 131,566 |   |  | $ | 131,891 |   |  | $ | 89,950 |  
|Distribution fees                   |  |                     |        |   |                        |   |        |                      |  |   |        |   |  |      | 27,045  |   |      |   | 22,999  |      |  |   | 21,963  |   |  |      |        |   |  |   |        |   |  |   |       |  
|Percentage of total Company revenue |  |                     | 26.1    | % |                        |   | 23.2    | %                    |  |   | 23.7    | % |  |      | 49.6    | % |      |   | 58.3    | %    |  |   | 63.1    | % |  |      | 24.3    | % |  |   | 18.5    | % |  |   | 13.2   | %



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



In Michigan, spirits distributors 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 2004, 2003 and 2002 was $389.0 million, $334.0 million and $360.0 million, respectively, based on the
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 2003 and the NWS business that distributes or markets that particular brand.



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



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



|                |  |                                  |  |                   
|--------------- |  | -------------------------------- |  | ------------------
|Brand           |  | Supplier                         |  | NWS representation
|Almaden         |  | Canandaiqua Wine                 |  | IN                
|Beringer        |  | Beringer Blass Wine Estates      |  | IN, KY            
|Yellow Tail     |  | W.J. Deutsch & Sons              |  | IL                
|Inglenook       |  | Canandaigua Wine                 |  | IN                
|Kendall-Jackson |  | Kendall-Jackson Wine Estates     |  | IL, IN, KY        
|Arbor Mist      |  | Canandaigua Wine                 |  | IN                
|Riunite         |  | Banfi Vitners                    |  | IL, IN            
|Cavit           |  | Palm Bay Imports                 |  | IL, IN            
|Lindemans       |  | Southcorp Wines USA              |  | IN, KY            
|Ravenswood      |  | Franciscan Estates/Constellation |  | IL, IN            



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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 that are disclosed in the 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 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 and Michigan. The following figures represent approximate aggregate
case sales and net sales for fiscal 2004 from suppliers with which the Company entered into such agreements, and brands for which the Company owns the distribution rights:



|            |  |   |            
|----------- |  | - | -----------
|Case sales: |  |   | 12,166,000 
|Net sales:  |  | $ | 328,578,000



Related Operations



In December 1998, NWS-Indiana 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). Under the terms, NWS-Indiana
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 NWS-Indianas initial investment related to a franchise fee paid by NWS-Indiana on behalf of the new
distributorship. As part of the operating agreement, NWS-Indianas initial cash distributions from the new distributorship are treated as return of NWS-Indianas original investment. As a result, the amortization of this franchise fee is
allocated 100% to NWS-Indiana 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.



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



Customers



Most states,
including Indiana, Illinois and Michigan, require wine and spirits retailers to purchase alcohol-based beverages from licensed distributors. Suppliers in these states may not



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legally sell directly to retail customers. NWS customers fall into two broad categories depending on where the
alcohol-based beverage ultimately will be consumed: on-premise and off-premise. Off-premise customers include package liquor stores, grocery stores, drug stores and mass merchandisers. On-premise customers include hotels, restaurants and bars, and
similar establishments. NWS currently serves over 36,000 retail locations in Indiana, Illinois and Michigan. No single customer represented more than 5.0% of NWS 2004 total revenue. As is customary in the industry, NWS products are
generally purchased under standard purchase orders and not under long-term supply contracts. As a result, backlog is not meaningful in the wholesale distribution industry.



Industry-wide the percentage of case sales of wine and spirits for off-premise and on-premise in the United States for 2003
were approximately 77.7% and 22.3%, respectively. While the vast majority of case sales are from the off-premise outlets, approximately 53.2% of industry-wide retail dollar sales in the United States during 2003 were from on-premise outlets. The
following table summarizes NWS customer base for NWS-Illinois, NWS-Indiana, and NWS-Michigan:



|                                                   |  |                                   |   |  |                                                                                             
|-------------------------------------------------- |  | --------------------------------- | - |  | --------------------------------------------------------------------------------------------
|Type of Customer                                   |  | Percentage of Company2004 Revenue |   |  | Representative Customers                                                                    
|Off-Premise                                        |  |                                   |   |  |                                                                                             
|Package Stores                                     |  | 39.1                              | % |  | Gold Standard and Capn Cork                                                                
|Grocery stores, drug stores and mass merchandisers |  | 27.9                              |   |  | Marsh, Dominicks, Kroger, American Stores (Osco), CVS, Sams Club, Meijer, Costco           
|Other                                              |  | 6.6                               |   |  |                                                                                             
|                                                   |  |                                   |   |  |                                                                                             
|Percent of total                                   |  | 73.6                              | % |  |                                                                                             
|                                                   |  |                                   |   |  |                                                                                             
|On-Premise                                         |  |                                   |   |  |                                                                                             
|Restaurants and Bars                               |  | 21.4                              |   |  | Charlie Trotters, House of Blues, Applebees, Lettuce Entertain U, TGI Fridays, Ruths Chris
|Hotels, Entertainment                              |  | 1.1                               |   |  | Four Seasons, Hyatt, Hilton, Marriott, United Center                                        
|                                                   |  |                                   |   |  |                                                                                             
|Other                                              |  | 3.9                               |   |  | Crooked Stick Golf Course, American Legion                                                  
|                                                   |  |                                   |   |  |                                                                                             
|Percent of total                                   |  | 26.4                              | % |  |                                                                                             
|                                                   |  |                                   |   |  |                                                                                             



Management believes
that the large number and diversity of NWS customers and the regulatory nature of NWS business strengthens NWS liquidity. Indiana has a 15-day credit law beyond which retail customers are restricted from buying alcohol-based
beverages from any distributor in the market. Illinois has a similar 30-day credit law. Typically, NWS bad debt expenses are incurred less than 30 days after shipment since the credit laws prohibit extension of terms. Average bad debt expense
for the past five years has been less than 0.10% of revenue.



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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 another sales division in Michigan, as well as an expanded organization in Indiana.



Sales Teams. NWS sales organizational design is predicated upon category knowledge and expertise, trade channel knowledge and effectiveness, and
geographic coverage. Through its marketing and sales force, NWS acts as the field marketing and merchandising arm of its suppliers by maintaining regular contact with NWS off-premise and on-premise customers. NWS provides its customers with a
wide variety of services in addition to order taking, merchandising, and delivery. These services include item selection and SKU optimization using space and financial tools, fact-based business presentations to capitalize on fair share, consumer
pull-through marketing programs and communicating business-building solutions.



Sales, Marketing and Information Systems. NWS investment in technology in the areas of sales and marketing is a critical factor in its success and customer satisfaction. NWS is generally recognized as an
industry innovator and leader in MIS in the wine and spirits distribution tier. NWS proprietary sales system manages sales data to the SKU level in all retail accounts that it services (approximately 36,000) and is refreshed nightly based on
deliveries. This system provides brand teams the necessary information to develop targeted, effective brand plans. Moreover, the Companys sales managers depend on the information to monitor and control retail execution within their sales
teams. Most recently NWS has moved this information to the Internet to allow for greater speed and accessibility to management, retail, and supplier partners. NWS has also invested resources to significantly improve category management expertise,
and this has improved service and effectiveness, particularly in the off-premise national and regional chain accounts.



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



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Warehousing and Distribution



NWS utilizes a series of three master warehouses, three hyper-terminals and six cross-docking facilities strategically
located throughout Indiana, Illinois and Michigan to store and ship its products pending sale to customers. NWS customers ordinarily receive either next day or second-day delivery. In general, orders are collected during the day for batch
routing and order picking at night. The Chicago and Detroit master warehouses each use an automated material handling system, including scanners, automated conveyors, dispensers and sorters. Products from the master warehouses are then
shuttled nightly to either a hyper-terminal or a cross-docking facility where the orders are consolidated and loaded onto delivery trucks. Cross-docking facilities further extend the service areas of the master warehouses. Orders for delivery out of
the various cross-docking facilities are picked in the master warehouses, shipped in during the night, and then transferred onto local delivery trucks for final delivery. NWS owns or leases a total fleet of approximately 320 delivery vehicles,
consisting of 238 delivery trucks, 16 tractors, 25 trailers and 41 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 and Romano). None of the ten largest United States distributors
competes with NWS in Michigan. Distributors compete for new suppliers or brands based on reputation, market share, access to customers and ability to satisfy supplier demands.



Environmental Matters



The Company currently owns and leases a number of properties, and historically it has owned and/or leased others. Under applicable environmental laws, the
Company may be responsible for remediation of environmental conditions relating to the presence of hazardous substances on such properties. The liability imposed by such laws is often joint and several without regard for whether the property owner
or operator knew of, or was responsible for, the presence of such hazardous substances. In addition, the presence of such hazardous substances, or the failure to properly remediate such substances, may adversely affect the property owners
ability to borrow using the real estate as collateral and to transfer its interest in the real estate.



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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 the Companys capital expenditures, earnings or competitive position.



Employees



As of March 31, 2004, NWS had approximately 1,388 employees. Approximately
173 employees in Michigan and 282 employees in Illinois are represented by labor unions. In Illinois, NWS has relationships with three unions:



| | (1) | Teamsters Union Local 744, expiring April 1, 2005;
| | --- | --------------------------------------------------



| | (2) | Liquor and Allied Workers Union Local 3, annual agreements expiring September 30, 2004 and October 31, 2004; and
| | --- | ----------------------------------------------------------------------------------------------------------------



| | (3) | Teamsters Union Local 525, expiring August 31, 2005.
| | --- | ----------------------------------------------------



In Michigan, NWS has relationships with four unions:



| | (1) | Teamsters Union Local 337, expiring March 4, 2005;
| | --- | --------------------------------------------------



| | (2) | Teamsters Union Local 406, expiring March 5, 2005;
| | --- | --------------------------------------------------



| | (3) | Teamsters Union Local 486, expiring March 5, 2007; and
| | --- | ------------------------------------------------------



| | (4) | Teamsters Union Local 299, expiring March 5, 2007 (contract ratified, not yet executed).
| | --- | ----------------------------------------------------------------------------------------



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



NWS has not experienced any work stoppages in more than 21 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 is subject to regulation by the federal government through the Department of the Treasury, Bureau of Alcohol, Tobacco and Firearms (BATF), 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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##### Table of Contents

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



| | (2) | Tier two is comprised of distributors, such as NWS.
| | --- | ---------------------------------------------------



| | (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 BATF
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.



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,



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##### Table of Contents

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.



Item 2. Properties



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



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



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



|            |  |                                                                                                            |  |                                                         |  |                                                    |  |                                                                                                                                                                                  
|----------- |  | ---------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------- |  | -------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|State       |  | Location                                                                                                   |  | Owned/ Leased                                           |  | Total Square Feet                                  |  | Principal Function                                                                                                                                                               
|Indiana     |  | Indianapolis South Bend Evansville Evansville Ft. Wayne Crown Point Indianapolis Indianapolis Indianapolis |  | Owned Owned Owned Owned Leased Leased Owned Owned Owned |  | 351,00076,9005,8002,4005,5007,9003,50015,00019,500 |  | Master Warehouse/Office Hyper-Terminal/Office Cross-Docking Facility Office Office Office Office - Leased to Perrier Warehouse-Leased to Perrier Partially leased Office Property
|            |  |                                                                                                            |  |                                                        
|Connecticut |  | Stamford                                                                                                   |  | Leased                                                  |  | 5,700                                              |  | Office                                                                                                                                                                           
|            |  |                                                                                                            |  |                                                        
|Illinois    |  | Chicago Chicago Champaign Peoria Collinsville Rockford                                                     |  | Owned Leased Leased Leased Leased Leased                |  | 650,0001,84050,00056,00014,2005,000                |  | Master Warehouse/Office Leased Office Property Hyper-Terminal/Office Cross-Docking Facility/Office Cross-Docking Facility/Office Office                                          
|            |  |                                                                                                            |  |                                                        
|Michigan    |  | Detroit (Brownstown) Grand Rapids Escanaba Saginaw Traverse City                                           |  | Leased Leased Leased Leased Leased                      |  | 238,000100,0007,5001,0005,000                      |  | Master Warehouse/Office Hyper-Terminal/Office Cross-Docking Facility/Office Cross-Docking Facility 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



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 and Related Stockholder Matters



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



Holders. As of June 10, 2004, 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 2004 and 2003, the amounts of the dividends totaled $6.0 million and $9.4 million, respectively, in the
aggregate.



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



Item 6. Selected Consolidated Financial Data



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



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



For purposes of
calculating earnings to fixed charges, earnings consist of net income plus fixed charges. Fixed charges consist of interest expense, amortization of debt expense 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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##### Table of Contents

|                                             |  |                                                                                |         |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|-------------------------------------------- |  | ------------------------------------------------------------------------------ | ------- | -- | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                             |  | Years Ended March 31, (Dollars and cases in thousands, except per case amount) |        
|                                             |  | 2004                                                                           |         |    | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|Statement of Operations Data:                |  |                                                                                |         |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                             |  |                                                                                |         |    |     
|Net product sales                            |  | $                                                                              | 513,615 |    |      | $ | 689,859 |      |  | $ | 659,594 |   |  | $    | 636,879 |   |  | $ | 603,625 |  
|Distribution fees                            |  |                                                                                | 27,045  |    |      |   | 22,999  |      |  |   | 21,963  |   |  |      | 21,573  |   |  |   | 20,770  |  
|                                             |  |                                                                                |         |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total revenue                                |  |                                                                                | 540,660 |    |      |   | 712,858 |      |  |   | 681,557 |   |  |      | 658,452 |   |  |   | 624,395 |  
|Cost of products sold                        |  |                                                                                | 421,468 |    |      |   | 552,833 |      |  |   | 530,910 |   |  |      | 513,928 |   |  |   | 488,444 |  
|                                             |  |                                                                                |         |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Gross profit                                 |  |                                                                                | 119,192 |    |      |   | 160,025 |      |  |   | 150,647 |   |  |      | 144,524 |   |  |   | 135,951 |  
|Selling, general and administrative expenses |  |                                                                                | 120,270 |    |      |   | 144,550 |      |  |   | 131,025 |   |  |      | 125,034 |   |  |   | 119,396 |  
|                                             |  |                                                                                |         |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Income (loss) from operations                |  |                                                                                | (1,078  | )  |      |   | 15,475  |      |  |   | 19,622  |   |  |      | 19,490  |   |  |   | 16,555  |  
|Interest expense                             |  |                                                                                | (8,826  | )  |      |   | (9,308  | )    |  |   | (11,934 | ) |  |      | (13,214 | ) |  |   | (13,274 | )
|Other income (expense)(1)                    |  |                                                                                | 780     |    |      |   | 9,622   |      |  |   | (228    | ) |  |      | 7,849   |   |  |   | 1,139   |  
|                                             |  |                                                                                |         |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income (loss)                            |  | $                                                                              | (9,124  | )  |      | $ | 15,789  |      |  | $ | 7,460   |   |  | $    | 14,125  |   |  | $ | 4,420   |  
|                                             |  |                                                                                |         |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Other Financial Data:                        |  |                                                                                |         |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|EBITDA (2)                                   |  | $                                                                              | 11,778  |    |      | $ | 34,704  |      |  | $ | 27,669  |   |  | $    | 36,229  |   |  | $ | 26,599  |  
|EBITDA margin                                |  |                                                                                | 2.2     | %  |      |   | 4.9     | %    |  |   | 4.1     | % |  |      | 5.5     | % |  |   | 4.3     | %
|Net income (loss) margin                     |  |                                                                                | (1.7    | )% |      |   | 2.2     | %    |  |   | 1.1     | % |  |      | 2.1     | % |  |   | 0.7     | %
|Cash provided by operating activities        |  | $                                                                              | 16,005  |    |      | $ | 15,185  |      |  | $ | 22,030  |   |  | $    | 7,357   |   |  | $ | 16,648  |  
|Cash provided (used) by investing activities |  |                                                                                | 64      |    |      |   | (2,489  | )    |  |   | (5,307  | ) |  |      | 2,717   |   |  |   | (7,715  | )
|Cash used by financing activities            |  |                                                                                | (20,423 | )  |      |   | (18,611 | )    |  |   | (9,082  | ) |  |      | (9,539  | ) |  |   | (7,282  | )
|Depreciation and amortization                |  |                                                                                | 12,076  |    |      |   | 9,607   |      |  |   | 8,275   |   |  |      | 8,890   |   |  |   | 8,905   |  
|Capital expenditures (3)                     |  | $                                                                              | 985     |    |      | $ | 2,337   |      |  | $ | 4,332   |   |  | $    | 6,083   |   |  | $ | 6,672   |  
|Ratio of earnings to fixed charges           |  |                                                                                | 0.2     | x  |      |   | 2.2     | x    |  |   | 1.5     | x |  |      | 1.9     | x |  |   | 1.3     | x
|Operating Statistics:                        |  |                                                                                |         |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Product Sales Operations                     |  |                                                                                |         |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Gross profit margin                          |  |                                                                                | 17.9    | %  |      |   | 19.9    | %    |  |   | 19.5    | % |  |      | 19.3    | % |  |   | 19.1    | %
|Cases shipped (spirits and wine)             |  |                                                                                | 4,496   |    |      |   | 6,295   |      |  |   | 6,351   |   |  |      | 6,425   |   |  |   | 6,394   |  
|Fee Operations                               |  |                                                                                |         |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Cases shipped (spirits)                      |  |                                                                                | 2,912   |    |      |   | 2,549   |      |  |   | 2,721   |   |  |      | 2,684   |   |  |   | 2,786   |  
|Distribution fee per case                    |  | $                                                                              | 7.78    |    |      | $ | 7.60    |      |  | $ | 7.48    |   |  | $    | 7.32    |   |  | $ | 6.50    |  
|                                             | 
|                                             |  | As of March 31 (in thousands)                                                  |        
|                                             |  | 2004                                                                           |         |    | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|Balance Sheet Data:                          |  |                                                                                |         |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Cash                                         |  | $                                                                              | 1,466   |    |      | $ | 5,820   |      |  | $ | 11,735  |   |  | $    | 4,094   |   |  | $ | 3,559   |  
|Total assets                                 |  |                                                                                | 187,100 |    |      |   | 203,814 |      |  |   | 201,405 |   |  |      | 192,290 |   |  |   | 188,197 |  
|Total debt                                   |  |                                                                                | 86,357  |    |      |   | 98,303  |      |  |   | 109,805 |   |  |      | 110,571 |   |  |   | 112,471 |  
|Total long-term liabilities                  |  |                                                                                | 108,475 |    |      |   | 110,676 |      |  |   | 111,678 |   |  |      | 110,487 |   |  |   | 111,571 |  
|Stockholders equity                         |  | $                                                                              | 12,593  |    |      | $ | 27,854  |      |  | $ | 23,095  |   |  | $    | 24,669  |   |  | $ | 18,183  |  



