• improve value chain and manage cost structure. We have undergone a comprehensive review and analysis of our supply chains and cost structures both on a company-wide and brand-by-brand basis. This has included restructurings and personnel reductions throughout our company. We further intend to map, analyze and redesign our purchasing and supply systems to reduce costs in our current operations and achieve profitability in future operations;

• selectively add new premium brands to our portfolio. We intend to continue developing new brands and pursuing strategic relationships, joint ventures and acquisitions to selectively expand our premium spirits and wine portfolio, particularly by capitalizing on and expanding our already demonstrated partnering capabilities. Our criteria for new brands focuses on underserved areas of the beverage alcohol marketplace, while examining the potential for direct financial contribution to our company and the potential for future growth based on development and maturation of agency brands. We will evaluate future acquisitions and agency relationships on the basis of their potential to be immediately accretive and their potential contributions to our objectives of becoming profitable and further expanding our product offerings. We expect that future acquisitions, if consummated, would involve some combination of cash, debt and the issuance of our stock; and

• cost containment. We have taken significant steps over the past twelve months to reduce our costs, resulting in a decrease in selling expense and general and administrative expense of 30.2% and 34.8%, respectively, for the six months ended September 30, 2009 as compared to the comparable prior year period. These steps included: reducing staff in both the U.S. and international operations; restructuring our international distribution system; changing distributor relationships in certain markets; restructuring the Gosling-Castle Partners, Inc. working relationship; moving production of certain products to a lower cost facility in the U.S.; and reducing general and administrative costs, including professional fees, insurance, occupancy and other overhead costs. Efforts to further reduce expenses continue.

The success of our efforts is reflected in our operating results as our loss from operations improved $4.7 million, or 60.8%, for the six months ended September 30, 2009 from the comparable prior year period. As result of our continued cost containment efforts, our focus on our more profitable brands and markets, the expected organic growth of our existing brands, the success of our recently-released Tierras Tequila and Jefferson's Presidential Select bourbon and our newly-created Fine Wine Division, we anticipate continued improved results of operations as we move towards profitability. Recent Events
In September 2009, we acquired the assets of Betts & Scholl LLC, a premium wine maker formed in 2003 by Master Sommelier Richard Betts and Dennis Scholl. In the transaction, we issued to the sellers a total of 7.14 million shares of our common stock and approximately $1.1 million of notes, of which $0.25 million was paid at closing. Dennis Scholl has joined our Board of Directors, where he serves as an independent director, and Richard Betts has joined us as a Vice President and head of our newly-formed Fine Wine Division.

The Fine Wine Division has been created to market and sell a select portfolio of premium wines from around the world. As part of our fine wine strategy, we will seek to recruit and represent the wines of a small number of premium, like-minded brand owners and wineries. The goal is to establish enough high quality wine expressions to provide a reasonable offering to customers. At the same time, however, we expect to limit the number of brands so each brand receives the attention it deserves. The division will take advantage of our existing infrastructure, including our distribution system. 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, including balances due from funding our international subsidiaries, are included in other income (expenses).
Where in this quarterly report we refer to amounts in Euros or British Pounds, we have for your convenience also in certain cases provided a conversion of those amounts to U.S. Dollars in parentheses. 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, 2009, each as calculated from the Interbank exchange rates as reported by Oanda.com. On September 30, 2009, the exchange rate of the Euro and the British Pound in exchange for U.S. Dollars were €1.00 = U.S. $1.45917 (equivalent to U.S. $1.00 = €0.68532) for Euros and £1.00 = U.S. $1.59221 (equivalent to U.S. $1.00 = £0.62806) for British Pounds.
These conversions should not be construed as representations that the Euro and British Pound 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 annual report on Form 10-K for the year ended March 31, 2009, as amended, which we refer to as our 2009 Annual Report. Please refer to that section for disclosures regarding the critical accounting policies related to our business.
Financial performance overview
The following table provides information regarding our case sales for the periods presented based on nine-liter equivalent cases, which is a standard spirits industry metric:

                                  Three months ended           Six months ended
                                     September 30,               September 30,
                                   2009          2008         2009          2008
          Cases
          United States             67,351       57,511       115,228       106,448
          International             18,944       27,596        32,735        45,968


          Total                     86,295       85,107       147,963       152,416


          Vodka                     29,818       31,723        52,352        57,265
          Rum                       27,591       26,787        50,599        49,512
          Liqueurs                  19,533       17,138        28,775        29,787
          Whiskey                    8,765        9,459        15,023        15,852
          Tequila                      588            -         1,214             -


          Total                     86,295       85,107       147,963       152,416


          Percentage of Cases
          United States               78.0 %       67.6 %        77.9 %        69.8 %
          International               22.0 %       32.4 %        22.1 %        30.2 %


          Total                      100.0 %      100.0 %       100.0 %       100.0 %

                              Three months ended          Six months ended
                                 September 30,              September 30,
                               2009          2008         2009         2008
                 Vodka            34.6 %       37.3 %        35.4 %      37.6 %
                 Rum              32.0 %       31.5 %        34.2 %      32.5 %
                 Liqueurs         22.6 %       20.1 %        19.4 %      19.5 %
                 Whiskey          10.1 %       11.1 %        10.2 %      10.4 %
                 Tequila           0.7 %        0.0 %         0.8 %       0.0 %


                 Total           100.0 %      100.0 %       100.0 %     100.0 %

Results of operations
The table below sets forth, for the periods indicated, the percentage of net sales of certain items in our consolidated financial statements:

                                                    Three months ended                  Six months ended
                                                       September 30,                      September 30,
                                                   2009             2008              2009             2008
Sales, net                                         100.0 %          100.0 %           100.0 %          100.0 %
Cost of sales                                       66.0 %           68.4 %            63.8 %           67.8 %


Gross profit                                        34.0 %           31.6 %            36.2 %           32.2 %


Selling expense                                     27.8 %           52.1 %            35.0 %           54.8 %
General and administrative expense                  15.8 %           28.9 %            18.9 %           31.7 %
Depreciation and amortization                        2.6 %            3.3 %             3.1 %            3.7 %


Loss from operations                              (12.2) %          (52.7 )%         (20.8) %          (58.0 )%


Other income                                         0.0 %            0.1 %             0.0 %            0.2 %
Other expense                                      (0.1) %           (0.2 )%          (0.1) %           (0.2 )%
Foreign exchange gain (loss)                         6.2 %          (24.5 )%           10.8 %          (14.4 )%
Interest income (expense), net                       0.1 %           (7.1 )%            0.2 %           (7.8 )%
Gain on exchange of 3% note payable                  0.0 %            0.0 %             1.9 %            0.0 %
Income tax benefit                                   0.4 %            0.5 %             0.5 %            0.6 %


Net loss                                           (5.6) %          (84.0 )%          (7.5) %          (79.6 )%


Net loss attributable to noncontrolling
interests                                            0.2 %            1.4 %             0.4 %            1.3 %


Net loss attributable to common
stockholders                                       (5.4) %          (82.5 )%          (7.1) %          (78.3 )%

Three months ended September 30, 2009 compared with three months ended September 30, 2008
Net sales. Net sales increased 17.2% to $8.7 million for the three months ended September 30, 2009 when compared to $7.4 million for the three months ended September 30, 2008. Our U.S. case sales as a percentage of total case sales increased to 78.0% during the three months ended September 30, 2009 as compared to 67.6% during the comparable prior year period. U.S. net sales increased to $7.7 million for the three months ended September 30, 2009 from $5.7 million for the comparable prior year period, including $0.2 million in revenue from sales of our Tierras Tequila (launched in February 2009) and $0.4 million in revenue from sales of our Jefferson's Presidential Select bourbon (launched in August 2009). The growth in U.S. sales reflects the momentum across most of our portfolio.
The table below presents the increase or decrease, as applicable, in case sales by product category for the three months ended September 30, 2009 as compared to the three months ended September 30, 2008:

                              Increase/(decrease)             Percentage
                                 in case sales            increase/(decrease)
                              Overall        U.S.         Overall         U.S.
                Vodka           (1,905 )     1,549          (6.0 )%        7.8 %
                Rum                804       2,565           3.0 %        13.2 %
                Whiskey           (694 )     1,494          (7.3 )%       61.7 %
                Liqueurs         2,395       3,644          14.0 %        23.1 %
                Tequila            588         588           0.0 %         0.0 %


                Total            1,188       9,840          (0.7 )%       16.1 %

Our international case sales and revenue decreased during the three months ended September 30, 2009 as evidenced by a 31.4% reduction in case sales when compared to the comparable prior year period. This decrease was due to our continued efforts to focus on our more profitable brands and markets, difficult market conditions in most markets, particularly Ireland, Northern Ireland, Great Britain and Italy and the effects of the restructuring of our international operations.
Gross profit. Gross profit increased 26.1% to $3.0 million during the three months ended September 30, 2009 from $2.3 million during the comparable prior year period, while our gross margin increased to 34.0% during the three months ended September 30, 2009 compared to 31.6% for the comparable prior year period. During the three months ended September 30, 2009 and 2008, we recorded reversals of our allowance for obsolete and slow moving inventory of $0.1 million and $0.03 million, respectively. We recorded these reversals as we were able to sell certain goods included in the allowance recorded during previous fiscal years. We recorded the reversals as a decrease in cost of sales. Absent the reversal of the allowance, our gross profit was $2.9 million and $2.3 million during the three months ended September 30, 2009 and 2008, respectively, and our gross margin was 33.3% and 31.3% during the three months ended September 30, 2009 and 2008, respectively.
Selling expense. Selling expense decreased 37.6% to $2.4 million for the three months ended September 30, 2009 from $3.9 million for the comparable prior year period. This decrease in selling expense was attributable to our continued cost containment efforts, including a decrease in advertising, marketing and promotion expense of $0.8 million for the three months ended September 30, 2009 compared to the comparable prior year period. We also reduced sales and marketing staff in both our domestic and international operations, resulting in a decrease of employee expense, including salaries, related benefits and travel and entertainment, of $0.8 million for the three months ended September 30, 2009 against the comparable prior year period. As a result of our continued cost containment efforts, selling expense as a percentage of net sales decreased to 27.8% for the three months ended September 30, 2009 as compared to 52.1% for the comparable prior year period.
General and administrative expense. General and administrative expense decreased 35.9% to $1.4 million for the three months ended September 30, 2009 when compared to $2.1 million for the comparable prior year period. General and administrative staff reductions resulted in a decrease of employee expense, including salaries, related benefits and travel and entertainment, of $0.5 million in the current period against the comparable prior year period. A decrease of $0.1 million in occupancy and related costs was due to our ongoing cost containment efforts. As a result, general and administrative expense as a percentage of net sales decreased to 15.8% for the three months ended September 30, 2009 as compared to 28.9% for comparable prior year period.
Depreciation and amortization. Depreciation and amortization expense was $0.2 million during each of the three months ended September 30, 2009 and September 30, 2008.
Loss from operations. As a result of the foregoing, our loss from operations improved $2.8 million to ($1.1) million for the three months ended September 30, 2009 from ($3.9) million in the comparable prior year period. As a result of our continued cost containment efforts, our focus on our more profitable brands and markets, and expected organic growth of our brands, we anticipate continued improved results of operations in the near term as compared to prior-year periods, although there is no assurance that we will attain such results.
Foreign exchange gain (loss). Foreign exchange gain during the three months ended September 30, 2009 was $0.5 million as compared to a loss of ($1.8) million during the three months ended September 30, 2008 due to the weakening of the U.S. dollar against the Euro and the British Pound and its effect on our Euro- and British Pound-denominated intercompany loans to our foreign subsidiaries.
Interest income (expense), net. We had interest income, net of $0.01 million during the three-month period ended September 30, 2009 compared to interest expense, net of ($0.5) million during the comparable prior year period. We eliminated this expense by converting and exchanging all of our senior notes and convertible subordinated notes for equity.

