Cautionary Note Regarding Forward Looking Statements This quarterly report on Form 10-Q includes statements of our expectations, intentions, plans and beliefs that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are intended to come within the safe harbor protection provided by those sections. These statements, which involve risks and uncertainties, relate to the discussion of our business strategies and our expectations concerning future operations, margins, profitability, liquidity and capital resources and to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. We have used words such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "thinks," "estimates," "seeks," "expects," "predicts," "could," "projects," "potential" and other similar terms and phrases, including references to assumptions, in this report to identify forward-looking statements. These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to uncertainties, risks and factors relating to our operations and business environments, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed or implied by these forward-looking statements. These risks and other factors include those listed under "Risk Factors" in our 2008 Form 10-K and elsewhere in this report. The following factors, among others, could cause our actual results and performance to differ materially from the results and performance projected in, or implied by, the forward-looking statements:
• our history of losses and expectation of further losses;

• the effect of poor operating results on our company;

• the effect of growth on our infrastructure, resources and existing sales;

• our ability to expand our operations in both new and existing markets and our ability to develop or acquire new brands;

• the impact of supply shortages and alcohol and packaging costs in general;

• our ability to raise capital;

• our relationships with distributors;

• the success of our marketing activities;

• our ability to fully utilize and retain new executives;

• negative publicity surrounding our products or the consumption of beverage alcohol products in general;

• our ability to acquire and/or maintain brand recognition and acceptance;

• trends in consumer tastes;

• our ability to protect trademarks and other proprietary information;

• the impact of litigation;

• the impact of federal, state, local or foreign government regulations;

• the effect of competition in our industry; and

• economic and political conditions generally, including the current recessionary economic environment and concurrent market instability.

We assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in, or implied by, these forward-looking statements, even if new information becomes available in the future.

Overview
We develop and market premium branded spirits in several growing market categories, including vodka, rum, whiskey and liqueurs, and we distribute these spirits in all 50 U.S. states and the District of Columbia, in nine key international markets, including Ireland, Great Britain, Northern Ireland, Germany, Canada, France, Bulgaria, Russia and the Duty Free markets, and in a number of other countries in continental Europe. The brands we market include, among others, Pallini® liqueurs, Gosling's Rum®, Clontarf® Irish Whiskey, Knappogue Castle Whiskey®, Jefferson'sTM, Jefferson's Reserve® and Sam Houston® bourbons, and Boru® vodka.
Our current growth strategy focuses on: (a) aggressive brand development to encourage case sale and revenue growth of our existing portfolio of brands through significant investment in sales and marketing activities, including advertising, promotion and direct sales personnel expense; and (b) the selective addition of complementary premium brands through a combination of strategic initiatives, including acquisitions, joint ventures and long-term exclusive distribution arrangements.
The following information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes included in our 2008 Form 10-K, as well as in conjunction with the condensed consolidated financial statements and related notes appearing elsewhere in this Form 10-Q. Change in operational emphasis
We continue to shift emphasis from a volume-oriented approach to a profit-centric focus. We will do so by adopting strategies and tactics to address the following:
• Revenue growth from our existing brands;

• Revenue growth from new brands acquired, including via ''agency'' relationships; and

• Revenue growth from brands created to address as yet unsatisfied market needs.

The organic growth of existing brands will be supported by a variety of sales and marketing initiatives. The first is recognition of the most profitable brands with re-focused concentration and emphasis upon sales of those brands. Our wholesaler relationships are critical to this effort and we are embarking upon an effort to improve and strengthen these relationships. The objective is an improvement in the penetration of both the on and off premise markets.
Our marketing efforts will utilize a ''viral'' approach, wherein we use the internet and various focused media campaigns to attract consumer interest and takedown of our brands. We will also be employing the use of leverage in this aspect of our business as we benefit from the organizational strength of the partners we select to participate in our various internet marketing activities as well as ''joint brand development'' activities.
We are seeking additional agency relationships to round out our brand portfolio. We have developed specific criteria that we are employing in our determination of acceptability of certain brands. By using these criteria, we improve the likelihood of selecting brands that will continue our track record that has been established of growing brands rapidly.
We continue to restructure our international sales and distribution systems as several of our brands are in attractive growth categories internationally, and we intend to grow them via the development of an intensified network of distributors in desirable markets.