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##### Table of Contents

NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA



| | (1) | The increase in Other income (expense) in 2003 and 2001 resulted from receipt of one time payments and Gain on sale of bottled water division, respectively.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | EBITDA is defined as net income or loss plus interest expense, depreciation and amortization. EBITDA is a non-GAAP financial measure within the meaning of Regulation G. EBITDA is
presented because it is a widely accepted financial indicator used by investors and analysts to analyze and compare companies on the basis of debt service capability. Management uses EBITDA to set targets and monitor and assess financial
performance. EBITDA is not intended to represent cash flows for the periods presented, nor has it been presented as an alternative to net income 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 2000 through 2004:



|                  |  |                                        |        |   |      |   |        |  |      |        |      |   |        |  |   |       
|----------------- |  | -------------------------------------- | ------ | - | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                  |  | Years Ended of March 31 (in thousands)
|                  |  | 2004                                   |        |   | 2003 |   | 2002   |  | 2001 |        | 2000
|Net Income (loss) |  | $                                      | (9,124 | ) |      | $ | 15,789 |  | $    | 7,460  |      | $ | 14,125 |  | $ | 4,420 
|Interest expense  |  |                                        | 8,826  |   |      |   | 9,308  |  |      | 11,934 |      |   | 13,214 |  |   | 13,274
|Depreciation      |  |                                        | 5,947  |   |      |   | 7,188  |  |      | 6,561  |      |   | 7,046  |  |   | 7,270 
|Amortization      |  |                                        | 6,129  |   |      |   | 2,419  |  |      | 1,714  |      |   | 1,844  |  |   | 1,635 
|                  |  |                                        |        |   |      |   |        |  |      |        |      |   |        |  |   |       
|EBITDA            |  | $                                      | 11,778 |   |      | $ | 34,704 |  | $    | 27,669 |      | $ | 36,229 |  | $ | 26,599
|                  |  |                                        |        |   |      |   |        |  |      |        |      |   |        |  |   |       



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



| | (3) | The breakdown of capital expenditures by significant project is set forth below.
| | --- | --------------------------------------------------------------------------------



|                    |  |                                        |     |      |   |       |  |      |       |      |   |       |  |   |      
|------------------- |  | -------------------------------------- | --- | ---- | - | ----- |  | ---- | ----- | ---- | - | ----- |  | - | -----
|                    |  | Years Ended of March 31 (in thousands)
|                    |  | 2004                                   |     | 2003 |   | 2002  |  | 2001 |       | 2000
|                    |  |                                        |     |      |  
|Business expansion  |  | $                                      |    |      | $ | 140   |  | $    | 1,144 |      | $ | 2,374 |  | $ | 3,112
|Information systems |  |                                        | 490 |      |   | 1,121 |  |      | 1,418 |      |   | 1,750 |  |   | 970  
|Equipment           |  |                                        | 495 |      |   | 1,076 |  |      | 1,770 |      |   | 1,959 |  |   | 2,590
|                    |  |                                        |     |      |   |       |  |      |       |      |   |       |  |   |      
|                    |  | $                                      | 985 |      | $ | 2,337 |  | $    | 4,332 |      | $ | 6,083 |  | $ | 6,672
|                    |  |                                        |     |      |   |       |  |      |       |      |   |       |  |   |      



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##### Table of Contents

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



You should read the following discussion 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 have been 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, and from United States Beverage, L.L.C. (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 operation.



The Company evaluates its operations and liquidity upon two
reportable segments, which are business units that engage in product sales and all other activities. Product sales operations are conducted in Indiana, Illinois, Michigan, and from the USB distribution business. The majority of other activities
relate to distribution 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 2000 through 2004:



|                  |  |                                        |        |   |      |   |        |  |      |        |      |   |        |  |   |       
|----------------- |  | -------------------------------------- | ------ | - | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                  |  | Years Ended of March 31 (in thousands)
|                  |  | 2004                                   |        |   | 2003 |   | 2002   |  | 2001 |        | 2000
|Net Income (loss) |  | $                                      | (9,124 | ) |      | $ | 15,789 |  | $    | 7,460  |      | $ | 14,125 |  | $ | 4,420 
|Interest expense  |  |                                        | 8,826  |   |      |   | 9,308  |  |      | 11,934 |      |   | 13,214 |  |   | 13,274
|Depreciation      |  |                                        | 5,947  |   |      |   | 7,188  |  |      | 6,561  |      |   | 7,046  |  |   | 7,270 
|Amortization      |  |                                        | 6,129  |   |      |   | 2,419  |  |      | 1,714  |      |   | 1,844  |  |   | 1,635 
|                  |  |                                        |        |   |      |   |        |  |      |        |      |   |        |  |   |       
|EBITDA            |  | $                                      | 11,778 |   |      | $ | 34,704 |  | $    | 27,669 |      | $ | 36,229 |  | $ | 26,599
|                  |  |                                        |        |   |      |   |        |  |      |        |      |   |        |  |   |       



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



Executive Summary



The
Company experienced serious challenges during the latest fiscal year in its product sales segment primarily due to loss of distribution rights in its Illinois business and significant costs associated with a product introduction in its USB
distribution business. The Company reacted to these events by reducing operating costs in Illinois, entering into a strategic alliance with a wholesaler in Illinois, refocusing marketing expenditures on core brands, and executing an amendment to the
Companys revolving credit facility.



Achievements during
fiscal 2004 included the acquiring of long term distribution rights for Diageo (Diageo) and Schieffelin and Somerset (S&S) for both the product sales segment in Indiana and the fee segment in Michigan. The fee segment
also received a boost from the addition of a brokerage contract with Future Brands that was effective January 1, 2004. The Company was also able reduce debt and related interest expense from the cash proceeds of the working capital reduction in
Illinois. The strategic alliance with Glazers Wholesale Distributors (Glazer) was modified December 1, 2003 whereby Glazer committed to fund or receive 80% of all operating losses or profits, respectively. Glazer provided $12.6
million to the Company during fiscal 2004 as part of the alliance.



Total fiscal 2004 revenue declined by $172.2 million primarily due to the loss of Illinois distribution rights. Excluding Illinois, the product sales segment experienced an 8.9% increase in revenue for the year ended March 31, 2004 as
compared to the prior annual period. Approximately 50% of this growth in product sales revenue was organic as opposed to the new



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##### Table of Contents

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



products being represented or launched. The revenue growth from non-Illinois product
sales was driven by 10.4% increase in spirits revenue, 8.8% increase in wine revenue and a 6.0% increase in other product sales for the year ended March 31, 2004 as compared to the prior annual period.



Net income and EBITDA declined $24.9 million and $22.9 million, respectively,
for the year ended March 31, 2004 as compared to the prior annual period. The drop in net income and EBITDA was primarily due to the reduction in product sales revenue of $176.2 million and increased brand spending of $5.1 million, as compared to
the prior annual period in the product sales segment. In addition, one time payments of $9.2 million occurred during the year ended March 31, 2003.



Cash flow from operations for the year ended March 31, 2004 increased by $0.8 million from the prior annual period, primarily due to the reduction in
product sales working capital. Cash provided by the changes in working capital was $14.8 million for the year ended March 31, 2004, an improvement of $22.5 million from the prior annual period. The cash proceeds were primarily used to repay long
term debt of $11.9 million, fund shareholder distributions of $6.0 million, and to pay distribution rights of $3.5 million.



Outlook



The Company will continue to explore the options available for the Illinois business. However, the Company and Glazer are both committed to the profitability of the Illinois operation given Glazers agreement to
fund 80% of operating losses. While Glazer and the Company formerly shared profits and losses of the Illinois wine & spirits distribution business equally, under the new terms of the alliance, Glazer committed to fund eighty percent (80%) of
operating losses and receive eighty percent (80%) of operating profits effective December 1, 2003. The Company will fund twenty percent (20%) of any such losses and receive twenty percent (20%) of any such profits. Day to day management of the
Illinois business is now the responsibility of Glazer, subject to certain rights and protective provisions in favor of the Company. Under the terms of the alliance, ownership of the Illinois business or the Companys Illinois operating assets
has not changed and neither party has the present right to buy or cause the sale of the other partys interest in the alliance or the Companys Illinois operating assets. At any time after July 31, 2004, if certain conditions are met,
Glazer may purchase the Illinois operating assets for a purchase price based upon 80% of the then current net assets of the Companys Illinois operating company and a 20% equity interest in the successor Illinois organization.



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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 2004, 2003 and 2002:



|                                      |  |                                              |  |                |      |  |        |      |                |    |  |       
|------------------------------------- |  | -------------------------------------------- |  | -------------- | ---- |  | ------ | ---- | -------------- | -- |  | ------
|                                      |  | Years Ended of March 31 (Cases in thousands)
|                                      |  | 2004                                         |  |                | 2003 |  |        | 2002
|                                      |  | Cases                                        |  | Percent Change |      |  | Cases  |      | Percent Change |    |  | Cases 
|Wine (product sales operations)       |  | 2,304                                        |  | (21.5          | )%   |  | 2,934  |      | 5.6            | %  |  | 2,778 
|Spirits (product sales operations)    |  | 2,192                                        |  | (34.8          | )%   |  | 3,361  |      | (1.1           | )% |  | 3,399 
|Spirits (distribution fee operations) |  | 2,912                                        |  | 14.2           | %    |  | 2,549  |      | (6.3           | )% |  | 2,721 
|                                      |  |                                              |  |                |      |  |        |      |                |    |  |       
|Total Wine and spirits                |  | 7,408                                        |  | (16.2          | )%   |  | 8,844  |      | (0.6           | )% |  | 8,898 
|Other                                 |  | 9,139                                        |  | 2.3            | %    |  | 8,933  |      | 73.6           | %  |  | 5,146 
|                                      |  |                                              |  |                |      |  |        |      |                |    |  |       
|Total                                 |  | 16,547                                       |  | (6.9           | )%   |  | 17,777 |      | 26.6           | %  |  | 14,044
|                                      |  |                                              |  |                |      |  |        |      |                |    |  |       



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



Fiscal 2004
Compared with Fiscal 2003



Revenue



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



Gross Profit



Gross profit decreased $40.8 million to $119.2 million as a result of decreased product sales, partially offset by an
increase in distribution fees. Gross margin on product sales decreased $44.9 million for the year ended March 31, 2004 as compared to the prior annual



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##### Table of Contents

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



period. The sales volume decline in the Companys Illinois business was primarily
responsible for the drop in gross margin dollars during the year ended March 31, 2004, as compared to the prior years annual period. Gross profit percentage on product sales of 17.9% was below the prior years comparable period of 19.9%
primarily due to increased brand support by USB of approximately $5.1 million, amortization of distribution rights of approximately $3.6 million, and competitive pricing in the Companys Illinois operations due to the reduced brand
representation. Incremental gross margin from the fee operations segment of $4.0 million was primarily due to the addition of the S&S, Fortune and increased volume of the Diageo and Allied Domecq brands.



Operating Expenses



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



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



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



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



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



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



Loss From Operations



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



Interest
Expense



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



Other Income



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



Net Loss



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



EBITDA



For financial analysis purposes only, the Companys earnings before
interest, taxes, depreciation, and amortization (EBITDA) for the year ended March 31, 2004 was $11.8 million as compared to $34.7 million for the prior years annual reporting period. Please see the discussion and reconciliation regarding
EBITDA as a non-GAAP financial measure set forth in



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



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 2003 Compared with Fiscal 2002



Revenue



Total revenue increased $31.3 million, or 4.6%, to $712.9 million primarily
a result of increased product sales revenue of $30.3 million. The increase in the product sales segment revenue for the year ended March 31, 2003 as compared to the prior years annual period was primarily due to increased sales by the
Companys USB division, who commenced nationwide distribution of Grolsch beers and Seagram Coolers in January 2002 and April 2002, respectively. Case and dollar volume of wine in the product sales segment remained stable; increasing 5.6% and
2.4%, respectively, during the year ended March 31, 2003 over the prior annual period. Spirits case and dollar volume in the product sales segment declined 1.1% and 3.8%, respectively, during the current annual period primarily due to the loss of
certain distribution rights in the Illinois market. Fee revenue for the year ended March 31, 2003 increased 4.7% on lower case sales from the comparable prior annual period. The Company was able to increase fee revenue due to a $0.12 per case fee
increase approved by the State of Michigan for 2002 and greater brokerage fee revenue for the year ended March 31, 2003 as compared to the prior annual period.



Gross Profit



Total gross profit increased $9.4 million to $160.0 million as a result of increased product sales, and a modest increase in distribution fees. Gross
margin on product sales increased $8.3 million, or 6.5% for the year ended March 31, 2003 as compared to the prior annual period. Gross profit percentage on product sales increased to 19.9% for the year ended March 31, 2003 versus 19.5% for the
comparable prior annual period. Both the increase in gross margin dollars and percentage were primarily the result of the Companys USB operations during the year ended March 31, 2003, which was offset somewhat by declines in the gross margin
dollars and percentage in other product sales operations. The gross profit margins in the Companys product sales operations in Illinois and Indiana were under pressure during fiscal 2003 due to intensified marketing efforts from competing
distributors during the period of uncertainty concerning product line representation.



Operating Expenses



Total operating expenses
increased $13.5 million, or 10.3% for the year ended March 31, 2003 versus the prior annual period. Operating expenses for the product sales segment increased $13.0 million, primarily from increased selling expenses and administrative support of the
Companys USB division versus the prior annual period.



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



Warehouse and delivery expenses in the product sales segment remained
very stable, increasing by only $0.1 million during the year ended March 31, 2003 as compared to the prior annual period, due to reduced case volume in the Companys Illinois operation. Warehouse and delivery expenses for the Companys fee
operations increased by only $0.1 million for the year ended March 31, 2003 as compared to the prior annual period, primarily due to increased wage rates which were offset by savings that resulted from the slightly reduced case volume.



Selling expenses for the product sales segment increased $10.2 million
from the prior years annual period, primarily due to additional advertising, wages, and related travel expenses totaling $7.5 million that were incurred by the Companys USB division. These additional expenditures were directly related to
the additional volume created by the nationwide sales and marketing of Grolsch, Seagram Coolers, and a product launch in the spring of 2003. Sales wage increases and additional promotional costs in the Companys other operations within the
product sales segment of $2.7 million contributed to the increased sales expenses.



Administrative expenses for the product sales segment increased by $3.6 million for the year ended March 31, 2003 as compared to the prior years annual period. The increase was primarily due to increased
administrative costs of $2.0 million related to the Companys USB division for wages, benefits, and amortization of distribution rights as compared to the prior years annual period. Increased costs for casualty insurance of $0.8 million,
professional fees of $0.3 million, and health care of $0.2 million across all segments were primarily responsible for the remaining administrative expense increase.



