Castle Brands Inc. Annual Report 2016

FY2016 Annual Report · Castle Brands Inc.

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2016 Annual Report

January 11, 2017

Dear Fellow Shareholder,

The ﬁscal year ended March 31, 2016 was another very positive year for Castle Brands. We continued to
drive sales of our more proﬁtable brands, Jefferson’s Bourbon, Goslings Rum and Ginger Beer and our Irish
whiskeys. This resulted in strong revenue growth, improved margins, decreased G&A as a percent of revenue,
signiﬁcantly reduced net loss and increased EBITDA, as adjusted. We expect these trends to continue as we
grow our business.

For ﬁscal 2016, we reported net sales of $72.2 million, a 25.7% increase over $57.5 million in the prior ﬁscal
year. Because of the focus on more proﬁtable brands, total gross proﬁt increased 32.4% to $28.6 million, as
compared to $21.6 million for the prior ﬁscal year. Strong growth of Jefferson’s Bourbons and Irish whiskies
lead to a 35.8% increase in whiskey revenue from the prior year. We believe that our whiskey portfolio has
signiﬁcant future growth opportunities. To support continued growth of Jefferson’s, we entered into two new-
ﬁll programs and purchased additional aged bulk bourbon as it became available. Based on International Wine
& Spirit Research (IWSR) data, Jefferson’s is now one of the top-ﬁve selling premium small batch bourbons
in the U.S. and was named a ‘‘Hot Prospect’’ brand by Impact, a leading industry newsletter, based on
accelerated sales growth in recent years.

Sales of Goslings Rum remained strong and sales of Goslings Stormy Ginger Beer increased 55.9% from the
prior ﬁscal year to 1,115,000 cases. Growth of Goslings Rum and Goslings Stormy Ginger Beer were driven
in part by Goslings being the official rum and ginger beer sponsor of the 35th America’s Cup Challenge,
which is headquartered in Bermuda for this three-year series. Because the America’s Cup has become an
‘‘extreme sport’’, Goslings is attaining far more visibility and global reach than ever before with a very large
audience that goes well beyond the demographics of the sailing world. Based on IWSR data, Goslings is now
one of the top-ten selling premium imported rums in the U.S. and we believe that Goslings Stormy Ginger
Beer is now the top selling ginger beer in the U.S.

In addition, we expanded the availability under our revolving credit facility, which will facilitate future
purchases of bulk bourbon to support growth of our Jefferson’s bourbon portfolio.

As we look ahead, we remain focused on maintaining this positive momentum in our business. We will
continue to work to make Castle Brands solidly proﬁtable and to build shareholder value.

Sincerely,

Mark E. Andrews, III
Chairman of the Board

Richard J. Lampen
President and Chief Executive Offıcer

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(cid:2)

□

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the ﬁscal year ended March 31, 2016

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

to
Commission ﬁle number 001-32849

Castle Brands Inc.

(Exact name of registrant as speciﬁed in its charter)

Florida
(State or other jurisdiction of
incorporation or organization)

122 East 42nd Street, Suite 5000
New York, New York
(Address of principal executive offices)

41-2103550
(I.R.S. Employer
Identiﬁcation No.)

10168
(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Each Exchange on Which Registered

Common stock, $0.01 par value

NYSE MKT

Securities registered pursuant to Section 12(g) of the Act:

None.

Indicate by check mark whether the registrant is a well-known seasoned issuer, as deﬁned in Rule 405 of the Securities

Act. Yes □ No (cid:4)

Indicate by check mark whether the registrant is not required to ﬁle reports pursuant to Section 13 or Section 15(d) of the

Act. Yes □ No (cid:4)

Indicate by check mark whether the registrant (1) has ﬁled all reports required to be ﬁled by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to ﬁle
such reports), and (2) has been subject to such ﬁling requirements for the past 90 days. Yes (cid:4) No □

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such ﬁles). Yes (cid:4) No □
Indicate by check mark if disclosure of delinquent ﬁlers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in deﬁnitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. □

Indicate by check mark whether the registrant is a large accelerated ﬁler, accelerated ﬁler, a non-accelerated ﬁler or a

smaller reporting company. See the deﬁnitions of ‘‘large accelerated ﬁler,’’ ‘‘accelerated ﬁler’’ and ‘‘smaller reporting company’’ in
Rule 12b-2 of the Exchange Act.
□ Large accelerated ﬁler
□ Non-accelerated ﬁler

(cid:2) Accelerated ﬁler
□ Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as deﬁned in Rule 12b-2 of the Act). Yes □ No (cid:4)
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant based on the September 30,

2015 closing price was approximately $108,600,000 based on the closing price per share as reported on the NYSE MKT on such
date. The registrant had 160,524,777 shares of common stock outstanding at June 9, 2016.

Part III (Items 10, 11, 12, 13 and 14) of this annual report on Form 10-K is incorporated by reference from the deﬁnitive Proxy

Statement for the 2016 Annual Meeting of Shareholders to be ﬁled with the Securities and Exchange Commission no later than
120 days after the end of the registrant’s ﬁscal year covered by this report.

DOCUMENTS INCORPORATED BY REFERENCE

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CASTLE BRANDS INC.
FORM 10-K

TABLE OF CONTENTS

PART I

Item 1.

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1A.

Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1B. Unresolved Staff Comments

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 2.

Item 3.

Item 4.

Item 5.

Item 6.

Item 7.

Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART II

Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . .

Item 8.

Item 9.

Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 9A.

Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

Item 10.

Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . .

Item 11.

Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 12.

Security Ownership of Certain Beneﬁcial Owners and Management and Related
Shareholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 13.

Certain Relationships and Related Transactions, and Director Independence . . . . . . . .

Item 14.

Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 15.

Exhibits, Financial Statement Schedules

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART IV

Page

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Item 1. Business

Overview

PART I

We develop and market premium and super premium brands in the following beverage alcohol

categories: rum, whiskey, liqueurs, vodka and tequila. We distribute our products in all 50 U.S. states and the
District of Columbia, in thirteen primary international markets, including Ireland, Great Britain, Northern
Ireland, Germany, Canada, Israel, France, Finland, Norway, Sweden, Denmark, United Arab Emirates,
Australia and the Duty Free markets, and in a number of other countries. We market the following brands,
among others:

•

Goslings rum(cid:5)

Goslings Stormy Ginger Beer
Goslings Dark ‘n Stormy(cid:5) ready-to-drink cocktail
Jefferson’s(cid:5) bourbon
Jefferson’s Reserve(cid:5)
Jefferson’s Ocean Aged at Sea(cid:5)

Jefferson’s Wine Finish Collection

Jefferson’s The Manhattan: Barrel Finished Cocktail

Jefferson’s Chef’s Collaboration

Jefferson’s Wood Experiment

Jefferson’s Presidential SelectTM

Jefferson’s Rye whiskey
Pallini(cid:5) liqueurs
Clontarf(cid:5) Irish whiskey
Knappogue Castle Whiskey(cid:5)
Brady’s(cid:5) Irish Cream
Boru(cid:5) vodka

TierrasTM tequila
Celtic Honey(cid:5) liqueur
Gozio(cid:5) amaretto

Our brands

We market the premium and super premium brands listed below.

Goslings rum and ginger beer. We are the exclusive U.S. distributor for Goslings rums, including

Goslings Black Seal Dark Rum, Goslings Gold Seal Rum and Goslings Old Rum. The Gosling family
produces these rums in Bermuda, where Goslings rums have been under continuous production and ownership
by the Gosling family for over 200 years. We hold a 60% controlling interest in Gosling-Castle Partners Inc.,
or GCP, a global export venture between us and the Gosling family. GCP has the exclusive long-term export
and distribution rights for the Goslings rum products for all countries other than Bermuda. The Goslings rum
brands accounted for approximately 26% and 30% of our revenues for our 2016 and 2015 ﬁscal years,
respectively. We also distribute Goslings Stormy Ginger Beer, an essential non-alcoholic ingredient in
Goslings trademarked Dark ‘n Stormy(cid:5) rum cocktail and the Goslings Dark ‘n Stormy(cid:5) cocktail in a
ready-to-drink can.

Jefferson’s bourbons and rye whiskey. We develop and market four premium, very small batch
bourbons: Jefferson’s, Jefferson’s Reserve, Jefferson’s Ocean Aged at Sea and Jefferson’s Presidential Select.
Each of these four distinct premium Kentucky bourbons is blended in batches using select barrels of certain
mash bills and ages to produce speciﬁc ﬂavor proﬁles. We also market Jefferson’s Straight Rye Whiskey, a
premium whiskey distilled from 100% North American rye, Jefferson’s Chef’s Collaboration, a blend of
bourbon and rye, Jefferson’s The Manhattan: Barrel Finished Cocktail, a ready-to-drink cocktail, Jefferson’s
Wine Finish Collection, bourbons aged in wine barrels, and Jefferson’s Wood Experiment, innovative
wood-ﬁnished bourbons.

Clontarf Irish whiskeys. Our family of Clontarf Irish whiskeys currently represents a majority of our

case sales of Irish whiskey. Clontarf, an accessible and smooth premium Irish whiskey, is distilled using
quality grains and pure Irish spring water. Clontarf is then aged in bourbon barrels and mellowed through
Irish oak charcoal. Clontarf is available in single malt and classic versions.

Knappogue Castle whiskies. We developed our Knappogue Castle Whiskey, a single malt Irish whiskey,

to build on both the popularity of single malt Scotch whisky and the growth in the Irish whiskey category.
Knappogue Castle Whiskey is distilled in pot stills using malted barley and is aged twelve years. We have
introduced Knappogue Twin Wood, the ﬁrst Sherry Finished Knappogue Castle Whiskey. The whiskey is
matured for sixteen years in two types of wood resulting in a perfectly balanced single malt Irish whiskey
with a complex, rich taste and a slightly sweet sherry ﬁnish. Knappogue Castle 1951 is a pure pot-still
whiskey that was distilled in 1951 and then aged for 36 years in sherry casks. The name comes from an Irish
castle, formerly owned by Mark Edwin Andrews, the originator of the brand and the father of Mark Andrews,
our chairman.

Brady’s Irish Cream liqueurs. Brady’s Irish Cream, a high quality Irish cream, is made in small

batches using Irish whiskey, dairy fresh cream and natural ﬂavors.

Boru vodka. Boru vodka, a premium vodka produced in Ireland, was developed in 1998 and is named
after the legendary High King of Ireland, Brian Boru, who united the Irish clans and drove foreign invaders
out of Ireland. It is ﬁve-times distilled using pure spring water for smoothness and ﬁltered through ten feet of
charcoal made from Irish oak for increased purity.

Celtic Honey liqueur. Celtic Honey is a premium brand of Irish liqueur that is a unique combination of

Irish spirits, cognac and a taste of honey. Gaelic Heritage Corporation Limited, an affiliate of one of our
bottlers, has the exclusive rights to produce and supply us with Celtic Honey.

Pallini liqueurs. We have the exclusive U.S. distribution rights (excluding duty free sales) for Pallini
Limoncello and its related brand extensions. Pallini Limoncello is a premium lemon liqueur, which is served
iced cold, on the rocks or as an ingredient in a wide variety of drinks, ranging from martinis to iced tea. It is
also used in cooking, particularly for pastries and cakes. Pallini Limoncello is crafted from an authentic family
recipe. It is made with Italy’s ﬁnest Sfusato Amalﬁtano lemons that are hand-selected for optimal freshness
and ﬂavor. There are two other ﬂavor extensions of this Italian liqueur: Pallini Peachcello, made with white
peaches, and Pallini Raspicello, made from a combination of raspberries and other berries.

Tierras tequilas.

‘‘Tequila Tierras Autenticas de Jalisco’’TM or ‘‘Tierras’’ is an organic, super-premium,

USDA certiﬁed organic tequila and is available as blanco, reposado and añejo. We are the exclusive
U.S. importer and marketer of Tierras.

Gozio amaretto.

In 2011, we became the exclusive U.S. distributor for Gozio amaretto, which is made

from a secret recipe that combines selected fruits from four continents.

Our strategy

Our objective is to continue building Castle Brands into a proﬁtable international spirits company, with a

distinctive portfolio of premium and super premium spirits brands. To achieve this, we continue to seek to:

•

focus on our more proﬁtable brands and markets. We continue to focus our distribution efforts,
sales expertise and targeted marketing activities on our more proﬁtable brands and markets;

•

grow organically. We believe that continued organic growth will enable us to achieve long-term
proﬁtability. We focus on brands that have proﬁtable growth potential and staying power, such as
our rums and whiskies, sales of which have grown substantially in recent years;

build consumer awareness. We use our existing assets, expertise and resources to build consumer
awareness and market penetration for our brands;

leverage our distribution network. Our established distribution network in all 50 U.S. states
enables us to promote our brands nationally and makes us an attractive strategic partner for smaller
companies seeking U.S. distribution; and

selectively add new brand extensions and brands to our portfolio. We intend to continue to
introduce new brand extensions and expressions. For example, we have leveraged our successful
Jefferson’s portfolio by introducing a number of brand extensions. We continue to explore strategic
relationships, joint ventures and acquisitions to selectively expand our premium spirits portfolio. We
expect that future acquisitions or agency relations, if any, would involve some combination of cash,
debt and the issuance of our stock.

Production and supply

There are several steps in the production and supply process for beverage alcohol products. First, all of
our spirits products are distilled. This is a multi-stage process that converts basic ingredients, such as grain,
sugar cane or agave, into alcohol. Next, the alcohol is processed and/or aged in various ways depending on
the requirements of the speciﬁc brand. For our vodka, this processing is designed to remove all other
chemicals, so that the resulting liquid will be odorless and colorless, and have a smooth quality with minimal
harshness. Achieving a high level of purity involves a series of distillations and ﬁltration processes.

For our spirits brands, rather than removing ﬂavor, various complex ﬂavor proﬁles are achieved through

one or more of the following techniques: infusion of fruit, addition of various ﬂavoring substances, and, in the
case of rums and whiskeys, aging of the brands in various types of casks for extended periods of time and the
blending of several rums or whiskeys to achieve a unique ﬂavor proﬁle for each brand. After the distillation,
puriﬁcation and ﬂavoring processes are completed, the various liquids are bottled. This involves several
important stages, including bottle and label design and procurement, ﬁlling of the bottles and packaging the
bottles in various conﬁgurations for shipment.

We do not have signiﬁcant investments in distillation, bottling or other production facilities or equipment.
Instead, we have entered into relationships with several companies to provide those services to us. We believe
that these types of arrangements allow us to avoid committing signiﬁcant amounts of capital to ﬁxed assets
and permit us to have the ﬂexibility to meet growing sales levels by dealing with companies whose capacity
signiﬁcantly exceeds our current needs. These relationships vary on a brand-by-brand basis as discussed
below. As part of our ongoing cost-containment efforts, we intend to continue to review each of our business
relationships to determine if we can increase the efficiency of our operations.

Goslings rum and ginger beer

Goslings rums have been produced by the Gosling family in Hamilton, Bermuda for over 200 years and,

under our distribution arrangements with Gosling’s Export (Bermuda) Limited (‘‘Gosling’s Export’’), they
have retained the right to act as the sole supplier to GCP with respect to our Goslings rum requirements.
Goslings sources its rums in the Caribbean and transports them to Bermuda where they are blended according
to proprietary recipes. The rums are then sent to a plant, owned and operated by a third party, in the
United States, where they are bottled, packaged, stored and shipped to our third-party warehouse. We believe
that Gosling’s Export’s blending and storage facilities in Bermuda will accommodate our projected supply
needs for the foreseeable future. We believe our third-party U.S. bottler has ample capacity to meet our
projected bottling needs for the foreseeable future. See ‘‘Strategic brand-partner relationships.’’

Our Goslings Stormy Ginger Beer is produced, canned and/or bottled by third-party soft-drink bottlers
and canners to Goslings’ formula and requirements. We believe these bottlers and canners have ample capacity
to meet our projected supply needs for the foreseeable future.

Knappogue Castle and Clontarf Irish whiskeys

In 2012, we entered into two long-term supply agreements with Irish Distillers Limited (‘‘IDL’’), a
subsidiary of Pernod Ricard, under which it has agreed to supply us with the aged single malt and grain
whiskeys used in our Knappogue Castle whiskey products and all of our Clontarf Irish whiskey products. The
ﬁrst supply agreement provides for the production of blended Irish whiskeys for us until the contract is
terminated by either party in accordance with the terms of the agreement. IDL may terminate the contract if it
provides at least six years prior notice, except for breach. Under this agreement, we provide IDL with a
forecast of the estimated amount of liters of pure alcohol we require for the next four ﬁscal contract years and
agree to purchase that amount, subject to certain annual adjustments. The second supply agreement provides
for the production of single malt Irish whiskeys for us until the contract is terminated by either party in
accordance with the terms of the agreement. IDL may terminate the contract if it provides at least
thirteen years prior notice, except for breach. Under this agreement, we provide IDL with a forecast of the
estimated amount of liters of pure alcohol we require for the next twelve ﬁscal contract years and agree to
purchase that amount, subject to certain annual adjustments. We are not obligated to pay for any product not
yet received. The whiskeys are then sent to Terra Limited (‘‘Terra’’) in Baileyboro, Ireland, where they are
bottled in bottles we designed and packaged for shipment. We believe that Terra, which also acts as bottler for
certain of our Boru vodka and as producer and bottler of our Brady’s Irish Cream (and as bottler for Celtic
Honey, which is supplied to us by one of Terra’s affiliates), has sufficient bottling capacity to meet our current
needs, and both Terra and IDL have the capacity to meet our projected supply needs for the foreseeable
future.

Terra provides intake, storage, sampling, testing, ﬁltering, ﬁlling, capping and labeling of bottles, case

packing, warehousing and loading and inventory control for our Knappogue Castle and Clontarf Irish
whiskeys at prices that are adjusted annually by mutual agreement based on changes in raw materials and
consumer price indexes increases up to 3.5% per annum. This agreement also provides for maintenance of
product speciﬁcations and minimum processing procedures, including compliance with applicable food and
alcohol regulations and maintenance, storage and stock control of all raw products and ﬁnished products
delivered to Terra. Terra holds all alcohol on its premises under its customs and excise bond. Our bottling and
services agreement with Terra will expire on June 30, 2016. We expect to continue to operate under the terms
of the expiring contract as we negotiate a new agreement with Terra. We believe we could obtain alternative
sources of bottling and services if we are unable to renew the existing Terra contract.

Jefferson’s whiskeys

Our Jefferson’s whiskey portfolio is bottled for us by Luxco, Inc. (‘‘Luxco’’), in Cleveland, OH, from our

stocks of aged bourbon and rye. Bourbon has been in short supply in the U.S. in recent years, and we have
been actively seeking alternate sourcing for future supply. We have acquired stocks of aged bourbon, which
we anticipate will supply our currently forecasted needs for the Jefferson’s brand, although there is no
assurance we can source adequate amounts of bourbon or rye, if demand is greater than expected, at
satisfactory prices.

We have entered into a supply agreement with a bourbon distiller, which provides for the production of
newly distilled bourbon whiskey through December 31, 2019. Under this agreement, the distiller provides us
with an agreed upon amount of original proof gallons of newly distilled bourbon whiskey, subject to certain
annual adjustments. We are not obligated to pay the distiller for any product not yet received. During the term
of this supply agreement, the distiller has the right to limit additional purchases to ten percent above the
commitment amount.

Boru vodka

We have a supply agreement with a leading European producer of grain neutral spirits to provide us with

the distilled alcohol used in our Boru vodka. The supply agreement provides for the producer to produce
natural spirit for us with speciﬁed levels of alcohol content pursuant to speciﬁcations set forth in the
agreement and at speciﬁed prices through its expiration in December 2016, in quantities designated by us. We
believe that the producer has sufficient distilling capacity to meet our needs for Boru vodka for the foreseeable
future. In the event that we do not renew the production agreement, we believe that we will be able to obtain
grain neutral spirits from another supplier.

The ﬁve-times distilled alcohol is delivered from the producer to the bottling premises at Terra, where it
is ﬁltered in several proprietary ways, and pure water is added to achieve the desired proof. Depending on the
size of the bottle, Boru vodka is then either bottled at Terra or shipped in bulk to the U.S. and bottled at
Luxco, where we bottle certain sizes for the U.S. market. We believe that both Terra and Luxco have
sufficient bottling capacity to meet our current needs, and both have the capacity to meet our anticipated
future supply needs. As described above, our bottling and services agreement with Terra will expire on
June 30, 2016. We expect to continue to operate under the terms of the expiring contract as we negotiate a
new agreement with Terra. We believe we could obtain alternative sources of bottling and services if we are
unable to renew the existing Terra contract.

Brady’s Irish Cream

Brady’s Irish Cream is produced for us by Terra. Fresh cream is combined with Irish whiskey, grain
neutral spirits and various ﬂavorings to our speciﬁcations, and then bottled by Terra in bottles designed for us.
We believe that Terra has the capacity to meet our foreseeable supply needs for this brand. As described
above, our bottling and services agreement with Terra will expire on June 30, 2016. We expect to continue to
operate under the terms of the expiring contract as we negotiate a new agreement with Terra. We believe we
could obtain alternative sources of bottling and services if we are unable to renew the existing Terra contract.

Celtic Honey liqueur

Gaelic Heritage Corporation Limited, an affiliate of Terra, has a contractual right to act as the sole
supplier to us of Celtic Honey. Gaelic Heritage mixes the ingredients comprising Celtic Honey using a
proprietary formula and then Terra bottles it for them in bottles designed for us. We believe that the necessary
ingredients are available to Gaelic Heritage in sufficient supply and that Terra’s bottling capacity is currently
adequate to meet our projected supply needs for the foreseeable future. See ‘‘Strategic brand-partner
relationships.’’

Pallini liqueurs

Pallini SpA (‘‘Pallini’’), as successor in interest to I.L.A.R. S.p.A., an Italian company based in Rome
and owned since 1875 by the Pallini family, produces Pallini Limoncello, Raspicello and Peachcello. Pallini
bottles the liqueurs at its plant in Rome and ships them to us under our long-term exclusive U.S. marketing
and distribution agreement. We believe that Pallini has adequate facilities to produce and bottle sufficient
Limoncello, Peachcello and Raspicello to meet our projected supply needs for the foreseeable future. See
‘‘Strategic brand-partner relationships.’’

Gozio amaretto

We are the exclusive U.S. distributor for Gozio amaretto. Gozio amaretto is produced by Distillerie
Franciacorta, a spirits company founded in 1901 and owned by the Gozio family. The company is located in
Franciacorta, in the Italian Region of Lombardy. We believe that Distillerie Franciacorta has sufficient capacity
to meet our projected supply needs for the foreseeable future for this brand.

Tierras tequilas

Tierras Tequila Autenticas de Jalisco or ‘‘Tierras’’ is being produced for us in Mexico by Autentica
Tequilera S.A. de C.V. Autentica Tequilera currently sources organic agave from third-parties, and together
with its affiliates is in the process of cultivating its own supply of organic agave. Autentica Tequilera distills
and bottles the tequila at its facility in the Jalisco region of Mexico. Tierras is available as blanco, reposado
and añejo. The blanco is unaged, the reposado is aged in oak barrels at the distillery for up to one year, and
the añejo is aged in oak barrels at the distillery for at least one year. We believe that, given the ability of
Autentica Tequilera to purchase organic agave and its anticipated cultivation of organic agave, Autentica
Tequilera has sufficient capacity to meet our projected supply needs for the foreseeable future for this brand.

Distribution network

We believe that the distribution network that we have developed with our sales team and our independent

distributors and brokers is one of our strengths. We currently have distribution and brokerage relationships
with third-party distributors in all 50 U.S. states, as well as distribution arrangements in approximately 20
other countries.

U.S. distribution

Background.

Importers of beverage alcohol in the U.S. must sell their products through a three-tier

distribution system. Typically, an imported brand is ﬁrst sold to a U.S. importer, who then sells it to a network
of distributors, or wholesalers, covering the U.S., in either ‘‘open’’ states or ‘‘control’’ states. In the 33 open
states, the distributors are generally large, privately-held companies. In the 17 control states, the states
themselves function as the distributor, and regulate suppliers such as us. The distributors and wholesalers in
turn sell to individual retailers, such as liquor stores, restaurants, bars, supermarkets and other outlets licensed
to sell beverage alcohol. In larger states such as New York, more than one distributor may handle a brand in
separate geographical areas. In control states, importers sell their products directly to state liquor authorities,
which distribute the products and either operate retail outlets or license the retail sales function to private
companies, while maintaining strict control over pricing and proﬁt.

The U.S. spirits industry has consolidated dramatically over the last ten years due to merger and
acquisition activity. There are currently eight major spirits companies, each of which own and operate their
own importing businesses. All companies, including these large companies, are required by law to sell their
products through wholesale distributors in the U.S. The major companies are exerting increasing inﬂuence
over the regional distributors and as a result, it has become more difficult for smaller companies to get their
products recognized by the distributors. We believe our established distribution network in all 50 states allows
us to overcome a signiﬁcant barrier to entry in the U.S. beverage alcohol market and enhances our
attractiveness as a strategic partner for smaller companies lacking comparable distribution.

For ﬁscal 2016, our U.S. sales represented approximately 87.1% of our revenues, and we expect them

to remain relatively consistent as a percentage of our total sales in the near future. See note 16 to our
accompanying consolidated ﬁnancial statements.

Importation. We currently hold the federal importer and wholesaler license required by the Alcohol and
Tobacco Tax and Trade Bureau of the U.S. Treasury Department, and the requisite state license in all 50 states
and the District of Columbia.

Our inventory is strategically maintained in large bonded warehouses and shipped nationally by an

extensive network of licensed and bonded carriers.

Wholesalers and distributors.

In the U.S., we are required by law to use state-licensed distributors or,
in the control states, state-owned agencies performing this function, to sell our brands to retail outlets. As a
result, we depend on distributors for sales, for product placement and for retail store penetration. We currently
have no distribution agreements or minimum sales requirements with any of our U.S. alcohol distributors, and
they are under no obligation to place our products or market our brands. All of the distributors also distribute
our competitors’ products and brands. As a result, we must foster and maintain our relationships with our
distributors. Through our internal sales team, we have established relationships for our brands with wholesale
distributors in each state, and our products are currently sold in the U.S. by approximately 80 wholesale
distributors, as well as by various state beverage alcohol control agencies.

International distribution

In our foreign markets, most countries permit sales directly from the brand owner to retail establishments,
including liquor stores, chain stores, restaurants and pubs, without requiring that sales go through a wholesaler
tier. In our international markets, we rely primarily on established spirits distributors in much the same way as
we do in the U.S. We have contracted with an international beverage alcohol broker to represent our brands in
approximately twenty international markets. We use Terra and other bonded warehouses and logistic providers
to handle the billing, inventory and shipping for us for some products in certain of our non-U.S. markets.

As in the U.S., the beverage alcohol industry has undergone consolidation internationally, with

considerable realignment of brands and brand ownership. The number of major spirits companies
internationally has been reduced signiﬁcantly due to mergers and brand ownership consolidation. While there
are still a substantial number of companies owning one or more brands, most business is now done by the
eight major companies, each of which owns and operates its own distribution company that distributes in the
major international markets. These captive distribution companies focus primarily on the brands of the
companies that own them.

Even though we do not utilize the direct route to market in our international operations, we do not
believe that we are at a signiﬁcant disadvantage, because the local importers/distributors typically have
established relationships with the retail accounts and are able to provide extensive customer service, in store
merchandising and on premise promotions. Also, even though we must compensate our wholesalers and
distributors in each market in which we sell our brands, we are, as a result of using these distributors, still
able to beneﬁt from substantially lower infrastructure costs and centralized billing and collection.

Our primary international markets are Ireland, Great Britain, Northern Ireland, Germany, Canada, Israel,

France, Finland, Norway, Sweden, Denmark, China and the Duty Free markets. We also have sales in other
countries in continental Europe, Latin America, the Caribbean and Asia. For ﬁscal 2016, non-U.S. sales
represented approximately 12.9% of our revenues. See note 16 to our accompanying consolidated ﬁnancial
statements.

Signiﬁcant customers

Sales to one distributor, Southern Wine and Spirits and related entities, accounted for approximately 31.4%

of our consolidated revenues for ﬁscal 2016.

Our sales team

While we currently expect more rapid growth in the U.S., our primary market, international markets hold

potential for future growth and are part of our global strategy.

We currently have a total sales force of 22 people, including ﬁve regional U.S. vice presidents who have

signiﬁcant industry experience with premium beverage alcohol brands.

Our sales personnel are engaged in the day-to-day management of our distributors, which includes setting

quotas, coordinating promotional plans for our brands, maintaining adequate levels of stock, brand education
and training and sales calls with distributor personnel. Our sales team also maintains relationships with key
retail customers through independent sales calls. They also schedule promotional events, create local brand
promotion plans, host in-store tastings where permitted and provide wait staff and bartender training and
education for our brands.

Advertising, marketing and promotion

To build our brands, we must effectively communicate with three distinct audiences: our distributors, the

retail trade and the end consumer. Advertising, marketing and promotional activities help to establish and
reinforce the image of our brands in our efforts to build substantial brand value. We believe our execution of
disciplined and strategic branding and marketing campaigns will continue to drive our future sales.

We employ full-time, in-house marketing, sales and customer service personnel who work together with
third party design and advertising ﬁrms to maintain a high degree of focus on each of our product categories
and build brand awareness through innovative marketing activities. We use a range of marketing strategies and
tactics to build brand equity and increase sales, including consumer and trade advertising, price promotions,
point-of-sale materials, event sponsorship, in-store and on-premise promotions and public relations, as well as
a variety of other traditional and non-traditional marketing techniques, including social media marketing, to
support our brands.

