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UNITEDSTATESSECURITIES AND EXCHANGECOMMISSIONWashington, D.C.20549

FORM10-Q

|        |                                                                                        |
|--------|----------------------------------------------------------------------------------------|
|   | Quarterly Report Pursuant toSection 13 or 15(d) of the Securities Exchange Act of 1934 |

Forthe quarterly period ended December  31,2006

OR

|        |                                                                                        |
|--------|----------------------------------------------------------------------------------------|
|   | TransitionReport Pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934 |

For the transition period from             to             

Commission File Number001-32849

CASTLE BRANDSINC.(Exact name of registrant as specified in itscharter)

|                                                             |  |  |                                     |
|-------------------------------------------------------------|--|--|-------------------------------------|
| Delaware                                                    |  |  | 41-2103550                          |
| (Stateor other jurisdiction ofincorporation ororganization) |  |  | (I.R.S. Employer IdentificationNo.) |
| 570Lexington AvenueNew York, NewYork                        |  |  | 10022                               |
| (Addressof principal executiveoffices)                      |  |  | (ZipCode)                           |
|                                                             |

Registrant’s telephone number,including area code: (646) 356-0200

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

Indicate by check mark whether the registrant is a largeaccelerated filer, accelerated filer or a non-accelerated filer (asdefined in Rule 12b-2 of theAct).

|                                                                         |  |  |                  |  |  |                      |
|-------------------------------------------------------------------------|--|--|------------------|--|--|----------------------|
|         Large accelerated filer |  |  | Acceleratedfiler |  |  | Non-acceleratedfiler |
|                                                                         |

Indicate by check mark whether theregistrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct). Yes     No 

The Company had 12,122,241shares of $0.01 par value common stock outstanding atFebruary 12,2007.

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TABLEOFCONTENTS

|                                                    |  |  |                                                                                                                                                     |  |  |  |  |        |  |
|----------------------------------------------------|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|--------|--|
| PARTI.    FINANCIALINFORMATION |
| Item1.                                             |  |  | CondensedConsolidated FinancialStatements:                                                                                                          |  |  |  |  |   |  |
|                                               |  |  | CondensedConsolidated Balance Sheets as of December  31,  2006(unaudited) and March  31,  2006                                                      |  |  |  |  | 1      |  |
|                                               |  |  | Condensed ConsolidatedStatements of Operations for the Three-Month and Nine-Month Periodsended December  31,  2006 (unaudited) and2005              |  |  |  |  | 2      |  |
|                                               |  |  | CondensedConsolidated Statements of Changes in Shareholders’ Equity(Deficiency) for the Nine-Month Periods ended December31,  2006(unaudited) |  |  |  |  | 3      |  |
|                                               |  |  | CondensedConsolidated Statements of Cash Flows for the Nine-Month Periods endedDecember  31,  2006 (unaudited) and 2005                             |  |  |  |  | 4      |  |
|                                               |  |  | Notes to Unaudited CondensedConsolidated FinancialStatements                                                                                        |  |  |  |  | 6      |  |
| Item2.                                             |  |  | Management’s Discussion and Analysis of FinancialCondition and Results ofOperations                                                           |  |  |  |  | 23     |  |
| Item3.                                             |  |  | Quantitative and Qualitative Disclosures About MarketRisk                                                                                           |  |  |  |  | 35     |  |
| Item 4.                                            |  |  | Controlsand Procedures                                                                                                                              |  |  |  |  | 35     |  |
| PARTII.    OTHER INFORMATION   |
| Item1.                                             |  |  | LegalProceedings                                                                                                                                    |  |  |  |  | 37     |  |
| Item1A.                                            |  |  | Risk Factors                                                                                                                                        |  |  |  |  | 37     |  |
| Item2.                                             |  |  | Unregistered Sales of Equity Securities and Use ofProceeds                                                                                          |  |  |  |  | 37     |  |
| Item3.                                             |  |  | Defaults Upon SeniorSecurities                                                                                                                      |  |  |  |  | 38     |  |
| Item4.                                             |  |  | Submission of Matters to a Vote of SecurityHolders                                                                                                  |  |  |  |  | 38     |  |
| Item 5.                                            |  |  | OtherInformation                                                                                                                                    |  |  |  |  | 38     |  |
| Item6.                                             |  |  | Exhibits                                                                                                                                            |  |  |  |  | 40     |  |
| SIGNATURE                                          |
|                                                    |

----

PARTI.    FINANCIAL INFORMATION

Item1.    Consolidated Financial Statements

CASTLEBRANDS INC. AND SUBSIDIARIESCondensed Consolidated BalanceSheets

|                                                                                                                                                                                            |  |  |                  |   |             |               |  |  |  |   |             |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|------------------|---|-------------|---------------|--|--|--|---|-------------|---|
|                                                                                                                                                                                       |  |  | December31, 2006 |   |             | March 31,2006 |
|                                                                                                                                                                                       |  |  | (unaudited)      |   |             |          |
| ASSETS                                                                                                                                                                                     |  |  |                  |   |        |               |  |  |  |   |        |   |
| CURRENTASSETS                                                                                                                                                                              |  |  |                  |   |        |               |  |  |  |   |        |   |
| Cash and cashequivalents                                                                                                                                                                   |  |  |                  | $ | 11,031,765  |               |  |  |  | $ | 1,392,016   |   |
| Accountsreceivable – net of allowance for doubtful accounts of $463,351and$395,207                                                                                                   |  |  |                  |   | 8,632,373   |               |  |  |  |   | 3,511,215   |   |
| Duefromaffiliates                                                                                                                                                                          |  |  |                  |   | 1,048,359   |               |  |  |  |   | 953,616     |   |
| Inventories                                                                                                                                                                                |  |  |                  |   | 9,514,110   |               |  |  |  |   | 6,673,235   |   |
| Prepaidexpenses and other currentassets                                                                                                                                                    |  |  |                  |   | 1,232,904   |               |  |  |  |   | 1,021,369   |   |
| TOTALCURRENTASSETS                                                                                                                                                                         |  |  |                  |   | 31,459,511  |               |  |  |  |   | 13,551,451  |   |
| EQUIPMENT–net                                                                                                                                                                        |  |  |                  |   | 538,749     |               |  |  |  |   | 407,983     |   |
| OTHERASSETS                                                                                                                                                                                |  |  |                  |   |        |               |  |  |  |   |        |   |
| Intangibleassets – net of accumulated amortization of $2,013,125 and$1,379,389                                                                                                       |  |  |                  |   | 13,428,433  |               |  |  |  |   | 13,936,427  |   |
| Goodwill                                                                                                                                                                                   |  |  |                  |   | 13,636,650  |               |  |  |  |   | 11,649,430  |   |
| Deferredregistrationcosts                                                                                                                                                                  |  |  |                  |   | —     |               |  |  |  |   | 2,823,594   |   |
| Restrictedcash                                                                                                                                                                             |  |  |                  |   | 497,667     |               |  |  |  |   | 362,293     |   |
| Otherassets                                                                                                                                                                                |  |  |                  |   | 635,379     |               |  |  |  |   | 913,032     |   |
| TOTALASSETS                                                                                                                                                                                |  |  |                  | $ | 60,196,389  |               |  |  |  | $ | 43,644,210  |   |
| LIABILITIESAND STOCKHOLDERS’ EQUITY(DEFICIENCY)                                                                                                                                      |  |  |                  |   |        |               |  |  |  |   |        |   |
| CURRENTLIABILITIES                                                                                                                                                                         |  |  |                  |   |        |               |  |  |  |   |        |   |
| Currentmaturities of notes payable and capitalleases                                                                                                                                       |  |  |                  | $ | 1,088,007   |               |  |  |  | $ | 3,678,547   |   |
| Accountspayable                                                                                                                                                                            |  |  |                  |   | 3,173,466   |               |  |  |  |   | 3,757,515   |   |
| Accruedexpenses, put warrant payable and derivativeinstrument                                                                                                                              |  |  |                  |   | 3,268,496   |               |  |  |  |   | 2,986,188   |   |
| Dueto stockholders andaffiliates                                                                                                                                                           |  |  |                  |   | 2,353,982   |               |  |  |  |   | 2,121,334   |   |
| Convertiblestockholder notespayable                                                                                                                                                        |  |  |                  |   | —     |               |  |  |  |   | 1,660,148   |   |
| Stockholdernotespayable                                                                                                                                                                    |  |  |                  |   | —     |               |  |  |  |   | 147,113     |   |
| TOTALCURRENTLIABILITIES                                                                                                                                                                    |  |  |                  |   | 9,883,951   |               |  |  |  |   | 14,350,845  |   |
| LONGTERM LIABILITIES                                                                                                                                                                       |  |  |                  |   |        |               |  |  |  |   |        |   |
| Seniornotespayable                                                                                                                                                                         |  |  |                  |   | 9,287,098   |               |  |  |  |   | 4,594,791   |   |
| Notespayable and capital leases, less currentmaturities                                                                                                                                    |  |  |                  |   | 9,006,148   |               |  |  |  |   | 15,350,640  |   |
| Preferredstock and preferred membership units dividendspayable                                                                                                                             |  |  |                  |   | —     |               |  |  |  |   | 1,546,480   |   |
| Deferredtaxliability                                                                                                                                                                       |  |  |                  |   | 2,592,406   |               |  |  |  |   | 2,703,515   |   |
|                                                                                                                                                                                       |  |  |                  |   | 30,769,603  |               |  |  |  |   | 38,546,271  |   |
| REDEEMABLECONVERTIBLE PREFERREDSTOCK                                                                                                                                                       |  |  |                  |   |        |               |  |  |  |   |        |   |
| Redeemableconvertible preferred stock Series A, B, C;4,103,750 shares designated; 4,089,463 shares outstandingat March 31, 2006, liquidation preference of$33,326,484  |  |  |                  |   | —     |               |  |  |  |   | 28,447,683  |   |
| COMMITMENTSAND CONTINGENCIES (Note14)                                                                                                                                                      |  |  |                  |   |        |               |  |  |  |   |        |   |
| MINORITYINTERESTS                                                                                                                                                                          |  |  |                  |   | 1,573,309   |               |  |  |  |   | 2,674,731   |   |
|                                                                                                                                                                                       |  |  |                  |   |        |               |  |  |  |   |        |   |
| STOCKHOLDERS’EQUITY(DEFICIENCY)                                                                                                                                                      |  |  |                  |   |        |               |  |  |  |   |        |   |
| Preferredstock, $.01 par value, 5,000,000 shares authorized, noneoutstanding                                                                                                               |  |  |                  |   |        |               |  |  |  |   |        |   |
| Common stock, $.01 parvalue, 45,000,000 shares authorized, 12,109,741 and 3,106,666shares issued and outstanding at December  31,  2006and March 31, 2006,respectively |  |  |                  |   | 121,098     |               |  |  |  |   | 31,067      |   |
| Additionalpaid incapital                                                                                                                                                                   |  |  |                  |   | 83,751,040  |               |  |  |  |   | 17,182,405  |   |
| Accumulateddeficiency                                                                                                                                                                      |  |  |                  |   | (55,417,539 | )             |  |  |  |   | (43,404,887 | ) |
| Accumulatedother comprehensive(loss)/income                                                                                                                                                |  |  |                  |   | (601,122    | )             |  |  |  |   | 166,940     |   |
| TOTALSTOCKHOLDERS’ EQUITY(DEFICIENCY)                                                                                                                                                |  |  |                  |   | 27,853,477  |               |  |  |  |   | (26,024,475 | ) |
| TOTALLIABILITIES AND STOCKHOLDERS’ EQUITY(DEFICIENCY)                                                                                                                                |  |  |                  | $ | 60,196,389  |               |  |  |  | $ | 43,644,210  |   |
|                                                                                                                                                                                            |

Seeaccompanying notes to the condensed consolidated financialstatements.

1

----

CASTLE BRANDS INC. ANDSUBSIDIARIESCondensed Consolidated Statements of Operations(unaudited)

|                                                                                                       |  |  |                               |   |            |                             |  |  |      |   |            |      |  |  |  |   |             |   |  |  |  |   |             |   |
|-------------------------------------------------------------------------------------------------------|--|--|-------------------------------|---|------------|-----------------------------|--|--|------|---|------------|------|--|--|--|---|-------------|---|--|--|--|---|-------------|---|
|                                                                                                  |  |  | ThreeMonths EndedDecember 31, |   |            | Nine MonthsEndedDecember31, |
|                                                                                                  |  |  | 2006                          |   |            | 2005                        |  |  | 2006 |   |            | 2005 |
| Sales,net                                                                                             |  |  |                               | $ | 7,380,605  |                             |  |  |      | $ | 7,359,281  |      |  |  |  | $ | 19,093,072  |   |  |  |  | $ | 17,450,819  |   |
| Costofsales                                                                                           |  |  |                               |   | 4,938,243  |                             |  |  |      |   | 4,997,850  |      |  |  |  |   | 12,733,747  |   |  |  |  |   | 11,313,126  |   |
| Grossprofit                                                                                           |  |  |                               |   | 2,442,362  |                             |  |  |      |   | 2,361,431  |      |  |  |  |   | 6,359,325   |   |  |  |  |   | 6,137,693   |   |
| Sellingexpense (Note1K)                                                                               |  |  |                               |   | 4,599,783  |                             |  |  |      |   | 3,616,145  |      |  |  |  |   | 12,836,429  |   |  |  |  |   | 9,965,930   |   |
| Generaland administrative expense (Note1K)                                                            |  |  |                               |   | 2,101,331  |                             |  |  |      |   | 1,659,034  |      |  |  |  |   | 6,235,824   |   |  |  |  |   | 4,032,304   |   |
| Depreciationandamortization                                                                           |  |  |                               |   | 262,926    |                             |  |  |      |   | 232,920    |      |  |  |  |   | 743,214     |   |  |  |  |   | 674,748     |   |
| Operatingloss                                                                                         |  |  |                               |   | (4,521,678 | )                           |  |  |      |   | (3,146,668 | )    |  |  |  |   | (13,456,142 | ) |  |  |  |   | (8,535,289  | ) |
| Otherincome                                                                                           |  |  |                               |   | 1,096      |                             |  |  |      |   | (30,624    | )    |  |  |  |   | 5,040       |   |  |  |  |   | 3,508       |   |
| Otherexpense                                                                                          |  |  |                               |   | (21,132    | )                           |  |  |      |   | (9,468     | )    |  |  |  |   | (36,998     | ) |  |  |  |   | (28,077     | ) |
| Foreignexchangegain/(loss)                                                                            |  |  |                               |   | 483,799    |                             |  |  |      |   | (258,868   | )    |  |  |  |   | 1,143,588   |   |  |  |  |   | (556,592    | ) |
| Interestexpense,net                                                                                   |  |  |                               |   | (208,093   | )                           |  |  |      |   | (413,317   | )    |  |  |  |   | (706,700    | ) |  |  |  |   | (1,037,521  | ) |
| Write-offof deferred financing costs in connection with conversion of 6%subordinated convertiblenotes |  |  |                               |   | —    |                             |  |  |      |   | —    |      |  |  |  |   | (295,368    | ) |  |  |  |   | —     |   |
| Currentcredit on derivative financialinstrument                                                       |  |  |                               |   | 132,255    |                             |  |  |      |   | 3,702      |      |  |  |  |   | 121,397     |   |  |  |  |   | 18,752      |   |
| Incometaxbenefit                                                                                      |  |  |                               |   | 37,033     |                             |  |  |      |   | 37,037     |      |  |  |  |   | 111,109     |   |  |  |  |   | 111,113     |   |
| Minorityinterests                                                                                     |  |  |                               |   | 366,208    |                             |  |  |      |   | 204,385    |      |  |  |  |   | 1,101,422   |   |  |  |  |   | 428,442     |   |
| Netloss                                                                                               |  |  |                               | $ | (3,730,512 | )                           |  |  |      | $ | (3,613,821 | )    |  |  |  | $ | (12,012,652 | ) |  |  |  | $ | (9,595,664  | ) |
| Preferredstockdividends                                                                               |  |  |                               |   | —    |                             |  |  |      |   | 421,890    |      |  |  |  |   | 48,238      |   |  |  |  |   | 1,113,652   |   |
| Netloss attributable to commonstockholders                                                            |  |  |                               | $ | (3,730,512 | )                           |  |  |      | $ | (4,035,711 | )    |  |  |  | $ | (12,060,890 | ) |  |  |  |   | (10,709,316 | ) |
| Netloss attributable to common stockholders per commonshare                                           |  |  |                               |   |       |                             |  |  |      |   |       |      |  |  |  |   |        |   |  |  |  |   |        |   |
| Basic                                                                                                 |  |  |                               | $ | (0.31      | )                           |  |  |      | $ | (1.30      | )    |  |  |  | $ | (1.02       | ) |  |  |  | $ | (3.45       | ) |
| Diluted                                                                                               |  |  |                               | $ | (0.31      | )                           |  |  |      | $ | (1.30      | )    |  |  |  | $ | (1.02       | ) |  |  |  | $ | (3.45       | ) |
| Weightedaverage shares used incomputation                                                             |  |  |                               |   |       |                             |  |  |      |   |       |      |  |  |  |   |        |   |  |  |  |   |        |   |
| Basic                                                                                                 |  |  |                               |   | 12,051,045 |                             |  |  |      |   | 3,106,666  |      |  |  |  |   | 11,827,837  |   |  |  |  |   | 3,106,666   |   |
| Diluted                                                                                               |  |  |                               |   | 12,051,045 |                             |  |  |      |   | 3,106,666  |      |  |  |  |   | 11,827,837  |   |  |  |  |   | 3,106,666   |   |
|                                                                                                       |

Seeaccompanying notes to the condensed consolidated financialstatements.