Management fees from Glazer as part of a management services agreement executed during February 2003 were $0.9 million for
the year ended March 31, 2003. Management fees are recorded as a reduction of operating expenses and are attributable to the operating loss of the Companys Illinois operation.



Income From Operations



Operating income for the product sales segment declined $4.6 million for the year ended March 31, 2003 as compared to the prior annual period, and was
primarily due to the Companys decline in revenue from its Illinois operation, which more than offset increased operating income from the USB operations. Fee operations experienced an increase of $0.5 million in operating income during the year
ended March 31, 2003 as compared to the prior annual period, primarily due to the increased fee revenue of $1.0 million.



Interest Expense



Interest expense declined $2.6 million, or 22.0% to $9.3 million for the year ended March 31, 2003 from the prior year period. Reduced revolving credit
balances during the year ended March, 31, 2003, the decline in the prime rate upon which the Companys revolving line of credit is based, and gains from the discounted repurchases of the Companys senior notes were primarily responsible
for the decreased expense. As of March 31, 2003, the applicable interest rate on the revolving line of credit was 4.5%. The Company repurchased $17.9 million of its



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##### Table of Contents

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



senior notes on the open market during the quarter ended March 31, 2003 at 86% of face
value and expensed associated unamortized debt issuance costs resulting in the $2.0 million gain. The open market repurchases of $17.9 million of senior notes had a minimal effect on cash interest expense for the year ended March 31, 2003, as the
purchases were completed during March, 2003.



Other Income



Other income increased $9.9 million, primarily from one time payments of
$9.2 million. The Company received $6.0 million of the one time payments as of March 31, 2003, and received $3.2 million on April 15, 2003. The Companys share of losses from eSkye Solutions, Inc. was $1.2 million less during the year ended
March 31, 2003 than the prior annual period.



Net Income



Net income of $15.8 million for the year ended March 31, 2003 was $8.3
million greater than the prior annual period. The increase in income from the Companys one time payments, gain from repurchasing its senior notes, and increased USB profitability, was partially offset by the decline in income from the Illinois
business.



EBITDA



For financial analysis purposes only, the Companys earnings before
interest, taxes, depreciation, and amortization (EBITDA) for the year ended March 31, 2003 was $34.7 million as compared to $27.7 million for the prior years annual period. EBITDA should not be construed as an alternative to operating 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. See Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview.



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 its U.S. Beverage 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
$40 million revolving credit facility as of March 31, 2004. The amendment consisted of (i) reduced the minimum interest coverage ratio (ii) increased the maximum funded debt ratio (iii) reduced the permitted annual capital expenditures (iv)
restricted the repurchases of the Companys senior notes and (v) added a tier to the pricing grid for interest coverage of less than 1.50x. The tier for interest coverage below 1.5x would result in prime based advances being charged an interest
rate of prime plus 75 bps and LIBOR advances being charged an interest rate of LIBOR plus 250 bps.



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



At March 31, 2004, the Company had $3.0 million of outstanding advances
on its $40.0 million revolving line of credit facility and also had $3.7 million in letters of credit outstanding, resulting in availability of $33.3 million. The line of credit borrowings are collateralized by and based upon eligible accounts
receivable and inventories, as defined, and are guaranteed by the Companys subsidiaries. Interest is payable monthly at the LIBOR rate or the higher of the prime lending rate or the federal funds rate, plus a margin percentage. The
Companys prime based revolver rate of interest was 4.25% at March 31, 2004. The Company did not have any advances priced at a LIBOR based rate at March 31, 2004. The Company must maintain certain interest coverage and funded debt coverage
ratios, as amended, with which the Company was in compliance at March 31, 2004. The Company anticipates that the collateral base for the revolving credit facility will provide adequate availability to fund operations and working capital needs during
fiscal 2005.



The Company generated $16.0 million in net cash
from operating activities for the year ended March 31, 2004, as compared to cash provided of $15.2 million for the prior years annual period. This increase in cash flow was primarily the result of a reduction in working capital from the
Companys Illinois business. Cash provided by working capital for the year ended March 31, 2004 was $14.8 million versus cash used of $7.7 million for the prior years annual period. This $22.5 million improvement was primarily due to the
Illinois business net reductions in inventories, receivables, and payment of current liabilities. The Companys net proceeds from the reduction of Illinois working capital was approximately $29.3 million for the year ended March 31, 2004.
Inventory purchases and other working capital cash needs in the other product sales operations, due to the addition of the S&S brands, were the primary reason for cash used by working capital during the year ended March 31, 2004. Cash provided
by net income (loss) and adjustments for depreciation and amortization were $3.0 million for the year ended March 31, 2004, as compared to $25.4 million for the prior years comparable period. The $24.9 million drop in net income was the
largest factor in cash flow from operations, which was offset by the cash provided by the reduction of working capital in Illinois.



Net cash used by investing activities was $0.06 million for the year ended March 31, 2004, a decrease of $2.4 million from the prior years annual
period. The decreased use of cash, as compared to the prior years annual period, was primarily due to reduced capital expenditures and intangible purchases of $3.3 million. The Company reduced its capital expenditures during fiscal 2004 due to
the reduction in the Illinois revenue and income. The Company intends to continue the reduced level of capital expenditures during fiscal 2005 at maintenance levels between $2.0 million and $2.5 million.



Net cash used by financing activities increased by $1.8 million for the year
ended March 31, 2004 as compared to the prior years annual period. Payments of $3.5 million for distribution rights obligations was the primary reason increased cash was used by financing



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



activities for the year ended March 31, 2004 as compared to the prior years annual
period. The distribution rights payments are related to the $23.2 million of distribution obligations and are scheduled to be paid on a quarterly basis through June 2010. The Company purchased $10.9 million of its senior notes at approximately 91%
of face, plus accrued interest, during the year ended March 31, 2004. Mr. LaCrosse individually purchased $1.7 million of the Companys senior notes from the open market during the fourth quarter of fiscal 2004. There were $3.0 million of
outstanding advances on the revolving credit facility at March 31, 2004. Stockholder distributions during the year ended March 31, 2004 provided funds to stockholders for estimated income tax payments of $2.6 million and $3.4 million related to
certain stockholder obligations described below. The Companys stockholder distributions were reduced during fiscal 2004 due to reduced income tax estimates paid by the stockholders. Stockholder distributions other than for tax liabilities are
limited by the revolving credit facility and indenture. The Company anticipates that fiscal 2005 stockholder distributions will be for income tax estimates of the shareholders and distributions for other purposes will be limited by the credit
facility and indenture.



During 1998 Mr. LaCrosse transferred
substantially all of his non-voting stock to a family trust for estate-planning purposes. As part of that transfer the Company distributed $3.4 million to Mr. LaCrosse, the family trust, and Mrs. Johnston during the year ended March 31, 2004. These
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. The family trust remitted $2.8 million
of these funds to Mr. LaCrosse in repayment of indebtedness for the non-voting stock that was purchased during 1998 and Mrs. Johnston retained $0.6 million. As of March 31, 2004 there was approximately $2.5 million owed to Mr. LaCrosse by the family
trust related to the 1998 transfer of non-voting stock.



Total
assets of $187.1 million at March 31, 2004 decreased by $16.7 million from March 31, 2003. The decrease in assets was primarily due to the product sales segment including collection of $7.8 million of vendor receivables, reduced trade accounts
receivable of $7.0 million, and lowered cash balances of $4.1 million that were used to fund debt reduction and interest payments. The increase in intangible assets of $9.3 million was offset by a corresponding increase in distribution rights
obligations of $12.1 million, representing the present value of amounts expected to be paid over the respective contract lives. Total debt of $86.4 million at March 31, 2004 as compared to March 31, 2003 decreased by $12.0 million due to the
Companys repurchase of $10.9 million of its senior notes on the open market and a $1.0 million reduction of the revolving credit facility. Equity decreased to $12.6 million at March 31, 2004 as compared to March 31, 2003 and primarily due to
the net loss of $9.1 million and stockholder distributions of $6.0 million.



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
2005.



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



Aggregate Contractual Commitments



The following table sets forth NWS contractual obligations for the
periods set forth as of March 31, 2004:



|                                |  |                        |            |                  |            |           |           |           |   |                   |  |   |          
|------------------------------- |  | ---------------------- | ---------- | ---------------- | ---------- | --------- | --------- | --------- | - | ----------------- |  | - | ---------
|                                |  | 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      |  | $                      | 86,357,000 |                  |           |           |          |           | $ | 82,029,000        |  | $ | 4,328,000
|Operating lease obligations     |  |                        | 13,513,000 |                  | 4,133,000  |           | 7,009,000 |           |   | 1,998,000         |  |   | 373,000  
|Distribution rights obligations |  |                        | 26,054,000 |                  | 4,979,000  |           | 9,458,000 |           |   | 7,867,000         |  |   | 3,750,000
|Purchase obligations            |  |                        | 42,305,000 |                  | 42,305,000 |           |          |           |   |                  |  |   |         
|Defined benefit plan funding(1) |  |                        | 922,000    |                  | 922,000    |           |          |           |   |                  |  |   |         

---

|(1) | The amounts for funding of the defined benefit plan include only those amounts due within fiscal 2005, as future amounts are not estimable at this time.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------



Other



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



Inflation



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



Environmental Matters



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



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



regulations. Compliance with environmental laws has not had a material effect upon
NWS capital expenditures, earnings or competitive position.



Critical
Accounting Policies



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



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



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



Impairment of Long-lived Assets. The Company evaluates long-lived assets 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.



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



Vendor Allowances Received. The Company records vendor allowances
and discounts in accordance with EITF 02-16: Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor. The Company receives allowances from vendors as a result of purchasing and promoting their
products. Vendor allowances provided as a reimbursement of specific, incremental, and identifiable costs incurred to promote a vendors products are recorded as an expense reduction when the cost is incurred. All other vendor allowances,
including vendor allowances received in excess of the Companys cost to promote a vendors product, or vendor allowances directly related to purchase of a vendors product are initially deferred. The deferred amounts are then recorded
as a reduction of cost of good sold when the related product is sold.



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



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 in excess of 9.3%. However, the plan assets have lost an average of 2.0% per year during the last two years. Should this 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, 2004, the Company determined this rate to be 6.0%, a
decrease of 50 basis points from the rate used at March 31, 2003. 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.



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##### Table of Contents

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



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 2004 the Company recorded an increase to accrued
pension liability and a non-cash charge to equity of approximately $0.1 million. This charge may be reversed in future periods if asset returns improve or interest rates rise. For the year ended March 31, 2004, the Company recognized consolidated
pretax pension cost of $0.6 million, up from $0.5 million in 2003. The Company currently expects that the consolidated pension cost for 2005 will not be materially different from 2004. The Companys required minimum amount of 2005 contributions
are approximately $0.9 million. However, the Company may elect to increase the minimum level of contributions in 2005 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 May 2003, the FASB issued SFAS No. 150 (SFAS 150):Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS 150 establishes standards on the classification and
measurement of certain financial instruments with characteristics of both liabilities and equity. The provisions of SFAS 150 are effective for financial instruments entered into or modified after May 31, 2003 and to all instruments that exist as of
the beginning of the first interim financial reporting period beginning after June 15, 2003. The adoption of SFAS 150 did not have a material impact on the Companys results of operations or financial position.



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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 table presents the principal cash repayments and related weighted average interest rates by maturity date for the Companys long-term fixed-rate debt and
other types of long-term debt at March 31, 2004:



|          |  |      |   |      |   |      |  |      |   |      |   |   |            |   |            |       |  |   |            |   |  |   |            |   |  |   |           
|--------- |  | ---- | - | ---- | - | ---- |  | ---- | - | ---- | - | - | ---------- | - | ---------- | ----- |  | - | ---------- | - |  | - | ---------- | - |  | - | ----------
|          |  | 2005 |   | 2006 |   | 2007 |  | 2008 |   | 2009 |   |   | Thereafter |   |            | Total |  |   | Fair Value
|Fixed     |  | $    |  |      | $ |     |  | $    |  |      | $ |  |            | $ | 79,029,000 |       |  | $ |           |   |  | $ | 79,029,000 |   |  | $ | 76,264,000
|Avg. Rate |  |      |  |      |   |     |  |      |  |      |   |  |            |   | 10.125     | %     |  |   |           |   |  |   | 10.125     | % |  |   |           
|Variable  |  | $    |  |      | $ |     |  | $    |  |      | $ |  |            | $ | 3,000,000  |       |  | $ | 4,328,000  |   |  | $ | 7,328,000  |   |  | $ | 7,328,000 
|Avg. Rate |  |      |  |      |   |     |  |      |  |      |   |  |            |   | 4.25       | %     |  |   | 4.00       | % |  |   | 4.10       | % |  |   |           



The Company is exposed
to fluctuations in interest rate risk as a result of its variable rate debt. 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



Board of Directors and Stockholders

National Wine & Spirits, Inc.



We have audited the accompanying consolidated balance sheets of National Wine & Spirits, Inc. and subsidiaries as of March 31, 2004 and
2003, and the related consolidated statements of operations, stockholders equity, and cash flows for the years then ended. Our audits also included the financial statement schedules for the years ended March 31, 2004 and 2003, listed in the
Index at Item 15. These 2004 and 2003 financial statements and financial statement schedules are the responsibility of the Companys management. Our responsibility is to express an opinion on the 2004 and 2003 consolidated financial statements
and financial statement schedules based on our audits. The consolidated financial statements and financial statement schedule for the year ended March 31, 2002, were audited by other auditors who have ceased operations. Those auditors expressed an
unqualified opinion on those financial statements and stated that such 2002 financial statement schedule, when considered in relation to the 2002 basic financial statements taken as a whole, presented fairly, in all material respects, the
information set forth therein, in their report dated May 21, 2002.



We
conducted our audits in accordance with 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the 2004 and 2003 consolidated financial statements present fairly, in all material respects, the financial position of National Wine & Spirits, Inc.
and subsidiaries as of March 31, 2004 and 2003, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the
2004 and 2003 financial statement schedules, when considered in relation to the 2004 and 2003 basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.



As discussed in Note 1 to the consolidated financial statements, in 2003 the Company changed
its method of accounting for goodwill and other intangible assets.



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##### Table of Contents

As discussed above, the financial statements of National Wine & Spirits, Inc. and subsidiaries for the year ended
March 31, 2002, and for the year then ended, were audited by other auditors who have ceased operations. As described in Note 7, these financial statements have been revised to include the transitional disclosures required by Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142), which was adopted by the Company as of April 1, 2002. Our audit procedures with respect to the disclosures in Note 7 with respect to the year ended March 31,
2002 included (1) comparing the previously reported net income to the previously issued financial statements and the adjustments to reported net income representing amortization expense recognized in those periods related to goodwill and intangible
assets that are no longer being amortized as a result of initially applying SFAS 142 to the Companys underlying analysis obtained from management, and (2) testing the mathematical accuracy of the reconciliation of adjusted net income to
reported net income. In our opinion, the disclosures for the year ended March 31, 2002 in Note 7 are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2002 financial statements for the year ended March 31,
2002 of the Company other than with respect to such reclassifications and accordingly, we do not express an opinion or any form of assurance on the 2002 financial statements for the year ended March 31, 2002 taken as a whole.



DELOITTE & TOUCHE LLP



Indianapolis, Indiana

June 18, 2004



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##### Table of Contents

THE FOLLOWING IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP AND HAS NOT BEEN REISSUED BY ARTHUR
ANDERSEN LLP.



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the
Board of Directors and Stockholders of

National Wine & Spirits, Inc.



We have audited the accompanying consolidated balance sheet of National Wine & Spirits, Inc. (an Indiana Corporation) and subsidiaries
as of March 31, 2002 and the related consolidated statement of income, stockholders equity and cash flows for the year then ended. These consolidated financial statements and schedule referred to below are the responsibility of the
Companys management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audit.



We conducted our audit in accordance with auditing standards generally accepted in the 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in
all material respects, the consolidated financial position of National Wine & Spirits, Inc., as of March 31, 2002 and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.



Our audit was made for the
purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule listed in Item 14(a) is presented for purposes of complying with the Securities and Exchange Commissions rules and is not a required
part of the basic consolidated financial statements. The information as of and for the year ended March 31, 2002 contained in this schedule has been subjected to the auditing procedures applied in our audit of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole.



ARTHUR ANDERSEN LLP



Indianapolis, Indiana,

May 21, 2002.



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##### Table of Contents

National Wine & Spirits, Inc.