Besides traditional advertising, we also employ three other marketing methods to support our brands:
public relations, event sponsorships and tastings. Our signiﬁcant U.S. public relations efforts have helped gain
editorial coverage for our brands, which increases brand awareness. Event sponsorship is an economical way
for us to have inﬂuential consumers taste our brands. We actively contribute product to trend-setting events
where our brand has exclusivity in the brand category. We also conduct hundreds of in-store and on-premise
promotions each year.

We support our brand marketing efforts with an assortment of point-of-sale materials. The combination of

trade and consumer programs, supported by attractive point-of-sale materials, also establishes greater
credibility for us with our distributors and retailers.

Strategic brand-partner relationships

We forge strategic relationships with emerging and established spirits brand owners seeking opportunities
to increase their sales beyond their home markets and achieve global growth. This ability is a key component
of our growth strategy and one of our competitive strengths. Our original relationship with the Boru vodka
brand was as its exclusive U.S. distributor. To date, we have also established strategic relationships for
Goslings rums, Pallini liqueurs, Celtic Honey liqueur, Tierras tequilas and Gozio amaretto, as described below,
and we intend to seek to expand our brand portfolio through similar future arrangements.

Gosling-Castle Partners Inc./Goslings rums and ginger beer

In 2005, we entered into an exclusive national distribution agreement with Gosling’s Export for the
Goslings rum products. We subsequently purchased a 60% controlling interest in GCP, a strategic export
venture with the Gosling family. Gosling’s Export holds the exclusive distribution rights for Goslings rum
products on a worldwide basis (other than in Bermuda), through GCP, and assigned to GCP all of Gosling’s
Export’s interest in our January 2005 U.S. distribution agreement with them. The export agreement expires in
April 2020, subject to a 15 year extension if certain case sale targets are met. Under the export agreement,
GCP is generally entitled to a share of the proceeds from the sale, if ever, of the ownership of any of the
Gosling’s brands to a third-party, through a sale of the stock of Gosling’s Export or its parent, with the size of
such share depending upon the number of case sales made during the twelve months preceding the sale. Also,
prior to selling the ownership of any of their brands that are subject to these agreements, Gosling’s Export
must ﬁrst offer such brand to GCP and then to us. The Goslings, through Gosling Brothers Limited, have the
right to act as the sole supplier to GCP for our Goslings rum requirements.

Pallini SpA/Pallini liqueurs

We have an exclusive marketing and distribution agreement with Pallini under which we distribute
Pallini Limoncello, Peachcello and Raspicello liqueurs in the U.S. We began shipping these products in
September 2005.

Our agreement with Pallini expires on March 31, 2021, subject to successive ﬁve-year renewals unless

either party delivers a notice of non-renewal six months prior to the end of the term. Under the agreement, if
minimum shipment targets are not achieved and not cured, Pallini has the right to terminate the agreement
without payment of termination fees to us. However, if such targets are met, we have the right under the
agreement to receive certain termination payments and other payments upon the non-renewal of the
agreement, certain terminations of the agreement or the sale of the brand. The exclusive territory under the
agreement is the 50 states of the U.S. and the District of Columbia.

Autentica Tequilera S.A. de C.V./Tierras tequilas

In February 2008, we entered into an importation and marketing agreement with Autentica Tequilera
S.A. de C.V., under which we became the exclusive U.S. importer of Tierras. In February 2013, the agreement
renewed for an additional ﬁve years in accordance with its terms. During the term, we have the right to
purchase tequila at stipulated prices. Autentica Tequilera must maintain certain standards for its products, and
we have input into the product and packaging. We are required to prepare periodic reports detailing the
development of the brand’s sales. Under this agreement, we have rights of ﬁrst refusal for any new market for
Tierras (except Mexico), and any new Autentica Tequilera products in any market (except Mexico). We also
have a right of ﬁrst refusal on any sale of the Tierras brand, and a right to acquire up to 35% of the economic
beneﬁt of any such sale with a third-party based upon the achievement of certain cumulative sales targets.

Gozio amaretto

In November 2011, we entered into an exclusive distribution agreement with Distillerie Franciacorta

S.p.A. under which we are the exclusive distributor of Gozio amaretto in the U.S. The agreement has a
ﬁve-year term, with automatic ﬁve-year renewals unless either party delivers a notice of non-renewal
six months prior to the end of the term. During the term, we have the right to purchase Gozio amaretto at
stipulated prices and Distillerie Franciacorta Spa must maintain certain standards for its products. We are
required to prepare periodic reports detailing the development of the brand’s sales and prepare annual strategic
marketing and growth plans.

Intellectual property

Trademarks are an important aspect of our business. We sell our products under a number of trademarks,
which we own or use under license. Our brands are protected by trademark registrations or are the subject of
pending applications for trademark registration in the U.S., the European Community and most other countries
where we distribute, or plan to distribute, our brands. The trademarks may be registered in the names of our
subsidiaries and related companies. Generally, the term of a trademark registration varies from country to
country, and, in the U.S., trademark registrations need to be renewed every ten years. We expect to register
our trademarks in additional markets as we expand our distribution territories.

We have entered into distribution agreements for brands owned by third parties, such as the Goslings
rums, the Pallini liqueurs, Tierras tequilas and Gozio amaretto. The Goslings rum brands, Pallini liqueurs and
Gozio amaretto are registered by their respective owners and we have the exclusive right to distribute the
Goslings rums on a worldwide basis (other than in Bermuda) and the Pallini liqueur brands and Gozio
amaretto in the U.S. Goslings also has a trademark for their signature rum cocktail, Dark ‘n Stormy. Autentica
Tequiliera holds the registered U.S. trademark for Tequila Tierras Autenticas de Jalisco and its distinctive
label. See ‘‘Strategic brand-partner relationships.’’

Seasonality

Our industry is subject to seasonality with seasonal holiday buying generally generating peak retail sales
in the fourth calendar quarter (our third ﬁscal quarter). Historically, this holiday demand typically resulted in
slightly higher sales for us in our third and/or fourth ﬁscal quarters.

Competition

The beverage alcohol industry is highly competitive. We believe that we compete on the basis of quality,

price, brand recognition and distribution strength. Our premium brands compete with other alcoholic and
nonalcoholic beverages for consumer purchases, retail shelf space, restaurant presence and wholesaler
attention. We compete with numerous multinational producers and distributors of beverage alcohol products,
many of which have greater resources than us.

Over the past ten years, the U.S. wine and spirits industry has undergone dramatic consolidation and

realignment of brands and brand ownership. The number of major importers in the U.S. has declined
signiﬁcantly. Today there are eight major companies: Diageo PLC, Pernod Ricard S.A., Bacardi Limited,
Brown-Forman Corporation, Beam Suntory Inc., Davide Campari Milano-S.p.A., Remy Cointreau S.A. and
LVMH Moët Hennessy Louis Vuitton S.A.

We believe that we are sometimes in a better position to partner with small to mid-size brands than the

major importers. Despite our relative capital position and resources, we have been able to compete with these
larger companies in pursuing agency distribution agreements and acquiring brands by being more responsive
to private and family-owned brands, offering ﬂexible transaction structures and providing brand owners the
option to retain local production and ‘‘home’’ market sales. Given our size relative to our major competitors,
most of which have multi-billion dollar operations, we believe that we can provide greater focus on smaller
brands and tailor transaction structures based on individual brand owner preferences. However, our relative
capital position and resources may limit our marketing capabilities, limit our ability to expand into new
markets and limit our negotiating ability with our distributors.

By focusing on the premium and super-premium segments of the market, which typically have higher

margins, and having an established, experienced sales force, we believe we are able to gain relatively
signiﬁcant attention from our distributors for a company of our size. Our U.S. regional vice presidents provide
long-standing relationships with distributor personnel and with their major customers. Finally, the continued
consolidation among the major companies is expected to create an opportunity for small to mid-size wine and
spirits companies, such as ourselves, as the major companies contract their portfolios to focus on fewer
brands.

Government regulation

We are subject to the jurisdiction of the Federal Alcohol Administration Act, U.S. Customs Laws, Internal

Revenue Code of 1986, and the Alcoholic Beverage Control Laws of all ﬁfty states.

The U.S. Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau regulates the production,

blending, bottling, sales and advertising and transportation of alcohol products. Also, each state regulates the
advertising, promotion, transportation, sale and distribution of alcohol products within its jurisdiction. We are
also required to conduct business in the U.S. only with holders of licenses to import, warehouse, transport,
distribute and sell spirits.

In Europe, we are subject to similar regulations related to the production of spirits.

We are subject to U.S. and European regulations on the advertising, marketing and sale of beverage
alcohol. These regulations range from a complete prohibition of the marketing of alcohol in some countries to
restrictions on the advertising style, media and messages used.

Labeling of spirits is also regulated in many markets, varying from health warning labels to importer
identiﬁcation, alcohol strength and other consumer information. All beverage alcohol products sold in the
U.S. must include warning statements related to risks of drinking beverage alcohol products.

We are also subject to certain regulatory requirements regarding minimum aging of spirits.

In the U.S. control states, the state liquor commissions act in place of distributors and decide which
products are to be purchased and offered for sale in their respective states. Products are selected for purchase
and sale through listing procedures which are generally made available to new products only at periodically
scheduled listing interviews. Consumers may purchase products not selected for listings only through special
orders, if at all.

The distribution of alcohol-based beverages is also subject to extensive federal and state taxation in the
U.S. and internationally. Most foreign countries in which we do business impose excise duties on wines and
distilled spirits, although the form of such taxation varies from a simple application on units of alcohol by
volume to intricate systems based on the imported or wholesale value of the product. Several countries impose
additional import duty on distilled spirits, often discriminating between categories in the rate of such tariffs.
Import and excise duties may have a signiﬁcant effect on our sales, both through reducing the consumption of
alcohol and through encouraging consumer switching into lower-taxed categories of alcohol.

We believe that we are in material compliance with applicable federal, state and other regulations.
However, we operate in a highly regulated industry which may be subject to more stringent interpretations of
existing regulations. Future compliance costs due to regulatory changes could be signiﬁcant.

Since we import distilled spirits products produced primarily outside the U.S., adverse effects of
regulatory changes are more likely to materially affect earnings and our competitive market position rather
than capital expenditures. Capital expenditures in our industry are normally associated with either production
facilities or brand acquisition costs. Because we are not a U.S. producer, changes in regulations affecting
production facility operations may indirectly affect the costs of the brands we purchase for resale, but we
would not anticipate any resulting material adverse impact upon our capital expenditures.

Global conglomerates with international brands dominate our industry. The adoption of more restrictive

marketing and sales regulations or increased excise taxes and customs duties could materially adversely affect
our earnings and competitive industry position. Large international conglomerates have greater ﬁnancial
resources than we do and would be better able to absorb increased compliance costs.

Employees

As of March 31, 2016, we had 51 full-time employees, 33 of which were in sales and marketing and
18 of which were in management, ﬁnance and administration. We had 51 full-time employees as of March 31,
2015. As of March 31, 2016, 48 of our employees were located in the U.S. and three were located in Ireland.

Geographic Information

We operate in one business — premium beverage alcohol. Our product categories are rum and related

products, whiskey, liqueurs, vodka and tequila. We report our operations in two geographical areas:
International and U.S. See note 16 to our accompanying consolidated ﬁnancial statements.

Corporate Information

We are a Florida corporation, which was incorporated in 2009. We are the successor to a Delaware

corporation, which was incorporated in Delaware in 2003.

Available Information

Our corporate ﬁlings, including our annual reports on Form 10-K, our quarterly reports on Form 10-Q,
our current reports on Form 8-K, our proxy statements and reports ﬁled by our officers and directors under
Section 16(a) of the Exchange Act and any amendments to those ﬁlings, are available, free of charge, on our
investor website, http://investor.castlebrandsinc.com, as soon as reasonably practicable after we or our officers
and directors electronically ﬁle or furnish such material with the SEC. You may also ﬁnd our code of business
conduct, nominating and corporate governance committee charter and audit committee charter on our website.
We do not intend for information contained in our website, or those of our subsidiaries, to be a part of this
annual report on Form 10-K. Shareholders may request paper copies of these ﬁlings and corporate governance
documents, without charge, by written request to Castle Brands Inc., 122 East 42nd St., Suite 5000, New York,
NY 10168, Attn: Investor Relations.

Also, you may read and copy any materials we ﬁle with the SEC at the SEC’s Public Reference Room at

100 F Street, NE., Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m.
You may obtain information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and
information statements, and other information regarding issuers that ﬁle electronically with the SEC.

Item 1A. Risk Factors

Risks Relating To Our Business

We have never been proﬁtable, and believe we will continue to incur net losses for the foreseeable
future.

We have incurred losses since our inception, including a net loss of $2.5 million for ﬁscal 2016, and had

an accumulated loss of $145.9 million as of March 31, 2016. We believe that we will continue to incur
consolidated net losses as we expect to make continued signiﬁcant investment in product development and
sales and marketing and to incur signiﬁcant administrative expenses as we seek to grow our brands. In
addition, GCP, in which we hold a 60% controlling interest, is a proﬁtable entity that does not ﬁle
consolidated tax returns with us and is subject to U.S. federal and state income tax, increasing our
consolidated net loss. We also anticipate that our cash needs will exceed our income from sales for the near
future. Some of our products may never achieve widespread market acceptance and may not generate sales
and proﬁts to justify our investment. Also, we may ﬁnd that our expansion plans are more costly than we
anticipate and that they do not ultimately result in commensurate increases in our sales, which would further
increase our losses. We expect we will continue to experience losses and negative cash ﬂow from operations,
some of which could be signiﬁcant. Results of operations will depend upon numerous factors, some of which
are beyond our control, including market acceptance of our products, new product introductions and
competition. We incur substantial operating expenses at the corporate level, including costs directly related to
being an SEC reporting company.

Recent worldwide and domestic economic trends and ﬁnancial market conditions could adversely
impact our ﬁnancial performance.

The worldwide and domestic economies have experienced adverse conditions and may be subject to

further deterioration for the foreseeable future. We are subject to risks associated with these adverse
conditions, including economic slowdown and the disruption, volatility and tightening of credit and capital
markets.

This global economic situation could adversely impact our major suppliers, distributors and retailers. The

inability of suppliers, distributors or retailers to conduct business or to access liquidity could impact our
ability to distribute our products.

There can be no assurance that market conditions will improve in the near future. A prolonged downturn,

further worsening or broadening of the adverse conditions in the worldwide and domestic economies could
affect consumer spending patterns and purchases of our products, and create or exacerbate credit issues, cash
ﬂow issues and other ﬁnancial hardships for us and for our suppliers, distributors, retailers and consumers.
Depending upon their severity and duration, these conditions could have a material adverse impact on our
business, liquidity, ﬁnancial condition and results of operations.

We may require additional capital, which we may not be able to obtain on acceptable terms, or at all.
Our inability to raise such capital, as needed, on beneﬁcial terms or at all could restrict our future
growth and severely limit our operations.

We have limited capital compared to other companies in our industry. This may limit our operations and

growth, including our ability to continue to develop existing brands, service our debt obligations, maintain
adequate inventory levels, fund potential acquisitions of new brands, penetrate new markets, attract new
customers and enter into new distribution relationships. If we have not generated sufficient cash from
operations to ﬁnance additional capital needs, we will need to raise additional funds through private or public
equity and/or debt ﬁnancing. We cannot assure you that, if and when needed, additional ﬁnancing will be
available to us on acceptable terms or at all. If additional capital is needed and either unavailable or cost
prohibitive, our operations and growth may be limited as we may need to change our business strategy to
slow the rate of, or eliminate, our expansion or reduce or curtail our operations. Also, any additional ﬁnancing
we undertake could impose covenants upon us that restrict our operating ﬂexibility, and, if we issue equity
securities to raise capital our existing shareholders may experience dilution and the new securities may have
rights, preferences and privileges senior to those of our common stock.

If our brands do not achieve more widespread consumer acceptance, our growth may be limited.

Most of our brands are early in their growth cycle and have not achieved extensive brand recognition.

Also, brands we may acquire in the future are unlikely to have established extensive brand recognition.
Accordingly, if consumers do not accept our brands, we will not be able to penetrate our markets and our
growth may be limited.

We depend on a limited number of suppliers. Failure to obtain satisfactory performance from our
suppliers or loss of our existing suppliers could cause us to lose sales, incur additional costs and lose
credibility in the marketplace. We also have annual purchase obligations with certain suppliers.

We depend on a limited number of third-party suppliers for the sourcing of all of our products, including

both our own proprietary brands and those we distribute for others. These suppliers consist of third-party
distillers, bottlers and producers in the U.S., Bermuda, the Caribbean, Australia and Europe. We rely on the
owners of Goslings rum, Pallini liqueurs, Gozio amaretto and Tierras tequila to produce their brands for us.
For our proprietary products, we may rely on a single supplier to fulﬁll one or all of the manufacturing
functions for a brand. For instance, IDL is the sole provider of our single malt, blended and grain Irish
whiskeys. We do not have long-term written agreements with all of our suppliers. We do not currently have a
long-term source for supply of aged rye and there can be no assurance we can source adequate amounts of
aged bourbon or rye at satisfactory prices, or at all. Also, if we fail to complete purchases of products ordered
annually, certain suppliers have the right to bill us for product not purchased during the period. The
termination of our written or oral agreements or an adverse change in the terms of these agreements could
have a negative impact on our business. If our suppliers increase their prices, we may not have alternative
sources of supply and may not be able to raise the prices of our products to cover all or even a portion of the
increased costs. Also, our suppliers’ failure to perform satisfactorily or handle increased orders, delays in
shipments of products from suppliers or the loss of our existing suppliers, especially our key suppliers, could
cause us to fail to meet orders for our products, lose sales, incur additional costs and/or expose us to product
quality issues. In turn, this could cause us to lose credibility in the marketplace and damage our relationships
with distributors, ultimately leading to a decline in our business and results of operations. If we are not able to
renegotiate these contracts on acceptable terms or ﬁnd suitable alternatives, our business could be negatively
impacted.

We depend on our independent wholesale distributors to distribute our products. The failure or inability
of even a few of our distributors to adequately distribute our products within their territories could
harm our sales and result in a decline in our results of operations.

We are required by law to use state licensed distributors or, in 17 states known as ‘‘control states,’’
state-owned agencies performing this function, to sell our products to retail outlets, including liquor stores,
bars, restaurants and national chains in the U.S. We have established relationships for our brands with
wholesale distributors in each state; however, failure to maintain those relationships could signiﬁcantly and
adversely affect our business, sales and growth. Over the past decade there has been increasing consolidation,
both intrastate and interstate, among distributors. As a result, many states now have only two or three
signiﬁcant distributors. Also, there are several distributors that now control distribution for several states. For
the ﬁscal year ended March 31, 2016, sales to one distributor accounted for 31.4% of revenues. For the ﬁscal
year ended March 31, 2015, sales to this same distributor accounted for 29.7% of revenues. As a result, if we
fail to maintain good relations with a distributor, our products could in some instances be frozen out of one or
more markets entirely. The ultimate success of our products also depends in large part on our distributors’
ability and desire to distribute our products to our desired U.S. target markets, as we rely signiﬁcantly on
them for product placement and retail store penetration. We have no formal distribution agreements or
minimum sales requirements with any of our distributors and they are under no obligation to place our
products or market our brands. Moreover, all of them also distribute competitive brands and product lines. We
cannot assure you that our U.S. alcohol distributors will continue to purchase our products, commit sufficient
time and resources to promote and market our brands and product lines or that they can or will sell them to
our desired or targeted markets. If they do not, our sales will be harmed, resulting in a decline in our results
of operations.

While most of our international markets do not require the use of independent distributors by law, we

have chosen to conduct our sales through distributors in all of our markets and, accordingly, we face similar
risks to those set forth above with respect to our international distribution. Some of these international markets
may have only a limited number of viable distributors.

If we are unable to identify and successfully acquire additional brands that are complementary to our
existing portfolio, our growth could be limited, and, even if additional brands are acquired, we may not
realize planned beneﬁts due to integration difficulties or other operating issues.

A component of our growth strategy is the acquisition of additional brands that are complementary to our

existing portfolio through acquisitions of such brands or their corporate owners, directly or through mergers,
joint ventures, long-term exclusive distribution arrangements and/or other strategic relationships. If we are
unable to identify suitable brand candidates and successfully execute our acquisition strategy, our growth
could be limited. Also, even if we are successful in acquiring additional brands, we may not be able to
achieve or maintain proﬁtability levels that justify our investment in, or realize operating and economic
efficiencies or other planned beneﬁts with respect to, those additional brands. The addition of new products or
businesses entails numerous risks with respect to integration and other operating issues, any of which could
have a detrimental effect on our results of operations and/or the value of our equity. These risks include:

•

difficulties in assimilating acquired operations or products;

unanticipated costs that could materially adversely affect our results of operations;

negative effects on reported results of operations from acquisition related charges and amortization
of acquired intangibles;

diversion of management’s attention from other business concerns;

adverse effects on existing business relationships with suppliers, distributors and retail customers;

risks of entering new markets or markets in which we have limited prior experience; and

the potential inability to retain and motivate key employees of acquired businesses.

Also, there are special risks associated with the acquisition of additional brands through joint venture
arrangements. We may not have a majority interest in, or control of, future joint ventures in which we may
enter. There is, therefore, risk that our joint venture partners may at any time have economic, business or legal
interests or goals that are inconsistent with our interests or goals or those of the joint venture. There is also
risk that our current or future joint venture partners may be unable to meet their economic or other obligations
and that we may be required to fulﬁll those obligations alone.

Our ability to grow through the acquisition of additional brands will also be dependent upon the
availability of capital to complete the necessary acquisition arrangements. We intend to ﬁnance our brand
acquisitions through a combination of our available cash resources, third-party ﬁnancing and, in appropriate
circumstances, the further issuance of equity and/or debt securities; however, our ability to ﬁnance such
acquisitions may be limited by the terms of our other equity and/or debt securities. Acquiring additional
brands could have a signiﬁcant effect on our ﬁnancial position, and could cause substantial ﬂuctuations in our
quarterly and yearly operating results. Also, acquisitions could result in the recording of signiﬁcant goodwill
and intangible assets on our ﬁnancial statements, the amortization or impairment of which would reduce
reported earnings in subsequent years.

Currency exchange rate ﬂuctuations and devaluations may have a signiﬁcant adverse effect on our
revenues, sales, costs of goods and overall ﬁnancial results.

For ﬁscal 2016, non-U.S. operations accounted for approximately 12.9% of our revenues. Therefore,

gains and losses on the conversion of foreign payments into U.S. dollars could cause ﬂuctuations in our
results of operations, and ﬂuctuating exchange rates could cause reduced revenues and/or gross margins from
non-U.S. dollar-denominated international sales and inventory purchases. Also, for ﬁscal 2016, Euro
denominated sales accounted for approximately 8.0% of our total revenue, so a substantial change in the rate
of exchange between the U.S. dollar and the Euro could have a signiﬁcant adverse effect on our ﬁnancial

results. Our ability to acquire spirits and produce and sell our products at favorable prices will also depend in
part on the relative strength of the U.S. dollar. We do not currently hedge against these risks.

We must maintain a relatively large inventory of our products to support customer delivery
requirements, and if this inventory is lost due to theft, ﬁre or other damage or becomes obsolete, our
results of operations would be negatively impacted.

We must maintain relatively large inventories to meet customer delivery requirements for our products.
We are always at risk of loss of that inventory due to theft, ﬁre or other damage, and any such loss, whether
insured against or not, could cause us to fail to meet our orders and harm our sales and operating results.
Also, our inventory may become obsolete as we introduce new products, cease to produce old products or
modify the design of our products’ packaging, which would increase our operating losses and negatively
impact our results of operations.

Either our or our strategic partners’ failure to protect our respective intellectual property rights could
compromise our competitive position and decrease the value of our brand portfolio.

Our business and prospects depend in part on our, and with respect to our agency or joint venture brands,

our strategic partners’, ability to develop favorable consumer recognition of our brands and trademarks.
Although both we and our strategic partners actively apply for intellectual property registrations of our brands
and trademarks, they could be imitated in ways that we cannot prevent. Also, we rely on trade secrets and
proprietary know-how, concepts and formulas. We cannot be certain that the steps taken to protect these
intellectual property rights will be sufficient to protect these rights. Our business could be adversely affected
by the material infringement of such intellectual property rights. We are also subject to risks and costs
associated with the enforcement of our and our partners’ intellectual property rights. Moreover, we may face
claims of misappropriation or infringement of third parties’ rights that could interfere with our use of this
information. Defending these claims may be costly and, if unsuccessful, may prevent us from continuing to
use this proprietary information in the future and result in a judgment or monetary damages being levied
against us. We do not maintain non-competition agreements with all of our key personnel or with some of our
key suppliers. If competitors independently develop or otherwise obtain access to our or our strategic partners’
trade secrets, proprietary know-how or recipes, the appeal, and thus the value, of our brand portfolio could be
reduced, negatively impacting our ﬁnancial results and ability to develop our business.

A failure of one or more of our key information technology systems, networks, processes, associated sites
or service providers, including as a result of evolving cyber security and other technological risks, could
have a material adverse impact on our business.

We rely on information technology (IT) systems, networks, and services, including internet sites, data
hosting and processing facilities and tools, hardware (including laptops and mobile devices), software and
technical applications and platforms, some of which are managed, hosted, provided and/or used by
third-parties or their vendors, to assist us in the management of our business. The various uses of these
IT systems, networks, and services include, but are not limited to: hosting our internal network and
communication systems; ordering and managing materials from suppliers; supply/demand planning;
production; shipping product to customers; hosting our branded websites and marketing products to
consumers; collecting and storing customer, consumer, employee, investor, and other data; processing
transactions; summarizing and reporting results of operations; hosting, processing, and sharing conﬁdential and
proprietary research, business plans, and ﬁnancial information; complying with regulatory, legal or tax
requirements; providing data security; and handling other processes necessary to manage our business.

Increased IT security threats and more sophisticated cyber crime pose a potential risk to the security of

our IT systems, networks, and services, as well as the conﬁdentiality, availability, and integrity of our data. If
the IT systems, networks, or service providers we rely upon fail to function properly, or if we suffer a loss or
disclosure of business or other sensitive information, due to any number of causes, ranging from catastrophic
events to power outages to security breaches, and our business continuity plans do not effectively address
these failures on a timely basis, we may suffer interruptions in our ability to manage operations and
reputational, competitive and/or business harm, which may adversely affect our business operations and/or
ﬁnancial condition. In addition, such events could result in unauthorized disclosure of material conﬁdential

information, and we may suffer ﬁnancial and reputational damage because of lost or misappropriated
conﬁdential information belonging to us or to our partners, our employees, customers, suppliers or consumers.
In any of these events, we could also be required to spend signiﬁcant ﬁnancial and other resources to remedy
the damage caused by a security breach or to repair or replace networks and IT systems. The trend toward
public notiﬁcations of such incidents could exacerbate the harm to our business operations or ﬁnancial
condition.

Our failure to attract or retain key executive or employee talent could adversely affect our business.

Our success depends upon the efforts and abilities of our senior management team, other key employees,

and a high-quality employee base, as well as our ability to attract, motivate, reward, and retain them. We do
not maintain and do not intend to obtain key man insurance on the life of any executive or employee.
Difficulties in hiring or retaining key executive or employee talent, or the unexpected loss of experienced
employees could have an adverse impact on our business performance. In addition, we could experience
business disruption and/or increased costs related to organizational changes, reductions in workforce, or other
cost-cutting measures.

The sales of our products could decrease signiﬁcantly if we cannot maintain listings in the control states.

In the control states, the state liquor commissions act in place of distributors and decide which products
are to be purchased and offered for sale in their respective states. Products selected for listing must generally
reach certain volumes and/or proﬁt levels to maintain their listings. Products are selected for purchase and sale
through listing procedures which are generally made available to new products only at periodically scheduled
listing interviews. Products not selected for listings can only be purchased by consumers in the applicable
control state through special orders, if at all. If, in the future, we are unable to maintain our current listings in
the control states, or secure and maintain listings in those states for any additional products we may acquire,
sales of our products could decrease signiﬁcantly.

An impairment in the carrying value of goodwill or other acquired intangible assets could negatively
affect our operating results and shareholders’ equity.

The carrying value of goodwill represents the fair value of acquired businesses in excess of identiﬁable

assets and liabilities as of the acquisition date, net of any cumulative impairments. The carrying value of other
intangible assets represents the fair value of trademarks, trade names and other acquired intangible assets as of
the acquisition date, net of impairments and accumulated amortization. Goodwill and other acquired intangible
assets expected to contribute indeﬁnitely to our cash ﬂows are not amortized, but must be evaluated for
impairment by our management at least annually. If carrying value exceeds current fair value as determined
based on the discounted future cash ﬂows of the related business, the intangible asset is considered impaired
and is reduced to fair value via a non-cash charge to earnings. If the value of goodwill or other acquired
intangible assets is impaired, our earnings and shareholders’ equity could be adversely affected.

Risks Related to Our Industry

Demand for our products may be adversely affected by many factors, including changes in consumer
preferences and trends.

Consumer preferences may shift due to a variety of factors including changes in demographic and social

trends, public health initiatives, product innovations, changes in vacation or leisure activity patterns and a
downturn in economic conditions, which may reduce consumers’ willingness to purchase distilled spirits or
cause a shift in consumer preferences toward beer, wine or non-alcoholic beverages. Our success depends in
part on fulﬁlling available opportunities to meet consumer needs and anticipating changes in consumer
preferences with successful new products and product innovations. The competitive position of our brands
could also be affected adversely by any failure to achieve consistent, reliable quality in the product or in
service levels to customers.

Our business performance is substantially dependent upon the continued growth of rum and whiskey
sales.

A signiﬁcant part of our business is based on rum and whiskey sales, which represented approximately
62.1% and 62.9% of our revenues for ﬁscal 2016 and 2015, respectively. Changes in consumer preferences

regarding these categories of beverage alcohol products may have an adverse effect on our sales and ﬁnancial
condition. Given the importance of our rum and whiskey brands to our overall Company success, a signiﬁcant
or sustained decline in volume or selling price of these products would likely have a negative effect on our
growth and our stock price. Additionally, should we not be successful in our efforts to maintain and increase
the relevance of the brands in the minds of today’s and tomorrow’s consumer, our business and operating
results could suffer.