2

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CASTLE BRANDS INC. ANDSUBSIDIARIESCondensed Consolidated Statements of Changes inStockholders’ Equity (Deficiency)(Unaudited)

|                                                                                           |  |  |             |  |            |                         |  |  |                       |   |         |                                            |  |  |                                             |   |            |   |  |  |  |   |             |   |  |  |  |   |          |   |  |  |  |   |             |   |
|-------------------------------------------------------------------------------------------|--|--|-------------|--|------------|-------------------------|--|--|-----------------------|---|---------|--------------------------------------------|--|--|---------------------------------------------|---|------------|---|--|--|--|---|-------------|---|--|--|--|---|----------|---|--|--|--|---|-------------|---|
|                                                                                      |  |  | CommonStock |  |            | AdditionalPaidinCapital |  |  | AccumulatedDeficiency |   |         | AccumulatedOtherComprehensiveIncome/(Loss) |  |  | TotalStockholders’Equity/(Deficiency) |
|                                                                                      |  |  | Shares      |  |            | Amount                  |
| BALANCE,MARCH 31, 2006                                                               |  |  |             |  | 3,106,666  |                         |  |  |                       | $ | 31,067  |                                            |  |  |                                             | $ | 17,182,405 |   |  |  |  | $ | (43,404,887 | ) |  |  |  | $ | 166,940  |   |  |  |  | $ | (26,024,475 | ) |
| Comprehensiveloss                                                                         |  |  |             |  |       |                         |  |  |                       |   |    |                                            |  |  |                                             |   |       |   |  |  |  |   |        |   |  |  |  |   |     |   |  |  |  |   |        |   |
| Netloss                                                                                   |  |  |             |  |       |                         |  |  |                       |   |    |                                            |  |  |                                             |   |       |   |  |  |  |   | (12,012,652 | ) |  |  |  |   |     |   |  |  |  |   | (12,012,652 | ) |
| Foreigncurrency translationadjustment                                                     |  |  |             |  |       |                         |  |  |                       |   |    |                                            |  |  |                                             |   |       |   |  |  |  |   |        |   |  |  |  |   | (768,062 | ) |  |  |  |   | (768,062    | ) |
| Totalcomprehensiveloss                                                                    |  |  |             |  |       |                         |  |  |                       |   |    |                                            |  |  |                                             |   |       |   |  |  |  |   |        |   |  |  |  |   |     |   |  |  |  |   | (12,780,714 | ) |
| Accruedpreferred stockdividends                                                           |  |  |             |  |       |                         |  |  |                       |   |    |                                            |  |  |                                             |   | (48,238    | ) |  |  |  |   |        |   |  |  |  |   |     |   |  |  |  |   | (48,238     | ) |
| Issuanceof common stock in initial public offering, net of issuancecosts                  |  |  |             |  | 3,500,000  |                         |  |  |                       |   | 35,000  |                                            |  |  |                                             |   | 26,393,889 |   |  |  |  |   |        |   |  |  |  |   |     |   |  |  |  |   | 26,428,889  |   |
| Conversionof redeemable convertible preferred stock, net of fractionalshares              |  |  |             |  | 4,089,463  |                         |  |  |                       |   | 40,895  |                                            |  |  |                                             |   | 28,406,772 |   |  |  |  |   |        |   |  |  |  |   |     |   |  |  |  |   | 28,447,667  |   |
| Issuanceof common stock in payment of accrueddividends                                    |  |  |             |  | 193,107    |                         |  |  |                       |   | 1,931   |                                            |  |  |                                             |   | 1,387,834  |   |  |  |  |   |        |   |  |  |  |   |     |   |  |  |  |   | 1,389,765   |   |
| Conversionof 5% euro denominated convertible subordinatednotes                            |  |  |             |  | 263,362    |                         |  |  |                       |   | 2,634   |                                            |  |  |                                             |   | 1,660,539  |   |  |  |  |   |        |   |  |  |  |   |     |   |  |  |  |   | 1,663,173   |   |
| Conversionof 40% of 6% convertible subordinatednotes                                      |  |  |             |  | 857,143    |                         |  |  |                       |   | 8,571   |                                            |  |  |                                             |   | 5,991,429  |   |  |  |  |   |        |   |  |  |  |   |     |   |  |  |  |   | 6,000,000   |   |
| Issuanceof common stock in connection with acquisition of McLain & Kyne,Ltd.          |  |  |             |  | 100,000    |                         |  |  |                       |   | 1,000   |                                            |  |  |                                             |   | 704,200    |   |  |  |  |   |        |   |  |  |  |   |     |   |  |  |  |   | 705,200     |   |
| Vestingof stock options ascompensation                                                    |  |  |             |  |       |                         |  |  |                       |   |    |                                            |  |  |                                             |   | 24,143     |   |  |  |  |   |        |   |  |  |  |   |     |   |  |  |  |   | 24,143      |   |
| Estimatedfair value ascribed to warrants issued to financialconsultant                    |  |  |             |  |       |                         |  |  |                       |   |    |                                            |  |  |                                             |   | 283,727    |   |  |  |  |   |        |   |  |  |  |   |     |   |  |  |  |   | 283,727     |   |
| Estimatedfair value ascribed to warrants issued in connection with issuance ofseniornotes |  |  |             |  |       |                         |  |  |                       |   |    |                                            |  |  |                                             |   | 706,944    |   |  |  |  |   |        |   |  |  |  |   |     |   |  |  |  |   | 706,944     |   |
| Stock-basedcompensation                                                                   |  |  |             |  |       |                         |  |  |                       |   |    |                                            |  |  |                                             |   | 1,057,396  |   |  |  |  |   |        |   |  |  |  |   |     |   |  |  |  |   | 1,057,396   |   |
| BALANCE,DECEMBER 31,2006                                                                  |  |  |             |  | 12,109,741 |                         |  |  |                       | $ | 121,098 |                                            |  |  |                                             | $ | 83,751,040 |   |  |  |  | $ | (55,417,539 | ) |  |  |  | $ | (601,122 | ) |  |  |  | $ | 27,853,477  |   |
|                                                                                           |

Seeaccompanying notes to the condensed consolidated financialstatements.

3

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CASTLE BRANDS INC. ANDSUBSIDIARIESCondensed Consolidated Statements of Cash Flows(unaudited)

|                                                                                                       |  |  |                              |   |             |           |  |  |  |   |             |   |
|-------------------------------------------------------------------------------------------------------|--|--|------------------------------|---|-------------|-----------|--|--|--|---|-------------|---|
|                                                                                                  |  |  | NineMonths Ended December31, |
|                                                                                                  |  |  | 2006                         |   |             | 2005      |
|                                                                                                  |  |  |                         |   |             | (audited) |
| CASHFLOWS FROM OPERATINGACTIVITIES                                                                    |  |  |                              |   |        |           |  |  |  |   |        |   |
| Netloss                                                                                               |  |  |                              | $ | (12,012,652 | )         |  |  |  | $ | (9,595,664  | ) |
| Adjustmentsto reconcile net loss to net cash used in operatingactivities                              |  |  |                              |   |        |           |  |  |  |   |        |   |
| Depreciation andamortization                                                                          |  |  |                              |   | 743,214     |           |  |  |  |   | 674,748     |   |
| Minorityinterest in net loss of consolidatedsubsidiary                                                |  |  |                              |   | (1,101,422  | )         |  |  |  |   | (428,442    | ) |
| Losson disposal of fixedassets                                                                        |  |  |                              |   | —     |           |  |  |  |   | 1,159       |   |
| Write-offof deferred financingcosts                                                                   |  |  |                              |   | 390,756     |           |  |  |  |   | 373,956     |   |
| Currentcharge/(credit) on derivative financialinstrument                                              |  |  |                              |   | (121,397    | )         |  |  |  |   | (18,752     | ) |
| Deferredtaxbenefit                                                                                    |  |  |                              |   | (111,109    | )         |  |  |  |   | (111,113    | ) |
| Effectof changes in foreign currencyrate                                                              |  |  |                              |   | (997,604    | )         |  |  |  |   | (269,403    | ) |
| Stock-basedcompensationexpense                                                                        |  |  |                              |   | 1,057,396   |           |  |  |  |   | —     |   |
| Non-cashinterestcharge                                                                                |  |  |                              |   | 283,727     |           |  |  |  |   | —     |   |
| Write-offof deferred financing costs in connection with conversion of 6%subordinated convertiblenotes |  |  |                              |   | 295,368     |           |  |  |  |   | —     |   |
| Changesin operations, assets andliabilities                                                           |  |  |                              |   |        |           |  |  |  |   |        |   |
| Increase inaccountsreceivable                                                                         |  |  |                              |   | (4,872,125  | )         |  |  |  |   | (2,389,002  | ) |
| Increasein due from related parties –GXB                                                        |  |  |                              |   | (92,715     | )         |  |  |  |   | (688,339    | ) |
| Increaseininventory                                                                                   |  |  |                              |   | (2,607,467  | )         |  |  |  |   | (1,018,343  | ) |
| Increasein prepaid expenses andsupplies                                                               |  |  |                              |   | (198,592    | )         |  |  |  |   | (401,550    | ) |
| Increasein otherassets                                                                                |  |  |                              |   | (139,590    | )         |  |  |  |   | (370,744    | ) |
| (Decrease)/increasein accounts payable, accrued expenses, put warrant payable andderivativeinstrument |  |  |                              |   | (58,528     | )         |  |  |  |   | 449,518     |   |
| Increasein due to relatedparties                                                                      |  |  |                              |   | 175,720     |           |  |  |  |   | 1,944,221   |   |
| Totaladjustments                                                                                      |  |  |                              |   | (7,354,368  | )         |  |  |  |   | (2,252,086  | ) |
| NETCASH USED IN OPERATINGACTIVITIES                                                                   |  |  |                              |   | (19,367,020 | )         |  |  |  |   | (11,847,750 | ) |
| CASHFLOWS FROM INVESTINGACTIVITIES                                                                    |  |  |                              |   |        |           |  |  |  |   |        |   |
| Acquisition ofproperty andequipment                                                                   |  |  |                              |   | (221,631    | )         |  |  |  |   | (157,188    | ) |
| Acquisitionof intangibleassets                                                                        |  |  |                              |   | (129,144    | )         |  |  |  |   | (98,219     | ) |
| Businessacquisitions – net of cashacquired                                                      |  |  |                              |   | (1,282,021  | )         |  |  |  |   | (13,379     | ) |
| NETCASH USED IN INVESTINGACTIVITIES                                                                   |  |  |                              |   | (1,632,796  | )         |  |  |  |   | (268,786    | ) |
| CASHFLOWS FROM FINANCINGACTIVITIES                                                                    |  |  |                              |   |        |           |  |  |  |   |        |   |
| Repayment of notespayable                                                                             |  |  |                              |   | (18,538,838 | )         |  |  |  |   | (17,335,098 | ) |
| Proceedsfrom notes payable andwarrants                                                                |  |  |                              |   | 20,677,017  |           |  |  |  |   | 25,233,423  |   |
| Paymentsof obligations under capitalleases                                                            |  |  |                              |   | (2,609      | )         |  |  |  |   | (2,755      | ) |
| Increase inrestrictedcash                                                                             |  |  |                              |   | (97,985     | )         |  |  |  |   | —     |   |
| Issuance ofredeemable convertible preferredstock                                                      |  |  |                              |   | —     |           |  |  |  |   | 2,900,000   |   |
| Paymentsfor costs of stockissuances                                                                   |  |  |                              |   | —     |           |  |  |  |   | (247,466    | ) |
| Issuanceof commonstock                                                                                |  |  |                              |   | 31,500,000  |           |  |  |  |   | —     |   |
| Paymentsfor costs of stockissuances                                                                   |  |  |                              |   | (2,898,063  | )         |  |  |  |   | (560,224    | ) |
| NETCASH PROVIDED BY FINANCINGACTIVITIES                                                               |  |  |                              |   | 30,639,522  |           |  |  |  |   | 9,987,880   |   |
| EFFECTSOF FOREIGN CURRENCYTRANSLATION                                                                 |  |  |                              |   | 43          |           |  |  |  |   | (1,443      | ) |
|                                                                                                       |

4

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|                                                                                                          |  |  |                              |   |             |           |  |  |  |   |            |   |
|----------------------------------------------------------------------------------------------------------|--|--|------------------------------|---|-------------|-----------|--|--|--|---|------------|---|
|                                                                                                     |  |  | NineMonths Ended December31, |
|                                                                                                     |  |  | 2006                         |   |             | 2005      |
|                                                                                                     |  |  |                         |   |             | (audited) |
| NET INCREASE/(DECREASE) IN CASHAND CASHEQUIVALENTS                                                       |  |  |                              |   | 9,639,749   |           |  |  |  |   | (2,130,099 | ) |
| CASHAND CASH EQUIVALENTS –BEGINNING                                                                |  |  |                              |   | 1,392,016   |           |  |  |  |   | 5,676,398  |   |
| CASHAND CASH EQUIVALENTS –ENDING                                                                   |  |  |                              | $ | 11,031,765  |           |  |  |  | $ | 3,546,299  |   |
| SUPPLEMENTALDISCLOSURES                                                                                  |  |  |                              |   |        |           |  |  |  |   |       |   |
| Scheduleof non-cash investing and financingactivities                                                    |  |  |                              |   |        |           |  |  |  |   |       |   |
| Conversion ofredeemable convertible preferred stock, net of fractional shares, byissuance of commonstock |  |  |                              | $ | (28,447,667 | )         |  |  |  | $ | —    |   |
| Issuanceof common stock in initial publicoffering                                                        |  |  |                              | $ | 28,447,667  |           |  |  |  | $ | —    |   |
| Issuanceof common stock in payment of accrueddividends                                                   |  |  |                              | $ | (1,389,765  | )         |  |  |  | $ | —    |   |
| Issuanceof common stock in initial publicoffering                                                        |  |  |                              | $ | 1,389,765   |           |  |  |  | $ | —    |   |
| Conversionof 5% euro denominated convertible subordinated notes byissuance of commonstock                |  |  |                              | $ | (1,663,173  | )         |  |  |  | $ | —    |   |
| Issuanceof common stock in initial publicoffering                                                        |  |  |                              | $ | 1,663,173   |           |  |  |  | $ | —    |   |
| Conversionof 40% of 6% convertible subordinated notes by issuanceof commonstock                          |  |  |                              | $ | (6,000,000  | )         |  |  |  | $ | —    |   |
| Issuanceof common stock in initial publicoffering                                                        |  |  |                              | $ | 6,000,000   |           |  |  |  | $ | —    |   |
| Businessacquisition-net of cashacquired                                                                  |  |  |                              | $ | (705,200    | )         |  |  |  | $ | —    |   |
| Issuanceof common stock                                                                                  |  |  |                              | $ | 705,200     |           |  |  |  | $ | —    |   |
| Increase indeferred registrationcosts                                                                    |  |  |                              | $ | —     |           |  |  |  | $ | (1,053,238 | ) |
| Increasein accounts payable, accrued expenses, put warrant payable andderivativeinstrument               |  |  |                              | $ | —     |           |  |  |  | $ | 1,053,238  |   |
| Interestpaid                                                                                             |  |  |                              | $ | 1,000,963   |           |  |  |  | $ | 921,951    |   |
|                                                                                                          |

Seeaccompanying notes to the condensed consolidated financialstatements.

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CASTLEBRANDS INC. AND SUBSIDIARIESNotes to Condensed ConsolidatedFinancial Statements (Unaudited)

NOTE 1 —ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES

Basis of Presentation

The accompanyingcondensed consolidated financial statements do not include all of theinformation and footnote disclosures normally included in financialstatements prepared in accordance with the rules and regulations of theSecurities and Exchange Commission and U.S. generally acceptedaccounting principles and in the opinion of management, contain alladjustments (which consist of only normal recurring adjustments)necessary for a fair presentation of such financial information.Results of operations for interim periods are not necessarilyindicative of those to be achieved for full fiscal years. The CondensedConsolidated Balance Sheet as of March  31,  2006 isderived from the March  31,  2006 audited financialstatements. These condensed consolidated financial statements should beread in conjunction with the Company’s audited consolidatedfinancial statements for the fiscal year ended March  31,2006 included in the Company’s Annual Report on Form 10-K filedwith the Securities and ExchangeCommission.

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | A.  | Description of business andbusiness combination – Castle Brands Inc. is the successorto Great Spirits Company, LLC, a Delaware limited liability company(‘‘GSC’’). GSC was formed inFebruary  1998. In May  2003, Great Spirits (Ireland)Limited (‘‘GSI’’), a wholly ownedsubsidiary of GSC, began operations in Ireland to market GSC’sproducts internationally. GSI has been an inactive entity sinceDecember  2003 and was dissolved as of September30,  2006. A loss on F/X of $17,659 was realized upon thedissolution. In July  2003, GSRWB, Inc. (renamed Castle BrandsInc.) and its wholly owned subsidiary, Great Spirits Corp. (renamedCastle Brands (USA) Corp.) (‘‘CB-USA’’),were formed under the laws of Delaware in contemplation of a pendingacquisition. On December  1,  2003, Castle Brands Inc.acquired The Roaring Water Bay Spirits Group Limited and The RoaringWater Bay Spirits Marketing and Sales Company Limited and their relatedentities (collectively, ‘‘Roaring WaterBay’’). The acquisition has been accounted for underpurchase accounting. Simultaneously, GSC was merged into CB-USA, andCastle Brands Inc. issued stock to GSC’s members in exchange fortheir membership interests in GSC. Subsequent to the acquisition, TheRoaring Water Bay Spirits Group Limited was renamed Castle BrandsSpirits Group Limited (‘‘CB Ireland’’) andThe Roaring Water Bay Spirits Marketing and Sales Company Limited wasrenamed Castle Brands Spirits Marketing and Sales Company Limited(‘‘CB-UK’’). |

InFebruary  2005, Castle Brands Inc. acquired 60% of theshares of Gosling-Castle Partners Inc.(‘‘GCP’’), which holds the worldwidedistribution rights (excluding Bermuda) to Gosling’s rum andrelated products.

In October  2006, Castle BrandsInc. acquired all of the outstanding capital stock of McLain &Kyne, Ltd. (‘‘McLain & Kyne’’),pursuant to a Stock Purchase Agreement. McLain & Kyne is aLouisville, Kentucky based developer and marketer of three premiumsmall batch bourbons: Jefferson’s Reserve, Jefferson’sand Sam Houston.

As used herein, the‘‘Company’’ refers to Castle Brands Inc.and, where appropriate, it also refers collectively to Castle BrandsInc. and its direct and indirect subsidiaries, including its majorityowned GCPsubsidiary.

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | B.  | Principles ofconsolidation – The consolidated financial statementsinclude the accounts of Castle Brands Inc., its wholly-ownedsubsidiaries, CB-USA and its wholly-owned foreign subsidiaries, CBIreland and CB-UK, and its majority owned Gosling-Castle Partners, Inc.with adjustments for income or loss allocated based upon percentage ofownership. The accounts of the subsidiaries have been included as ofthe date of acquisition. All significant intercompany transactions andbalances have been eliminated. |

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|  |          |                                                                                                                                                                 |
|--|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | C.  | Cashequivalents – The Company considers all highly liquidinstruments with a maturity at date of acquisition of three-months orless to be cashequivalents. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | D.  | Trade accountsreceivable – The Company records trade accounts receivableat net realizable value. This value includes an appropriate allowancefor estimated uncollectible accounts to reflect anticipated losses onthe trade accounts receivable balances. The Company calculates thisallowance based on its history of write-offs, level of past dueaccounts based on contractual terms of the receivables and itsrelationships with and economic status of the Company’scustomers. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | E.  | Revenuerecognition – Revenue from product sales is recognized whenthe product is shipped to a customer (generally a distributor or acontrol state), title and risk of loss has passed to the customer inaccordance with the terms of sale (FOB shipping point or FOBdestination), and collection is reasonably assured. Revenue is notrecognized on shipments to control states in the United States untilsuch time as product is sold through to the retailchannel. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | F.  | Inventories– Inventories, which comprise distilled spirits, raw materials(bulk spirits, bottles, labels and caps), packaging and finished goods,are valued at the lower of cost or market, using the weighted averagecost method. The Company assesses the valuation of its inventories andreduces the carrying value of those inventories that are obsolete or inexcess of the Company’s forecasted usage to their estimated netrealizable value. The Company estimates the net realizable value ofsuch inventories based on analyses and assumptions including, but notlimited to, historical usage, expected future demand and marketrequirements. Reductions to the carrying value of inventories arerecorded in cost of goodssold. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | H.  | Goodwill and otherintangible assets – Goodwill represents the excess ofpurchase price including related costs over the value assigned to thenet tangible and identifiable intangible assets of businesses acquired.As of December  31,  2006 and March  31,  2006,goodwill and other indefinite lived intangible assets that arose fromacquisitions were $13.6  million and $11.6  million,respectively. Goodwill and other intangible assets with indefinitelives are not amortized, but instead are tested for impairmentannually, or more frequently if circumstances indicate a possibleimpairment may exist. Intangible assets with estimable useful lives areamortized over their respective estimated useful lives to the estimatedresidual values and reviewed for impairment whenever events or changesin circumstances indicate that the carrying value may not berecoverable. The Company performed its annual impairment assessment onlong-lived assets, including intangible assets and goodwill. TheCompany concluded that no impairment existed at March  31,2006. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | I.  | Excise taxes andduty – Excise taxes and duty are computed at standard ratesbased on alcohol proof per gallon/liter and are paid after finishedgoods are imported into the United States and Great Britain and thentransferred out of ‘‘bond.’’ Excise taxesand duty are recorded to inventory as a component of the cost of theunderlying finished goods. When the underlying products are sold‘‘ex warehouse’’ the sales price reflectsthe taxes paid and the inventoried excise taxes and duties are chargedto cost of sales. During the three-month and nine-month periods endedDecember  31,  2006 and 2005, the line items for theCompany’s revenues and cost of sales included the amounts ofexcise tax and duties presented in the tablebelow: |

|             |  |  |                                |   |           |                               |  |  |      |   |           |      |  |  |  |   |           |  |  |  |  |   |           |  |
|-------------|--|--|--------------------------------|---|-----------|-------------------------------|--|--|------|---|-----------|------|--|--|--|---|-----------|--|--|--|--|---|-----------|--|
|        |  |  | Three-monthsended December 31, |   |           | Nine-months ended December31, |
|        |  |  | 2006                           |   |           | 2005                          |  |  | 2006 |   |           | 2005 |
| Sales,net   |  |  |                                | $ | 1,809,820 |                               |  |  |      | $ | 1,096,510 |      |  |  |  | $ | 4,431,836 |  |  |  |  | $ | 2,991,267 |  |
| CostofSales |  |  |                                | $ | 1,809,820 |                               |  |  |      | $ | 1,096,510 |      |  |  |  | $ | 4,431,836 |  |  |  |  | $ | 2,991,267 |  |
|             |

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|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | J.  | Foreigncurrency translation – The functional currency for theCompany’s foreign operations is the euro in Europe, excluding theUnited Kingdom, the British pound in the United Kingdom, and theCanadian dollar in Canada. The translation from the applicable foreigncurrencies to U.S. dollars is performed for balance sheet accountsusing current exchange rates in effect at the balance sheet date andfor revenue and expense accounts using a weighted average exchange rateduring the period. The resulting translation adjustments are recordedas a component of other comprehensive income. Gains or losses resultingfrom foreign currency transactions are shown as a separate line item inaccompanying condensed consolidated statements ofoperations. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | K.  | Stock-basedcompensation – Effective April  1,  2006, theCompany began recording compensation expense associated with stockoptions and other forms of equity compensation in accordance withStatement of Financial Accounting Standards No. 123 (revised 2004),Share-Based Payment (SFAS 123R), as interpreted by SEC StaffAccounting Bulletin No. 107. Prior to April  1,  2006, theCompany accounted for stock options according to the provisions ofAccounting Principles Board Opinion No. 25, Accounting for StockIssued to Employees (APB 25), and related interpretations, andtherefore no related compensation expense was recorded for awardsgranted with no intrinsic value. The Company adopted the modifiedprospective transition method provided for under SFAS 123R, andconsequently, had not retroactively adjusted results from priorperiods. Under this transition method, compensation cost associatedwith stock options recognized in the three-month and nine-month periodsended December  31,  2006 includes: 1) amortization relatedto the remaining unvested portion of all stock option awards grantedprior to April  1,  2006 over the requisite service periodbased on the grant-date fair value estimated in accordance with theoriginal provisions of SFAS 123, Accounting for Stock-BasedCompensation ; and 2) amortization related to all stock optionawards granted on or subsequent to April  1,  2006, basedon the grant-date fair value estimated in accordance with theprovisions of SFAS 123R. A compensation charge is recorded when it isprobable that performance or service conditions will be satisfied. Theprobability of vesting is updated annually and compensation is adjustedvia a cumulative catch-up adjustment or prospectively depending uponthe nature of the change. |

As a result of the adoption ofSFAS 123R, incremental compensation expense for the three-month andnine-month periods ended December  31,  2006 amounted to$285,981 and $1,057,396, respectively, of which $136,604 and $358,076is included in selling expense, respectively, and $149,377 and $699,320in general and administrative expense, respectively, in theaccompanying condensed consolidated statements of operations. AtDecember  31,  2006 total unrecognized compensation costamounted to approximately $3,480,225, representing 1,012,033 unvestedoptions.