Consolidated Balance Sheets



|                                                                                                              |  |                |             |   |      |   |             |  
|------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ---- | - | ----------- | -
|                                                                                                              |  | As Of March 31 |            
|                                                                                                              |  | 2004           |             |   | 2003 |  
|Assets                                                                                                        |  |                |             |   |      |   |             |  
|Current assets:                                                                                               |  |                |             |   |      |   |             |  
|Cash and cash equivalents                                                                                     |  | $              | 1,466,000   |   |      | $ | 5,820,000   |  
|Accounts receivable:                                                                                          |  |                |             |   |      |   |             |  
|Trade, less allowance for doubtful accounts of $1,081,000 and $1,274,000                                      |  |                | 25,427,000  |   |      |   | 31,888,000  |  
|Vendor, less allowance for doubtful accounts of $125,000 and $297,000                                         |  |                | 3,745,000   |   |      |   | 11,475,000  |  
|Inventory                                                                                                     |  |                | 80,196,000  |   |      |   | 82,982,000  |  
|Prepaid expenses and other current assets                                                                     |  |                | 4,493,000   |   |      |   | 4,301,000   |  
|                                                                                                              |  |                |             |   |      |   |             |  
|Total current assets                                                                                          |  |                | 115,327,000 |   |      |   | 136,466,000 |  
|                                                                                                              |  |               
|Property and equipment, net                                                                                   |  |                | 31,484,000  |   |      |   | 36,498,000  |  
|Other assets:                                                                                                 |  |                |             |   |      |   |             |  
|Notes receivable, less reserve of $221,000 and $0                                                             |  |                | 197,000     |   |      |   | 513,000     |  
|Cash surrender value of life insurance                                                                        |  |                | 4,366,000   |   |      |   | 3,815,000   |  
|Investment in Commonwealth Wine & Spirits, LLC                                                                |  |                | 5,593,000   |   |      |   | 5,637,000   |  
|Intangible assets, net of amortization                                                                        |  |                | 27,646,000  |   |      |   | 18,328,000  |  
|Goodwill                                                                                                      |  |                | 1,246,000   |   |      |   | 1,246,000   |  
|Deferred pension costs                                                                                        |  |                | 642,000     |   |      |   | 715,000     |  
|Deposits and other                                                                                            |  |                | 599,000     |   |      |   | 596,000     |  
|                                                                                                              |  |                |             |   |      |   |             |  
|Total other assets                                                                                            |  |                | 40,289,000  |   |      |   | 30,850,000  |  
|                                                                                                              |  |                |             |   |      |   |             |  
|Total assets                                                                                                  |  | $              | 187,100,000 |   |      | $ | 203,814,000 |  
|                                                                                                              |  |                |             |   |      |   |             |  
|Liabilities And Stockholders Equity                                                                          |  |                |             |   |      |   |             |  
|Current liabilities:                                                                                          |  |                |             |   |      |   |             |  
|Accounts payable                                                                                              |  | $              | 40,594,000  |   |      | $ | 39,761,000  |  
|Accrued payroll and payroll taxes                                                                             |  |                | 7,018,000   |   |      |   | 7,486,000   |  
|Excise taxes payable                                                                                          |  |                | 4,813,000   |   |      |   | 4,503,000   |  
|Current portion of distribution rights obligations                                                            |  |                | 4,115,000   |   |      |   | 1,697,000   |  
|Other accrued expenses                                                                                        |  |                | 9,492,000   |   |      |   | 11,837,000  |  
|                                                                                                              |  |                |             |   |      |   |             |  
|Total current liabilities                                                                                     |  |                | 66,032,000  |   |      |   | 65,284,000  |  
|Deferred pension liability                                                                                    |  |                | 3,061,000   |   |      |   | 3,005,000   |  
|Distribution rights obligations                                                                               |  |                | 19,057,000  |   |      |   | 9,368,000   |  
|Long-term debt                                                                                                |  |                | 86,357,000  |   |      |   | 98,303,000  |  
|                                                                                                              |  |                |             |   |      |   |             |  
|Total liabilities                                                                                             |  |                | 174,507,000 |   |      |   | 175,960,000 |  
|                                                                                                              |  |               
|Commitments and contingencies (Note 10)                                                                       |  |                |            |   |      |   |            |  
|                                                                                                              |  |               
|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  |  
|Retained earnings (deficit)                                                                                   |  |                | (10,051,000 | ) |      |   | 5,081,000   |  
|Accumulated other comprehensive loss-unrealized net pension loss                                              |  |                | (2,419,000  | ) |      |   | (2,290,000  | )
|                                                                                                              |  |                |             |   |      |   |             |  
|Total stockholders equity                                                                                    |  |                | 12,593,000  |   |      |   | 27,854,000  |  
|                                                                                                              |  |                |             |   |      |   |             |  
|Total liabilities and stockholders equity                                                                    |  | $              | 187,100,000 |   |      | $ | 203,814,000 |  
|                                                                                                              |  |                |             |   |      |   |             |  



See accompanying
notes.



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##### Table of Contents

National Wine & Spirits, Inc.

Consolidated Statements of Operations



|                                                     |  |                      |             |   |      |   |             |      |  |   |             |  
|---------------------------------------------------- |  | -------------------- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                     |  | Years Ended March 31 |            
|                                                     |  | 2004                 |             |   | 2003 |   |             | 2002 | 
|Net product sales                                    |  | $                    | 513,615,000 |   |      | $ | 689,859,000 |      |  | $ | 659,594,000 |  
|Distribution fees                                    |  |                      | 27,045,000  |   |      |   | 22,999,000  |      |  |   | 21,963,000  |  
|                                                     |  |                      |             |   |      |   |             |      |  |   |             |  
|Total revenue                                        |  |                      | 540,660,000 |   |      |   | 712,858,000 |      |  |   | 681,557,000 |  
|                                                     |  |                      |            
|Cost of products sold                                |  |                      | 421,468,000 |   |      |   | 552,833,000 |      |  |   | 530,910,000 |  
|                                                     |  |                      |             |   |      |   |             |      |  |   |             |  
|Gross profit                                         |  |                      | 119,192,000 |   |      |   | 160,025,000 |      |  |   | 150,647,000 |  
|                                                     |  |                      |            
|Selling, general and administrative expenses:        |  |                      |             |   |      |   |             |      |  |   |             |  
|Warehouse and delivery                               |  |                      | 37,147,000  |   |      |   | 39,833,000  |      |  |   | 39,610,000  |  
|Selling                                              |  |                      | 49,640,000  |   |      |   | 57,452,000  |      |  |   | 46,840,000  |  
|Administrative                                       |  |                      | 46,117,000  |   |      |   | 48,156,000  |      |  |   | 44,575,000  |  
|Management fees                                      |  |                      | (12,634,000 | ) |      |   | (891,000    | )    |  |   |            |  
|                                                     |  |                      |             |   |      |   |             |      |  |   |             |  
|                                                     |  |                      | 120,270,000 |   |      |   | 144,550,000 |      |  |   | 131,025,000 |  
|                                                     |  |                      |            
|Income from operations                               |  |                      | (1,078,000  | ) |      |   | 15,475,000  |      |  |   | 19,622,000  |  
|                                                     |  |                      |            
|Interest expense:                                    |  |                      |             |   |      |   |             |      |  |   |             |  
|Related parties                                      |  |                      | (176,000    | ) |      |   | (197,000    | )    |  |   | (258,000    | )
|Third parties                                        |  |                      | (9,366,000  | ) |      |   | (11,110,000 | )    |  |   | (11,676,000 | )
|Gain from repurchase of long term debt               |  |                      | 716,000     |   |      |   | 1,999,000   |      |  |   |            |  
|                                                     |  |                      |             |   |      |   |             |      |  |   |             |  
|                                                     |  |                      | (8,826,000  | ) |      |   | (9,308,000  | )    |  |   | (11,934,000 | )
|                                                     |  |                      |            
|Other income (expense):                              |  |                      |             |   |      |   |             |      |  |   |             |  
|Vendor settlement income                             |  |                      |            |   |      |   | 9,200,000   |      |  |   |            |  
|Interest income                                      |  |                      | 21,000      |   |      |   | 152,000     |      |  |   | 286,000     |  
|Rental and other income                              |  |                      | 17,000      |   |      |   | 118,000     |      |  |   | 390,000     |  
|Equity in income of Commonwealth Wine & Spirits, LLC |  |                      | 742,000     |   |      |   | 312,000     |      |  |   | 407,000     |  
|Equity in losses of eSkye Solutions, Inc.            |  |                      |            |   |      |   | (160,000    | )    |  |   | (1,311,000  | )
|                                                     |  |                      |             |   |      |   |             |      |  |   |             |  
|                                                     |  |                      | 780,000     |   |      |   | 9,622,000   |      |  |   | (228,000    | )
|                                                     |  |                      |            
|Net income (loss)                                    |  | $                    | (9,124,000  | ) |      | $ | 15,789,000  |      |  | $ | 7,460,000   |  
|                                                     |  |                      |             |   |      |   |             |      |  |   |             |  



See accompanying notes.



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##### Table of Contents

National Wine & Spirits, Inc.

Consolidated Statements of Stockholders Equity



|                                                    |  |                            |       |                          |   |                                      |  |   |                                   |  |   |                                 |   |  |                          |            |   |  |   |          |   |  |   |            |  
|--------------------------------------------------- |  | -------------------------- | ----- | ------------------------ | - | ------------------------------------ |  | - | --------------------------------- |  | - | ------------------------------- | - |  | ------------------------ | ---------- | - |  | - | -------- | - |  | - | ---------- | -
|                                                    |  | $.01 Par ValueCommon Stock |       | AdditionalPaid-inCapital |   | RetainedEarnings(AccumulatedDeficit) |  |   | AccumulatedOtherComprehensiveLoss |  |   | NotesReceivablefromStockholders |   |  | TotalStockholdersEquity |           
|                                                    |  | Voting                     |       | Non-Voting               |   |                                      |  |   |                                  
|Balance at April 1, 2001                            |  | $                          | 1,000 |                          | $ | 53,000                               |  | $ | 25,009,000                        |  | $ | (224,000                        | ) |  | $                        |           |   |  | $ | (170,000 | ) |  | $ | 24,669,000 |  
|Net income                                          |  |                            |      |                          |   |                                     |  |   |                                  |  |   | 7,460,000                       |   |  |                          |           |   |  |   |         |   |  |   | 7,460,000  |  
|Unrealized net pension loss                         |  |                            |      |                          |   |                                     |  |   |                                  |  |   |                                |   |  |                          | (675,000   | ) |  |   |         |   |  |   | (675,000   | )
|                                                    |  |                            |       |                          |   |                                      |  |   |                                   |  |   |                                 |   |  |                          |            |   |  |   |          |   |  |   |            |  
|Comprehensive Income                                |  |                            |       |                          |   |                                      |  |   |                                   |  |   |                                 |   |  |                          |            |   |  |   |          |   |  |   | 6,785,000  |  
|Decrease in notes receivable from Stockholders, net |  |                            |      |                          |   |                                     |  |   |                                  |  |   |                                |   |  |                          |           |   |  |   | 170,000  |   |  |   | 170,000    |  
|Distributions to Stockholders                       |  |                            |      |                          |   |                                     |  |   |                                  |  |   | (8,529,000                      | ) |  |                          |           |   |  |   |         |   |  |   | (8,529,000 | )
|                                                    |  |                            |       |                          |   |                                      |  |   |                                   |  |   |                                 |   |  |                          |            |   |  |   |          |   |  |   |            |  
|Balance at March 31, 2002                           |  |                            | 1,000 |                          |   | 53,000                               |  |   | 25,009,000                        |  |   | (1,293,000                      | ) |  |                          | (675,000   | ) |  |   |         |   |  |   | 23,095,000 |  
|Net income                                          |  |                            |      |                          |   |                                     |  |   |                                  |  |   | 15,789,000                      |   |  |                          |           |   |  |   |         |   |  |   | 15,789,000 |  
|Unrealized net pension loss                         |  |                            |      |                          |   |                                     |  |   |                                  |  |   |                                |   |  |                          | (1,615,000 | ) |  |   |         |   |  |   | (1,615,000 | )
|                                                    |  |                            |       |                          |   |                                      |  |   |                                   |  |   |                                 |   |  |                          |            |   |  |   |          |   |  |   |            |  
|Comprehensive Income                                |  |                            |       |                          |   |                                      |  |   |                                   |  |   |                                 |   |  |                          |            |   |  |   |          |   |  |   | 14,174,000 |  
|Distributions to Stockholders                       |  |                            |      |                          |   |                                     |  |   |                                  |  |   | (9,415,000                      | ) |  |                          |           |   |  |   |         |   |  |   | (9,415,000 | )
|                                                    |  |                            |       |                          |   |                                      |  |   |                                   |  |   |                                 |   |  |                          |            |   |  |   |          |   |  |   |            |  
|Balance at March 31, 2003                           |  |                            | 1,000 |                          |   | 53,000                               |  |   | 25,009,000                        |  |   | 5,081,000                       |   |  |                          | (2,290,000 | ) |  |   |         |   |  |   | 27,854,000 |  
|Net loss                                            |  |                            |      |                          |   |                                     |  |   |                                  |  |   | (9,124,000                      | ) |  |                          |           |   |  |   |         |   |  |   | (9,124,000 | )
|Unrealized net pension loss                         |  |                            |      |                          |   |                                     |  |   |                                  |  |   |                                |   |  |                          | (129,000   | ) |  |   |         |   |  |   | (129,000   | )
|                                                    |  |                            |       |                          |   |                                      |  |   |                                   |  |   |                                 |   |  |                          |            |   |  |   |          |   |  |   |            |  
|Comprehensive loss                                  |  |                            |       |                          |   |                                      |  |   |                                   |  |   |                                 |   |  |                          |            |   |  |   |          |   |  |   | (9,253,000 | )
|Distributions to Stockholders                       |  |                            |      |                          |   |                                     |  |   |                                  |  |   | (6,008,000                      | ) |  |                          |           |   |  |   |         |   |  |   | (6,008,000 | )
|                                                    |  |                            |       |                          |   |                                      |  |   |                                   |  |   |                                 |   |  |                          |            |   |  |   |          |   |  |   |            |  
|Balance at March 31, 2004                           |  | $                          | 1,000 |                          | $ | 53,000                               |  | $ | 25,009,000                        |  | $ | (10,051,000                     | ) |  | $                        | (2,419,000 | ) |  | $ |         |   |  | $ | 12,593,000 |  
|                                                    |  |                            |       |                          |   |                                      |  |   |                                   |  |   |                                 |   |  |                          |            |   |  |   |          |   |  |   |            |  



See accompanying notes.



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##### Table of Contents

National Wine & Spirits, Inc.