Cost containment
We have taken significant steps over the past nine months to bring our costs down, resulting in a 15.8% decrease in selling expenses during the first six months of the fiscal year, as compared to the same period in the prior year. These steps included a restructuring of the international operations, a restructuring of the Gosling Castle Partners, Inc. working relationship and the elimination of unnecessary cost from our U.S. organization. Efforts to further reduce these expenses continue. We are also engaged in the process of managing costs by a rigorous application of effort to the reduce expense across the entire supply chain of our brands. We are examining each step of the process of sourcing our brands to both improve quality and reduce cost. In turn, this process examination will be followed by attention to our systems of work, with the goal of mapping, analyzing and redesigning these systems.
As we discussed in our 2008 Form 10-K and again in our quarterly report on Form 10-Q filed for the quarter ended June 30, 2008, we have faced significant liquidity and capital resource issues. As a result, during the quarter ended September 30, 2008, we substantially curtailed our marketing activity and limited some of our sales and promotional activity. This caused us to the limit our presence in certain markets, thereby creating potential negative effects on our standing with our distributors and partners. While we can not quantify the effects of these reductions in sales support on our case sales, we reasonably expect that there is a negative effect on our sales in the current, and potentially, future quarters. However, with the infusion of $15.0 million from our issuance of our Series A Preferred Stock, we believe we are in a position to resume our marketing and sales activities. Recent Events
Series A Preferred Stock Purchase Agreement As indicated in Note 12 to our consolidated financial statements, on October 20, 2008, we completed a private placement under a Series A Preferred Stock Purchase Agreement ("Purchase Agreement") with Frost Gamma Investments Trust, Vector Group Ltd., I.L.A.R. S.p.A., Halpryn Group IV, LLC, Lafferty Limited, Jacqueline Simkin Trust As Amended and Restated 12/16/2003, Hsu Gamma Investment, L.P., MZ Trading LLC and Richard J. Lampen (collectively, "Purchasers"). The Purchasers purchased 1,200,000 shares of our Series A Convertible Preferred Stock (the "Series A Preferred Stock") for $12.50 per share, which is, in effect upon conversion, $0.35 per share of our Common Stock. We received gross proceeds of $15.0 million, which we used to pay transaction expenses of approximately $1.7 million, satisfy outstanding obligations and for general corporate purposes. The issuance of the shares of Series A Preferred Stock was made under Section 4(2) of the Securities Act of 1933, as amended.
Each share of Series A Preferred Stock will be automatically converted into shares of Common Stock at a rate of 35.7143 shares of Common Stock for each share of Series A Preferred Stock, subject to adjustment as set forth in the Certificate of Designation of the Series A Preferred Stock, when we amend our charter to make available a sufficient number of authorized but unissued and unreserved shares of the Common Stock to permit all then outstanding shares of Series A Preferred Stock to be converted.
We are evaluating the accounting treatment regarding the exchange of the senior notes and the convertible notes for preferred shares in connection with the closing of the Purchase Agreement. We currently estimate that we may record a pre-tax non-cash gain on the exchange of the notes of approximately $4,000,000 in the quarter ending December 31, 2008; however, the amount recognized may differ materially from our preliminary estimates.
$2 Million Promissory Note - On October 15, 2008, Frost Gamma Investments Trust advanced $2.0 million to us under a promissory note. The entire amount of this advance and $2,778 accrued interest thereon was offset against the portion of the purchase price payable by Frost Gamma Investments Trust at the closing of the Purchase Agreement. The promissory note bore interest at a rate equal to 10% per annum, calculated on the basis of a 360-day year based on the number of days elapsed including the first day.

