Table of Contents

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UNITEDSTATESSECURITIES AND EXCHANGECOMMISSION

Washington,D.C. 20549

FORM10-Q

|        |                                                                                        |
|--------|----------------------------------------------------------------------------------------|
|   | Quarterly Report Pursuant to Section 13 or15(d) of the Securities Exchange Act of 1934 |

For the quarterlyperiod ended June  30,2006

OR

|        |                                                                                        |
|--------|----------------------------------------------------------------------------------------|
|   | Transition Report Pursuantto Section 13 or 15(d) of the Securities Exchange Act of1934 |

For the transition period from                     to                    

Commission File Number001-32849

CASTLE BRANDSINC.

(Exact name of registrant asspecified in itscharter)

|                                                             |  |  |                                    |
|-------------------------------------------------------------|--|--|------------------------------------|
| Delaware                                                    |  |  | 41-2103550                         |
| (Stateor other jurisdiction ofincorporation ororganization) |  |  | (I.R.S. EmployerIdentificationNo.) |
| 570Lexington Avenue, 29th Floor, New 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 whetherthe registrant is a large accelerated filer, accelerated filer or anon-accelerated filer (as defined in Rule 12b-2 of the Act). Seedefinition of ‘‘accelerated filer and large acceleratedfiler’’ in Rule 12b-2 of the ExchangeAct.

|                         |  |  |                  |  |  |                      |
|-------------------------|--|--|------------------|--|--|----------------------|
| 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 had12,009,741 shares of $0.01 par value common stock outstanding atAugust  11,2006.

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TABLEOFCONTENTS

|                                                    |  |  |                                                                                                                                     |  |        |  |  |        |  |
|----------------------------------------------------|--|--|-------------------------------------------------------------------------------------------------------------------------------------|--|--------|--|--|--------|--|
| PARTI.    FINANCIALINFORMATION |  |  |                                                                                                                                     |  |   |  |
| Item1.                                             |  |  | CondensedConsolidated FinancialStatements:                                                                                          |  |        |  |  |   |  |
|                                               |  |  | Condensed ConsolidatedBalance Sheets as of June 30, 2006 (unaudited) andMarch 31,2006                                               |  |        |  |  | 1      |  |
|                                               |  |  | CondensedConsolidated Statements of Operations for the Three Months endedJune 30, 2006 and 2005(unaudited)                          |  |        |  |  | 2      |  |
|                                               |  |  | CondensedConsolidated Statements of Changes in Stockholders' Equity(Deficiency) for the Three Months ended June 30, 2006(unaudited) |  |        |  |  | 3      |  |
|                                               |  |  | CondensedConsolidated Statements of Cash Flows for the Three Months endedJune 30, 2006 and 2005(unaudited)                     |  |        |  |  | 4      |  |
|                                               |  |  | Notes toUnaudited Condensed Consolidated FinancialStatements                                                                        |  |        |  |  | 5      |  |
| Item2.                                             |  |  | Management’s Discussion and Analysis of FinancialCondition and Results ofOperations                                           |  |        |  |  | 27     |  |
| Item3.                                             |  |  | Quantitative and Qualitative Disclosures About MarketRisk                                                                           |  |        |  |  | 37     |  |
| Item4.                                             |  |  | Controls andProcedures                                                                                                              |  |        |  |  | 37     |  |
| PARTII.    OTHERINFORMATION    |  |  |                                                                                                                                     |  |   |  |
| Item1.                                             |  |  | LegalProceedings                                                                                                                    |  |        |  |  | 38     |  |
| Item1A.                                            |  |  | RiskFactors                                                                                                                         |  |        |  |  | 38     |  |
| Item2.                                             |  |  | Unregistered Sales of Equity Securities and Use ofProceeds                                                                          |  |        |  |  | 38     |  |
| Item3.                                             |  |  | Defaults Upon SeniorSecurities                                                                                                      |  |        |  |  | 39     |  |
| Item4.                                             |  |  | Submission of Matters to a Vote of SecurityHolders                                                                                  |  |        |  |  | 39     |  |
| Item5.                                             |  |  | OtherInformation                                                                                                                    |  |        |  |  | 39     |  |
| Item6.                                             |  |  | Exhibits                                                                                                                            |  |        |  |  | 39     |  |
| SIGNATURES                                         |  |  |                                                                                                                                |  |        |  |  |   |  |
|                                                    |

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Table of Contents

PART I. FINANCIALINFORMATION

Item 1.    Condensed Consolidated FinancialStatements

CASTLE BRANDS INC. AND SUBSIDIARIESCondensedConsolidated BalanceSheets

|                                                                                                                                                                                            |  |  |              |   |             |                |  |  |  |   |             |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--------------|---|-------------|----------------|--|--|--|---|-------------|---|
|                                                                                                                                                                                       |  |  | June30, 2006 |   |             | March 31, 2006 |
|                                                                                                                                                                                       |  |  | (Unaudited)  |   |             |           |
| ASSETS                                                                                                                                                                                     |  |  |              |   |        |                |  |  |  |   |        |   |
| CURRENTASSETS                                                                                                                                                                              |  |  |              |   |        |                |  |  |  |   |        |   |
| Cash and cashequivalents                                                                                                                                                                   |  |  |              | $ | 20,401,781  |                |  |  |  | $ | 1,392,016   |   |
| Accountsreceivable – net of allowance for doubtful accounts of$422,967 and $395,207                                                                                             |  |  |              |   | 4,574,848   |                |  |  |  |   | 3,511,215   |   |
| Due fromaffiliates                                                                                                                                                                         |  |  |              |   | 992,889     |                |  |  |  |   | 953,616     |   |
| Inventories                                                                                                                                                                                |  |  |              |   | 7,539,598   |                |  |  |  |   | 6,673,235   |   |
| Prepaidexpenses and other current assets                                                                                                                                                   |  |  |              |   | 1,444,227   |                |  |  |  |   | 1,021,369   |   |
| TOTALCURRENT ASSETS                                                                                                                                                                        |  |  |              |   | 34,953,343  |                |  |  |  |   | 13,551,451  |   |
| EQUIPMENT– net                                                                                                                                                                       |  |  |              |   | 470,464     |                |  |  |  |   | 407,983     |   |
| OTHERASSETS                                                                                                                                                                                |  |  |              |   |        |                |  |  |  |   |        |   |
| Intangibleassets – net of accumulated amortization of $1,577,437 and$1,379,389                                                                                                  |  |  |              |   | 13,826,934  |                |  |  |  |   | 13,936,427  |   |
| Goodwill                                                                                                                                                                                   |  |  |              |   | 11,649,430  |                |  |  |  |   | 11,649,430  |   |
| Deferredregistration costs                                                                                                                                                                 |  |  |              |   | —     |                |  |  |  |   | 2,823,594   |   |
| Restrictedcash                                                                                                                                                                             |  |  |              |   | 376,544     |                |  |  |  |   | 362,293     |   |
| Otherassets                                                                                                                                                                                |  |  |              |   | 577,386     |                |  |  |  |   | 913,032     |   |
| TOTALASSETS                                                                                                                                                                                |  |  |              | $ | 61,854,101  |                |  |  |  | $ | 43,644,210  |   |
| LIABILITIESAND STOCKHOLDERS’ EQUITY(DEFICIENCY)                                                                                                                                      |  |  |              |   |        |                |
| CURRENTLIABILITIES                                                                                                                                                                         |  |  |              |   |        |                |  |  |  |   |        |   |
| Currentmaturities of notes payable and capital leases                                                                                                                                      |  |  |              | $ | 1,352,244   |                |  |  |  | $ | 3,678,547   |   |
| Accountspayable                                                                                                                                                                            |  |  |              |   | 5,106,516   |                |  |  |  |   | 3,757,515   |   |
| Accruedexpenses, put warrant payable and derivative instrument                                                                                                                             |  |  |              |   | 871,296     |                |  |  |  |   | 2,986,188   |   |
| Due tostockholders and affiliates                                                                                                                                                          |  |  |              |   | 1,804,251   |                |  |  |  |   | 2,121,334   |   |
| Convertiblestockholder notes payable                                                                                                                                                       |  |  |              |   | —     |                |  |  |  |   | 1,660,148   |   |
| Stockholdernotes payable                                                                                                                                                                   |  |  |              |   | —     |                |  |  |  |   | 147,113     |   |
| TOTALCURRENT LIABILITIES                                                                                                                                                                   |  |  |              |   | 9,134,307   |                |  |  |  |   | 14,350,845  |   |
| LONGTERM LIABILITIES                                                                                                                                                                       |  |  |              |   |        |                |  |  |  |   |        |   |
| Seniornotes payable                                                                                                                                                                        |  |  |              |   | 4,599,939   |                |  |  |  |   | 4,594,791   |   |
| Notespayable and capital leases, less current maturities                                                                                                                                   |  |  |              |   | 9,020,465   |                |  |  |  |   | 15,350,640  |   |
| Preferredstock and preferred membership units dividends payable                                                                                                                            |  |  |              |   | —     |                |  |  |  |   | 1,546,480   |   |
| Deferredtax liability                                                                                                                                                                      |  |  |              |   | 2,666,477   |                |  |  |  |   | 2,703,515   |   |
|                                                                                                                                                                                       |  |  |              |   | 25,421,188  |                |  |  |  |   | 38,546,271  |   |
| REDEEMABLECONVERTIBLE PREFERREDSTOCK                                                                                                                                                       |  |  |              |   |        |                |  |  |  |   |        |   |
| Redeemable convertiblepreferred stock Series A, B, C; 4,103,750 sharesdesignated; 4,089,463 shares outstanding at March 31,2006, liquidation preference of $33,326,484 |  |  |              |   | —     |                |  |  |  |   | 28,447,683  |   |
| COMMITMENTSAND CONTINGENCIES (Note14)                                                                                                                                                      |  |  |              |   |        |                |  |  |  |   |        |   |
| MINORITYINTERESTS                                                                                                                                                                          |  |  |              |   | 2,331,372   |                |  |  |  |   | 2,674,731   |   |
| STOCKHOLDERS’EQUITY(DEFICIENCY)                                                                                                                                                      |  |  |              |   |        |                |  |  |  |   |        |   |
| Commonstock, $.01 par value, 20,500,000 shares authorized;12,009,741 and 3,106,666 shares issued and oustanding at June30,  2006 and March 31, 2006, respectively           |  |  |              |   | 120,098     |                |  |  |  |   | 31,067      |   |
| Additionalpaid in capital                                                                                                                                                                  |  |  |              |   | 81,574,285  |                |  |  |  |   | 17,182,405  |   |
| Accumulateddeficiency                                                                                                                                                                      |  |  |              |   | (47,468,833 | )              |  |  |  |   | (43,404,887 | ) |
| Accumulatedother comprehensive (loss)/income                                                                                                                                               |  |  |              |   | (124,009    | )              |  |  |  |   | 166,940     |   |
| TOTALSTOCKHOLDERS’ EQUITY (DEFICIENCY)                                                                                                                                               |  |  |              |   | 34,101,541  |                |  |  |  |   | (26,024,475 | ) |
| TOTALLIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)                                                                                                                               |  |  |              | $ | 61,854,101  |                |  |  |  | $ | 43,644,210  |   |
|                                                                                                                                                                                            |

Seeaccompanying notes to the condensed consolidated financialstatements.

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

|                                                                                                        |  |  |                           |   |            |              |  |  |  |   |            |   |
|--------------------------------------------------------------------------------------------------------|--|--|---------------------------|---|------------|--------------|--|--|--|---|------------|---|
|                                                                                                   |  |  | Three-monthsEnded June30, |
|                                                                                                   |  |  | 2006                      |   |            | 2005         |
|                                                                                                   |  |  |                      |   |            | (See Note18) |
| Sales, net                                                                                             |  |  |                           | $ | 5,460,405  |              |  |  |  | $ | 4,916,394  |   |
| Cost of sales                                                                                          |  |  |                           |   | 3,564,059  |              |  |  |  |   | 3,153,192  |   |
| Grossprofit                                                                                            |  |  |                           |   | 1,896,346  |              |  |  |  |   | 1,763,202  |   |
| Sellingexpense (Note 1R)                                                                               |  |  |                           |   | 3,542,572  |              |  |  |  |   | 3,137,387  |   |
| General andadministrative expense (Note 1R)                                                            |  |  |                           |   | 2,235,791  |              |  |  |  |   | 1,137,476  |   |
| Depreciationand amortization                                                                           |  |  |                           |   | 234,494    |              |  |  |  |   | 221,485    |   |
| Netoperating loss                                                                                      |  |  |                           |   | (4,116,511 | )            |  |  |  |   | (2,733,146 | ) |
| Otherincome                                                                                            |  |  |                           |   | 1,300      |              |  |  |  |   | —    |   |
| Other expense                                                                                          |  |  |                           |   | (6,308     | )            |  |  |  |   | (9,455     | ) |
| Foreign exchangegain/(loss)                                                                            |  |  |                           |   | 397,412    |              |  |  |  |   | (312,971   | ) |
| Interest expense,net                                                                                   |  |  |                           |   | (422,676   | )            |  |  |  |   | (258,930   | ) |
| Write-offof deferred financing costs in connection with conversion of 6%subordinated convertible notes |  |  |                           |   | (295,368   | )            |  |  |  |   | —    |   |
| Current(charge)/credit on derivative financial instrument                                              |  |  |                           |   | (2,192     | )            |  |  |  |   | 16,802     |   |
| Income tax benefit                                                                                     |  |  |                           |   | 37,038     |              |  |  |  |   | 37,038     |   |
| Minority interests                                                                                     |  |  |                           |   | 343,359    |              |  |  |  |   | 129,159    |   |
| Netloss                                                                                                |  |  |                           |   | (4,063,946 | )            |  |  |  |   | (3,131,503 | ) |
| Preferredstock dividends                                                                               |  |  |                           |   | 48,238     |              |  |  |  |   | 305,179    |   |
| Netloss attributable to common stockholders                                                            |  |  |                           | $ | (4,112,184 | )            |  |  |  | $ | (3,436,682 | ) |
| Netloss attributable to common stockholders per commonshare                                            |  |  |                           |   |       |              |  |  |  |   |       |   |
| Basic                                                                                                  |  |  |                           | $ | (0.36      | )            |  |  |  | $ | (1.11      | ) |
| Diluted                                                                                                |  |  |                           | $ | (0.36      | )            |  |  |  | $ | (1.11      | ) |
| Weightedaverage shares used incomputation                                                              |  |  |                           |   |       |              |  |  |  |   |       |   |
| Basic                                                                                                  |  |  |                           |   | 11,422,725 |              |  |  |  |   | 3,106,666  |   |
| Diluted                                                                                                |  |  |                           |   | 11,422,725 |              |  |  |  |   | 3,106,666  |   |
|                                                                                                        |

Seeaccompanying notes to the condensed consolidated financialstatements.

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

|                                                                               |  |  |                                     |  |            |                          |  |  |                       |   |         |                                            |  |  |                                             |   |            |   |  |  |  |   |             |   |  |  |  |   |          |   |  |  |  |   |             |   |
|-------------------------------------------------------------------------------|--|--|-------------------------------------|--|------------|--------------------------|--|--|-----------------------|---|---------|--------------------------------------------|--|--|---------------------------------------------|---|------------|---|--|--|--|---|-------------|---|--|--|--|---|----------|---|--|--|--|---|-------------|---|
|                                                                          |  |  |     CommonStock |  |            | AdditionalPaid inCapital |  |  | 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                                                                       |  |  |                                     |  |       |                          |  |  |                       |   |    |                                            |  |  |                                             |   |       |   |  |  |  |   | (4,063,946  | ) |  |  |  |   |     |   |  |  |  |   | (4,063,946  | ) |
| Foreigncurrency translation adjustment                                        |  |  |                                     |  |       |                          |  |  |                       |   |    |                                            |  |  |                                             |   |       |   |  |  |  |   |        |   |  |  |  |   | (290,949 | ) |  |  |  |   | (290,949    | ) |
| Totalcomprehensive loss                                                       |  |  |                                     |  |       |                          |  |  |                       |   |    |                                            |  |  |                                             |   |       |   |  |  |  |   |        |   |  |  |  |   |     |   |  |  |  |   | (4,354,895  | ) |
| Accruedpreferred stock dividends                                              |  |  |                                     |  |       |                          |  |  |                       |   |    |                                            |  |  |                                             |   | (48,238    | ) |  |  |  |   |        |   |  |  |  |   |     |   |  |  |  |   | (48,238     | ) |
| Issuanceof common stock in initial public offering, net of issuance costs     |  |  |                                     |  | 3,500,000  |                          |  |  |                       |   | 35,000  |                                            |  |  |                                             |   | 26,204,748 |   |  |  |  |   |        |   |  |  |  |   |     |   |  |  |  |   | 26,239,748  |   |
| Conversionof redeemable convertible preferred stock, net of fractional shares |  |  |                                     |  | 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 subordinated notes                         |  |  |                                     |  | 857,143    |                          |  |  |                       |   | 8,571   |                                            |  |  |                                             |   | 5,991,429  |   |  |  |  |   |        |   |  |  |  |   |     |   |  |  |  |   | 6,000,000   |   |
| Vestingof stock options as compensation                                       |  |  |                                     |  |       |                          |  |  |                       |   |    |                                            |  |  |                                             |   | 10,575     |   |  |  |  |   |        |   |  |  |  |   |     |   |  |  |  |   | 10,575      |   |
| Estimatedfair value ascribed to warrants issued to financialconsultant        |  |  |                                     |  |       |                          |  |  |                       |   |    |                                            |  |  |                                             |   | 283,727    |   |  |  |  |   |        |   |  |  |  |   |     |   |  |  |  |   | 283,727     |   |
| Stock-basedcompensation                                                       |  |  |                                     |  |       |                          |  |  |                       |   |    |                                            |  |  |                                             |   | 494,494    |   |  |  |  |   |        |   |  |  |  |   |     |   |  |  |  |   | 494,494     |   |
| BALANCE,JUNE 30, 2006                                                         |  |  |                                     |  | 12,009,741 |                          |  |  |                       | $ | 120,098 |                                            |  |  |                                             | $ | 81,574,285 |   |  |  |  | $ | (47,468,833 | ) |  |  |  | $ | (124,009 | ) |  |  |  | $ | 34,101,541  |   |
|                                                                               |

Seeaccompanying notes to the condensed consolidated financialstatements.