Consolidated Statements of Cash Flows



|                                                                                         |  |                     |              |   |      |   |             |      |  |   |              |  
|---------------------------------------------------------------------------------------- |  | ------------------- | ------------ | - | ---- | - | ----------- | ---- |  | - | ------------ | -
|                                                                                         |  | Year Ended March 31 |             
|                                                                                         |  | 2004                |              |   | 2003 |   |             | 2002 | 
|Operating Activities:                                                                    |  |                     |              |   |      |   |             |      |  |   |              |  
|Net income (loss)                                                                        |  | $                   | (9,124,000   | ) |      | $ | 15,789,000  |      |  | $ | 7,460,000    |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                     |              |   |      |   |             |      |  |   |              |  
|Depreciation of property and equipment                                                   |  |                     | 5,947,000    |   |      |   | 7,188,000   |      |  |   | 6,561,000    |  
|Amortization of intangible assets                                                        |  |                     | 6,129,000    |   |      |   | 2,419,000   |      |  |   | 1,714,000    |  
|Equity in losses of eSkye Solutions, Inc.                                                |  |                     |             |   |      |   | 160,000     |      |  |   | 1,311,000    |  
|Equity in earnings of Commonwealth Wine & Spirits, LLC                                   |  |                     | (742,000     | ) |      |   | (312,000    | )    |  |   | (407,000     | )
|Provision for bad debt expense                                                           |  |                     | 547,000      |   |      |   | 329,000     |      |  |   | 552,000      |  
|(Gain) loss on repurchase of long term debt                                              |  |                     | (716,000     | ) |      |   | (1,999,000  | )    |  |   | 32,000       |  
|Gain on sales of assets                                                                  |  |                     | (270,000     | ) |      |   | (274,000    | )    |  |   | (47,000      | )
|Increase in cash surrender value of life insurance                                       |  |                     | (551,000     | ) |      |   | (447,000    | )    |  |   | (547,000     | )
|Changes in operating assets and liabilities                                              |  |                     |              |   |      |   |             |      |  |   |              |  
|Accounts receivable                                                                      |  |                     | 13,865,000   |   |      |   | (1,970,000  | )    |  |   | (1,731,000   | )
|Inventories                                                                              |  |                     | 2,786,000    |   |      |   | (1,042,000  | )    |  |   | (2,324,000   | )
|Prepaid expenses and other current assets                                                |  |                     | (192,000     | ) |      |   | (994,000    | )    |  |   | (512,000     | )
|Deposits and other                                                                       |  |                     | (4,000       | ) |      |   | (788,000    | )    |  |   | (101,000     | )
|Accounts payable                                                                         |  |                     | 833,000      |   |      |   | (1,245,000  | )    |  |   | 5,056,000    |  
|Accrued expenses and taxes                                                               |  |                     | (2,503,000   | ) |      |   | (1,629,000  | )    |  |   | 5,013,000    |  
|                                                                                         |  |                     |              |   |      |   |             |      |  |   |              |  
|Net cash and cash equivalents provided by operating activities                           |  |                     | 16,005,000   |   |      |   | 15,185,000  |      |  |   | 22,030,000   |  
|                                                                                         |  |                     |             
|Investing activities:                                                                    |  |                     |              |   |      |   |             |      |  |   |              |  
|Purchases of property and equipment                                                      |  |                     | (985,000     | ) |      |   | (2,337,000  | )    |  |   | (4,332,000   | )
|Purchases of intangible assets                                                           |  |                     | (210,000     | ) |      |   | (2,170,000  | )    |  |   | (1,841,000   | )
|Proceeds from sale of property and equipment                                             |  |                     | 106,000      |   |      |   | 365,000     |      |  |   | 112,000      |  
|Proceeds from sale of intangible assets                                                  |  |                     | 272,000      |   |      |   |            |      |  |   |             |  
|Distributions from Commonwealth Wine & Spirits, LLC                                      |  |                     | 786,000      |   |      |   | 1,286,000   |      |  |   | 405,000      |  
|Collections on notes receivable                                                          |  |                     | 95,000       |   |      |   | 367,000     |      |  |   | 349,000      |  
|                                                                                         |  |                     |              |   |      |   |             |      |  |   |              |  
|Net cash and cash equivalents provided (used) by investing activities                    |  |                     | 64,000       |   |      |   | (2,489,000  | )    |  |   | (5,307,000   | )
|                                                                                         |  |                     |             
|Financing activities:                                                                    |  |                     |              |   |      |   |             |      |  |   |              |  
|Proceeds from line of credit borrowings                                                  |  |                     | 140,400,000  |   |      |   | 54,250,000  |      |  |   | 146,900,000  |  
|Principal payments on line of credit borrowings                                          |  |                     | (141,400,000 | ) |      |   | (50,250,000 | )    |  |   | (146,900,000 | )
|Principal payments on long-term debt, including purchases of senior notes                |  |                     | (9,935,000   | ) |      |   | (15,317,000 | )    |  |   | (2,653,000   | )
|Proceeds of borrowings from stockholder                                                  |  |                     |             |   |      |   | 197,000     |      |  |   | 258,000      |  
|Payments of distribution rights obligations                                              |  |                     | (3,480,000   | ) |      |   | (529,000    | )    |  |   |             |  
|Repayments on borrowings from stockholders                                               |  |                     |             |   |      |   | (175,000    | )    |  |   | (253,000     | )
|Receipts on notes receivable from stockholders and others                                |  |                     |             |   |      |   | 2,628,000   |      |  |   | 2,095,000    |  
|Distributions to stockholders                                                            |  |                     | (6,008,000   | ) |      |   | (9,415,000  | )    |  |   | (8,529,000   | )
|                                                                                         |  |                     |              |   |      |   |             |      |  |   |              |  
|Net cash and cash equivalents used by financing activities                               |  |                     | (20,423,000  | ) |      |   | (18,611,000 | )    |  |   | (9,082,000   | )
|                                                                                         |  |                     |             
|Net increase (decrease) in cash and cash equivalents                                     |  |                     | (4,354,000   | ) |      |   | (5,915,000  | )    |  |   | 7,641,000    |  
|Cash and cash equivalents, beginning of year                                             |  |                     | 5,820,000    |   |      |   | 11,735,000  |      |  |   | 4,094,000    |  
|                                                                                         |  |                     |              |   |      |   |             |      |  |   |              |  
|Cash and cash equivalents, end of year                                                   |  | $                   | 1,466,000    |   |      | $ | 5,820,000   |      |  | $ | 11,735,000   |  
|                                                                                         |  |                     |              |   |      |   |             |      |  |   |              |  



See accompanying notes.



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##### Table of Contents

National Wine & Spirits, Inc.

Notes to Consolidated Financial Statements

March 31, 2004



1. Nature of Business and Summary of Significant Accounting Policies



Nature of Business and Principles of Consolidation



National Wine & Spirits, Inc. (NWS or the Company), an S-Corporation, is a holding company which operates primarily in the wine and liquor wholesale distribution
business. Based in Indianapolis, National Wine & Spirits Corporation (NWSC) is a wholesale distributor of liquor and wines throughout Indiana and also operates a division for the distribution of cigars and accessories. Based in Chicago,
NWS-Illinois, LLC (NWS-LLC) is a wholesale distributor of liquor, wines, and beer throughout Illinois. NWS Michigan, Inc. (NWSM) distributes liquor throughout Michigan and National Wine & Spirits, LLC (NWSM-LLC) is a wholesale distributor of
non-alcoholic and low proof products throughout Michigan. NWSM distributes spirits products as an Authorized Distribution Agent (ADA) for the State of Michigan and derives revenue from distribution and brokerage fees. Accordingly, NWSMs
results represent the entire All Other segment as described in Note 13. Based in Connecticut, United States Beverage, L.L.C. (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 therefrom. 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 $76,264,000 at March 31, 2004.



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##### Table of Contents

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. At
March 31, 2004, the Company had a book overdraft of its cash accounts from a certain financial institution, and recorded the overdraft as a current liability in the amount of $91,000.



Receivables and Credit Policies



Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payments generally within 15 to 30 days from the invoice date.



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 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
$8,432,000, $10,602,000 and $3,610,000 in 2004, 2003 and 2002, 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, 2004, and there was no indication of impairment.



Long-lived Assets



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



Income Taxes



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



Revenue Recognition



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



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##### Table of Contents

Net sales and distribution fees are recognized at the time product is shipped which is when title passes. Shipping and
handling charged to customers is included in Net Product Sales. For the years ended March 31, 2004, 2003, and 2002, the Company incurred delivery expenses of $14,739,000, $16,342,000, and $16,533,000, respectively, which are included in warehouse
and delivery expenses in the accompanying Consolidated Statements of Income.



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 $14,075,000, $8,925,000 and
$2,029,000 of consideration paid to customers as a reduction of revenue in the Consolidated Statements of Operations for the years ended March 31, 2004, 2003 and 2002, respectively.



Vendor Allowances Received



The Company records vendor allowances and discounts in the statement of operations in accordance with EITF 02-16: Accounting by a Customer (including a Reseller) for
Certain Consideration Received from a Vendor. The Company receives allowances from vendors as a result of purchasing and promoting their products. Vendor allowances provided as a reimbursement of specific, incremental and identifiable costs
incurred to promote a vendors products are recorded as an expense reduction when the cost is incurred. All other vendor allowances, including vendor allowances received in excess of the Companys cost to promote a vendors product,
or vendor allowances directly related to purchase of a vendors product are initially deferred. The deferred amounts are then recorded as a reduction of cost of good sold when the related product is sold.



Recently Issued Accounting Pronouncements



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



In May 2003, the FASB issued SFAS No. 150 (SFAS 150):Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS 150 establishes standards on the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. The provisions of SFAS 150 are effective for financial instruments entered into or modified after May 31, 2003 and to all instruments that exist as of the beginning of the
first interim financial reporting period beginning after June 15, 2003. The adoption of SFAS 150 did not have a material impact on the Companys results of operations or financial position.



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Reclassifications



Certain amounts from prior years financial statement have been reclassified to conform to the current year presentation. In addition, the fiscal 2002 financial
statements have been reclassified to include additional disclosure relating to accounts receivable vendor and distribution rights obligations.



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). APB 18 requires the Company to evaluate whether or not an other than temporary decline in value of an investment has occurred. As a result of this evaluation, the Company recorded an impairment charge of $530,000 for
the year ended March 31, 2002, which is included in Equity in losses of eSkye Solutions, Inc. in the Consolidated Statements of Operations. In addition, losses applying the equity method were $781,000 for the year ended March 31, 2002,
which were included in Equity in losses of eSkye Solutions, Inc. in the Consolidated Statements of Operations. Losses under the equity method for the year ended March 31, 2003 were in excess of the remaining book value of the investment
in eSkye. The Company recorded $160,000 in losses for the year ended March 31, 2003, reducing its investment to $0. At March 31, 2004, the Companys share of eSkyes voting stock was 20.5%.



Commonwealth Wine & Spirits, LLC



In December 1998, NWSC formed a new distributorship in Kentucky (Commonwealth Wine &
Spirits, LLC) in partnership with two existing Kentucky-based distributors, The Vertner Smith Company (Vertner) and Kentucky Wine & Spirits (Kentucky W&S). NWSC has accounted for its investment in Commonwealth Wine
& Spirits, LLC using the equity method. Under the terms, NWSC invested $7,500,000 in exchange for a 25% interest in the new company. Vertner and Kentucky W&S equally own the remaining 75%. A portion of NWSCs initial investment related
to a franchise fee paid by NWSC on behalf of the new distributorship. As part of the operating agreement, NWSCs initial cash distributions from the new distributorship are treated as return of NWSCs original investment. As a result, the
amortization of this franchise fee is allocated 100% to NWSC during the for the fiscal years 1999 through 2004, and is reflected in the Companys recorded equity in income of Commonwealth Wine & Spirits, LLC in the accompanying consolidated
statement of operations. The Company received distributions of $786,000, $1,286,000 and $405,000 and recorded equity in earnings of $742,000, $312,000 and $407,000 from Commonwealth Wine & Spirits, LLC in 2004, 2003 and 2002 respectively.



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



|               |  |                       |            |   |      |   |            |      |  |   |             |  
|-------------- |  | --------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ----------- | -
|               |  | Years Ended March 31, |           
|               |  | 2004                  |            |   | 2003 |   |            | 2002 | 
|Sales          |  | $                     | 81,355,000 |   |      | $ | 84,780,000 |      |  | $ | 86,365,000  |  
|Operating loss |  |                       | (2,222,000 | ) |      |   | (2,444,000 | )    |  |   | (18,076,000 | )
|Net loss       |  |                       | (2,020,000 | ) |      |   | (134,000   | )    |  |   | (16,132,000 | )



|                        |  |            |  |      |           
|----------------------- |  | ---------- |  | ---- | ----------
|                        |  | March 31, 
|                        |  | 2004       |  | 2003
|Current assets          |  | 19,529,000 |  | $    | 20,520,000
|Non-current assets      |  | 2,010,000  |  |      | 3,353,000 
|Current liabilities     |  | 6,698,000  |  |      | 8,069,000 
|Non-current liabilities |  | 2,875,000  |  |      |          
|Minority interest       |  | 3,000      |  |      | 3,000     
|Redeemable stock        |  | 23,164,000 |  |      | 21,553,000



3. Inventory



Inventory at March 31 is comprised of the following:



|                   |  |      |             |   |      |   |             |  
|------------------ |  | ---- | ----------- | - | ---- | - | ----------- | -
|                   |  | 2004 |             |   | 2003 |  
|Inventory at FIFO  |  | $    | 91,070,000  |   |      | $ | 93,895,000  |  
|Less: LIFO reserve |  |      | (10,874,000 | ) |      |   | (10,913,000 | )
|                   |  |      |             |   |      |   |             |  
|                   |  | $    | 80,196,000  |   |      | $ | 82,982,000  |  
|                   |  |      |             |   |      |   |             |  



During the fiscal years ended March
31, 2004, 2003 and 2002, certain inventory quantities were reduced, which resulted in a partial liquidation of a LIFO inventory layers carried at a cost that prevailed in a prior year. For the fiscal year ended March 31, 2004, the effect of the
liquidation of inventory was a decrease in the cost of products sold and a decrease in the net loss by $1,145,000. For fiscal years ended March 31, 2003 and 2002, the effect of the liquidation of inventory was a decrease in the cost of products sold
and an increase in the net income by $205,000 and $22,000, respectively.



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, 2004 and March 31, 2003 were $89,296,000 and $89,978,000, respectively.



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4. Property and Equipment



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



|                               |  |      |            |      |   |           
|------------------------------ |  | ---- | ---------- | ---- | - | ----------
|                               |  | 2004 |            | 2003
|Land and improvements          |  | $    | 1,173,000  |      | $ | 1,170,000 
|Buildings and improvements     |  |      | 31,692,000 |      |   | 31,965,000
|Furniture and equipment        |  |      | 13,832,000 |      |   | 14,294,000
|Warehouse equipment            |  |      | 28,334,000 |      |   | 28,295,000
|Automobiles and trucks         |  |      | 5,956,000  |      |   | 6,383,000 
|                               |  |      |            |      |   |           
|                               |  |      | 80,987,000 |      |   | 82,107,000
|                               |  |     
|Less: Accumulated depreciation |  |      | 49,503,000 |      |   | 45,609,000
|                               |  |      |            |      |   |           
|                               |  | $    | 31,484,000 |      | $ | 36,498,000
|                               |  |      |            |      |   |           



5. Supplemental Cash Flow
Information



During the years ended March 31, 2004, 2003 and 2002, the
Company purchased intangible assets, principally distribution rights of $15,797,000, $13,605,000 and $1,841,000, respectively, by incurring other liabilities of $15,587,000, 11,435,000 and $0, respectively.



Cash paid for interest was $9,935,000, $11,657,000 and $11,754,000 in 2004, 2003 and 2002,
respectively.



6. Intangible Assets



Intangible assets at March 31 is comprised of the following:



|                                              |  |                      |  |                       |            |                          |   |                       |  |                          |            |  |   |          
|--------------------------------------------- |  | -------------------- |  | --------------------- | ---------- | ------------------------ | - | --------------------- |  | ------------------------ | ---------- |  | - | ---------
|                                              |  |                      |  | 2004                  |            | 2003                    
|                                              |  | WeightedAverage Life |  | Gross Carrying Amount |            | Accumulated Amortization |   | Gross Carrying Amount |  | Accumulated Amortization
|Intangible Assets Subject to Amortization     |  |                      |  |                       |            |                          |   |                       |  |                          |            |  |   |          
|Distribution rights                           |  | 7                    |  | $                     | 30,820,000 |                          | $ | 6,170,000             |  | $                        | 15,676,000 |  | $ | 1,683,000
|Loan acquisition costs                        |  | 10                   |  |                       | 4,076,000  |                          |   | 2,011,000             |  |                          | 4,716,000  |  |   | 1,890,000
|Non-compete agreements                        |  | 5                    |  |                       | 200,000    |                          |   | 193,000               |  |                          | 200,000    |  |   | 153,000  
|                                              |  |                      |  |                       |            |                          |   |                       |  |                          |            |  |   |          
|Total                                         |  | 7                    |  | $                     | 35,096,000 |                          | $ | 8,374,000             |  | $                        | 20,592,000 |  | $ | 3,726,000
|                                              |  |                      |  |                       |            |                          |   |                       |  |                          |            |  |   |          
|                                              |  |                      |  | Carrying Amount       |            |                          |   | CarryingAmount        |  |                         
|Intangible Assets Not Subject to Amortization |  |                      |  |                       |            |                          |   |                       |  |                          |            |  |   |          
|Distribution rights                           |  |                      |  | $                     | 924,000    |                          |   |                       |  | $                        | 1,462,000  |  |   |          
|                                              |  |                      |  |                       |            |                          |   |                       |  |                          |            |  |   |          



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Consolidated amortization expense related to intangible assets, excluding goodwill and other intangible assets with
indefinite lives, for 2004, 2003, and 2002 was $5,513,000, $2,419,000 and $1,374,000, 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 an impairment analysis of the related distribution
rights that are not subject to amortization. Management determined that the related distribution rights were impaired and recorded a charge of $846,000 to amortization expense during the twelve month period ended March 31, 2004 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:



|     |  |   |           
|---- |  | - | ----------
|2005 |  | $ | 5,362,000 
|2006 |  |   | 5,224,000 
|2007 |  |   | 5,137,000 
|2008 |  |   | 4,349,000 
|2009 |  |   | 3,615,000 
|     |  |   |           
|     |  | $ | 23,687,000
|     |  |   |           



7. Goodwill



The following is a summary of the changes in goodwill during the years ended March 31:



|                            |  |      |           |      |   |          
|--------------------------- |  | ---- | --------- | ---- | - | ---------
|                            |  | 2004 |           | 2003
|Goodwill, beginning of year |  | $    | 1,246,000 |      | $ | 1,251,000
|Less: Amortization          |  |      |          |      |   |         
|Less: Write-off of goodwill |  |      |          |      |   | 5,000    
|                            |  |      |           |      |   |          
|Goodwill, end of year       |  | $    | 1,246,000 |      | $ | 1,246,000
|                            |  |      |           |      |   |          