Net loss attributable to noncontrolling interests. As described in the Note 1K to our accompanying condensed consolidated financial statements, we have separately presented "Net loss attributable to noncontrolling interests" on the accompanying condensed consolidated statements of operations. Net loss attributable to noncontrolling interests during the three months ended September 30, 2009 and 2008 amounted to a credit of $0.01 million and $0.1 million, respectively, which was the result of allocated losses recorded by our 60%-owned subsidiary, Gosling-Castle Partners, Inc. Net loss attributable to common stockholders. As a result of the net effects of the foregoing, net loss attributable to common stockholders for the three months ended September 30, 2009 improved 92.3% to ($0.5) million from ($6.1) million for the three months ended September 30, 2008. Net loss per common share, basic and diluted, was ($0.00) per share for the three-month period ended September 30, 2009 as compared to ($0.39) per share for the comparable prior-year period. Net loss per common share basic and diluted was positively affected by the increase in common shares outstanding resulting from the common stock issued in connection with the October 2008 series A preferred stock transaction and the issuance of common stock in connection with the September 2009 Betts & Scholl acquisition.
Six months ended September 30, 2009 compared with six months ended September 30, 2008
Net sales. Net sales increased 9.3% to $14.6 million for the six months ended September 30, 2009 as compared to $13.3 million for the six months ended September 30, 2008. Our U.S. case sales as a percentage of total case sales increased to 77.9% during the six months ended September 30, 2009 as compared to 69.8% during the comparable prior year period. U.S. net sales increased to $12.7 million for the six months ended September 30, 2009 from $10.4 million for the comparable prior year period, including $0.4 million in revenue from sales of Tierras Tequila and $0.4 million in revenue from sales of Jefferson's Presidential Select bourbon. The growth in U.S. sales reflects the momentum of most of our portfolio in the U.S., particularly for Gosling's rums.
The table below presents the increase or decrease, as applicable, in case sales by product category for the six months ended September 30, 2009 as compared to the six months ended September 30, 2008:

                              Increase/(decrease)             Percentage
                                 in case sales            increase/(decrease)
                              Overall        U.S.         Overall         U.S.
                Vodka           (4,913 )       298          (8.6 )%        0.8 %
                Rum              1,087       4,821           2.2 %        13.2 %
                Whiskey           (829 )     1,451          (5.2 )%       30.8 %
                Liqueurs        (1,012 )       997          (3.4 )%        3.6 %
                Tequila          1,214       1,214           0.0 %         0.0 %