For stock options granted prior to the adoptionof SFAS 123R, if compensation expense for the Company’s stockoption plan had been determined based upon estimated fair values at thegrant dates in accordance with SFAS No. 123, the Company’s proforma net loss and pro forma basic and diluted net loss per commonshare would have been asfollows:

|                                                         |  |  |                                           |   |            |                                          |  |  |  |   |             |   |
|---------------------------------------------------------|--|--|-------------------------------------------|---|------------|------------------------------------------|--|--|--|---|-------------|---|
|                                                    |  |  | Forthe three-monthsended December 31,2005 |   |            | For thenine-monthsended December 31,2005 |
| Net lossattributable to common stockholders, asreported |  |  |                                           | $ | (4,035,711 | )                                        |  |  |  | $ | (10,709,316 | ) |
| Stock-basedcompensation expensedetermined               |  |  |                                           |   | —    |                                          |  |  |  |   | (60,966     | ) |
| Proforma net loss attributable to commonstockholders    |  |  |                                           | $ | (4,035,711 | )                                        |  |  |  | $ | (10,770,282 | ) |
| Lossper share: Basic and diluted – asreported     |  |  |                                           | $ | (1.30      | )                                        |  |  |  | $ | (3.45       | ) |
| Basicand diluted – proforma                       |  |  |                                           | $ | (1.30      | )                                        |  |  |  | $ | (3.47       | ) |
|                                                         |

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|  |          |                                                                                                                                                                                                                                                                                                                                                                           |
|--|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | L.  | Advertising– Advertising costs are expensed when the advertising firstappears in its respective medium. Advertising expense, which isincluded in selling expense, for the three-months ended December31,  2006 and 2005 was $946,124 and $622,296, respectively andwas $3,475,024 and $2,626,061 for the nine-months ended December31,  2006 and 2005,respectively. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | M.  | Use ofestimates – The preparation of financial statements inconformity with accounting principles generally accepted in the UnitedStates of America requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of thefinancial statements, and the reported amounts of revenues and expensesduring the reporting period. Actual results could differ from thoseestimates. Estimates include the accounting for items such asevaluating annual impairment tests, fair value of put warrants,derivative instruments and other equity issuances, allowance fordoubtful accounts, depreciation, amortization and expenseaccruals. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | N.  | Recent accountingpronouncements – In June  2006, the FinancialAccounting Standards Board (FASB) issued FASB InterpretationNo. 48, ‘‘Accounting for Uncertainty in IncomeTaxes – an interpretation of FASB StatementNo. 109’’(‘‘FIN 48’’), which clarifies theaccounting and disclosure for uncertainty in tax positions, as defined.FIN 48 seeks to reduce the diversity in practice associated withcertain aspects of the recognition and measurement related toaccounting for income taxes. This interpretation will apply tothe Company’s fiscal year beginning April  1,  2007.The Company does not expect the interpretation will have a materialimpact on its financial position, results from operations or cashflows. |

In September  2006, the Securities andExchange Commission (‘‘SEC’’) issued StaffAccounting Bulletin 108, ‘‘Considering the Effects onPrior Year Misstatements when Quantifying Misstatements in Current YearFinancial Statements,’’ (‘‘SAB108’’). SAB 108 requires registrants to quantify errorsusing both the income statement method (i.e. iron curtain method) andthe rollover method and requires adjustment if either method indicatesa material error. If a correction in the current year relating to prioryear errors is material to the current year, then the prior yearfinancial information needs to be corrected. A correction to the prioryear results that are not material to those years would not require a‘‘restatement process’’ where priorfinancials would be amended. SAB 108 is effective for fiscal yearsending after November  15,  2006. The Company does notanticipate that SAB 108 will have a material effect on its financialposition, results of operations or cash flows.

InSeptember  2006, the FASB issued SFAS No. 157,‘‘Fair Value Measurements,’’ to define fairvalue, establish a framework for measuring fair value in accordancewith generally accepted accounting principles, and expand disclosuresabout fair value measurements. SFAS  No. 157 will be effectivefor fiscal years beginning after November  15,  2007, thebeginning of the Company’s 2008 fiscal year. The Company isassessing the impact the adoption of SFAS No. 157 will have on theCompany’s financial position, results of operations or cashflows.

NOTE 2 — BASIC AND DILUTED NET LOSS PER COMMONSHARE

Basic net loss per common share is computed bydividing net loss by the weighted average number of common sharesoutstanding during the period. Diluted net loss per common share iscomputed giving effect to all dilutive potential common shares thatwere outstanding during the period. Diluted potential common sharesconsist of incremental shares issuable upon exercise of stock optionsand warrants, contingent conversion of debentures and convertiblepreferred stock outstanding. In computing diluted net loss per sharefor the three-month and nine-month periods ended December31,  2006 and 2005, no adjustment has been made to the weightedaverage outstanding common shares as the assumed exercise ofoutstanding options and warrants and the assumed conversion ofpreferred stock and convertible debentures isanti-dilutive.

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Potential common shares not included incalculating diluted net loss per share are asfollows:

|                           |  |  |           |  |           |      |  |  |  |  |           |  |
|---------------------------|--|--|-----------|--|-----------|------|--|--|--|--|-----------|--|
|                      |  |  | December, |
|                      |  |  | 2006      |  |           | 2005 |
| Stockoptions              |  |  |           |  | 1,428,500 |      |  |  |  |  | 915,500   |  |
| Stockwarrants             |  |  |           |  | 812,218   |      |  |  |  |  | 598,618   |  |
| Convertibledebentures     |  |  |           |  | 1,125,000 |      |  |  |  |  | 2,245,505 |  |
| Convertiblepreferredstock |  |  |           |  | —   |      |  |  |  |  | 4,089,465 |  |
| Total                     |  |  |           |  | 3,365,718 |      |  |  |  |  | 7,849,088 |  |
|                           |

NOTE3 —INVENTORIES

|               |  |  |                  |   |           |               |  |  |  |   |           |  |
|---------------|--|--|------------------|---|-----------|---------------|--|--|--|---|-----------|--|
|          |  |  | December31, 2006 |   |           | March 31,2006 |
| Rawmaterials  |  |  |                  | $ | 863,551   |               |  |  |  | $ | 1,339,697 |  |
| Finishedgoods |  |  |                  |   | 8,650,559 |               |  |  |  |   | 5,333,538 |  |
| Total         |  |  |                  | $ | 9,541,110 |               |  |  |  | $ | 6,673,235 |  |
|               |

Asof December  31, and March  31,  2006, 100% ofthe raw materials and 14.1% and 23.5%, respectively, offinished goods were located outside of the UnitedStates.

Inventories are stated at the lower of average cost ormarket. The Company assesses the valuation of its inventories andreduces the carrying value of those inventories that are obsolete or inexcess of the Company’s forecasted usage to their estimated netrealizable value. The Company estimates the net realizable value ofsuch inventories based on analyses and assumptions including, but notlimited to, historical usage, expected future demand and marketrequirements. Reductions to the carrying value of inventories arerecorded in cost of goods sold.

NOTE 4 — INVESTMENTSAND ACQUISITIONS

Acquisition of McLain &Kyne, Ltd.

|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| A.  | On October12,  2006, the Company acquired all of the outstanding capitalstock of McLain & Kyne, Ltd., pursuant to a Stock PurchaseAgreement among Chester F. Zoeller III, Brittany Lynn Zoeller Carlson,Beth Allison Zoeller Willis (collectively, the‘‘Sellers’’) and the Company (the‘‘Agreement’’). McLain & Kyne is aLouisville, Kentucky-based developer and marketer of three premiumsmall batch bourbons: Jefferson’s Reserve, Jefferson’sand Sam Houston. As consideration for the acquisition, the Company haspaid $2,000,000, consisting of $1,294,800 in cash to the Sellers andissued to the Sellers 100,000 shares of its common stock with a valueof $705,200. The Company will also pay an earn-out to the Sellers basedon the financial performance of the acquired business. The aggregateamount of such earn-out payments, which shall not exceed $4,000,000,will be determined by a calculation based on the gross margin (asdefined in the Agreement) recognized by the Company from the sales ofMcLain & Kyne’s bourbons through March  31,2011. As a result of the initial purchase price allocation, we recordedgoodwill of $1,987,220  million at December  31,2006 in connection with this acquisition. The purchase price allocationfor this acquisition is preliminary and may be revised as additionalinformation becomes available. Any change in the fair value of the netassets acquired will change the amount of the purchase price allocableto goodwill. Management is currently developing integration plans whichmay result in additional costs which will be accrued as a liability inconjunction with recording the purchase of the McLain & Kyne, Ltd.business and which will result in an increase to goodwill. Theoperating results of the McLain & Kyne, Ltd. business are reflectedin the accompanying condensed consolidated financial statements fromthe date of acquisition and were not material. |

TheCompany will also pay an earn-out to the Sellers based on the financialperformance of the acquired business. The aggregate amount of suchearn-out payments, which shall not exceed 

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$4,000,000, will be determined by acalculation based on the gross margin (as defined in the Agreement)recognized by the Company from the sales of McLain & Kyne’sbourbons through March  31,  2011. Any payments madepursuant to this earn-out will be treated as additionalgoodwill.

The Agreement also provides for, among otherthings, representations, warranties, indemnities and‘‘piggyback’’ registration rights to theSellers.

The following table presents unaudited proforma information about sales and net income had the operations of theabove described acquisition been combined with the Company’sbusiness as of the first day of the period shown. This information hasnot been adjusted to reflect any changes in the operations of McLain& Kyne, Ltd. subsequent to its acquisition by the Company. Changesin operations of the acquired business includes, but are not limitedto, discontinuation of products changes in trade practices, applicationof the Company’s credit policies, changes in manufacturingprocesses or locations, changes in marketing and advertising programsand integration of systems and personnel. Had any of these changes beenimplemented by the former management of the business acquired prior toacquisition by the Company, the sales and net income information mighthave been materially different than the actual results achieved andfrom the pro forma information provided below.

|                                                              |  |  |                                |   |            |                              |  |  |      |   |            |      |  |  |  |   |             |   |  |  |  |   |             |   |
|--------------------------------------------------------------|--|--|--------------------------------|---|------------|------------------------------|--|--|------|---|------------|------|--|--|--|---|-------------|---|--|--|--|---|-------------|---|
|                                                         |  |  | Threemonths ended December  31 |   |            | Nine monthsended December31, |
|                                                         |  |  | 2006                           |   |            | 2005                         |  |  | 2006 |   |            | 2005 |
| Netsales                                                     |  |  |                                | $ | 7,380,605  |                              |  |  |      | $ | 7,467,281  |      |  |  |  | $ | 19,398,143  |   |  |  |  | $ | 17,721,479  |   |
| Netloss attributable to common stockholders                  |  |  |                                | $ | (3,730,512 | )                            |  |  |      | $ | (4,035,271 | )    |  |  |  | $ | (12,022,231 | ) |  |  |  | $ | (10,708,217 | ) |
| Netloss attributable to common stock holders per commonshare |  |  |                                |   |       |                              |  |  |      |   |       |      |  |  |  |   |        |   |  |  |  |   |        |   |
| Basic                                                        |  |  |                                | $ | (0.31      | )                            |  |  |      | $ | (1.30      | )    |  |  |  | $ | (1.02       | ) |  |  |  | $ | (3.45       | ) |
| Diluted                                                      |  |  |                                | $ | (0.31      | )                            |  |  |      | $ | (1.30      | )    |  |  |  | $ | (1.02       | ) |  |  |  | $ | (3.45       | ) |
| Weightedaverage shares:Basic                                 |  |  |                                |   | 12,051,045 |                              |  |  |      |   | 3,106,666  |      |  |  |  |   | 11,827,837  |   |  |  |  |   | 3,106,666   |   |
| Diluted                                                      |  |  |                                |   | 12,051,045 |                              |  |  |      |   | 3,106,666  |      |  |  |  |   | 11,827,837  |   |  |  |  |   | 3,106,666   |   |
|                                                              |

Inmanagement’s opinion, the unaudited pro forma results ofoperations are not indicative of the actual results that would haveoccurred had the above acquisitions been consummated at the beginningof the periods presented or of future operations of the combinedcompanies under ourmanagement.

|          |                                           |
|----------|-------------------------------------------|
| B.  | Investment inGosling-Castle Partners Inc. |

In February2005, the Company entered into a stock subscription agreement for60% of the stock of Gosling Partners, Inc., whose name wassubsequently changed to Gosling-Castle Partners Inc.

The Company agreed to pay GCP $5,000,000 for its 60%interest: $100,000 in cash and issuance of a promissory note of$4,900,000 to GCP for the balance owed. The promissory note was payablein five installments with one remaining payment of $750,000 dueApril  1,  2007.

Effective with the paymentof the second installment on October  1,  2005, thispromissory note began accruing interest on the unpaid principal amountat the rate of 4% per annum until the note is repaid in full. Asof December  31 and March  31,  2006, $97,500 and$55,000, respectively, in interest on this note has been accrued andremains unpaid.

The global distribution agreementcommenced on April  1,  2005 and has a 15 year term. It isrenewable for additional 15 year terms as long as GCP meets certaincase sale targets during the initial term as set forth in theagreement. (See Note 16 — Gosling-Castle Partners Inc. Export

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Agreement with Gosling’s Export(Bermuda) Limited). The Company ascribed the entire purchase of$5,000,000 to the Gosling global distribution agreement describedabove. In conjunction with this transaction the Company recorded adeferred tax liability of $2,222,222 to reflect the difference betweenthe adjusted book value and tax basis. This deferred tax liability wasrecorded as an increase to the value of the distribution agreement andis included in intangible assets.

Castle Brands Inc. hasagreed to fund certain operating losses of GCP. The balance of thisfunding at December  31,  2006 is approximately$1,600,000.

NOTE 5 — GOODWILL AND INTANGIBLEASSETS

The changes in the carrying amount of goodwill fornine-months ended December  31,  2006 were asfollows:

|                                     |  |  |        |   |            |  |
|-------------------------------------|--|--|--------|---|------------|--|
|                                |  |  | Amount |
| Balanceas of March  31,2006         |  |  |        |   | 11,649,430 |  |
| Acquisition ofMcLain & Kyne,Ltd |  |  |        |   | 1,987,220  |  |
| Balanceas of December  31,2006      |  |  |        | $ | 13,636,650 |  |
|                                     |

Intangibleassets consist of thefollowing:

|                                                            |  |  |                 |   |            |               |  |  |  |   |            |  |
|------------------------------------------------------------|--|--|-----------------|---|------------|---------------|--|--|--|---|------------|--|
|                                                       |  |  | December31,2006 |   |            | March 31,2006 |
| Definitelifebrands                                         |  |  |                 | $ | 190,353    |               |  |  |  | $ | 194,159    |  |
| Trademarks                                                 |  |  |                 |   | 520,932    |               |  |  |  |   | 341,604    |  |
| Rights                                                     |  |  |                 |   | 9,036,793  |               |  |  |  |   | 9,036,793  |  |
| Patents                                                    |  |  |                 |   | 825,000    |               |  |  |  |   | 825,000    |  |
| Distributionrelationship                                   |  |  |                 |   | 416,000    |               |  |  |  |   | 416,000    |  |
| Supplyrelationship                                         |  |  |                 |   | 732,000    |               |  |  |  |   | 732,000    |  |
| Other                                                      |  |  |                 |   | 28,480     |               |  |  |  |   | 78,260     |  |
|                                                       |  |  |                 |   | 11,749,558 |               |  |  |  |   | 11,623,816 |  |
| Less:accumulatedamortization                               |  |  |                 |   | 2,013,125  |               |  |  |  |   | 1,379,389  |  |
| Net                                                        |  |  |                 |   | 9,736,433  |               |  |  |  |   | 10,244,427 |  |
| Otheridentifiable intangible assets – indefinitelife |  |  |                 |   |       |               |  |  |  |   |       |  |
| Trade names andformulations                                |  |  |                 |   | 3,692,000  |               |  |  |  |   | 3,692,000  |  |
|                                                       |  |  |                 | $ | 13,428,433 |               |  |  |  | $ | 13,936,427 |  |
|                                                            |

Accumulatedamortization consists of thefollowing:

|                          |  |  |                 |   |           |              |  |  |  |   |           |  |
|--------------------------|--|--|-----------------|---|-----------|--------------|--|--|--|---|-----------|--|
|                     |  |  | December31,2006 |   |           | March31,2006 |
| Brands                   |  |  |                 | $ | 110,751   |              |  |  |  | $ | 101,902   |  |
| Trademarks               |  |  |                 |   | 138,584   |              |  |  |  |   | 116,071   |  |
| Rights                   |  |  |                 |   | 1,082,107 |              |  |  |  |   | 668,150   |  |
| Patents                  |  |  |                 |   | 169,583   |              |  |  |  |   | 128,333   |  |
| Distributionrelationship |  |  |                 |   | 286,400   |              |  |  |  |   | 194,133   |  |
| Supplyrelationship       |  |  |                 |   | 225,700   |              |  |  |  |   | 170,800   |  |
| Accumulatedamortization  |  |  |                 | $ | 2,013,125 |              |  |  |  | $ | 1,379,389 |  |
|                          |

Amortizationexpense for the three-months ending December  31,  2006 and2005 was $219,463 and $200,979, respectively, and was $621,465 and$585,059 for the nine-months ended December  31,  2006 and2005, respectively.

On September  1,  2006, theCompany delivered notice to Comans Wholesale Limited that it wasterminating its distribution agreement. As a result of the delivery ofthe notice, the distribution 

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agreement will terminate, as provided for byits terms, as of September  15,  2007. The Company hasadjusted the estimated useful life of the underlying intangible assetto agree to the termination date. The change in estimated useful liferesulted in an additional $22,400 and $30,400 in amortization expensefor the three-months and nine-months ended December  31,2006, respectively.

Estimated aggregate amortization expense foreach of the five succeeding fiscal years is asfollows:

|                                                |  |  |        |   |           |  |
|------------------------------------------------|--|--|--------|---|-----------|--|
| Forthe twelve-month periods ending December31, |  |  | Amount |
| 2007                                           |  |  |        | $ | 826,267   |  |
| 2008                                           |  |  |        |   | 796,571   |  |
| 2009                                           |  |  |        |   | 741,104   |  |
| 2010                                           |  |  |        |   | 741,104   |  |
| 2011                                           |  |  |        |   | 741,104   |  |
| Total                                          |  |  |        | $ | 3,846,150 |  |
|                                                |

NOTE6 — RESTRICTED CASH

In connection with thecredit facilities as described in Note 8, personal guarantees of thetwo former managing directors of CB Ireland and CB-UK in the amount of€158,717 were cancelled and replaced with a deposit ofcash collateral of €300,000, or $362,293 (as translated atthe exchange rate in effect on March  31,  2006). Forpurposes of increasing our creditors insurance in Ireland, this depositof cash collateral has subsequently been increased to€376,935, or $497,667 (as translated at the exchange ratein effect on December  31,  2006)

NOTE 7 —OVERDRAFT ACCOUNTS

CB Ireland and CB-UK maintainoverdraft coverage with a financial institution in Ireland of up to€400,000 ($528,120) and £20,000 ($39,218),respectively. Overdraft balances included in notes payable for theperiods presented totaled $628,051 and $98,327 at December  31,and March  31,  2006, respectively.