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CASTLE BRANDS INC. andSUBSIDIARIESCondensed Consolidated Statements of CashFlows(Unaudited)

|                                                                                                           |  |  |                           |   |             |              |  |  |  |   |            |   |
|-----------------------------------------------------------------------------------------------------------|--|--|---------------------------|---|-------------|--------------|--|--|--|---|------------|---|
|                                                                                                      |  |  | Three-monthsEnded June30, |
|                                                                                                      |  |  | 2006                      |   |             | 2005         |
| CASHFLOWS FROM OPERATING ACTIVITIES                                                                       |  |  |                      |   |             | (See Note18) |
| Net loss                                                                                                  |  |  |                           | $ | (4,063,946  | )            |  |  |  | $ | (3,131,503 | ) |
| Adjustmentsto reconcile net loss to net cash used in operatingactivities                                  |  |  |                           |   |        |              |  |  |  |   |       |   |
| Depreciation andamortization                                                                              |  |  |                           |   | 234,494     |              |  |  |  |   | 221,485    |   |
| Minorityinterest in net loss of consolidated subsidiary                                                   |  |  |                           |   | (343,359    | )            |  |  |  |   | (129,159   | ) |
| Loss ondisposal of fixed assets                                                                           |  |  |                           |   | —     |              |  |  |  |   | 11,816     |   |
| Write-off ofdeferred financing costs                                                                      |  |  |                           |   | 92,730      |              |  |  |  |   | 76,533     |   |
| Currentcharge/(credit) on derivative financial instrument                                                 |  |  |                           |   | 2,192       |              |  |  |  |   | (16,802    | ) |
| Deferred taxbenefit                                                                                       |  |  |                           |   | (37,038     | )            |  |  |  |   | (37,038    | ) |
| Effect ofchanges in foreign currency rate                                                                 |  |  |                           |   | (396,302    | )            |  |  |  |   | 221,632    |   |
| Stock-basedcompensation expense                                                                           |  |  |                           |   | 494,494     |              |  |  |  |   | —    |   |
| Non-cashinterest charge                                                                                   |  |  |                           |   | 283,727     |              |  |  |  |   |       |   |
| Write-off ofdeferred financing costs in connection with conversion of 6%subordinated convertible notes    |  |  |                           |   | 295,368     |              |  |  |  |   | —    |   |
| Changesin operations, assets andliabilities                                                               |  |  |                           |   |        |              |  |  |  |   |       |   |
| Increase inaccounts receivable                                                                            |  |  |                           |   | (999,502    | )            |  |  |  |   | (1,030,374 | ) |
| Increasein due from related parties –  GXB                                                |  |  |                           |   | (38,911     | )            |  |  |  |   | (286,975   | ) |
| Increasein inventory                                                                                      |  |  |                           |   | (756,663    | )            |  |  |  |   | (220,758   | ) |
| Increasein prepaid expenses and supplies                                                                  |  |  |                           |   | (417,470    | )            |  |  |  |   | (326,033   | ) |
| Increasein other assets                                                                                   |  |  |                           |   | (5,310      | )            |  |  |  |   | (85,551    | ) |
| (Decrease)/increasein accounts payable, accrued expenses, put warrant payable andderivative instrument    |  |  |                           |   | (375,185    | )            |  |  |  |   | 706,483    |   |
| Decreasein due to related parties                                                                         |  |  |                           |   | (335,435    | )            |  |  |  |   | (336,042   | ) |
| Totaladjustments                                                                                          |  |  |                           |   | (2,302,170  | )            |  |  |  |   | (1,230,783 | ) |
| NETCASH USED IN OPERATING ACTIVITIES                                                                      |  |  |                           |   | (6,366,116  | )            |  |  |  |   | (4,362,286 | ) |
| CASHFLOWS FROM INVESTINGACTIVITIES                                                                        |  |  |                           |   |        |              |  |  |  |   |       |   |
| Acquisition ofproperty and equipment                                                                      |  |  |                           |   | (79,645     | )            |  |  |  |   | (39,434    | ) |
| Acquisition ofintangible assets                                                                           |  |  |                           |   | (101,725    | )            |  |  |  |   | (32,105    | ) |
| Businessacquisitions –  net of cash acquired                                              |  |  |                           |   | —     |              |  |  |  |   | (3,308     | ) |
| NETCASH USED IN INVESTING ACTIVITIES                                                                      |  |  |                           |   | (181,370    | )            |  |  |  |   | (74,847    | ) |
| CASHFLOWS FROM FINANCINGACTIVITIES                                                                        |  |  |                           |   |        |              |  |  |  |   |       |   |
| Repayment of notespayable                                                                                 |  |  |                           |   | (7,471,519  | )            |  |  |  |   | (1,753,852 | ) |
| Proceedsfrom notespayable                                                                                 |  |  |                           |   | 4,614,913   |              |  |  |  |   | 5,595,996  |   |
| Paymentsof obligations under capital leases                                                               |  |  |                           |   | (860        | )            |  |  |  |   | (1,089     | ) |
| Issuance of commonstock                                                                                   |  |  |                           |   | 31,500,000  |              |  |  |  |   | —    |   |
| Paymentsfor costs of stock issuances                                                                      |  |  |                           |   | (3,085,309  | )            |  |  |  |   | (36,929    | ) |
| NETCASH PROVIDED BY FINANCING ACTIVITIES                                                                  |  |  |                           |   | 25,557,225  |              |  |  |  |   | 3,804,126  |   |
| EFFECTSOF FOREIGN CURRENCY TRANSLATION                                                                    |  |  |                           |   | 26          |              |  |  |  |   | (11,949    | ) |
| NETINCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS                                                       |  |  |                           |   | 19,009,765  |              |  |  |  |   | (644,956   | ) |
| CASHAND CASH EQUIVALENTS - BEGINNING                                                            |  |  |                           |   | 1,392,016   |              |  |  |  |   | 5,676,398  |   |
| CASHAND CASH EQUIVALENTS - ENDING                                                               |  |  |                           | $ | 20,401,781  |              |  |  |  | $ | 5,031,442  |   |
| SUPPLEMENTALDISCLOSURES                                                                                   |  |  |                           |   |        |              |  |  |  |   |       |   |
| Scheduleof non-cash investing and financingactivities                                                     |  |  |                           |   |        |              |  |  |  |   |       |   |
| Conversion ofredeemable convertible preferred stock, net of fractional shares, byissuance of common stock |  |  |                           | $ | (28,447,667 | )            |  |  |  | $ | —    |   |
| Issuance ofcommon 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                                                         |  |  |                           | $ | 1,663,765   |              |  |  |  | $ | —    |   |
| Conversionof 40% of 6% convertible subordinated notes by issuanceof commonstock                           |  |  |                           | $ | (6,000,000  | )            |  |  |  | $ | —    |   |
| Issuanceof common stock in initial publicoffering                                                         |  |  |                           | $ | 6,000,000   |              |  |  |  | $ | —    |   |
| Interestpaid                                                                                              |  |  |                           | $ | 489,396     |              |  |  |  | $ | 55,161     |   |
| Income taxespaid                                                                                          |  |  |                           | $ | —     |              |  |  |  | $ | —    |   |
|                                                                                                           |

Seeaccompanying notes to the condensed consolidated financialstatements.

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CASTLE BRANDS INC.AND SUBSIDIARIES Notes to Condensed Consolidated FinancialStatements

|  |
|--|
|  |  |
|  |

NOTE 1 –ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | A.  | Description ofbusiness and business combination – Castle Brands Inc. isthe successor to Great Spirits Company, LLC, a Delaware limitedliability company (‘‘GSC’’). GSC was formed inFebruary 1998. In May 2003, Great Spirits (Ireland) Limited, a whollyowned subsidiary of GSC, began operations in Ireland to marketGSC's products internationally. In July 2003, GSRWB, Inc.(renamed Castle Brands Inc.) and its wholly owned subsidiary, GreatSpirits Corp. (renamed Castle Brands (USA) Corp.)(‘‘CB-USA’’), were formed under the laws ofDelaware in contemplation of a pending acquisition. On December1, 2003, Castle Brands Inc. acquired The Roaring Water Bay SpiritsGroup Limited and The Roaring Water Bay Spirits Marketing and SalesCompany Limited and their related entities (collectively,‘‘Roaring Water Bay’’). The acquisition hasbeen accounted for under purchase accounting. Simultaneously, GSC wasmerged into CB-USA, and Castle Brands Inc. issued stock to GSC'sshareholders in exchange for their shares of GSC. Subsequent to theacquisition, The Roaring Water Bay Spirits Group Limited was renamedCastle Brands Spirits Group Limited (‘‘CBIreland’’) and The Roaring Water Bay Spirits Marketing andSales Company Limited was renamed Castle Brands Spirits Marketing andSales Company Limited (‘‘CB-UK’’). |

In February  2005, Castle Brands Inc. acquired60% of the shares of Gosling-Castle Partners Inc.(‘‘GCP’’), which holds the worldwidedistribution rights (excluding Bermuda) to Gosling's rum andrelated products.

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

The accompanying condensed consolidatedfinancial statements do not include all of the information and footnotedisclosures normally included in financial statements prepared inaccordance with U.S. generally accepted accounting principles; but, inthe opinion of management, contain all adjustments (which consist ofonly normal recurring adjustments) necessary for a fair presentation ofsuch financial information. Results of operations for interim periodsare not necessarily indicative of those to be achieved for full fiscalyears. These condensed consolidated financial statements should be readin conjunction with the Company's audited consolidated financialstatements for the fiscal year ended March 31, 2006 included in theCompany's Annual Report on Form 10-K filed with the Securitiesand Exchange Commission.

|  |          |                                                                                                                                                                                                                 |
|--|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | B.  | Brands– Vodka  —  Boru vodka, is an ultra-pure,quadruple distilled and specially filtered premium vodka. Boru isproduced in Ireland and has three flavor extensions (citrus, orange andcrazzberry). |

 Rum  —Gosling's rums, a family of premium rums with a 200-year history,for which the Company is, through its export venture GCP, the exclusivemarketer outside of Bermuda, including the award-winningGosling's Black Seal rum; and Sea Wynde, a premium rum developedand introduced by the Company in 2001.

 IrishWhiskey  — Knappogue Castle Whiskey, a vintage-datedpremium single-malt Irish whiskey; Knappogue Castle 1951, a purepot-still whiskey that has been aged for 36  years; and theClontarf Irish whiskeys, a family of premium Irish whiskeys, availablein single malt, reserve and classic pure grain versions.

Liqueurs/Cordials  — Brady's Irish cream,a premium Irish cream liqueur; Celtic Crossing, a premium Irishliqueur; and, pursuant to an exclusive U.S.  marketingarrangement, Pallini Limoncello, Raspicello and Peachello premiumItalian liqueurs.

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|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | C.  | Principles ofconsolidation –  The consolidated financialstatements include 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 subsidiary Gosling-CastlePartners, Inc. with adjustments for income or loss allocated based uponpercentage of ownership. The accounts of the subsidiaries have beenincluded as of the date of acquisition. All significant intercompanytransactions and balances have been eliminated. |

|  |          |                                                                                                                                                                                                                                                                                |
|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | D.  | Organization and operations – TheCompany is principally engaged in the manufacture, marketing and saleof fine spirit brands of vodka, Irish whiskey, rums and liqueurs (the‘‘products’’) in the United States, Canada,Europe, and the Caribbean. |

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

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | F.  | Tradeaccounts receivable –  The Company records tradeaccounts receivable at net realizable value. This value includes anappropriate allowance for estimated uncollectible accounts to reflectanticipated losses on the trade accounts receivable balances. TheCompany calculates this allowance based on its history of write-offs,level of past due accounts based on contractual terms of thereceivables and its relationships with and economic status of theCompany's customers. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | G.  | 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 retail channel. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | H.  | Inventories – Inventories, whichcomprise distilled spirits, raw materials (bulk spirits, bottles,labels and caps), packaging and finished goods, is valued at the lowerof cost or market, using the weighted average cost method. The Companyassesses the valuation of its inventories and reduces the carryingvalue of those inventories that are obsolete or in excess of theCompany's forecasted usage to their estimated net realizablevalue. The Company estimates the net realizable value of suchinventories 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. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | I.  | Equipment – Equipment consists ofoffice equipment, computers and software and furniture and fixtures.When assets are retired or otherwise disposed of, the cost and relateddepreciation is removed from the accounts, and any resulting gain orloss is recognized in the statement of operations. Equipment isdepreciated using the straight-line method over the estimated usefullives of the assets ranging from three to five years. Depreciationexpense for the three-months ended June 30, 2006 and 2005 totaled$36,446 and $27,855, respectively |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | J.  | Goodwill and other intangible assets– Goodwill represents the excess of purchase price includingrelated costs over the value assigned to the net tangible andidentifiable intangible assets of businesses acquired. As of June 30,2006 and March  31, 2006, goodwill and other indefinite livedintangible assets that arose from acquisitions were $11.6million and $11.6  million, respectively. Goodwill and otherintangible assets with indefinite lives are not amortized, but insteadare tested for impairment annually, or more frequently if circumstancesindicate a possible impairment may exist. The Company evaluates therecoverability of goodwill and indefinite lived intangible assets usinga two-step impairment test approach at the reporting unit level. In thefirst step the fair value for the reporting unit is compared to itsbook value including goodwill. In the case that the fair value of thereporting unit is less than the book value, a second step is performedwhich compares the implied fair value of the reporting unit'sgoodwill to the book value of the goodwill. The fair value for thegoodwill is determined based on the difference between the fair valueof the reporting unit and the net fair value of the identifiable assetsand liabilities of such reporting unit. If the fair value of thegoodwill is less than the book value, the difference is recognized asan impairment. Intangible |

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|  |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |   | 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, inaccordance with the methods prescribed above. The Company concludedthat no impairment existed at March 31, 2006. Amortization expense forthe three-months ended June 30, 2006 and 2005 totaled $198,048 and$193,630, respectively |

|  |          |                                                                                                                                                                                                                                                    |
|--|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | K.  | Deferredregistration costs – The costs associated with theCompany's initial public offering were initially recorded asdeferred registration costs then charged to additional paid in capitalat the close of the offering on April  10, 2006. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | L.  | Shipping and handling – TheCompany reflects as inventory costs freight-in and related externalhandling charges relating to the purchase of raw materials and finishedgoods. These costs are charged to cost of sales at the time theunderlying product is sold. The Company also incurs shipping costs inconnection with its various marketing activities, including theshipment of point of sale materials to the Company's regionalsales managers and customers, and the costs of shipping product inconnection with its various marketing programs and promotions. Theseshipping charges are included in selling expense. Shipping chargesincluded in selling expense amounted to $137,161 and $92,153 forthree-months ended June  30, 2006 and 2005, respectively. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | M.  | Excise taxes and duty – Excisetaxes and duty are computed at standard rates based on alcohol proofper gallon/liter and are paid after finished goods are imported intothe United States and Great Britain and then transferred out of‘‘bond.’’ Excise taxes and duty are recorded toinventory as a component of the cost of the underlying finished goods.When the underlying products are sold ‘‘exwarehouse’’ the sales price reflects the taxes paid and theinventoried excise taxes and duties are charged to cost of sales.During the three-months ended June 30, 2006 and 2005, the captions forthe Company's revenues and cost of sales included the amounts ofexcise tax and duties presented in the table below: |

|              |  |  |                           |   |           |      |  |  |  |   |         |  |
|--------------|--|--|---------------------------|---|-----------|------|--|--|--|---|---------|--|
|         |  |  | Three-monthsended June30, |
|         |  |  | 2006                      |   |           | 2005 |
| Sales,net    |  |  |                           | $ | 1,133,939 |      |  |  |  | $ | 992,181 |  |
| Cost ofSales |  |  |                           | $ | 1,133,939 |      |  |  |  | $ | 992,181 |  |
|              |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | N.  | Distributorcharges and promotional goods – The Company incurs chargesfrom its distributors for a variety of transactions and servicesrendered by the distributor, including product depletions, productsamples for various promotional purposes, in-store tastings andtraining where legal, and local advertising where legal. Such chargesare reflected as selling expense as incurred. In addition, for certainof its distributors, the Company has entered into arrangements wherebythe purchase of a particular product or products by a distributor isaccompanied by a percentage of the sale being composed of promotionalgoods or as a predetermined discount percentage of dollars off invoice.In such cases, the cost of the promotional goods is charged to cost ofsales and dollars off invoice are a reduction to revenue. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | O.  | Foreign currency translation–  The functional currency for the Company's foreignoperations is the euro in Ireland, the British pound in the UnitedKingdom, and the Canadian dollar in Canada. The translation from theapplicable foreign currencies to U.S.  dollars is performed forbalance sheet accounts using current exchange rates in effect at thebalance sheet date and for revenue and expense accounts using aweighted average exchange rate during the period. The resultingtranslation adjustments are recorded as a component of othercomprehensive income. Gains or losses resulting from foreign currencytransactions are included in other income/expenses. |

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|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | P.  | Fair value offinancial instruments  –  SFAS  No.107, ‘‘Disclosures About Fair Value of FinancialInstruments,’’ defines the fair value of a financialinstrument as the amount at which the instrument could be exchanged ina current transaction between willing parties and requires disclosureof the fair value of certain financial instruments. The Companybelieves that there is no material difference between the fair valueand the reported amounts of financial instruments in the balance sheetsdue to the short term maturity of these instruments, or with respect tothe debt, as compared to the current borrowing rates available to theCompany. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | Q.  | Income taxes  –Under the asset and liability method of SFAS  No.  109‘‘Accounting for Income Taxes,’’ deferred taxassets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carryingamounts of existing assets and liabilities and their respective taxbasis. A valuation allowance is provided to the extent a deferred taxasset is not considered recoverable. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | R.  | Stock-based compensation –Effective April  1, 2006, the Company began recordingcompensation expense associated with stock options and other forms ofequity compensation in accordance with Statement of FinancialAccounting Standards No.  123 (revised 2004), Share-BasedPayment (SFAS  123R), as interpreted by SEC Staff AccountingBulletin  No.  107. Prior to April  1, 2006, theCompany accounted for stock options according to the provisions ofAccounting Principles Board Opinion No.  25, Accounting forStock Issued to Employees (APB  25), and relatedinterpretations, and therefore no related compensation expense wasrecorded for awards granted with no intrinsic value. The Companyadopted the modified prospective transition method provided for underSFAS 123R, and consequently, had not retroactively adjusted resultsfrom prior periods. Under this transition method, compensation costassociated with stock options recognized in the three-month periodended June 30, 2006 includes: 1)  amortization related to theremaining unvested portion of all stock option awards granted prior toApril  1, 2006 over the requisite service period based on thegrant-date fair value estimated in accordance with the originalprovisions of SFAS  123, Accounting for Stock-BasedCompensation ; and 2) amortization related to all stock optionawards granted on or subsequent to April  1, 2006, based on thegrant-date fair value estimated in accordance with the provisions ofSFAS  123R. A compensation charge is recorded when it is probablethat 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 adoptionof SFAS  123R, incremental compensation expense for thethree-month period ended June 30, 2006 amounted to $494,494, of which$84,869 is included in selling expense and $409,625 is included ingeneral and administrative expense in the accompanying condensedconsolidated statements of operations. At June 30, 2006 totalunrecognized compensation cost amounted to approximately $3,046,127,representing 823,233 unvested options.