The following financial data
illustrates pro forma earnings if goodwill and distribution rights with indefinite lives had not been amortized for 2004, 2003 and 2002:



|                                                                                                                   |  |                      |            |   |      |   |            |  |   |          
|------------------------------------------------------------------------------------------------------------------ |  | -------------------- | ---------- | - | ---- | - | ---------- |  | - | ---------
|                                                                                                                   |  | Year ending March 31
|                                                                                                                   |  | 2004                 |            |   | 2003 |   | 2002      
|Net income, as reported                                                                                            |  | $                    | (9,124,000 | ) |      | $ | 15,789,000 |  | $ | 7,460,000
|Add back amortization of distribution rights with indefinite lives                                                 |  |                      |           |   |      |   |           |  |   | 236,000  
|Add back goodwill amortization                                                                                     |  |                      |           |   |      |   |           |  |   | 104,000  
|                                                                                                                   |  |                      |            |   |      |   |            |  |   |          
|Adjusted net income, excluding goodwill amortization and amortization of distribution rights with indefinite lives |  | $                    | (9,124,000 | ) |      | $ | 15,789,000 |  | $ | 7,800,000
|                                                                                                                   |  |                      |            |   |      |   |            |  |   |          



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8. Debt



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



|                                                 |  |      |            |      |   |           
|------------------------------------------------ |  | ---- | ---------- | ---- | - | ----------
|                                                 |  | 2004 |            | 2003
|Senior notes payable (A)                         |  | $    | 79,029,000 |      | $ | 89,975,000
|Bank revolving line of credit (B)                |  |      | 3,000,000  |      |   | 4,000,000 
|Notes payable to stockholders, net (see Note 12) |  |      | 4,328,000  |      |   | 4,328,000 
|                                                 |  |      |            |      |   |           
|                                                 |  |      | 86,357,000 |      |   | 98,303,000
|Less: current maturities                         |  |      |           |      |   |          
|                                                 |  |      |            |      |   |           
|                                                 |  | $    | 86,357,000 |      | $ | 98,303,000
|                                                 |  |      |            |      |   |           

---

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



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



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



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



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



|(B) | On March 31, 2003, NWS entered into a credit agreement with LaSalle Bank National Association, as lender and agent, and National City Bank of Indiana that provides a revolving line
of credit for borrowings of up to $40 million, including standby or commercial letters of credit of up to $5 million, through April 1, 2008. Commercial letters of credit of $3.7 million were outstanding at March 31, 2004 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 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
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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, 2004 the applicable interest rate on the revolving line of credit was 4.25%.



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



The Company was in compliance at March
31, 2004 with the restrictive covenants, as amended, of the revolving credit facility.



Principal payments due on debt at March 31, 2004 are as follows:



|           |  |   |           
|---------- |  | - | ----------
|2005       |  |   |          
|2006       |  |   |          
|2007       |  |   |          
|2008       |  |   |          
|2009       |  | $ | 82,029,000
|Thereafter |  |   | 4,328,000 
|           |  |   |           
|           |  | $ | 86,357,000
|           |  |   |           



9. Common Stock



The Company has two authorized classes of capital stock: voting $0.01 par
value common shares and nonvoting $0.01 par value common shares. Both classes of stock have the same relative rights, performance limitations and restrictions, except that nonvoting 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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10. 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 2011. 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, 2004 are as follows:



|           |  |   |           
|---------- |  | - | ----------
|2005       |  | $ | 4,133,000 
|2006       |  |   | 3,692,000 
|2007       |  |   | 3,317,000 
|2008       |  |   | 1,266,000 
|2009       |  |   | 732,000   
|Thereafter |  |   | 373,000   
|           |  |   |           
|           |  | $ | 13,513,000
|           |  |   |           



Rent expense was $4,797,000,
$4,747,000 and $4,800,000 in 2004, 2003 and 2002, respectively.



The Company is
party to certain distribution contracts that required minimum royalty payments for fiscal year 2004. Actual royalty payments exceeded the guaranteed minimum. Therefore, royalty payments were recorded in cost of sales as royalties became payable. As
of March 31, 2004, the minimum royalty payment of $2,700,000 for fiscal year 2004 had been satisfied. There are no such commitments extending past fiscal 2004.



Management believes it is possible that the Company will enter into a firm purchase contract or will purchase certain inventory subsequent to March 31, 2004. The
estimated loss resulting from the purchase of this inventory is approximately between $1,080,000 and $1,440,000. No amounts have been recorded in relation to this future event as of March 31, 2004.



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



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11. 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 5 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.



|                                                                     |  |      |            |   |      |   |            |  
|-------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                     |  | 2004 |            |   | 2003 |  
|Change in projected benefit obligation:                              |  |      |            |   |      |   |            |  
|Benefit obligation at beginning of year                              |  | $    | 6,012,000  |   |      | $ | 4,962,000  |  
|Service cost                                                         |  |      | 398,000    |   |      |   | 347,000    |  
|Interest cost                                                        |  |      | 384,000    |   |      |   | 340,000    |  
|Actuarial changes                                                    |  |      | 668,000    |   |      |   | 577,000    |  
|Benefits paid                                                        |  |      | (207,000   | ) |      |   | (214,000   | )
|                                                                     |  |      |            |   |      |   |            |  
|Benefit obligation at end of year                                    |  | $    | 7,255,000  |   |      | $ | 6,012,000  |  
|                                                                     |  |      |            |   |      |   |            |  
|Change in plan assets:                                               |  |      |            |   |      |   |            |  
|Fair value of plan assets at beginning of year                       |  | $    | 3,773,000  |   |      | $ | 3,587,000  |  
|Actual gain (loss) on plan assets                                    |  |      | 759,000    |   |      |   | (347,000   | )
|Employer contributions                                               |  |      | 547,000    |   |      |   | 747,000    |  
|Benefits paid                                                        |  |      | (207,000   | ) |      |   | (214,000   | )
|                                                                     |  |      |            |   |      |   |            |  
|Fair value of plan assets at measurement date                        |  | $    | 4,872,000  |   |      | $ | 3,773,000  |  
|                                                                     |  |     
|Reconciliation of funded status:                                     |  |      |            |   |      |   |            |  
|Funded (Unfunded) status                                             |  | $    | (2,383,000 | ) |      | $ | (2,239,000 | )
|Unrecognized actuarial loss (gain)                                   |  |      | 2,420,000  |   |      |   | 2,291,000  |  
|Unrecognized prior service cost                                      |  |      | 594,000    |   |      |   | 647,000    |  
|Unrecognized transition obligation                                   |  |      | 48,000     |   |      |   | 67,000     |  
|                                                                     |  |      |            |   |      |   |            |  
|Prepaid benefit cost at measurement date                             |  |      | 679,000    |   |      |   | 766,000    |  
|                                                                     |  |      |            |   |      |   |            |  
|Contributions made after measurement date                            |  |      | 200,000    |   |      |   |           |  
|                                                                     |  |      |            |   |      |   |            |  
|Prepaid benefit cost at end of year                                  |  | $    | 879,000    |   |      | $ | 766,000    |  
|                                                                     |  |      |            |   |      |   |            |  
|Amounts recognized in the consolidated balance sheet:                |  |      |            |   |      |   |            |  
|Prepaid benefit cost                                                 |  | $    | 679,000    |   |      | $ | 766,000    |  
|Non-current deferred additional liability                            |  |      | (3,061,000 | ) |      |   | (3,005,000 | )
|Deferred pension costs - intangible asset                            |  |      | 642,000    |   |      |   | 715,000    |  
|Accumulated other comprehensive loss                                 |  | $    | 2,419,000  |   |      | $ | 2,290,000  |  
|                                                                     |  |     
|Increase in minimum liability included in other comprehensive income |  | $    | 129,000    |   |      | $ | 1,615,000  |  



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As of March 31, 2004 and 2003, the Company has recorded an additional minimum pension liability of $3,061,000 and
$3,005,000, respectively. As the additional liability exceeds the intangible asset, the excess is recorded in Accumulated Other Comprehensive Loss in the amounts of $2,419,000 and $2,290,000 as of March 31, 2004 and 2003, respectively. An intangible
asset of $642,000 and $715,000 was reflected in the Companys consolidated balance sheet at March 31, 2004 and 2003, respectively. The change in the pension liability at March 31, 2004 as compared to the liability at March 31, 2003 was
primarily caused by the difference in the actual return on assets compared to the expected return on assets and the 0.50% decrease in the discount rate assumption.



The projected benefit obligation and accumulated benefit obligation exceeded the fair value of plan assets as of December 31, 2003 and 2002
as illustrated in the following table.



|                               |  |      |           |      |   |          
|------------------------------ |  | ---- | --------- | ---- | - | ---------
|                               |  | 2004 |           | 2003
|Projected benefit obligation   |  | $    | 7,255,000 |      | $ | 6,012,000
|Accumulated benefit obligation |  | $    | 7,255,000 |      | $ | 6,012,000
|Plan assets at fair value      |  | $    | 4,872,000 |      | $ | 3,773,000



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:



|                                                  |  |      |          |   |      |   |          |      |  |   |          |  
|------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                  |  | 2004 |          |   | 2003 |   |          | 2002 | 
|Service cost-benefits earned during the year      |  | $    | 398,000  |   |      | $ | 347,000  |      |  | $ | 263,000  |  
|Interest on projected benefit obligation          |  |      | 384,000  |   |      |   | 340,000  |      |  |   | 288,000  |  
|Expected return on plan assets                    |  |      | (323,000 | ) |      |   | (314,000 | )    |  |   | (305,000 | )
|Amortization of unrecognized net transition asset |  |      | 20,000   |   |      |   | 20,000   |      |  |   | 20,000   |  
|Amortization of loss (gain)                       |  |      | 101,000  |   |      |   | 34,000   |      |  |   |         |  
|Amortization of prior service cost                |  |      | 53,000   |   |      |   | 53,000   |      |  |   | 53,000   |  
|                                                  |  |      |          |   |      |   |          |      |  |   |          |  
|Net periodic pension cost                         |  | $    | 633,000  |   |      | $ | 480,000  |      |  | $ | 319,000  |  
|                                                  |  |      |          |   |      |   |          |      |  |   |          |  



The Companys discount rate
assumption is based upon the preceding years Moodys AA Corporate Bond Index rounded down to the nearest 1/4of a percentage point, and is assumed to be the rate at which the benefit obligations could be settled. The return on plan assets reflects the weighted-average of the long term rates of return for the broad categories of investments
held in the Companys defined benefit pension plan. The expected rate of return is adjusted when there are fundamental changes in expected returns on the Companys defined benefit pension plans assets. The actuarial assumptions used
in accounting for the Companys defined benefit retirement plan were as follows:



|                               |  |      |   |  |      |  
|------------------------------ |  | ---- | - |  | ---- | -
|                               |  | 2004 |   |  | 2003 |  
|Discount rate                  |  | 6.00 | % |  | 6.50 | %
|Expected return on plan assets |  | 7.50 | % |  | 8.50 | %
|Benefit increases              |  | 0.00 | % |  | 0.00 | %



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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:



|                            |  |            |   |  |                     |   |  |            |  
|--------------------------- |  | ---------- | - |  | ------------------- | - |  | ---------- | -
|                            |  | LowerLimit |   |  | StrategicAllocation |   |  | UpperLimit |  
|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, 2004 and is the allocation to be used for the year ended March 31, 2005. As of the Companys 2004 and 2003 measurement dates, the percentage of fair value of total assets by asset category was as follows:



|                          |  |       |   |  |       |  
|------------------------- |  | ----- | - |  | ----- | -
|                          |  | 2004  |   |  | 2003  |  
|Asset category:           |  |       |   |  |       |  
|Equity securities         |  | 61.50 | % |  | 60.10 | %
|Debt securities           |  | 37.40 | % |  | 38.90 | %
|Cash and cash equivalents |  | 1.10  | % |  | 1.00  | %
|Total                     |  |       |   |  |       |  



The Company expects to contribute
approximately $922,000 to its defined benefit pension plan during the fiscal year ending March 31, 2005.



The Company also sponsors a defined contribution benefit plan for substantially all employees not covered by the defined benefit plan. Contributions to the plan are made at the discretion of the Company and may not
exceed 5% of a participants compensation. The Company recorded $1,588,000, $1,598,000 and $1,411,000 of expense for the defined contribution plan in 2004, 2003 and 2002, 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



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approximately 62% of NWS-LLCs workforce and 51% of NWSMs workforce. Contributions charged to expense were
$575,000, $757,000 and $665,000 in 2004, 2003 and 2002, 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.



12. Related Party Transactions



The Company and its stockholders executed subordinated notes payable to stockholders and the
total of subordinated notes payable was $4,328,000 at March 31, 2004 and 2003, with the principal balance due in December 2009. These notes bear interest at the prime lending rate. Interest expense on these notes was $176,000, $197,000 and $258,000
in 2004, 2003, and 2002, respectively.



NWSC had notes receivable from its two
stockholders totaling $2,628,000 at March 31, 2002. The notes earned interest at the prime lending rate and were paid in full during September 2002. Interest income earned was $62,000 and $222,000 in 2003 and 2002 respectively. Proceeds of the notes
were used by the stockholders to purchase additional capital stock of NWSC and to make loans to NWS-LLC.



The Company did not pay consulting fees to a minority stockholder of NWS-LLC during the year ended March 31, 2004, but paid $117,000 and $218,000 during 2003 and 2002, 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 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 investment in convertible preferred stock of eSkye totaled $2,513,000.



NWS leases facilities and certain office equipment to eSkye under the terms of a three-year operating lease expiring September, 2004. NWS did not charge or receive any rent from eSkye during the year ended March 31,
2004 but received $137,000 and $270,000 during the years ended March 31, 2003 and 2002, respectively. The Company pays eSkye fees for computer services. NWS paid $50,000, $150,000, and, $49,000 during the years ended March 31, 2004, 2003 and 2002,
respectively.



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13. 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. The accounting policies of the reportable segments are the same as those described in the summary of significant
accounting policies in Note 1.



|                                                       |  |      |             |   |      |   |             |      |  |   |             |  
|------------------------------------------------------ |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                       |  | 2004 |             |   | 2003 |   |             | 2002 | 
|Revenue from external customers                        |  |      |             |   |      |   |             |      |  |   |             |  
|Product sales                                          |  | $    | 513,615,000 |   |      | $ | 689,859,000 |      |  | $ | 659,594,000 |  
|All other                                              |  |      | 27,045,000  |   |      |   | 22,999,000  |      |  |   | 21,963,000  |  
|Interest expense                                       |  |      |             |   |      |   |             |      |  |   |             |  
|Product sales                                          |  |      | 7,110,000   |   |      |   | 7,654,000   |      |  |   | 10,309,000  |  
|All other                                              |  |      | 1,716,000   |   |      |   | 1,654,000   |      |  |   | 1,625,000   |  
|Depreciation expense                                   |  |      |             |   |      |   |             |      |  |   |             |  
|Product sales                                          |  |      | 4,041,000   |   |      |   | 5,212,000   |      |  |   | 4,505,000   |  
|All other                                              |  |      | 1,906,000   |   |      |   | 1,976,000   |      |  |   | 2,056,000   |  
|Amortization expense                                   |  |      |             |   |      |   |             |      |  |   |             |  
|Product sales                                          |  |      | 6,088,000   |   |      |   | 2,245,000   |      |  |   | 1,170,000   |  
|All other                                              |  |      | 41,000      |   |      |   | 174,000     |      |  |   | 544,000     |  
|Equity in earnings of Commonwealth Wine & Spirits, LLC |  |      |             |   |      |   |             |      |  |   |             |  
|Product sales                                          |  |      | 742,000     |   |      |   | 312,000     |      |  |   | 407,000     |  
|All other                                              |  |      |            |   |      |   |            |      |  |   |            |  
|Equity in losses of eSkye Solutions, Inc.              |  |      |             |   |      |   |             |      |  |   |             |  
|Product sales                                          |  |      |            |   |      |   | (160,000    | )    |  |   | (1,311,000  | )
|All other                                              |  |      |            |   |      |   |            |      |  |   |            |  
|Segment income (loss)                                  |  |      |             |   |      |   |             |      |  |   |             |  
|Product sales                                          |  |      | (9,439,000  | ) |      |   | 17,111,000  |      |  |   | 9,155,000   |  
|All other                                              |  |      | 315,000     |   |      |   | (1,322,000  | )    |  |   | (1,695,000  | )
|Segment assets                                         |  |      |             |   |      |   |             |      |  |   |             |  
|Product sales                                          |  |      | 177,042,000 |   |      |   | 193,757,000 |      |  |   | 190,585,000 |  
|All other                                              |  |      | 10,058,000  |   |      |   | 9,951,000   |      |  |   | 10,820,000  |  
|Investments in equity method investees                 |  |      |             |   |      |   |             |      |  |   |             |  
|Product sales                                          |  |      | 5,593,000   |   |      |   | 5,637,000   |      |  |   | 6,771,000   |  
|All other                                              |  |      |            |   |      |   |            |      |  |   |            |  
|Expenditures on long-lived assets                      |  |      |             |   |      |   |             |      |  |   |             |  
|Product sales                                          |  |      | 979,000     |   |      |   | 4,449,000   |      |  |   | 5,142,000   |  
|All other                                              |  |      | 216,000     |   |      |   | 58,000      |      |  |   | 1,031,000   |  



14. Concentration of Risk



Products purchased from four suppliers amounted to approximately 46%, 59%
and 62% of all purchases in 2004, 2003 and 2002, respectively.