Conversion and/or Amendment of Notes - In connection with the Purchase Agreement, substantially all of the holders of CB-USA's 9% senior secured notes, in the principal amount of $10.0 million plus $0.3 million of accrued but unpaid interest, and all holders of our 6% convertible notes, in the principal amount of $9.0 million plus accrued but unpaid interest, converted their notes into Series A Preferred Stock at a price per share of $12.50 and $23.21, respectively, which is, in effect upon conversion, $0.35 and $0.65 per share, respectively, of our common stock. The remaining unconverted 9% senior secured notes, in the principal amount of $0.3 million, were amended so that, among other things, (i) the maturity date was extended to May 31, 2014, (ii) the interest rate was reduced to 3%, payable at maturity, and (iii) the security interest in our collateral was terminated. Upon conversion of the 9% senior secured notes, we issued 801,608 shares of Series A Preferred Stock, convertible into approximately 28.6 million shares of common stock. Upon conversion of the 6% convertible notes, we issued 389,703 shares of Series A Preferred Stock, convertible into approximately 13.9 million shares of common stock. The remaining unamortized balance of $0.2 million in deferred financing costs associated with the 9% senior secured notes will be expensed in the third quarter of fiscal 2009.
Immediately following the Purchase Agreement closing, holders of Series A Preferred Stock (comprised of the Purchasers and the converting note holders, many of which were already our current stockholders) owned, excluding prior ownership, approximately 85% of our common stock on an as-converted basis.
The report of our Independent Registered Public Accounting Firm contained in our 2008 Form 10-K contains an explanatory paragraph referring to an uncertainty concerning our ability to continue as a going concern. The cash investment from the Purchase Agreement closing, and the conversion of substantially all of our outstanding debt, provide us with sufficient funds to execute our planned operations for at least the next twelve months.
Termination of Credit Agreement - Upon the funding of the $2.0 million promissory note, we terminated the $5.0 million credit agreement we had entered into with Frost Nevada Investments Trust in October 2007. No amounts were ever borrowed under this facility. The remaining unamortized balance of $0.1 million in deferred financing costs associated with the terminated facility will be expensed in the third quarter of fiscal 2009.
Change in Management and Board of Directors - In connection with the Purchase Agreement transaction, effective October 11, 2008, our Board of Directors appointed new management. Richard J. Lampen was appointed to serve as our interim president and chief executive officer, and John Glover, our senior vice president - marketing since February 20, 2008, was promoted to the position of chief operating officer of US operations. Upon execution of the Purchase Agreement, four of our directors, Keith A. Bellinger, Colm Leen, Kevin P. Tighe and Robert J. Flanagan, resigned. The remaining five directors unanimously appointed Phillip Frost, M.D., Glenn L. Halpryn, Richard J. Lampen and Micaela Pallini to fill such vacancies.
Participation by Directors and Executive Officers in Transaction - Below is a brief description of the participation by our directors and executive officers in the Purchase Agreement transaction:
• Phillip Frost, M.D. controls Frost Gamma Investments Trust, which purchased 397,200 shares of Series A Preferred Stock in the Purchase Agreement transaction for $5.0 million. Dr. Frost is a director and, with his affiliates, is a principal stockholder our company. Dr. Frost, through Frost Nevada Investments Trust, converted $3.3 million of principal and interest under the CB-USA 9% senior secured notes into 262,382 shares of Series A Preferred Stock in connection with the transaction. Dr. Frost also acquired, through Frost Gamma Investments Trust, senior notes in the amount of $1.4 million and converted same into 111,564 shares of Series A Preferred Stock.

• Under the Purchase Agreement, Mark Andrews, a director, former chief executive officer and former greater than 5% stockholder, together with members of his family, converted $0.5 million of principal and interest under the CB-USA 9% senior secured notes into 41,320 shares of Series A Preferred Stock. Mr. Andrews also acquired additional senior secured notes in the amount of $0.2 million and converted same into 12,396 shares of Series A Preferred Stock.

• Glenn L. Halpryn, a director, is a member of Halpryn Group IV, LLC, a purchaser of $1.0 million of the Series A Preferred Stock under the Purchase Agreement.

• Richard J. Lampen, a director and our interim president and chief executive officer, purchased $17,500 of the Series A Preferred Stock under the Purchase Agreement, and is the executive vice president of Vector Group Ltd., which purchased $4.0 million of the Series A Preferred Stock under the Purchase Agreement and became a greater than 5% stockholder.