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For stock options granted prior tothe adoption of SFAS  123R, if compensation expense for theCompany's stock option plan had been determined based uponestimated fair values at the grant dates in accordance with SFASNo.  123, the Company's pro forma net loss and pro formabasic and diluted net loss per common share would have been asfollows:

|                                                         |  |  |                                         |   |            |   |
|---------------------------------------------------------|--|--|-----------------------------------------|---|------------|---|
|                                                    |  |  | Forthe three-months ended June  30,2005 |
|                                                    |  |  |                                         |   |       |   |
| Net lossattributable to common stockholders, asreported |  |  |                                         | $ | (3,436,682 | ) |
| Stock-basedcompensation expensedetermined               |  |  |                                         |   | (110,453   | ) |
| Proforma net loss attributable to commonstockholders    |  |  |                                         | $ | (3,547,135 | ) |
| Lossper share: Basic and diluted  – asreported    |  |  |                                         | $ | (1.11      | ) |
| Basicand diluted  – proforma                      |  |  |                                         | $ | (1.14      | ) |
|                                                         |

|  |          |                                                                                                                                                                        |
|--|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | S.  | Researchand development costs – The costs of research, developmentand product improvement are charged to expense as incurred and areincluded in selling expense. |

|  |          |                                                                                                                                                                                                                                                                    |
|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | T.  | Advertising  – Advertisingcosts are expensed when the advertising first appears in its respectivemedium. Advertising expense, which is included in selling expense, was$1,066,118 and $1,068,575 for three-months ended June 30, 2006 and2005, respectively. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                   |
|--|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | U.  | Impairment oflong-lived assets – The Company periodically reviews whetherchanges have occurred that would require revisions to the carryingamounts of its long-lived assets. When the sum of the undiscountedexpected future cash flows is less than the carrying amount of theasset, an impairment loss is recognized based on the fair value of theasset. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | V.  | Use of estimates – Thepreparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the financial statements, and thereported amounts of revenues and expenses during the reporting period.Actual results could differ from those estimates. Estimates include theaccounting for items such as evaluating annual impairment tests,allowance for doubtful accounts, depreciation, amortization and expenseaccruals. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | W.  | Recent accountingpronouncements  – In June 2006, the FinancialAccounting Standards Board (‘‘FASB’’) issuedFASB Interpretation No. 48, ‘‘Accounting for Uncertainty inIncome Taxes – an interpretation of FASB Statement No. 109(‘‘FIN 48’’). This interpretation clarifies theaccounting for uncertainty in income taxes recognized in anentity's financial statements in accordance with SFAS No. 109,‘‘Accounting for Income Taxes.’’ It prescribesa recognition threshold and measurement methodology for financialstatement reporting purposes and promulgates a series of newdisclosures of tax positions taken or expected to be taken on a taxreturn for which less than all of the resulting tax benefits areexpected to be realized. This interpretation is effective for fiscalyears beginning after December 15, 2006. The Company will adopt thisinterpretation in the first quarter of fiscal year 2008. We arecurrently evaluating the requirements of FIN 48 and have not yetdetermined the impact on the Company's consolidated financialstatements. |

NOTE 2 – BASIC AND DILUTED NET LOSS PERCOMMON SHARE

 Basic net loss per commonshare is computed by dividing net loss by the weighted average numberof common shares outstanding during the period. Diluted net loss percommon share 

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is computed giving effect to all dilutivepotential common shares that were outstanding during the period.Diluted potential common shares consist of incremental shares issuableupon exercise of stock options and warrants, contingent conversion ofdebentures and convertible preferred stock outstanding. In computingdiluted net loss per share for the three-months ended June 30, 2006 and2005, no adjustment has been made to the weighted average outstandingcommon shares as the assumed exercise of outstanding options andwarrants and the assumed conversion of preferred stock and convertibledebentures is anti-dilutive.

Potential common sharesnot included in calculating diluted net loss per share are asfollows:

|                           |  |  |             |  |           |               |  |  |  |  |           |  |
|---------------------------|--|--|-------------|--|-----------|---------------|--|--|--|--|-----------|--|
|                      |  |  | June30,2006 |  |           | June  30,2005 |
| Stockoptions              |  |  |             |  | 1,228,500 |               |  |  |  |  | 899,500   |  |
| Stockwarrants             |  |  |             |  | 598,618   |               |  |  |  |  | 498,618   |  |
| Convertibledebentures     |  |  |             |  | 1,125,000 |               |  |  |  |  | 1,513,160 |  |
| Convertiblepreferredstock |  |  |             |  | —   |               |  |  |  |  | 3,741,965 |  |
| Total                     |  |  |             |  | 2,952,118 |               |  |  |  |  | 6,653,243 |  |
|                           |

NOTE3 – INVESTMENTS AND ACQUISITIONS

Investment in Gosling-Castle Partners Inc.

In February 2005, the Company entered into a stocksubscription agreement for 60% of the stock of Gosling PartnersInc., whose name was subsequently changed to Gosling-Castle PartnersInc. GCP had no operations prior to the Company entering into the stocksubscription agreement. The original stockholders of GCP were E.Malcolm Gosling and Gosling's Limited and after theCompany's purchase of 60% of the ownership interest, theremaining ownership interests were owned 20% by each of E.Malcolm Gosling and Gosling's Limited. CB-USA had previouslyentered into an exclusive distribution agreement with Gosling'sExport (Bermuda) Limited (‘‘GXB’’) todistribute Gosling's rum in the United States. Gosling PartnersInc. had originally been formed to acquire, and had acquired prior tothe Company's investment in GCP, the following:

|  |              |                                                                                       |
|--|--------------|---------------------------------------------------------------------------------------|
|  | •  | global distribution rights (excludingBermuda) to the Gosling's portfolio of products; |

|  |              |                                                                                  |
|--|--------------|----------------------------------------------------------------------------------|
|  | •  | appointment as the exclusive authorizedglobal exporter for the GXB product line; |

|  |              |                                                                                     |
|--|--------------|-------------------------------------------------------------------------------------|
|  | •  | an exclusive license for the use ofGXB's global trademarks for its brand portfolio. |

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. This promissory note is payablein five installments as follows:

$1,025,000 onApril  1, 2005

$1,125,000 on October  1,2005

$1,000,000 on April  1, 2006

$1,000,000 on October  1, 2006; and

$750,000 on April  1, 2007

Effectivewith the payment of the second installment on October  1, 2005,this promissory note began accruing interest on the unpaid principalamount at the rate of 4%  per annum until the note isrepaid in full. As of June 30, and March  31, 2006, $68,667 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 meetscertain case sale targets during 

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the initial term as set forth in theagreement. (See Note  16  –  Gosling-CastlePartners Inc. Export Agreement with Gosling's Export (Bermuda)Limited). The Company ascribed the entire purchase of $5,000,000 to theGosling global distribution agreement described above. In conjunctionwith this transaction the Company recorded a deferred tax liability of$2,222,222 to reflect the difference between the adjusted book valueand tax basis. This deferred tax liability was recorded as an increaseto the value of the distribution agreement and is included inintangible assets.

NOTE 4 – RESTRICTEDCASH

In connection with the credit facilities asdescribed in Note  6, personal guarantees of the two formermanaging 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 $376,544 and $362,293 (astranslated at the exchange rates in effect on June 30, and March31, 2006, respectively).

NOTE 5 – OVERDRAFTACCOUNTS

CB Ireland and CB-UK maintainoverdraft coverage with a financial institution in Ireland of up to€400,000 ($502,000) and £20,000 ($36,300),respectively. Overdraft balances included in notes payable for theperiods presented totaled $501,699 and $98,327 at June 30, and March31, 2006, respectively.

NOTE 6 – SENIOR NOTESPAYABLE, NOTES  PAYABLE AND CAPITALLEASE

|                                        |  |  |             |   |            |                 |  |  |  |   |            |  |
|----------------------------------------|--|--|-------------|---|------------|-----------------|--|--|--|---|------------|--|
|                                   |  |  | June30,2006 |   |            | March  31, 2006 |
| Notes payable consist of thefollowing: |  |  |             |   |       |                 |  |  |  |   |       |  |
| Revolving creditfacilities (A)         |  |  |             | $ | 633,886    |                 |  |  |  | $ | 332,409    |  |
| Revolvingcreditfacilities (B)          |  |  |             |   | 122,207    |                 |  |  |  |   | 166,283    |  |
| Subordinatednotes (C)                  |  |  |             |   | —    |                 |  |  |  |   | 307,938    |  |
| Seniornotes (D)                        |  |  |             |   | 4,599,939  |                 |  |  |  |   | 4,594,791  |  |
| Subordinatedconvertiblenotes (E)       |  |  |             |   | 9,000,000  |                 |  |  |  |   | 15,000,000 |  |
| Non-interestbearingnotes (F)           |  |  |             |   | 605,081    |                 |  |  |  |   | 1,210,162  |  |
| 9%Promissorynote (G)                   |  |  |             |   | —    |                 |  |  |  |   | 2,000,000  |  |
|                                   |  |  |             |   | 14,961,113 |                 |  |  |  |   | 23,611,583 |  |
| Capitalleases                          |  |  |             |   | 11,535     |                 |  |  |  |   | 12,395     |  |
| Total                                  |  |  |             | $ | 14,972,648 |                 |  |  |  | $ | 23,623,978 |  |
|                                        |

|  |
|--|
|  |  |  |
|  |

|  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | (A) | TheCompany has arranged revolving credit facilities aggregatingapproximately €1,412,303 ($1,772,581) with a lender forworking capital purposes. These facilities are payable on demand,continue until terminated by either party on not less than three-monthsprior written notice, and call for interest at rates ranging from primeplus 3% to 7.85%. The Company also maintains a€190,000 ($238,469) term note with the same lender. Thenote carries an interest rate of 5.2%, is payable on demand andsubject to annual review and renewal by the lender, and calls formonthly payments of principal and interest of €6,377through 2007. |

|  |     |                                                                                                                                                                                                                                                                                     |
|--|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | (B) | The Companyhas arranged revolving credit facilities aggregating approximately£242,000 ($439,545). The facilities, which are payable on demandand subject to annual review and renewal by the lender, call forinterest at rates ranging from prime plus 2% to prime plus2.25%. |

|  |     |                                                                                     |
|--|-----|-------------------------------------------------------------------------------------|
|  | (C) | In connectionwith the Company's acquisition of CB Ireland, the Company issuedto the |

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|  |  |                                                                                                                                                                                                                                                                                                                                                                                               |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | former minority shareholders of CB Ireland€255,000 ($307,937) of subordinated notes, which maturedon July  11, 2007. The notes accrued interest at the rate of5.7%  per annum with the aggregate interest payable beinglimited to €51,000 ($61,588). All outstanding principaland accrued interest on these notes in the amount of€290,328 ($350,600) were paid in April 2006. |

|  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | (D) | On June  9, September 28 andOctober  13, 2004, the Company issued $3,555,000, $1,005,000 and$100,000, respectively, of senior notes collateralized by accountsreceivable and inventories of CB-USA. As issued, these senior notesbore an interest rate of 8%, payable semi-annually onNovember  30th and May  31st, and matured on May  31,2007. Effective August  15, 2005, the terms of these notes weremodified with the consent of the note holders to mature on May31, 2009 in exchange for an interest rate adjustment to 9%. Inaddition, each holder of $1,000 of senior notes received warrants topurchase 25  shares of the Company's common shares. AtJune  30, 2006, there were 116,500 warrants issued andoutstanding in conjunction with issuance of senior notes. Thesewarrants have been valued at $129,195 in the aggregate and have beentreated as a discount to the notes payable. Interest expense pertainingto this discount is recognized, and the notes payable accreted, overthe adjusted term of the notes with a maturity of May 2009. |

|  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | (E) | On March  1, 2005, the Company enteredinto an agreement to issue up to $10,000,000 of subordinatedconvertible notes to a single investor. In June 2005, the Companyissued the remaining $5,000,000 of convertible notes. The notes, whichmature five years from the date of issuance, bear interest at the rateof 6%  per annum which is payable quarterly. The Companyhas the option for the first two years from the date of issuance to payinterest in kind at the rate of 7.5%  per annum. ThroughJune  30, 2006, the Company has accrued and paid all interest incash at the 6% percent rate pursuant to the terms of the noteand has the means and intent to continue to do so. The notes may beconverted into common stock at $8  per share at any time, andshall be converted at the option of the holder or automatically afterthe third year from the date of issuance on the 30th  consecutivetrading day on which the closing price of the common stock is no lessthan $20  per share. 40% of the notes convertedautomatically into common stock upon the completion of our initialpublic offering on April 10, 2006, at a price of $7.00  pershare. |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | In July 2005, the Company entered intoan agreement with an investor to issue $5,000,000 of subordinatedconvertible notes. The closing was completed in August 2005. The notes,which mature five years from the date of issuance, bear interest at therate of 6%  per annum. The Company has the option for thefirst two years from the date of issuance to pay interest in kind atthe rate of 7.5%  per annum. Through June  30, 2006,the Company has accrued and paid all interest in cash at the 6%percent rate pursuant to the terms of the note and has the means andintent to continue to do so. The notes may be converted into commonstock at $8  per share at any time, and shall be convertedautomatically after the third year from the date of issuance on the30th  consecutive trading day on which the closing price of thecommon stock is no less than $20  per share. 40% of thenotes converted automatically into common stock upon the completion ofour initial public offering on April 10, 2006, at a price of$7.00  per share. |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                |
|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | In July 2005, theoriginal $10,000,000 of convertible notes was amended to be equivalentin terms to those of the new $5,000,000 investor. The automaticconversion of 40% of the combined $15,000,000 of convertiblenotes at the $7.00 conversion price upon the closing of the initialpublic offering resulted in the issuance of 107,143 more shares thanwould have been issued at the $8.00 conversion price. |

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|  |     |                                                                                                                                                                                                                                                                                                                                                                               |
|--|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | (F) | On February14, 2005, the Company, through its interest in GCP, entered into anagreement with Gosling's Export (Bermuda) Limited(‘‘GXB’’) to acquire the global distributionrights (excluding Bermuda) to GXB's portfolio of products inexchange for $2,500,000 in non-interest bearing notes due in four equalsemi-annual installments (See Note  3). |

|  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | (G) | On February  17, 2006, the Companyentered into a $5  million credit agreement with an investmenttrust which is a stockholder and controlled by one of theCompany's directors. On February  17, 2006, the Companyborrowed $2.0  million under this credit agreement and issued apromissory note bearing interest at the rate of 9%  perannum, payable at maturity. In addition, the Company paid a $100,000facility fee upon receipt of these funds. The Company repaid alloutstanding principal and accrued interest under this note in theamount of $2,026,000 in April 2006. |

The Companyfinanced the purchase of certain office equipment totaling $17,821included in equipment. The leases call for monthly payments of $337 inprincipal and interest at the rate of 5%  per annum, to bepaid through July 2009. As of June 30, and March  31, 2006, theCompany owed $11,535 and $12,395, respectively, under this lease. As ofJune 30, 2006, future minimum lease payments equaled $12,476 includinginterest.

Principal payments due over the next fiveyears for the above listed notes payable and capital lease are due asfollows (as translated at the exchange rates in effect on June 30,2006):

|                     |  |  |                              |   |            |  |
|---------------------|--|--|------------------------------|---|------------|--|
|                |  |  | Forthe Period ending June30, |
| 2007                |  |  |                              | $ | 1,352,244  |  |
| 2008                |  |  |                              |   | 14,901     |  |
| 2009                |  |  |                              |   | 3,922      |  |
| 2010                |  |  |                              |   | 7,601,581  |  |
| 2011                |  |  |                              |   | 6,000,000  |  |
| Total               |  |  |                              |   | 14,972,648 |  |
| Lesscurrent portion |  |  |                              |   | 1,352,244  |  |
| Noncurrentportion   |  |  |                              | $ | 13,620,404 |  |
|                     |

NOTE 7– ROARING WATER BAY NOTES  PAYABLE

In connection with the Company's acquisition ofRoaring Water Bay in December 2003 (see Note  1.A),€444,389 ($576,372) of subordinated notes were issued byCB Ireland in substitution of subordinated notes of the same amountoriginally issued on April  1, 2001 by CB Ireland. The originalnotes had a maturity date of April  1, 2006 and were non-interest bearing. The replacement notes were non-interest bearing andthe terms called for annual principal payments of€177,743, €133,323 and €133,323on December  1, 2004, 2005 and 2006, respectively. Interest of6% was imputed on these notes at the date of acquisition of$56,653. The note discount was accreted monthly by a charge to interestexpense. For the three-months ended June 30, 2006 and 2005, the Companyrecorded interest expense on these notes of $11,500 and $4,832,respectively.