NOTE 8 —SENIOR NOTES PAYABLE, NOTES PAYABLE AND CAPITALLEASE

|                                        |  |  |                 |   |            |              |  |  |  |   |            |  |
|----------------------------------------|--|--|-----------------|---|------------|--------------|--|--|--|---|------------|--|
|                                   |  |  | December31,2006 |   |            | March31,2006 |
| Notes payable consist of thefollowing: |  |  |                 |   |       |              |  |  |  |   |       |  |
| Notes payable                          |  |  |                 | $ | 1,084,369  |              |  |  |  | $ | 806,630    |  |
| Seniornotes(A)                         |  |  |                 |   | 9,287,098  |              |  |  |  |   | 4,594,791  |  |
| Subordinatedconvertible notes          |  |  |                 |   | 9,000,000  |              |  |  |  |   | 15,000,000 |  |
| Non-interestbearing notes              |  |  |                 |   | —    |              |  |  |  |   | 1,210,162  |  |
| 9%Promissory note                      |  |  |                 |   | —    |              |  |  |  |   | 2,000,000  |  |
|                                   |  |  |                 |   | 19,471,467 |              |  |  |  |   | 23,611,583 |  |
| Capitallease                           |  |  |                 |   | 9,786      |              |  |  |  |   | 12,395     |  |
| Total                                  |  |  |                 | $ | 19,381,253 |              |  |  |  | $ | 23,623,978 |  |
|                                        |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (A) | OnNovember  10,  2006, CB-USA issued to 11 individuals anaggregate of $5,340,000 of additional senior notes secured by accountsreceivable and inventories of CB-USA. These notes mature on May31,  2009 and bear interest at 9% payable semi-annually.In addition, each holder of senior notes received warrants to purchase40 shares of the Company’s common stock at $8.00 per share foreach $1,000 of additional principal purchased by such holder. Therewere 213,600 warrants issued in conjunction with the issuance of theadditional senior notes. These warrants have been fair valued at$706,944 in the aggregate and have been treated as a discount to thenotes payable based upon their relative fair value. Interest expensepertaining to this discount is recognized, and the notes payableaccreted, over the term of the notes with a maturity of May2009 |

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Principal payments due over the next fiveyears for the above listed notes payable and capital lease are due asfollows (as translated at the exchange rate in effect onDecember  31,2006):

|                    |  |  |                                 |   |            |  |
|--------------------|--|--|---------------------------------|---|------------|--|
|               |  |  | Forthe Period endingDecember31, |
| 2007               |  |  |                                 | $ | 1,088,007  |  |
| 2008               |  |  |                                 |   | 3,825      |  |
| 2009               |  |  |                                 |   | 2,316      |  |
| 2010               |  |  |                                 |   | 12,179,235 |  |
| 2011               |  |  |                                 |   | 6,000,000  |  |
| Total              |  |  |                                 |   | 19,273,383 |  |
| Lesscurrentportion |  |  |                                 |   | 1,088,007  |  |
| Noncurrentportion  |  |  |                                 | $ | 18,185,376 |  |
|                    |

NOTE9 — COMMON STOCK

At March  31,2006, the Company had 3,106,666 common shares outstanding.

OnApril  5,  2006, the Securities and Exchange Commissiondeclared effective the Company’s registration statement on FormS-1 with respect to the Company’s initial public offering. OnApril  10,  2006, 3,500,000 shares of common stock weresold on the Company’s behalf at an initial public offering priceof $9.00 per share.

Net proceeds to the company after payment ofissuance costs not already paid as of April  10,  2006 were$26,533,652, determined asfollows:

|                                          |  |  |  |   |            |  |
|------------------------------------------|--|--|--|---|------------|--|
| Aggregateoffering proceeds to theCompany |  |  |  | $ | 31,500,000 |  |
| Underwritingdiscounts and commissions    |  |  |  |   | 2,205,000  |  |
| Otherfees andexpenses                    |  |  |  |   | 2,761,348  |  |
| Totalexpenses                            |  |  |  |   | 4,966,348  |  |
| Netproceeds to thecompany                |  |  |  | $ | 26,533,652 |  |
|                                          |

TheCompany has received all final invoices and adjustments incurred inconnection with its initial public offering and has paid all balancesin full.

In addition, certain transactions occurred at the timeof the initial public offering and were settled from the net proceedsof such offering:

|  |              |                                                                                                                                 |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Theconversion of all of the Company’s outstanding Series Aconvertible preferred stock into 535,715 shares of commonstock; |

|  |              |                                                                                                                                 |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------|
|  | •  | The conversion of allof the Company’s outstanding Series B convertible preferred stockinto 200,000 shares of commonstock; |

|  |              |                                                                                                                                   |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------|
|  | •  | The conversion of allof the Company’s outstanding Series C convertible preferred stockinto 3,353,748 shares of commonstock; |

|  |              |                                                                                                                               |
|--|--------------|-------------------------------------------------------------------------------------------------------------------------------|
|  | •  | 193,107 shares ofcommon stock were issued in payment of all of the dividends accrued onpreferred stock through April  9,2006; |

|  |              |                                                                                                                                                                                   |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | All of the€1,374,750 ($1,660,148) principal amount of theCompany’s 5% euro denominated convertible subordinatednotes was converted into 263,362 shares of commonstock; |

|  |              |                                                                                                                                                        |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | $6.0  million(40%) of the $15.0  million principal amount of theCompany’s 6% convertible notes was converted into 857,143shares of common stock; |

On November  24,  2006, theCompany issued 100,000 shares of common stock in connection with theacquisition of all of the outstanding capital stock of McLain &Kyne, Ltd.

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At December  31,  2006, theCompany had 12,109,741 common shares outstanding.

NOTE 10— FOREIGN CURRENCY FORWARD CONTRACTS

The Companyenters into forward contracts to attempt to limit its exposure toforeign currency fluctuations. The Company recognizes in the balancesheet derivative contracts at fair value, and reflects any net gainsand losses currently in earnings. At March  31,  2006, theCompany held outstanding forward exchange positions for the purchase ofeuros, expiring through July  2006, in the amount of $723,700with a weighted average conversion rate of €1 = $1.2062 ascompared to the spot rate at March  31,  2006 of€1 = $1.2076. At December  31,  2006, theCompany held outstanding forward exchange positions for the purchase ofeuros, expiring through January  2006, in the amount of $467,250with a weighted average conversion rate of €1 = $1.3550 ascompared to the spot rate at December  31,  2006 of€1 = $1.3203. Gain or loss on foreign transactions, whichwas de minimus, is included in other income and expense.

NOTE 11— PROVISION FOR INCOME TAXES

The Company’sincome tax benefit for the three-month and nine-month periods endedDecember  31,  2006 and 2005 consists of federal and stateand local taxes attributable to Gosling-Castle Partners Inc.(‘‘GCP’’) which does not file aconsolidated income tax return with the Company. In connection with theinvestment in GCP, the Company recorded a deferred tax liability on theascribed value of the acquired intangible assets of $2,222,222,increasing the value of the asset. The deferred tax liability is beingreversed and a deferred tax benefit is being recognized over theamortization period of the intangible asset (15 years). For thethree-months ended December  31,  2006 and 2005, theCompany recognized $37,033 and $37,037 of deferred tax benefits,respectively, and $111,109 and $111,113 for the nine-months endedDecember  31,  2006 and 2005, respectively.

OnDecember  1,  2003, the Company recorded a deferred taxliability of $629,444 as the amount ascribed to the difference betweenthe book and tax basis of the tangible and intangible assets acquiredas additional goodwill.

NOTE 12 — STOCK OPTIONS ANDWARRANTS

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | A.  | StockOptions – In July  2003, the Company implemented the2003 Stock Incentive Plan (‘‘the Plan’’)which provides for awards of incentive and non-qualified stock options,restricted stock and stock appreciation rights for its officers,employees, consultants and directors in order to attract and retainsuch individuals who contribute to the Company’s success by theirability, ingenuity and industry knowledge, and to enable suchindividuals to participate in the long-term success and growth of theCompany by giving them an equity interest in the Company. There are2,000,000 common shares reserved and available for distribution underthe Plan. In January  2004, the Board of Directors approved thePlan and the grant of 553,000 options to its full-time U.S. andinternational employees at an exercise price of $6.00 per share. Theseoptions vest over a four or five year period and expire ten years afterthe grant date. |

In connection with the Company’sacquisition of CB Ireland and CB-UK, the Company granted to anindividual the option to purchase up to 10,000 shares of common stockat an exercise price of $6.00 per share at any time throughNovember  30,  2013.

Stock-basedcompensation expense recognized in the Statement of for the three-monthand nine-month periods ended December  31,  2006 amountedto $285,981 and $1,057,396, respectively. There were no optionsexercised under all share-based payment arrangements for thenine-months ended December  31,  2006.

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A summary of the optionsoutstanding under the stock option plan is asfollows:

|                                                                |  |  |                              |  |           |                              |  |  |        |   |         |                              |  |  |  |  |         |  |  |  |  |   |         |  |
|----------------------------------------------------------------|--|--|------------------------------|--|-----------|------------------------------|--|--|--------|---|---------|------------------------------|--|--|--|--|---------|--|--|--|--|---|---------|--|
|                                                           |  |  | Nine-monthsended December31, |
|                                                           |  |  | 2006                         |  |           | 2005                         |
|                                                           |  |  | Shares                       |  |           | WeightedAverageExercisePrice |  |  | Shares |   |         | WeightedAverageExercisePrice |
| Outstandingat beginning ofperiod                               |  |  |                              |  | 888,500   |                              |  |  |        | $ | 6.82    |                              |  |  |  |  | 745,500 |  |  |  |  | $ | 6.47    |  |
| Granted                                                        |  |  |                              |  | 540,000   |                              |  |  |        |   | 8.18    |                              |  |  |  |  | 170,000 |  |  |  |  |   | 8.00    |  |
| Forfeited                                                      |  |  |                              |  | —   |                              |  |  |        |   | — |                              |  |  |  |  | — |  |  |  |  |   | — |  |
| Exercised                                                      |  |  |                              |  | —   |                              |  |  |        |   | — |                              |  |  |  |  | — |  |  |  |  |   | — |  |
| Outstandingat end ofperiod                                     |  |  |                              |  | 1,428,500 |                              |  |  |        |   | 7.09    |                              |  |  |  |  | 915,500 |  |  |  |  |   | 6.76    |  |
| Optionsexercisable at periodend                                |  |  |                              |  | 416,467   |                              |  |  |        | $ | 6.65    |                              |  |  |  |  | 188,533 |  |  |  |  | $ | 6.34    |  |
| Weightedaverage fair value of options granted during theperiod |  |  |                              |  |      |                              |  |  |        | $ | 3.67    |                              |  |  |  |  |    |  |  |  |  | $ | 3.05    |  |
|                                                                |

Thefollowing table represents information relating to stock optionsoutstanding at December  31,2006:

|           |  |  |                               |   |        |                                        |  |  |        |  |        |                              |  |  |                         |  |         |  |  |  |  |   |        |  |  |  |  |   |           |  |
|-----------|--|--|-------------------------------|---|--------|----------------------------------------|--|--|--------|--|--------|------------------------------|--|--|-------------------------|--|---------|--|--|--|--|---|--------|--|--|--|--|---|-----------|--|
|      |  |  | OptionsOutstanding            |   |        | OptionsExercisable                     |  |  |   |
| Shares    |  |  | WeightedAverage ExercisePrice |   |        | Weighted AverageRemaining Life inYears |  |  | Shares |  |        | WeightedAverageExercisePrice |  |  | AggregateIntrinsicValue |
| 100,000   |  |  |                               | $ | 5.87   |                                        |  |  |        |  | 9.94   |                              |  |  |                         |  | — |  |  |  |  | $ | 5.87   |  |  |  |  | $ | 427,000   |  |
| 522,000   |  |  |                               |   | 6.00   |                                        |  |  |        |  | 7.15   |                              |  |  |                         |  | 260,867 |  |  |  |  |   | 6.00   |  |  |  |  |   | 1,153,860 |  |
| 200,000   |  |  |                               |   | 7.23   |                                        |  |  |        |  | 9.45   |                              |  |  |                         |  | 50,000  |  |  |  |  |   | 7.23   |  |  |  |  |   | 1,054,000 |  |
| 100,000   |  |  |                               |   | 7.73   |                                        |  |  |        |  | 9.51   |                              |  |  |                         |  | — |  |  |  |  |   | 7.73   |  |  |  |  |   | 570,000   |  |
| 366,500   |  |  |                               |   | 8.00   |                                        |  |  |        |  | 8.21   |                              |  |  |                         |  | 105,600 |  |  |  |  |   | 8.00   |  |  |  |  |   | 1,117,425 |  |
| 140,000   |  |  |                               |   | 9.00   |                                        |  |  |        |  | 9.28   |                              |  |  |                         |  | — |  |  |  |  |   | 9.00   |  |  |  |  |   | 922,600   |  |
| 1,428,500 |  |  |                               |   |   |                                        |  |  |        |  |   |                              |  |  |                         |  | 416,467 |  |  |  |  |   |   |  |  |  |  | $ | 5,244,885 |  |
|           |

Asof December  31,  2006, the total stock options outstandingwere 1,428,500. The weighted average exercise price of these optionswas $7.09. The weighted average remaining life of the optionsoutstanding and exercisable was 8.31 and 7.69, respectively. Totalstock options exercisable as of December  31,  2006 were416,467. The weighted average exercise price of these options was$6.65.

The fair value of options at date of grant was estimatedusing the Black-Scholes option-pricing model utilizing the followingassumptions:

|                                |  |  |                 |  |                                   |               |  |  |  |  |                                   |   |
|--------------------------------|--|--|-----------------|--|-----------------------------------|---------------|--|--|--|--|-----------------------------------|---|
|                           |  |  | December31,2006 |  |                                   | March 31,2006 |
| Risk-freeinterestrates         |  |  |                 |  | 4.44  -  5.19 | %             |  |  |  |  | 4.37  -  4.43 | % |
| Expectedoptions life inyears   |  |  |                 |  | 7.00                              |               |  |  |  |  | 7.00                              |   |
| Expected stock pricevolatility |  |  |                 |  | 75                                | %             |  |  |  |  | 25                                | % |
| Expecteddividendyield          |  |  |                 |  | 0                                 | %             |  |  |  |  | 0                                 | % |
|                                |

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The following summarizes the activity ofthe Company’s stock options that have not vested for thethree-months and nine-months ended December  31,2006:

|                               |  |  |        |  |           |                               |  |  |  |   |         |  |
|-------------------------------|--|--|--------|--|-----------|-------------------------------|--|--|--|---|---------|--|
|                          |  |  | Shares |  |           | WeightedAverageExercise Price |
| Nonvested at April1,2006      |  |  |        |  | 586,733   |                               |  |  |  | $ | 7.02    |  |
| Granted                       |  |  |        |  | 340,000   |                               |  |  |  |   | 7.96    |  |
| Canceledorexpired             |  |  |        |  | —   |                               |  |  |  |   | — |  |
| Vested                        |  |  |        |  | (103,500  | )                             |  |  |  |   | 7.32    |  |
| Nonvestedat June  30,2006     |  |  |        |  | 823,233   |                               |  |  |  |   | 7.37    |  |
| Granted                       |  |  |        |  | 200,000   |                               |  |  |  |   | 6.80    |  |
| Canceledorexpired             |  |  |        |  | —   |                               |  |  |  |   | — |  |
| Vested                        |  |  |        |  | (11,200   | )                             |  |  |  |   | 8.00    |  |
| Nonvestedat December  31,2006 |  |  |        |  | 1,012,033 |                               |  |  |  | $ | 7.25    |  |
|                               |

Asof December  31,  2006, there was $3,480,225 of totalunrecognized compensation cost related to nonvested share-basedcompensation arrangements granted under existing stock option plans.This cost is expected to be recognized over a weighted-average periodof 8.50 years. The total fair value of shares vested during thethree-months and nine-months ended December  31,  2006 was$24,720 and $462,701, respectively.

The Company did not recognizeany tax benefit for the three and nine-month periods endedDecember  31,  2006 due to the full valuation allowance onits deferred tax assets.

|  |          |                                                                               |
|--|----------|-------------------------------------------------------------------------------|
|  | B.  | StockWarrants – The Company has entered into various warrantagreements. |

Common Stock Warrants Issued to SeniorNote Holders

In connection with the issuance of thesenior notes in November  2006, the Company entered into awarrant agreement to grant the right to purchase 213,600 shares of theCompany’s common stock at an exercise price of $8.00 per share atany time through May  31,  2009. These warrants wererecorded at fair value and accounted for as a discount of the facevalue of the senior notes and a credit to additional paid-in capital of$706,944 based upon their relative fair value. This discount will berecognized over the adjusted term of the senior notes with a charge tointerest expense and a credit to senior notes payable. For thethree-months ended December  31,  2006 the Company recorded$43,807 of additional senior note accretion as additional interestexpense.

Common Stock Warrants Issued to FinancialAdvisor

In July  2005, the Company granted toa financial advisor warrants to purchase up to 100,000 shares of commonstock at $8.00 per share. The warrants are subject to anti-dilutionprovisions, such as stock splits and stock dividends, and vested uponthe completion of the initial public offering in April  2006. TheCompany fair valued the warrant at $283,727 and recorded a charge uponvesting. The charge is included in interest expense on the accompanyingcondensed consolidated statements of operations.

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The following is a summary of thecompany’s outstandingwarrants:

|                                        |  |  |          |  |         |                                           |  |  |  |   |         |  |
|----------------------------------------|--|--|----------|--|---------|-------------------------------------------|--|--|--|---|---------|--|
|                                   |  |  | Warrants |  |         | WeightedAverage Exercise Price PerWarrant |
| Warrants outstanding, March31,2006     |  |  |          |  | 598,618 |                                           |  |  |  | $ | 7.67    |  |
| Granted                                |  |  |          |  | 213,600 |                                           |  |  |  |   | 8.00    |  |
| Exercised                              |  |  |          |  | — |                                           |  |  |  |   | — |  |
| Forfeited                              |  |  |          |  | — |                                           |  |  |  |   | — |  |
| Warrantsoutstanding, December  31,2006 |  |  |          |  | 812,218 |                                           |  |  |  | $ | 7.75    |  |
| Warrantsexercisable, December  31,2006 |  |  |          |  | 812,218 |                                           |  |  |  | $ | 7.75    |  |
|                                        |

NOTE13 — RELATED PARTYTRANSACTIONS

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | A.  | The Company isoperating under an agreement with MHW, Ltd.(‘‘MHW’’) whereby MHW acts as theCompany’s agent in the distribution of its products across theUnited States. MHW’s president also serves as a director of theCompany and has a de minimis indirect ownership interest in theCompany. In addition, MHW has a 10% ownership interest in theCeltic Crossing brand, one of the Company’s products, in theUnited States and its territories, Canada, Mexico, and theCaribbean. |

Pursuant to the MHW distribution agreement,MHW receives sales orders from the Company’s domestic wholesalersat prices agreed upon with the Company. MHW simultaneously purchasesCompany inventory necessary to fill those orders and ships thatinventory to the various wholesalers. MHW then invoices, collects, anddeposits remittances from those wholesalers into an MHW bank accountdesignated for the Company. The funds are remitted to the Company on abi-weekly basis. Although MHW is responsible for the billing function,the collected funds are the property of the Company and MHW is notliable to the Company for any unpaid balances due fromwholesalers.

In addition to the distribution servicesprovided for the Company, MHW also provides administrative and supportservices on behalf of the Company. For the three-months endedDecember  31,  2006 and 2005, aggregate charges recordedfor all services provided were approximately $71,033 and $39,352,respectively and were $195,391 and $154,818 for the nine-months endedDecember  31,  2006 and 2005, respectively. These chargeshave been included in general and administrative expenses on theaccompanying condensed consolidated statements ofoperations.