We face substantial competition in our industry and many factors may prevent us from competing
successfully.

We compete on the basis of product taste and quality, brand image, price, service and ability to innovate

in response to consumer preferences. The global spirits industry is highly competitive and is dominated by
several large, well-funded international companies. It is possible that our competitors may either respond to
industry conditions or consumer trends more rapidly or effectively or resort to price competition to sustain
market share, which could adversely affect our sales and proﬁtability.

Adverse public opinion about alcohol could reduce demand for our products.

Anti-alcohol groups have, in the past, advocated successfully for more stringent labeling requirements,
higher taxes and other regulations designed to discourage alcohol consumption. More restrictive regulations,
negative publicity regarding alcohol consumption and/or changes in consumer perceptions of the relative
healthfulness or safety of beverage alcohol could decrease sales and consumption of alcohol and thus the
demand for our products. This could, in turn, signiﬁcantly decrease both our revenues and our revenue
growth, causing a decline in our results of operations.

Class action or other litigation relating to alcohol abuse or the misuse of alcohol could adversely affect
our business.

Companies in the beverage alcohol industry are, from time to time, exposed to class action or other
litigation relating to alcohol advertising, product liability, alcohol abuse problems or health consequences from
the misuse of alcohol. It is also possible that governments could assert that the use of alcohol has signiﬁcantly
increased government funded health care costs. Litigation or assertions of this type have adversely affected
companies in the tobacco industry, and it is possible that we, as well as our suppliers, could be named in
litigation of this type.

Also, lawsuits have been brought in a number of states alleging that beverage alcohol manufacturers and

marketers have improperly targeted underage consumers in their advertising. Plaintiffs in these cases allege
that the defendants’ advertisements, marketing and promotions violate the consumer protection or deceptive
trade practices statutes in each of these states and seek repayment of the family funds expended by the
underage consumers. While we have not been named in these lawsuits, we could be named in similar lawsuits
in the future. Any class action or other litigation asserted against us could be expensive and time-consuming
to defend against, depleting our cash and diverting our personnel resources and, if the plaintiffs in such
actions were to prevail, our business could be harmed signiﬁcantly.

Regulatory decisions and legal, regulatory and tax changes could limit our business activities, increase
our operating costs and reduce our margins.

Our business is subject to extensive regulation in all of the countries in which we operate. This may
include regulations regarding production, distribution, marketing, advertising and labeling of beverage alcohol
products. We are required to comply with these regulations and to maintain various permits and licenses. We
are also required to conduct business only with holders of licenses to import, warehouse, transport, distribute
and sell beverage alcohol products. We cannot assure you that these and other governmental regulations
applicable to our industry will not change or become more stringent. Moreover, because these laws and
regulations are subject to interpretation, we may not be able to predict when and to what extent liability may
arise. Additionally, due to increasing public concern over alcohol-related societal problems, including driving
while intoxicated, underage drinking, alcoholism and health consequences from the abuse of alcohol, various
levels of government may seek to impose additional restrictions or limits on advertising or other marketing

activities promoting beverage alcohol products. Failure to comply with any of the current or future regulations
and requirements relating to our industry and products could result in monetary penalties, suspension or even
revocation of our licenses and permits. Costs of compliance with changes in regulations could be signiﬁcant
and could harm our business, as we could ﬁnd it necessary to raise our prices in order to maintain proﬁt
margins, which could lower the demand for our products and reduce our sales and proﬁt potential.

Also, the distribution of beverage alcohol products is subject to extensive taxation both in the U.S. and

internationally (and, in the U.S., at both the federal and state government levels), and beverage alcohol
products themselves are the subject of national import and excise duties in most countries around the world.
An increase in taxation or in import or excise duties could also signiﬁcantly harm our sales revenue and
margins, both through the reduction of overall consumption and by encouraging consumers to switch to
lower-taxed categories of beverage alcohol.

We could face product liability or other related liabilities that increase our costs of operations and harm
our reputation.

Although we maintain liability insurance and will attempt to limit contractually our liability for damages
arising from our products, these measures may not be sufficient for us to successfully avoid or limit liability.
Our product liability insurance coverage is limited to $1.0 million per occurrence and $2.0 million in the
aggregate and our general liability umbrella policy is capped at $10.0 million. Further, any contractual
indemniﬁcation and insurance coverage we have from parties supplying our products is limited, as a practical
matter, to the creditworthiness of the indemnifying party and the insured limits of any insurance provided by
these suppliers. In any event, extensive product liability claims could be costly to defend and/or costly to
resolve and could harm our reputation.

Contamination of our products and/or counterfeit or confusingly similar products could harm the image
and integrity of, or decrease customer support for, our brands and decrease our sales.

The success of our brands depends upon the positive image that consumers have of them. Contamination,
whether arising accidentally or through deliberate third-party action, or other events that harm the integrity or
consumer support for our brands, could affect the demand for our products. Contaminants in raw materials
purchased from third parties and used in the production of our products or defects in the distillation,
fermentation or bottling processes could lead to low beverage quality as well as illness among, or injury to,
consumers of our products and could result in reduced sales of the affected brand or all of our brands. We
may also be required to recall products in the event of contamination or damage. Also, to the extent that third
parties sell products that are either counterfeit versions of our brands or brands that look like our brands,
consumers of our brands could confuse our products with products that they consider inferior. This could
cause them to refrain from purchasing our brands in the future and in turn could impair our brand equity and
adversely affect our sales and operations.

Risks Relating to Owning Our Stock

We may not be able to maintain our listing on the NYSE MKT, which may limit the ability of our
shareholders to sell their common stock.

If we do not meet the NYSE MKT continued listing criteria, we may be delisted and trading of our
common stock could be conducted in the OTC Bulletin Board or the interdealer quotation systems of the
OTC Markets Group Inc. In such case, a shareholder likely would ﬁnd it more difficult to trade our common
stock or to obtain accurate market quotations for it. If our common stock is delisted, it will become subject to
the Securities and Exchange Commission’s ‘‘penny stock rules,’’ which impose sales practice requirements on
broker-dealers that sell that common stock to persons other than established customers and ‘‘accredited
investors.’’ Application of this rule could make broker-dealers unable or unwilling to sell our common stock
and limit the ability of shareholders to sell their common stock in the secondary market.

Our executive officers, directors and principal shareholders own a substantial percentage of our voting
stock, which allows them to signiﬁcantly inﬂuence matters requiring shareholder approval. They could
make business decisions for us that cause our stock price to decline.

As of June 9, 2016, our executive officers, directors and principal shareholders beneﬁcially owned
approximately 41% of our common stock, including options that are exercisable within 60 days of the date of

this annual report and assuming full exercise of such options and conversion of our 5% October 2013
Convertible notes held by such persons. As a result, if they act in concert, they could signiﬁcantly inﬂuence
matters requiring approval by our shareholders, including the election of directors, and could have the ability
to prevent or cause a corporate transaction, even if other shareholders oppose such action. This concentration
of voting power could also have the effect of delaying, deterring, or preventing a change of control or other
business combination, which could cause our stock price to decline.

Provisions in our articles of incorporation, our bylaws and Florida law could make it more difficult for
a third party to acquire us, discourage a takeover and adversely affect existing shareholders.

Our articles of incorporation, our bylaws and the Florida Business Corporation Act contain provisions

that may have the effect of making more difficult, delaying, or deterring attempts by others to obtain control
of our company, even when these attempts may be in the best interests of our shareholders. These include
provisions limiting the shareholders’ powers to remove directors. Our articles of incorporation also authorize
our board of directors, without shareholder approval, to issue one or more series of preferred stock, which
could have voting and conversion rights that adversely affect or dilute the voting power of the holders of our
common stock. Florida law also imposes conditions on certain ‘‘affiliated transactions’’ with ‘‘interested
shareholders.’’

These provisions and others that could be adopted in the future could deter unsolicited takeovers or delay

or prevent changes in our control or management, including transactions in which shareholders might
otherwise receive a premium for their shares over then current market prices. These provisions may also limit
the ability of shareholders to approve transactions that they may deem to be in their best interests.

Negative publicity could affect our stock price and business performance.

Unfavorable media related to our industry, company, brands, marketing, personnel, operations, business
performance, or prospects could negatively affect our corporate reputation, stock price, ability to attract high
quality talent, and/or the performance of our business, regardless of its accuracy or inaccuracy. Adverse
publicity or negative commentary on social media outlets could cause consumers to avoid our brands and/or
choose brands offered by our competitors, which could negatively affect our ﬁnancial results.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties

Our executive offices are located in New York, NY, where we lease approximately 5,000 square feet of
office space under a lease that expires in February 2020. We also lease approximately 750 square feet of office
space in Dublin, Ireland under a lease that expires in October 2016 and approximately 1,700 square feet of
office space in Houston, TX under a lease that expires in June 2018.

Item 3. Legal Proceedings

We believe that neither we nor any of our wholly-owned subsidiaries is currently subject to litigation

which, in the opinion of our management, is likely to have a material adverse effect on us.

We may, however, become involved in litigation from time to time relating to claims arising in the
ordinary course of our business. These claims, even if not meritorious, could result in the expenditure of
signiﬁcant ﬁnancial and managerial resources.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities

Price range of common stock

Our common stock trades on the NYSE MKT under the symbol ‘‘ROX.’’ The following table sets forth

the high and low sales prices for our common stock for the periods speciﬁed.

Fiscal 2016
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter (April 1 − June 30, 2015)
Second Quarter (July 1 − September 30, 2015) . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter (October 1 − December 31, 2015) . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter (January 1 − March 31, 2016) . . . . . . . . . . . . . . . . . . . . . . . . . .

Fiscal 2015
First Quarter (April 1 − June 30, 2014)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter (July 1 − September 30, 2014) . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter (October 1 − December 31, 2014) . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter (January 1 − March 31, 2015) . . . . . . . . . . . . . . . . . . . . . . . . . .

High
$1.83
$1.45
$1.47
$1.25

$1.41
$1.32
$2.03
$1.70

Low
$1.30
$1.03
$1.16
$0.78

$0.78
$0.80
$1.20
$1.15

Holders

At June 9, 2016, there were approximately 190 record holders of our common stock.

Dividend policy

We did not declare or pay any cash dividends in ﬁscal 2016 or 2015 and we do not intend to pay any

cash dividends with respect to our common stock in the foreseeable future. We currently intend to retain any
earnings for use in the operation of our business and to fund future growth. Any future determination to pay
cash dividends will be at our board’s discretion and will depend upon our ﬁnancial condition, operating
results, capital requirements and such other factors as our board deems relevant. Further, our ability to declare
and pay cash dividends is restricted by certain covenants in our loan agreements.

Equity Compensation Plan Information

The following table sets forth information at March 31, 2016 regarding compensation plans under which

our equity securities are authorized for issuance.

Plan category
Equity compensation plans approved by

Number of securities
to be issued upon
exercise of
outstanding options,
warrants, restricted
stock and rights

Weighted-average
exercise price of
outstanding options,
warrants, restricted
stock and rights

Number of securities
remaining available
for future issuance
under equity
compensation plans

security holders

. . . . . . . . . . . . . . . . . . .

13,508,086

Equity compensation plans not approved by

security holders
. . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .

—
13,508,086

$0.79

—
$0.79

4,767,000

—
4,767,000

Item 6. Selected Financial Data

The selected ﬁnancial data set forth below is derived from our audited consolidated ﬁnancial statements.
You should read this selected ﬁnancial data together with Item 7, ‘‘Management’s Discussion and Analysis of
Financial Condition and Results of Operations’’ and the consolidated ﬁnancial statements and the notes thereto
included elsewhere in this annual report on Form 10-K:

Consolidated statement of operations data

(in thousands, except per share data):

Sales, net(1)
. . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Gross proﬁt
. . . . . . . . . . . . . . . . .
Selling expense
Operating income (loss)(2)
. . . . . . . . . .
Loss before item shown below . . . . . . .
Net change in fair value of warrant

liability . . . . . . . . . . . . . . . . . . . . .
Loss before provision for income taxes . .
Income tax (expense) beneﬁt(3)
. . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling
interests . . . . . . . . . . . . . . . . . . . . .

Net income attributable to controlling

interests . . . . . . . . . . . . . . . . . . . . .
Dividends to preferred shareholders . . . .
Net loss attributable to common

2016

Years ended March 31,
2014

2015

2013

2012

$ 72,220
28,554
19,223
1,006
(256)

$ 57,457
21,573
15,255
(1,078)
(2,195)

$ 48,140
17,604
12,530
(1,320)
(3,170)

$ 41,443
14,320
11,265
(4,402)
(5,259)

$ 35,495
12,525
10,502
(3,877)
(5,218)

—
(256)
(1,451)
(1,707)

—
(2,195)
(1,279)
(3,474)

(5,392)
(8,562)
590
(7,972)

302
(4,957)
118
(4,839)

110
(5,108)
148
(4,960)

(810)

(326)

(935)

(610)

(272)

(2,517)
—

(3,800)
—

(8,907)
(385)

(5,449)
(744)

(5,232)
(715)

shareholders . . . . . . . . . . . . . . . . . .

$ (2,517)

$ (3,800)

$ (9,292)

$ (6,193)

$ (5,947)

Net loss per common share basic and

diluted(4)

. . . . . . . . . . . . . . . . . . . . . .

(0.02)

(0.08)

(0.06)

Weighted average shares outstanding basic

and diluted . . . . . . . . . . . . . . . . . . . . .

159,380

155,456

116,511

108,509

107,636

(1) Sales, net include excise taxes of $7,452, $6,754, $6,421, $5,964 and $5,461, respectively.
(2) Operating loss for the year ended March 31, 2013 includes a $1,716 loss on wine assets.
(3) Consists of federal, state and local taxes attributable to GCP, which does not ﬁle a consolidated return.
(4) Per share computations were positively impacted by the increase in shares outstanding in each of the

above years.

2016

2015

As of March 31,
2014

2013

2012

Selected balance sheet data

(in thousands):

Cash and cash equivalents . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Working capital
Total assets
. . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Total debt
Total liabilities . . . . . . . . . . . . . . . . . .
Total controlling shareholders’ equity . . .

$ 1,431
29,365
50,292
13,975
26,540
20,400

$ 1,192
25,660
44,039
12,789
22,944
18,551

909
19,068
36,522
7,575
16,586
17,717

439
13,948
33,117
9,298
20,207
11,628

484
11,594
31,355
4,061
13,772
16,910

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Our objective is to continue building Castle Brands into a proﬁtable international spirits company, with a

distinctive portfolio of premium and super premium spirits brands. To achieve this, we continue to seek to:

•

focus on our more proﬁtable brands and markets. We continue to focus our distribution efforts,
sales expertise and targeted marketing activities on our more proﬁtable brands and markets;

build consumer awareness. We use our existing assets, expertise and resources to build consumer
awareness and market penetration for our brands;

Operations overview

We generate revenue through the sale of our products to our network of wholesale distributors or, in
control states, state-operated agencies, which, in turn, distribute our products to retail outlets. In the U.S., our
sales price per case includes excise tax and import duties, which are also reﬂected as a corresponding increase
in our cost of sales. Most of our international sales are sold ‘‘in bond’’, with the excise taxes paid by our
customers upon shipment, thereby resulting in lower relative revenue as well as a lower relative cost of sales,
although some of our United Kingdom sales are sold ‘‘tax paid’’, as in the U.S. The difference between sales
and net sales principally reﬂects adjustments for various distributor incentives.

Our gross proﬁt is determined by the prices at which we sell our products, our ability to control our cost

of sales, the relative mix of our case sales by brand and geography and the impact of foreign currency
ﬂuctuations. Our cost of sales is principally driven by our cost of procurement, bottling and packaging, which
differs by brand, as well as freight and warehousing costs. We purchase certain products, such as Goslings
rums and ginger beer, Pallini liqueurs, Gozio amaretto and Tierras tequila, as ﬁnished goods. For other
products, such as Jefferson’s bourbons, we purchase the components, including the distilled spirits, bottles and
packaging materials, and have arrangements with third parties for bottling and packaging. Our U.S. sales
typically have a higher absolute gross margin than in other markets, as sales prices per case are generally
higher in the U.S.

Selling expense principally includes advertising and marketing expenditures and compensation paid to our

marketing and sales personnel. Our selling expense, as a percentage of sales and per case, is higher than that
of our competitors because of our brand development costs, level of marketing expenditures and established
sales force versus our relatively small base of case sales and sales volumes. However, we believe that
maintaining an infrastructure capable of supporting future growth is the correct long-term approach for us.

While we expect the absolute level of selling expense to increase in the coming years, we expect selling

expense as a percentage of revenues and on a per case basis to decline or remain constant, as our volumes
expand and our sales team sells a larger number of brands.

General and administrative expense relates to corporate and administrative functions that support our
operations and includes administrative payroll, occupancy and related expenses and professional services. We
expect general and administrative expense in ﬁscal 2017 to be higher than ﬁscal 2016 due to costs associated

with increased infrastructure to support our growth. However, we expect our general and administrative
expense as a percentage of sales to decline due to economies of scale.

We expect to increase our case sales in the U.S. and internationally over the next several years through

organic growth, and through the introduction of product line extensions, acquisitions and distribution
agreements. We will seek to maintain liquidity and manage our working capital and overall capital resources
during this period of anticipated growth to achieve our long-term objectives, although there is no assurance
that we will be able to do so.

We continue to believe the following industry trends will create growth opportunities for us, including:

•

the divestiture of smaller and emerging non-core brands by major spirits companies as they continue
to consolidate;

increased barriers to entry, particularly in the U.S., due to continued consolidation and the difficulty
in establishing an extensive distribution network, such as the one we maintain; and

the trend by small private and family-owned spirits brand owners to partner with, or be acquired by,
a company with global distribution. We expect to be an attractive alternative to our larger
competitors for these brand owners as one of the few modestly-sized publicly-traded spirits
companies.

Our growth strategy is based upon partnering with other brands, acquiring smaller and emerging brands
and growing existing brands. To identify potential partner and acquisition candidates we plan to rely on our
management’s industry experience and our extensive network of industry contacts. We also plan to maintain
and grow our U.S. and international distribution channels so that we are more attractive to spirits companies
who are looking for a route to market for their products. We expect to compete for foreign and small private
and family-owned spirits brands by offering ﬂexible and creative structures, which present an alternative to the
larger spirits companies.

We intend to ﬁnance any future brand acquisitions through a combination of our available cash resources,

third party ﬁnancing and, in appropriate circumstances, the further issuance of equity and/or debt securities.
Acquiring additional brands could have a signiﬁcant effect on our ﬁnancial position, and could cause
substantial ﬂuctuations in our quarterly and yearly operating results. Also, the pursuit of acquisitions and other
new business relationships may require signiﬁcant management attention. We may not be able to successfully
identify attractive acquisition candidates, obtain ﬁnancing on favorable terms or complete these types of
transactions in a timely manner and on terms acceptable to us, if at all.

Financial performance overview

The following table provides information regarding our spirits case sales for the periods presented based
on nine-liter equivalent cases, which is a standard spirits industry metric (table excludes related non-alcoholic
beverage products):

2016

Year ended March 31,
2015

2014

Cases
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Whiskey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liqueur . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vodka . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tequila . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other spirits
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

340,782
85,558
426,340
180,698
109,990
91,010
43,608
1,034
—
—
426,340

310,106
82,632
392,738
171,189
84,713
89,369
46,347
1,106
—
14
392,738

307,584
81,790
389,374
166,939
70,592
91,832
55,145
1,153
3,709
4
389,374

Percentage of Cases
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Whiskey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liqueur . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vodka . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tequila . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other spirits
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2016

Year ended March 31,
2015

2014

79.9%
20.1%
100.0%
42.5%
25.8%
21.3%
10.2%
0.2%
—%
—%
100.0%

79.0%
21.0%
100.0%
43.6%
21.6%
22.7%
11.8%
0.3%
—%
0.0%
100.0%

79.0%
21.0%
100.0%
42.8%
18.1%
23.6%
14.2%
0.3%
1.0%
0.0%
100.0%

The following table provides information regarding our case sales of related non-alcoholic beverage

products, which primarily consists of Goslings Stormy Ginger Beer, for the periods presented:

Cases
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year ended March 31,
2015

2014

2016

1,070,173
45,101
1,115,274

682,190
33,232
715,422

96.0%
4.0%
100.0%

95.4%
4.6%
100.0%

403,195
26,323
429,518

93.9%
6.1%
100.0%

Critical accounting policies and estimates

A number of estimates and assumptions affect our reported amounts of assets and liabilities, amounts of

sales and expenses and disclosure of contingent assets and liabilities in our ﬁnancial statements. On an
ongoing basis, we evaluate these estimates and assumptions based on historical experience and other factors
and circumstances. We believe our estimates and assumptions are reasonable under the circumstances;
however, actual results may differ from these estimates.

We believe that the estimates and assumptions discussed below are most important to the portrayal of our

ﬁnancial condition and results of operations in that they require our most difficult, subjective or complex
judgments and form the basis for the accounting policies deemed to be most critical to our operations.

Revenue recognition

We recognize revenue from product sales when the product is shipped to a customer (generally a
distributor), title and risk of loss has passed to the customer under the terms of sale (FOB shipping point or
FOB destination) and collection is reasonably assured. We do not offer a right of return but will accept returns
if we shipped the wrong product or wrong quantity. Revenue is not recognized on shipments to control states
in the U.S. until such time as the product is sold through to the retail channel.

Accounts receivable

We record trade accounts receivable at net realizable value. This value includes an appropriate allowance

for estimated uncollectible accounts to reﬂect any loss anticipated on the trade accounts receivable balances
and charged to the allowance for doubtful accounts. We calculate this allowance based on our history of
write-offs, level of past due accounts based on contractual terms of the receivables and our relationships with,
and economic status of, our customers.

Inventory valuation

Our inventory, which consists of distilled spirits, non-beverage alcohol products, dry good raw materials
(bottles, cans, labels and caps), packaging and ﬁnished goods, is valued at the lower of cost or market, using
the weighted average cost method. We assess the valuation of our inventories and reduce the carrying value of
those inventories that are obsolete or in excess of our forecasted usage to their estimated realizable value. We
estimate the net realizable value of such inventories based on analyses and assumptions including, but not
limited to, historical usage, future demand and market requirements. Reduction to the carrying value of
inventories is recorded in cost of goods sold.

Goodwill and other intangible assets

At each of March 31, 2016 and 2015, we had $0.5 million of goodwill that arose from acquisitions.
Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible
and identiﬁable intangible assets of businesses acquired. Intangible assets with indeﬁnite lives consist
primarily of rights, trademarks, trade names and formulations. We are required to analyze our goodwill and
other intangible assets with indeﬁnite lives for impairment on an annual basis as well as when events and
circumstances indicate that an impairment may have occurred. In testing goodwill for impairment, we have the
option to ﬁrst assess qualitative factors to determine whether the existence of events or circumstances leads to
a determination that it is more likely than not (more than 50%) that the estimated fair value of a reporting unit
is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an
impairment is more likely than not, we are then required to perform a quantitative impairment test, otherwise
no further analysis is required. We may also elect not to perform the qualitative assessment and, instead,
proceed direct to the quantitative impairment test. Under the goodwill qualitative assessment, various events
and circumstances that would affect the estimated fair value of a reporting unit are identiﬁed, including, but
not limited to: prior years’ impairment testing results, budget to actual results, Company-speciﬁc facts and
circumstances, industry developments, and the economic environment.

Under the goodwill two-step quantitative impairment test we evaluate the recoverability of goodwill and

indeﬁnite lived intangible assets at the reporting unit level. In the ﬁrst step the fair value for the reporting unit
is compared to its book value including goodwill. If the fair value of the reporting unit is less than the book
value, a second step is performed which compares the implied fair value of the reporting unit’s goodwill to
the book value of the goodwill. The fair value for the goodwill is determined based on the difference between
the fair values of the reporting units and the net fair values of the identiﬁable assets and liabilities of such
reporting units. If the fair value of the goodwill is less than the book value, the difference is recognized as an
impairment.

Under the goodwill qualitative assessment at March 31, 2016 and 2015, various events and circumstances

that would affect the estimated fair value of each reporting unit were identiﬁed, including, but not limited to:
prior years’ impairment testing results, budget to actual results, Company-speciﬁc facts and circumstances,
industry developments, and the economic environment. Based on this assessment, we determined that no
quantitative assessment was required.

We did not record any impairment on goodwill or other intangible assets for ﬁscal 2016, 2015 or 2014.

Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to

the estimated residual values and reviewed for impairment whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. We are required to amortize intangible assets with
estimable useful lives over their respective estimated useful lives to the estimated residual values and to
review intangible assets with estimable useful lives for impairment in accordance with the Financial
Accounting Standards Board Accounting Standards Codiﬁcation (‘‘ASC’’) 310, ‘‘Accounting for the
Impairment or Disposal of Long-lived Assets.’’

Stock-based awards

We follow current authoritative guidance regarding stock-based compensation, which requires all
share-based payments, including grants of stock options, to be recognized in the income statement as an
operating expense, based on their fair values on the grant date. Stock-based compensation was $1.4 million,
$0.8 million and $0.4 million for ﬁscal 2016, 2015 and 2014, respectively. We used the Black-Scholes
option-pricing model to estimate the fair value of options granted. The assumptions used in valuing the
options granted during ﬁscal 2016, 2015 and 2014 are included in note 12 to our accompanying consolidated
ﬁnancial statements.

Fair value of ﬁnancial instruments

ASC 825, ‘‘Financial Instruments’’, deﬁnes the fair value of a ﬁnancial instrument as the amount at

which the instrument could be exchanged in a current transaction between willing parties and requires
disclosure of the fair value of certain ﬁnancial instruments. We believe that there is no material difference
between the fair value and the reported amounts of ﬁnancial instruments in the balance sheets due to the
short-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, for the periods indicated, the percentage of net sales of certain items in

our consolidated ﬁnancial statements.

Sales, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross proﬁt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expense . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from equity investment in non-consolidated

affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange loss
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in fair value of warrant liability . . . . . . . . . . . . . . .
Loss before provision for income taxes . . . . . . . . . . . . . . . . . .
Income tax (expense) beneﬁt, net . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interests . . . . . . . . . .
Net loss attributable to controlling interests . . . . . . . . . . . . . . .
Dividend to preferred shareholders . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to common shareholders . . . . . . . . . . . . . .

2016
100.0%
60.5%
39.5%
26.6%
10.2%
1.3%
1.4%

Year ended March 31,
2015
100.0%
62.5%
37.5%
26.5%
11.3%
1.6%
(1.9)%

0.0%
(0.3)%
(1.5)%
0.0%
(0.4)%
(2.0)%
(2.4)%
(1.1)%
(3.5)%
0.0%
(3.5)%

0.0%
(0.0)%
(2.0)%
0.0%
(3.9)%
(2.2)%
(6.1)%
(0.6)%
(6.7)%
0.0%
(6.7)%

2014
100.0%
63.4%
36.6%
26.0%
11.5%
1.8%
(2.7)%

(1.0)%
(0.6)%
(2.2)%
(11.2)%
(17.7)%
1.2%
(16.5)%
(1.9)%
(18.4)%
(0.8)%
(19.2)%

1,062,219
(590,414)
860,254
(7,959,287)
403,049
200,000
393,914
—

502,518
284,962
5,392,594

935,035
384,599
537,384

The following is a reconciliation of net loss attributable to common shareholders to EBITDA,

as adjusted:

2016
$(2,516,368)

Year ended March 31,
2015
$(3,799,742)

2014
$(9,291,346)

Net loss attributable to common shareholders . . . . .

Adjustments:

EBITDA income (loss)

. . . . . . . . . . . . . . . . . . . .
Interest expense, net
Income tax expense (beneﬁt), net
. . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . .
Allowance for obsolete inventory . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . .
Other expense (income), net
. . . . . . . . . . . . . . .
(Income) loss from equity investment in

non-consolidated affiliate . . . . . . . . . . . . . . . .
Foreign exchange loss . . . . . . . . . . . . . . . . . . .
Net change in fair value of warrant liability . . . .
Net income attributable to noncontrolling

1,088,539
1,450,848
939,513
962,532
61,000
200,000
1,370,556
666

(18,667)
190,867
—

1,129,047
1,278,999
907,540
(484,156)
236,000
281,000
787,710
(16,602)

—
4,564
—

interests . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend to preferred shareholders . . . . . . . . . . .
EBITDA, as adjusted . . . . . . . . . . . . . . . . . . . . .

809,662
—
3,576,616

325,829
—
1,134,345

Earnings before interest, taxes, depreciation and amortization, or EBITDA, adjusted for allowances for

doubtful accounts and obsolete inventory, stock-based compensation expense, other income, net, loss from
equity investment in non-consolidated affiliate, foreign exchange loss, net change in fair value of warrant
liability, net income attributable to noncontrolling interests and dividend to preferred shareholders is a key
metric we use in evaluating our ﬁnancial performance. EBITDA, as adjusted, is considered a non-GAAP
ﬁnancial measure as deﬁned by Regulation G promulgated by the SEC under the Securities Act of 1933, as
amended. We consider EBITDA, as adjusted, important in evaluating our performance on a consistent basis
across various periods. Due to the signiﬁcance of non-cash and non-recurring items, EBITDA, as adjusted,
enables our Board of Directors and management to monitor and evaluate the business on a consistent basis.
We use EBITDA, as adjusted, as a primary measure, among others, to analyze and evaluate ﬁnancial and
strategic planning decisions regarding future operating investments and allocation of capital resources. We
believe that EBITDA, as adjusted, eliminates items that are not indicative of our core operating performance
or are based on management’s estimates, such as allowance accounts, are due to changes in valuation, such as
the effects of changes in foreign exchange or fair value of warrant liability, or do not involve a cash outlay,
such as stock-based compensation expense. Our presentation of EBITDA, as adjusted, should not be construed
as an inference that our future results will be unaffected by unusual or non-recurring items or by non-cash
items, such as stock-based compensation, which is expected to remain a key element in our long-term
incentive compensation program. EBITDA, as adjusted, should be considered in addition to, rather than as a
substitute for, income from operations, net income and cash ﬂows from operating activities.