The remaining principal amounts due onthese notes in the aggregate amount of $159,961 (as translated at theexchange rate in effect on April 20, 2006)  were repaid by theCompany in April 2006.

In connection with theacquisition of Roaring Water Bay (see Note  1.A) in December2003, the former principal shareholders received€1,374,750 of convertible subordinated notes in partialconsideration for their shares in CB Ireland and CB-UK. These noteswere convertible into common shares of the Company at the currentconversion price of €5.22, which was subject to adjustmentfrom time to time as set forth in the note agreement. These convertiblenotes were to mature on December  1, 2006 and had an interestrate of 5% 

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payable quarterly on March  31st,June  30th, September  30th and December  31st. As ofMarch  31, 2006, the Company was indebted in the amount of$1,660,148 on the notes (as translated at the exchange rate in effecton March  31, 2006). These notes converted into 263,362shares of common stock upon the closing of the initial public offeringand $20,726 of accrued interest was paid in April 2006.

NOTE 8– COMMON STOCK

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

 On April  5, 2006, the Securities and ExchangeCommission declared effective the Company's registrationstatement on Form  S-1 (File No.  333-128676) with respectto the Company's initial public offering. The initial publicoffering commenced on April  6, 2006 and terminated after all ofthe registered securities, except for the securities issuable pursuantto the over-allotment option, had been sold. The underwriters in theoffering were Oppenheimer  & Co. Inc., ThinkEquity PartnersLLC and Ladenburg Thalmann  & Co. Inc. On April  10,2006, 3,500,000  shares of common stock were sold on theCompany's behalf at an initial public offering price of$9.00  per share. The Company registered the shares of its commonstock in the initial public offering under the Securities Act of 1933,as amended. The Company's registered shares are currently beingtraded on the American Stock Exchange under the ticker symbol ROX.

 Net proceeds to the company after payment ofissuance costs not already paid as of April  10, 2006 were$26,346,406, determined as follows:

|                                          |  |  |  |   |            |  |
|------------------------------------------|--|--|--|---|------------|--|
| Aggregateoffering proceeds to theCompany |  |  |  | $ | 31,500,000 |  |
| Underwritingdiscounts and commissions    |  |  |  |   | 2,205,000  |  |
| Otherfees andexpenses                    |  |  |  |   | 2,948,594  |  |
| Totalexpenses                            |  |  |  |   | 5,153,594  |  |
| Netproceeds to thecompany                |  |  |  | $ | 26,346,406 |  |
|                                          |

Inaddition, certain transactions occurred at the time of the initialpublic offering and were settled from the net proceeds of suchoffering:

|  |              |                                                                                                                              |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------|
|  | •  | The conversion of all of theCompany's outstanding Series  A convertible preferred stockinto 535,715  shares of common stock; |

|  |              |                                                                                                                              |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------|
|  | •  | The conversion of all of the Company'soutstanding Series  B convertible preferred stock into200,000  shares of common stock; |

|  |              |                                                                                                                                |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------------|
|  | •  | The conversion of all of the Company'soutstanding Series  C convertible preferred stock into3,353,748  shares of common stock; |

|  |              |                                                                                                                                 |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------|
|  | •  | 193,107  shares of common stock wereissued in payment of all of the dividends accrued on preferred stockthrough 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 common stock; |

|  |              |                                                                                                                                                   |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | $6.0  million (40%) of the$15.0  million principal amount of the Company's6%  convertible notes was converted into 857,143shares of common stock; |

|  |              |                                                                                                                                                                |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Unamortizeddeferred financing costs incurred in connection with the $6.0million of 6%  convertible notes referred to above wererecognized as interest expense; |

|  |              |                                                            |
|--|--------------|------------------------------------------------------------|
|  | •  | €255,000 ($307,937) ofsubordinated notes were repaid; |

|  |              |                                                                                                                                                                                                                                                            |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Thebalance of non-interest bearing stockholder notes payable, including$13,888 of aggregate imputed interest on the original notes, from netoffering proceeds ($159,963), adjusted for change in foreign exchangerate at payment date ($1,038) was repaid; |

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|  |              |                                                                                                                                                              |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | $2,005,000 ofborrowings under the February 2006 credit facility (including $5,000 ofinterest accrued from April  1, 2006 through April  10,2006) was repaid; |

|  |              |                                           |
|--|--------------|-------------------------------------------|
|  | •  | $91,222 of accruedinterest was paid;  and |

|  |              |                                                                                                                            |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------|
|  | •  | $204,952 ofall accrued dividends on the preferred membership units of thepredecessor company, Great Spirits, LLC was paid. |

AtJune 30, 2006, the Company had 12,009,741 common sharesoutstanding.

NOTE 9 – REDEEMABLE CONVERTIBLEPREFERRED STOCK

The Company had convertiblepreferred stock outstanding, as follows:

|                                                                                                                                                                                                                                                                                                                                                                                                                         |  |  |              |   |            |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--------------|---|------------|---|
| Description                                                                                                                                                                                                                                                                                                                                                                                                             |  |  | March31,2006 |
| Convertible Preferred Stock,Series  A, $1  par value, 550,000  shares authorized,535,715  shares issued and outstanding; cash dividends at5%, or accrued dividends at 7% at Company's option,paid semi-annually; 20% redemption per year commencing withsixth anniversary of issuance, automatic conversion to common stock atconversion price of $7  per share upon initial public offering of$10  million ormore      |  |  |              | $ | 3,750,005  |   |
| Convertible Preferred Stock,Series  B, $1  par value, 200,000  shares authorized,issued and outstanding; cash dividends at 5%, or accrueddividends at 7% at Company's option, paid semi-annually,20% redemption per year commencing with sixth anniversary ofissuance, automatic conversion to common stock at conversion price of$6  per share upon initial public offering of $10  millionor more                     |  |  |              |   | 1,200,000  |   |
| Convertible PreferredStock, Series  C, $1  par value, 3,353,750  sharesauthorized, issued and outstanding at March  31, 2006; cashdividends at 4%, or accrued dividends at 6% atCompany's option, paid semi-annually; 20% redemption peryear commencing with sixth anniversary of issuance, automaticconversion to common stock at conversion price of $8  per shareupon initial public offering of $10  million ormore |  |  |              |   | 26,830,000 |   |
| (SeeNote  12 for consideration given to warrant beneficial conversionfeatures)                                                                                                                                                                                                                                                                                                                                          |  |  |              |   |       |   |
| Subtotal                                                                                                                                                                                                                                                                                                                                                                                                                |  |  |              |   | 31,780,005 |   |
| Offeringcosts and value ascribed towarrants                                                                                                                                                                                                                                                                                                                                                                             |  |  |              |   | (3,332,322 | ) |
| Net                                                                                                                                                                                                                                                                                                                                                                                                                     |  |  |              | $ | 28,447,683 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                         |

Effectivewith the Company's initial public offering on April 6, 2006, allof the Company's outstanding Series  A convertiblepreferred stock converted into 535,715  shares of common stock;all of the Company's outstanding Series  B convertiblepreferred stock converted into 200,000  shares of common stock;and all of the Company's outstanding Series  C convertiblepreferred stock converted into 3,353,748  shares (net offractional shares) of common stock.

NOTE 10 – FOREIGNCURRENCY FORWARD CONTRACTS

The Company entersinto forward contracts to attempt to limit its exposure to foreigncurrency fluctuations. The Company recognizes in the balance sheetderivative contracts at fair value, and reflects any net gains andlosses currently in earnings. At March  31, 2006, the Companyheld outstanding forward exchange positions for the purchase of euros,expiring 

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through July 2006, in the amount of $723,700with a weighted average conversion rate of €1 =$1.2062 as compared to the spot rate at March  31, 2006 of€1 = $1.2076. At June 30, 2006, the Company heldoutstanding forward exchange positions for the purchase of euros,expiring through September 2006, in the amount of $831,165 with aweighted average conversion rate of €1 = $1.2722 ascompared to the spot rate at June 30, 2006 of €1=  $1.2551. Gain or loss on foreign transactions, which wasde  minimus, is included in foreign exchange gain (loss) on theaccompanying condensed statements of operations.

NOTE 11– PROVISION FOR INCOME TAXES

TheCompany's income tax benefit for the three-months ended June 30,2006 and 2005 consists of federal and state and local taxesattributable to Gosling-Castle Partners Inc.(‘‘GCP’’) which does not file a consolidatedincome tax return with the Company. In connection with the investmentin GCP, the Company recorded a deferred tax liability on the ascribedvalue of the acquired intangible assets of $2,222,222, increasing thevalue of the asset. The deferred tax liability is being reversed and adeferred tax benefit is being recognized over the amortization periodof the intangible asset (15 years). For the three-months ended June 30,2006 and 2005, the Company recognized $37,038 and $37,038 of deferredtax benefit, respectively.

On December 1, 2003, theCompany recorded a deferred tax liability of $629,444 as the amountascribed to the difference between the book and tax basis of thetangible and intangible assets acquired as additional goodwill.

NOTE 12 – STOCK OPTIONS AND WARRANTS

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | A.  | Stock Options  – In July2003, the Company implemented the 2003 Stock Incentive Plan(‘‘the Plan’’) which provides for awards ofincentive and non-qualified stock options, restricted stock and stockappreciation rights for its officers, employees, consultants anddirectors in order to attract and retain such individuals whocontribute to the Company's success by their ability, ingenuityand industry knowledge, and to enable such individuals to participatein the long-term success and growth of the Company by giving them anequity interest in the Company. There are 2,000,000 common sharesreserved and available for distribution under the Plan. In January2004, the Board of Directors approved the Plan and the grant of 553,000options to its full-time U.S. and international employees at anexercise price of $6.00  per share. These options vest over afour or five year period and expire ten years after the grant date. |

In connection with the Company's acquisition of CBIreland and CB-UK, the Company granted to an individual the option topurchase up to 10,000  shares of common stock at an exerciseprice of $6.00  per share at any time through November  30,2013.

Stock-based compensation expense recognized inthe condensed consolidated statement of operations for the three-monthsended June 30, 2006 amounted to $494,494. No cash was received fromoptions exercised under all share-based payment arrangements for thethree-months ended June 30, 2006.

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

|                                                                |
|----------------------------------------------------------------|
|                                                                |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                           |  |  | Three-monthsended June30, |
|                                                           |  |  | 2006 |  |  | 2005 |
|                                                           |  |  | Shares |  |  | WeightedAverage Exercise Price |  |  | Shares |  |  | WeightedAverage Exercise Price |
| Outstanding atbeginning ofperiod                               |  |  |  |  | 888,500 |  |  |  |  | $ | 6.82 |  |  |  |  |  | 745,500 |  |  |  |  | $ | 6.47 |  |
| Granted                                                        |  |  |  |  | 340,000 |  |  |  |  |  | 7.96 |  |  |  |  |  | 150,000 |  |  |  |  |  | 8.00 |  |
| Forfeited                                                      |  |  |  |  | — |  |  |  |  |  | — |  |  |  |  |  | — |  |  |  |  |  | — |  |
| Outstandingat end ofperiod                                     |  |  |  |  | 1,228,500 |  |  |  |  |  | 7.14 |  |  |  |  |  | 895,500 |  |  |  |  |  | 6.75 |  |
| Optionsexercisable at periodend                                |  |  |  |  | 405,267 |  |  |  |  | $ | 6.63 |  |  |  |  |  | 174,533 |  |  |  |  | $ | 6.36 |  |
| Weightedaverage fair value of options granted during theperiod |  |  |  |  |   |  |  |  |  | $ | 3.46 |  |  |  |  |  |   |  |  |  |  | $ | 2.17 |  |
|                                                                |

Thefollowing table represents information relating to stock optionsoutstanding at June 30,2006:

|                             |
|-----------------------------|
|                             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                        |  |  | OptionsOutstanding |  |  | OptionsExercisable |
| Shares                      |  |  | WeightedAverageExercisePrice |  |  | WeightedAverageRemainingLifein Years |  |  | Shares |  |  | WeightedAverageExercisePrice |
|                        |  |  |  |  |   |  |  |  |  |  |   |  |  |  |  |  |   |  |  |  |  |  |   |  |
| 522,000                     |  |  |  | $ | 6.00 |  |  |  |  |  | 7.72 |  |  |  |  |  | 257,667 |  |  |  |  | $ | 6.00 |  |
| 200,000                     |  |  |  |  | 7.23 |  |  |  |  |  | 9.95 |  |  |  |  |  | 50,000 |  |  |  |  |  | 7.23 |  |
| 366,500                     |  |  |  |  | 8.00 |  |  |  |  |  | 8.72 |  |  |  |  |  | 97,600 |  |  |  |  |  | 8.00 |  |
| 140,000    |  |  |  |  | 9.00 |  |  |  |  |  | 9.75 |  |  |  |  |  | — |  |  |  |  |  | 9.00 |  |
| 1,228,500                   |  |  |  |  |   |  |  |  |  |  |   |  |  |  |  |  | 405,267 |  |  |  |  |  |   |  |
|                             |

Asof June 30, 2006, the total stock options outstanding were 1,228,500.The weighted average exercise price of these options was $7.14. Theweighted average remaining life of these options was 8.61  years.Total stock options exercisable as of June 30, 2006 were 405,267. Theweighted average exercise price of these options was $6.63.

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

|                                |  |  |             |  |           |               |  |  |  |  |           |   |
|--------------------------------|--|--|-------------|--|-----------|---------------|--|--|--|--|-----------|---|
|                           |  |  | June30,2006 |  |           | March 31,2006 |
| Risk-freeinterestrates         |  |  |             |  | 4.93-4.96 | %             |  |  |  |  | 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 theactivity of the Company's stock options that have not vested forthe three-months ended June 30,2006:

|                           |  |  |        |  |          |                              |  |  |  |   |         |  |
|---------------------------|--|--|--------|--|----------|------------------------------|--|--|--|---|---------|--|
|                      |  |  | Shares |  |          | WeightedAverageExercisePrice |
| Nonvested at April 1,2006 |  |  |        |  | 586,733  |                              |  |  |  | $ | 7.02    |  |
| Granted                   |  |  |        |  | 340,000  |                              |  |  |  |   | 7.96    |  |
| Canceledorexpired         |  |  |        |  | —  |                              |  |  |  |   | — |  |
| Vested                    |  |  |        |  | (103,500 | )                            |  |  |  |   | 7.32    |  |
| Nonvestedat June 30,2006  |  |  |        |  | 823,233  |                              |  |  |  | $ | 7.39    |  |
|                      |  |  |        |  |     |                              |  |  |  |   |    |  |
|                           |

Asof June 30, 2006, there was $3,046,127 of total unrecognizedcompensation cost related to nonvested share-based compensationarrangements granted under existing stock option plans. This cost isexpected to be recognized over a weighted-average period of 3.91 years.The total fair value of shares vested during the three-months endedJune 30, 2006 was $405,651.

|  |          |                                                                                |
|--|----------|--------------------------------------------------------------------------------|
|  | B.  | StockWarrants  – The Company has entered into variouswarrant agreements. |

Common Stock Warrant Issued tothe Financing Agent

On August  29, 2002, inconnection with the revolving credit facility, the Company granted tothe lender, Keltic Financial Partners, LP(‘‘Keltic’’), a warrant to acquire20,000  shares of the Company's common stock at an exerciseprice of $30. On December  1, 2003, the Company enacted a 5-for-1split of its common stock. To reflect the effect of this stock split,the warrant was adjusted to grant Keltic the right to acquire100,000  shares of common stock at an exercise price of $6. Thewarrant is subject to anti-dilution provisions, upon the occurrence ofcertain events such as stock splits and stock dividends, vestsimmediately and is exercisable through September  1, 2014. TheCompany is not obligated to register the warrant or the underlyingshares, except to the extent that, if the Company elected to file aregistration statement, Keltic could have the shares underlying itswarrant included in that registration statement and the Company wouldassume all registration costs and other expenses in connection withsuch registration.

The warrant is exercisable at anytime. The holder may convert the warrant, in whole or in part, into thenumber of shares of common stock determined by multiplying the numberof shares under this warrant to be converted by the amount by which(a)  the fair market value of one share immediately prior to suchexercise exceeds (b)  the exercise price in effect immediatelyprior to such exercise divided by the fair market value of one share ineffect immediately prior to such exercise. If the shares are notregularly traded in a public market, the Board of Directors inreasonable good faith judgment shall determine the fair market value asfollows: the fair value of the warrant is computed at an amount equalto the enterprise value divided by the number of outstanding shares ofcommon stock. If the shares are traded regularly in a public market,the fair market value of a share of common stock shall be the closingsales price of the shares reported for the business day immediatelybefore the holder delivers its conversion notice.