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | B.  | The Company hastransactions with Knappogue Corp., a shareholder in the Company.Knappogue Corp. is controlled by the Company’s CEO and hisfamily. The transactions primarily involved rental fees for use ofKnappogue Corp.’s interest in the Knappogue Castle for variouscorporate purposes including Company meetings and to entertaincustomers. For the three-months ended December  31,  2006and 2005, the Company recognized $10,000 and $3,478, respectively, andrecognized $15,000 and $11,018 for the nine-months endedDecember  31,  2006 and 2005,respectively. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | C.  | In April2004, the Company contracted with BPW, Ltd., for business developmentservices including providing introductions for the Company to agencybrands that would enhance the Company’s portfolio of products andassisting the Company in successfully negotiating agency agreementswith targeted brands. BPW, Ltd. is controlled by a director of theCompany. The contract provides for a monthly retainer to BPW, Ltd. of$3,500, a bonus payable to BPW Ltd. in equal quarterly installmentsupon the finalization of an agency brand agreement based upon estimatedannual case sales by the Company during the first year of operations atthe rate of $1 per 9-liter case of volume, less any retainer previouslypaid, and a commission based upon actual future sales of the agencybrand while under the Company’s management. |

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|  |        |                                                                                                                                                                                                                                                                                                                                |
|--|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |   | This contract is cancelable by either party,at their convenience, upon 30 days written notice. For the three-monthsended December  31,  2006 and 2005, the Company recognized$10,772 and $10,500, respectively and $33,318 and $33,500 for thenine-months ended December  31,  2006 and 2005,respectively, under thiscontract. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | D.  | For the three-monthsended December  31,  2006 and 2005, and for the nine-monthsended December  31,  2006 and 2005, the Company purchasedgoods and services from Terra Manufacturing Limited(‘‘Terra’’) and Carbery Milk ProductsLimited (‘‘Carbery’’) of approximately$932,325 and $1,655,922, respectively, and $1,824,851 and $2,792,867respectively. The Company had assumed the underlying supplieragreements with Terra and Carbery from CB-Ireland. Terra’saffiliate, Tanis Investments, and Carbery are both shareholders in theCompany. As of December  31,  2006 and 2005, the Companywas indebted to these two affiliates in the amount of approximately$893,221 and $879,618 respectively, which is included in due tostockholders and affiliates on the accompanying condensed consolidatedbalance sheet. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | E.  | For thethree-months ended December  31,  2006 and 2005, theCompany made royalty payments of approximately $10,936 and $8,874,respectively, and for the nine-months ended December  31,2006 and 2005 it made royalty payments of $29,912 and $27,528,respectively, for use of a patent, to an entity that is owned by twostockholders in the Company. These charges have been included in otherexpense on the accompanying consolidated statements of operations. Theroyalty agreement also includes the right to acquire the patent for theTrinity Bottle for €90,000 ($118,827) for the duration ofthe licensing period, which expires on December  1,2008. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | F.  | In February andAugust  2005, the Company executed agreements with the twoCo-Managing Directors of CB Ireland whereby, effective March11,  2005 and December  1,  2005, respectively, eachindividual resigned his position in CB Ireland in exchange for aconsultancy agreement consisting of fifteen monthly payments totaling€196,875, plus Value Added Tax(‘‘VAT’’). The balance due, net of paymentsmade, was $61,448 and $256,925 at December  31, and March31,  2006, respectively. In addition, under the terms of theseagreements, the stock options of these individuals were deemed to haveaccrued two years’ vesting at the end of the consultancy period,the exercise period for their stock options was extended toDecember  1,  2008, and the Company agreed to pay off theoutstanding balance of their 5% Convertible Subordinated Notes,each dated December  1,  2003, and each in the amount of€465,550 and their Subordinated Note, each datedDecember  1,  2003, and each in the amount of€133,323 at the earlier of one month following thecompletion of the Company’s initial public offering or in fourquarterly installments beginning January  1,  2006. TheCompany paid the outstanding balance on each of these subordinatednotes in the amount of $159,961 on April  19,  2006. TheCompany also reimbursed these individuals the legal fees incurred inconnection with their consultancy agreements in the amounts of€8,000 and €5,000, respectively, plus VAT.For the three-months and nine-months ended December  31,2006 and 2005, the Company made payments of $61,439 and $47,335,respectively and $194,013 and $155,452, respectively, pursuant to theseagreements. In September  2005, the Company consented to the saleof the 5% Convertible Notes held by the two Co-ManagingDirectors of CB Ireland and shares of common stock held by one of theCo-Managing Directors to third parties. |

NOTE 14 —COMMITMENTS ANDCONTINGENCIES

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | A.  | The Companyhas entered into a supply agreement with Irish Distillers Limited(‘‘Irish Distillers’’), which provides forthe production of Irish whiskeys for the Company through 2014, subjectto automatic five year extensions thereafter. Under this agreement, theCompany is obligated to notify Irish Distillers annually of the amountof liters of pure alcohol it requires for the current year andcontracts to purchase that amount. For the |

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|  |        |                                                                                                                                                                                                                                                                                                                                                |
|--|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |   | calendar year ended December31,  2006, the Company has contracted to purchase approximately€654,746 in bulk Irish whiskey. The Company is not liableto Irish Distillers for any product not yet received. During the termof this supply agreement Irish Distillers has the right to limitadditional purchases above the commitmentamount. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | B.  | The Company subleasesoffice space in Dublin, Ireland and New York, NY and leases officespace in Houston, TX and Louisville, KY. The Dublin office leasecommenced on June  1,  2004 and extends throughFebruary  28,  2009. Rent is payable quarterly in advance.The New York City lease commenced on August  15,  2004 andextends through March  30,  2008. The Houston leasecommenced on February  24,  2000 and extends throughMarch  31,  2007. The Louisville lease commencedJune  1,  2004, became effective for the Company concurrentwith the acquisition of McLain & Kyne, Ltd., and expires May31,  2009. The Company has also entered into non-cancelableoperating leases for certain office equipment. |

Futureminimum lease payments are asfollows:

|                                 |  |  |        |   |         |  |
|---------------------------------|--|--|--------|---|---------|--|
| Forthe years ending December31, |  |  | Amount |
| 2007                            |  |  |        | $ | 315,943 |  |
| 2008                            |  |  |        |   | 84,845  |  |
| 2009                            |  |  |        |   | 12,004  |  |
| 2010                            |  |  |        |   | — |  |
| Total                           |  |  |        | $ | 412,792 |  |
|                                 |

Inaddition to the above annual rental payments, the Company is obligatedto pay its pro-rata share of utility and maintenance expenses on theleased premises. Rent expense under operating leases amounted toapproximately $107,776 and $92,091 for the three-months endedDecember  31,  2006 and 2005, respectively, and $305,759and $276,241 for the nine-months ended December  31,  2006and 2005, respectively, and is included in general and administrativeexpense on the accompanying condensed consolidated statements ofoperations.

|  |          |                                                                                                                                                                                                                                                                                                                          |
|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | C.  | Pursuant to acomposite inter-company guarantee in the amount of€860,000 ($1,135,458) completed in February  2005between the Company, Castle Brands Spirits Company Limited and CastleBrands Spirits (GB) Limited, the Company has guaranteed the loans fromUlster Bank to the Company’s Europeansubsidiaries. |

|  |          |                                                                                                                                                                   |
|--|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | E.  | The Company issubject to strict federal and state government regulations associatedwith the marketing, import, warehouse, transport, and distributions ofspirits. |

NOTE 15 — CONCENTRATION OF CREDITRISK

The Company maintains its cash balances at variouslarge financial institutions that, at times, may exceed federally andinternationally insured limits. As of December  31, andMarch  31,  2006, the Company exceeded the insured limit byapproximately $11,100,000 and $1,300,000, respectively. Managementbelieves the Company is not exposed to any significant credit riskbecause the institutions are international money center bankinginstitutions with strong financial positions.

|                       |                                                                                            |
|-----------------------|--------------------------------------------------------------------------------------------|
| NOTE 16 —  | GOSLING-CASTLE PARTNERS INC. EXPORT AGREEMENTWITH GOSLING’S EXPORT (BERMUDA) LIMITED |

InFebruary  2005, Gosling-Castle Partners Inc. secured the GXBglobal distribution rights under an Export Agreement (the‘‘Agreement’’) with GXB. This agreementcalled for GCP to pay $2,500,000 to GXB for the assignment of itsglobal distribution rights (except Bermuda) in four equal installmentsat April  1,  2005, October  1,  2005,April  1,  2006 and October  1,  2006. Allpayments have been made in full as of December  31,2006.

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NOTE 17 — GEOGRAPHICINFORMATION

The Company operates in one business –premium branded spirits. The Company’s product categories arevodka, rum, liqueurs/cordials, and whiskey. The Company reports itsoperations in two geographic areas: International and UnitedStates.

The consolidated financial statements include revenuesand assets generated in or held in foreign countries. The followingtable sets forth the percentage of consolidated revenue from continuingoperations and consolidated assets from foreigncountries.

|                                                |  |  |                                        |   |            |                                      |  |  |      |  |        |      |  |  |  |   |           |  |  |  |  |  |        |   |  |  |  |   |            |  |  |  |  |  |        |   |  |  |  |   |            |  |  |  |  |  |        |   |
|------------------------------------------------|--|--|----------------------------------------|---|------------|--------------------------------------|--|--|------|--|--------|------|--|--|--|---|-----------|--|--|--|--|--|--------|---|--|--|--|---|------------|--|--|--|--|--|--------|---|--|--|--|---|------------|--|--|--|--|--|--------|---|
|                                           |  |  | Forthe three-months ended December 31, |   |            | For the nine-monthsended December31, |
|                                           |  |  | 2006                                   |   |            | 2005                                 |  |  | 2006 |  |        | 2005 |
| ConsolidatedRevenue:                           |  |  |                                        |   |       |                                      |  |  |      |  |   |      |  |  |  |   |      |  |  |  |  |  |   |   |  |  |  |   |       |  |  |  |  |  |   |   |  |  |  |   |       |  |  |  |  |  |   |   |
| International                                  |  |  |                                        | $ | 3,058,076  |                                      |  |  |      |  | 41.4   | %    |  |  |  | $ | 3,317,532 |  |  |  |  |  | 45.1   | % |  |  |  | $ | 6,910,260  |  |  |  |  |  | 36.2   | % |  |  |  | $ | 6,785,541  |  |  |  |  |  | 38.9   | % |
| UnitedStates                                   |  |  |                                        |   | 4,322,529  |                                      |  |  |      |  | 58.6   | %    |  |  |  |   | 4,041,749 |  |  |  |  |  | 54.9   | % |  |  |  |   | 12,182,812 |  |  |  |  |  | 63.8   | % |  |  |  |   | 10,665,278 |  |  |  |  |  | 61.1   | % |
| TotalConsolidatedRevenue                       |  |  |                                        | $ | 7,380,605  |                                      |  |  |      |  | 100    | %    |  |  |  | $ | 7,359,281 |  |  |  |  |  | 100    | % |  |  |  | $ | 19,093,072 |  |  |  |  |  | 100    | % |  |  |  | $ | 17,450,819 |  |  |  |  |  | 100    | % |
| ConsolidatedDepreciation andAmortization       |  |  |                                        |   |       |                                      |  |  |      |  |   |      |  |  |  |   |      |  |  |  |  |  |   |   |  |  |  |   |       |  |  |  |  |  |   |   |  |  |  |   |       |  |  |  |  |  |   |   |
| International                                  |  |  |                                        | $ | 20,235     |                                      |  |  |      |  | 7.7    | %    |  |  |  | $ | 17,275    |  |  |  |  |  | 7.4    | % |  |  |  | $ | 58,530     |  |  |  |  |  | 7.9    | % |  |  |  | $ | 56,811     |  |  |  |  |  | 8.4    | % |
| UnitedStates                                   |  |  |                                        |   | 242,691    |                                      |  |  |      |  | 92.3   | %    |  |  |  |   | 215,645   |  |  |  |  |  | 92.6   | % |  |  |  |   | 684,684    |  |  |  |  |  | 92.1   | % |  |  |  |   | 617,937    |  |  |  |  |  | 91.6   | % |
| TotalConsolidated Depreciation andAmortization |  |  |                                        | $ | 262,926    |                                      |  |  |      |  | 100    | %    |  |  |  | $ | 232,920   |  |  |  |  |  | 100    | % |  |  |  | $ | 743,214    |  |  |  |  |  | 100    | % |  |  |  | $ | 674,748    |  |  |  |  |  | 100    | % |
| IncomeTaxBenefit                               |  |  |                                        |   |       |                                      |  |  |      |  |   |      |  |  |  |   |      |  |  |  |  |  |   |   |  |  |  |   |       |  |  |  |  |  |   |   |  |  |  |   |       |  |  |  |  |  |   |   |
| UnitedStates                                   |  |  |                                        | $ | 37,033     |                                      |  |  |      |  | 100    | %    |  |  |  | $ | 37,037    |  |  |  |  |  | 100    | % |  |  |  | $ | 111,109    |  |  |  |  |  | 100    | % |  |  |  | $ | 111,113    |  |  |  |  |  | 100    | % |
| RevenuesbyCategory:                            |  |  |                                        |   |       |                                      |  |  |      |  |   |      |  |  |  |   |      |  |  |  |  |  |   |   |  |  |  |   |       |  |  |  |  |  |   |   |  |  |  |   |       |  |  |  |  |  |   |   |
| Vodka                                          |  |  |                                        | $ | 2,945,816  |                                      |  |  |      |  | 39.9   | %    |  |  |  | $ | 3,371,104 |  |  |  |  |  | 45.8   | % |  |  |  | $ | 6,807,968  |  |  |  |  |  | 35.7   | % |  |  |  | $ | 6,691,030  |  |  |  |  |  | 38.3   | % |
| Rum                                            |  |  |                                        |   | 1,669,504  |                                      |  |  |      |  | 22.6   | %    |  |  |  |   | 1,406,738 |  |  |  |  |  | 19.1   | % |  |  |  |   | 5,614,389  |  |  |  |  |  | 29.4   | % |  |  |  |   | 4,844,503  |  |  |  |  |  | 27.8   | % |
| Liqueurs/Cordials                              |  |  |                                        |   | 1,413,295  |                                      |  |  |      |  | 19.2   | %    |  |  |  |   | 1,381,267 |  |  |  |  |  | 18.8   | % |  |  |  |   | 3,793,007  |  |  |  |  |  | 19.9   | % |  |  |  |   | 3,275,700  |  |  |  |  |  | 18.8   | % |
| Whiskey                                        |  |  |                                        |   | 1,301,652  |                                      |  |  |      |  | 17.6   | %    |  |  |  |   | 1,045,852 |  |  |  |  |  | 14.2   | % |  |  |  |   | 2,722,324  |  |  |  |  |  | 14.3   | % |  |  |  |   | 2,468,714  |  |  |  |  |  | 14.2   | % |
| Other*                                         |  |  |                                        |   | 50,338     |                                      |  |  |      |  | 0.7    | %    |  |  |  |   | 154,320   |  |  |  |  |  | 2.1    | % |  |  |  |   | 155,384    |  |  |  |  |  | 0.7    | % |  |  |  |   | 170,872    |  |  |  |  |  | 0.9    | % |
| TotalConsolidatedRevenue                       |  |  |                                        | $ | 7,380,605  |                                      |  |  |      |  | 100    | %    |  |  |  | $ | 7,359,281 |  |  |  |  |  | 100.0  | % |  |  |  | $ | 19,093,072 |  |  |  |  |  | 100    | % |  |  |  | $ | 17,450,819 |  |  |  |  |  | 100.0  | % |
| ConsolidatedAssets:                            |  |  |                                        |   |       |                                      |  |  |      |  |   |      |  |  |  |   |      |  |  |  |  |  |   |   |  |  |  |   |       |  |  |  |  |  |   |   |  |  |  |   |       |  |  |  |  |  |   |   |
| International                                  |  |  |                                        | $ | 6,900,484  |                                      |  |  |      |  | 11.5   | %    |  |  |  |   |      |  |  |  |  |  |   |   |  |  |  |   |       |  |  |  |  |  |   |   |  |  |  |   |       |  |  |  |  |  |   |   |
| UnitedStates                                   |  |  |                                        |   | 53,295,905 |                                      |  |  |      |  | 88.5   | %    |  |  |  |   |      |  |  |  |  |  |   |   |  |  |  |   |       |  |  |  |  |  |   |   |  |  |  |   |       |  |  |  |  |  |   |   |
| TotalConsolidatedAssets                        |  |  |                                        | $ | 60,196,389 |                                      |  |  |      |  | 100.0  | %    |  |  |  |   |      |  |  |  |  |  |   |   |  |  |  |   |       |  |  |  |  |  |   |   |  |  |  |   |       |  |  |  |  |  |   |   |
|                                                |

|  |
|--|
|  |  |
|  |

|   |                                |
|---|--------------------------------|
| * | Includesrelated food products. |

NOTE 18 — SUBSEQUENTEVENTS

On February  12,  2007, we entered intoa credit agreement with Frost Nevada Investments Trust, which iscontrolled by Dr.  Phillip  Frost, one of our directors,which enables us to borrow up to $5.0  million. We do notpresently anticipate borrowing any advances under this credit facility.Any amounts outstanding under the credit facility bears interest at arate of 9% per annum. Interest is payable quarterly. Thematurity date of any amounts outstanding is the earlier of one businessday after the closing of a financing transaction which results in grossproceeds to the Company of at least $15,000,000 and February28,  2008.

Upon entering into the credit agreement, wepaid the lender a facility fee of $150,000. If we draw down on thecredit facility, upon receiving our first advance, we would have to paythe lender an additional facility fee of $200,000.

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An event of default under the creditfacility occurs if we (a) fail to make payment of principal or intereston the maturity date, (b) fail to make payment of any fees or quarterlyinterest payments when due and after 10 business days of prior writtennotice to us by the lender of the failure to pay, (c) breach theaffirmative covenants contained in the credit agreement and fail tocure the breach generally within 30 days of the breach or (d) becomeinsolvent or begin an insolvency proceeding or one is begun against usand is not dismissed or stayed within 90 days. If an event of defaultoccurs, the lender could declare all principal and interest immediatelydue and payable and the interest rate will increase by 200 basis pointsabove the current interest rate.

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Item2.    Management’s Discussion and Analysis of FinancialCondition and Results of Operations

This Quarterly Report onForm 10-Q includes statements of our expectations, intentions plans andbeliefs that constitute ‘‘forward-lookingstatements’’ within the meaning of Section 27A of theSecurities Act of 1933 and Section 21E of the Securities Exchange Actof 1934 and are intended to come within the safe harbor protectionprovided by those sections. These statements, which involve risks anduncertainties, relate to the discussion of our business strategies andour expectations concerning future operations, margins, profitability,liquidity and capital resources and to analyses and other informationthat are based on forecasts of future results and estimates of amountsnot 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 andphrases, including references to assumptions, in this report toidentify forward-looking statements. These forward-looking statementsare made based on expectations and beliefs concerning future eventsaffecting us and are subject to uncertainties, risks and factorsrelating to our operations and business environments, all of which aredifficult to predict and many of which are beyond our control, thatcould cause our actual results to differ materially from those mattersexpressed or implied by these forward-looking statements. These risksand other factors include, without limitation, our history of lossesand expectation of further losses; the effect of poor operating resultson our company; the effect of growth on our infrastructure, resources,and existing sales; our ability to expand our operations in both newand existing markets and our ability to develop or acquire new brands;the impact of supply shortages and alcohol and packaging costs ingeneral; our ability to raise capital; our ability to fully utilize andretain new executives; negative publicity surrounding our products orthe consumption of beverage alcohol products in general; our ability toacquire and/or maintain brand recognition and acceptance; trends inconsumer tastes; our ability to protect trademarks and otherproprietary information; the impact of litigation; the impact offederal, state, local or foreign government regulations; the effect ofcompetition in our industry; and economic and political conditionsgenerally; and the other factors listed under the caption‘‘Risk Factors’’ in our Annual Report onForm 10-K for the year ended March  31,  2006 and elsewherein this report.

We assume no obligation to publicly update orrevise these forward-looking statements for any reason, or to updatethe reasons actual results could differ materially from thoseanticipated in, or implied by, these forward-looking statements, evenif new information becomes available in the future.

The followinginformation should be read in conjunction with‘‘Management’s Discussion and Analysis of FinancialCondition and Results of Operations’’ and theconsolidated financial statements and related notes included in ourAnnual Report on Form 10-K for the year ended March  31,2006, as well as in conjunction with the condensed consolidatedfinancial statements and related notes appearing elsewhere in this Form10-Q.

Overview

We develop and market premium brandedspirits in several growing market categories, including vodka, rum,Irish whiskey, liqueurs/cordials and bourbon. We distribute thesespirits in all 50 U.S. states and the District of Columbia, in six keyinternational markets: Ireland, Great Britain, Germany, France, Italyand Canada, and in a number of other countries in continental Europe.Our brands include, among others, Boru vodka, Gosling’s rums,Knappogue Castle Whiskey and the Pallini liqueurs.