Our EBITDA, as adjusted, improved to $3.6 million for the year ended March 31, 2016, as compared to
$1.1 million for the prior year, primarily as a result of our increased sales and gross proﬁt. Our EBITDA, as
adjusted, improved to $1.1 million for the year ended March 31, 2015, as compared to $0.5 million for the
prior year, primarily as a result of our increased sales and gross proﬁt.

Fiscal 2016 compared with ﬁscal 2015

Net sales. Net sales increased 25.7% to $72.2 million for the year ended March 31, 2016, as compared
to $57.5 million for the prior ﬁscal year, due to sales growth of our Jefferson’s portfolio and our Goslings rum
and Goslings Stormy Ginger Beer, partially offset by decreases in sales of vodka. Also, for the year ended

March 31, 2016, sales of our Goslings Stormy Ginger Beer increased by 400,223 cases, or 56.0%, overall,
including a 388,354 case increase, or 57.0%, in U.S. case sales as compared to the prior year. We anticipate
continued growth of Goslings Stormy Ginger Beer in the near term due to the popularity of cocktails
containing ginger beer and Goslings brand awareness, although there is no assurance that we will attain such
results. We continue to focus on our faster growing brands and markets, both in the U.S. and internationally.

The table below presents the increase or decrease, as applicable, in case sales by spirits product category

for the year ended March 31, 2016 as compared to the year ended March 31, 2015:

Rum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Whiskey . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liqueur
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vodka . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tequila . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other spirits . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

Increase/(decrease)
in case sales

Percentage
increase/(decrease)

Overall
9,509
25,277
1,641
(2,739)
(72)
(14)
33,602

U.S.
9,452
20,734
2,644
(2,068)
(72)
(14)
30,676

Overall

5.6%
29.8%
1.8%
(5.9)%
(6.5)%
(100.0)%
8.6%

U.S.

7.6%
38.4%
3.0%
(4.9)%
(6.5)%
(100.0)%
9.9%

Our international spirits case sales as a percentage of total spirits case sales decreased to 20.1% for the

year ended March 31, 2016 as compared to 21.0% for the prior year, primarily due to the timing of shipments
of rum to our international wholesaler.

The following table presents the increase in case sales of related non-alcoholic beverage products for the

year ended March 31, 2016 as compared to the year ended March 31, 2015:

Related Non-Alcoholic Beverage Products . . . . . .

Increase in case sales
U.S.
387,983

Overall
399,852

Percentage increase
U.S.
56.9%

Overall
55.9%

Gross proﬁt. Gross proﬁt increased 32.4% to $28.6 million for the year ended March 31, 2016 from
$21.6 million for the prior ﬁscal year, and our gross margin increased to 39.5% for the year ended March 31,
2016 compared to 37.5% for the prior year. The increase in gross proﬁt was primarily due to increased sales
volume and revenue in the current period, while the increase in gross margin was due to increased sales of
our more proﬁtable brands, in particular the Jefferson’s bourbons, partially offset by increased sales of
lower-margin Goslings Stormy Ginger Beer. During the year ended March 31, 2016, we recorded an addition
to allowance for obsolete and slow moving inventory of $0.2 million, as compared to $0.3 million for the
prior ﬁscal year. We recorded these allowances on both raw materials and ﬁnished goods, primarily in
connection with label and packaging changes made to certain brands, as well as certain cost variances. The
net charges have been recorded as an increase to cost of sales in the relevant period. Net of the allowance for
obsolete inventory, our gross margin for the year ended March 31, 2016 was 39.8% as compared to 38.0% for
the prior year.

Selling expense. Selling expense increased 26.0% to $19.2 million for the year ended March 31, 2016
from $15.3 million for the prior year, primarily due to a $2.7 million increase in advertising, marketing and
promotion expense related to increased sales volume and the timing of certain sales and marketing programs,
including the 35th America’s Cup sponsorship, and a $1.3 million increase in employee costs. The increase in
sales resulted in selling expense as a percentage of net sales remaining relatively constant at 26.6% for the
year ended March 31, 2016 as compared to 26.5% for the prior ﬁscal year.

General and administrative expense. General and administrative expense increased 13.8% to
$7.4 million for the year ended March 31, 2016 from $6.5 million for the prior year, primarily due to a
$0.5 million increase in employee expense, a $0.4 million increase in professional fees and a $0.4 million
increase in stock-based compensation expense. Increased sales resulted in general and administrative expense
as a percentage of net sales decreasing to 10.2% for the year ended March 31, 2016 as compared to 11.3% for

the prior ﬁscal year. As a result of our becoming an accelerated ﬁler, we expect general and administrative
expense to further increase in the near term due to the costs and fees associated with the additional regulatory
requirements.

Depreciation and amortization. Depreciation and amortization was $0.9 million for each of the years

ended March 31, 2016 and 2015.

Income (loss) from operations. As a result of the foregoing, results from operations improved to income

of $1.0 million for the year ended March 31, 2016 as compared to a loss of ($1.1) million for the prior year.
As a result of our focus on our stronger growth markets and better performing brands, and expected growth
from our existing brands, we anticipate improved results of operations in the near term as compared to
prior years, although there is no assurance that we will attain such results.

Income tax expense, net.

Income tax expense, net is the estimated tax expense attributable to the net
taxable income recorded by our 60% owned subsidiary, GCP, adjusted for changes in the deferred tax asset
and deferred tax liability during the periods, and was net expense of ($1.5) million for the year ended
March 31, 2016 as compared to net expense of ($1.3) million for the prior year.

Foreign exchange loss. Foreign exchange loss for the year ended March 31, 2016 was ($0.2) million as
compared to a de minimis loss for the prior ﬁscal year due to the net effects of ﬂuctuations of the U.S. dollar
against the Euro and its impact on our Euro-denominated intercompany balances due to our foreign
subsidiaries for inventory purchases.

Interest expense, net. We had interest expense, net of ($1.1) million for each of the years ended

March 31, 2016 and 2015 due to balances outstanding under our credit facilities. Due to expected borrowings
under credit facilities to ﬁnance additional purchases of aged whiskies in support of the growth of our
Jefferson’s bourbons and other working capital needs, we expect interest expense, net to increase in the near
term as compared to prior years.

Net income attributable to noncontrolling interests. Net income attributable to noncontrolling interests
was ($0.8) million for the year ended March 31, 2016 as compared to ($0.3) million for the prior year, both
the result of allocated net income recorded by our 60% owned subsidiary, GCP.

Net loss attributable to common shareholders. As a result of the net effects of the foregoing, net loss

attributable to common shareholders improved to ($2.5) million for the year ended March 31, 2016 as
compared to ($3.8) million for the prior year. Net loss per common share, basic and diluted, was ($0.02) per
share for each of the years ended March 31, 2016 and 2015.

Fiscal 2015 compared with ﬁscal 2014

Net sales. Net sales increased 19.4% to $57.5 million for the year ended March 31, 2015, as compared
to $48.1 million for the prior year, due to the overall growth of our Goslings Stormy Ginger Beer, Jefferson’s
and Jefferson’s Reserve bourbons, Clontarf Irish whiskey and Pallini liqueurs. Overall spirits sales volume for
ﬁscal 2015 was negatively impacted by the cessation of sales of Hasse Apple Pie Liqueurs and wines, and our
inability to source supply for Jefferson’s Rye in ﬁscal 2015, all of which we sold in ﬁscal 2014 but did not
sell in ﬁscal 2015. Sales volume was also negatively impacted by lower sales volume of vodka and destocking
of Goslings rums at the wholesale level. These shortfalls were partially offset by increases in sales of our
Jefferson’s, Jefferson’s Reserve and Jefferson’s Ocean Aged at Sea bourbons and our Irish whiskey portfolio.
Also, ﬁscal 2015 sales of our Goslings Stormy Ginger Beer increased by 286,140 cases, or 66.7%, overall,
including a 279,231 case increase, or 69.4%, in U.S. case sales as compared to ﬁscal 2014.

The table below presents the increase or decrease, as applicable, in case sales by spirits product category

for the year ended March 31, 2015 as compared to the year ended March 31, 2014:

Rum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Whiskey . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liqueur
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vodka . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tequila . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Spirits . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

Increase/(decrease)
in case sales

Percentage
increase/(decrease)

Overall
4,250
14,121
(2,463)
(8,798)
(47)
(3,709)
10
3,364

U.S.
2,239
11,301
(2,406)
(4,865)
(48)
(3,709)
10
2,522

Overall

2.5%
20.0%
(2.7)%
(16.0)%
(4.1)%
(100.0)%
233.3%
0.9%

U.S.

1.8%
26.4%
(2.7)%
(10.4)%
(4.1)%
(100.0)%
233.3%
0.8%

Our international spirits case sales as a percentage of total spirits case sales were 21.0% for each of

the years ended March 31, 2015 and 2014.

The following table presents the increase in case sales of related non-alcoholic beverage products for the

year ended March 31, 2015 as compared to the year ended March 31, 2014:

Related Non-Alcoholic Beverage Products . . . . . .

Increase in case sales
U.S.
278,995

Overall
285,904

Percentage increase
U.S.
69.2%

Overall
66.6%

Gross proﬁt. Gross proﬁt increased 22.5% to $21.6 million for the year ended March 31, 2015 from
$17.6 million for the prior year, and our gross margin increased to 37.5% for the year ended March 31, 2015
compared to 36.6% for the prior year. The increase in gross proﬁt was primarily due to increased revenue in
the current period, while the increase in gross margin was due to an increase in sales of our more proﬁtable
brands, in particular the Jefferson’s bourbons and our Irish whiskey brands. During the year ended March 31,
2015, we recorded a net allowance for obsolete and slow moving inventory of $0.3 million, as compared to
$0.2 million for the prior year. We recorded these allowances on both raw materials and ﬁnished goods,
primarily in connection with label and packaging changes made to certain brands, as well as certain cost
variances. The net charges have been recorded as an increase to cost of sales in each period. Net of the
allowance for obsolete inventory, our gross margin for the year ended March 31, 2015 was 38.0% as
compared to 37.0% for the prior year.

Selling expense. Selling expense increased 21.7% to $15.3 million for the year ended March 31, 2015
from $12.5 million for the prior year, primarily due to a $0.7 million increase in shipping costs, a $0.9 million
increase in advertising, marketing and promotion expense related to the timing of certain sales and marketing
programs, a $0.2 million increase in commissions, associated with increased sales volume and a $0.9 million
increase in employee costs. The increase in sales resulted in selling expense as a percentage of net sales
remaining relatively constant at 26.5% for the year ended March 31, 2015 as compared to 26.0% for the prior
year.

General and administrative expense. General and administrative expense increased 17.3% to
$6.5 million for the year ended March 31, 2015 from $5.5 million for the prior year, primarily due to a
$0.3 million increase in each of professional fees, employee expense and non-cash stock-based compensation
expense, and a $0.1 million increase in insurance expense. The increase in sales resulted in general and
administrative expense as a percentage of net sales remaining relatively constant at 11.3% for the year ended
March 31, 2015 as compared to 11.5% for the prior ﬁscal year.

Depreciation and amortization. Depreciation and amortization was $0.9 million for each of the years

ended March 31, 2015 and 2014.

Loss from operations. As a result of the foregoing, loss from operations improved to ($1.1) million for

the year ended March 31, 2015 from ($1.3) million for the prior year.

Net change in fair value of warrant liability. We recorded the fair market value of the warrants issued

in connection with our June 2011 private placement (the ‘‘2011 Warrants’’) at their initial fair value.
Changes in the fair value of the 2011 Warrants were recognized in earnings for each reporting period. In
November 2013, in accordance with certain terms of the 2011 Warrants, the down-round provisions included
in the terms of the warrant ceased to be in effect due to the historical VWAP and trading volume of our
common stock. As a result, the then outstanding warrant liability of $6.2 million was eliminated and
recognized as an increase to additional paid-in capital. In April 2014, we called for cancellation all remaining
1.7 million unexercised 2011 Warrants pursuant to their terms after satisfying applicable conditions. Pursuant
to the call for cancellation, holders of all 1.7 million unexercised 2011 Warrants exercised such warrants and
received 1.7 million shares of Common Stock. We received $0.6 million in cash upon the exercise of these
2011 Warrants. As a result, no 2011 Warrants were outstanding as of March 31, 2015. Accordingly, we no
longer recognize any changes in fair value of the 2011 Warrants. For the year ended March 31, 2014, we
recorded a non-cash charge for loss on the change in the value of the warrants of ($5.4) million, primarily due
to the effects of our increased share price on the Black-Scholes valuation.

Income tax (expense) beneﬁt, net.

Income tax (expense) beneﬁt, net is the estimated tax expense

attributable to the net taxable income recorded by our 60% owned subsidiary, Gosling-Castle Partners Inc.,
adjusted for changes in the deferred tax asset and deferred tax liability during the periods, and was net
expense of ($1.3) million for the year ended March 31, 2015 as compared to a beneﬁt of $0.6 million for the
prior year.

Foreign exchange loss. Foreign exchange loss for the year ended March 31, 2015 was de minimis as

compared to a loss of ($0.3) million for the prior year due to the net effects of ﬂuctuations of the U.S. dollar
against the Euro and its impact on our Euro-denominated intercompany balances due to our foreign
subsidiaries for inventory purchases.

Interest expense, net. We had interest expense, net of ($1.1) million for each of the years ended

March 31, 2015 and 2014 due to balances outstanding under our credit facilities.

Net income attributable to noncontrolling interests. Net income attributable to noncontrolling interests
for the year ended March 31, 2015 was ($0.3) million as compared to ($0.9) million for the prior year, both
the result of allocated net income recorded by our 60% owned subsidiary, Gosling-Castle Partners Inc.

Dividend to preferred shareholders. Pursuant to the mandatory conversion of our 10% Convertible
Series A Preferred Stock, in February 2014, all outstanding shares of Series A Preferred Stock, and accrued
dividends thereon, converted into Common Stock. Accordingly, after February 2014, we no longer recognize a
dividend to preferred shareholders. For the year ended March 31, 2014, we recognized a dividend on our
Series A Preferred Stock of $0.4 million.

Net loss attributable to common shareholders. As a result of the net effects of the foregoing, including

the non-cash charge for loss on the net change in fair value of warrant liability and the dividend accrual in
the prior year, net loss attributable to common shareholders improved to ($3.8) million for the year ended
March 31, 2015 as compared to a loss of ($9.3) million for the prior year. Net loss per common share, basic
and diluted, was ($0.02) per share for the year ended March 31, 2015 as compared to ($0.08) per share for the
prior year. Net loss per common share, basic and diluted, as reported in the current period beneﬁted from an
increase in the weighted-average shares outstanding in the year ended March 31, 2015 as compared to the
prior year.

Liquidity and capital resources

Overview

Since our inception, we have incurred signiﬁcant operating and net losses and have not generated positive

cash ﬂows from operations. For the year ended March 31, 2016, we had a net loss of $1.7 million, and used
cash of $2.9 million in operating activities. As of March 31, 2016, we had cash and cash equivalents of
$1.4 million and had an accumulated deﬁcit of $145.9 million.

Existing Financing

We and our wholly-owned subsidiary Castle Brands (USA) Corp. (‘‘CB-USA’’) are parties to an

Amended and Restated Loan and Security Agreement (as amended, the ‘‘Loan Agreement’’) with ACF
FinCo I LP (‘‘ACF’’),, which provides for availability (subject to certain terms and conditions) of a facility
(the ‘‘Credit Facility’’) to provide us with working capital, including capital to ﬁnance purchases of aged
whiskies in support of the growth of our Jefferson’s bourbons, in the amount of $19.0 million, including a
sublimit in the maximum principal amount of $7.0 million to permit us to acquire aged whiskey inventory
(the ‘‘Purchased Inventory Sublimit’’) subject to certain conditions set forth in the Loan Agreement. The
Credit Facility matures on July 31, 2019 (the ‘‘Maturity Date’’). The monthly facility fee is 0.75% per annum
of the maximum Credit Facility amount (excluding the Purchased Inventory Sublimit)..

Pursuant to the Loan Agreement Amendment, we and CB-USA may borrow up to the lesser of

(x) $19.0 million and (y) the sum of the borrowing base calculated in accordance with the Loan Agreement
and the Purchased Inventory Sublimit. We and CB-USA may prepay the Credit Facility in whole or the
Purchased Inventory Sublimit, in whole or in part, subject to certain prepayment penalties as set forth in the
Loan Agreement Amendment. The Purchased Inventory Sublimit replaces our bourbon term loan (the
‘‘Bourbon Term Loan’’), which was paid in full in the normal course of business in May 2015.

In connection with the Loan Agreement, we entered into a Reaffirmation Agreement with (i) certain of

our officers, including John Glover, our Chief Operating Officer, T. Kelley Spillane, our Senior Vice
President — Global Sales, and Alfred J. Small, our Senior Vice President, Chief Financial Officer, Treasurer &
Secretary and (ii) certain junior lenders of ours, including Frost Gamma Investments Trust, an entity affiliated
with Phillip Frost, M.D., a director of ours and a principal shareholder of ours, Mark E. Andrews, III, a
director of ours and our Chairman, an affiliate of Richard J. Lampen, a director of ours and our President and
Chief Executive Officer, an affiliate of Glenn Halpryn, a former director of ours, Dennis Scholl, a former
director of ours, and Vector Group Ltd., a more than 5% shareholder of ours, of which Richard Lampen is an
executive officer, Henry Beinstein, a director of ours, is a director and Phillip Frost, M.D. is a principal
shareholder, which, among other things, reaffirms the existing Validity and Support Agreements by and among
each officer, us and ACF.

ACF also required as a condition to entering into an amendment to the Loan Agreement in August 2015

that ACF enter into a participation agreement with certain related parties of ours, including Frost Gamma
Investments Trust ($150,000), Mark E. Andrews, III ($50,000), Richard J. Lampen ($100,000), and Alfred J.
Small ($15,000), to allow for the sale of participation interests in the Purchased Inventory Sublimit and the
inventory purchased with the proceeds thereof. The participation agreement provides that ACF’s commitment
to fund each advance of the Purchased Inventory Sublimit shall be limited to seventy percent (70%), up to
an aggregate maximum principal amount for all advances equal to $4.9 million. Under the terms of the
participation agreement, the participants receive interest at the rate of 11% per annum. We are not a party to
the participation agreement. However, we and CB-USA are party to a fee letter with the junior participants
(including the related party junior participants) pursuant to which we and CB-USA were obligated to pay the
junior participants a closing fee of $18,000 on the effective date of the Loan Agreement Amendment and are
obligated to pay a commitment fee of $18,000 on each anniversary of the effective date until the junior
participants’ obligations are terminated pursuant to the participation agreement.

We may borrow up to the maximum amount of the Credit Facility, provided that we have a sufficient
borrowing base (as deﬁned in the Loan Agreement). The Credit Facility interest rate (other than with respect
to the Purchased Inventory Sublimit) is the rate that, when annualized, is the greatest of (a) the Prime Rate
plus 3.00%, (b) the LIBOR Rate plus 5.50% and (c) 6.0%. The interest rate applicable to the Purchased
Inventory Sublimit is the rate, that when annualized, is the greatest of (a) the Prime Rate plus 4.25%, (b) the
LIBOR Rate plus 6.75% and (c) 7.50%. Interest is payable monthly in arrears, on the ﬁrst day of every month
on the average daily unpaid principal amount of the Credit Facility. After the occurrence and during the
continuance of any ‘‘Default’’ or ‘‘Event of Default’’ (as deﬁned under the Loan Agreement) we are required
to pay interest at a rate that is 3.25% per annum above the then applicable Credit Facility interest rate. The
Loan Agreement contains EBITDA targets allowing for further interest rate reductions in the future. The
Credit Facility currently bears interest at 6.0% and the Purchased Inventory Sublimit currently bears interest at
7.75%. We are required to pay down the principal balance of the Purchased Inventory Sublimit within

15 banking days from the completion of a bottling run of bourbon from our bourbon inventory stock
purchased with funds borrowed under the Purchased Inventory Sublimit in an amount equal to the purchase
price of such bourbon. The unpaid principal balance of the Credit Facility all accrued and unpaid interest
thereon, and all fees, costs and expenses payable in connection with the Credit Facility, are due and payable
in full on the Maturity Date. In addition to closing fees, ACF receives facility fees and a collateral
management fee (each as set forth in the Loan Agreement). Our obligations under the Loan Agreement are
secured by the grant of a pledge and a security interest in all of our assets.

The Loan Agreement contains standard borrower representations and warranties for asset-based borrowing

and a number of reporting obligations and affirmative and negative covenants. The Loan Agreement includes
negative covenants that, among other things, restrict our ability to create additional indebtedness, dispose of
properties, incur liens, and make distributions or cash dividends. At March 31, 2016, we were in compliance,
in all material respects, with the covenants under the Loan Agreement.

In December 2009, GCP, a 60% owned subsidiary, issued a promissory note in the aggregate principal

amount of $0.2 million to Gosling’s Export (Bermuda) Limited in exchange for credits issued on certain
inventory purchases. This note matures on April 1, 2020, is payable at maturity, subject to certain acceleration
events, and calls for annual interest of 5%, to be accrued and paid at maturity.

We have arranged various credit facilities aggregating €0.3 million or $0.3 million (translated at the
March 31, 2016 exchange rate) with an Irish bank, including overdraft coverage, creditors’ insurance, customs
and excise guaranty, and a revolving credit facility. These facilities are payable on demand, continue until
terminated by either party, are subject to annual review, and call for interest at the lender’s AA1 Rate minus
1.70%. We have deposited €0.3 million or $0.3 million (translated at the March 31, 2016 exchange rate) with
the bank to secure these borrowings.

In October 2013, we issued an aggregate principal amount of $2.1 million unsecured 5% convertible
subordinated notes (the ‘‘Convertible Notes’’). We used a portion of the proceeds to ﬁnance the acquisition of
additional bourbon inventory in support of the growth of our Jefferson’s bourbon brand.

The Convertible Notes bear interest at a rate of 5% per annum and mature on December 15, 2018. The

Convertible Notes and accrued but unpaid interest thereon are convertible in whole or in part from time to
time at the option of the holders thereof into shares of our common stock, par value $0.01 per share
(‘‘Common Stock’’), at a conversion price of $0.90 per share (the ‘‘Conversion Price’’). The Convertible
Notes may be prepaid in whole or in part at any time without penalty or premium, but with payment of
accrued interest to the date of prepayment. The Convertible Notes contain customary events of default, which,
if uncured, entitle each noteholder to accelerate the due date of the unpaid principal amount of, and all
accrued and unpaid interest on, the Convertible Notes. The Convertible Note purchasers included certain
related parties of ours, including an affiliate of Dr. Phillip Frost ($500,000), Mark E. Andrews, III ($50,000),
an affiliate of Richard J. Lampen ($50,000), an affiliate of Glenn Halpryn ($200,000), Dennis Scholl
($100,000) and Vector Group Ltd. ($200,000).

We may forcibly convert all or any part of the Convertible Notes and all accrued but unpaid interest
thereon if (i) the average daily volume of the Common Stock (as reported on the principal market or exchange
on which the Common Stock is listed or quoted for trading) exceeds $50,000 per trading day and (ii) the
volume weighted average price of the Common Stock for at least twenty (20) trading days during any
thirty (30) consecutive trading day period exceeds 250% of the then-current Conversion Price. Any forced
conversion will be applied ratably to the holders of all Convertible Notes based on each holder’s then-current
note holdings.

In November 2014, we entered into a distribution agreement (the ‘‘2014 Distribution Agreement’’) with
Barrington Research Associates, Inc. (‘‘Barrington’’) as sales agent, under which we may issue and sell over
time and from time to time, to or through Barrington, shares (the ‘‘Shares’’) of our Common Stock having
a gross sales price of up to $10.0 million. The 2014 Distribution Agreement replaced the prior equity
distribution agreement entered into with Barrington in November 2013, under which we could offer and sell
Shares having a gross sale price of up to $6.0 million.

Sales of the Shares pursuant to the 2014 Distribution Agreement may be effected by any method
permitted by law deemed to be an ‘‘at-the-market’’ offering as deﬁned in Rule 415 of the Securities Act of
1933, as amended, including without limitation directly on the NYSE MKT LLC or any other existing trading
market for the Common Stock or through a market maker, up to the amount speciﬁed, and otherwise to or
through Barrington in accordance with the placement notices delivered by us to Barrington. Also, with our
prior consent, some of the Shares issued pursuant to the 2014 Distribution Agreement may be sold in privately
negotiated transactions.

During the twelve months ended March 31, 2016, we sold 2.1 million Shares pursuant to the 2014
Distribution Agreement, with total gross proceeds of approximately $3.3 million, before deducting sales agent
and offering expenses of approximately $0.1 million. We used a portion of the proceeds to ﬁnance our
investment in Copperhead Distillery Company and intend to use the remaining and any future proceeds for
general corporate purposes. As of June 9, 2016, approximately $4.7 million remained available for issuance
pursuant to the 2014 Distribution Agreement.

Liquidity Discussion

As of March 31, 2016, we had shareholders’ equity of $23.8 million as compared to $21.1 million at

March 31, 2015. This increase is primarily due to the net issuance of $3.2 million of Common Stock under
the 2014 Distribution Agreement, partially offset by our $1.7 million net loss, the $0.6 million subsidiary
dividend paid to noncontrolling interests and our total comprehensive loss for the year ended March 31, 2016.

We had working capital of $29.4 million at March 31, 2016 as compared to $25.7 million at March 31,

2015. This increase is primarily due to a $6.1 million increase in inventory and a $0.2 million increase in cash
and cash equivalents, partially offset by a net $3.2 million increase in accounts payable and accrued expenses.

As of March 31, 2016, we had cash and cash equivalents of approximately $1.4 million, as compared to
$1.2 million as of March 31, 2015. The increase is primarily attributable to the equity issued and debt raised,
offset by the funding of our operations and working capital needs for the year ended March 31, 2016. At
March 31, 2016, we also had approximately $0.3 million of cash restricted from withdrawal and held by a
bank in Ireland as collateral for overdraft coverage, creditors’ insurance, revolving credit and other working
capital purposes.

The following may materially affect our liquidity over the near-to-mid term:

•

cash losses from operations;

our ability to obtain additional debt or equity ﬁnancing should it be required;

an increase in working capital requirements to ﬁnance higher levels of inventories and accounts
receivable;

our ability to maintain and improve our relationships with our distributors and our routes to market;

our ability to procure raw materials at a favorable price to support our level of sales;

potential acquisitions; and

expansion into new markets and within existing markets in the U.S. and internationally.

We continue to implement a plan to support the growth of existing brands through sales and marketing

initiatives that we expect will generate cash ﬂows from operations in the next few years. As part of this plan,
we seek to grow our business through expansion to new markets, growth in existing markets and strengthened
distributor relationships. As our brands continue to grow, our working capital requirements will increase. In
particular, the growth of our Jefferson’s brands requires a signiﬁcant amount of working capital relative to our
other brands, as we are required to purchase and hold ever increasing amounts of aged bourbon to meet
growing demand. While we are seeking solutions to our long-term bourbon supply needs, we are required to
purchase and hold several years’ worth of aged bourbon in inventory until such time as it is aged to our
speciﬁc brand taste proﬁles, increasing our working capital requirements and negatively impacting cash ﬂows.

We are also seeking additional brands and agency relationships to leverage our existing distribution
platform. We intend to ﬁnance any such brand acquisitions through a combination of our available cash
resources, borrowings and, in appropriate circumstances, additional issuances of equity and/or debt securities.
Acquiring additional brands could have a signiﬁcant effect on our ﬁnancial position, could materially reduce
our liquidity and could cause substantial ﬂuctuations in our quarterly and yearly operating results. We continue
to look to control expenses, seek improvements in routes to market and contain production costs to improve
cash ﬂows.

As of March 31, 2016, we had borrowed $12.1 million of the $19.0 million available under the Credit

Facility, including $2.6 million of the $7.0 million available under the Purchased Inventory Sublimit, leaving
$2.5 million in potential availability for working capital needs under the Credit Facility and $4.4 million
available for aged whiskey inventory purchases. As of the date of this report, we had borrowed $11.7 million
of the $19.0 million available under the Credit Facility, including $2.5 million of the $7.0 million available
under the Purchased Inventory Sublimit, leaving $2.8 million in potential availability for working capital
needs under the Credit Facility and $4.5 million available for aged whiskey inventory purchases. We believe
our current cash and working capital, the availability under the Credit Facility and the additional funds that
may be raised under the 2014 Distribution Agreement will enable us to fund our losses until we achieve
proﬁtability, ensure continuity of supply of our brands, and support new brand initiatives and marketing
programs through at least March 2017.

Cash ﬂows

The following table summarizes our primary sources and uses of cash during the periods presented:

2016

Year ended March 31,
2015
(in thousands)

2014

Net cash provided by (used in):

. . . . . . . . . . . . . . . . . . . . . . . . .
Operating activities
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities
. . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign currency translation . . . . . . . . . . . . .
Net increase in cash and cash equivalents . . . . . . . . . .

$(2,854)
(990)
4,087
(4)
239

$(8,852)
(495)
9,627
3
283

$(5,820)
(208)
6,494
3
469

Operating activities. A substantial portion of available cash has been used to fund our operating
activities. In general, these cash funding requirements are based on operating losses, driven chieﬂy by the
costs in maintaining our distribution system and our sales and marketing activities. We have also utilized cash
to fund our inventories. In general, these cash outlays for inventories are only partially offset by increases in
our accounts payable to our suppliers.