Fromthe date of issuance through September  27, 2005, the warrantcontained a put option right that could be exercised by the holder atany time commencing as of September 2006 and ending on the warrantexpiration date. Pursuant to that put option right, Keltic had theright to require the Company to purchase the warrant, in whole or inpart, for an amount equal to the number of shares as to which Kelticwas exercising the put option multiplied by the amount by which(a)  the fair market value of one share exceeded (b)  theexercise price in effect immediately prior to such exercise of the putoption right. The Company would then be obligated to pay the put amountin immediately available funds on the date set; provided however, thatif the put amount was greater than $300,000, the Company would pay atleast 

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$300,000 on such date and have the option topay the remainder of the put amount in four equal installments due atthe end of each fiscal quarter thereafter, bearing interest at thegreater of (a)  the prime rate as published by The Wall StreetJournal, or in the event that The Wall Street Journal was notavailable, such rate published in another publication as determined bythe holder plus two hundred fifty (250)  basis points per annum,or (b)  seven percent (7%) per annum, or (c)  LIBORplus five hundred (500)  basis points per annum.

The $282,295 fair value assigned to the warrant wasrecorded as a financing cost reduction in the value assigned to theloan's credit facility (debt discount amount). Such amount wasrecognized over the three-year life of the credit facility asadditional interest expense. The credit facility was closed in June2004 and the unaccreted balance recognized as additional interestexpense at that time.

The Company accounted for thewarrant and the put option rights as a compound financial instrument inthe condensed consolidated financial statements at fair value followingthe guidelines of EITF  00-19, paragraphs  44 and 45, andparagraphs  11 and 24 of SFAS  150. Changes in the fairvalue of the compound instrument are recognized in earnings for eachreporting period. For the three-months ended June 30, 2006, the Companyrecorded a charge for the change in the value of the compound financialinstrument of $16,802. The Company recorded a credit of $18,752 as ofSeptember  30, 2005 to reflect the change in fair value of thecompound instrument as a result of the amendment discussed below.

On September  27, 2005, the warrant was amended toeliminate the cash put feature and replace it with certain penalties(up to $200,000) if the shares underlying the warrant have not beenregistered by June  1, 2007 and June  1, 2008. The Companyagreed that if on either June  1, 2007 or June  1, 2008(a)  there are shares of common stock received or issuable uponthe exercise of the warrant that have not been registered, and(b)  it has not filed a registration statement with respect towhich Keltic had the opportunity to register the unregistered shares,the Company would pay Keltic $100,000 within ten (10)  days ofsuch dates.

The Company accounted for the warrant andthe registration rights penalty as a derivative following the guidanceof EITF  00-19. The Company has concluded that the amendment tothe warrant agreement obligating the Company to issue registered sharesby the stated dates was dependent both on the Commission'sacceptance of the Company's registration and on theunderwriters' ability to successfully market the shares. Pursuantto paragraph  14 of EITF  00-19, these factors were beyondthe control of the Company and, for this reason, the Company hasaccounted for the instrument as if it would be required to be net-cashsettled.

The Company applied EITF  05-04, View A,concluding that the registration rights are inseparable from theunderlying warrant and should be accounted for together as a unit (thedelivery of unregistered shares, plus the cash penalty, in exchange forthe exercise price) and recorded as a liability at fair value at eachreporting date with changes in fair value reported in earnings.

The Company has reflected the fair value of the combinedinstrument at June 30, and March  31, 2006 included in thebalance sheet caption accrued expenses, put warrants payable andderivative instrument of approximately $310,000 and $307,000,respectively.

Common Stock Warrants Issued toPlacement Agents

In connection with the issuanceof the Series  C preferred stock, the Company granted to theplacement agent warrants to acquire approximately 192,118  sharesof the Company's common stock with an exercise price of $8.00.The warrants are subject to anti-dilution provisions, such as stocksplits and stock dividends, vest immediately and expire at variousdates from December 2008 through August 2010. The Company is notobligated to register the warrants or the underlying shares, except tothe extent that if the Company elects to file a registration statement,the holders can request to have the underlying shares registered. TheCompany will assume all registration costs and other expenses inconnection with such registration.

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The proceeds upon issuance ofthe Series  C preferred stock based upon relative fair valueswere allocated as follows:

|                                  |  |  |  |   |            |  |
|----------------------------------|--|--|--|---|------------|--|
| Valueallocated to preferredstock |  |  |  | $ | 26,368,971 |  |
| Value allocated towarrants       |  |  |  |   | 461,029    |  |
| Grossproceeds of preferredstock  |  |  |  | $ | 26,830,000 |  |
|                                  |

Thebeneficial conversion feature allocated to the warrants was calculatedusing the Black-Scholes method as the difference between the beneficialconversion price and the fair value of the Company's commonstock, multiplied by the number of shares into which the SeriesC preferred stock was convertible, in accordance with the EmergingIssues Task Force (‘‘EITF’’) Issue No.00-27. The beneficial conversion feature allocated to the warrants wasrecorded immediately as a deemed dividend and reflected in the net lossattributable to common stockholders and an increase in additionalpaid-in-capital.

The warrants have conversion rightsand can be converted at any time. The holder may convert in whole or inpart, into a number of common shares equal to the number of sharesunder this warrant to be converted, multiplied by the amount by which(a)  the fair market value of one share exceeds (b)  theexercise price in effect immediately prior to such exercise of theconversion price divided by the fair market value of one share ineffect immediately prior to such exercise of the conversion price. Ifthe shares are not regularly traded in a public market, the Board ofDirectors in reasonable good faith judgment shall determine the fairmarket value as follows: the fair value of the warrant is computed atan amount equal to the enterprise value divided by the number ofoutstanding shares of common stock. If the shares are traded regularlyin a public market, the fair market value of a share of common stockshall be the closing sales price of the shares reported for thebusiness day immediately before the holder delivers its conversionnotice.

Common Stock Warrants Issued to SeniorNote  Holders

In connection with theissuance of the senior notes in June, September and October 2004, theCompany entered into a warrant agreement to grant the right to purchase116,500  shares of the Company's common stock at anexercise price of $8.00  per share at any time through May31, 2009. These warrants were recorded at fair value and accounted foras a discount of the face value of the senior notes and a credit toadditional paid-in capital of $129,195. 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 three-monthsended June 30, 2006 and 2005, the Company recorded $5,148 and $10,764of senior note accretion as additional interest expense.

Common Stock Warrants Issued to FinancialAdvisor

In July 2005, the Company granted to afinancial advisor warrants to purchase up to 100,000  shares ofcommon stock at $8.00  per share. The warrants are subject toanti-dilution provisions, such as stock splits and stock dividends, andvested upon the completion of the initial public offering in April2006. The Company ascribed a fair value of $283,727 to the warrant andrecorded a charge upon vesting. The charge is included in interestexpense on the accompanying condensed consolidated statements ofoperations.

Common Stock Warrants Issued inGosling's Acquisition

In connection with theacquisition of the Company's interest in GCP it agreed to issuewarrants to purchase 90,000  shares of common stock at$8.00  per share to three members of the Gosling family and anemployee. The Company recorded warrants at fair value as an increase tothe purchase price.

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 The following is a summaryof the company's outstanding warrants:

|                                     |  |  |          |  |         |                                           |  |  |  |   |         |  |
|-------------------------------------|--|--|----------|--|---------|-------------------------------------------|--|--|--|---|---------|--|
|                                |  |  | Warrants |  |         | WeightedAverage Exercise Price PerWarrant |
|                                |  |  |          |  |    |                                           |  |  |  |   |    |  |
| Warrantsoutstanding, March  31,2006 |  |  |          |  | 598,618 |                                           |  |  |  | $ | 7.67    |  |
| Granted                             |  |  |          |  | — |                                           |  |  |  |   | — |  |
| Exercised                           |  |  |          |  | — |                                           |  |  |  |   | — |  |
| Forfeited                           |  |  |          |  | — |                                           |  |  |  |   | — |  |
| Warrantsoutstanding, June 30,2006   |  |  |          |  | 598,618 |                                           |  |  |  | $ | 7.67    |  |
| Warrantsexercisable, June 30,2006   |  |  |          |  | 598,618 |                                           |  |  |  | $ | 7.67    |  |
|                                     |

NOTE13 – RELATED PARTY TRANSACTIONS

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | A.  | The Company is operating under an agreement withMHW, 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  minimus 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 from wholesalers.

 In addition to the distribution services providedfor the Company, MHW also provides administrative and support serviceson behalf of the Company. For the three-months ended June 30, 2006 and2005, aggregate charges recorded for all services provided wereapproximately $59,707 and $52,054, respectively, which have beenincluded in general and administrative expenses on the accompanyingcondensed consolidated statements of operations.

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | B.  | The Company has transactions with KnappogueCorp., a stockholder in the Company. Knappogue Corp. is controlled bythe Company's CEO and his family. The transactions primarilyinvolved rental fees for use of Knappogue Corp.'s interest in theKnappogue Castle for various corporate purposes including Companymeetings and to entertain customers. For the three-months ended June30, 2006 and 2005, the Company recognized no expense, respectively. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | C.  | In April 2004, the Company contracted with BPW,Ltd., for business development services including providingintroductions for the Company to agency brands that would enhance theCompany's portfolio of products and assisting the Company insuccessfully negotiating agency agreements with targeted brands. BPW,Ltd. is controlled by a director of the Company. The contract providesfor a monthly retainer to BPW, Ltd. of $3,500, a bonus payable to BPWLtd. in equal quarterly installments upon the finalization of an agencybrand agreement based upon estimated annual case sales by the Companyduring the first year of operations at the rate of $1  per9-liter case of volume, less any retainer previously paid, and acommission based upon actual future sales of the agency brand whileunder the Company's management. This contract is cancelable byeither party, at their convenience, upon 30  days written notice.For the three-months ended June 30, 2006 and 2005, the Companyrecognized $9,326 and $10,500, respectively, under this contract. |

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|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | D.  | For the three-monthsended June 30, 2006 and 2005, the Company purchased goods from TerraManufacturing Limited (‘‘Terra’’) and CarberyMilk Products Limited (‘‘Carbery’’), bothshareholders in the Company, of $409,807, and $528,925, respectively.The Company had assumed the underlying supplier agreements with Terraand Carbery from CB-Ireland. Terra's affiliate Tanis Investments,and Carbery, are both stockholders in the Company. As of June 30, 2006and 2005, the Company was indebted to Terra and Carbery in the amountof approximately $372,238 and $409,363 respectively, which is includedin due to stockholders and affiliates on the accompanying condensedconsolidated balance sheet. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | E.  | For thethree-months ended June 30, 2006 and 2005, the Company made royaltypayments of approximately $9,413 and $9,050, respectively, for use of apatent, to an entity that is owned by two stockholders in the Company.These charges have been included in other expense on the accompanyingcondensed consolidated statements of operations. The royalty agreementalso includes the right to acquire the patent for the Trinity Bottlefor €90,000 ($108,684) for the duration of the licensingperiod, which expires on December  1, 2008. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | F.  | In February and August 2005, the Company executedagreements with the two Co-Managing Directors of CB Ireland whereby,effective March  11, 2005 and December  1, 2005,respectively, each individual resigned his position in CB Ireland inexchange for a consultancy agreement consisting of fifteen monthlypayments totaling €196,875, plus Value Added Tax(‘‘VAT’’). The balance due, net of paymentsmade, was $174,559 and $160,901 at June  30, 2006 and 2005,respectively. In addition, under the terms of these agreements, thestock options of these individuals were deemed to have accrued twoyears' vesting at the end of the consultancy period, the exerciseperiod for their stock options was extended to December  1, 2008,and the Company agreed to pay off the outstanding balance of their5%  Convertible Subordinated Notes, each datedDecember  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. The Companypaid off the outstanding balance on each of these subordinated notes inthe amount of $159,961 on April  19, 2006. The Company alsoreimbursed these individuals the legal fees incurred in connection withtheir consultancy agreements in the amounts of €8,000 and€5,000, respectively, plus VAT. For the three-months endedJune 30, 2006 and 2005, the Company made payments of $82,366 and$60,059, respectively pursuant to these agreements. In September 2005,the Company consented to the sale of the 5%  ConvertibleNotes held by the two Co-Managing Directors of CB Ireland and shares ofcommon stock held by one of the Co-Managing Directors to thirdparties. |

NOTE 14 – COMMITMENTS ANDCONTINGENCIES

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | A.  | The Company has enteredinto a supply agreement with Irish Distillers Limited(‘‘Irish Distillers’’), which provides for theproduction of Irish whiskeys for the Company through 2014, subject toautomatic 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 calendar year endedDecember  31, 2006, the Company has contracted to purchaseapproximately €654,746 in bulk Irish whiskey. The Companyis not liable to Irish Distillers for any product not yet received.During the term of this supply agreement Irish Distillers has the rightto limit additional purchases above the commitment amount. |

|  |          |                                                                                                                                                                                                                                                                |
|--|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | B.  | The Company has entered into a distributionagreement with Gaelic Heritage Corporation, Ltd.(‘‘Gaelic’’), an international supplier, to bethe sole-producer of Celtic Crossing, one of the Company'sproducts, for an indefinite period. |

|  |          |                                                                                                                                                                                     |
|--|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | C.  | In August2004, the Company entered into an agency agreement with I.L.A.R.S.p.A., the producer of Pallini Limoncello and its flavor extensions,to be the sole and exclusive importer |

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|  |        |                                                                                                                                                                                                                                                                                                                        |
|--|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |   | of Pallini Limoncello and its flavorextensions throughout the United States and its territories andpossessions. This agreement is subject to automatic renewal for as muchas five years per renewal period upon the Company's achievementof contractual case sale targets. The agreement expires onDecember  31, 2009. |

Under this agreement, theCompany is permitted to import Pallini Limoncello and its flavorextensions at a set price, updated annually, and is obligated to setaside a portion of the gross margin toward a marketing fund forPallini. The agreement also encompasses the hiring of a Pallini BrandManager at Castle Brands with Pallini reimbursing the costs of thisposition up to a stipulated annual amount. These reimbursements areincluded in the accompanying consolidated financial statements as areduction in selling expense and an increase in due fromaffiliates.

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | D.  | In September 2004, CB-USA enteredinto an exclusive distribution agreement with Gosling's Export(Bermuda) Limited (‘‘GXB’’) to be the sole andexclusive importer of Gosling's rum brands within the UnitedStates. Under this agreement, CB-USA will receive a net salescommission on each case sold. In February 2005, GXB sold its interestin the distribution agreement to Gosling-Castle Partners Inc. (SeeNote  16). |

CB-USA will receive a stipulatedcommission per case, subject to adjustment, provided certain case salesare achieved, for all sales in calendar years under the distributionagreement. The sales commission is net of agreed reimbursements,including taxes and payment to the marketing affiliate, GCP. Thisdistribution agreement is for fifteen years, subject to extension.These reimbursements are included in the accompanying consolidatedfinancial statements as a reduction in selling expense and an increasein due from affiliates.

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | E.  | In June 2004, theCompany executed subleases for office space in Dublin, Ireland andmidtown Manhattan. The Dublin office lease commenced on June  1,2004 and extends through February  28, 2009. Rent is payablequarterly in advance. The New York City lease commenced onAugust  15, 2004 and extends through March  30, 2008. TheCompany also has an office lease in Houston, Texas. The Houston, Texaslease commenced on February  24, 2000 and extends throughMarch  31, 2007. The Company has also entered into non-cancelableoperating leases for certain office equipment. |

Futureminimum lease payments are as follows:

|                            |  |  |        |   |         |  |
|----------------------------|--|--|--------|---|---------|--|
| Forthe yearsending June30, |  |  | Amount |
| 2007                       |  |  |        | $ | 305,162 |  |
| 2008                       |  |  |        |   | 259,539 |  |
| 2009                       |  |  |        |   | 100,350 |  |
| 2010                       |  |  |        |   | — |  |
| Total                      |  |  |        | $ | 665,051 |  |
|                       |  |  |        |   |    |  |
|                            |

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 $92,957 and $84,929 for the three-months ended June 30,2006 and 2005, respectively, and is included in general andadministrative expense on the accompanying condensed consolidatedstatements of operations.

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                            |
|--|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | F.  | Pursuant to thedistribution agreement signed in March 1998 between the Company andGaelic, which was amended and restated in April 2001, the Company,which currently owns 60% of the Celtic Crossing brand in theUnited States, has the option to purchase 70% of the brandoutside the United States from Gaelic at a specified price adjusted byinterim, annual changes in the Irish Consumer Price Index. |

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In the event of the sale of thebrand rights by either the Company or Gaelic, the non-selling partyshall have the right of first refusal to purchase the interest at thesame price as the proposed sale and the right to sell alongside theother party.

Pursuant to the agreement, the Company isrequired to pay royalties to Gaelic for each case purchased, suchroyalties are included within cost of sales in the accompanyingcondensed consolidated statements of operations.

|  |          |                                                                                                                                                                                                                                                                                                                    |
|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | G.  | Pursuant to a composite inter-company guaranteein the amount of €860,000 ($1,739,386) completed inFebruary 2005 between the Company, Castle Brands Spirits CompanyLimited and Castle Brands Spirits (GB) Limited, the Company hasguaranteed the loans from Ulster Bank to the Company's Europeansubsidiaries. |

|  |          |                                                                                                                                                                             |
|--|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | H.  | The Company is subject tostrict federal and state government regulations associated with themarketing, importation, warehousing, transportation and distribution ofspirits. |

NOTE 15 – CONCENTRATION OF CREDITRISK

The Company maintains its cash balances atvarious large financial institutions that, at times, may exceedfederally and internationally insured limits. As of June  30,2006 and 2005, the Company exceeded the insured limit by approximately$21,000,000 and $5,200,000, respectively. Management believes theCompany is not exposed to any significant credit risk because theinstitutions are international money center banking institutions withstrong financial positions.

|                      |                                                                                      |
|----------------------|--------------------------------------------------------------------------------------|
| NOTE 16–  | GOSLING-CASTLE PARTNERS INC. EXPORTAGREEMENT WITH GOSLING'S EXPORT (BERMUDA) LIMITED |

In February 2005, Gosling-Castle Partners Inc. secured theGXB global distribution rights under an Export Agreement(‘‘the Agreement’’) with GXB. This agreementcalls for GCP to pay $2,500,000 to GXB for the assignment of its globaldistribution rights in four equal installments at April  1, 2005,October  1, 2005, April  1, 2006 and October  1,2006. The discounted amount of the note at June 30, 2006 is $126,152.For the three-months ended June 30, 2006 and 2005, the Companyrecognized interest expense of $19,919 and $19,919, respectively, onthis note.