15. Vendor
Distribution Agreements



During the year ended March 31, 2004, NWSC
entered into distribution contracts with two vendors, both on an exclusive basis for their respective products distributed in Indiana. Total



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payments of $17,500,000 are required for these agreements, and $15,442,000 is unpaid as of March 31, 2004. Payments are
required on a quarterly basis through June 30, 2010. NWSC has imputed interest for the obligations at 4.0% and recorded a discount on the obligation which reduced the related intangible asset by $1,913,000. These assets will be amortized over the
life of their respective contracts.



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



|                                                      |  |   |            |  
|----------------------------------------------------- |  | - | ---------- | -
|2005                                                  |  | $ | 4,979,000  |  
|2006                                                  |  |   | 4,729,000  |  
|2007                                                  |  |   | 4,729,000  |  
|2008                                                  |  |   | 4,400,000  |  
|2009                                                  |  |   | 3,467,000  |  
|Thereafter                                            |  |   | 3,750,000  |  
|                                                      |  |   |            |  
|Total distribution rights obligations                 |  |   | 26,054,000 |  
|Imputed interest                                      |  |   | (2,882,000 | )
|                                                      |  |   |            |  
|Present value of minimum distribution rights payments |  |   | 23,172,000 |  
|Current portion                                       |  |   | (4,115,000 | )
|                                                      |  |   |            |  
|Long-term distribution rights obligation              |  | $ | 19,057,000 |  
|                                                      |  |   |            |  



16. 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 operations in the State of Illinois. Prior to the amendment, NWS shared profits and losses of NWS-LLC
equally with the other wholesaler. Under the new terms of the agreement, effective December 1, 2003, the other wholesaler has committed to fund eighty percent (80%) of operating losses and receive eighty percent (80%) of operating profits. NWS will
fund twenty percent (20%) of any such losses and receive twenty percent (20%) of any such profits. Pursuant to the agreement, NWS-LLC recorded approximately $12,634,000 and $891,000 as a reduction of operating expenses during the twelve months ended
March 31, 2004 and 2003, respectively. At March 31, 2004, a receivable from the wholesaler in the amount of approximately $1.9 million was recorded in Prepaid Expenses and Other Current Assets.



NWS-LLC continues to be a wholly owned subsidiary of NWS, and neither party has the present
right to buy or cause the sale of NWS interest. However, at any time after July 31, 2004, if certain conditions are met, the other wholesaler may purchase NWS-LLCs assets for a purchase price based upon 80% of the then current net assets
of NWS-LLC and a 20% equity interest in the successor Illinois organization, as defined in the agreement.



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17. Quarterly Data (Unaudited)



The following table sets forth certain quarterly income statement information of the Company for the fiscal years ended March 31, 2004, 2003
and 2002:



|                                             |  |      |         |   |    |   |         |    |  |   |         |   |  |       |         |   |  |   |         |  
|-------------------------------------------- |  | ---- | ------- | - | -- | - | ------- | -- |  | - | ------- | - |  | ----- | ------- | - |  | - | ------- | -
|                                             |  | 2004 |        
|(Dollars in thousands)                       |  | Q1   |         |   | Q2 |   |         | Q3 |  |   | Q4      |   |  | Total |        
|Total revenue                                |  | $    | 144,034 |   |    | $ | 128,705 |    |  | $ | 156,530 |   |  | $     | 111,391 |   |  | $ | 540,660 |  
|Gross profit                                 |  |      | 34,885  |   |    |   | 29,045  |    |  |   | 32,291  |   |  |       | 22,971  |   |  |   | 119,192 |  
|Selling, general and administrative expenses |  |      | 33,328  |   |    |   | 29,133  |    |  |   | 31,449  |   |  |       | 26,360  |   |  |   | 120,270 |  
|Income (loss) from operations                |  |      | 1,557   |   |    |   | (88     | )  |  |   | 842     |   |  |       | (3,389  | ) |  |   | (1,078  | )
|Interest expense                             |  |      | 1,730   |   |    |   | 2,133   |    |  |   | 2,463   |   |  |       | 2,500   |   |  |   | 8,826   |  
|Other income (expense)                       |  |      | 134     |   |    |   | (45     | )  |  |   | 382     |   |  |       | 309     |   |  |   | 780     |  
|Net income (loss)                            |  |      | (39     | ) |    |   | (2,266  | )  |  |   | (1,239  | ) |  |       | (5,580  | ) |  |   | (9,124  | )



|                                             |  |      |         |    |   |         |  |    |         |  |       |         |   |  |   |        
|-------------------------------------------- |  | ---- | ------- | -- | - | ------- |  | -- | ------- |  | ----- | ------- | - |  | - | -------
|                                             |  | 2003
|(Dollars in thousands)                       |  | Q1   |         | Q2 |   | Q3      |  | Q4 |         |  | Total
|Total revenue                                |  | $    | 182,732 |    | $ | 175,536 |  | $  | 214,872 |  | $     | 139,718 |   |  | $ | 712,858
|Gross profit                                 |  |      | 43,163  |    |   | 39,444  |  |    | 44,917  |  |       | 32,501  |   |  |   | 160,025
|Selling, general and administrative expenses |  |      | 36,130  |    |   | 36,099  |  |    | 36,710  |  |       | 35,611  |   |  |   | 144,550
|Income (loss) from operations                |  |      | 7,033   |    |   | 3,345   |  |    | 8,207   |  |       | (3,110  | ) |  |   | 15,475 
|Interest expense                             |  |      | 2,819   |    |   | 2,828   |  |    | 2,845   |  |       | 816     |   |  |   | 9,308  
|Other income (expense)                       |  |      | 180     |    |   | 114     |  |    | 200     |  |       | 9,128   |   |  |   | 9,622  
|Net income                                   |  |      | 4,394   |    |   | 631     |  |    | 5,562   |  |       | 5,202   |   |  |   | 15,789 



|                                             |  |      |         |   |    |   |         |    |  |   |         |   |  |       |         |   |  |   |         |  
|-------------------------------------------- |  | ---- | ------- | - | -- | - | ------- | -- |  | - | ------- | - |  | ----- | ------- | - |  | - | ------- | -
|                                             |  | 2002 |        
|(Dollars in thousands)                       |  | Q1   |         |   | Q2 |   |         | Q3 |  |   | Q4      |   |  | Total |        
|Total revenue                                |  | $    | 166,639 |   |    | $ | 157,457 |    |  | $ | 209,030 |   |  | $     | 148,431 |   |  | $ | 681,557 |  
|Gross profit                                 |  |      | 37,467  |   |    |   | 35,115  |    |  |   | 44,941  |   |  |       | 33,124  |   |  |   | 150,647 |  
|Selling, general and administrative Expenses |  |      | 32,075  |   |    |   | 31,484  |    |  |   | 33,128  |   |  |       | 34,338  |   |  |   | 131,025 |  
|Income (loss) from operations                |  |      | 5,392   |   |    |   | 3,631   |    |  |   | 11,813  |   |  |       | (1,214  | ) |  |   | 19,622  |  
|Interest expense                             |  |      | 3,004   |   |    |   | 3,047   |    |  |   | 2,957   |   |  |       | 2,926   |   |  |   | 11,934  |  
|Other income (expense)                       |  |      | (15     | ) |    |   | (85     | )  |  |   | (32     | ) |  |       | (96     | ) |  |   | (228    | )
|Net income (loss)                            |  |      | 2,373   |   |    |   | 499     |    |  |   | 8,824   |   |  |       | (4,236  | ) |  |   | 7,460   |  



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



On June 11, 2002, the Board of Directors of NWS dismissed Arthur Andersen LLP (Andersen), the independent accountant who was engaged to audit the
Companys financial statements for fiscal 2002. The report of Andersen for the year ended March 31, 2002 did not contain an adverse opinion or disclaimer of opinion, nor were either of them qualified or modified as to uncertainty, audit scope
or accounting principles. There were no disagreements with Andersen on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction of Andersen, would have
caused it to make reference to the subject matter of the disagreement in connection with its report.



Item 9A. Controls and Procedures



As of March 31, 2004, the Company carried out an evaluation, under the supervision of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, and the Companys Corporate
Controller, of the effectiveness of the design and operation of the Companys disclosure controls and procedures. Based upon that evaluation, the Companys Chief Executive Officer, Chief Financial Officer, and the Companys Corporate
Controller concluded that the Companys disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the
Companys periodic SEC filings.



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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, 2004:



|                      |  |     |  |  |  |                                                                                   
|--------------------- |  | --- |  |  |  | ----------------------------------------------------------------------------------
|Name                  |  | Age |  |  |  | Position                                                                          
|James E. LaCrosse     |  | 71  |  |  |  | Chairman, President, Chief Executive Officer, Chief Financial Officer and Director
|Catherine M. LaCrosse |  | 37  |  |  |  | Vice President of Sales-Indiana Fine Wine Division and Director                   
|John J. Baker         |  | 34  |  |  |  | Chief Operating Officer, Secretary and Director                                   
|Gregory J. Mauloff    |  | 52  |  |  |  | Corporate Executive Vice President, Sales & Marketing                             
|J. Smoke Wallin       |  | 37  |  |  |  | Executive Vice President and Director                                             
|James R. Beck         |  | 60  |  |  |  | Director                                                                          
|Patrick J. Hurrle     |  | 54  |  |  |  | Vice President and General Manager, NWS-Indiana                                   
|Joseph J. Fisch       |  | 55  |  |  |  | President, U.S. Beverage                                                          
|Mitchell T. Stoltz    |  | 50  |  |  |  | Director                                                                          
|Norma M. Johnston     |  | 75  |  |  |  | Director                                                                          
|Stephen E. LaCrosse   |  | 34  |  |  |  | Director                                                                          
|William M. Cockrum    |  | 66  |  |  |  | Director                                                                          
|Vaughn D. Bryson      |  | 65  |  |  |  | Director                                                                          
|David W. Goodrich     |  | 56  |  |  |  | Director                                                                          
|Patrick A. Trefun     |  | 44  |  |  |  | Corporate Controller and Treasurer                                                



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



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



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



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



J.
Smoke Wallinhas served as Executive Vice President and a Director of NWS since December, 1998. He served as Chief Financial Officer from December 1998 until April 2000. Mr. Wallin joined NWS in 1988 and served as Executive Vice President,
Corporate Group, from 1993 to 1998. He received an MBA in finance, marketing and operations from Vanderbilt University-Owen School of Management in 1993 and a BS in economics from Cornell University in 1989. Mr. Wallin is James LaCrosses
son-in-law.



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.



Patrick J. Hurrleis currently Vice President and General Manager of NWS-Indiana and joined the company in 1972. Other positions he has held in the Indiana
operation include Vice President of Wine Sales, Wines Sales Manager and Merchandiser. Mr. Hurrle graduated in 1972 from Indiana University with a BS in marketing.



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



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



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



Stephen E. LaCrosse was appointed Director in May 2004. He has held various positions within the Company including Corporate Budget Director, Brand Manager, and Special Projects Manager. Prior to joining NWS in
2002, he served with Conseco Capital Management from



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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. Prior to joining UCLA, he spent
25 years in investment banking, serving as a corporate officer at Becker Paribas, Inc. until it was acquired by Merrill Lynch in 1984. Mr. Cockrum received an MBA in finance and marketing from Harvard Business School in 1961 and a BA in economics
from DePauw University in 1959.



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



David W. Goodrich was appointed Director of NWS in May 2004. Currently he is President
and CEO of the Central Indiana Corporate Partnership, Inc. He serves on the boards of several public companies and not-for-profit organizations. Prior to his current position, Mr. Goodrich worked for Colliers Turley Martin Tuckers Indianapolis
office from 1998 to 1999 as President and Executive Vice President. From 1986 to 1998, he served in F.C. Tucker Company, Inc.s Commercial Real Estate Services Division as President, Executive Vice President and Treasurer after specializing in
industrial and office brokerage as a sales manager and sales associate from 1979 to 1986. He is a member of the board of directors of American United Life Insurance Company, 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 eight individuals who comprise NWS senior management team have an average of over 23 years of experience in the alcohol-based
beverage industry and 17.5 years of experience with NWS.



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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.



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, 2004 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 2004, 2003 and 2002:



Summary Compensation Table



|                                      |  |                     |  |        |         |       |         |                             |   |                          |  |   |         |    
|------------------------------------- |  | ------------------- |  | ------ | ------- | ----- | ------- | --------------------------- | - | ------------------------ |  | - | ------- | ---
|                                      |  | Annual Compensation |  |        |        
|Name and Principal Position           |  | Year                |  | Salary |         | Bonus |         | Other AnnualCompensation(3) |   | All OtherCompensation(1) | 
|James E. LaCrosse                     |  | 2004                |  | $      | 409,700 |       | -0-     |                             | $ | 9,035                    |  | $ | 344,615 | (2)
|Chairman, President, Chief            |  | 2003                |  |        | 407,000 |       | -0-     |                             |   | 6,465                    |  |   | 276,073 | (2)
|Financial Officer, and CEO            |  | 2002                |  |        | 407,000 |       | 249,000 |                             |   | 6,772                    |  |   | 219,864 | (2)
|                                      |  |                     |  |        |        
|Joseph J. Fisch                       |  | 2004                |  |        | 348,269 |       | 142,500 |                             |   | -0-                      |  |   | 9,821   |    
|President/CEO, U.S. Beverage          |  | 2003                |  |        | 275,000 |       | 117,500 |                             |   | -0-                      |  |   | 5,481   |    
|                                      |  | 2002                |  |        | 225,000 |       | 60,000  |                             |   | -0-                      |  |   | 4,500   |    
|                                      |  |                     |  |        |        
|Gregory Mauloff                       |  | 2004                |  |        | 350,000 |       | 25,000  |                             |   | -0-                      |  |   | 11,202  |    
|Corporate Executive Vice-President    |  | 2003                |  |        | 237,942 |       | 75,000  |                             |   | 1,371                    |  |   | 31,356  | (4)
|of Sales & Marketing                  |  | 2002                |  |        | 173,327 |       | 50,000  |                             |   | 738                      |  |   | 8,567   |    
|                                      |  |                     |  |        |        
|Patrick J. Hurrle                     |  | 2004                |  |        | 187,910 |       | 100,000 |                             |   | 1,090                    |  |   | 14,338  |    
|President, NWS-Indiana                |  | 2003                |  |        | 169,550 |       | 150,000 |                             |   | 1,122                    |  |   | 8,497   |    
|                                      |  | 2002                |  |        | 128,750 |       | 40,000  |                             |   | 997                      |  |   | 7,065   |    
|                                      |  |                     |  |        |        
|John J. Baker                         |  | 2004                |  |        | 199,769 |       | 50,000  |                             |   | 732                      |  |   | 9,989   |    
|Chief Operating Officer and Secretary |  | 2003                |  |        | 189,519 |       | 75,000  |                             |   | 2,831                    |  |   | 9,476   |    
|                                      |  | 2002                |  |        | 164,712 |       | 75,000  |                             |   | 1,897                    |  |   | 9,351   |    

---

|(1) | Includes 2004 employer 401(k) Plan contributions in the following amounts: Mr. LaCrosse,
$10,000; Mr. Fisch, $9,821; Mr. Mauloff, $11,202; Mr. Hurrle, $14,338; Mr. Baker, $9,989. Includes 2003 employer 401(k) Plan contributions in the following amounts: Mr. LaCrosse, $10,000; Mr. Fisch, $5,481; Mr. Mauloff, $11,181; Mr. Hurrle, $8,497;
Mr. Baker, $9,476. Includes 2002 employer 401(k) Plan contributions in the following amounts: Mr. LaCrosse, $8,500; Mr. Fisch, $4,500; Mr. Mauloff, $8,567; Mr. Hurrle, $7,065; and Mr. Baker, $9,351.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes $334,615, $266,073 and $211,364 for fiscal 2004, 2003 and 2002, respectively, of
life insurance premiums paid by NWS on behalf of Mr. LaCrosse and for the benefit of
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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 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 items valued at $20,175 received by Mr. Mauloff as sales incentive pay.
|--- | --------------------------------------------------------------------------------



Compensation Committee Interlocks and Insider Participation



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



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



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



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



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



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



|                                                                     |  |                  |  |         |  
|-------------------------------------------------------------------- |  | ---------------- |  | ------- | -
|Name and Address                                                     |  | Number of Shares |  | Percent |  
|James E. LaCrosse 700 West Morris Street Indianapolis, Indiana 46225 |  | 86,520           |  | 83      | %
|Norma M. Johnston 700 West Morris Street Indianapolis, Indiana 46225 |  | 18,000           |  | 17      | %
|All executive officers and directors as a group (11 persons)         |  | 104,520          |  | 100     | %



The stockholders of
NWS have entered into stockholder agreements with each other and NWS. Such agreements contain restrictions relating to transfers of stock and provide for rights to purchase and sell stock of each corporation, among other matters. In particular, the
stockholder agreement with NWS governs the transferability of Mrs. Johnstons stock in NWS. The LaCrosse family is obligated to purchase Mrs. Johnstons stock at her death or during her



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



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



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



The Company does not have any equity compensation plans.