On average, the production cycle for our owned brands is up to three months from the time we obtain

the distilled spirits and other materials needed to bottle and package our products to the time we receive
products available for sale, in part due to the international nature of our business. We do not produce Goslings
rums or ginger beer, Pallini liqueurs, Tierras tequila, or Gozio amaretto. Instead, we receive the ﬁnished
product directly from the owners of such brands. From the time we have products available for sale, an
additional two to three months may be required before we sell our inventory and collect payment from
customers. Further, our inventory at March 31, 2016 included signiﬁcant additional stores of aged bourbon
purchased in advance of forecasted production requirements. We expect to use the aged bourbon in the normal
course of future sales, generating positive cash ﬂows in future periods.

During the year ended March 31, 2016, net cash used in operating activities was $2.9 million, consisting
primarily of a net loss of $1.7 million, a $6.5 million increase in inventory, a $0.6 million decrease in due to
related parties and a $0.1 million increase in prepaid expenses and supplies. These uses of cash were partially
offset by a $3.2 million increase in accounts payable and accrued expense, a $0.1 million increase in due from
affiliates, stock based compensation expense of $1.4 million and depreciation and amortization expense
of $0.9 million.

During the year ended March 31, 2015, net cash used in operating activities was $8.9 million, consisting

primarily of a $7.2 million increase in inventory, a net loss of $3.5 million, a $0.3 million increase in other
assets and a $1.7 million increase in accounts receivable. These uses of cash were partially offset by a
$1.3 million increase in accounts payable and accrued expenses, a $0.1 million decrease in prepaid expenses,
stock based compensation expense of $0.8 million, depreciation and amortization expense of $0.9 million, a
provision for obsolete inventories of $0.3 million and $0.3 million in deferred income tax expense, net.

During the year ended March 31, 2014, net cash used in operating activities was $5.8 million, consisting
primarily of a net loss of $8.0 million, a $2.0 million increase in accounts receivable, a $1.2 million increase
in inventory, a $0.6 million decrease in accounts payable and accrued expenses, a $0.6 million increase in
prepaid expenses, a $0.2 million increase in other assets and $0.6 million in deferred tax beneﬁt. These uses
of cash were partially offset by a change in fair value of warrant liability of $5.4 million, a $0.5 million loss
on equity investment in non-consolidated affiliate, stock-based compensation expense of $0.4 million,
depreciation and amortization expense of $0.9 million, and a provision for obsolete inventories
of $0.2 million.

Investing Activities. Net cash used in investing activities was $1.0 million for the year ended March 31,
2016, representing a $0.5 million investment in Copperhead Distillery and $0.5 million used in the acquisition
of ﬁxed and intangible assets.

Net cash used in investing activities was $0.5 million for the year ended March 31, 2015, representing

$0.5 million used in the acquisition of ﬁxed and intangible assets.

Net cash used in investing activities was $0.2 million for the year ended March 31, 2014, representing

$0.3 million used in the acquisition of ﬁxed and intangible assets, partially offset by $0.06 million from a
change in restricted cash.

Financing activities. Net cash provided by ﬁnancing activities for the year ended March 31, 2016 was

$4.1 million, consisting primarily of $3. 1 million in net proceeds from the issuance of Common Stock
pursuant to the 2014 Distribution Agreement, $2.0 million in net proceeds from the Credit Facility and
$0.4 million from the exercise of Common Stock options, partially offset by $0.7 million paid on the Bourbon
Term Loan and $0.6 million in dividends paid to non-controlling interests of GCP.

Net cash provided by ﬁnancing activities for the year ended March 31, 2015 was $9.6 million, consisting

of $8.2 million in net proceeds from the Credit Facility, $3.1 million in net proceeds from the issuance of
Common Stock under our distribution agreements with Barrington, $0.6 million in proceeds from the exercise
of 2011 Warrants and $0.2 million in proceeds from the exercise of stock options, partially offset by the
$1.25 million repayment of a junior loan and the $1.3 million paid on the Bourbon Term Loan.

Net cash provided by ﬁnancing activities for the year ended March 31, 2014 was $6.5 million, consisting
of $4.3 million in net proceeds from the issuance of Common Stock under our previous distribution agreement
with Barrington, $3.8 million in proceeds from the exercise of 2011 Warrants, $2.1 million from the issuance
of the Convertible Notes and $1.25 million from issuance of a junior loan, offset by the $4.5 million paid on
the Credit Facility, $0.5 million paid on the Bourbon Term Loan and $0.1 million paid on the foreign
revolving credit facilities.

Obligations and commitments

The table sets forth our contractual commitments as of March 31, 2016:

Contractual Obligations

Less than
1 year

1 − 3 years

Long-term debt obligations(1) . . . . .
Supply agreements(2)
. . . . . . . . . .
Operating leases(3)
. . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .

Total

$ 837
3,454
365
$4,656

$ 1,674
8,714
706
$11,094

Payments due by period

4 − 5 years
(In thousands)
$14,287
6,102
310
$20,699

After
5 years

$ —
9,011
—
$9,011

Total

$16,798
27,281
1,381
$45,460

Interest payments are based on current interest rates at March 31, 2016. Debt principal and debt interest
represent principal and interest to be paid on our revolving credit facility based on the balance
outstanding as of March 31, 2016. Interest on the revolving credit facility is calculated using the
prevailing rates as of March 31, 2016. Our estimate assumes that we will maintain the same levels of
indebtedness and ﬁnancial performance through the credit facility’s maturity in July 2019.

(1) Long-term debt obligations.

For more information concerning our long-term debt, see ‘‘Liquidity and

Capital Resources’’ above and note 8 to our accompanying consolidated ﬁnancial statements.
(2) Supply agreements. For a discussion of our supply agreements, see note 14 to our accompanying

consolidated ﬁnancial statements.

(3) Operating leases. For a discussion of our operating leases, please see note 14 E to our accompanying

consolidated ﬁnancial statements.

Currency Translation

The functional currencies for our foreign operations are the Euro in Ireland and the British Pound in the

United Kingdom. With respect to our consolidated ﬁnancial statements, the translation from the applicable
foreign currencies to U.S. Dollars is performed for balance sheet accounts using exchange rates in effect at the
balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the
period. The resulting translation adjustments are recorded as a component of other comprehensive income.

Where in this annual report we refer to amounts in Euros or British Pounds, we have for your
convenience also in certain cases provided a conversion of those amounts to U.S. Dollars in parentheses.
Where the numbers refer to a speciﬁc balance sheet account date or ﬁnancial statement account period, we
have used the exchange rate that was used to perform the conversions in connection with the applicable
ﬁnancial statement. In all other instances, unless otherwise indicated, the conversions have been made using
the exchange rates as of March 31, 2016, each as calculated from the Interbank exchange rates as reported by
Oanda.com. On March 31, 2016, the exchange rate of the Euro and the British Pound in exchange for
U.S. Dollars was €1.00 = U.S.$1.13553 (equivalent to U.S.$1.00 = €0.88065) and £1.00 = U.S.$1.43677
(equivalent to U.S.$1.00 = £0.69601).

These conversions should not be construed as representations that the Euro and British Pound amounts

actually represent U.S. Dollar amounts or could be converted into U.S. Dollars at the rates indicated.

Impact of inﬂation

We believe that our results of operations are not materially impacted by moderate changes in the inﬂation

rate. Inﬂation and changing prices did not have a material impact on our operations during ﬁscal 2016, 2015
or 2014. Severe increases in inﬂation, however, could affect the global and U.S. economies and could have an
adverse impact on our business, ﬁnancial condition and results of operations.

Recent accounting pronouncements

We discuss recently issued and adopted accounting standards in the ‘‘Accounting standards adopted’’ and

‘‘Recent accounting pronouncements’’ sections of note 1 to our accompanying consolidated ﬁnancial
statements.

Cautionary Note Regarding Forward-Looking Statements

This annual report includes certain ‘‘forward-looking statements’’ within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements, which involve risks and uncertainties, relate to
the discussion of our business strategies and our expectations concerning future operations, margins,
proﬁtability, liquidity and capital resources and to analyses and other information that are based on forecasts
of future results and estimates of amounts not yet determinable. We use words such as ‘‘may’’, ‘‘will’’,
‘‘should’’, ‘‘expects’’, ‘‘intends’’, ‘‘plans’’, ‘‘anticipates’’, ‘‘believes’’, ‘‘estimates’’, ‘‘seeks’’, ‘‘predicts’’,
‘‘could’’, ‘‘projects’’, ‘‘potential’’ and similar terms and phrases, including references to assumptions, in this
report to identify forward-looking statements. These forward-looking statements are made based on
expectations and beliefs concerning future events affecting us and are subject to uncertainties, risks and factors
relating to our operations and business environments, all of which are difficult to predict and many of which
are beyond our control, that could cause our actual results to differ materially from those matters expressed or
implied by these forward-looking statements. These risks and other factors include those listed under ‘‘Risk
Factors’’ and as follows:

•

our history of losses;

recent worldwide and domestic economic trends and ﬁnancial market conditions could adversely
impact our ﬁnancial performance;

our potential need for additional capital, which, if not available on acceptable terms or at all, could
restrict our future growth and severely limit our operations;

our brands could fail to achieve more widespread consumer acceptance, which may limit our
growth;

our dependence on a limited number of suppliers, who may not perform satisfactorily or may end
their relationships with us, which could result in lost sales, incurrence of additional costs or lost
credibility in the marketplace;

our annual purchase obligations with certain suppliers;

the failure of even a few of our independent wholesale distributors to adequately distribute our
products within their territories could harm our sales and result in a decline in our results of
operations;

the potential limitation to our growth if we are unable to identify and successfully acquire additional
brands that are complementary to our existing portfolio, or integrate such brands after acquisitions;

currency exchange rate ﬂuctuations and devaluations may signiﬁcantly adversely affect our revenues,
sales, costs of goods and overall ﬁnancial results;

our need to maintain a relatively large inventory of our products to support customer delivery
requirements, which could negatively impact our operations if such inventory is lost due to theft, ﬁre
or other damage;

the possibility that we or our strategic partners will fail to protect our respective trademarks and
trade secrets, which could compromise our competitive position and decrease the value of our brand
portfolio;

the possibility that we cannot secure and maintain listings in control states, which could cause the
sales of our products to decrease signiﬁcantly;

an impairment in the carrying value of our goodwill or other acquired intangible assets could
negatively affect our operating results and shareholders’ equity;

changes in consumer preferences and trends could adversely affect demand for our products;

there is substantial competition in our industry and the many factors that may prevent us from
competing successfully;

adverse changes in public opinion about alcohol could reduce demand for our products;

•

class action or other litigation relating to alcohol misuse or abuse could adversely affect our
business; and

adverse regulatory decisions and legal, regulatory or tax changes could limit our business activities,
increase our operating costs and reduce our margins.

We assume no obligation to publicly update or revise these forward-looking statements for any reason, or

to update the reasons actual results could differ materially from those anticipated in, or implied by, these
forward-looking statements, even if new information becomes available in the future.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Market risk

We are exposed to market risks arising from changes in market rates and prices, including movements in

interest rates and foreign currency exchange rates. We do not enter into derivatives or other ﬁnancial
instruments for trading or speculative purposes. In the future, we may enter into ﬁnancial instruments to
manage and reduce the impact of changes in interest rates and foreign currency exchange rates, although we
do not currently have any such instruments in place. The following is additional information about the market
risks we are exposed to and how we manage these risks:

Interest rate risk

Interest on our Credit Facility (other than with respect to the Purchased Inventory Sublimit) is charged at

the rate that, when annualized, is the greatest of (a) the Prime Rate plus 3.00%, (b) the LIBOR Rate plus
5.50% and (c) 6.00%. The interest rate applicable to the Purchased Inventory Sublimit is the rate that, when
annualized, is the greatest of (a) the Prime Rate plus 4.25%, (b) the LIBOR Rate plus 6.75% and (c) 7.50%.
As of March 31, 2016, we had $12.1 million outstanding under the Credit Facility, including $2.6 million
under the Purchased Inventory Sublimit, none of which is currently being hedged. Interest on our foreign
revolving credit facilities is charged at the lender’s AA1 Rate minus 1.70%. As of March 31, 2016, we had
nothing outstanding under our foreign revolving credit facilities.

A hypothetical one percentage point (100 basis points) increase in the interest rate being charged on the

$12.1 million of unhedged debt outstanding under our Credit Facility, including the Purchased Inventory
Sublimit, and our foreign revolving credit facilities at March 31, 2016 would have an impact of approximately
$101,003 on our interest expense for the year.

Foreign exchange rate risk

The majority of our sales, net and expenses are transacted in U.S. dollars. However, in the year ended
March 31, 2016, Euro denominated sales accounted for approximately 8.0% of our sales, net. We also incur
expenses in foreign currencies, primarily the Euro. In the year ended March 31, 2016, Euro denominated
expenses accounted for approximately 8.0% of our expenses. A substantial change in the rate of exchange
between the U.S. dollar and the Euro could have a signiﬁcant adverse effect on our ﬁnancial results. A
hypothetical 10% change in the value of the U.S. dollar in relation to the Euro and British pound would have
had an impact of approximately $567,571 on our income from operations for the year ended March 31, 2016.

If we do not enter into hedging arrangements, the more we expand our business outside the

United States, the more our ﬁnancial results will be exposed to exchange rate ﬂuctuations. In the past, we
have entered into forward contracts from time to time to reduce our exposure to foreign currency ﬂuctuations.
We recognize derivative contracts in the balance sheet at fair value, and reﬂect any net gains and losses
currently in earnings. At March 31, 2016 and 2015, we had no forward contracts outstanding. Gain or loss on
foreign currency forward contracts, which was de minimis during the periods presented, is included in other
income and expense.

The functional currencies for our foreign operations are the Euro in Ireland and the British Pound in the

The effect of foreign currency translation was income of $92,131 for the year ended March 31, 2016, a loss of
($561,009) for the year ended March 31, 2015 and income of $193,178 for the year ended March 31, 2014. A
hypothetical 10% change in the value of the U.S. dollar in relation to the Euro and British pound would have
had an impact of approximately $308,000 for the year ended March 31, 2016 as a result of foreign currency
translation.

Commodity price risk

We currently are not exposed to commodity price risks. We do not purchase the basic ingredients such as

grain, sugar cane or agave that are converted into alcohol through distillation. Instead, we have relationships
with various companies to provide distillation, bottling or other production services for us. These relationships
vary on a brand-by-brand basis.

As of March 31, 2016, we did not have any hedging arrangements in place to protect our exposure to

commodity price ﬂuctuations.

Item 8. Financial Statements and Supplementary Data

Index to Financial Statements

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Balance Sheets as of March 31, 2016 and 2015 . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Operations for the years ended March 31, 2016, 2015 and 2014 . . . .

Consolidated Statements of Comprehensive Loss for the years ended March 31, 2016, 2015

and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Changes in Equity for the years ended March 31, 2016, 2015

and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Cash Flows for the years ended March 31, 2016, 2015 and 2014 . . .

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Castle Brands Inc.

We have audited the accompanying consolidated balance sheets of Castle Brands Inc. and subsidiaries (the
‘‘Company’’) as of March 31, 2016 and 2015, and the related consolidated statements of operations,
comprehensive loss, changes in shareholders’ equity, and cash ﬂows for each of the years in the three-year
period ended March 31, 2016. The ﬁnancial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these ﬁnancial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the ﬁnancial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the ﬁnancial statements. An
audit also includes assessing the accounting principles used and signiﬁcant estimates made by management, as
well as evaluating the overall ﬁnancial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the ﬁnancial statements referred to above present fairly, in all material respects, the
consolidated ﬁnancial position of the Company as of March 31, 2016 and 2015, and the consolidated results
of its operations and its cash ﬂows for each of the years in the three-year period ended March 31, 2016, in
conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company’s internal control over ﬁnancial reporting as of March 31, 2016, based on
criteria established in the 2013 Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (‘‘COSO’’), and our report dated June 13, 2016,
appearing under Item 9A of the Company’s March 31, 2016 annual report on Form 10-K, expressed an
unqualiﬁed opinion thereon.

/s/ EisnerAmper LLP

New York, New York
June 13, 2016

CASTLE BRANDS INC. AND SUBSIDIARIES

Consolidated Balance Sheets

March 31, 2016

March 31, 2015

Current Assets

ASSETS

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable − net of allowance for doubtful accounts of

$245,238 and $154,434 at March 31, 2016 and 2015, respectively . .
Due from shareholders and affiliates . . . . . . . . . . . . . . . . . . . . . . . .
Inventories − net of allowance for obsolete and slow moving inventory

of $331,008 and $267,557 at March 31, 2016 and 2015,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . .
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment − net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets − net of accumulated amortization of $7,372,585 and

$6,713,774 at March 31, 2016 and 2015, respectively . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in non-consolidated affiliate, at equity . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets

1,430,532

1,191,603

10,410,571
3,279

10,550,990
138,750

27,233,322
1,611,797
40,689,501
876,255

21,068,241
1,492,806
34,442,390
665,373

7,048,302
496,226
518,667
345,076
300,386
$ 50,274,413

7,683,227
496,226
—
329,471
385,253
$ 44,001,940

Current Liabilities

LIABILITIES AND EQUITY

Foreign revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses
Due to shareholders and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

— $

5,652,260
4,352,170
1,338,072
11,342,502

34,141
5,753,617
1,067,460
1,963,883
8,819,101

Long-Term Liabilities

Credit facility (including $275,625 of related-party participation at

March 31, 2015)

March 31, 2016 and none at March 31, 2015)

. . . . . . . . . . . . . . .
Bourbon term loan (including $179,063 of related-party participation at
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable − 5% Convertible notes (including $1,100,000 of related
party participation at March 31, 2016 and 2015) . . . . . . . . . . . . . .
Notes payable − GCP Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12,088,594

10,123,544

—

744,900

1,675,000
211,580
1,204,000
26,521,676

1,675,000
211,580
1,333,152
22,907,277

Commitments and Contingencies (Note 14)
Equity

Preferred stock, $.01 par value, 25,000,000 shares authorized, no

shares issued and outstanding at March 31, 2016 and 2015 . . . . . . .

—

Common stock, $.01 par value, 300,000,000 shares authorized at

March 31, 2016 and 2015, 160,474,777 and 157,187,658 shares
issued and outstanding at March 31, 2016 and 2015, respectively . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deﬁcit
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . .
Total controlling shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities and Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,604,748
166,866,671
(145,878,079)
(2,193,794)
20,399,546
3,353,191
23,752,737
$ 50,274,413

1,571,877
162,626,893
(143,361,711)
(2,285,925)
18,551,134
2,543,529
21,094,663
$ 44,001,940

See accompanying notes to the consolidated ﬁnancial statements.

CASTLE BRANDS INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Sales, net* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross proﬁt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expense
. . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . . .
Other (expense) income, net
. . . . . . . . . . . . . . . . . . . .
Income (loss) from equity investment in non-consolidated
affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange loss . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in fair value of warrant liability . . . . . . . . . .
Loss before provision for income taxes . . . . . . . . . . . . .
Income tax (expense) beneﬁt, net
. . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interests
. . . . .
Net loss attributable to controlling interests . . . . . . . . . .
Dividend to preferred shareholders . . . . . . . . . . . . . . . .
Net loss attributable to common shareholders . . . . . . . . .
Net loss per common share, basic and diluted, attributable
. . . . . . . . . . . . . . . . . . . . .

to common shareholders

Weighted average shares used in computation, basic and

2016
$ 72,220,368
43,666,798
28,553,570
19,222,659
7,385,851
939,513
1,005,547
(666)

18,667
(190,867)
(1,088,539)
—
(255,858)
(1,450,848)
(1,706,706)
(809,662)
(2,516,368)
—
$ (2,516,368)

2015
$ 57,457,421
35,884,632
21,572,789
15,254,818
6,488,336
907,540
(1,077,905)
16,602

—
(4,564)
(1,129,047)
—
(2,194,914)
(1,278,999)
(3,473,913)
(325,829)
(3,799,742)
—
$ (3,799,742)

2014
$ 48,140,483
30,536,667
17,603,816
12,529,684
5,533,711
860,254
(1,319,833)
—

(502,518)
(284,962)
(1,062,219)
(5,392,594)
(8,562,126)
590,414
(7,971,712)
(935,035)
(8,906,747)
(384,599)
$ (9,291,346)

(0.02)

(0.08)

diluted, attributable to common shareholders . . . . . . . .

159,380,223

155,456,341

116,511,444

Sales, net and Cost of sales include excise taxes of $7,451,569, $6,754,453 and $6,420,730 for the years
ended March 31, 2016, 2015 and 2014, respectively.

See accompanying notes to the consolidated ﬁnancial statements.

CASTLE BRANDS INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Loss

Net loss

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other comprehensive income (loss):

2016
$(1,706,706)

Years ended March 31,
2015
$(3,473,913)

2014
$(7,971,712)

Foreign currency translation adjustment

. . . . . . . . . . . . .

92,131

(561,009)

193,178

Total other comprehensive income (loss): . . . . . . . . . . . . . .
Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . .

92,131
$(1,614,575)

(561,009)
$(4,034,922)

193,178
$(7,778,534)

See accompanying notes to the consolidated ﬁnancial statements.

BALANCE, MARCH 31, 2013 .
.
.
Net (loss) income .
Foreign currency translation
.

.
.
Issuance of common stock, net of
.

issuance costs .

adjustment .

and accrued dividends

.
.
Conversion of series A preferred stock
.
.
.

.
Exercise of common stock warrants .
Exercise of common stock options .
Accrued dividends − series A

convertible preferred stock .

.
.
.
.

.
.

adjustment .

issuance costs .

equity-warrant .

Reclassiﬁcation of liability to
.
.

.
.
Stock-based compensation .
.
BALANCE, MARCH 31, 2014 .
Net (loss) income .
.
.
Foreign currency translation
.

.
.
Issuance of common stock, net of
.

.
Exercise of common stock warrants .
Surrender of common stock in
connection with exercise of
.
common stock warrant

.
Conversion of 5% convertible notes
.
.
and accrued interest thereon .
Exercise of common stock options .
.
Stock-based compensation .
.
BALANCE, MARCH 31, 2015 .
.

.
Net (loss) income .
Foreign currency translation
.

adjustment .

.
.
Issuance of common stock, net of
.
issuance costs of $124,876 .

.
Exercise of common stock options .
Common stock issued under 2013
incentive compensation plan .

Subsidiary dividend paid to
.
non-controlling interests
.
Stock-based compensation .
BALANCE, MARCH 31, 2016 .

.
.

.
.
.

.
.
.
.

.
.

.
.
.
.

.
.

.
.
.

CASTLE BRANDS INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Equity

Preferred Stock

Common Stock

Amount

Additional
Paid-in
Capital

Accumulated
Deﬁcit

6,701

$ 67,013 108,773,034 $1,087,730 $142,661,542 $(130,270,623)
(8,906,747)

.
.

Accumulated
Other
Comprehensive
(Loss) Income

$(1,918,094)

193,178

Noncontrolling
Interests

Total
Equity

$1,282,665
935,035

$12,910,233
(7,971,712)

(6,701)

(67,013)

5,394,608

53,946

4,293,356

27,465,610
10,127,123
80,758

274,656
101,271
808

(207,643)
3,747,061
25,168

384,599

(384,599)

6,187,968
393,914

— $

— 151,841,133 $1,518,411 $157,485,965 $(139,561,969)
(3,799,742)

$(1,724,916)

$2,217,700
325,829

(561,009)

2,537,924
1,657,802

25,379
16,578

3,108,189
613,387

(27,902)

(279)

(30,971)

501,574
677,127

5,017
6,771

446,400
216,213
787,710

— $

— 157,187,658 $1,571,877 $162,626,893 $(143,361,711)

$(2,285,925)

$2,543,529

193,178

4,347,302

—
3,848,332
25,976

—

6,187,968
393,914
$19,935,191
(3,473,913)

(561,009)

3,133,568
629,965

(31,250)

451,417
222,984
787,710
$21,094,663

(2,516,368)

809,662

(1,706,706)

92,131

2,119,282
1,079,602

21,193
10,796

3,105,920
364,184

88,235

882

119,118

(600,000)
1,250,556

— $

— 160,474,777 $1,604,748 $166,866,671 $(145,878,079)

$(2,193,794)

$3,353,191

92,131

3,127,113
374,980

120,000

(600,000)
1,250,556
$23,752,737

See accompanying notes to the consolidated ﬁnancial statements.

CASTLE BRANDS INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,706,706) $(3,473,913) $(7,971,712)

Years ended March 31,
2015

2016

2014

Adjustments to reconcile net loss to net cash used in operating

activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Provision for doubtful accounts
Amortization of deferred ﬁnancing costs . . . . . . . . . . . . . . .
Change in fair value of warrant liability . . . . . . . . . . . . . . .
Deferred income tax expense (beneﬁt), net . . . . . . . . . . . . . .
Net (income) loss from equity investment in non-consolidated

affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of changes in foreign currency translation . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . .
Addition to provision for obsolete inventories . . . . . . . . . . . .

Changes in operations, assets and liabilities:

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due from affiliates
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and supplies
. . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest
. . . . . . . . . . . . . . . . . . . . . . . . . .
Due to related parties
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET CASH USED IN OPERATING ACTIVITIES . . . . . . . . .

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in non-consolidated affiliate, at equity . . . . . . . . . . . .
Change in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments under contingent consideration agreements . . . . . . . . . .
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . .

939,513
61,000
177,127
—
(129,152)

(18,667)
190,867
1,370,556
200,000

85,040
135,471
(6,498,338)
(117,258)
(92,260)
3,163,818
10,579
(625,812)
(1,147,516)
(2,854,222)

907,540
(49,984)
166,942

860,254
133,726
161,178
— 5,392,594
(590,414)

288,178

—
4,564
787,710
281,000

502,518
284,962
393,914
200,000

(1,671,925)
(23,462)
(7,223,601)
77,587
(272,000)
1,321,722
—
27,642
(5,378,087)
(8,852,000)

(1,959,593)
(193,680)
(1,246,553)
(591,188)
(188,867)
(597,127)
6,379
(416,064)
2,152,039
(5,819,673)

(466,462)
(23,885)
(500,000)
(257)
—
(990,604)

(333,742)
(160,109)
—
(929)
—
(494,780)

(234,693)
(26,980)
—
60,137
(5,940)
(207,476)

1,965,050
(744,900)

CASH FLOWS FROM FINANCING ACTIVITIES:
8,170,507
Net proceeds from (payments on) credit facility . . . . . . . . . . . . . .
(1,270,100)
Payments on Bourbon term loan . . . . . . . . . . . . . . . . . . . . . . . .
— (1,250,000)
(Payments on) proceeds from Junior loan . . . . . . . . . . . . . . . . . .
—
Proceeds from 5% Convertible notes . . . . . . . . . . . . . . . . . . . . .
(34,743)
Net (payments on) proceeds from foreign revolving credit facility . .
3,251,989
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . .
(124,876)
Payments for costs of stock issuance . . . . . . . . . . . . . . . . . . . . .
(600,000)
Subsidiary dividend paid to non-controlling interests
. . . . . . . . . .
—
Proceeds from exercise of common stock warrants . . . . . . . . . . . .
374,980
. . . . . . . . . . . .
Proceeds from exercise of common stock options
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . .
4,087,500
EFFECTS OF FOREIGN CURRENCY TRANSLATION . . . . .
(3,745)
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . .
238,929
CASH AND CASH EQUIVALENTS − BEGINNING . . . . . . . .
1,191,603
CASH AND CASH EQUIVALENTS − ENDING . . . . . . . . . . . $ 1,430,532

21,278
3,319,915
(186,347)
—
598,715
222,984
9,626,952
2,930
283,102
908,501
$ 1,191,603 $

(4,548,284)
(481,000)
1,250,000
— 2,125,000
(73,797)
4,531,643
(184,341)
—
3,848,332
25,976
6,493,529
2,798
469,178
439,323
908,501

See accompanying notes to the consolidated ﬁnancial statements.

CASTLE BRANDS INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows − (continued)

SUPPLEMENTAL DISCLOSURES:

Schedule of non-cash investing and ﬁnancing activities:

Conversion of series A preferred stock to common stock . . . .
Surrender of common stock in connection with exercise of

common stock warrant . . . . . . . . . . . . . . . . . . . . . . . . . .

Conversion of 5% convertible note, and accrued interest

Years ended March 31,
2015

2014

2016

—

$8,349,539

$ 31,250

—

thereon, to common stock . . . . . . . . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—
$ 894,099
$1,079,387

$451,417
$937,973
$293,525

$
—
$ 867,782
14,848
$

See accompanying notes to the consolidated ﬁnancial statements.

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Description of business — The consolidated ﬁnancial statements include the accounts of Castle

Brands Inc. (‘‘the Company’’), its wholly-owned domestic subsidiaries, Castle Brands (USA) Corp.
(‘‘CB-USA’’) and McLain & Kyne, Ltd. (‘‘McLain & Kyne’’), the Company’s wholly-owned foreign
subsidiaries, Castle Brands Spirits Group Limited (‘‘CB-IRL’’) and Castle Brands Spirits Marketing
and Sales Company Limited, and the Company’s 60% ownership interest in Gosling-Castle Partners
Inc. (‘‘GCP’’), with adjustments for income or loss allocated based upon percentage of ownership.
The accounts of the subsidiaries have been included as of the date of acquisition. All signiﬁcant
intercompany transactions and balances have been eliminated.

B. Organization and operations — The Company is principally engaged in the importation, marketing
and sale of premium and super premium rums, whiskey, liqueurs, vodka, tequila and related
non-alcoholic beverage products in the United States, Canada, Europe and Asia.