In addition, under the terms of the ExportAgreement, GXB has agreed to sell all brands in its portfolio to GCP atits manufacturer's cost plus a specified producer's profit.For the years of the agreement, the producer's profit is astipulated amount per case, adjusted for certain documented costincreases.

The Export Agreement gives GCP the right offirst refusal to purchase, in the event GXB decides to sell any or allof its trademarks or other intellectual property, at the same pricebeing offered by a bona fide third party offeror. In the event GCPwaives its right of first refusal, the Company has an identical rightof first refusal. Furthermore, in the event GXB should decide to sellany or all of its portfolio of products either directly or indirectlythrough the sale of stock of GXB or its parent company to a thirdparty, the agreement contains a formula for GCP to share in theproceeds of the sale of the brand with such share in the sale proceedsup to a stipulated percentage depending upon the number of nine literequivalent cases of product sold by GCP in the twelve months precedingthe sale.

The Export Agreement commenced onApril  1, 2005 and has a 15  year term. It is renewable foradditional 15  year terms as long as GCP meets certain case saletargets as set forth in the Agreement.

NOTE 17 –GEOGRAPHIC INFORMATION

The Company operatesin one business  —  premium branded spirits. TheCompany's product categories are vodka, rum, liqueurs/cordials,and whiskey. The Company reports its operations in two geographicareas: International and United States.

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The condensed consolidatedfinancial statements include revenues and assets generated in or heldin foreign countries. The following table sets forth the percentage ofconsolidated revenue from continuing operations and consolidated assetsfrom foreign countries.

|                                                |
|------------------------------------------------|
|                                                |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                           |  |  | Forthe three-months ended June30, |
|                                           |  |  | 2006 |  |  | 2005 |
| ConsolidatedRevenue:                           |  |  |  |  |   |  |  |  |  |  |   |  |  |  |  |  |   |  |  |  |  |  |   |  |
| International                                  |  |  |  | $ | 1,883,044 |  |  |  |  |  | 34.5 | % |  |  |  | $ | 3,130,698 |  |  |  |  |  | 36.3 | % |
| UnitedStates                                   |  |  |  |  | 3,577,361 |  |  |  |  |  | 65.5 | % |  |  |  |  | 1,785,696 |  |  |  |  |  | 63.7 | % |
| TotalConsolidatedRevenue                       |  |  |  | $ | 5,460,405 |  |  |  |  |  | 100 | % |  |  |  | $ | 4,196,394 |  |  |  |  |  | 100 | % |
| ConsolidatedDepreciation andAmortization:      |  |  |  |  |   |  |  |  |  |  |   |  |  |  |  |  |   |  |  |  |  |  |   |  |
| International                                  |  |  |  | $ | 18,942 |  |  |  |  |  | 8.1 | % |  |  |  | $ | 20,208 |  |  |  |  |  | 9.1 | % |
| UnitedStates                                   |  |  |  |  | 215,552 |  |  |  |  |  | 91.9 | % |  |  |  |  | 201,277 |  |  |  |  |  | 90.9 | % |
| TotalConsolidated Depreciation andAmortization |  |  |  | $ | 234,494 |  |  |  |  |  | 100 | % |  |  |  | $ | 221,485 |  |  |  |  |  | 100 | % |
| IncomeTaxBenefit:                              |  |  |  |  |   |  |  |  |  |  |   |  |  |  |  |  |   |  |  |  |  |  |   |  |
| UnitedStates                                   |  |  |  |  | 37,038 |  |  |  |  |  | 100 | % |  |  |  | $ | 37,038 |  |  |  |  |  | 100 | % |
| RevenuesbyCategory:                            |  |  |  |  |   |  |  |  |  |  |   |  |  |  |  |  |   |  |  |  |  |  |   |  |
| Vodka                                          |  |  |  | $ | 1,837,963 |  |  |  |  |  | 33.7 | % |  |  |  | $ | 1,755,425 |  |  |  |  |  | 35.7 | % |
| Rum                                            |  |  |  |  | 1,844,235 |  |  |  |  |  | 33.8 | % |  |  |  |  | 1,744,599 |  |  |  |  |  | 35.5 | % |
| Liqueurs/Cordials                              |  |  |  |  | 1,050,124 |  |  |  |  |  | 19.2 | % |  |  |  |  | 735,747 |  |  |  |  |  | 15.0 | % |
| Whiskey                                        |  |  |  |  | 728,083 |  |  |  |  |  | 13.3 | % |  |  |  |  | 680,623 |  |  |  |  |  | 13.8 | % |
| TotalConsolidatedRevenue                       |  |  |  | $ | 5,460,405 |  |  |  |  |  | 100 | % |  |  |  | $ | 4,196,394 |  |  |  |  |  | 100.0 | % |
|                                           |  |  |  |  |   |  |  |  |  |  |   |  |  |  |  |  |   |  |  |  |  |  |   |  |
| ConsolidatedAssets:                            |  |  |  |  |   |  |  |  |  |  |   |  |  |  |  |  |   |  |  |  |  |  |   |  |
| International                                  |  |  |  | $ | 5,150,978 |  |  |  |  |  | 8.3 | % |  |  |  |  |   |  |  |  |  |  |   |  |
| UnitedStates                                   |  |  |  |  | 56,703,123 |  |  |  |  |  | 91.7 | % |  |  |  |  |   |  |  |  |  |  |   |  |
| TotalConsolidatedAssets                        |  |  |  | $ | 61,854,101 |  |  |  |  |  | 100.0 | % |  |  |  |  |   |  |  |  |  |  |   |  |
|                                                |

|                      |                                                                                                                                                                      |
|----------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| NOTE18 –  | ACCOUNTING FOR DERIVATIVE INSTRUMENT,THE INCREASING RATE DIVIDEND ON THE SERIES C PREFERRED STOCK ANDAMORTIZATION OF DEFINITE LIVED INTANGIBLE ASSET —REVISION |

The Company has revised the accompanyingcondensed consolidated financial statements to reflect as a liabilitythe fair value of a derivative instrument (put warrant issued December1, 2003) (see Note 12). Such recomputation of the fair value of thederivative instrument resulted in a change for the three-months endedJune 30, 2005. The fair value of the derivative instrument at December1, 2003 was $282,295. The Company has recorded the changes in fairvalue of the derivative financial instrument at each reporting periodpresented in the condensed consolidated statement of operations.

The Company has revised the accompanying condensedconsolidated financial statements to reflect the fair value of Series CPreferred Stock from the date of issuance. As issued, the Series CPreferred Stock did not accrue dividends until December 1, 2005.Increasing rate preferred stock is initially recorded at fair value andthe discount amortized over the period preceding the commencement ofthe perpetual dividend by recording a deemed dividend and increasingthe carrying amount of the preferred stock by a corresponding amount.The fair value of the Series C Preferred Stock deemed dividend atDecember 1, 2003 was $1,259,262. The amortization on the Series CPreferred Stock resulted in a change for the three-months ended June30, 2005.

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The Company has revised theaccompanying condensed consolidated financial statements to reflect theamortization of certain intangibles which have been reclassified fromindefinite lived assets to definite lived intangible assets with anestimated life of five years and ten years, respectively. Theamortization of the intangibles resulted in a change for thethree-months ended June 30, 2005.

Net loss, preferredstock dividends and net loss attributable to common stockholders forall periods presented were amended as follows as a result of the aboverevisions:

|                                                    |
|----------------------------------------------------|
|                                                    |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                               |  |  | Netloss |  |  | Preferred stock dividends |  |  | Net lossattributable to common stockholders |  |  | Net loss percommon share attributable to commonstockholders basic and diluted |
| Aspreviously reported June 30,2005                 |  |  |  | $ | (3,109,205 | ) |  |  |  | $ | 71,428 |  |  |  |  | $ | (3,180,633 | ) |  |  |  | $ | (1.02 | ) |
| Currentcredit/(charge) on derivativeinstrument     |  |  |  |  | 16,802 |  |  |  |  |  |   |  |  |  |  |  | 16,802 |  |  |  |  |  | 0.01 |  |
| Increasingrate dividend on Series C PreferredStock |  |  |  |  |   |  |  |  |  |  | 233,751 |  |  |  |  |  | (233,751 | ) |  |  |  |  | (0.08 | ) |
| Amortizationof definite livedintangibles           |  |  |  |  | (39,100 | ) |  |  |  |  |   |  |  |  |  |  | (39,100 | ) |  |  |  |  | (0.02 | ) |
| Asrevised, June 30,2005                            |  |  |  | $ | (3,131,503 | ) |  |  |  | $ | 305,179 |  |  |  |  | $ | (3,436,682 | ) |  |  |  | $ | (1.11 | ) |
|                                                    |

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

Cautionary Note RegardingForward Looking Statements

This Quarterly Report on Form 10-Qincludes statements of our expectations, intentions, plans and beliefsthat constitute ‘‘forward-looking statements’’within the meaning of Section  27A of the Securities Act of 1933and Section  21E of the Securities Exchange Act of 1934 and areintended to come within the safe harbor protection provided by thosesections. These statements, which involve risks and uncertainties,relate to the discussion of our business strategies and ourexpectations 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 those listed under ‘‘RiskFactors’’ in our Annual Report on Form 10-K for the yearended March 31, 2006 and elsewhere in this report. The followingfactors, among others, could cause our actual results and performanceto differ materially from the results and performance projected in, orimplied by, the forward-looking statements:

|  |              |                                                         |
|--|--------------|---------------------------------------------------------|
|  | •  | our history of losses and expectation offurther losses; |

|  |              |                                                     |
|--|--------------|-----------------------------------------------------|
|  | •  | the effect of pooroperating results on our company; |

|  |              |                                                                         |
|--|--------------|-------------------------------------------------------------------------|
|  | •  | theeffect of growth on our infrastructure, resources and existingsales; |

|  |              |                                                                                                                       |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------|
|  | •  | our ability to expand ouroperations in both new and existing markets and our ability to developor acquire new brands; |

|  |              |                                                                           |
|--|--------------|---------------------------------------------------------------------------|
|  | •  | the impact ofsupply shortages and alcohol and packaging costs in general; |

|  |              |                               |
|--|--------------|-------------------------------|
|  | •  | our ability to raise capital; |

|  |              |                                                        |
|--|--------------|--------------------------------------------------------|
|  | •  | our ability to fully utilize and retain newexecutives; |

|  |              |                                                                                                       |
|--|--------------|-------------------------------------------------------------------------------------------------------|
|  | •  | negative publicity surroundingour products or the consumption of beverage alcohol products ingeneral; |

|  |              |                                                                         |
|--|--------------|-------------------------------------------------------------------------|
|  | •  | our ability to acquire and/ormaintain brand recognition and acceptance; |

|  |              |                            |
|--|--------------|----------------------------|
|  | •  | trends in consumer tastes; |

|  |              |                                                                     |
|--|--------------|---------------------------------------------------------------------|
|  | •  | our ability to protect trademarks and otherproprietary information; |

|  |              |                          |
|--|--------------|--------------------------|
|  | •  | the impact oflitigation; |

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

|  |              |                                                |
|--|--------------|------------------------------------------------|
|  | •  | the effect of competition in ourindustry;  and |

|  |              |                                             |
|--|--------------|---------------------------------------------|
|  | •  | economic andpolitical conditions generally. |

We assume no obligation topublicly update or revise these forward-looking statements for anyreason, or to update the reasons actual results could differ materiallyfrom those anticipated in, or implied by, these forward-lookingstatements, even if new information becomes available in thefuture.

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Currency Translation

Thefunctional currencies for our foreign operations are the euro inIreland and continental Europe the British pound in the United Kingdomand the Canadian dollar in Canada. With respect to our condensedconsolidated financial statements, the translation from the applicableforeign currencies to U.S. dollars is performed for balance sheetaccounts using 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 included in otherincome/expenses.

Where in this quarterly report we refer toamounts in euros, British pounds or Canadian dollars we have for yourconvenience also in certain cases provided a translation of thoseamounts to U.S. dollars in parenthesis. Where the numbers refer to aspecific balance sheet account date or financial statement accountperiod, we have used the exchange rate that was used to perform thetranslations in connection with the applicable financial statement. Inall other instances, unless otherwise indicated, the translations havebeen made using the exchange rates as of June 30, 2006, each ascalculated from the Interbank exchange rates as reported by Oanda.com.On June 30, 2006, the exchange rate of the euro, the British pound andthe Canadian dollar in exchange for U.S. dollars were€1.00  =  U.S. $1.25510 (equivalent to U.S.$1.00  =  €0.7969) for euros,£1.00  =  U.S. $1.81630 (equivalent to U.S.$1.00  =  £0.5507) for British Pounds, and CAN $1.00= U.S. $0.89310 (equivalent to U.S. $1.00 = CAN $1.1201) for Canadiandollars, respectively.

These translations should not beconstrued as representations that the euro, British pound and Canadiandollar amounts actually represent U.S. dollar amounts or could beconverted into U.S. dollars at the rates indicated.

Thefollowing information should be read in conjunction with‘‘Management's Discussion and Analysis of FinancialCondition and Results of Operations’’ and the consolidatedfinancial statements and related notes included in our Annual Report onForm 10-K for the year ended March 31, 2006, as well as in conjunctionwith the condensed consolidated financial statements and related notesappearing elsewhere in this Form 10-Q.

Overview

Wedevelop and market premium branded spirits in several growing marketcategories, including vodka, rum, Irish whiskey and liqueurs/cordials,and we distribute these spirits in all 50 U.S.  states and theDistrict of Columbia, in six key international markets: Ireland, GreatBritain, Germany, France, Italy and Canada, and in a number of othercountries in continental Europe. Our brands include, among others, Boruvodka, Gosling's rums, Knappogue Castle Whiskey and the Palliniliqueurs.

Our total net sales were $5.5 million for thethree-months ended June 30, 2006, an 11.1% increase versus thesame period in 2005. This increase was driven by organic growth of ourexisting brands.

Selling expense increased to $3.5 million forthe three-months ended June 30, 2006 due to increases in distributorincentives, sales support expense, selling related shipping costs,sales commissions, compensation expense and sales consulting expense.General and administrative expense increased primarily due to increasedlegal and audit fees in connection with our change in status to apublic company, as well as increases in compensation expense, D&Oliability insurance expense and travel and entertainment expenses.Depreciation and amortization remained approximately flat versus thesame period in 2005.

Effective April 1, 2006, we adopted SFAS123(R), Share-Based Payment, using the modified prospective transitionmethod provided for in the accounting standard. Under this method,stock-based compensation recognized in the condensed consolidatedstatement of operations for the three-month period ended June 30, 2006was $494,494, of which $84,869 is included in selling expense and$409,625 is included in general and administrative expense in theaccompanying condensed consolidated statements of operations.

Our current growth strategy focuses on: (a)  aggressive branddevelopment to encourage case sale and revenue growth of our existingportfolio of brands through significant investment in sales and

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marketing activities, including advertising,promotion and direct sales personnel expense; and (b)  theselective addition of complementary premium brands through acombination of strategic initiatives, including acquisitions, jointventures and long-term exclusive distribution arrangements.

Financial performance overview

The following tablesets forth certain information regarding our case sales for thequarters ended June  30, 2006 and 2005. The data in the followingtable is based on nine-liter equivalent cases, which is a standardspirits industry metric.

|                    |  |  |                           |  |        |      |  |  |  |  |        |   |
|--------------------|--|--|---------------------------|--|--------|------|--|--|--|--|--------|---|
|               |  |  | Three-monthsEnded June30, |
| CaseSales          |  |  | 2006                      |  |        | 2005 |
| Cases              |  |  |                           |  |   |      |  |  |  |  |   |   |
| UnitedStates       |  |  |                           |  | 42,530 |      |  |  |  |  | 32,678 |   |
| International      |  |  |                           |  | 27,965 |      |  |  |  |  | 28,268 |   |
| Total              |  |  |                           |  | 70,495 |      |  |  |  |  | 60,946 |   |
| Vodka              |  |  |                           |  | 33,864 |      |  |  |  |  | 31,787 |   |
| Rum                |  |  |                           |  | 19,863 |      |  |  |  |  | 18,132 |   |
| Liqueurs/cordials  |  |  |                           |  | 11,905 |      |  |  |  |  | 7,104  |   |
| Whiskey            |  |  |                           |  | 4,863  |      |  |  |  |  | 3,923  |   |
| Total              |  |  |                           |  | 70,495 |      |  |  |  |  | 60,946 |   |
| Percentageof Cases |  |  |                           |  |   |      |  |  |  |  |   |   |
| UnitedStates       |  |  |                           |  | 60.3   | %    |  |  |  |  | 53.6   | % |
| International      |  |  |                           |  | 39.7   |      |  |  |  |  | 46.4   |   |
| Total              |  |  |                           |  | 100.0  | %    |  |  |  |  | 100.0  | % |
| Vodka              |  |  |                           |  | 48.0   | %    |  |  |  |  | 52.1   | % |
| Rum                |  |  |                           |  | 28.2   |      |  |  |  |  | 29.8   |   |
| Liqueurs/cordials  |  |  |                           |  | 16.9   |      |  |  |  |  | 11.7   |   |
| Whiskey            |  |  |                           |  | 6.9    |      |  |  |  |  | 6.4    |   |
| Total              |  |  |                           |  | 100.0  | %    |  |  |  |  | 100.0  | % |
|                    |

Criticalaccounting policies and estimates

The preparation ofconsolidated financial statements in conformity with U.S.generally accepted accounting principles requires us to make a numberof estimates 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 future conditions.