Item 13. Certain Relationships and Related Transactions



J. Smoke Wallin, a 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 leases facilities and certain office equipment to eSkye Solutions, Inc. under the terms of a three-year operating lease
expiring September 2004. NWS did not charge or receive any rent from eSkye during the year ended March 31, 2004 but received rent from eSkye Solutions, Inc. of $137,000 and $270,000 during the years ended March 31, 2003 and 2002, respectively. The
Company pays eSkye fees for computer services. NWS paid $50,000, $150,000, and $49,000 during the years ended March 31, 2004, 2003, and 2002, respectively.



From time to time, NWS-Indiana has loaned money to its principal shareholders, James E. LaCrosse and Norma M. Johnston, the primary purpose of which was
to provide the necessary funds to finance start-up expenses and working capital needs of NWS-Illinois, an affiliated company owned prior to the 1998 reorganization by Mr. LaCrosse, Mrs. Johnston and Martin H. Bart. The indebtedness was retired in
September 2002 funded by shareholder distributions. The proceeds of the loans were provided by Mr. LaCrosse and Mrs. Johnston to NWS-Illinois in the form of loans or additional capital contributions. This indebtedness to Mr. LaCrosse and Mrs.
Johnston of $4.3 million matures in December 2009, and is subordinated to both the senior notes and the credit facility, and bears interest at the prime rate, which was 4.0% at March 31, 2004.



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On July 27, 1998, Mr. LaCrosse transferred substantially all of his non-voting stock to a family trust
for estate-planning purposes. As part of this transfer and in addition to normal distributions for tax purposes, NWS distributed $3.4 million to Mr. LaCrosse, the family trust, and Mrs. Johnston in the annual period ended March 31, 2004. These
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 credit facility. The family trust remitted $2.8 million of these
funds to Mr. LaCrosse in repayment of indebtedness for the non-voting stock that was purchased on July 27, 1998 and Mrs. Johnston retained $0.6 million. As of March 31, 2004 there is approximately $2.5 million owed to Mr. LaCrosse by the family
trust related to the 1998 transfer of non-voting stock.



NWS-Indiana and NWS-Illinois have operated as S corporations under the Internal Revenue Code of 1986 (Code), and their respective subsidiaries have all operated as qualified subchapter S subsidiaries under the Code or other similarly taxed
pass-through entities (the S Corp. Businesses). NWS has elected to be treated as an S corporation under the Code and has elected or will elect for each of its subsidiaries to be treated as qualified subchapter S subsidiaries. The S Corp.
Businesses have not been subject to tax on their respective net taxable incomes, and the shareholders of the S Corp. Businesses have been directly subject to tax on their respective proportionate shares of such net taxable income. NWS-Indiana and
NWS-Illinois have historically made cash distributions to Mr. LaCrosse, Mrs. Johnston and Mr. Bart in amounts equal to or greater than their respective tax obligations related to the S Corp. Businesses and certain stockholder obligations as
described above. The aggregate amount of these distributions during 2004, 2003 and 2002 were $6.0 million, $9.4 million and $8.5 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.



Mr. Martin Bart is a minority shareholder of NWS-Illinois and served as a director until April 1, 2003. NWS-Illinois did not pay a company owned by Mr.
Bart any funds during the year ended March 31, 2004 but paid approximately $0.1 million and $0.2 million during each of fiscal years 2003 and 2002, respectively, for certain consulting services provided by Mr. Bart to NWS-Illinois. During 1998,
NWS-Indiana entered into a five-year non-compete agreement with James Beck, a director of NWS and former President of NWS-Indiana, under which Mr. Beck was paid $0.3 million by the Company. NWS-Indiana obtained certain inventory and other property
related to the wholesale cigar distribution business previously operated by Mr. Beck.



NWS pays split-dollar insurance premiums on seven insurance policies with a fair value of $15.1 million on the lives of Mr. LaCrosse and Mrs. Johnston. See Item 11-Executive Compensation. NWS is entitled
to receive reimbursement for all premiums paid out of the proceeds of these policies upon the death of Mr. LaCrosse and Mrs. Johnston. Split dollar premiums paid by NWS were $328,000 for each of the annual periods ended March 31, 2004, 2003 and
2002. The LaCrosse Family Trust is the beneficiary of those policies.



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Item 14. Principal Accountant Fees and Services



Audit FeesAggregate fees billed by Deloitte & Touche in connection with the audit of the 2004 and 2003 financial statements and review of financial statements included in NWS Forms 10-Q for 2004 and
2003 totaled $0.4 million and $0.3 million, respectively.



Audit Related FeesThe Company has paid no fees to Deloitte & Touche for audit related services. Aggregate fees billed by Andersen for audit related services in 2002 were $106,222. Those services consisted of an assessment of
NWS internal controls.



The Company paid no fees to the
principal accountant for tax services or other services in fiscal 2004 or 2003. 100% of the audit related fees paid to Andersen in 2002 were approved by the audit committee.



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, Financial Statement Schedules and Reports on Form 8-K



| | (a) | Documents filed as part of this Report.
| | --- | ---------------------------------------



| | 1. | Financial Statements
| | -- | --------------------



|   |  |                                                                                                                                                                                     |  |                      
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------
|   |  |                                                                                                                                                                                     |  | Page(s) inthis Report
|   |  | Report of Independent Registered Public Accounting Firm                                                                                                                             |  | 34-35                
|   |  |                                                                                                                                                                                    
|   |  | Report of Independent Public Accountants                                                                                                                                            |  | 36                   
|   |  |                                                                                                                                                                                    
|   |  | Consolidated balance sheets  March 31, 2004 & 2003                                                                                                                                 |  | 37                   
|   |  |                                                                                                                                                                                    
|   |  | Consolidated statements of operations  Years ended March 31, 2004, 2003 & 2002                                                                                                     |  | 38                   
|   |  |                                                                                                                                                                                    
|   |  | Consolidated statements of stockholders equity  Years ended March 31, 2004, 2003 & 2002                                                                                           |  | 39                   
|   |  |                                                                                                                                                                                    
|   |  | Consolidated statements of cash flows  Years ended March 31, 2004, 2003 & 2002                                                                                                     |  | 40                   
|   |  |                                                                                                                                                                                    
|   |  | Notes to consolidated financial statements                                                                                                                                          |  | 41-58                
|   |  |                                                                                                                                                                                    
|2. |  | Financial Statement Schedules                                                                                                                                                       |  |                      
|   |  |                                                                                                                                                                                    
|   |  | Schedule II - Valuation & Qualifying Accounts & Reserves                                                                                                                            |  | 70                   
|   |  |                                                                                                                                                                                    
|   |  | Schedules other than those listed above are omitted as they are not required, or not applicable, or the information is shown in the Notes to the Consolidated Financial Statements. |  |                      
|   |  |                                                                                                                                                                                    
|3. |  | Exhibits                                                                                                                                                                            |  |                      
|   |  |                                                                                                                                                                                    
|   |  | See the Index to Exhibits on pages 73-75 of this Form 10-K, which is incorporated by reference herein.                                                                              |  |                      



|    |  |                      |  |                                  |  |               |  | 
|--- |  | -------------------- |  | -------------------------------- |  | ------------- |  | 
|    |  |                      | 
|(b) |  | Reports on Form 8-K. |  | Item.                            |  |              
|    |  |                      |  |                                 
|    |  |                      |  | Form 8-K dated January 6, 2004   |  | Item 5 and 7  |  | 
|    |  |                      |  | Form 8-K dated February 12, 2004 |  | Item 12 and 7 |  | 



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NATIONAL WINE & SPIRITS, INC.

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES



|                                       |  |                              |           |                             |   |                         |  |            |   |  |                        |         |     |  |   |          
|-------------------------------------- |  | ---------------------------- | --------- | --------------------------- | - | ----------------------- |  | ---------- | - |  | ---------------------- | ------- | --- |  | - | ---------
|                                       |  |                              |           | Additions                   |   |                         |  |            |  
|Description                            |  | Balance atBeginning ofPeriod |           | Charged toCosts andExpenses |   | Charged toOtherAccounts |  | Deductions |   |  | Balance atEndof Period
|Year ended March 31, 2004              |  |                              |           |                             |   |                         |  |            |   |  |                        |         |     |  |   |          
|Deducted from asset account:           |  |                              |           |                             |   |                         |  |            |   |  |                        |         |     |  |   |          
|Allowance for doubtful accounts        |  | $                            | 1,274,000 |                             | $ | 326,000                 |  | $          |  |  | $                      | 519,000 | (1) |  | $ | 1,081,000
|Vendor allowance for doubtful accounts |  |                              | 297,000   |                             |   |                        |  |            |  |  |                        | 172,000 | (2) |  |   | 125,000  
|Notes receivable reserve               |  |                              |          |                             |   | 221,000                 |  |            |  |  |                        |        |     |  |   | 221,000  
|                                       |  |                              |           |                             |   |                         |  |            |   |  |                        |         |     |  |   |          
|Total                                  |  | $                            | 1,571,000 |                             | $ | 547,000                 |  | $          |  |  | $                      | 691,000 |     |  | $ | 1,427,000
|                                       |  |                              |           |                             |   |                         |  |            |   |  |                        |         |     |  |   |          
|Year ended March 31, 2003              |  |                              |           |                             |   |                         |  |            |   |  |                        |         |     |  |   |          
|Deducted from asset account:           |  |                              |           |                             |   |                         |  |            |   |  |                        |         |     |  |   |          
|Allowance for doubtful accounts        |  | $                            | 1,291,000 |                             | $ | 329,000                 |  | $          |  |  | $                      | 346,000 | (1) |  | $ | 1,274,000
|Vendor allowance for doubtful accounts |  |                              |          |                             |   | 297,000                 |  |            |  |  |                        |        |     |  |   | 297,000  
|Notes receivable reserve               |  |                              |          |                             |   |                        |  |            |  |  |                        |        |     |  |   |         
|                                       |  |                              |           |                             |   |                         |  |            |   |  |                        |         |     |  |   |          
|Total                                  |  | $                            | 1,291,000 |                             | $ | 626,000                 |  | $          |  |  | $                      | 346,000 |     |  | $ | 1,571,000
|                                       |  |                              |           |                             |   |                         |  |            |   |  |                        |         |     |  |   |          
|Year ended March 31, 2002              |  |                              |           |                             |   |                         |  |            |   |  |                        |         |     |  |   |          
|Deducted from asset account:           |  |                              |           |                             |   |                         |  |            |   |  |                        |         |     |  |   |          
|Allowance for doubtful accounts        |  | $                            | 1,737,000 |                             | $ | 552,000                 |  | $          |  |  | $                      | 998,000 | (1) |  | $ | 1,291,000
|Vendor allowance for doubtful accounts |  |                              |          |                             |   |                        |  |            |  |  |                        |        |     |  |   |         
|Notes receivable reserve               |  |                              |          |                             |   |                        |  |            |  |  |                        |        |     |  |   |         
|                                       |  |                              |           |                             |   |                         |  |            |   |  |                        |         |     |  |   |          
|Total                                  |  | $                            | 1,737,000 |                             | $ | 552,000                 |  | $          |  |  | $                      | 998,000 |     |  | $ | 1,291,000
|                                       |  |                              |           |                             |   |                         |  |            |   |  |                        |         |     |  |   |          

---

|(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 28, 2004.



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 Act, this Annual Report on Form 10-K has been signed on the 28th day of June, 2004 by the following persons in the capacities indicated:



|                                       |  |  |  |                                                                                                        
|-------------------------------------- |  |  |  | -------------------------------------------------------------------------------------------------------
|SIGNATURE                              |  |  |  | TITLE                                                                                                  
|/s/ James E. LaCrosseJames E. LaCrosse |  |  |  | Chairman, President, Chief Executive Officer (Principal Executive Officer), and Chief Financial Officer
|                                       |  | 
|/s/ John J. BakerJohn J. Baker         |  |  |  | Chief Operating Officer, Secretary and Director                                                        
|                                       |  | 
|                                       |  |  |  | Director, Executive Vice President, and Secretary                                                      
|J. Smoke Wallin                        |  |  |  |                                                                                                        
|                                       |  | 
|/s/ James R. Beck                      |  |  |  | Director                                                                                               
|James R. Beck                          |  |  |  |                                                                                                        
|                                       |  | 
|                                       |  |  |  | Director                                                                                               
|Mitchell T. Stoltz                     |  |  |  |                                                                                                        
|                                       |  | 
|                                       |  |  |  | Director                                                                                               
|William Cockrum                        |  |  |  |                                                                                                        
|                                       |  | 
|/s/ Norma M. Johnston                  |  |  |  | Director                                                                                               
|Norma M. Johnston                      |  |  |  |                                                                                                        



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|                          |  |         
|------------------------- |  | --------
|                          | 
|                          |  | Director
|Vaughn D. Bryson          |  |         
|                          | 
|/s/ Catherine M. LaCrosse |  | Director
|Catherine M. LaCrosse     |  |         
|                          | 
|/s/ Stephen E. LaCrosse   |  | Director
|Stephen E. LaCrosse       |  |         
|                          | 
|                          |  | Director
|David W. Goodrich         |  |         



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INDEX TO EXHIBITS

|            |  |                                                                                                                                                                                                      
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                          
|3.1         |  | Amended and Restated Articles of Incorporation of National Wine & Spirits, Inc. (Incorporated by reference to exhibit 3.1 to the Companys annual report Form 10K for the year ended
March 31, 2000.)
|            | 
|3.2         |  | Amended and Restated Bylaws of National Wine & Spirits, Inc. (Incorporated by reference to exhibit 3.2 to the Companys annual report Form 10K for the year ended March 31,
2000.)                   
|            | 
|3.3         |  | Articles of Incorporation of National Wine & Spirits Corporation (incorporated by reference Exhibit 3.3 to the Companys Registration Statement no. 333-74589 on Form S-4, filed May
13, 1999).      
|            | 
|3.4         |  | Bylaws of National Wine & Spirits Corporation (incorporated by reference Exhibit 3.4 to the Companys Registration Statement no. 333-74589 on Form S-4, filed May 13,
1999).                         
|            | 
|3.5         |  | Articles of Incorporation of NWS, Inc. (incorporated by reference Exhibit 3.5 to the Companys Registration Statement no. 333- 74589 on Form S-4, filed May 13, 1999).                               
|            | 
|3.6         |  | Bylaws of NWS, Inc. (incorporated by reference Exhibit 3.6 to the Companys Registration Statement no. 333-74589 on Form S- 4, filed May 13, 1999).                                                  
|            | 
|3.7         |  | Articles of Incorporation of NWS Michigan, Inc. (incorporated by reference Exhibit 3.7 to the Companys Registration Statement no. 333-74589 on Form S-4, filed May 13,
1999).                       
|            | 
|3.8         |  | Bylaws of NWS Michigan, Inc. (incorporated by reference Exhibit 3.8 to the Companys Registration Statement no. 333-74589 on Form S-4, filed May 13, 1999).                                          
|            | 
|3.9         |  | Articles of Organization of NWS-Illinois, LLC (incorporated by reference Exhibit 3.9 to the Companys Registration Statement no. 333-74589 on Form S-4, filed May 13,
1999).                         
|            | 
|3.10        |  | Operating Agreement of NWS-Illinois, LLC (incorporated by reference Exhibit 3.10 to the Companys Registration Statement no. 333-74589 on Form S-4, filed May 13, 1999).                             



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



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|     |  |                                                                                                                                                                                
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|99.1 |  | Forward  Looking Statements                                                                                                                                                   
|     | 
|99.2 |  | 99.3 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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