• Micaela Pallini, a director of our company, is a director and the head of production of I.L.A.R. S.p.A., which purchased $3.0 million of the Series A Preferred Stock under the Purchase Agreement and became a greater than 5% stockholder. I.L.A.R. S.p.A. is a supplier to us under an exclusive marketing agreement.

Although in the last 12 months we have made significant reductions in our cash-burn, our ability to continue building our current brands and also our ability to attract new agency brands has been frustrated by our capital position. With this infusion of $15.0 million in equity and the conversion of approximately $19 million of debt and accrued interest to equity, we believe we have stabilized our company and are in a position to grow our current brands, pursue new agency relationships and acquire additional brands. We believe that this transaction has placed us on a much firmer footing and allows us to pursue our original vision of building our premium brands and representing other specialty brands which should accrue to the long-term benefit of our stockholders and better position us to achieve our goals. Option Grants
On November 3, 2008, we granted ten-year stock options to purchase 1,000,000, 100,000, 100,000 and 100,000 shares of our common stock at an exercise price of $0.35 per share to Richard J. Lampen, Glenn L. Halpryn, Phillip Frost, M.D. and Micaela Pallini, respectively. Dr. Frost, Ms. Pallini and Mr. Halpryn serve as directors of our company and Mr. Lampen serves as an executive officer and director of our company. The options are conditioned upon our stockholders approving an amendment to our 2003 Stock Incentive Plan to increase the number of shares available for award under such plan. The exercise price was 35% in excess of the fair value ($0.26) of our common stock on the grant date. The options vest in four equal annual installments on each anniversary of the grant date, subject to earlier vesting upon certain events. Currency Translation
The functional currencies for our foreign operations are the Euro in Ireland and continental Europe and the British pound in the United Kingdom. With respect to our condensed consolidated financial statements, the translation from the applicable foreign currencies to U.S. Dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period. The resulting translation adjustments are recorded as a component of other comprehensive income. Gains or losses resulting from foreign currency transactions are included in other income (expenses).
Where in this quarterly report we refer to amounts in Euros, British Pounds or Canadian Dollars, we have for your convenience also in certain cases provided a conversion of those amounts to U.S. dollars in parenthesis. Where the numbers refer to a specific balance sheet account date or financial statement

account period, we have used the exchange rate that was used to perform the conversions in connection with the applicable financial statement. In all other instances, unless otherwise indicated, the conversions have been made using the exchange rates as of September 30, 2008, each as calculated from the Interbank exchange rates as reported by Oanda.com. On September 30, 2008, the exchange rate of the Euro, the British Pound and the Canadian Dollar in exchange for U.S. Dollars were €1.00 = U.S. $1.4449 (equivalent to U.S. $1.00 = €0.6921) for Euros, £1.00 = U.S. $1.8175 (equivalent to U.S. $1.00 = £0.5502) for British Pounds, and CAD $1.00 = U.S. $0.9631 (equivalent to U.S. $1.00 = CAD $1.0382) for Canadian Dollars.
These conversions should not be construed as representations that the Euro, British Pound and Canadian Dollar amounts actually represent U.S. Dollar amounts or could be converted into U.S. Dollars at the rates indicated. Critical Accounting Policies
There are no material changes from the critical accounting policies set forth in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our 2008 Annual Report. Please refer to that section for disclosures regarding the critical accounting policies related to our business.
Financial performance overview
The following table sets forth certain information regarding our case sales for the three and six-months ended September 30, 2008 and 2007. The data in the following table is based on nine-liter equivalent cases, which is a standard spirits industry metric.

                                   Three-months ended           Six-months ended
                                      September 30,               September 30,
          Case Sales                2008          2007         2008          2007
          Cases:
          United States              57,511       60,769       106,448       105,492
          International              27,596       37,568        45,968        67,015

          Total                      85,107       98,337       152,416       172,507


          Vodka                      31,723       55,132        57,265        91,129
          Rum                        26,787       19,151        49,512        41,921
          Liqueurs                   17,138       17,078        29,787        27,496
          Whiskey                     9,459        6,976        15,852        11,961

          Total                      85,107       98,337       152,416       172,507


          Percentage of Cases:
          United States                67.6 %       61.8 %        69.8 %        61.2 %
          International                32.4 %       38.2 %        30.2 %        38.8 %