Webelieve that the estimates and assumptions discussed below are mostimportant to the portrayal of our financial condition and results ofoperations in that they require our most difficult, subjective orcomplex judgments and form the basis for the accounting policies deemedto be most critical to our operations.

Revenuerecognition

We recognize revenue from product sales whenthe product is shipped to a customer (generally upon shipment to adistributor or to a control state entity), title and risk of loss haspassed to the customer in accordance with the terms of sale (FOBshipping point or FOB destination) and 

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collection is reasonably assured. We do notoffer a right of return but will accept returns if we shipped the wrongproduct or wrong quantity.

Accounts receivable

We record trade accounts receivable at net realizable value. Thisvalue includes an appropriate allowance for estimated uncollectibleaccounts to reflect any loss anticipated on the trade accountsreceivable balances and charged to the provision for doubtful accounts.We calculate this allowance based on our history of write-offs, levelof past due accounts based on contractual terms of the receivables andour relationships with, and economic status of, our customers.

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 otherintangible assets

Goodwill represents the excess ofpurchase price and related costs over the value assigned to the nettangible and other intangible assets of businesses acquired. As of June30, 2006, and March  31, 2006, goodwill and other intangibleassets that arose from acquisitions were $25.5  million and$25.6  million, respectively. Goodwill and other intangibleassets with indefinite lives are not amortized, but instead, are testedfor impairment annually or, more frequently, if circumstances indicatea possible impairment may exist.

We evaluate the recoverabilityof goodwill and indefinite lived intangible assets using a two-stepimpairment test approach at the reporting unit level. In the first stepthe fair value of the reporting unit is compared to its book valueincluding goodwill. In the case that the fair value of the reportingunit is less than the book value, a second step is performed whichcompares the implied fair value of the reporting unit's goodwillto the book value of the goodwill. The fair value for the goodwill isdetermined based on the difference between the fair values of thereporting units and the net fair values of the identifiable assets andliabilities of such reporting units. If the fair value of the goodwillis less than the book value, the difference is recognized as animpairment.

SFAS  No.  142 also requires thatintangible assets with estimable useful lives be amortized over theirrespective estimated useful lives to the estimated residual values andreviewed for impairment in accordance with SFAS  No.  144,‘‘Accounting for the Impairment or Disposal of Long-LivedAssets.’’

Stock-based compensation

Prior to April 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, ‘‘Accounting for Stock Issued toEmployees’’ (‘‘APB No. 25’’) andrelated interpretations. Under APB No. 25, generally no compensationexpense is recorded when the terms of the award are fixed and theexercise price of the employee stock option equals or exceeds the fairvalue of the underlying stock on the date of the grant. No stock-basedcompensation expense has been recognized through March 31,2006. Additionally, in periods prior to April 1, 2006, we followed thedisclosure-only requirements of SFAS No. 123, ‘‘Accountingfor Stock-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 these transactions.

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Effective April 1, 2006, the Companyadopted SFAS No. 123(R), ‘‘Share-BasedPayment’’ (‘‘SFAS 123(R)’’) andrelated interpretations which superseded APB No. 25. SFAS 123(R)requires that all stock-based compensation be recognized as an expensein the financial statements and that such cost be measured at the fairvalue of the award. This statement was adopted using the modifiedprospective method, which requires us to recognize compensation expenseon a prospective basis following adoption. Therefore, prior periodfinancial statements have not been restated. Under this method, inaddition to reflecting compensation expense for new share-based awards,expense is also recognized to reflect the remaining service period ofawards that had been included in pro-forma disclosures in priorperiods.

As a result of adopting SFAS 123(R) on April 1, 2006,our net loss for the three-months ended June 30, 2006 is $494,494higher than if we had continued to account for share-based compensationunder APB No. 25. Basic and diluted net loss per share for thethree-months ended June 30, 2006 were increased by $0.04 per share as aresult of adopting SFAS 123(R). For further information on the effectof our adoption of SFAS 123(R), see Note 1R to the condensedconsolidated financial statements.

Fair value of financialinstruments

SFAS  No.  107,‘‘Disclosures About Fair Value of FinancialInstruments,’’ defines the fair value of a financialinstrument as the amount at which the instrument could be exchanged ina current transaction between willing parties and requires disclosureof the fair value of certain financial instruments. We believe thatthere is no material difference between the fair value and the reportedamounts of financial instruments in the balance sheets due to theshort-term maturity of these instruments, or with respect to the debt,as compared to the current borrowing rates available to us.

Results of operations

The following table sets forth, forthe periods indicated, the percentage of net sales of certain items inour financial statements.

|                                                                                                       |  |  |                           |  |        |      |  |  |  |  |         |    |
|-------------------------------------------------------------------------------------------------------|--|--|---------------------------|--|--------|------|--|--|--|--|---------|----|
|                                                                                                  |  |  | Three-monthsended June30, |
|                                                                                                  |  |  | 2006                      |  |        | 2005 |
| Sales,net                                                                                             |  |  |                           |  | 100.0  | %    |  |  |  |  | 100.0   | %  |
| Costofsales                                                                                           |  |  |                           |  | 65.3   | %    |  |  |  |  | 64.1    | %  |
| Grossprofit                                                                                           |  |  |                           |  | 34.7   | %    |  |  |  |  | 35.9    | %  |
| Sellingexpense                                                                                        |  |  |                           |  | 64.9   | %    |  |  |  |  | 63.8    | %  |
| Generaland administrativeexpense                                                                      |  |  |                           |  | 40.9   | %    |  |  |  |  | 23.1    | %  |
| Depreciationandamortization                                                                           |  |  |                           |  | 4.3    | %    |  |  |  |  | 4.5     | %  |
| Lossfrom continuingoperations                                                                         |  |  |                           |  | (75.4  | )%   |  |  |  |  | (55.5   | )% |
| Otherincome                                                                                           |  |  |                           |  | 0.0    | %    |  |  |  |  | 0.0     | %  |
| Otherexpense                                                                                          |  |  |                           |  | (0.1   | )%   |  |  |  |  | (0.2    | )% |
| Foreignexchangegain/(loss)                                                                            |  |  |                           |  | 7.3    | %    |  |  |  |  | (6.4    | )% |
| Interestexpense,net                                                                                   |  |  |                           |  | (7.8   | )%   |  |  |  |  | (5.3    | )% |
| Write-offof deferred financing costs in connection with conversion of 6%subordinated convertiblenotes |  |  |                           |  | (5.4   | )%   |  |  |  |  | — |    |
| Currentcredit/(charge) on derivative financialinstrument                                              |  |  |                           |  | 0.0    | %    |  |  |  |  | 0.3     | %  |
| Incometaxbenefit                                                                                      |  |  |                           |  | 0.7    | %    |  |  |  |  | 0.8     | %  |
| Minorityinterests                                                                                     |  |  |                           |  | 6.3    | %    |  |  |  |  | 2.6     | %  |
| Netloss                                                                                               |  |  |                           |  | 74.4   | %    |  |  |  |  | 63.7    | %  |
| Less:                                                                                                 |  |  |                           |  |   |      |  |  |  |  |    |    |
| Preferredstockdividends                                                                               |  |  |                           |  | 0.9    | %    |  |  |  |  | 6.2     | %  |
| Netloss attributable to commonstockholders                                                            |  |  |                           |  | (75.3  | )%   |  |  |  |  | (69.9   | )% |
|                                                                                                       |

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Three-months Ended June 30, 2006Compared With Three-months Ended June 30, 2005

Netsales.    Net sales increased $0.5  million, or11.1%, to $5.5  million in the fiscal quarter ended June30, 2006 versus $4.9  million in the comparable period in 2005.This increase reflected an increase in case sales of our existingbrands. Average sales price per case decreased $3.21, or 4.0%,from $80.67 per case in the three months ended June 30, 2005 to $77.46per case in the three months ended June  30, 2006 due primarilyto the sales mix in the current quarter which included relatively morelower margin Irish cream liqueurs and vodka than in the comparableperiod in 2005. There was no material change in the selling prices ofour existing products between the three-months ended June 30, 2006 andthe comparable prior period in 2005. Our case sales, measured innine-liter case equivalents, increased 9,549 cases, or 15.7%, to70,495 cases versus the comparable prior period, with the increasecomprised of:

|  |              |                                                           |
|--|--------------|-----------------------------------------------------------|
|  | •  | 4,801 additional cases ofliqueurs, primarily Irish cream; |

|  |              |                                      |
|--|--------------|--------------------------------------|
|  | •  | 2,077additional cases of Boru vodka; |

|  |              |                                                        |
|--|--------------|--------------------------------------------------------|
|  | •  | 1,731additional cases of rum, primarily Gosling's; and |

|  |              |                                        |
|--|--------------|----------------------------------------|
|  | •  | 940 additional cases of Irish whiskey. |

Our U.S.  case sales as a percentage of total case salesincreased to 60.3% during the three-months ended June 30, 2006from 53.6% in the comparable period in 2005. This increase of9,549 cases reflects the relative growth opportunities within theUnited States for our premium spirits portfolio, particularlyGosling's rums, Pallini liqueurs, Brady's Irish cream andBoru vodka.

The table below presents the increase in our casesales by product category for the three-months ended June 30, 2006compared to the comparable period in 2005:

|                   |  |  |                       |  |       |                    |  |  |         |  |       |      |  |  |  |  |      |   |  |  |  |  |      |   |
|-------------------|--|--|-----------------------|--|-------|--------------------|--|--|---------|--|-------|------|--|--|--|--|------|---|--|--|--|--|------|---|
|              |  |  | Increasein case sales |  |       | Percentageincrease |
|              |  |  | Overall               |  |       | U.S.               |  |  | Overall |  |       | U.S. |
| Vodka             |  |  |                       |  | 2,077 |                    |  |  |         |  | 3,910 |      |  |  |  |  | 6.5  | % |  |  |  |  | 37.4 | % |
| Rum               |  |  |                       |  | 1,731 |                    |  |  |         |  | 709   |      |  |  |  |  | 9.5  | % |  |  |  |  | 4.7  | % |
| Liqueurs/cordials |  |  |                       |  | 4,801 |                    |  |  |         |  | 4,989 |      |  |  |  |  | 67.6 | % |  |  |  |  | 79.9 | % |
| IrishWhiskey      |  |  |                       |  | 940   |                    |  |  |         |  | 244   |      |  |  |  |  | 24.0 | % |  |  |  |  | 25.8 | % |
| Total             |  |  |                       |  | 9,549 |                    |  |  |         |  | 9,852 |      |  |  |  |  | 15.7 | % |  |  |  |  | 30.1 | % |
|                   |

Grossprofit.    Gross profit increased 7.6% to $1.9million during the three-months ended June 30, 2006 versus $1.8million in the comparable period in 2005 despite a drop in overallgross margin percentage to 34.7% in the three-months ended June30, 2006 versus 35.9% in the three-months ended June 30, 2005.The absolute increase in gross profit reflected the increased level ofcase sales in the quarter (particularly sales of vodka and Irish creamliqueur) which offset the lower margins achieved from our sales ofthese products.

Selling expense.    Selling expenseincreased 12.9% to $3.5  million during the three-monthsended June 30, 2006 versus $3.1  million in the comparable periodin 2005. The change in selling expense was primarily attributable toincreases in distributor incentives and sales support costs of$0.1  million and to an aggregate increase of $0.1 million inselling related shipping costs and sales commissions. Compensationexpense increased by $0.2 million due, in part, to impact of the hiringof our Senior Vice President and Managing Director, InternationalOperations as well as to the hiring of several additional full timeemployees during the three-months ended June 30, 2006 who replacedpart-time employees or interns. This increase also reflects stock-basedcompensation expense of $0.1 million due to our adoption of SFAS123(R), Share-Based Payment. In addition, sales consultingexpense increased approximately $0.1 million in the three-months endedJune 30, 2006 and was employed to further enhance our strategic brandmarketing platforms and to execute the new Boru bottle design acrossthe various SKUs in time for re-launch of the brand during fiscal year2007. These increases were offset, in part, by a reduction of $0.1million in travel and entertainment expenses during the three-monthsended June 30, 2006. As a percentage of net sales, selling expenseincreased to 64.9% compared to 63.8% for the comparableperiod in 2005.

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General and administrativeexpense.    General and administrative expense increased96.6% to $2.2  million during the three-months ended June30, 2006 versus $1.1  million in the comparable period in 2005.Major components of this increase included an increase of $0.2million in legal and audit fees which were primarily attributable toour change in status to that of a public company as well as an increaseof $0.7 million in compensation expense due to the full current periodimpact of salaries and benefits for several executive andadministrative employees hired in the past 12 months versus thecomparable period in 2005. The increase in compensation expense alsoreflects a $0.4 million charge for stock-based compensation expenseresulting from our adoption of SFAS 123(R) effective April 1, 2006. Inaddition, we incurred an increase of $0.1 million for public companydirectors and officers' liability insurance, and an increase of$0.1 million pertaining to travel and entertainment and other generaland administrative expenses. As a percentage of net sales, general andadministrative expense increased to 40.9% for the three-monthsended June 30, 2006 compared to 23.1% for the comparable periodin 2005.

Depreciation and amortization.    Depreciationand amortization during the quarter ended June 30, 2006 wasapproximately the same as the comparable prior year quarter at $0.2million and is primarily attributable to amortization of the Goslingworldwide (except Bermuda) distribution agreement which went intoeffect during February 2005.

Other expense,net.    Other expense, net increased to $0.4 million during thethree-months ended June 30, 2006 versus under $0.1 million in thecomparable period in 2005. The major components of this categoryinclude the following:

|  |              |                                                                                                                                                                                                                                                                                                                                                                                              |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Foreign exchangegain / (loss) during the three-months ended June 30, 2006 was a gain of$0.4 million versus a loss of $0.3 million in the comparable period in2005. The current period gain is attributable to the strengthening ofthe euro in the intervening period which, in turn, has resulted in anincreased value upon translation of intercompany advances to ourforeign subsidiaries; |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Interest expenseduring the three-months ended June 30, 2006 was $0.4 million versus$0.3 million in the comparable period in 2005 and included a charge of$0.3 million pertaining to a warrant awarded to one of our advisorswhich became fully vested at the time of our initial public offering,interest expense of $0.1 million on our senior notes, interest expenseof $0.1 million on our 6% convertible subordinated notes andamortization of deferred financing charges of $0.1 million. Thisexpense was offset, in part, by interest income of $0.2 million earnedon the proceeds of our initial public offering; |

|  |              |                                                                                                                                                           |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Write-off of deferred financing costs of $0.3million in connection with the conversion to common stock of 40%of our 6% convertible subordinated notes;and |

|  |              |                                                                                                                                                                                                                                                               |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Minority interest during thethree-months ended June 30, 2006 amounted to a credit of $0.3 millionversus a credit of $0.1 million in the comparable 2005 period as aresult of a larger loss recorded by our 60%-owned subsidiary,Gosling-Castle Partners, Inc. |

Net loss attributable to commonstockholders.    The net loss attributable to common stockholdersfor the three-months ended June  30, 2006 increased 19.7%to $4.1  million versus $3.4  million in the comparableperiod in 2005. These net losses included $0.1 million and $0.3 millionof preferred stock dividends paid and accrued during the three-monthsended June 30, 2006 and 2005, respectively. The primary factorsimpacting our net loss for the three-months ended June 30, 2006 werethe increase in selling and general and administrative expenses, theexpensing of deferred financing charges associated with the automaticconversion to common stock of 40% of our 6% convertiblenotes at the time of our initial public offering, and our first-timerecognition of stock-based compensation expense in the currentperiod.

EBITDA.    EBITDA remained flat at negative$2.7 million for the three-months ended June 30, 2006 and 2005. EBITDArepresents net income before deducting interest expense (includingexpensing of deferred financing costs), income taxes, depreciation andamortization and the impact of the non-cash charge for stock-basedcompensation reported under SFAS 123(R). We use EBITDA as the primaryinternal management measure for evaluating performance on a period overperiod 

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analysis, when comparing actual results tobudgeted performance and when allocating additional resources. Thisnon-GAAP financial measure is presented in order to assist industryanalysts and investors in assessing our liquidity, our ability to incurand service debt, make capital expenditures and meet working capitalrequirements. EBITDA should not be considered as an alternative tooperating income as an indicator of the Company's 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. The Company has significant uses of cash flows,including interest payments, debt principal repayments, and othernon-recurring charges, which are not reflected in EBITDA. BecauseEBITDA as determined by us excludes some, but not all, items thataffect net income, it may not be comparable to EBITDA or similarlytitled measures used by other companies.

The following tablesets forth our reconciliation of EBITDA to net loss (the most directlycomparable financialmeasure):

|                                                                      |  |  |                            |   |        |      |  |  |  |   |         |   |
|----------------------------------------------------------------------|--|--|----------------------------|---|--------|------|--|--|--|---|---------|---|
|                                                                 |  |  | Three-monthsEnded June 30, |
| (Dollars inthousands)                                                |  |  | 2006                       |   |        | 2005 |
| Netloss                                                              |  |  |                            | $ | (4,064 | )    |  |  |  | $ | (3,132  | ) |
| Add(subtract):                                                       |  |  |                            |   |   |      |  |  |  |   |    |   |
| Income taxbenefit                                                    |  |  |                            |   | (37    | )    |  |  |  |   | (37     | ) |
| Interestexpense, net, including expensing of deferred financingcosts |  |  |                            |   | 718    |      |  |  |  |   | 259     |   |
| Depreciationandamortization                                          |  |  |                            |   | 234    |      |  |  |  |   | 221     |   |
| Stockbasedcompensation                                               |  |  |                            |   | 494    |      |  |  |  |   | — |   |
| EBITDA                                                               |  |  |                            | $ | (2,655 | )    |  |  |  | $ | (2,689  | ) |
|                                                                      |

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 June 30, 2006, wehad stockholders' equity of $34.1 million and working capital of$25.8 million. Prior to our initial public offering in April 2006, wehad a stockholders' deficit of $26.0 million and a workingcapital deficit of $0.8 million.