                Total           (4,453 )     8,781          (2.9 )%        8.2 %

Our international case sales and revenue decreased during the six months ended September 30, 2009 as evidenced by a 28.8% reduction in case sales when compared to the comparable prior-year period. This decrease was due to our continued efforts to focus on our more profitable brands and markets, difficult market conditions in most markets, particularly Ireland, Northern Ireland, Great Britain and Italy and the effects of the restructuring of our international operations.
Gross profit. Gross profit increased 22.9% to $5.3 million during the six months ended September 30, 2009 from $4.3 million during the comparable prior-year period, while our gross margin increased to 36.2% during the six months ended September 30, 2009 compared to 32.2% for the comparable prior-year period. During the six months ended September 30, 2009 and 2008, we recorded reversals of our allowance for obsolete and slow moving inventory of $0.5 million and $0.1 million, respectively. We recorded these reversals because we were able to sell certain goods included in the allowance recorded during previous fiscal years. We recorded the reversals as a decrease in cost of sales. Absent the reversals of the allowance, our gross profit was $3.8 million and $4.2 million during each of the six months ended September 30, 2009 and September 30, 2008 and our gross margin was 28.4% and 31.6%, respectively.
Selling expense. Selling expense decreased 30.2% to $5.1 million for the six months ended September 30, 2009 from $7.3 million for the comparable prior-year period. This decrease in selling expense was attributable to our continued cost containment efforts, including a decrease in advertising, marketing and promotion expense of $1.0 million for the six months ended September 30, 2009 compared to the comparable prior-year period. We also reduced sales and marketing staff in both our domestic and international operations, resulting in a decrease of employee expense, including salaries, related benefits and travel and entertainment, of $1.4 million for the six months ended September 30, 2009 compared to the comparable prior-year period. As a result of our continued

cost containment efforts, selling expense as a percentage of net sales decreased to 35.0% for the six months ended September 30, 2009 as compared to 54.8% for the comparable prior-year period.
General and administrative expense. General and administrative expense decreased 34.8% to $2.7 million for the six months ended September 30, 2009 as compared to $4.2 million in the comparable prior-year period. General and administrative staff reductions resulted in a decrease of employee expense, including salaries, related benefits and travel and entertainment, of $1.0 million for the six months ended September 30, 2009 against the comparable prior year period. A decrease of $0.3 million in professional fees was due to our ongoing cost containment efforts. As a result, general and administrative expense as a percentage of net sales decreased to 18.9% for the six months ended September 30, 2009 as compared to 31.7% for comparable prior-year period.
Depreciation and amortization. Depreciation and amortization expense was $0.5 million during each of the six months ended September 30, 2009 and September 30, 2008.
Loss from operations. As a result of the foregoing, our loss from operations improved $4.7 million, or 60.8%, to ($3.0) million for the six months ended September 30, 2009 from ($7.7) million for the comparable prior year period. As a result of our continued cost containment efforts, our focus on our more profitable brands and markets, and expected organic growth of our brands, we anticipate continued improved results of operations in the near term as compared to prior-year periods, although there is no assurance that we will attain such results.
Foreign exchange gain (loss). Foreign exchange gain during the six months ended September 30, 2009 was $1.6 million as compared to a loss of ($1.9) million during the six months ended September 30, 2008 due to the weakening of the U.S. dollar against the Euro and the British Pound and its effect on our Euro- and British Pound-denominated intercompany loans to our foreign subsidiaries.
Interest income (expense), net. We had interest income, net of $0.03 million during the six-month period ended September 30, 2009 compared to interest expense, net of ($1.0) million during the comparable prior year period. We eliminated this expense by converting and exchanging all of our senior notes and convertible subordinated notes for equity.
Gain on exchange of 3% note payable. In May 2009, we exchanged our outstanding 3% note by issuing common stock. This resulted in a pre-tax, non-cash gain of $0.3 million for the six-month period ended September 30, 2009.
Net loss attributable to noncontrolling interests. As described in Note 1K to our accompanying condensed consolidated financial statements, we have separately presented "Net loss attributable to noncontrolling interests" on the accompanying condensed consolidated statements of operations. Net loss attributable to noncontrolling interests during the six months ended September 30, 2009 and 2008 amounted to a credit of $0.1 million and $0.2 million, respectively, which was the result of allocated losses recorded by our 60%-owned subsidiary, Gosling-Castle Partners, Inc. Net loss attributable to common stockholders. As a result of the net effects of the foregoing, net loss attributable to common stockholders for the six months ended September 30, 2009 improved 90.1% to ($1.0) million from ($10.4) million for the six months ended September 30, 2008. Net loss per common share, basic and diluted, was ($0.01) per share for the six month period ended . . .