C. Brands — Rum and Ginger Beer — Goslings rums, a family of premium rums with a 200-year

history, including the award-winning Goslings Black Seal rum, for which the Company is, through
its export venture GCP, the exclusive marketer outside of Bermuda, and Goslings Stormy Ginger
Beer, an essential non-alcoholic ingredient in Goslings trademarked Dark ‘n Stormy(cid:5) rum cocktail.

Whiskey — Premium small batch bourbons: Jefferson’s, Jefferson’s Reserve, Jefferson’s Chef’s
Collaboration, Jefferson’s Ocean Aged at Sea, Jefferson’s Wine Finish Collection, Jefferson’s Wood
Experiments and Jefferson’s Presidential Select, Jefferson’s Rye, an aged rye whiskey, and Jefferson’s
The Manhattan: Barrel Finished Cocktail, a ready-to-drink cocktail; the Clontarf Irish whiskeys, a
family of premium Irish whiskeys, available in single malt and classic pure grain versions;
Knappogue Castle Whiskey, a vintage-dated premium single-malt Irish whiskey; Knappogue
Castle 1951, a pure pot-still whiskey that has been aged for 36 years, and Knappogue Twin Wood,
the ﬁrst Sherry Finished Knappogue Castle Whiskey.

Liqueur — Pallini Limoncello, Raspicello and Peachcello premium Italian liqueurs, pursuant to an
exclusive U.S. marketing arrangement; Brady’s Irish Cream, a premium Irish cream liqueur;
Celtic Honey, a premium Irish liqueur; and Gozio amaretto, a premium Italian liqueur, pursuant to a
U.S. distribution agreement.

Vodka — Boru vodka, an ultra-pure, ﬁve-times distilled and specially ﬁltered premium vodka. Boru
is produced in Ireland.

Tequila — a USDA certiﬁed organic, super-premium tequila, Tequila Tierras Autenticas de Jalisco or
Tierras. The Company is the exclusive U.S. importer and marketer of Tierras, which is available as
blanco, reposado and añejo.

D. Cash and cash equivalents — The Company considers all highly liquid instruments with a maturity

at date of acquisition of three months or less to be cash equivalents.

E. Equity investments — Equity investments are carried at original cost adjusted for the Company’s
proportionate share of the investees’ income, losses and distributions. The Company assesses the
carrying value of its equity investments when an indicator of a loss in value is present and records a
loss in value of the investment when the assessment indicates that an other-than-temporary decline
in the investment exists. The Company classiﬁes its equity earnings of equity investments as a
component of net income or loss.

Trade accounts receivable — The Company records trade accounts receivable at net realizable value.
This value includes an appropriate allowance for estimated uncollectible accounts to reﬂect
anticipated losses on the trade accounts receivable balances. The Company calculates this allowance
based on its history of write-offs, level of past due accounts based on contractual terms of the
receivables and its relationships with and economic status of its customers. For the years ended

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES − (continued)

March 31, 2016, 2015 and 2014, the Company recorded an addition to allowances for doubtful
accounts of $61,000, $236,000 and $403,409, respectively.

G. Revenue recognition — Revenue from product sales is recognized when the product is shipped to a
customer (generally a distributor), title and risk of loss has passed to the customer in accordance
with the terms of sale (FOB shipping point or FOB destination), and collection is reasonably
assured. Revenue is not recognized on shipments to control states in the United States until such
time as product is sold through to the retail channel.

Inventories — Inventories are comprised of distilled spirits, bulk wine, dry good raw materials
(bottles, labels, corks and caps), packaging and ﬁnished goods, and are valued at the lower of cost
or market, using the weighted average cost method. The Company assesses the valuation of its
inventories and reduces the carrying value of those inventories that are obsolete or in excess of the
Company’s forecasted usage to their estimated net realizable value. The Company estimates the net
realizable value of such inventories based on analyses and assumptions including, but not limited to,
historical usage, expected future demand and market requirements. A change to the carrying value of
inventories is recorded in cost of goods sold. See Note 3.

During the years ended March 31, 2016, 2015 and 2014, the Company recorded an addition to
allowances for obsolete and slow moving inventory of $200,000, $281,000 and $200,000,
respectively. The Company recorded these allowances on both raw materials and ﬁnished goods,
primarily in connection with the disposition of wine brands, label and packaging changes made to
certain brands, as well as wine spoilage and certain cost variances. The charges have been recorded
as increases to Cost of Sales in the respective years.

Equipment — Equipment consists of office equipment, computers and software and furniture and
ﬁxtures. When assets are retired or otherwise disposed of, the cost and related depreciation is
removed from the accounts, and any resulting gain or loss is recognized in the statement of
operations. Equipment is depreciated using the straight-line method over the estimated useful lives
of the assets ranging from three to ﬁve years.

J. Goodwill and other intangible assets — Goodwill represents the excess of purchase price including

related costs over the value assigned to the net tangible and identiﬁable intangible assets of
businesses acquired. Goodwill and other identiﬁable intangible assets with indeﬁnite lives are not
amortized, but instead are tested for impairment annually, or more frequently if circumstances
indicate a possible impairment may exist. Intangible assets with estimable useful lives are amortized
over their respective estimated useful lives, generally on a straight-line basis, and are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying value may not be
recoverable.

Under Financial Accounting Standards Board (‘‘FASB’’) Accounting Standards Codiﬁcation
(‘‘ASC’’) 350, ‘‘Intangibles — Goodwill and Other’’, impairment of goodwill must be tested at least
annually by comparing the fair values of the applicable reporting units with the carrying amount of
their net assets, including goodwill. An entity may ﬁrst assess qualitative factors to determine
whether it is necessary to perform the two-step goodwill impairment test. If determined to be
necessary, the two-step impairment test shall be used. The required two-step approach uses
accounting judgments and estimates of future operating results. Changes in estimates or the
application of alternative assumptions could produce signiﬁcantly different results. The estimates that
most signiﬁcantly affect the fair value calculation are related to revenue growth, cost of sales, selling
and marketing expenses and discount rates. Impairment testing is done at the reporting level. If the
carrying amount of the reporting unit’s net assets exceeds the unit’s fair value, an impairment loss is
recognized in an amount equal to the excess of the carrying amount of goodwill over its implied fair

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES − (continued)

value. The implied fair value of goodwill is determined in the same manner as the amount of
goodwill recognized in a business combination with the fair value of the reporting unit deemed to be
the purchase price paid. Rights, trademarks, trade names and formulations are indeﬁnite lived
intangible assets not subject to amortization and are tested for impairment at least annually. The
impairment test consists of a comparison of the fair value of the asset group allocated to each
reporting unit with its allocated carrying amount.

Under the goodwill qualitative assessment at March 31, 2016 and 2015, various events and
circumstances that would affect the estimated fair value of each reporting unit were identiﬁed,
including, but not limited to: prior years’ impairment testing results, budget to actual results,
Company-speciﬁc facts and circumstances, industry developments, and the economic environment.
Based on this assessment, the Company determined that no quantitative assessment was required.

Impairment and disposal of long-lived assets — Under ASC 310, ‘‘Accounting for the Impairment or
Disposal of Long-lived Assets’’, the Company periodically reviews whether changes have occurred
that would require revisions to the carrying amounts of its deﬁnite lived, long-lived assets. When the
sum of the expected future cash ﬂows is less than the carrying amount of the asset, an impairment
loss is recognized based on the fair value of the asset. There were no impairments recorded during
the years ended March 31, 2016, 2015 and 2014.

Shipping and handling — The Company reﬂects as inventory costs freight-in and related external
handling charges relating to the purchase of raw materials and ﬁnished goods. These costs are
charged to cost of sales at the time the underlying product is sold. The Company also incurs
shipping costs in connection with its various marketing activities, including the shipment of point of
sale materials to the Company’s regional sales managers and customers, and the costs of shipping
product in connection with its various marketing programs and promotions. These shipping charges
are included in selling expense and were $2,635,430, $2,574,471 and $1,879,881 for the years ended
March 31, 2016, 2015 and 2014, respectively.

M. Excise taxes and duty — Excise taxes and duty are computed at standard rates based on alcohol

proof per gallon/liter and are paid after ﬁnished goods are imported into the United States or other
relevant jurisdiction and then transferred out of ‘‘bond.’’ Excise taxes and duty are recorded to
inventory as a component of the cost of the underlying ﬁnished goods. When the underlying
products are sold ‘‘ex warehouse’’, the sales price reﬂects the taxes paid and the inventoried excise
taxes and duties are charged to cost of sales.

N. Distributor charges and promotional goods — The Company incurs charges from its distributors for
a variety of transactions and services rendered by the distributor, including product depletions,
product samples for various promotional purposes, in-store tastings and training where legal, and
local advertising where legal. Such charges are reﬂected as selling expense as incurred. Also, the
Company has entered into arrangements with certain of its distributors whereby the purchase of a
particular product or products by a distributor is accompanied by a percentage of the sale being
composed of promotional goods or as a predetermined discount percentage of dollars off invoice. In
such cases, the cost of the promotional goods is charged to cost of sales and dollars off invoice are a
reduction to revenue.

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES − (continued)

O. Foreign currency — The functional currency for the Company’s foreign operations is the Euro in
Ireland and the British Pound in the United Kingdom. Under ASC 830, ‘‘Foreign Currency
Matters’’, the translation from the applicable foreign currencies to U.S. Dollars is performed for
balance sheet accounts using exchange rates in effect at the balance sheet date and for revenue and
expense accounts using a weighted average exchange rate during the period. The resulting
translation adjustments are recorded as a component of other comprehensive income. Gains or losses
resulting from foreign currency transactions are shown as a separate line item in the consolidated
statements of operations.

Fair value of ﬁnancial instruments — ASC 825, ‘‘Financial Instruments’’, deﬁnes the fair value of a
ﬁnancial instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties and requires disclosure of the fair value of certain ﬁnancial
instruments. The Company believes that there is no material difference between the fair-value and
the reported amounts of ﬁnancial instruments in the Company’s balance sheets due to the short term
maturity of these instruments, or with respect to the Company’s debt, as compared to the current
borrowing rates available to the Company.

The Company’s investments are reported at fair value in accordance with authoritative guidance,
which accomplishes the following key objectives:

Deﬁnes fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date;

Establishes a three-level hierarchy (‘‘valuation hierarchy’’) for fair value measurements;

Requires consideration of the Company’s creditworthiness when valuing liabilities; and

Expands disclosures about instruments measured at fair value.

The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. A ﬁnancial instrument’s categorization within the valuation
hierarchy is based upon the lowest level of input that is signiﬁcant to the fair value measurement.
The three levels of the valuation hierarchy are as follows:

Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets.

Level 2 — inputs to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are directly or indirectly observable for the
asset or liability for substantially the full term of the ﬁnancial instrument.

Level 3 — inputs to the valuation methodology are unobservable and signiﬁcant to the fair
value measurement.

Income taxes — Under ASC 740, ‘‘Income Taxes’’, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the ﬁnancial statement carrying
amounts of existing assets and liabilities and their respective tax basis. A valuation allowance is
provided to the extent a deferred tax asset is not considered recoverable.

The Company has adopted the provisions of ASC 740 and has recognized no adjustment for
uncertain tax provisions. The Company recognizes interest and penalties related to uncertain tax
positions in general and administrative expense.

R. Research and development costs — The costs of research, development and product improvement

are charged to expense as incurred and are included in selling expense.

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES − (continued)

S. Advertising — Advertising costs are expensed when the advertising ﬁrst appears in its respective

medium. Advertising expense, which is included in selling expense, was $4,960,301, $3,184,392 and
$2,052,819 for the years ended March 31, 2016, 2015 and 2014, respectively.

T. Use of estimates — The preparation of ﬁnancial statements in conformity with U.S. Generally
Accepted Accounting Principles (‘‘GAAP’’) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the ﬁnancial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates. Estimates
include the accounting for items such as evaluating annual impairment tests, derivative instruments
and equity issuances, warrant valuation, stock-based compensation, allowances for doubtful accounts
and inventory obsolescence, depreciation, amortization and expense accruals.

U. Recent accounting pronouncements — In March 2016, the FASB issued ASU 2016-09,

Improvements to Employee Share-Based Payment Accounting, which simpliﬁes several aspects of
the accounting for employee share-based payment transactions, including the accounting for income
taxes and statutory tax withholding requirements, as well as classiﬁcation in the statement of cash
ﬂows. The new standard is effective for ﬁscal years beginning after December 15, 2016. The
Company is currently evaluating the new guidance to determine the impact the adoption of this
guidance will have on the Company’s results of operations, cash ﬂows and ﬁnancial condition.

In February 2016, the FASB issued ASU 2016-02, Leases. The new standard establishes a
right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the
balance sheet for all leases with terms longer than 12 months. Leases will be classiﬁed as either
ﬁnance or operating, with classiﬁcation affecting the pattern of expense recognition in the income
statement. The new standard is effective for ﬁscal years beginning after December 15, 2018,
including interim periods within those ﬁscal years. A modiﬁed retrospective transition approach is
required for lessees for capital and operating leases existing at, or entered into after, the beginning
of the earliest comparative period presented in the ﬁnancial statements, with certain practical
expedients available. The Company is currently evaluating the new guidance to determine the impact
the adoption of this guidance will have on the Company’s results of operations, cash ﬂows and
ﬁnancial condition.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments — Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which amends
the guidance in U.S. GAAP on the classiﬁcation and measurement of ﬁnancial instruments. Changes
to the current guidance primarily affect the accounting for equity investments, ﬁnancial liabilities
under the fair value option, and the presentation and disclosure requirements for ﬁnancial
instruments. In addition, the ASU clariﬁes guidance related to the valuation allowance assessment
when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt
securities. The new standard is effective for ﬁscal years and interim periods beginning after
December 15, 2017, and upon adoption, an entity should apply the amendments by means of a
cumulative-effect adjustment to the balance sheet at the beginning of the ﬁrst reporting period in
which the guidance is effective. Early adoption is not permitted except for the provision to record
fair value changes for ﬁnancial liabilities under the fair value option resulting from
instrument-speciﬁc credit risk in other comprehensive income. The Company is currently evaluating
the new guidance to determine the impact the adoption of this guidance will have on the Company’s
results of operations, cash ﬂows and ﬁnancial condition.

In September 2015, the FASB issued ASU 2015-16, Business Combination (Topic 805): Simplifying
the Accounting for Measurement Period Adjustments, which requires adjustments to provisional

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES − (continued)

amounts initially recorded in a business combination that are identiﬁed during the measurement
period to be recognized in the reporting period in which the adjustment amounts are determined.
This includes any effect on earnings of changes in depreciation, amortization, or other income effects
as a result of the change to the provisional amounts, calculated as if the accounting had been
completed at the acquisition date. ASU 2015-16 also requires the disclosure of the nature and
amount of measurement-period adjustments recognized in the current period, including separately the
amounts in current-period income statement line items that would have been recorded in previous
reporting periods if the adjustment to the provisional amounts had been recognized as of the
acquisition date. The guidance is effective for the Company beginning April 1, 2016. The Company
will apply the guidance prospectively for all business combinations that occur subsequent to the
adoption date.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement
of Inventory, which changes the measurement principle for inventory from the lower of cost or
market to the lower of cost and net realizable value. Net realizable value is deﬁned as estimated
selling prices in the ordinary course of business, less reasonably predictable costs of completion,
disposal, and transportation. The new guidance must be applied on a prospective basis and is
effective for periods beginning after April 1, 2017, with early adoption permitted. The Company is
currently evaluating the new guidance to determine the impact the adoption of this guidance will
have on the Company’s results of operations, cash ﬂows and ﬁnancial condition.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs,
which requires that debt issuance costs related to a recognized debt liability be presented in the
balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with
debt discounts. The recognition and measurement guidance for debt issuance costs are not affected.
Upon adoption, the Company will apply the new guidance on a retrospective basis and adjust the
balance sheet of each individual period presented to reﬂect the period-speciﬁc effects of applying the
new guidance. This guidance is effective for the Company beginning April 1, 2016. In June, 2015,
the FASB issued ASU No. 2015-15, Interest — Imputation of Interest (Subtopic 835-30):
Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit
Arrangements — Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015
EITF Meeting. This update addresses presentation and subsequent measurement of debt issuance
costs related to line-of credit arrangements. Commitment fees paid to the lender represent the beneﬁt
of being able to access capital over the contractual term, and therefore, are not in the scope of the
new guidance and it is appropriate to present such fees as an asset on the balance sheet, regardless
of whether or not there are outstanding borrowings under the revolver. The Company is currently
evaluating the new guidance to determine the impact the adoption of this guidance will have on the
Company’s results of operations, cash ﬂows and ﬁnancial condition.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, to
clarify the principles for recognizing revenue. This guidance includes the required steps to achieve
the core principle that an entity should recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reﬂects the consideration to which the entity expects to be
entitled in exchange for those goods or services. This guidance is effective for ﬁscal years beginning
after December 15, 2017. The Company is currently evaluating the new guidance to determine the
impact the adoption of this guidance will have on the Company’s results of operations, cash ﬂows
and ﬁnancial condition.

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES − (continued)

V. Accounting standards adopted — In November 2015, the FASB issued ASU 2015-17 — Balance

Sheet Classiﬁcation of Deferred Taxes. As part of the FASB’s accounting simpliﬁcation initiative,
ASU 2015-17 removes the requirement to separate deferred income tax liabilities and assets into
current and noncurrent amounts in a classiﬁed statement of ﬁnancial position. Instead, the update
requires that deferred tax liabilities and assets be classiﬁed as noncurrent in a classiﬁed statement of
ﬁnancial position. ASU 2015-17 is effective for entities for ﬁscal years beginning after December 15,
2016, with retrospective application to all periods presented. Early adoption is permitted, and the
Company adopted this guidance beginning with its Annual Report on Form 10-K for the ﬁscal year
ending March 31, 2016. The adoption of this guidance did not have a material impact on the
Company’s results of operations, cash ﬂows or ﬁnancial condition.

NOTE 2 — BASIC AND DILUTED NET LOSS PER COMMON SHARE

Basic net loss per common share is computed by dividing net loss by the weighted average number of
common shares outstanding during the period. Diluted net loss per common share is computed giving effect to
all potentially dilutive common shares that were outstanding during the period that are not anti-dilutive.
Potentially dilutive common shares consist of incremental shares issuable upon exercise of stock options and
warrants or conversion of convertible notes outstanding. In computing diluted net loss per share for the years
ended March 31, 2016, 2015 and 2014, no adjustment has been made to the weighted average outstanding
common shares as the assumed exercise of outstanding options and warrants and the assumed conversion of
convertible notes is anti-dilutive.

Potential common shares not included in calculating diluted net loss per share are as follows:

Stock options . . . . . . . . . . . . . . . . . . . . . . . . . .
Warrants to purchase common stock . . . . . . . . . . .
5% Convertible notes . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

NOTE 3 — INVENTORIES

2016
13,508,086
—
1,861,111
15,369,197

Years ended March 31,
2015
11,988,188
120,000
1,861,111
13,969,299

2014
11,174,007
1,777,802
2,361,111
15,312,920

Raw materials – net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods – net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

March 31,

2016
$11,976,561
15,256,761
$27,233,322

2015
$ 9,250,893
11,817,348
$21,068,241

As of March 31, 2016 and 2015, 11% and 10%, respectively, of raw materials and 5% and 4%,

respectively, of ﬁnished goods were located outside of the United States.

In the years ended March 31, 2016, 2015 and 2014, the Company acquired $5,441,432, $5,333,763 and

$3,343,500 of aged bourbon whiskey, respectively, in support of its anticipated near and mid-term needs.

The Company estimates the allowance for obsolete and slow moving inventory based on analyses and

assumptions including, but not limited to, historical usage, expected future demand and market requirements.

Inventories are stated at the lower of weighted average cost or market.

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 4 — EQUITY INVESTMENT

Investment in Gosling-Castle Partners Inc., consolidated

For the years ended March 31, 2016, 2015 and 2014, GCP had pretax net income on a stand-alone basis

of $3,475,006, $814,573 and $2,337,759, respectively. The Company allocated 40% of this net income, or
$1,390,002, $325,829 and $935,035, to non-controlling interest for the years ended March 31, 2016, 2015 and
2014, respectively. Combined with the effects of income tax expense, net, allocated to noncontrolling interests
as described in Note 1.Q Income Taxes, the cumulative balance allocated to noncontrolling interests in
GCP was $3,353,191 and $2,543,529 at March 31, 2016 and 2015, respectively, as shown on the
accompanying consolidated balance sheets.

In September 2015, GCP declared and paid a $1,500,000 cash dividend to its shareholders. The Company

recorded 60% of this dividend, or $900,000, as a return of capital and a reduction of its investment in GCP,
and allocated 40% of this dividend, or $600,000, to noncontrolling interests and a reduction in the additional
paid-in capital of GCP.

Investment in Copperhead Distillery Company, equity method

In June 2015, CB-USA purchased 20% of Copperhead Distillery Company (‘‘Copperhead’’) for $500,000.

Copperhead owns and operates the Kentucky Artisan Distillery. The investment was part of an agreement to
build a new warehouse to store Jefferson’s bourbons, provide distilling capabilities using special mash-bills
made from locally grown grains and create a visitor center and store to enhance the consumer experience for
the Jefferson’s brand. The investment has been used for the construction of a new warehouse in Crestwood,
Kentucky dedicated to the storage of Jefferson’s whiskies. The Company has accounted for this investment
under the equity method of accounting. For the initial period ended March 31, 2016, the Company recognized
$18,667 of income from this investment. The investment balance was $518,667 at March 31, 2016.

NOTE 5 — EQUIPMENT, NET

Equipment consists of the following:

Equipment and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and ﬁxtures
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements

Less: accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . .
Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

March 31,

2016
$2,796,064
112,676
42,730
2,951,470
2,075,215
$ 876,255

2015
$2,434,340
40,898
—
2,475,238
1,809,865
$ 665,373

Depreciation expense for the years ended March 31, 2016, 2015 and 2014 totaled $280,702, $249,683

and $204,180, respectively.

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 6 — GOODWILL AND INTANGIBLE ASSETS

The carrying amount of goodwill was $496,226 at each of March 31, 2016 and 2015.

Intangible assets consist of the following:

Deﬁnite life brands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patents
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other

Less: accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . .
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other identiﬁable intangible assets − indeﬁnite lived* . . . . . . . . .

Accumulated amortization consists of the following:

Deﬁnite life brands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patents
Other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . .

March 31,

2016
170,000
631,693
8,271,555
185,207
994,000
55,460
10,307,915
7,372,585
2,935,330
4,112,972
$ 7,048,302

2015
170,000
631,693
8,271,555
161,321
994,000
55,460
10,284,029
6,713,774
3,570,255
4,112,972
$ 7,683,227

March 31,

2016
$ 170,000
331,366
6,065,111
29,188
776,920
—
$7,372,585

2015
$ 170,000
295,956
5,513,162
24,002
710,654
—
$6,713,774

Other identiﬁable intangible assets — indeﬁnite lived consists of product formulations and the Company’s
relationships with its distillers.

Amortization expense for the years ended March 31, 2016, 2015 and 2014 totaled $658,811, $655,769

and $654,005, respectively.

Estimated aggregate amortization expense for each of the next ﬁve ﬁscal years is as follows:

Years ending March 31,
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

Amount
$ 660,690
660,566
642,233
602,578
49,585
$2,615,652

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 7 — RESTRICTED CASH

At March 31, 2016 and 2015, the Company had €303,890 or $345,076 (translated at the March 31, 2016

exchange rate) and €303,657 or $329,471 (translated at the March 31, 2015 exchange rate), respectively, of
cash restricted from withdrawal and held by a bank in Ireland as collateral for overdraft coverage, creditors’
insurance, customs and excise guaranty and a revolving credit facility as described in Note 8A below.

NOTE 8 — NOTES PAYABLE AND CAPITAL LEASE

March 31,

2016

2015

Notes payable consist of the following:

Foreign revolving credit facilities(A) . . . . . . . . . . . . . . . . . . . . . . . . .
Note payable − GCP note(B)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit facility(C) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bourbon term loan(D)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5% Convertible notes(E) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

—
211,580
12,088,594
—
1,675,000
$13,975,174

34,141
211,580
10,123,544
744,900
1,675,000
$12,789,165

A. The Company has arranged various facilities aggregating €303,890 or $345,076 (translated at the
March 31, 2016 exchange rate) with an Irish bank, including overdraft coverage, creditors’
insurance, customs and excise guaranty, and a revolving credit facility. These facilities are payable
on demand, continue until terminated by either party, are subject to annual review, and call for
interest at the lender’s AA1 Rate minus 1.70%. The balance on the credit facilities included in notes
payable totaled €0 and €31,466 or $34,141 (translated at the March 31, 2015 exchange rate), at
March 31, 2016 and 2015, respectively.

In December 2009, GCP issued a promissory note (the ‘‘GCP Note’’) in the aggregate principal
amount of $211,580 to Gosling’s Export (Bermuda) Limited in exchange for credits issued on
certain inventory purchases. The GCP Note matures on April 1, 2020, is payable at maturity, subject
to certain acceleration events, and calls for annual interest of 5%, to be accrued and paid at maturity.
At March 31, 2016 and 2015, $10,579 of accrued interest was converted to amounts due to affiliates.
At March 31, 2016 and 2015, $211,580 of principal due on the GCP Note was included in long-term
liabilities.

In August 2011, the Company and CB-USA entered into a loan agreement with Keltic Financial
Partners II, LP (‘‘Keltic’’), which, as amended, provides for availability (subject to certain terms and
conditions) of a facility of up to $19.0 million (the ‘‘Credit Facility’’) for the purpose of providing
the Company with working capital.

In September 2014, the Company and CB-USA entered into an Amended and Restated Loan and
Security Agreement (as amended, the ‘‘Amended Agreement’’) with ACF FinCo I LP (‘‘ACF’’), as
successor in interest to Keltic, in order to amend certain terms of the Credit Facility and the
Bourbon Term Loan (deﬁned below). Among other changes, the Amended Agreement modiﬁed
certain aspects of the existing Credit Facility, including increasing the maximum amount of the
Credit Facility from $8,000,000 to $12,000,000 and increasing the inventory sub-limit from
$4,000,000 to $6,000,000. In addition, the term of the Credit Facility was extended from
December 31, 2016 to July 31, 2019. The Credit Facility interest rate is the rate that, when
annualized, is the greatest of (a) the Prime Rate plus 3.00%, (b) the LIBOR Rate plus 5.50% and
(c) 6.00%. As of March 31, 2016, the Credit Facility interest rate was 6.00%. The monthly facility
fee is 0.75% per annum of the maximum Credit Facility. The Amended Agreement contains

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 8 — NOTES PAYABLE AND CAPITAL LEASE − (continued)

EBITDA targets allowing for further interest rate reductions in the future. The Company paid ACF
an aggregate $120,000 amendment fee in connection with the execution of the Amended Agreement.

In connection with the amendment, the Company and CB-USA entered into the following ancillary
agreements: (i) a Reaffirmation Agreement with (a) certain officers of the Company and CB-USA,
including John Glover, the Company’s Chief Operating Officer, T. Kelley Spillane, the Company’s
Senior Vice President — Global Sales, and Alfred J. Small, the Company’s Senior Vice President,
Chief Financial Officer, Treasurer and Secretary, (b) certain participants in the Bourbon Term Loan
and (c) certain junior lenders to the Company, including Frost Gamma Investments Trust, an entity
affiliated with Phillip Frost, M.D., a director and principal shareholder of the Company, Mark E.
Andrews, III, a director of the Company and the Company’s Chairman, an affiliate of Richard J.
Lampen, a director of the Company and the Company’s President and Chief Executive Officer, an
affiliate of Glenn Halpryn, a former director of the Company, Dennis Scholl, a former director of the
Company, and Vector Group Ltd., a more than 5% shareholder of the Company, of which Richard
Lampen is an executive officer, Henry Beinstein, a director of the Company, is a director and
Phillip Frost M.D. is a principal shareholder, which, among other things, reaffirms the existing
Validity and Support Agreements by and among each officer, the Company, CB-USA and ACF, as
successor-in-interest to Keltic; (ii) an Amended and Restated Term Note; and (iii) an Amended and
Restated Revolving Credit Note.

In connection with the Amended Agreement, on September 22, 2014, ACF entered into an
amendment to that certain Subordination Agreement, dated as of August 7, 2013 (as amended, the
‘‘Subordination Agreement’’), by and among ACF, as successor-in-interest to Keltic, and certain
junior lenders to the Company; neither the Company nor CB-USA is a party to the Subordination
Agreement.

In August 2015, the Company and CB-USA entered into a First Amendment (the ‘‘Loan Agreement
Amendment’’) to the Amended Agreement. Among other changes, the Loan Agreement Amendment
increased the amount of the Credit Facility from $12,000,000 to $19,000,000, including a sublimit in
the maximum principal amount of $7,000,000 to permit the Company to acquire aged whiskey
inventory (the ‘‘Purchased Inventory Sublimit’’) subject to certain conditions set forth in the
Amended Agreement. The maturity date remained unchanged at July 31, 2019. The Company and
CB-USA are permitted to prepay the Credit Facility in whole or the Purchased Inventory Sublimit,
in whole or in part, subject to certain prepayment penalties as set forth in the Loan Agreement
Amendment. The Purchased Inventory Sublimit replaces the Bourbon Term Loan, which was paid in
full in the normal course of business. The Purchased Inventory Sublimit interest rate is the rate that,
when annualized, is the greatest of (a) the Prime Rate plus 4.25%, (b) the LIBOR Rate plus 6.75%
and (c) 7.50%. As of March 31, 2016, the interest rate applicable to the Purchased Inventory
Sublimit was 7.75%. The monthly facility fee remains 0.75% per annum of the maximum principal
amount of the Credit Facility (excluding the Purchased Inventory Sublimit). Also, the Company must
pay a monthly facility fee of $2,000 with respect to the Purchased Inventory Sublimit until all
obligations with respect thereof are fully paid and performed. The Company paid ACF an aggregate
$45,000 commitment fee in connection with the Loan Agreement Amendment.