Our currentgrowth strategy focuses on: (a) aggressive brand development toencourage case sale and revenue growth of our existing portfolio ofbrands through significant investment in sales and marketingactivities, including advertising, promotion and direct sales personnelexpense; and (b) the selective addition of complementary premium brandsthrough a combination of strategic initiatives, including acquisitions,joint ventures and long-term exclusive distributionarrangements.

For the three-months ended December31,  2006, our total net sales remained flat at $7.4million when compared to the comparable prior year period. Current yearnet sales were impacted by a change in sales mix and a movement towardsdirect import shipments into the U.S., whereby federal 

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excise taxes are paid directly by thedistributor, resulting in lower revenue per case. While this may resultin reduced top-line revenue growth, we believe that increased ordersfor container sized direct imports are a strong indication of both thegrowth of our brands and the expansion of our distributionpipeline.

In the same period, selling expense increased$1.0  million, to $4.6  million, representing a27.2% increase when compared against $3.6  million in thecomparable prior year period, due primarily to volume driven increasesin distributor incentives, sales support expense, selling relatedshipping costs and sales commissions as well as billboard and printmedia advertising expenses pertaining to a recent Gosling’s rumadvertising campaign.

General and administrative expenseincreased $0.4  million, or 26.7%, to $2.1  millionfor the three-months ended December  31,  2006 versus$1.7  million in the comparable prior year period primarily dueto increased costs incurred in connection with our change in status toa public company, as well as increases in compensation expense,including stock-based compensation, our D&O liability insuranceexpense and travel and entertainment expenses. Depreciation andamortization remained approximately the same as the comparable periodin 2005.

Case Sales

The following table setsforth certain information regarding our case sales for the three-andnine-month periods ended December  31,  2006 and 2005. Thedata in the following table is based on nine-liter equivalent cases,which is a standard spirits industrymetric.

|                   |  |  |                                |  |        |                               |  |  |      |  |        |      |  |  |  |  |         |   |  |  |  |  |         |   |
|-------------------|--|--|--------------------------------|--|--------|-------------------------------|--|--|------|--|--------|------|--|--|--|--|---------|---|--|--|--|--|---------|---|
|              |  |  | Three-monthsEnded December 31, |  |        | Nine-months Ended December31, |
| CaseSales         |  |  | 2006                           |  |        | 2005                          |  |  | 2006 |  |        | 2005 |
| Cases             |  |  |                                |  |   |                               |  |  |      |  |   |      |  |  |  |  |    |   |  |  |  |  |    |   |
| UnitedStates      |  |  |                                |  | 48,593 |                               |  |  |      |  | 45,128 |      |  |  |  |  | 139,230 |   |  |  |  |  | 119,100 |   |
| International     |  |  |                                |  | 43,089 |                               |  |  |      |  | 41,315 |      |  |  |  |  | 103,065 |   |  |  |  |  | 99,228  |   |
| Total             |  |  |                                |  | 91,682 |                               |  |  |      |  | 86,443 |      |  |  |  |  | 242,295 |   |  |  |  |  | 218,328 |   |
| Vodka             |  |  |                                |  | 51,298 |                               |  |  |      |  | 44,391 |      |  |  |  |  | 124,335 |   |  |  |  |  | 107,664 |   |
| Rum               |  |  |                                |  | 16,691 |                               |  |  |      |  | 15,490 |      |  |  |  |  | 59,676  |   |  |  |  |  | 52,613  |   |
| Liqueurs/cordials |  |  |                                |  | 15,987 |                               |  |  |      |  | 20,990 |      |  |  |  |  | 41,099  |   |  |  |  |  | 43,781  |   |
| Whiskey           |  |  |                                |  | 7,706  |                               |  |  |      |  | 5,572  |      |  |  |  |  | 17,185  |   |  |  |  |  | 14,270  |   |
| Total             |  |  |                                |  | 91,682 |                               |  |  |      |  | 86,443 |      |  |  |  |  | 242,295 |   |  |  |  |  | 218,328 |   |
| PercentageofCases |  |  |                                |  |   |                               |  |  |      |  |   |      |  |  |  |  |    |   |  |  |  |  |    |   |
| UnitedStates      |  |  |                                |  | 53.0   | %                             |  |  |      |  | 52.2   | %    |  |  |  |  | 57.5    | % |  |  |  |  | 54.5    | % |
| International     |  |  |                                |  | 47.0   |                               |  |  |      |  | 47.8   |      |  |  |  |  | 42.5    |   |  |  |  |  | 45.5    |   |
| Total             |  |  |                                |  | 100.0  | %                             |  |  |      |  | 100.0  | %    |  |  |  |  | 100.0   | % |  |  |  |  | 100.0   | % |
| Vodka             |  |  |                                |  | 56.0   | %                             |  |  |      |  | 51.4   | %    |  |  |  |  | 51.3    | % |  |  |  |  | 49.3    | % |
| Rum               |  |  |                                |  | 18.2   |                               |  |  |      |  | 17.9   |      |  |  |  |  | 24.6    |   |  |  |  |  | 24.1    |   |
| Liqueurs/cordials |  |  |                                |  | 17.4   |                               |  |  |      |  | 24.3   |      |  |  |  |  | 17.0    |   |  |  |  |  | 20.1    |   |
| Whiskey           |  |  |                                |  | 8.4    |                               |  |  |      |  | 6.4    |      |  |  |  |  | 7.1     |   |  |  |  |  | 6.5     |   |
| Total             |  |  |                                |  | 100.0  | %                             |  |  |      |  | 100.0  | %    |  |  |  |  | 100.0   | % |  |  |  |  | 100.0   | % |
|                   |

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Results of Operations

Thefollowing table sets forth, for the periods indicated, the percentageof net sales of certain items in our financialstatements:

|                                                                                                       |  |  |                                |  |        |                               |  |  |      |  |        |      |  |  |  |  |        |    |  |  |  |  |        |    |
|-------------------------------------------------------------------------------------------------------|--|--|--------------------------------|--|--------|-------------------------------|--|--|------|--|--------|------|--|--|--|--|--------|----|--|--|--|--|--------|----|
|                                                                                                  |  |  | Three-monthsEnded December 31, |  |        | Nine-months Ended December31, |
|                                                                                                  |  |  | 2006                           |  |        | 2005                          |  |  | 2006 |  |        | 2005 |
| Sales,net                                                                                             |  |  |                                |  | 100.0  | %                             |  |  |      |  | 100.0  | %    |  |  |  |  | 100.0  | %  |  |  |  |  | 100.0  | %  |
| Costofsales                                                                                           |  |  |                                |  | 66.9   | %                             |  |  |      |  | 67.9   | %    |  |  |  |  | 66.7   | %  |  |  |  |  | 64.8   | %  |
| Grossprofit                                                                                           |  |  |                                |  | 33.1   | %                             |  |  |      |  | 32.1   | %    |  |  |  |  | 33.3   | %  |  |  |  |  | 35.2   | %  |
| Sellingexpense                                                                                        |  |  |                                |  | 62.3   | %                             |  |  |      |  | 49.1   | %    |  |  |  |  | 67.2   | %  |  |  |  |  | 57.1   | %  |
| Generaland administrativeexpense                                                                      |  |  |                                |  | 28.5   | %                             |  |  |      |  | 22.5   | %    |  |  |  |  | 32.7   | %  |  |  |  |  | 23.1   | %  |
| Depreciationandamortization                                                                           |  |  |                                |  | 3.6    | %                             |  |  |      |  | 3.2    | %    |  |  |  |  | 3.9    | %  |  |  |  |  | 3.9    | %  |
| Lossfrom continuingoperations                                                                         |  |  |                                |  | (61.3  | )%                            |  |  |      |  | (42.7  | )%   |  |  |  |  | (70.5  | )% |  |  |  |  | (48.9  | )% |
| Otherincome                                                                                           |  |  |                                |  | 0.0    | %                             |  |  |      |  | (0.4   | )%   |  |  |  |  | 0.0    | %  |  |  |  |  | 0.0    | %  |
| Otherexpense                                                                                          |  |  |                                |  | (0.3   | )%                            |  |  |      |  | (0.1   | )%   |  |  |  |  | (0.2   | )% |  |  |  |  | (0.2   | )% |
| Foreignexchangegain/(loss)                                                                            |  |  |                                |  | 6.6    | %                             |  |  |      |  | (3.5   | )%   |  |  |  |  | 6.0    | %  |  |  |  |  | (3.2   | )% |
| Interestexpense,net                                                                                   |  |  |                                |  | (2.8   | )%                            |  |  |      |  | (5.6   | )%   |  |  |  |  | (3.7   | )% |  |  |  |  | (5.9   | )% |
| Write-offof deferred financing costs in connection with conversion of 6%subordinated convertiblenotes |  |  |                                |  | 0.0    | %                             |  |  |      |  | 0.0    | %    |  |  |  |  | (1.5   | )% |  |  |  |  | 0.0    | %  |
| Currentcredit/(charge) on derivative financialinstrument                                              |  |  |                                |  | 1.8    | %                             |  |  |      |  | 0.1    | %    |  |  |  |  | 0.6    | %  |  |  |  |  | 0.1    | %  |
| Incometaxbenefit                                                                                      |  |  |                                |  | 0.5    | %                             |  |  |      |  | 0.5    | %    |  |  |  |  | 0.6    | %  |  |  |  |  | 0.6    | %  |
| Minorityinterests                                                                                     |  |  |                                |  | 5.0    | %                             |  |  |      |  | 2.8    | %    |  |  |  |  | 5.8    | %  |  |  |  |  | 2.5    | %  |
| Netloss                                                                                               |  |  |                                |  | (50.5  | )%                            |  |  |      |  | (48.9  | )%   |  |  |  |  | (62.9  | )% |  |  |  |  | (55.0  | )% |
| Less:                                                                                                 |  |  |                                |  |   |                               |  |  |      |  |   |      |  |  |  |  |   |    |  |  |  |  |   |    |
| Preferredstockdividends                                                                               |  |  |                                |  | 0.0    | %                             |  |  |      |  | 5.7    | %    |  |  |  |  | 0.3    | %  |  |  |  |  | 6.4    | %  |
| Netloss attributable to commonstockholders                                                            |  |  |                                |  | (50.5  | )%                            |  |  |      |  | (54.6  | )%   |  |  |  |  | (63.2  | )% |  |  |  |  | (61.4  | )% |
|                                                                                                       |

ThreeMonths Ended December  31,  2006 Compared to Three MonthsEnded December  31,  2005

Netsales.    Consolidated net sales remained flat at $7.4million in the fiscal quarter ended December  31,  2006when compared to the comparable prior year period. Our case sales,measured in nine-liter case equivalents, increased 5,239 cases, or6.1%, to 91,682 cases versus 86,443 cases in the comparableprior period, resulting in our largest quarterly case sales to date. A5,003 case decrease in liqueur sales in the quarter endedDecember  31,  2006 compared to the quarter endedDecember  31,  2005 was offset by increases in case salesof our existing brands, particularly Boru vodka, which sales increased45.8% in the U.S. from the comparable prior year period, and bysales of our newly-acquired bourbon products following our acquisitionof McLain & Kyne, Ltd. on October  12,  2006.

Ouroverall U.S. case sales as a percentage of total case sales increasedto 53.0% during the three-months ended December31,  2006 from 52.2% in the comparable prior yearperiod.

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The table below presents the increase ordecrease, as applicable, in our case sales by product category for thethree-months ended December  31,  2006 compared to thecomparable 2005 period. Current period Whiskey case sales include salesof bourbon products following our acquisition of McLain & Kyne,Ltd. on October  12,2006

|                   |  |  |                                 |  |        |                              |  |  |         |  |        |      |  |  |         |  |  |  |  |       |    |  |  |  |
|-------------------|--|--|---------------------------------|--|--------|------------------------------|--|--|---------|--|--------|------|--|--|---------|--|--|--|--|-------|----|--|--|--|
|              |  |  | Increase (decrease)in casesales |  |        | PercentageIncrease(decrease) |
|              |  |  | Overall                         |  |        | U.S.                         |  |  | Overall |  |        | U.S. |
| Vodka             |  |  |                                 |  | 6,907  |                              |  |  |         |  | 6,249  |      |  |  | 15.6%   |  |  |  |  | 45.8  | %  |
| Rum               |  |  |                                 |  | 1,201  |                              |  |  |         |  | (463   | )    |  |  | 7.8%    |  |  |  |  | (3.7  | )% |
| Liqueurs/cordials |  |  |                                 |  | (5,003 | )                            |  |  |         |  | (3,639 | )    |  |  | (23.8)% |  |  |  |  | (20.2 | )% |
| Whiskey           |  |  |                                 |  | 2,134  |                              |  |  |         |  | 1,318  |      |  |  | 38.3%   |  |  |  |  | 157.5 | %  |
| Total             |  |  |                                 |  | 5,239  |                              |  |  |         |  | 3,465  |      |  |  | 6.1%    |  |  |  |  | 7.7   | %  |
|                   |

Therewas no material change in the selling prices of our existing productsbetween the three-months ended December  31,  2006 and thecomparable prior period.

In addition to increased case sales, netsales in the quarter ended December  31,  2006 werepositively impacted by the weakening dollar vis-à-vis the euroand the pound. However, net sales were flat as compared to the prioryear period because these net sales gains were offset by reduced netsales from direct imports into the U.S., whereby federal excise taxesare paid directly by the distributor, resulting in lower revenue percase. In addition a change in sales and geographic mix to lower revenueproducts and markets, respectively, negatively impacted total netsales.

Gross profit.    Due to the effects of foreignexchange fluctuations, a change in sales mix and an increase in directimports, gross profit was flat at $2.4  million during thethree-months ended December  31,  2006, against thecomparable 2005 period, with an increase in gross margin percentage to33.1% from 32.1%. Gross profit was flat due to our changein sales and geographic mix which offset the effects of our increasedcase sales.

Selling expense.    Selling expenseincreased 27.2% to $4.6  million during the three-monthsended December  31,  2006 versus $3.6  million in thecomparable prior year period. This increase in selling expense wasattributable to: increases in distributor incentives and sales supportcosts of $0.3  million; increased expenses attributable to theGosling rum advertising campaign of $0.3  million; an increase inconsultancy expense of $0.1  million; an increase in compensationexpense of $0.2  million due, in part, to the impact of thehiring of several additional employees during the current fiscal year;and a stock-based compensation expense of $0.1  million due toour adoption of SFAS 123(R), Share-Based Payment. As a percentage ofnet sales, selling expense increased to 62.3% compared to49.1% for the comparable prior year period.

General andAdministrative Expense.    General and administrative expenseincreased 26.7% to $2.1  million during the three-monthsended December  31,  2006 versus $1.7  million in thecomparable period in 2005. Major components of this increase includedan increased professional fees, public company directors andofficers’ liability insurance incurred in connection with ourchange in status to that of a public company, an increase in capitalbased taxes and the charge for stock-based compensation expenseresulting from our adoption of SFAS 123(R) effective April1,  2006. As a percentage of net sales, general andadministrative expense increased to 28.5% for the three-monthsended December  31,  2006 compared to 22.5% for thecomparable period in 2005. Stock-based compensation was $0.1million during the three-months ended December  31,  2006,as compared to zero in the comparable period in2005.

Depreciation and Amortization.    Depreciationand amortization increased 12.8% to $0.3  million duringthe three-months ended December  31,  2006 versus$0.2  million in the comparable prior year period and isprimarily attributable to current period amortization of the Goslingworldwide (except Bermuda) distribution agreement which went intoeffect during February  2005.

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Other Income/(Expense),Net.    Other income/(expense), net, increased to $0.8million during the three-months ended December  31,  2006versus ($0.5) million in the comparable 2005 period. The majorcomponents of this category include thefollowing:

|  |              |                                                                                                                                                                                                                                                                                                                    |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Foreign exchange gain duringthe three-months ended December  31,  2006 was $0.5million versus a loss of ($0.3) in the comparable prior year period.The current period gain is attributable to the effects of thestrengthening of the euro against the dollar on our intercompany loansto our foreign subsidiaries; |

|  |              |                                                                                                                                                                                                                       |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Interestincome during the three-months ended December  31,  2006was $0.2  million versus zero in the comparable period in 2005.The source of this income is investment of the proceeds of our initialpublic offering; |

|  |              |                                                                                                                                                                                                                                                                                                                                                                               |
|--|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Interest expense duringthe three-months ended December  31,  2006 remained flatfrom the comparable period in 2005 at $0.4  million and pertainedto our senior notes, the $9.0  million of 6% convertiblesubordinated notes outstanding following our initial public offeringand financing costs on our accounts receivable discounting arrangementwith a bank in Ireland; and |

|  |              |                                                                                                                                                                                                                                                                      |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Minorityinterest during the three-months ended December  31,  2006amounted to a credit of $0.4  million versus a credit of$0.2  million in the comparable 2005 period as a result of alarger loss recorded by our 60%-owned subsidiary, Gosling-CastlePartners, Inc. |

Net Loss Attributable to CommonStockholders.    The net loss attributable to commonstockholders for the three-months ended December  31,  2006decreased 7.6% to $3.7  million versus $4.0  millionin the comparable 2005 period. These net losses included $0 and$0.4  million of preferred stock dividends accrued during thethree-months ended December  31,  2006 and 2005,respectively.

Nine Months Ended December  31,  2006Compared to Nine Months Ended December  31,2005

Net sales.    Net sales increased $1.6million, or 9.4%, to $19.1  million in the nine-monthsended December  31,  2006 versus $17.5  million inthe comparable 2005 period. This increase reflected an increase in casesales of our existing brands and by case sales of our newly acquiredbourbon brands. Our case sales, measured in nine-liter caseequivalents, increased 23,967 cases, or 11.0%, to 242,295 casesversus 218,328. This increase was primarily driven by a 16,671 caseincrease in vodka sales over the prior year comparable period. Theincrease in vodka sales was offset in part by a 2,682 case decrease inliqueur sales in the nine-months ended December  31,  2006versus the comparable period in 2005.

There was no materialchange in the selling prices of our existing products between thenine-months ended December  31,  2006 and the comparableprior period in 2005.

Our U.S. case sales as a percentage oftotal case sales increased to 57.5% during the nine-months endedDecember  31,  2006 from 54.5% in the comparableprior year period. This increase of 20,130 cases, representing84.0% of the total nine-month increase in case sales globally,reflects the relative growth opportunities within the United States forour premium spirits portfolio, particularly Boru vodka,Gosling’s rums and Pallini liqueurs.

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The table below presents the increase ordecrease, as applicable, in our case sales by product category for thenine-months ended December  31,  2006 compared to thecomparable 2005 period. Current period Whiskey case sales include salesof bourbon products following our acquisition of McLain & Kyne,Ltd. on October  12,2006

|                   |  |  |                                  |  |        |                               |  |  |         |  |        |      |  |  |  |  |      |    |  |  |  |  |      |   |
|-------------------|--|--|----------------------------------|--|--------|-------------------------------|--|--|---------|--|--------|------|--|--|--|--|------|----|--|--|--|--|------|---|
|              |  |  | Increase(decrease) in case sales |  |        | Percentage Increase(decrease) |
|              |  |  | Overall                          |  |        | U.S.                          |  |  | Overall |  |        | U.S. |
| Vodka             |  |  |                                  |  | 16,671 |                               |  |  |         |  | 12,968 |      |  |  |  |  | 15.5 | %  |  |  |  |  | 35.4 | % |
| Rum               |  |  |                                  |  | 7,063  |                               |  |  |         |  | 4,014  |      |  |  |  |  | 13.4 | %  |  |  |  |  | 9.3  | % |
| Liqueurs/cordials |  |  |                                  |  | (2,682 | )                             |  |  |         |  | 1,152  |      |  |  |  |  | (6.1 | )% |  |  |  |  | 3.1  | % |
| Whiskey           |  |  |                                  |  | 2,916  |                               |  |  |         |  | 1,996  |      |  |  |  |  | 20.4 | %  |  |  |  |  | 79.4 | % |
| Total             |  |  |                                  |  | 23,968 |                               |  |  |         |  | 20,130 |      |  |  |  |  | 11.0 | %  |  |  |  |  | 16.9 | % |
|                   |

Grossprofit.    Gross profit increased 3.6% to $6.4million during the nine-months ended December  31,  2006versus $6.1  million in the comparable 2005 period. The absoluteincrease in gross profit primarily reflected our increased level ofcase sales. Cost of sales increased in the current period due toincreases in the costs of raw materials and product packaging, as wellas a higher cost sales mix. In addition, price sensitivity andcompetition in many of our markets have prevented us from passing onincreased costs of sales to our customers at this time. As a result ofthese factors, the current period saw a drop in gross margin percentageto 33.3% from 35.2% in the comparable prior yearperiod.