Our initial public offeringraised gross proceeds of $31,500,000 upon the sale of 3,500,000 commonshares at the offering price of $9.00 per share. Total estimatedoffering costs were $5,153,594. Upon the closing of our initial publicoffering, we received net proceeds from the offering of approximately$26.3 million. The proceeds have been and will continue to be used forworking capital and general corporate purposes, including for sales andmarketing activities, meeting capital commitments to our60%-owned subsidiary, Gosling-Castle Partners Inc., the hiringof additional employees and repayment of debt and related interest.

At June 30, 2006, we had cash and cash equivalents of approximately$20.4  million. In addition, at June 30, 2006, we hadapproximately $0.4 million of cash restricted from withdrawal and heldby a bank in Ireland as collateral for a line of credit.

Thefollowing trends are reasonably likely to result in a material decreasein our liquidity over the near-to-mid term:

|  |              |                                                                                                             |
|--|--------------|-------------------------------------------------------------------------------------------------------------|
|  | •  | an increase in working capital requirementsto finance higher levels of inventories and accounts receivable; |

|  |              |                                                                        |
|--|--------------|------------------------------------------------------------------------|
|  | •  | addition of administrative and salespersonnel as our business expands; |

|  |              |                                                                                             |
|--|--------------|---------------------------------------------------------------------------------------------|
|  | •  | increases in advertising, public relationsand sales promotions for existing and new brands; |

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

|  |              |                                                                                              |
|--|--------------|----------------------------------------------------------------------------------------------|
|  | •  | an increase inlegal, accounting and other expenses due to our new status as a publiccompany; |

|  |              |                                                                                                |
|--|--------------|------------------------------------------------------------------------------------------------|
|  | •  | financing the operations of our60%-owned Gosling-Castle Partners strategic exportventure;  and |

|  |              |                                                                                                |
|--|--------------|------------------------------------------------------------------------------------------------|
|  | •  | expansion into newmarkets and within existing markets in the United States andinternationally. |

We expect that we will require increasingamounts of working capital to finance our inventory levels in theUnited States. Except for Gosling's rums, which are bottled inthe United States, all of our products are imported from Europe. In thecase of our wholly-owned brands, there is a three-to-four monthproduction and shipping lead time between the time of order placementand the time the product is available for sale. This lead time hasrequired us to maintain sufficient inventories to properly service ourcustomers.

We expect to experience a lengthening of the revenuecollection cycle due to the need to extend payment terms as anincentive to encourage customers to make container-sized purchases ofour products on which title passes to the customer at the shippingpoint in Ireland. A lengthening of the revenue collection cycle willrequire a significant amount of working capital.

Cashflows

The following table summarizes our primary sourcesand uses of cash during the periods presented (in thousands):

|                                                    |  |  |                           |   |         |      |  |  |  |   |        |   |
|----------------------------------------------------|--|--|---------------------------|---|---------|------|--|--|--|---|--------|---|
|                                               |  |  | Three-monthsEnded June30, |
|                                               |  |  | 2006                      |   |         | 2005 |
| Netcash provided by (usedin):                      |  |  |                           |   |    |      |  |  |  |   |   |   |
| Operatingactivities                                |  |  |                           | $ | (6,366  | )    |  |  |  | $ | (4,362 | ) |
| Investingactivities                                |  |  |                           |   | (181    | )    |  |  |  |   | (75    | ) |
| Financingactivities                                |  |  |                           |   | 25,557  |      |  |  |  |   | 3,804  |   |
| Effectsof foreign currencytranslation              |  |  |                           |   | — |      |  |  |  |   | (12    | ) |
| Netincrease (decrease) in cash and cashequivalents |  |  |                           | $ | 19,010  |      |  |  |  | $ | (645   | ) |
|                                                    |

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.

On average, the production cycle for our ownedbrands can take as long as four months from the time we obtain thedistilled spirits and other materials needed to bottle and package ourproducts to the time we receive products available for sale, which isimpacted by the international nature of our business. With respect toGosling's rums and Pallini liqueurs, we do not produce thefinished product and, instead, receive the finished product directlyfrom the owners of such brands. From the time we have productsavailable for sale, an additional three to four months may be requiredbefore we sell our inventory and collect payment from ourcustomers.

In the quarter ended June 30, 2006, net cash used inoperating activities was $6.4  million, consisting primarily oflosses from our operations of $4.1  million, an increase inaccounts receivable of $1.0  million, increases in inventoriesand prepaid expenses of $0.8 million and $0.4  million,respectively, decreases in accounts payable and accrued expenses anddue to related parties of $0.7, $0.4 million resulting from the effectof changes in foreign currency rates, and minority interest in the netloss of our 60%-owned subsidiary Gosling-Castle Partners of$0.3  million. These uses of cash were 

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offset, in part, by non-cash charges fordepreciation and amortization and stock-based compensation expense of$0.2 million and $0.5 million, respectively, as well as a non-cashinterest charge of $0.3 million upon the vesting of warrants issued toa financial advisor of the company, and to the write-off of $0.3million of deferred financing costs due to the conversion to commonstock of 40% of our 6% convertible subordinated notes atthe time of our initial public offering.

Investingactivities.    Net cash used in investing activities during thequarter ended June 30, 2006 was $0.2 million for the acquisition ofproperty and equipment and intangible assets.

Financingactivities.    Net cash provided by financing activities duringthe quarter ended June 30, 2006 was $25.6  million and consistedof $31.5 million of common stock issued in our initial public offeringless $3.0 million in payments for the costs of stock issuance and thenet repayment of notes payable in the amount of $2.9 million.

Webelieve that we will be able to fund our operations from the proceedsof our initial public offering, our projected cash flow fromoperations, and current cash and cash equivalents for the next twelvemonths. Beyond that, additional financing may be needed to fund workingcapital and other requirements. Changes in our operating plans,acquisitions or other additions of brands, lower than anticipatedsales, increased expenses, or other events, including those describedin our Annual Report on Form 10-K for the year ended March 31, 2006,under the caption ‘‘Risk Factors,’’ may requireus to seek additional debt or equity financing on an accelerated basis.Financing may not be available on acceptable terms, or at all, and ourfailure to raise capital when needed could impact negatively our growthplans, 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.

Contractual obligations

Thefollowing table sets forth our contractual commitments as of June 30,2006 for each of the followingperiods:

|                                                                        |  |  |                                                           |   |         |      |  |  |      |   |         |      |  |  |      |   |         |            |  |  |       |   |         |  |  |  |  |   |         |  |  |  |  |   |                                 |  |  |  |  |   |        |  |
|------------------------------------------------------------------------|--|--|-----------------------------------------------------------|---|---------|------|--|--|------|---|---------|------|--|--|------|---|---------|------------|--|--|-------|---|---------|--|--|--|--|---|---------|--|--|--|--|---|---------------------------------|--|--|--|--|---|--------|--|
|                                                                   |  |  | Paymentsdue during the twelve month period ending June30, |
|                                                                   |  |  | 2007                                                      |   |         | 2008 |  |  | 2009 |   |         | 2010 |  |  | 2011 |   |         | Thereafter |  |  | Total |
|                                                                   |  |  | (inthousands)                                             |
| Long-term notes payable,includingcurrent portion and estimatedinterest |  |  |                                                           |   |    |      |  |  |      |   |    |      |  |  |      |   |    |            |  |  |       |   |    |  |  |  |  |   |    |  |  |  |  |   |                            |  |  |  |  |   |   |  |
| UlsterBank facilities                                                  |  |  |                                                           | $ | 745     |      |  |  |      | $ | 11      |      |  |  |      | $ | — |            |  |  |       | $ | — |  |  |  |  | $ | — |  |  |  |  | $ |     — |  |  |  |  | $ | 756    |  |
| Gosling'sexportagreement                                               |  |  |                                                           |   | 605     |      |  |  |      |   | — |      |  |  |      |   | — |            |  |  |       |   | — |  |  |  |  |   | — |  |  |  |  |   | —                         |  |  |  |  |   | 605    |  |
| 9%seniornotes                                                          |  |  |                                                           |   | — |      |  |  |      |   | — |      |  |  |      |   |    |            |  |  |       |   | 4,660   |  |  |  |  |   |    |  |  |  |  |   |                            |  |  |  |  |   | 4,660  |  |
| 6%convertible subordinatednotes                                        |  |  |                                                           |   | — |      |  |  |      |   | — |      |  |  |      |   | — |            |  |  |       |   | 3,000   |  |  |  |  |   | 6,000   |  |  |  |  |   | —                         |  |  |  |  |   | 9,000  |  |
| Capitalleases                                                          |  |  |                                                           |   | 3       |      |  |  |      |   | 4       |      |  |  |      |   | 4       |            |  |  |       |   |    |  |  |  |  |   |    |  |  |  |  |   |                            |  |  |  |  |   | 11     |  |
| Operatingleases                                                        |  |  |                                                           |   | 305     |      |  |  |      |   | 260     |      |  |  |      |   | 100     |            |  |  |       |   |    |  |  |  |  |   |    |  |  |  |  |   | —                         |  |  |  |  |   | 665    |  |
| Estimatedinterest                                                      |  |  |                                                           |   | 986     |      |  |  |      |   | 965     |      |  |  |      |   | 717     |            |  |  |       |   | 450     |  |  |  |  |   | 15      |  |  |  |  |   |                            |  |  |  |  |   | 3,133  |  |
| Total                                                                  |  |  |                                                           | $ | 2,644   |      |  |  |      | $ | 1,240   |      |  |  |      | $ | 821     |            |  |  |       | $ | 8,110   |  |  |  |  | $ | 6,015   |  |  |  |  | $ | —                         |  |  |  |  | $ | 18,830 |  |
|                                                                   |  |  |                                                           |   |    |      |  |  |      |   |    |      |  |  |      |   |    |            |  |  |       |   |    |  |  |  |  |   |    |  |  |  |  |   |                            |  |  |  |  |   |   |  |
|                                                                        |

Recentaccounting pronouncements

In June 2006, the FinancialAccounting Standards Board (‘‘FASB’’) issuedFASB Interpretation No. 48, ‘‘Accounting for Uncertainty inIncome Taxes — an interpretation of FASB Statement No. 109(‘‘FIN 48’’). This interpretation clarifies theaccounting for uncertainty in income taxes recognized in anentity's financial statements in accordance with SFAS No. 109,‘‘Accounting for Income Taxes.’’ It prescribesa recognition threshold and measurement methodology for financialstatement reporting purposes and promulgates a series of newdisclosures of tax positions taken or expected to be taken on a taxreturn for which less than all of the resulting tax benefits areexpected to be realized. This interpretation is effective for fiscalyears beginning after December 15, 2006. The Company will adopt

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this interpretation in the first quarter offiscal year 2008. We are currently evaluating the requirements of FIN48 and have not yet determined the impact on the consolidated financialstatements.

Item 3.    Quantitative and QualitativeDisclosures about Market Risk

As of June 30, 2006, we did notparticipate in any derivative financial instruments, or other financialor commodity instruments for which fair value disclosure would berequired under SFAS  No.  107, ‘‘DisclosureAbout Fair Value of Financial Investments.’’ We hold noinvestment securities that would require disclosure of market risk.

We do participate in certain foreign exchange currency futurecontracts programs to limit our risk and the potential impact ofcurrency fluctuations on our product costs. When placing a productorder, we attempt to lock in its cost by buying forward contracts oneuros coinciding with the projected payment dates for such purchases.Individual forward contracts rarely extend for more than six months orexceed €300,000 ($376,530). At June 30, 2006 total forwardcontracts outstanding amounted to €831,165 ($1,057,449),calculated at the weighted average conversion rate in such contracts).Depending upon the term of the contract, the cost of these transactionscan vary between approximately 50 to 150  basis points.

Item 4.    Controls and Procedures

Disclosure Controlsand Procedures

We conducted an evaluation of the effectivenessof the design and operation of our disclosure controls and procedures(‘‘Disclosure Controls’’), as defined in Rule13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934(‘‘Exchange Act’’) as of June 30, 2006. Theevaluation was done under the supervision and with the participation ofmanagement, including our Chief Executive Officer(‘‘CEO’’), President and Chief OperatingOfficer (‘‘COO’’) and Chief Financial Officer(‘‘CFO’’), and included a review of thecontrols' objectives, design and operating effectiveness withrespect to the information generated for use in this Quarterly Report.In the course of the evaluation, we sought to identify data errors,control problems or acts of fraud and confirm that appropriatecorrective actions, including process improvements, were beingundertaken. This type of Disclosure Controls evaluation is performed ona quarterly basis so that the conclusions of management, including theCEO, COO and CFO, concerning the effectiveness of controls can bereported in our Quarterly Reports on Form 10-Q and in our AnnualReports on Form 10-K. Many of the components of our Disclosure Controlsare also evaluated on an ongoing basis by other personnel in ouraccounting, finance and legal functions. The overall goals of thesevarious evaluation activities are to monitor our Disclosure Controlsand to modify them on an ongoing basis as necessary.

Based uponthe evaluation of our Disclosure Controls, our CEO, COO and CFOconcluded that our Disclosure Controls were effective as of June 30,2006 to ensure that information required to be disclosed by us inreports that we file or submit under the Exchange Act is recorded,processed, summarized and reported within the time periods specified inthe Securities and Exchange Commission's rules and forms.

Changes in Internal Control over Financial Reporting

Therehas been no change in our internal control over financial reportingthat occurred during the period covered by this Form 10-Q that hasmaterially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

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PART II.    OTHER INFORMATION

Item 1.    Legal Proceedings

We believe that neither wenor any of our subsidiaries is currently subject to litigation which,in the opinion of our management, is likely to have a material adverseeffect on us. We may, however, become involved in litigation from timeto time relating to claims arising in the ordinary course of ourbusiness. These claims, even if not meritorious, could result in theexpenditure of significant financial and managerial resources.

Item 1A.    Risk Factors

Not applicable.

Item2.    Unregistered Sales of Equity Securities and Use ofProceeds

Unregistered Sales of Equity Securities

The Company did not sell any equity securities during the fiscalquarter ending June 30, 2006 which were not registered under theSecurities Act of 1933, as amended.

Use of proceeds fromregistered securities

On April  6, 2006, wecommenced our initial public offering of our common stock, $0.01par value, pursuant to our registration statement on Form  S-1(File No.  333-128676), that was declared effective onApril  5, 2006. We registered 3,500,000  shares of commonstock, all of which were sold in the offering at a per share price of$9.00 for an aggregate offering price of $31.5  million. Theunderwriters in the offering were Oppenheimer  & Co. Inc.,ThinkEquity Partners LLC and Ladenburg Thalmann  & Co.Inc.

The net proceeds received by us in the offering were$26,346,406, determined as follows:

|                                          |  |  |  |   |            |  |
|------------------------------------------|--|--|--|---|------------|--|
| Aggregateoffering proceeds to theCompany |  |  |  | $ | 31,500,000 |  |
| Underwritingdiscounts and commissions    |  |  |  |   | 2,205,000  |  |
| Findersfee                               |  |  |  |   | —    |  |
| Other fees andexpenses                   |  |  |  |   | 2,948,594  |  |
| Totalexpenses                            |  |  |  |   | 5,153,594  |  |
| Netproceeds to theCompany                |  |  |  | $ | 26,346,406 |  |
|                                          |

Nopayments were made directly or indirectly to (i)  any of ourdirectors, officers or their associates, (ii)  any person(s)owning 10% or more of any class of our equity securities or(iii)  any of our affiliates, except as follows:

|  |              |                                                                                                                                                        |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | repayment of $2,026,000 to an affiliate ofone of our directors to repay all outstanding principal and interestunder our February 2006 credit facility; |

|  |              |                                                                                                                                                                                     |
|--|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | payment of $105,246 for dividends accrued onpreferred membership units of our predecessor company, Great SpiritsCompany, LLC to certain of our directors and executive officers;and |

|  |              |                                                                                                                                                                                |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | payment of $354,130 in underwritingdiscount and commissions to Ladenburg Thalmann  & Co. One ofour directors is a principal stockholder and director of LadenburgThalmann. |

We used $2,543,395 to repay indebtedness and theremaining net proceeds from the offering have been, and are expected tocontinue to be, used by us to provide additional capital to support thegrowth of our business and for general corporate purposes.

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Item 3.    Defaults Upon SeniorSecurities

Not applicable.

Item 4.    Submission ofMatters to a Vote of Security Holders

Not applicable.

Item 5.    Other Information

Not applicable.

Item6.    Exhibits

|               |  |  |                                                                                                                                                                                                                                                                         |
|---------------|--|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ExhibitNumber |  |  | Description                                                                                                                                                                                                                                                             |
| 10.62         |  |  | EmploymentAgreement, dated July 1, 2006, between Castle Brands Inc. andConstantine Constandis (incorporated herein by reference to Exhibit10.1 to our Current Report on Form 8-K (File No. 001-32849) filed withthe Securities and Exchange Commission on July 5,2006). |
| 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.                                                                                                                                                    |
|               |

39

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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/ Keith A.Bellinger                                   |
|   |  |  |             |  |  | Keith A.Bellinger                                       |
|   |  |  |             |  |  | President and ChiefOperating Officer                    |
|   |  |  |             |  |  | (Duly AuthorizedOfficer and Principal FinancialOfficer) |
|   |  |  |             |  |  | August14,  2006                                         |
|        |

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EXHIBITINDEX

|               |    |     |             |  |  |                                                                                                                                                                                                                                                                            |
|---------------|----|-----|-------------|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ExhibitNumber |    |     | Description |
|               | 10 | .62 |             |  |  | EmploymentAgreement, dated July  1,  2006, between Castle Brands Inc.and Constantine Constandis (incorporated herein by reference to Exhibit10.1 to our Current Report on Form 8-K (File No. 001-32849) filed withthe Securities and Exchange Commission on July  5,2006). |
|               | 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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