In connection with the Loan Agreement Amendment, the Company and CB-USA entered into the
following ancillary agreements: (i) a Reaffirmation Agreement with (a) certain officers of the
Company and CB-USA, including John Glover, T. Kelley Spillane and Alfred J. Small and
(b) certain junior lenders to the Company, including Frost Gamma Investments Trust, Mark E.
Andrews, III, an affiliate of Richard J. Lampen, an affiliate of Glenn Halpryn, Dennis Scholl and

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 8 — NOTES PAYABLE AND CAPITAL LEASE − (continued)

Vector Group Ltd., which, among other things, reaffirms the existing Validity and Support
Agreements by and among each officer, the Company, CB-USA and ACF and (ii) an Amended and
Restated Revolving Credit Note.

ACF also required as a condition to entering into the Loan Agreement Amendment that ACF enter
into a participation agreement with certain related parties of the Company, including Frost Gamma
Investments Trust, Mark E. Andrews, III, Richard J. Lampen and Alfred J. Small, to allow for the
sale of participation interests in the Purchased Inventory Sublimit and the inventory purchased with
the proceeds thereof. The participation agreement provides that ACF’s commitment to fund each
advance of the Purchased Inventory Sublimit shall be limited to seventy percent (70%), up to an
aggregate maximum principal amount for all advances equal to $4,900,000. Neither the Company
nor CB-USA is a party to the participation agreement. However, the Company and CB-USA are
party to a fee letter with the junior participants (including the related party junior participants)
pursuant to which the Company and CB-USA were obligated to pay the junior participants a closing
fee of $18,000 on the effective date of the Loan Agreement Amendment and are obligated to pay a
commitment fee of $18,000 on each anniversary of the effective date until the junior participants’
obligations are terminated pursuant to the participation agreement.

The Company and CB-USA are referred to individually and collectively as the Borrower. Pursuant
to the Loan Agreement Amendment, the Company and CB-USA may borrow up to the lesser of
(x) $19,000,000 and (y) the sum of the borrowing base calculated in accordance with the Amended
Agreement and the Purchased Inventory Sublimit. For the year ended March 31, 2016, the Company
paid interest at 6% through August 9, 2015, then 5.75% through December 15, 2015, then 6%
through March 31, 2016. For the year ended March 31, 2015, the Company paid interest at 6.0%.
For the year ended March 31, 2016, the Company paid interest at 7.5% through December 15, 2015,
and then at 7.75% through March 31, 2016 on the Purchased Inventory Sublimit. Interest is payable
monthly in arrears, on the ﬁrst day of every month on the average daily unpaid principal amount of
the Credit Facility. After the occurrence and during the continuance of any ‘‘Default’’ or ‘‘Event of
Default’’ (as deﬁned under the Amended Agreement), the Borrower is required to pay interest at a
rate that is 3.25% per annum above the then applicable Credit Facility interest rate. There have been
no Events of Default under the Credit Facility. ACF also receives a collateral management fee of
$1,000 per month (increased to $2,000 after the occurrence of and during the continuance of an
Event of Default) in addition to the facility fee with respect to the Purchased Inventory Sublimit.
The Amended Agreement contains standard borrower representations and warranties for asset-based
borrowing and a number of reporting obligations and affirmative and negative covenants. The
Amended Agreement includes negative covenants that, among other things, restrict the Borrower’s
ability to create additional indebtedness, dispose of properties, incur liens and make distributions or
cash dividends. The obligations of the Borrower under the Loan Agreement Amendment are secured
by the grant of a pledge and security interest in all of the assets of the Borrower. At March 31,
2016, the Company was in compliance, in all respects, with the covenants under the Amended
Agreement.

In August 2015, the Company used $3,000,000 of the Purchased Inventory Sublimit to acquire aged
bourbon inventory. Frost Gamma Investments Trust ($150,000), Mark E. Andrews, III ($50,000),
Richard J. Lampen ($100,000) and Alfred J. Small ($15,000) each acquired participation interests in
the Purchased Inventory Sublimit and the inventory purchased with the proceeds thereof. Under the
terms of the participation agreement, the participants receive interest at the rate of 11% per annum.
At March 31, 2016 and 2015, $12,088,594 and $10,123,544, respectively, due on the Credit Facility
was included in long-term liabilities. At March 31, 2016 and 2015, there was $6,911,406 and
$1,876,456, respectively, in potential availability under the Credit Facility.

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 8 — NOTES PAYABLE AND CAPITAL LEASE − (continued)

In March 2013, the Company and CB-USA entered into an inventory term loan of $2,496,000 (the
‘‘Bourbon Term Loan’’) that was used to purchase bourbon inventory on March 11, 2013. In
August 2013, the Bourbon Term Loan was amended to provide the Company with the ability to
increase the maximum aggregate principal amount of the Bourbon Term Loan from $2,500,000 to up
to $4,000,000 to ﬁnance the purchase of aged whiskies following the identiﬁcation of junior
participants to purchase a portion of the increased Bourbon Term Loan amount. The Bourbon Term
Loan interest rate was the rate that, when annualized, was the greatest of (a) the Prime Rate plus
4.25%, (b) the LIBOR Rate plus 6.75% and (c) 7.50%. As of March 31, 2015, the Company paid
interest of 7.5%.

Keltic required as a condition to funding the Bourbon Term Loan that Keltic had entered into a
participation agreement (the ‘‘Participation Agreement’’) providing for an initial aggregate amount of
$750,000 of the Bourbon Term Loan to be purchased by junior participants. Certain related parties
of the Company purchased a portion of these junior participations in the Bourbon Term Loan,
including Frost Gamma Investments Trust ($500,000), Mark E. Andrews, III ($50,000) and an
affiliate of Richard J. Lampen ($50,000) (amounts shown are initial purchase amounts). Under the
terms of the Participation Agreement, the junior participants received interest at the rate of 11% per
annum. Neither the Company nor CB-USA was a party to the Participation Agreement. However, the
Borrower was party to a fee letter with the junior participants (including the related party junior
participants) pursuant to which the Borrower was obligated to pay the junior participants an
aggregate commitment fee of $45,000 in three equal annual installments of $15,000.

The balance on the Bourbon Term Loan included in notes payable totaled $744,900 at March 31,
2015. In May 2015, the Bourbon Term Loan was paid in full in accordance with its terms.

In October 2013, the Company entered into a 5% Convertible Subordinated Note Purchase
Agreement (the ‘‘Note Purchase Agreement’’) with the purchasers party thereto, under which the
Company issued an aggregate initial principal amount of $2,125,000 of unsecured subordinated notes
(the ‘‘Convertible Notes’’). The Convertible Notes bear interest at a rate of 5% per annum, payable
quarterly, until their maturity date of December 15, 2018. The Convertible Notes, and accrued but
unpaid interest thereon, are convertible in whole or in part from time to time at the option of the
holders thereof into shares of the Company’s common stock at a conversion price of $0.90 per share
(the ‘‘Conversion Price’’). The Convertible Notes may be prepaid in whole or in part at any time
without penalty or premium, but with payment of accrued interest to the date of prepayment. The
Convertible Notes contain customary events of default, which, if uncured, entitle each note holder to
accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest on, the
Convertible Notes.

The purchasers of the Convertible Notes included related parties of the Company, including an
affiliate of Dr. Phillip Frost ($500,000), Mark E. Andrews, III ($50,000), an affiliate of Richard J.
Lampen ($50,000), an affiliate of Glenn Halpryn ($200,000), Dennis Scholl ($100,000), and Vector
Group Ltd. ($200,000).

The Company may forcibly convert all or any part of the Convertible Notes and all accrued but
unpaid interest thereon if (i) the average daily volume of the Company’s common stock (as reported
on the principal market or exchange on which the common stock is listed or quoted for trading)
exceeds $50,000 per trading day and (ii) the volume weighted average price of the common stock
for at least twenty (20) trading days during any thirty (30) consecutive trading day period exceeds
250% of the then-current Conversion Price. Any forced conversion will be applied ratably to the
holders of all Convertible Notes issued pursuant to the Note Purchase Agreement based on each
holder’s then-current note holdings.

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 8 — NOTES PAYABLE AND CAPITAL LEASE − (continued)

In connection with the Note Purchase Agreement, each purchaser of the Convertible Notes was
required to execute a joinder to the subordination agreement, by and among ACF and certain other
junior lenders to the Company; the Company is not a party to the Subordination Agreement.

In the year ended March 31, 2015, Convertible Note holders converted $450,000 of Convertible
Notes and $1,417 of accrued interest thereon into 501,574 shares of common stock. At each of
March 31, 2016 and 2015, $1,675,000 of principal due on the Convertible Notes was included in
long-term liabilities, respectively.

Payments due on notes payable are as follows:

Years ending March 31,
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

Amount

—
—
1,675,000
12,088,594
211,580
—
$13,975,174

NOTE 9 — EQUITY

Equity distribution agreement — In November 2014, the Company entered into an Equity Distribution
Agreement (the ‘‘2014 Distribution Agreement’’) with Barrington Research Associates, Inc. (‘‘Barrington’’), as
sales agent, under which the Company may issue and sell over time and from time to time, to or through
Barrington, shares (the ‘‘Shares’’) of its common stock having a gross sales price of up to $10,000,000.

Sales of the Shares pursuant to the 2014 Distribution Agreement, if any, may be effected by any method

permitted by law deemed to be an ‘‘at-the-market’’ offering as deﬁned in Rule 415 of the Securities Act of
1933, as amended, including without limitation directly on the NYSE MKT LLC or any other existing trading
market for the common stock or through a market maker, up to the amount speciﬁed, and otherwise to or
through Barrington in accordance with the placement notices delivered by the Company to Barrington. Also,
with the prior consent of the Company, some of the Shares may be sold in privately negotiated transactions.
Under the 2014 Distribution Agreement, Barrington will be entitled to compensation of 2.0% of the gross
proceeds from the sale of all of the Shares sold through Barrington, as sales agent, pursuant to the 2014
Distribution Agreement. Also, the Company will reimburse Barrington for certain expenses incurred in
connection with the matters contemplated by the 2014 Distribution Agreement, up to an aggregate of $50,000,
plus up to an additional $7,500 per calendar quarter related to ongoing maintenance; provided, however, that
such reimbursement amount shall not exceed 8% of the aggregate gross proceeds received by the Company
under the 2014 Distribution Agreement.

During the year ended March 31, 2016, the Company sold 2,119,282 Shares pursuant to the 2014
Distribution Agreement, with total gross proceeds of $3,251,989, before deducting sales agent and issuance
costs of $124,876.

From November 2014 through March 31, 2015, the Company sold 1,290,581 Shares pursuant to the 2014

Distribution Agreement, with total gross proceeds of $2,088,674, before deducting sales agent and offering
expenses of $122,149.

In November 2013, the Company entered into an Equity Distribution Agreement (the ‘‘2013 Distribution

Agreement’’) with Barrington, as sales agent, under which the Company could issue and sell over time and
from time to time, to or through Barrington, Shares of its common stock having a gross sales price of up
to $6.0 million.

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 9 — EQUITY − (continued)

In the three months ended June 30, 2014, the Company sold 1,247,343 Shares pursuant to the 2013

Distribution Agreement, with total gross proceeds of $1,231,241, before deducting sales agent and offering
expenses of $64,198. No Shares were sold in the nine-month period from July 1, 2014 through March 31,
2015 under the 2013 Distribution Agreement.

The 2013 Distribution Agreement expired in August 2014 upon the expiration of the Company’s

Registration Statement on Form S-3 under which the shares were sold.

Preferred stock dividends — Holders of the Company’s 10% Series A Convertible Preferred Stock, par
value $0.01 per share (‘‘Series A Preferred Stock’’) were entitled to receive cumulative dividends at the rate
per share (as a percentage of the stated value of $1,000 per share) of 10% per annum, whether or not declared
by the Company’s Board of Directors, which were only payable in shares of the Company’s common stock
upon conversion of the Series A Preferred Stock or upon a liquidation. For the year ended March 31, 2014,
the Company recorded accrued dividends of $384,599, included as an increase in the accumulated deﬁcit and
in additional paid-in capital on the accompanying consolidated balance sheets.

On February 11, 2014, the Company’s Board of Directors approved the mandatory conversion of all
outstanding shares of the Series A Preferred Stock pursuant to their terms, effective on or about February 24,
2014. Pursuant to the mandatory conversion, all 6,271 outstanding shares of Series A Preferred Stock, and
accrued dividends thereon, converted into 25,760,881 shares of common stock.

Preferred stock conversions — In the period prior to the February 11, 2014 mandatory conversion,
holders of Series A Preferred Stock converted 430 shares of Series A Preferred Stock, and accrued dividends
thereon, into 1,704,729 shares of common stock.

Convertible Notes conversion — In the year ended March 31, 2015, Convertible Note holders converted
$450,000 of Convertible Notes and $1417 of accrued interest thereon into 501,574 shares of common stock.

Subsidiary dividend — In September 2015, GCP declared and paid a $1,500,000 cash dividend to its
shareholders. The Company allocated 40% of this dividend, or $600,000, to non-controlling interests. No
dividends were declared or paid in the year ended March 31, 2015.

NOTE 10 — FOREIGN CURRENCY FORWARD CONTRACTS

The Company enters into forward contracts from time to time to reduce its exposure to foreign currency
ﬂuctuations. The Company recognizes in the balance sheet derivative contracts at fair value, and reﬂects any
net gains and losses currently in earnings. At March 31, 2016 and 2015, the Company had no forward
contracts outstanding. Gain or loss on foreign currency forward contracts, which was de minimis during the
periods presented, is included in other income and expense.

NOTE 11 — PROVISION FOR INCOME TAXES

The Company accounts for taxes in accordance with ASC 740, ‘‘Income Taxes’’, which requires the
recognition of tax beneﬁts or expense on the temporary differences between the tax basis and book basis of its
assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates expected to
apply to taxable income in the years in which those differences are expected to be recovered or settled.

Tax years 2013 through 2016 remain open to examination by federal and state tax jurisdictions. The
Company has various foreign subsidiaries for which tax years 2010 through 2016 remain open to examination
in certain foreign tax jurisdictions.

The Company’s income tax expense for the years ended March 31, 2016 and 2015 and the Company’s
income tax beneﬁt for the year ended March 31, 2014 consist of federal, state and local taxes attributable to
GCP, which does not ﬁle a consolidated income tax return with the Company, and foreign taxes. As of
March 31, 2016, the Company had federal net operating loss carryforwards of approximately $83,960,000 for

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 11 — PROVISION FOR INCOME TAXES − (continued)

U.S. tax purposes, which expire through 2036, and foreign net operating loss carryforwards of approximately
$20,100,000, which carry forward without limit of time. Utilization of the U.S. tax losses may be limited by
the ‘‘change of ownership’’ rules as set forth in section 382 of the Internal Revenue Code.

The pre-tax income, on a ﬁnancial statement basis, from foreign sources totaled $129,814 for the year

ended March 31, 2016, $90,466 for the year ended March 31, 2015 and $168,233 for the year ended
March 31, 2014.

The Company did not have any undistributed earnings from foreign subsidiaries at March 31, 2016

and 2015.

Provision for (beneﬁt from) income taxes consist of the following:

March 31, 2016:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

March 31, 2015:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

March 31, 2014:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

Federal

State and Local

Total

$1,183,000
(148,152)
$1,034,848

$ 608,589
214,958
$ 823,547

$397,000
19,000
$416,000

$382,232
73,220
$455,452

$1,580,000
(129,152)
$1,450,848

$ 990,821
288,178
$1,278,999

—
(550,482)
$ (550,482)

$ 31,068
(71,000)
$ (39,932)

31,068
(621,482)
$ (590,414)

For the year ended March 31, 2015 the Company incurred $19,501 in interest and penalties which has

been included in general and administrative expense on the accompanying consolidated statements of
operations.

The following table reconciles the effective income tax rate and the federal statutory rate of 34%.

Computed expected tax beneﬁt, at 34% . . . . . . . . . . . . . . . . . .
Permanent items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . .
Net change in fair value of warrant liability . . . . . . . . . . . . . . .
Effect of foreign rate differential
. . . . . . . . . . . . . . . . . . . . . .
Intercompany proﬁt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local taxes, net of federal beneﬁt
. . . . . . . . . . . . . . .
Income tax expense (beneﬁt) . . . . . . . . . . . . . . . . . . . . . . . . .

2016
%
(34.00)
176.0
371.5
0.00
12.20
13.90
0.0
27.5
567.10

Years ended March 31,
2015
%
(34.00)
3.10
81.8
0.00
1.80
2.60
0.0
3.0
58.30

2014
%
(34.00)
0.80
5.80
25.20
0.50
(0.50)
3.10
(7.76)
(6.86)

The Company revised its prior years presentation of the reconciliation of the effective income tax rate to

conform to the current year presentation.

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 11 — PROVISION FOR INCOME TAXES − (continued)

In connection with the investment in GCP, the Company recorded a deferred tax liability on the ascribed

value of the acquired intangible assets of $2,222,222, increasing the value of the asset. The deferred tax
liability is being reversed over the amortization period of the intangible asset (15 years).

The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities

are presented below.

Deferred income tax assets:

March 31,

2016

2015

Foreign currency transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforwards − U.S.
Net operating loss carryforwards − foreign . . . . . . . . . . . . . . . . . . . .
Other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total gross assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

144,000
103,000
857,000
679,000
33,585,000
2,003,000
2,000
37,373,000
(37,355,000)
18,000
$

74,000
67,000
588,000
522,000
32,676,000
1,990,000
2,000
35,919,000
(35,882,000)
37,000
$

Deferred income tax liability:

Intangible assets acquired in acquisition of subsidiary . . . . . . . . . . . .
Intangible assets acquired in investment in GCP . . . . . . . . . . . . . . . .
Net deferred income tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . .

(629,444)
(592,556)
$ (1,222,000)

(629,444)
(740,708)
$ (1,370,152)

The Company revised its schedule of tax effects of temporary differences that give rise to deferred tax

assets and deferred tax liabilities to conform to the current year presentation.

Through March 31, 2013, the Company recorded a full valuation allowance against its deferred tax assets

as it believed it was more likely than not that such deferred tax assets would not be realized. The Company
released its deferred tax asset valuation allowance allocated to GCP as of March 31, 2014 due to
management’s determination that it was ‘‘more likely than not’’ that the GCP’s deferred tax assets would be
realized. ‘‘More likely than not’’ is deﬁned as greater than 50% probability of occurrence. Management
considered the guidance in paragraphs 21-23 of ASC 740-10-30 in forming its conclusion. A determination as
to the ultimate realization of the deferred tax assets is dependent upon management’s judgment and evaluation
of both positive and negative evidence, forecasts of future taxable income, applicable tax planning strategies,
and an assessment of current and future economic and business conditions. In 2014, GCP was in a position of
cumulative proﬁtability on a pre-tax basis, considering its operating results for the three years ended
March 31, 2014. Management concluded that this record of cumulative proﬁtability in recent years, in addition
to a long range forecast showing continued proﬁtability for GCP, provided sufficient positive evidence that the
net U.S. federal tax beneﬁts more likely than not would be realized. Accordingly, in the year ended March 31,
2014, the Company released the valuation allowance against GCP’s net federal deferred assets, resulting in a
$473,330 beneﬁt in provision for income taxes for the year ended March 31, 2014. The Company recognized
the $473,330 beneﬁt in provision for income taxes as an expense for the year ended March 31, 2015. In
addition, at March 31, 2014, the Company changed its estimate of the cumulative deferred tax asset allocated
to the amortization of intangibles. The Company’s income tax beneﬁt and effective tax rate for the years
ended March 31, 2016, 2015 and 2014 reﬂect the impact of this valuation allowance reversal and change in
estimate.

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 11 — PROVISION FOR INCOME TAXES − (continued)

The valuation allowance for deferred tax assets as of March 31, 2016 and 2015 was approximately
$37,355,000 and $35,882,000, respectively. The net change in the total valuation allowance for the years
ended March 31, 2016 and 2015 was $1,473,000 and $1,163,000, respectively. The Company does not offset
its deferred tax assets and liabilities because its deferred tax assets and liabilities are in different taxable
entities which do not ﬁle consolidated returns.

NOTE 12 — STOCK-BASED COMPENSATION

A. Stock Incentive Plan — In July 2003, the Company implemented the 2003 Stock Incentive Plan (the
‘‘2003 Plan’’), which provides for awards of incentive and non-qualiﬁed stock options, restricted
stock and stock appreciation rights for its officers, employees, consultants and directors to attract and
retain such individuals. Stock option grants under the Plan are granted with an exercise price at or
above the fair market value of the underlying common stock at the date of grant, generally vest over
a three to ﬁve year period and expire ten years after the grant date.

As established, there were 2,000,000 shares of common stock available for distribution under the
2003 Plan. In January 2009, the Company’s shareholders approved an amendment to the 2003 Plan
to increase the number of shares available under the 2003 Plan from 2,000,000 to 12,000,000 and to
establish the maximum number of shares issuable to any one individual in any particular year. As of
August 2013, no new awards may be issued under the 2003 Plan.

In October 2012, the Company’s shareholders approved the 2013 Incentive Compensation Plan
(‘‘2013 Plan’’) which provides for an aggregate of 10,000,000 shares of the Company’s stock for
awards of incentive and non-qualiﬁed stock options, restricted stock and stock appreciation rights for
its officers, employees, consultants and directors to attract and retain such individuals. As of
March 31, 2016, 5,233,000 shares had been issued under the 2013 Plan, with 4,767,000 shares
remaining available for issuance.

Stock-based compensation expense for the years ended March 31, 2016, 2015 and 2014 amounted to
$1,370,556, $787,710 and $393,914, respectively, of which $493,666, $178,137 and $81,567,
respectively, is included in selling expense and $876,890, $609,573 and $312,347, respectively, is
included in general and administrative expense for the years ended March 31, 2016, 2015 and 2014,
respectively. At March 31, 2016, total unrecognized compensation cost amounted to approximately
$3,199,593, representing 5,576,273 unvested options. This cost is expected to be recognized over a
weighted-average period of 2.25 years. There were 1,079,602, 677,127 options and 80,758 options
exercised during the years ended March 31, 2016, 2015 and 2014, respectively. The Company did
not recognize any related tax beneﬁt for the years ended March 31, 2016, 2015 and 2014, as the
effects were de minimis.

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 12 — STOCK-BASED COMPENSATION − (continued)

Stock Options — A summary of the options outstanding under the 2003 and 2013 Plans is
as follows:

2016

2015

2014

Years ended March 31,

11,988,188
2,622,500
(1,079,602)
(23,000)

13,508,086
7,931,813

Weighted
Average
Exercise
Price

$0.58
1.63
0.35
4.30

$0.79
$0.53

$1.07

11,174,007
2,525,000
(677,127)
(1,033,692)

11,988,188
7,064,133

Weighted
Average
Exercise
Price

$0.51
1.04
0.33
1.10

$0.58
$0.49

$0.65

8,120,765
3,300,000
(80,758)
(166,000)

11,174,007
5,511,447

Weighted
Average
Exercise
Price

$0.64
0.43
0.32
5.79

$0.51
$0.63

$0.26

Outstanding at beginning of

year

. . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . .
Outstanding and expected to

vest at end of period . . . . . .
Exercisable at period end . . . .
Weighted average fair value of

grants during the period . . . .

The following table summarizes activity pertaining to options outstanding and exercisable at

March 31, 2016:

Range of Exercise Prices
$0.01 − $0.25 . . . . . . . . . . . . . . . . . .
$0.26 − $0.40 . . . . . . . . . . . . . . . . . .
$0.41 − $1.00 . . . . . . . . . . . . . . . . . .
$1.01 − $2.00 . . . . . . . . . . . . . . . . . .
$6.01 − $7.00 . . . . . . . . . . . . . . . . . .
$7.01 − $8.00 . . . . . . . . . . . . . . . . . .
$8.01 − $9.00 . . . . . . . . . . . . . . . . . .

Options Outstanding

Options Exercisable

Weighted
Average
Remaining
Life in
Years
2.49
5.24
8.26
8.90
0.98
0.28
0.85
6.46

Shares
326,900
7,757,186
2,273,500
3,027,500
17,000
98,500
7,500
13,508,086

Weighted
Average
Exercise
Price
$0.22
0.34
1.00
1.34
6.36
7.21
9.00
$0.53

Aggregate
Intrinsic
Value
$ 235,437
3,954,614
—
—
—
—
—
$4,190,051

Shares
326,900
6,549,913
529,000
403,000
17,000
98,500
7,500
7,931,813

Total stock options exercisable as of March 31, 2016 were 7,931,813. The weighted average exercise

price of these options was $0.53. The weighted average remaining life of the options outstanding was
6.46 years and of the options exercisable was 5.10 years.

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 12 — STOCK-BASED COMPENSATION − (continued)

The following summarizes activity pertaining to the Company’s unvested options for the years ended

March 31, 2016, 2015 and 2014:

Unvested at March 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested at March 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested at March 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested at March 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Weighted
Average
Exercise
Price
$0.32
0.43
0.32
0.32
$0.32
1.04
0.44
0.41
$0.70
1.63
0.97
0.70
$1.17

Shares
3,871,807
3,300,000
(10,000)
(1,499,247)
5,662,560
2,525,000
(954,083)
(2,309,422)
4,924,055
2,622,500
(12,000)
(1,958,282)
5,576,273

The fair value of each award under the 2003 and 2013 Plans is estimated on the grant date using the

Black-Scholes option pricing model and is affected by assumptions regarding a number of complex and
subjective variables. The use of an option pricing model also requires the use of a number of complex
assumptions including expected volatility, risk-free interest rate, expected dividends, and expected term.
Expected volatility is based on the Company’s historical volatility and the volatility of a peer group of
companies over the expected life of the option. The expected term and vesting of the options represents the
estimated period of time until exercise. The expected term was determined using the simpliﬁed method
available under current guidance. The risk-free interest rate is based on the U.S. Treasury yield curve in effect
at the time of grant for the expected term of the option. The Company has not paid dividends on its common
stock in the past and does not plan to pay any dividends on its common stock in the near future. Current
authoritative guidance also requires the Company to estimate forfeitures at the time of grant and revise these
estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company
estimates forfeitures based on its expectation of future experience while considering its historical experience.

The fair value of options at grant date was estimated using the Black-Scholes option pricing model

utilizing the following weighted average assumptions:

Risk-free interest rate . . . . . . . . . . . . .
Expected option life in years . . . . . . . .
Expected stock price volatility . . . . . . .
Expected dividend yield . . . . . . . . . . .

2016
1.39% − 1.81%
5.5 − 6.25
70% − 73%
0%

March 31,
2015
1.47% − 1.76%
5.5 − 6.25
74% − 77%
0%

2014

0.86% − 1.85%
5.5 − 6.25
65% − 76%
0%

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 12 — STOCK-BASED COMPENSATION − (continued)

B. Warrants — The Company has entered into various warrant agreements.

2011 Warrants issued in connection with the Series A Preferred Stock

The warrants issued in connection with the Series A Preferred Stock (the ‘‘2011 Warrants’’) had an
exercise price of $0.38 per share, subject to adjustment, and were exercisable for a period of
ﬁve years. The exercise price of the 2011 Warrants was equal to 125% of the conversion price of the
Series A Preferred Stock.

The Company accounted for the 2011 Warrants issued in June 2011 in the consolidated ﬁnancial
statements as a liability at their initial fair value of $487,022 and accounted for the 2011 Warrants
issued in October 2011 as a liability at their initial fair value of $780,972. Changes in the fair value
of the 2011 Warrants were recognized in earnings for each subsequent reporting period. In
November 2013, in accordance with certain terms of the 2011 Warrants, the down-round provisions
included in the terms of the warrant ceased to be in force or effect as a result of the historical
volume weighted average price and trading volume of the Company’s common stock. The Company
then reclassed the fair value of the outstanding warrant liability of $6,187,968 to equity, resulting in
an increase to additional paid-in capital.

For the year ended March 31, 2014 the Company recorded a loss on the change in the value of the
2011 Warrants of $5,392,594.

The fair value of the warrants is a Level 3 fair value under the valuation hierarchy and was
estimated using the Black-Scholes option pricing model utilizing the following assumptions:

Stock price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected option life in years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected stock price volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

At Conversion
$0.92
0.61%
2.63

55%
0%

2011 Warrants exercised — On April 2, 2014, the Company called for the cancellation of all
1,657,802 unexercised 2011 Warrants pursuant to the terms of such 2011 Warrants after satisfying
applicable conditions. Pursuant to the call for cancellation, holders of all 1,657,802 unexercised 2011
Warrants exercised such 2011 Warrants and received 1,657,802 shares of common stock. The
Company received $629,965 in cash upon the exercise of these warrants. In the year ended
March 31, 2014, holders of 2011 Warrants exercised 10,127,123 2011 Warrants and received shares
of common stock. The Company received $3,848,332 in cash upon the exercise of these warrants.
These exercised warrants had a weighted average fair market value of $0.50 at exercise date.

For the year ended March 31, 2016, 120,000 warrant shares expired unexercised.

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 12 — STOCK-BASED COMPENSATION − (continued)

The following is a summary of the Company’s outstanding warrants for the periods presented:

Warrants outstanding and exercisable, March 31, 2013 . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Warrants outstanding and exercisable, March 31, 2014 . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Warrants outstanding and exercisable, March 31, 2015 . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warrants outstanding and exercisable, March 31, 2016 . . . . . . . . . . .