Selling expense.    Selling expense increased28.8% to $12.8  million during the nine-months endedDecember  31,  2006 versus $10.0  million in thecomparable 2005 period. The increase in selling expense was primarilyattributable to: increases in distributor incentives and sales supportcosts of $0.8  million; increases in the Gosling rum advertisingcampaign incurred charges of $0.8  million in the nine-monthsended December  31,  2006 versus the comparable prior yearperiod; an increase in sales consulting expense of approximately$0.3  million in the nine-months ended December  31,2006 and was employed to further enhance our strategic brand marketingplatforms and to execute the new Boru bottle design in time for are-launch of the brand in fiscal 2007; an increase in compensationexpense of $0.9  million due to the impact of the hiring ofseveral additional employees during the current fiscal year; and anincrease in stock-based compensation expense of $0.3  million dueto our adoption of SFAS 123(R), Share-Based Payment. As a percentage ofnet sales, selling expense increased to 67.2% compared to57.1% for the comparable prior year period.

General andAdministrative Expense.    General and administrative expenseincreased 54.6% to $6.2  million during the nine-monthsended December  31,  2006 versus $4.0  million in thecomparable period in 2005. Major components of this increase includedan increase of $0.5  million in professional fees mainlyattributable to our change in status to that of a public company, anincrease in capital based taxes, an increase of $0.6  million incompensation expense due to the full current period impact of salariesand benefits for several executive and administrative employees. Thisincrease also reflects a $0.7  million charge for stock-basedcompensation expense resulting from our adoption of SFAS 123(R)effective April  1,  2006 and an increase of $0.4million incurred for public company directors and officers’liability insurance. As a percentage of net sales, general andadministrative expense increased to 32.7% for the nine-monthsended December  31,  2006 compared to 23.1% for thecomparable prior year period.

Depreciation andAmortization.    Depreciation and amortization increased10.1% to $0.7  million during the nine-months endedDecember  31,  2006 versus the comparable prior year periodand is primarily attributable to current period amortization of theGosling worldwide (except Bermuda) distribution agreement which wentinto effect during February  2005.

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Other Income (Expense),Net.    Other income/(expense), net, increased to $1.5million during the nine-months ended December  31,  2006versus ($1.1) million in the comparable period in 2005. The majorcomponents of this category include thefollowing:

|  |              |                                                                                                                                                                                                                                                                                                                                        |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Foreign exchange gain /(loss) during the nine-months ended December  31,  2006 wasa gain of $1.1  million versus a loss of ($0.6) million in thecomparable period in 2005. The current period gain is attributable tothe effect of a strengthening of the euro against the dollar on ourintercompany loans to our foreignsubsidiaries; |

|  |              |                                                                                                                                                                                                                     |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Interest income during thenine-months ended December  31,  2006 was $0.6million versus zero in the comparable period in 2005. The source ofthis income is investment of the proceeds of our initial publicoffering; |

|  |              |                                                                                                                                                                                                                                                                                                                                                                       |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Interest expense during thenine-months ended December  31,  2006 was flat at$1.0  million versus the comparable period in 2005 and pertainedto our senior notes, the $9.0  million of 6% convertiblesubordinated notes outstanding following our initial public offeringand financing costs on our accounts receivable discounting arrangementwith a bank in Ireland; |

|  |              |                                                                                                                                                            |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Write-off ofdeferred financing costs of $0.3  million in connection with theconversion to common stock of 40% of our 6% convertiblesubordinated notes; and |

|  |              |                                                                                                                                                                                                                                                                     |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Minorityinterest during the nine-months ended December  31,  2006amounted to a credit of $1.1  million versus a credit of$0.4  million in the comparable 2005 period as a result of alarger loss recorded by our 60%-owned subsidiary, Gosling-CastlePartners, Inc. |

Net Loss Attributable to CommonStockholders.    The net loss attributable to commonstockholders for the nine-months ended December  31,  2006increased 12.6% to $12.0  million versus $10.7million in the comparable 2005 period. These net losses included$0.05  million and $1.1  million of preferred stockdividends accrued during the nine-months ended December31,  2006 and 2005, respectively.

EBITDA.    EBITDA decreased 16.6% to negative$9.3  million for the nine-months ended December31,  2006 versus negative $8.0  million the comparableprior year period. EBITDA represents net income before deductinginterest expense (including expensing of deferred financing costs),income taxes, depreciation and amortization and the impact of thenon-cash charge for stock-based compensation reported under SFAS123(R). We use EBITDA as the primary internal management measure forevaluating performance on a period over period analysis, when comparingactual results to budgeted performance and when allocating additionalresources. This non-GAAP financial measure is presented in order toassist industry analysts and investors in assessing our liquidity, ourability to incur and service debt, make capital expenditures and meetworking capital requirements. EBITDA should not be considered as analternative to operating income as an indicator of our performance, asan alternative to cash flows from operating activities as a measure ofliquidity, or as an alternative to any other measure determined inaccordance with GAAP. Unlike net income, EBITDA does not includedepreciation or interest expense and therefore does not reflect currentor future capital expenditures or the cost of capital. We compensatefor these limitations by using EBITDA as only one of severalcomparative tools, together with GAAP measurements, to assist in theevaluation of operating performance. Such GAAP measurements includeoperating income (loss), net income (loss), cash flows from operationsand cash flow data. We have significant uses of cash flows, includinginterest payments, debt principal repayments, and other non-recurringcharges, which are not reflected in EBITDA. Because EBITDA asdetermined by us excludes some, but not all, items that affect netincome, it may not be comparable to EBITDA or similarly titled measuresused by other companies.

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The following table sets forth ourreconciliation of EBITDA to net loss (the most directly comparablefinancialmeasure):

|                                                                      |  |  |                             |  |         |      |  |  |  |  |         |   |
|----------------------------------------------------------------------|--|--|-----------------------------|--|---------|------|--|--|--|--|---------|---|
|                                                                 |  |  | Nine-monthsEndedDecember31, |
| (Dollarsinthousands)                                                 |  |  | 2006                        |  |         | 2005 |
| Netloss                                                              |  |  |                             |  | (12,013 | )    |  |  |  |  | (9,596  | ) |
| Add(subtract):                                                       |  |  |                             |  |    |      |  |  |  |  |    |   |
| Income taxbenefit                                                    |  |  |                             |  | (111    | )    |  |  |  |  | (111    | ) |
| Interestexpense, net, including expensing of deferred financingcosts |  |  |                             |  | 1,002   |      |  |  |  |  | 1,038   |   |
| Depreciationandamortization                                          |  |  |                             |  | 743     |      |  |  |  |  | 675     |   |
| Stockbasedcompensation                                               |  |  |                             |  | 1,057   |      |  |  |  |  | — |   |
| EBITDA                                                               |  |  |                             |  | (9,322  | )    |  |  |  |  | (7,994  | ) |
|                                                                      |

Liquidityand Capital Resources

Since our inception, we have incurredsignificant operating and net losses and, in addition, have notgenerated positive cash flows from operations. As of December31,  2006, we had stockholders’ equity of $27.9million and working capital of $21.6  million. At March31,  2006 (prior to our initial public offering in April2006), we had a stockholders’ deficit of $26.0  millionand a working capital deficit of $0.8  million. AtDecember  31,  2006, we had cash and cash equivalents ofapproximately $11.0  million. At March  31,  2006, wehad cash and cash equivalents of approximately $1.4  million. Theincrease in stockholders’ equity, working capital and cash andcash equivalents is due to our initial public offering which raisedgross proceeds of $31,500,000 upon the sale of 3,500,000 common sharesat the offering price of $9.00 per share. Total estimated offeringcosts were $4,966,348. Upon the closing of our initial public offering,we received net proceeds from the offering of approximately$26.5  million. We have received all final invoices andadjustments incurred in connection with our initial public offering andhave paid all balances in full. The proceeds have been and willcontinue to be used for working capital and general corporate purposes,including for sales and marketing activities, meeting capitalcommitments to our 60%-owned subsidiary, Gosling-Castle PartnersInc., the hiring of additional employees and repayment of debt andrelated interest.

In addition, at December  31,2006, we had approximately $0.5  million of cash restricted fromwithdrawal and held by a bank in Ireland as collateral for a line ofcredit.

We believe that we will be able to fund our operationsfor the next twelve months from our projected cash flow fromoperations, reduction of our days in accounts receivable and days ininventory, the $5.0  million available from our 9% creditfacility with Frost Nevada Investments Trust, and current cash and cashequivalents. Beyond the next twelve months, we anticipate additionalfinancing will be needed to fund working capital and otherrequirements. Changes in our operating plans, acquisitions or otheradditions of brands, lower than anticipated sales, increased expenses,or other events, including those described in our Annual Report on Form10-K for the year ended March  31,  2006, under the caption‘‘Risk Factors,’’ may require us to seekadditional debt or equity financing on an accelerated basis. Financingmay not be available on acceptable terms, or at all, and our failure toraise capital when needed could impact negatively our growth plans,financial condition and results of operations. Additional equityfinancing may be dilutive to the holders of our common stock, and debtfinancing, if available, may involve significant cash paymentobligations or financial covenants and ratios that restrict our abilityto operate our business.

The following trends have resulted in,and are reasonably likely to continue to result in a material decreasein our liquidity over the near-to-midterm:

|  |              |                                                                                                            |
|--|--------------|------------------------------------------------------------------------------------------------------------|
|  | •  | an increase in working capitalrequirements to finance higher levels of inventories and accountsreceivable; |

|  |              |                                                                       |
|--|--------------|-----------------------------------------------------------------------|
|  | •  | addition of administrativeand sales personnel as our businessexpands; |

|  |              |                                                                                            |
|--|--------------|--------------------------------------------------------------------------------------------|
|  | •  | increases in advertising,public relations and sales promotions for existing and newbrands; |

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|  |              |                                          |
|--|--------------|------------------------------------------|
|  | •  | acquisition ofadditional spirits brands; |

|  |              |                                                                                              |
|--|--------------|----------------------------------------------------------------------------------------------|
|  | •  | an increasein legal, accounting and other expenses due to our new status as apublic company; |

|  |              |                                                                                                                                                                      |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | a reduction in grossmargin due to increases in our cost of sales which are not fully passedon to our customers in the form of higher selling prices for ourproducts; |

|  |              |                                                                                               |
|--|--------------|-----------------------------------------------------------------------------------------------|
|  | •  | financing the operations ofour 60%-owned Gosling-Castle Partners strategic export venture;and |

|  |              |                                                                                                |
|--|--------------|------------------------------------------------------------------------------------------------|
|  | •  | expansion into new markets andwithin existing markets in the United States andinternationally. |

Cash Flows

The following tablesummarizes our primary sources and uses of cash during the periodspresented (inthousands):

|                                         |  |  |                              |  |         |      |  |  |  |  |         |   |
|-----------------------------------------|--|--|------------------------------|--|---------|------|--|--|--|--|---------|---|
|                                    |  |  | Nine-monthsEnded December31, |
|                                    |  |  | 2006                         |  |         | 2005 |
| Netcash provided by (usedin):           |  |  |                              |  |    |      |  |  |  |  |    |   |
| Operatingactivities                     |  |  |                              |  | (19,367 | )    |  |  |  |  | (11,848 | ) |
| Investingactivities                     |  |  |                              |  | (1,633  | )    |  |  |  |  | (269    | ) |
| Financingactivities                     |  |  |                              |  | 30,640  |      |  |  |  |  | 9,988   |   |
| Effectsof foreign currencytranslation   |  |  |                              |  | — |      |  |  |  |  | (1      | ) |
| Netincrease in cash and cashequivalents |  |  |                              |  | 9,640   |      |  |  |  |  | (2,130  | ) |
|                                         |

OperatingActivities.    A substantial portion of our available cash hasbeen used to fund our operating activities. In general, these cashfunding requirements are based on operating losses, driven chiefly byour sizable investment in selling and marketing. With increases in ouroverall sales volumes, we have also utilized cash to fund ourreceivables and inventories. In general, these increases are onlypartially offset by increases in our accounts payable to our suppliersand accrued expenses. Our business has incurred significant lossessince inception.

In the nine-months ended December31,  2006, net cash used in operating activities was $19.2million, consisting primarily of losses from our operations of$12.0  million, an increase in accounts receivable of $4.9million, increases in inventories and prepaid expenses of $2.6million and $0.2  million, respectively, and $1.0  millionresulting from the effect of changes in foreign currency rates, andminority interest in the net loss of our 60%-owned subsidiaryGosling-Castle Partners, Inc. of $1.1  million. These uses ofcash were offset, in part, by non-cash charges for depreciation andamortization and share-based compensation expense of $0.7million and $1.1  million, respectively.

InvestingActivities.    Net cash used in investing activities during thenine-months ended December  31,  2006 was $1.6million for the acquisition of property and equipment and intangibleassets and all of the outstanding stock of McLain & Kyne,Ltd.

Financing Activities.    Net cash provided byfinancing activities during the nine-months ended December31,  2006 was $30.6  million and consisted of $31.5million from common stock issued in our initial public offering less$2.9  million in payments for the cost of stock issuance and thenet proceeds from notes payable in the amount of $2.1million.

On November  10,  2006, our wholly ownedsubsidiary Castle Brands (USA) Corp. completed an offering to 11persons of an aggregate of $5,340,000 of additional senior notessecured by accounts receivable and inventories of Castle Brands (USA),pursuant to the First Amended and Restated Indenture of Castle Brands(USA), dated as of June  1,  2004, and amended and restatedas of August  15,  2005. The issuance was made pursuant toRegulation D and Regulation S under the Securities Act of 1933, asamended. The additional senior notes have substantially identical termsto 

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the aggregate principal amount of $4,660,000of senior notes previously issued under the indenture in 2004 and 2005except that the additional senior notes were issued with a two percentloan origination fee. The additional senior notes bear interest at arate of 9%, payable semi-annually on November 30th andMay 31st, and mature on May 31, 2009. The additionalsenior notes will be treated as a single class with the previouslyissued senior notes.

As with the previously issued senior notes,we have guaranteed payment on the additional senior notes. We have alsoagreed to pay a one time fee equal to 1% of the aggregateprincipal amount of the additional senior notes, for an aggregatepayment of $53,400, in the event that the notes remain outstanding atDecember  31,  2007.

The senior notes are subject tocustomary restrictive covenants. In addition, the consent of holders ofa requisite majority of the aggregate principal amount of these notesis required for Castle Brands (USA) to take any of the followingactions: merge or consolidate or sell all or substantially all of itsassets other than with an entity formed in the United States or to aperson or entity that assumes all of our obligations under the seniornotes, engage in a transaction with an affiliate unless the transactionis on fair and reasonable terms, or change our jurisdiction ofincorporation without giving 60 days prior notice.

We intend touse the proceeds from the sale of the additional senior notes to fundoperating expenses and for general corporate purposes.

Inaddition, the additional senior notes were accompanied by warrants topurchase 40 shares of our common stock at $8.00 a share forevery $1,000 principal amount of such notes, for an aggregate of213,600 shares. The issuance was made pursuant to Regulation Dand Regulation S under the Securities Act of 1933, asamended.

Contractual obligations

The following table setsforth our contractual commitments as of December  31,  2006for each of the following twelve monthperiods:

|                                                                         |  |  |                                                                |   |         |      |  |  |      |   |         |      |  |  |      |   |         |            |  |  |       |   |         |  |  |  |  |   |         |  |  |  |  |   |         |  |  |  |  |   |        |  |
|-------------------------------------------------------------------------|--|--|----------------------------------------------------------------|---|---------|------|--|--|------|---|---------|------|--|--|------|---|---------|------------|--|--|-------|---|---------|--|--|--|--|---|---------|--|--|--|--|---|---------|--|--|--|--|---|--------|--|
|                                                                    |  |  | Paymentsdue during the twelve month periods ending December31, |
|                                                                    |  |  | 2007                                                           |   |         | 2008 |  |  | 2009 |   |         | 2010 |  |  | 2011 |   |         | Thereafter |  |  | Total |
|                                                                    |  |  | (inthousands)                                                  |
| Long-term notes payable,including current portion and estimatedinterest |  |  |                                                                |   |    |      |  |  |      |   |    |      |  |  |      |   |    |            |  |  |       |   |    |  |  |  |  |   |    |  |  |  |  |   |    |  |  |  |  |   |   |  |
| UlsterBankfacilities                                                    |  |  |                                                                | $ | 1,084   |      |  |  |      | $ | — |      |  |  |      | $ | — |            |  |  |       | $ | — |  |  |  |  | $ | — |  |  |  |  | $ | — |  |  |  |  | $ | 1,084  |  |
| 9% seniornotes                                                     |  |  |                                                                |   | — |      |  |  |      |   | — |      |  |  |      |   | — |            |  |  |       |   | 10,000  |  |  |  |  |   | — |  |  |  |  |   | — |  |  |  |  |   | 10,000 |  |
| 6% convertiblesubordinatednotes                                    |  |  |                                                                |   | — |      |  |  |      |   | — |      |  |  |      |   | — |            |  |  |       |   | 9,000   |  |  |  |  |   | — |  |  |  |  |   | — |  |  |  |  |   | 9,000  |  |
| Capitalleases                                                           |  |  |                                                                |   | 4       |      |  |  |      |   | 4       |      |  |  |      |   | 2       |            |  |  |       |   | — |  |  |  |  |   | — |  |  |  |  |   | — |  |  |  |  |   | 10     |  |
| Operatingleases                                                         |  |  |                                                                |   | 189     |      |  |  |      |   | 136     |      |  |  |      |   | 2       |            |  |  |       |   | 1       |  |  |  |  |   | — |  |  |  |  |   | — |  |  |  |  |   | 328    |  |
| Estimatedinterest                                                       |  |  |                                                                |   | 1,453   |      |  |  |      |   | 1,453   |      |  |  |      |   | 692     |            |  |  |       |   | 360     |  |  |  |  |   | 15      |  |  |  |  |   | — |  |  |  |  |   | 3,973  |  |
| Total                                                                   |  |  |                                                                | $ | 2,730   |      |  |  |      | $ | 1,593   |      |  |  |      | $ | 696     |            |  |  |       | $ | 19,361  |  |  |  |  | $ | 15      |  |  |  |  | $ | — |  |  |  |  | $ | 24,395 |  |
|                                                                         |

CriticalAccounting Policies and Estimates

The preparation ofconsolidated financial statements in conformity with U.S. generallyaccepted accounting principles requires us to make a number ofestimates and assumptions that affect the reported amounts of assetsand liabilities and disclosure of contingent assets and liabilities atthe date of the financial statements. Such estimates and assumptionsaffect the reported amounts of sales and expenses during the reportingperiod. On an ongoing basis, we evaluate these estimates andassumptions based upon historical experience and various other factorsand circumstances. We believe our estimates and assumptions arereasonable under the circumstances; however, actual results may differfrom these estimates under different futureconditions.

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We believe that the estimates andassumptions discussed below are most important to the portrayal of ourfinancial condition and results of operations in that they require ourmost difficult, subjective or complex judgments and form the basis forthe accounting policies deemed to be most critical to ouroperations.

Revenue Recognition

We recognize revenue fromproduct sales when the product is shipped to a customer (generally uponshipment to a distributor or to a control state entity), title and riskof loss has passed to the customer in accordance with the terms of sale(FOB shipping point or FOB destination) and collection is reasonablyassured. We do not offer a right of return but will accept returns ifwe shipped the wrong product or wrong quantity.

AccountsReceivable

We record trade accounts receivable at net realizablevalue. This value includes an appropriate allowance for estimateduncollectible accounts to reflect any loss anticipated on the tradeaccounts receivable balances and charged to the provision for doubtfulaccounts. We calculate this allowance based on our history ofwrite-offs, level of past due accounts based on contractual terms ofthe receivables and our relationships with, and economic status of, ourcustomers.

Inventory

Our inventory, which consists ofdistilled spirits, packaging and finished goods, is valued at the lowerof cost or market, using the weighted average cost method. We assessthe valuation of our inventories and reduce the carrying value of thoseinventories that are obsolete or in excess of our forecasted usage totheir estimated realizable value. We estimate the net realizable valueof such inventories based on analyses and assumptions including, butnot limited to, historical usage, future demand and marketrequirements. Reduction to the carrying value of inventories isrecorded in cost of goods sold.