          Total                       100.0 %      100.0 %       100.0 %       100.0 %

          Vodka                        37.3 %       56.0 %        37.6 %        52.8 %
          Rum                          31.5 %       19.5 %        32.5 %        24.3 %
          Liqueurs                     20.1 %       17.4 %        19.5 %        16.0 %
          Whiskey                      11.1 %        7.1 %        10.4 %         6.9 %

          Total                       100.0 %      100.0 %       100.0 %       100.0 %

United States sales, which accounted for more than two-thirds of our sales in the current fiscal quarter, represent our sales to wholesalers. Depletions are shipments from wholesale distributors to retail customers, and are commonly regarded in the industry as an approximate measure of consumer demand. Wholesalers typically order products from us based on their current inventory and anticipated depletions, and may periodically seek to adjust their carried inventory. As our products have gained acceptance in the marketplace, our wholesale distributors have increasingly been placing orders for "direct imports", which

are full container orders shipped directly to the wholesaler, instead of first being held by us or our agents at a bonded warehouse. While increases in direct imports are typically viewed as an increasing sign of health for our brands, they may result in periodic swings in orders for our products. We have engaged an outside company, Dimensional Insights, to track and provide us with depletion data (measuring the sales from our distributors to their retail customers), which generally demonstrates consumer purchases of our products, which is measured in smaller increments than distributor orders and therefore a more consistent reporting metric. This allows us to monitor depletion data.
Our international market continues to struggle, as evidenced by the reduction in case sales volume in the current fiscal year when compared to prior year period results, as our distributor in the Republic of Ireland has been unable to stabilize distribution in the market. While we anticipate a resolution to the underlying issues will be reached in the near term, including moving our products to a new distributor, the adverse impact on our international sales is expected to continue at least through our next two fiscal quarters.
Consolidated inventory has decreased $1.4 million during the current quarter. Due to our limited liquidity and our need to conserve cash, we limited production during the current quarter and reduced our inventory levels. However, with the infusion of $15.0 million in October 2008 from our issuance of our Series A Preferred Stock, we have resumed the inventory build towards planned third quarter of fiscal 2009 levels. Management has adjusted relevant purchase plans to allow inventory levels to be adequate in relation to our projected inventory movement plan for the coming fiscal quarters. Results of operations
The following table sets forth, for the periods indicated, the percentage of net sales of certain items in our financial statements.

                                                  Three-months Ended                 Six-months Ended
                                                    September 30,                     September 30,
                                                2008              2007             2008            2007
Sales, net                                        100.0 %          100.0 %          100.0 %         100.0 %
Cost of sales                                      68.4 %           72.2 %           67.8 %          68.3 %

Gross profit                                       31.6 %           27.8 %           32.2 %          31.7 %

Selling expense                                    52.1 %           49.7 %           54.8 %          59.6 %
General and administrative expense                 28.9 %           23.4 %           31.7 %          28.5 %
Depreciation and amortization                       3.3 %            3.2 %            3.7 %           3.8 %

Loss from operations                              (52.7 )%         (48.5 )%         (58.0 )%        (60.2 )%

Other income                                        0.1 %            0.0 %            0.2 %           0.0 %
Other expense                                      (0.2 )%          (0.1 )%          (0.2 )%         (0.1 )%
Foreign exchange gain (loss)                      (24.5 )%          12.1 %          (14.4 )%          8.0 %
Interest expense, net                              (7.1 )%          (3.5 )%          (7.8 )%         (5.5 )%
Current credit on derivative financial
instrument                                          0.0 %            0.0 %            0.0 %           1.3 %
Income tax benefit                                  0.5 %            0.4 %            0.6 %           0.5 %
Minority interests                                  1.4 %            2.8 %            1.3 %           3.4 %

Net loss                                          (82.5 )%         (36.8 )%         (78.3 )%        (52.6 )%

Three-months Ended September 30, 2008 Compared With Three-months Ended September 30, 2007
Net sales. Net sales decreased $1.5 million, or 16.7%, to $7.4 million in the three-months ended September 30, 2008 from $8.9 million in the comparable prior period. Historically, our sales in Ireland have been made ''in-bond'', net of . . .