Goodwill and Other IntangibleAssets

Goodwill represents the excess of purchase price andrelated costs over the value assigned to the net tangible andidentifiable intangible assets of businesses acquired. As ofDecember  31,  2006, and March  31,  2006,goodwill and other intangible assets that arose from cumulativeacquisitions were $27.1  million and $25.5  million,respectively. Goodwill and other intangible assets with indefinitelives are not amortized, but instead are tested for impairmentannually, or, more frequently if circumstances indicate a possibleimpairment may exist.

We evaluate the recoverability of goodwilland indefinite lived intangible assets using a two-step impairment testapproach at the reporting unit level. In the first step the fair valuefor the reporting unit is compared to its book value includinggoodwill. In the case that the fair value of the reporting unit is lessthan the book value, a second step is performed which compares theimplied fair value of the reporting unit’s goodwill to the bookvalue of the goodwill. The fair value for the goodwill is determinedbased on the difference between the fair values of the reporting unitsand the net fair values of the identifiable assets and liabilities ofsuch reporting units. If the fair value of the goodwill is less thanthe book value, the difference is recognized as animpairment.

SFAS No. 142 also requires that intangible assetswith estimable useful lives be amortized over their respectiveestimated useful lives to the estimated residual values and reviewedfor impairment in accordance with SFAS No. 144,‘‘Accounting for the Impairment or Disposal of Long-LivedAssets.’’

Stock-Based Compensation

Prior toApril  1,  2006, we accounted for our employee stock optionplan under the intrinsic value method in accordance with the provisionsof Accounting Principles Board (‘‘APB’’)Opinion No. 25, 

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‘‘Accounting for Stock Issuedto Employees’’ (‘‘APB No.25’’) and related interpretations. Under APB No. 25,generally no compensation expense was recorded when the terms of theaward are fixed and the exercise price of the employee stock optionequals or exceeds the fair value of the underlying stock on the date ofthe grant. No stock based compensation expense has been recognizedthrough March  31,  2006. Additionally, in periods prior toApril  1,  2006, we followed the disclosure-onlyrequirements of SFAS No. 123, ‘‘Accounting forStock-Based Compensation’’ (‘‘SFAS123’’) which allowed entities to continue to apply theprovisions of APB No. 25 for transactions with employees and providepro forma net income and pro forma earnings per share disclosures foremployee stock grants made as if the fair value based method ofaccounting in SFAS 123 had been applied to thesetransactions.

Effective April  1,  2006, the Companyadopted SFAS No. 123(R), ‘‘Share-BasedPayment’’ (‘‘SFAS123(R)’’) and related interpretations which supersededAPB No. 25. SFAS 123(R) requires that all stock-based compensation berecognized as an expense in the financial statements and that such costbe measured at the fair value of the award. This statement was adoptedusing the modified prospective method, which requires us to recognizecompensation expense on a prospective basis following adoption.Therefore, prior period financial statements have not been restated.Under this method, in addition to reflecting compensation expense fornew share-based awards, expense is also recognized to reflect theremaining service period of awards that had been included in pro-formadisclosures in prior periods.

As a result of adopting SFAS 123(R)on April  1,  2006, our net loss for the three-months endedDecember  31,  2006 is $0.3  million higher than ifwe had continued to account for share-based compensation under APB No.25. Basic and diluted net loss per share for the three-months endedDecember  31,  2006 were increased by $0.02 per share as aresult of adopting SFAS 123(R). For further information on the effectof our adoption of SFAS 123(R), see Note 1K to the condensedconsolidated financial statements.

Recent AccountingPronouncements

In June  2006, the Financial AccountingStandards Board (‘‘FASB’’) issued FASBInterpretation No. 48, ‘‘Accounting forUncertainty in Income Taxes – an interpretation of FASB StatementNo. 109’’ (FIN 48), which clarifies theaccounting and disclosure for uncertainty in tax positions, as defined.FIN 48 seeks to reduce the diversity in practice associated withcertain aspects of the recognition and measurement related toaccounting for income taxes. This interpretation will apply tothe Company’s fiscal year beginning April  1,  2007.The Company does not expect the interpretation will have a materialimpact on its results from operations or financial position.

InSeptember  2006, the Securities and Exchange Commission(‘‘SEC’’) issued Staff Accounting Bulletin108, ‘‘Considering the Effects on Prior YearMisstatements when Quantifying Misstatements in Current Year FinancialStatements,’’ (‘‘SAB 108’’).SAB 108 requires registrants to quantify errors using both the incomestatement method (i.e. iron curtain method) and the rollover method andrequires adjustment if either method indicates a material error. If acorrection in the current year relating to prior year errors ismaterial to the current year, then the prior year financial informationneeds to be corrected. A correction to the prior year results that arenot material to those years, would not require a‘‘restatement process’’ where priorfinancials would be amended. SAB 108 is effective for fiscal yearsending after November  15,  2006. The Company does notanticipate that SAB  108 will have a material effect on itsfinancial position, results of operations or cash flows.

InSeptember  2006, the FASB issued SFAS No. 157,‘‘Fair Value Measurements,’’ to define fairvalue, establish a framework for measuring fair value in accordancewith generally accepted accounting principles, and expand disclosuresabout fair value measurements. SFAS No. 157 will be effective forfiscal years beginning after November  15,  2007, thebeginning of the Company’s 2008 fiscal year. The Company isassessing the impact the adoption of SFAS No. 157 will have on theCompany’s financial position and results ofoperations.

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Item 3.    Quantitative andQualitative Disclosures about Market Risk

As of December31,  2006, we did not participate in any derivative financialinstruments, or other financial or commodity instruments for which fairvalue disclosure would be required under SFAS No.  107,‘‘Disclosure About Fair Value of FinancialInvestments.’’ We hold no investment securities thatwould require disclosure of market risk.

Foreign CurrencyRisk

International revenues from our non-U.S. operationsaccounted for approximately 41.4% and 45.1% of totalrevenues during the three-month periods ended December31,  2006 and 2005, respectively. International revenues from ournon-U.S. operations also accounted for approximately 36.2 % and38.9% of total revenues during the nine-month periods endedDecember  31,  2006 and 2005, respectively. Internationalrevenues are generated from our foreign subsidiaries and aredenominated in the local currency of each country. These subsidiariesincur most of their expenses in their local currency, and accordinglyuse the local currency as their functional currency.

Ourinternational operations are subject to risks, including but notlimited to differing economic conditions, changes in political climate,differing tax structures, other regulations and restrictions, andforeign exchange rate volatility when compared to the United States.Accordingly, our future results could be materially adversely impactedby changes in these or other factors.

Foreign exchange ratefluctuations may adversely affect our consolidated financial positionas well as our consolidated results of operations. Foreign exchangerate fluctuations may adversely impact our financial position as theassets and liabilities of our foreign operations are translated intoU.S. dollars in preparing our consolidated balance sheet. Our exposureto foreign exchange rate fluctuations arises in part from balances inour intercompany accounts included on our subsidiary balance sheets.These intercompany accounts are denominated in the functional currencyof the foreign subsidiaries. Additionally, foreign exchange ratefluctuations may significantly impact our consolidated results fromoperations as exchange rate fluctuations on transactions denominated incurrencies other than the functional currencies of Castle Brands Inc.and its subsidiaries result in gains and losses that are reflected inour consolidated statement of income. The effect of foreign exchangerate fluctuations on our consolidated financial position for the nine-months ended December  31,  2006, was a net translationadjustment of approximately $0.6  million. This net translationadjustment is recognized within stockholders’ equity throughaccumulated other comprehensive loss. We do not hedge against foreigncurrency risk.

From time to time we do participate in certainforeign exchange currency future contracts programs to limit our riskand the potential impact of currency fluctuations on our product costs.When placing a product order, we attempt to lock in its cost by buyingforward contracts on euros coinciding with the projected payment datesfor such purchases. Individual forward contracts rarely extend for morethan six months or exceed €450,000 ($594,000). AtDecember  31,  2006, we had one forward contractoutstanding valued €350,000 ($467,250) expiringJanuary  8,  2007.

Interest Rate Risk

Ourexposure to market rate risk for changes in interest rates relatesprimarily to our short-term investment portfolio and issuance of debt.We do not use derivative financial instruments in our investmentportfolio. We have a prescribed methodology whereby we invest excesscash in debt instruments of government agencies and high qualitycorporate issuers. The portfolio is managed by professional fundmanagers and our interest rate risk is minimal.

Item4.    Controls and Procedures

Evaluation of disclosurecontrols and procedures

We maintain disclosure controls andprocedures (as defined in Rule 13a-15(e) promulgated under theSecurities Exchange Act of 1934, as amended (the‘‘Exchange Act’’)) that are designed toensure 

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that information that would be required tobe disclosed in Exchange Act reports is recorded, processed, summarizedand reported within the time periods specified in the SecuritiesExchange Commission’s rules and forms, and that such informationis accumulated and communicated to our management, including the ChiefExecutive Officer, President and Chief Operating Officer and ChiefFinancial Officer, as appropriate, to allow timely decisions regardingdisclosure.

As of December  31,  2006, we carried outan evaluation, under the supervision and with the participation of ourmanagement, including the Chief Executive Officer, President and ChiefOperating Officer and Chief Financial Officer, of the effectiveness ofthe design and operation of our disclosure controls and procedures.Based on the foregoing, our Chief Executive Officer, President andChief Operating Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures were effective as of the end of theperiod covered by this quarterly report.

Section 404 complianceproject

Effective April  1,  2008, Section 404 ofthe Sarbanes-Oxley Act of 2002 will require us to includemanagement’s report on our internal control over financialreporting in our Annual Report on Form 10-K. The internal controlreport must contain (1) a statement of management’sresponsibility for establishing and maintaining adequate internalcontrol over our financial reporting, (2) a statement identifying theframework used by management to conduct the required evaluation of theeffectiveness of our internal control over financial reporting, (3)management’s assessment of the effectiveness of our internalcontrol over financial reporting as of the end of our most recentfiscal year, including a statement as to whether or not our internalcontrol over financial reporting is effective, and (4) a statement thatour registered independent public accounting firm has issued anattestation report on management’s assessment of our internalcontrol over financial reporting for the year ending March31,  2009.

In order to achieve compliance with Section 404within the prescribed period, management has commenced a Section 404compliance project under which management has engaged outsideconsultants and adopt a detailed project work plan to assess theadequacy of our internal control over financial reporting, remediateany control deficiencies that may be identified, validate throughtesting that controls are functioning as documented and implement acontinuous reporting and improvement process for internal control overfinancial reporting. During the nine-months ended December31,  2006, there have been no changes in our internal controlover financial reporting that have materially affected, or arereasonably likely to materially affect, our internal control overfinancial reporting.

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PARTII.    OTHER INFORMATION

Item 1.    LegalProceedings

We believe that neither we nor any of oursubsidiaries is currently subject to litigation which, in the opinionof our management, is likely to have a material adverse effect on us.We may, however, become involved in litigation from time to timerelating to claims arising in the ordinary course of our business.These claims, even if not meritorious, could result in the expenditureof significant financial and managerial resources.

Item1A.    Risk Factors

Not applicable.

Item2.    Unregistered Sales of Equity Securities and Use ofProceeds

Recent Sales of UnregisteredSecurities

Except as previously disclosed in Part II, Item 5of our Quarterly Report on Form 10-Q (File No. 001-32849) filed withthe Securities and Exchange Commission on November  14,2006 and our Current Report on Form 8-K (File No. 001-32849) filed withthe Securities and Exchange Commission on October  16,2006 (each of which is hereby incorporated by reference), the Companydid not sell any equity securities during the fiscal quarter endingDecember  31,  2006 which were not registered under theSecurities Act of 1933, as amended.

Uses of Proceeds FromRegistered Securities

On April 6, 2006, we commencedour initial public offering of our common stock, $0.01 parvalue, pursuant to our Registration Statement on Form S-1 (FileNo. 333-128676), that was declared effective on April 5,2006. We registered 3,500,000 shares of common stock, all ofwhich were sold in the offering at a per share price of $9.00 for anaggregate offering price of $31.5 million. The underwriters inthe offering were Oppenheimer & Co. Inc., ThinkEquityPartners LLC and Ladenburg Thalmann & Co. Inc.

The netproceeds received by us in the offering were $26,533,652, determined asfollows:

|                                          |  |  |  |   |            |  |
|------------------------------------------|--|--|--|---|------------|--|
| Aggregateoffering proceeds to thecompany |  |  |  | $ | 31,500,000 |  |
| Underwritingdiscounts and commissions    |  |  |  |   | 2,205,000  |  |
| Findersfee                               |  |  |  |   | —    |  |
| Other fees andexpenses                   |  |  |  |   | 2,761,348  |  |
| Totalexpenses                            |  |  |  |   | 4,966,348  |  |
| Netproceeds to thecompany                |  |  |  | $ | 26,533,652 |  |
|                                          |

Wehave received all final invoices and adjustments incurred in connectionwith its initial public offering and have paid all balances infull.

No payments were made directly or indirectly to(i) any of our directors, officers or their associates,(ii) any person(s) owning 10% or more of any class of ourequity securities or (iii) any of our affiliates, except asfollows:

|              |                                                                                                                                                         |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | repayment of $2,026,000 toan affiliate of one of our directors to repay all outstanding principaland interest under our February  2006 credit facility; |

|              |                                                                                                                                                                                          |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | payment of $105,246 for dividends accruedon preferred membership units of our predecessor company, Great SpiritsCompany, LLC to certain of our directors and executiveofficers; and |

|              |                                                                                                                                                                                    |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | payment of$354,130 in underwriting discount and commissions to LadenburgThalmann & Co. One of our directors is a principalstockholder and director of Ladenburg Thalmann. |

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We used $2,543,395 to repay indebtednessand the remaining net proceeds from the offering have been, and areexpected to continue to be used by us to provide additional capital tosupport the growth of our business and for general corporatepurposes.

Purchases of Equity Securities by the Issuer andAffiliated Purchasers.

Not applicable.

Dividendpolicy

We do not intend to pay any cash dividends withrespect to our common stock in the foreseeable future. We currentlyintend to retain any earnings for use in the operation of our businessand to fund future growth. In addition, our ability to pay dividends issubject to the consent of the holders of our6% convertible notes and we expect that any future creditfacility will contain terms prohibiting or limiting the amount ofdividends that may be declared or paid on our common stock. Any futuredetermination to pay cash dividends will be at the discretion of ourboard of directors and will depend upon our financial condition,operating results, capital requirements and such other factors as theboard of directors deems relevant.

Item 3.    Defaults UponSenior Securities

Not applicable.

Item4.    Submission of Matters to a Vote of SecurityHolders

|  |           |            |
|--|-----------|------------|
|  | Not  | applicable |

Item5.    Other Information

Creation of a Direct FinancialObligation or an Obligation under an Off-Balance Sheet Arrangement of aRegistrant

On February  12,  2007, we enteredinto a credit agreement with Frost Nevada Investments Trust, which iscontrolled by Dr.  Phillip  Frost, one of our directors,which enables us to borrow up to $5.0  million. We do notpresently anticipate borrowing any advances under this credit facility.Any amounts outstanding under the credit facility bears interest at arate of 9% per annum. Interest is payable quarterly. Thematurity date of any amounts outstanding is the earlier of one businessday after the closing of a financing transaction which results in grossproceeds to the Company of at least $15,000,000 and February28,  2008.

Upon entering into the credit agreement, wepaid the lender a facility fee of $150,000. If we draw down of thecredit facility, upon receiving our first advance, we would have to paythe lender an additional facility fee of $200,000.

In the eventthat the amount of principal advanced, interest previously paid andfuture interest payable exceed 10% of the net proceeds of ourinitial public offering completed in April  2006, the maturitydate for any such amount above 10% of the net proceeds of suchinitial offering will be deferred until April  11,  2007.We may prepay amounts outstanding under this facility at any time atour sole discretion; provided, however, that any principal and interestin excess of 10% of the net proceeds of the initial publicoffering may not be prepaid.

An event of default under the creditfacility occurs if we (a) fail to make payment of principal or intereston the maturity date, (b) fail to make payment of any fees or quarterlyinterest payments when due and after 10 business days of prior writtennotice to us by the lender of the failure to pay, (c) breach theaffirmative covenants contained in the credit agreement and fail tocure the breach generally within 30 days of the breach or (d) becomeinsolvent or begin an insolvency proceeding or one is begun against usand is not dismissed or stayed within 90 days. If an event of defaultoccurs, the lender could declare all principal and interest immediatelydue and payable and the interest rate will increase by 200 basis pointsabove the current interest rate.

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The credit agreement and note are filedherewith as Exhibits 10.67 and 10.68, respectively.

Departure of Directors or Principal Officers; Election ofDirectors; Appointment of Certain Officers; Compensatory Arrangementsof Certain Officers.

On February  13,  2007, weappointed our Senior Vice President and Chief Financial Officer,Herbert J. Roberts, 52, as our principal financial officer, replacingKeith A. Bellinger, who remains our President and Chief OperatingOfficer. Mr.  Roberts was also appointed as our treasurer onFebruary  12,  2007.

In 1999, Mr.  Robertsco-founded Videonet3.com, a provider of engineering and financialadvisory services to the cable industry, for which Mr.  Robertsserved as the Chief Financial Officer until 2005. Starting in 2005,Mr.  Roberts served as an operations and financial consultant tocompanies in the electronics and media industries, where hisassignments included compliance with SEC rules andregulations.

We entered into a four-year Employment Agreementwith Mr.  Roberts on December  5,  2006, pursuant towhich Mr.  Roberts serves as Senior Vice President and ChiefFinancial Officer of the Company effective immediately. This employmentagreement provides for a current annual base salary of $250,000, withincreases in the sole discretion of the compensation committee of ourboard of directors. This employment agreement also includes incentiveperformance bonuses of up to 60% of the annual base salary uponsuccessful achievement of goals and objectives agreed upon byMr.  Roberts and our compensation committee.

Theemployment agreement provides that Mr.  Roberts is entitled tooptions to purchase our common stock to the extent granted by ourcompensation committee. On December  5,  2006, we grantedMr.  Roberts an option to purchase 100,000 shares of our commonstock at an exercise price of $5.81 per share.

If we do notoffer to renew this employment agreement after the expiration of itsfour-year term, Mr.  Roberts is entitled to six months salary andbenefits. Mr.  Roberts is also entitled to 12 months salary, apro rated portion of his annual incentive bonus, if any, based on theportion of the year in which Mr.  Roberts was employed andaccelerated vesting of a pro rata portion of any of his unvested stockoptions for the number of full calendar months that have elapsed fromthe last vesting date through the date of termination if (1) hisemployment is terminated by us without cause or by Mr.  Robertsfor ‘‘good reason’’ and (2) Mr.Roberts complies with the provisions of the employment agreementrelating to confidentiality, discoveries and improvements,non-solicitation, non-competition and non-disparagement.

We mayterminate Mr.  Roberts at any time for‘‘cause’’ with 30 days prior writtennotice. Mr.  Roberts may terminate his employment for any reasonupon 60 days’ notice to us. No payments, other than payments forbase salary already earned as of the date of termination, will bepayable to Mr.  Roberts upon termination by us for cause or byMr.  Roberts voluntarily.

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A copy of the employment agreement withMr.  Roberts is filed herewith as Exhibit 10.66.

Item6.    Exhibits

|               |  |  |                                                                                                                      |
|---------------|--|--|----------------------------------------------------------------------------------------------------------------------|
| ExhibitNumber |  |  | Description                                                                                                          |
| 10.66         |  |  | EmploymentAgreement, dated December  5,  2006, by and between CastleBrands Inc. and HerbertRoberts.                  |
| 10.67         |  |  | Credit Agreement, dated as ofFebruary  12,  2007, by and among Castle Brands Inc. andFrost Nevada InvestmentsTrust.  |
| 10.68         |  |  | Promissory Note, datedFebruary  12,  2007, made by Castle Brands Inc. in favor ofFrost Nevada InvestmentsTrust.      |
| 31.1          |  |  | Certification Pursuant to Rule13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Actof 2002.        |
| 31.2          |  |  | Certification Pursuant to Rule13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Actof 2002.        |
| 32.1          |  |  | Certification Pursuant to 18U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of2002. |
|               |

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SIGNATURES

Pursuantto the requirements of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf bythe undersigned thereunto dulyauthorized.

|        |  |  |                  |  |  |                                                         |
|--------|--|--|------------------|--|--|---------------------------------------------------------|
|   |  |  | CASTLEBRANDSINC. |
|   |  |  | By:              |  |  | /s/Mark Andrews                                         |
|   |  |  |             |  |  | MarkAndrews                                             |
|   |  |  |             |  |  | Chairman & ChiefExecutive Officer                   |
|   |  |  |             |  |  | (Duly AuthorizedOfficer and Principal ExecutiveOfficer) |
|   |  |  |             |  |  | February 13,2007                                        |
|        |

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