NOTE 13 — RELATED PARTY TRANSACTIONS

Weighted
Average
Exercise
Price
Per Warrant
$0.46
—
0.38
—

$0.90
—
0.38
—

$8.00
—
—
8.00
$ —

Warrants
11,904,925
—
(10,127,123)
—

1,777,802
—
(1,657,802)
—

120,000
—
—
(120,000)
—

A. Pallini S.p.A. (‘‘Pallini’’), as successor in interest to I.L.A.R. S.p.A., is a shareholder in the

Company and one of the officers of Pallini served as a director of the Company until March 26,
2015. In January 2011, CB-USA entered into an agreement (‘‘New Agreement’’) with Pallini
regarding the importation and distribution of certain Pallini brand products. The terms of the New
Agreement were effective as of April 1, 2010.

Pallini is no longer a related party effective April 1, 2015.

For the years ended March 31, 2015 and 2014, the Company purchased goods from Pallini for
$3,840,446 and $3,467,812, respectively. As of March 31, 2015 and 2014, Pallini owed the
Company $138,750 and $115,288, respectively, for its share of marketing expense, which is included
in due from shareholders and affiliates on the consolidated balance sheet. As of March 31, 2015 and
2014, the Company was indebted to Pallini for $511,146 and $229,557, respectively, which is
included in due to shareholders and affiliates on the consolidated balance sheet.

In November 2008, the Company entered into a management services agreement with Vector Group
Ltd., a more than 5% shareholder, under which Vector Group agreed to make available to the
Company the services of Richard J. Lampen, Vector Group’s executive vice president, effective
October 11, 2008 to serve as the Company’s president and chief executive officer and to provide
certain other ﬁnancial and accounting services, including assistance with complying with
Section 404 of the Sarbanes-Oxley Act of 2002. In consideration for such services, the Company
agreed to pay Vector Group an annual fee of $100,000, plus any direct, out-of-pocket costs, fees and
other expenses incurred by Vector Group or Mr. Lampen in connection with providing such services,
and to indemnify Vector Group for any liabilities arising out of the provision of the services. The
agreement is terminable by either party upon 30 days’ prior written notice. For the years ended
March 31, 2016, 2015 and 2014, Vector Group was paid $85,396, $135,475 and $104,746,
respectively, under this agreement. These charges have been included in general and administrative
expense.

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 13 — RELATED PARTY TRANSACTIONS − (continued)

In November 2008, the Company entered into an agreement to reimburse Ladenburg Thalmann
Financial Services Inc. (‘‘LTS’’) for its costs in providing certain administrative, legal and ﬁnancial
services to the Company. For the years ended March 31, 2016, 2015 and 2014, LTS was paid
$131,054, $210,875 and $126,000, respectively, under this agreement. Mr. Lampen, the Company’s
president and chief executive officer and a director, is the president and chief executive officer and a
director of LTS and four other directors of the Company serve as directors of LTS, including
Phillip Frost, M.D. who is the Chairman and principal shareholder of LTS.

D. As described in Note 8C, in March 2013, the Company entered into a Participation Agreement with
certain related parties. As described in Notes 8D and 8E, in August and October 2013, the Company
entered into various notes with certain related parties.

NOTE 14 — COMMITMENTS AND CONTINGENCIES

A. The Company has entered into a supply agreement with an Irish distiller (‘‘Irish Distillery’’), which

provides for the production of blended Irish whiskeys for the Company until the contract is
terminated by either party in accordance with the terms of the agreement. The Irish Distillery may
terminate the contract if it provides at least six years prior notice to the Company, except for breach.
Under this agreement, the Company provides the Irish Distillery with a forecast of the estimated
amount of liters of pure alcohol it requires for the next four ﬁscal contract years and agrees to
purchase 90% of that amount, subject to certain annual adjustments. For the contract year ending
June 30, 2016, the Company has contracted to purchase approximately €883,673 or $946,661
(translated at the March 31, 2016 exchange rate) in bulk Irish whiskey, of which €783,469, or
$889,653, has been purchased as of March 31, 2016. For the contract year ending June 30, 2017, the
Company has contracted to purchase approximately €900,386 or $1,022,415 (translated at the
March 31, 2016 exchange rate) in bulk Irish whiskey. The Company is not obligated to pay the Irish
Distillery for any product not yet received. During the term of this supply agreement, the Irish
Distillery has the right to limit additional purchases above the commitment amount.

B. The Company has also entered into a supply agreement with the Irish Distillery, which provides for
the production of single malt Irish whiskeys for the Company until the contract is terminated by
either party in accordance with the terms of the agreement. The Irish Distillery may terminate the
contract if it provides at least thirteen years prior notice to the Company, except for breach. Under
this agreement, the Company provides the Irish Distillery with a forecast of the estimated amount of
liters of pure alcohol it requires for the next twelve ﬁscal contract years and agrees to purchase 80%
of that amount, subject to certain annual adjustments. For the contract year ending June 30, 2016,
the Company has contracted to purchase approximately €343,787 or $390,380 (translated at the
March 31, 2016 exchange rate) in bulk Irish whiskey, of which €288,781, or $327,920, has been
purchased as of March 31, 2016. For the year ending June 30, 2017, the Company has contracted to
purchase approximately €394,961 or $448,490 (translated at the March 31, 2016 exchange rate) in
bulk Irish whiskey. The Company is not obligated to pay the Irish Distillery for any product not yet
received. During the term of this supply agreement, the Irish Distillery has the right to limit
additional purchases above the commitment amount.

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 14 — COMMITMENTS AND CONTINGENCIES − (continued)

C. The Company has entered into a supply agreement with a bourbon distiller, which provides for the
production of newly distilled bourbon whiskey through December 31, 2019. Under this agreement,
the distiller provides the Company with an agreed upon amount of original proof gallons of newly
distilled bourbon whiskey, subject to certain annual adjustments. For the contract year ended
December 31, 2015, the Company contracted and purchased approximately $1,643,000 in newly
distilled bourbon. For the contract year ending December 31, 2016, the Company contracted to
purchase approximately $2,053,750 in newly distilled bourbon, none of which had been purchased
as of March 31, 2016. The Company is not obligated to pay the distiller for any product not yet
received. During the term of this supply agreement, the distiller has the right to limit additional
purchases to ten percent above the commitment amount.

D. The Company has a distribution agreement with an international supplier to be the sole-producer of

Celtic Honey, one of the Company’s products, for an indeﬁnite period.

E. The Company leases office space in New York, NY, Dublin, Ireland and Houston, TX. The

New York, NY lease began on May 1, 2010 and expires on February 29, 2020 and provides for
monthly payments of $26,255. The Dublin lease commenced on March 1, 2009 and extends through
October 31, 2016 and provides for monthly payments of €1,100 or $1,249 (translated at the
March 31, 2016 exchange rate). The Houston, TX lease commenced on April 27, 2015 and extends
through June 26, 2018 and provides for monthly payments of $3,440. The Company has also entered
into non-cancelable operating leases for certain office equipment.

Future minimum lease payments for leases with initial or remaining terms in excess of one year are

as follows:

Years ending March 31,
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

Amount
$ 365,089
364,829
341,079
310,322
$1,381,319

In addition to the above annual rental payments, the Company is obligated to pay its pro-rata share
of utility and maintenance expenses on the leased premises. Rent expense under operating leases
amounted to approximately $335,047, $359,714 and $356,280 for the years ended March 31, 2016,
2015 and 2014, respectively, and is included in general and administrative expense.

F. Under the amended terms of the agreement under which the Company purchased McLain & Kyne,
the Company was obligated to pay an earn-out to the sellers based on the ﬁnancial performance of
the acquired business. As of June 30, 2013, the Company had reached the speciﬁed case sale
threshold for contingent consideration under the agreement. Accordingly, no further contingent
consideration will be due. For the years ended March 31, 2016, 2015 and 2014, the sellers earned
$0, $0 and $5,940, respectively, under this agreement.

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 14 — COMMITMENTS AND CONTINGENCIES − (continued)

G. As described in Note 8C, in August 2011, the Company and CB-USA entered into the Credit
Facility, as amended in July 2012, March 2013, August 2013, November 2013, August 2014,
September 2014 and August 2015.

H. Except as set forth below, the Company believes that neither it nor any of its subsidiaries is

currently subject to litigation which, in the opinion of management after consultation with counsel,
is likely to have a material adverse effect on the Company.

The Company may become involved in litigation from time to time relating to claims arising in the
ordinary course of its business. These claims, even if not meritorious, could result in the expenditure
of signiﬁcant ﬁnancial and managerial resources.

NOTE 15 — CONCENTRATIONS

A. Credit Risk — The Company maintains its cash and cash equivalents balances at various large
ﬁnancial institutions that, at times, may exceed federally and internationally insured limits. The
Company has not experienced any losses in such accounts and believes it is not exposed to any
signiﬁcant credit risk.

B. Customers — Sales to one customer, the Southern Wine and Spirits of America, Inc. family of

companies, accounted for approximately, 31.4%, 29.7% and 31.9% of the Company’s net sales for
the years ended March 31, 2016, 2015 and 2014, respectively, and approximately 27.7% and 30.1%
of accounts receivable at March 31, 2016 and 2015, respectively.

NOTE 16 — GEOGRAPHIC INFORMATION

The Company operates in one reportable segment — the sale of premium beverage alcohol. The
Company’s product categories are rum, whiskey, liqueurs, vodka, tequila and related non-alcoholic beverage
products. The Company reports its operations in two geographic areas: International and United States.

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 16 — GEOGRAPHIC INFORMATION − (continued)

The consolidated ﬁnancial statements include revenues and assets generated in or held in the U.S. and

foreign countries. The following table sets forth the amounts and percentage of consolidated sales, net,
consolidated income (loss) from operations, consolidated net loss attributable to controlling interests,
consolidated income tax (expense) beneﬁt and consolidated assets from the U.S. and foreign countries and
consolidated sales, net by category.

2016

Years ended March 31,
2015

2014

Consolidated Sales, net:

International . . . . . . . . . . . . . . . $ 9,302,134
62,918,234
. . . . . . . . . . . . . .
United States
Total Consolidated Sales, net . . . . $72,220,368

12.9% $ 7,938,393
87.1% 49,519,028
100.0% $57,457,421

13.8% $ 7,305,516
86.2% 40,834,967
100.0% $48,140,483

15.2%
84.8%
100.0%

Consolidated Income (Loss) from

Operations:
International . . . . . . . . . . . . . . . $
United States
. . . . . . . . . . . . . .
Total Consolidated Income (Loss)

(34,268)
1,039,815

(3.4)% $

17,172
103.4% (1,095,077)

(1.6)% $

(266)
101.6% (1,319,567)

0.0%
100.0%

from Operations . . . . . . . . . . . $ 1,005,547

100.0% $ (1,077,905)

100.0% $ (1,319,833)

100.0%

Consolidated Net Loss Attributable

to Controlling Interests:
International . . . . . . . . . . . . . . . $
United States
Total Consolidated Net Loss
Attributable to Controlling
Interests . . . . . . . . . . . . . . . . $ (2,516,368)

11,490
(2,527,858)

. . . . . . . . . . . . . .

(0.5)% $ (101,453)
100.5% (3,698,289)

2.7% $ (153,419)
97.3% (8,753,328)

1.7%
98.3%

100.0% $ (3,799,742)

100.0% $ (8,906,747)

100.0%

Income tax (expense) beneﬁt, net:

United States

. . . . . . . . . . . . . . $ (1,450,848)

100.0% $ (1,278,999)

100.0% $

590,414

100.0%

Consolidated Sales, net by category:

Rum . . . . . . . . . . . . . . . . . . . . $18,858,554
26,009,839
Whiskey . . . . . . . . . . . . . . . . .
8,567,121
Liqueurs
. . . . . . . . . . . . . . . . .
2,364,429
Vodka . . . . . . . . . . . . . . . . . . .
198,330
Tequila . . . . . . . . . . . . . . . . . .
Wine . . . . . . . . . . . . . . . . . . . .
—
Related Non-Alcoholic Beverage

26.1% $16,998,034
36.0% 19,147,028
11.9% 8,756,376
3.3% 2,413,994
208,845
0.3%
—
0.0%

29.6% $16,643,640
33.3% 13,521,875
15.2% 8,992,277
4.2% 2,852,956
218,552
0.4%
284,806
0.0%

34.6%
28.1%
18.7%
5.9%
0.5%
0.6%

Products . . . . . . . . . . . . . . . .

16,222,095
Total Consolidated Sales, net . . . . $72,220,368

22.5% 9,933,144
100.0% $57,457,421

17.3% 5,626,377
100.0% $48,140,483

11.6%
100.0%

Consolidated Assets:

International
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Consolidated Assets

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,786,333
47,506,080
. . . . . . . . . . . . . . . . . . . . . . . $50,292,413

5.5% $ 2,052,583
94.5% 41,986,357
100.0% $44,038,940

4.7%
95.3%
100.0%

As of March 31,

2016

2015

CASTLE BRANDS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 17 — QUARTERLY FINANCIAL DATA (unaudited)

1st

2nd

3rd

4th

Fiscal 2016:
Sales, net . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,513,079 $ 18,536,509 $ 17,207,372 $ 19,963,408
8,167,759
Gross proﬁt
Net (loss) income . . . . . . . . . . . . . . . . . . . . . $
421,406
Net (income) loss attributable to noncontrolling

. . . . . . . . . . . . . . . . . . . . . . . . .

6,702,095
(595,911) $

6,627,314
(850,144) $

7,056,402
(682,057) $

interests . . . . . . . . . . . . . . . . . . . . . . . . . .

(273,518)

(329,214)

(211,792)

4,862

Net (loss) income attributable to controlling

interests . . . . . . . . . . . . . . . . . . . . . . . . . .

(1,123,662)

(1,011,271)

(807,703)

426,268

Net (loss) income attributable to common

stockholders . . . . . . . . . . . . . . . . . . . . . . . $ (1,123,662) $ (1,011,271) $

(807,703) $

426,268

Net (loss) income per common share, basic,

attributable to common shareholders . . . . . . . $

(0.01) $

Net (loss) income per common share, diluted,

attributable to common shareholders . . . . . . . $

(0.01) $

0.00

Weighted average shares used in computation,
basic, attributable to common shareholders
Weighted average shares used in computation,

. .

157,535,571

159,774,811

160,031,891

160,167,121

diluted, attributable to common shareholders . .

157,535,571

159,774,811

160,031,891

167,331,808

1st

2nd

3rd

4th

Fiscal 2015:
Sales, net . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,982,199 $ 13,381,704 $ 15,936,514 $ 16,157,004
5,994,860
Gross proﬁt
6,147,602
(311,886) $ (1,102,068)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,190,495) $
Net (income) loss attributable to noncontrolling

. . . . . . . . . . . . . . . . . . . . . . . . .

4,883,673
(869,464) $

4,546,654

interests . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to controlling interests . . . .
Net loss attributable to common stockholders
Net loss per common share, basic and diluted,

(305,336)
(1,495,831)

(211,049)
(1,080,513)

. . $ (1,495,831) $ (1,080,513) $

(279,110)
(590,996)
(590,996) $

469,666
(632,402)
(632,402)

attributable to common shareholders . . . . . . . $

(0.01) $

(0.00) $

(0.00)

Weighted average shares used in computation,
basic and diluted, attributable to common
shareholders . . . . . . . . . . . . . . . . . . . . . . .

153,929,182

155,189,679

155,838,146

156,882,587

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

None.

Item 9A. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures (as deﬁned in Rules 13a-15(e) and 15d-15(e)

promulgated under the Exchange Act) that are designed to ensure that information that would be required to
be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods
speciﬁed in the SEC’s rules and forms, and that such information is accumulated and communicated to our
management, including the Chief Executive Officer and Chief Financial Officer (our Principal Executive
Officer and Principal Financial Officer, respectively), as appropriate, to allow timely decisions regarding
required disclosure.

As of March 31, 2016, we carried out an evaluation, under the supervision and with the participation of

our management, including the Principal Executive Officer and Principal Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Principal
Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this Annual Report.

(b) Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over ﬁnancial
reporting, as such term is deﬁned in Exchange Act Rules 13a-15(f) and 15d-15(f). As deﬁned in the securities
laws, internal control over ﬁnancial reporting is a process designed by, or under the supervision of, our
Principal Executive and Principal Financial Officers and effected by our Board of Directors, management, and
other personnel, to provide reasonable assurance regarding the reliability of ﬁnancial reporting and the
preparation of ﬁnancial statements for external purposes in accordance with generally accepted accounting
principles and includes those policies and procedures that (i) pertain to the maintenance of records that in
reasonable detail accurately and fairly reﬂect the transactions and dispositions of our assets; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of ﬁnancial statements
in accordance with generally accepted accounting principles, and that our receipts and expenditures are being
made only in accordance with authorizations of management and directors; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets
that could have a material effect on the ﬁnancial statements.

Our internal control over ﬁnancial reporting is designed to provide reasonable assurance regarding the

reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external reporting purposes in
accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect

misstatements. Therefore, even those systems determined to be effective can provide only reasonable
assurance with respect to ﬁnancial statement preparation and presentation. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management, including the Principal Executive and Principal Financial Officers, conducted an evaluation
of the effectiveness of the internal controls over ﬁnancial reporting (as deﬁned in Rule 13a-15(f) promulgated
under the Exchange Act) as of March 31, 2016, based on the framework in Internal Control — Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Management, including the Principal Executive and Principal Financial Officers, have concluded that

our internal control over ﬁnancial reporting was effective as of March 31, 2016 based on their evaluation of
our internal control over ﬁnancial reporting under the framework in Internal Control — Integrated
Framework (2013).

EisnerAmper LLP, an independent registered public accounting ﬁrm, has audited our consolidated

ﬁnancial statements and the effectiveness of internal controls over ﬁnancial reporting as of March 31, 2016 as
stated in its reports which are included herein.

There have been no changes in our internal control over ﬁnancial reporting that occurred in the fourth

ﬁscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over
ﬁnancial reporting.

(d) Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders
Castle Brands Inc.

We have audited Castle Brands Inc. and subsidiaries (the ‘‘Company’’) internal control over ﬁnancial reporting
as of March 31, 2016, based on criteria established in the 2013 Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (‘‘COSO’’). The
Company’s management is responsible for maintaining effective internal control over ﬁnancial reporting and
for its assessment of the effectiveness of internal control over ﬁnancial reporting, included in the
accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on the Company’s internal control over ﬁnancial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over ﬁnancial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over ﬁnancial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over ﬁnancial reporting is a process designed to provide reasonable assurance
regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external purposes
in accordance with generally accepted accounting principles. A company’s internal control over ﬁnancial
reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reﬂect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of ﬁnancial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the ﬁnancial
statements.

Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over ﬁnancial
reporting as of March 31, 2016, based on criteria established in the 2013 Internal Control — Integrated
Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of the Company as of March 31, 2016 and 2015, and the
related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity, and cash
ﬂows for each of the years in the three-year period ended March 31, 2016, and our report dated June 13, 2016
expressed an unqualiﬁed opinion thereon.

/s/ EisnerAmper LLP

New York, New York
June 13, 2016

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

This information will be contained in our deﬁnitive proxy statement for our 2016 Annual Meeting of
Shareholders, to be ﬁled with the SEC not later than 120 days after the end of our ﬁscal year covered by this
report, and incorporated herein by reference or, alternatively, by amendment to this Form 10-K under cover of
Form 10-K/A no later than the end of such 120 day period.

Item 11. Executive Compensation

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

Information regarding equity compensation plans is set forth in Item 5 of this annual report on

Form 10-K and is incorporated herein by reference.

The other information required by this Item 12 will be contained in our deﬁnitive proxy statement for our

2016 Annual Meeting of Shareholders, to be ﬁled with the SEC not later than 120 days after the end of our
ﬁscal year covered by this report, and incorporated herein by reference or, alternatively, by amendment to this
Form 10-K under cover of Form 10-K/A no later than the end of such 120 day period.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accounting Fees and Services

Item 15. Exhibits, Financial Statement Schedules

(a) The following documents are ﬁled as part of this Report:

PART IV

(b)
Exhibit
Number

1.1

3.1

3.2

4.1

4.2

4.3

4.4

4.5

4.6

4.7

Financial Statements — See Index to Financial Statements at Item 8 on page 41 of this annual report
on Form 10-K.

Financial Statement Schedules — Omitted because they are not applicable or not required.

Exhibits — The following exhibits are ﬁled as part of, or incorporated by reference into, this annual
report on Form 10-K:

Exhibit

Equity Distribution Agreement, dated November 20, 2014, between Castle Brands Inc. and
Barrington Research Associates, Inc., as sales agent (incorporated by reference to Exhibit 1.1 to
our current report on Form 8-K ﬁled with the SEC on November 21, 2014)

Composite Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to
our annual report on Form 10-K for the ﬁscal year ended March 31, 2014 ﬁled with the SEC on
June 30, 2014)
Bylaws of the Company (incorporated by reference to Appendix E to our deﬁnitive proxy
statement on Schedule 14A ﬁled with the SEC on December 30, 2009)
Form of Common Stock Certiﬁcate (incorporated by reference to Exhibit 4.3 to our
Post-Effective Amendment No. 1 to Form S-8 (File No. 333-160380) ﬁled with the SEC on
March 10, 2010)
Amended and Restated Loan and Security Agreement, dated as of September 22, 2014, by
and among ACF FinCo I LP, the Company and Castle Brands (USA) Corp. (incorporated by
reference to Exhibit 4.1 to our current report on Form 8-K ﬁled with the SEC on
September 24, 2014)
Amended and Restated Revolving Credit Note, dated as of August 7, 2015, in favor of ACF
FinCo I LP (incorporated by reference to Exhibit 4.2 to our current report on Form 8-K ﬁled
with the SEC on August 10, 2015)
5% Convertible Subordinated Note Purchase Agreement, dated as of October 21, 2013, among
the Company and the parties set forth on the signature pages attached thereto (incorporated
by reference to Exhibit 4.1 to our current report on Form 8-K ﬁled with the SEC on
October 25, 2013)
Form of 5% Subordinated Convertible Note Due 2018, issued by the Company (incorporated by
reference to Exhibit 4.1 to our current report on Form 8-K ﬁled with the SEC on
November 1, 2013)

First Amendment to the Amended and Restated Loan and Security Agreement, dated as of
August 7, 2015, by and among ACF FinCo I LP, the Company and Castle Brands (USA) Corp.
(incorporated by reference to Exhibit 4.1 to our current report on Form 8-K ﬁled with the SEC
on August 10, 2015)

Second Amendment to the Amended and Restated Loan and Security Agreement, dated as of
August 17, 2015, by and among ACF FinCo I LP, the Company and Castle Brands (USA) Corp.
(incorporated by reference to Exhibit 4.1 to our current report on Form 8-K ﬁled with the SEC
on August 18, 2015)

10.1

10.2

Export Agreement, dated as of February 14, 2005 between Gosling Partners Inc. and Gosling’s
Export (Bermuda) Limited (Exhibit 10.1)(1)(2)
Amendment No. 1 to Export Agreement, dated as of February 18, 2005, by and among
Gosling-Castle Partners Inc. and Gosling’s Export (Bermuda) Limited (Exhibit 10.2)(1)(2)

(b)
Exhibit
Number

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

10.18
10.19
10.20

10.21

Exhibit

National Distribution Agreement, dated as of September 3, 2004, by and between Castle Brands
(USA) Corp. and Gosling’s Export (Bermuda) Limited (Exhibit 10.3)(1)(2)
Subscription Agreement, dated as of February 18, 2005, by and between Castle Brands Inc. and
Gosling-Castle Partners Inc. (Exhibit 10.4)(1)
Stockholders’ Agreement, dated February 18, 2005, by and among Gosling-Castle Partners Inc.
and the persons listed on Schedule I thereto (Exhibit 10.5)(1)
Agreement, dated as of January 12, 2011, between Pallini SpA and Castle Brands (USA) Corp.
(incorporated herein by reference to Exhibit 10.1 to our current report on Form 8-K ﬁled with
the SEC on January 18, 2011)(2)
Supply Agreement, dated as of January 1, 2005, between Irish Distillers Limited and Castle
Brands Spirits Group Limited and Castle Brands (USA) Corp. (Exhibit 10.8)(1)(2)
Amendment No. 1 to Supply Agreement, dated as of September 20, 2005, to the Supply
Agreement, dated as of January 1, 2005, among Irish Distillers Limited and Castle Brands Spirits
Group Limited and Castle Brands (USA) Corp. (Exhibit 10.9)(1)
Letter Agreement, dated November 7, 2008, between Castle Brands Inc. and Vector Group Ltd.
(incorporated by reference to Exhibit 10.1 to our current report on Form 8-K ﬁled with the
SEC on November 12, 2008)
Form of Indemniﬁcation Agreement entered into with directors (incorporated by reference to
Exhibit 10.1 to our quarterly report on Form 10-Q ﬁled on August 14, 2013)
Form of Castle Brands Inc. Stock Option Grant Agreement (incorporated by reference to
Exhibit 10.1 to our current report on Form 8-K ﬁled with the SEC on June 16, 2006)#
Amended and Restated Employment Agreement, dated as of November 13, 2007, between Castle
Brands Inc. and Alfred J. Small (incorporated herein by reference to Exhibit 10.2 to our current
report on Form 8-K ﬁled with the SEC on November 13, 2007)#
Third Amended and Restated Employment Agreement, effective as of February 26, 2010, by and
between Castle Brands Inc. and Mark Andrews (incorporated by reference to Exhibit 10.1 to our
current report on Form 8-K ﬁled with the SEC on March 1, 2010)#
Amended and Restated Employment Agreement, effective as of May 2, 2005, by and between
Castle Brands Inc. and T. Kelley Spillane(1)#
Amendment to Amended and Restated Employment Agreement, dated as of May 6, 2010,
between Castle Brands Inc. and Alfred J. Small (incorporated herein by reference to Exhibit 10.2
to our current report on Form 8-K ﬁled with the SEC on May 7, 2010)#
Amendment to Amended and Restated Employment Agreement, dated as of May 6, 2010, by and
between Castle Brands Inc. and T. Kelley Spillane (incorporated herein by reference to
Exhibit 10.1 to our current report on Form 8-K ﬁled with the SEC on May 7, 2010)#

Reaffirmation Agreement, dated as of August 7, 2015, by and among the Company, Castle
Brands (USA) Corp., the officers signatory thereto and certain junior lenders to the Company
(incorporated by reference to Exhibit 10.1 to our current report on Form 8-K ﬁled with the
SEC on August 10, 2015)
Castle Brands Inc. 2003 Stock Incentive Plan, as amended (Exhibit 10.29)(1)#
Amendment to Castle Brands Inc. 2003 Stock Incentive Plan (Exhibit 10.30)(1)#
Amendment No. 2 to Castle Brands Inc. 2003 Stock Incentive Plan (incorporated by reference to
Exhibit 10.24 to our annual report on Form 10-K for the ﬁscal year ended March 30, 2009 ﬁled
with the SEC on June 29, 2009)#
Amended and Restated Warrant Agreement, dated September 27, 2005, by and between Castle
Brands Inc. and Keltic Financial Partners, LP (Exhibit 10.52)(1)

(b)
Exhibit
Number

10.22

10.23

10.24

10.25

10.26

10.27

10.28

10.29

10.30

10.31

10.32

10.33

10.34

10.35

10.36

Exhibit

Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.5 to our quarterly
report on Form 10-Q ﬁled with the SEC on February 17, 2009)#

Employment Agreement, made as of January 24, 2008, by and between Castle Brands Inc. and
John S. Glover (incorporated by reference to Exhibit 10.28 to Amendment No. 1 to our annual
report on Form 10-K ﬁled with the SEC on July 29, 2009)#

Form of Validity and Support Agreement, dated as of August 19, 2011, among Keltic Financial
Partners II, LP, the Company, Castle Brands (USA) Corp. and the officer signatory thereto
(incorporated by reference to Exhibit 10.1 to our current report on Form 8-K ﬁled with the SEC
on August 25, 2011)

Amendment to Employment Agreement, made as of July 26, 2011, by and between Castle
Brands Inc. and John S. Glover (incorporated by reference to Exhibit 10.1 to our current report
on Form 8-K ﬁled with the SEC on July 27, 2011).#

Employment Letter, dated July 29, 2011, by and between Castle Brands USA Corp. and Maria
Alejandra Pena (incorporated by reference to Exhibit 10.3 to our quarterly report on Form 10-Q
ﬁled with the SEC on November 14, 2011)#
Amendment to Amended and Restated Employment Agreement, dated as of May 11, 2012, by
and between Castle Brands Inc. and T. Kelley Spillane (incorporated herein by reference to
Exhibit 10.1 to our current report on Form 8-K ﬁled on May 17, 2012)#
Amendment to Amended and Restated Employment Agreement, dated as of May 11, 2012,
between Castle Brands Inc. and Alfred J. Small (incorporated herein by reference to Exhibit 10.2
to our current report on Form 8-K ﬁled on May 17, 2012)#
Amendment to the Third Amended and Restated Employment Agreement, effective as of May 11,
2012, by and between Castle Brands Inc. and Mark Andrews (incorporated by reference to
Exhibit 10.3 to our current report on Form 8-K ﬁled on May 17, 2012)#
Castle Brands Inc. 2013 Stock Incentive Plan (incorporated by reference to Exhibit A to our
deﬁnitive proxy statement on Schedule 14A for the 2012 annual meeting of shareholders, ﬁled
with the SEC on September 11, 2012)#
Amendment to Fourth Amended and Restated Employment Agreement, dated as of January 24,
2014, by and between Castle Brands Inc. and Mark Andrews (incorporated by reference to
Exhibit 10.1 to our current report on Form 8-K ﬁled on January 27, 2014)#
Amendment to Amended and Restated Employment Agreement, dated as of January 24, 2014, by
and between Castle Brands Inc. and John Glover (incorporated by reference to Exhibit 10.2 to
our current report on Form 8-K ﬁled on January 27, 2014)#
Amendment to Amended and Restated Employment Agreement, dated as of January 24, 2014, by
and between Castle Brands Inc. and T. Kelley Spillane (incorporated by reference to Exhibit 10.3
to our current report on Form 8-K ﬁled on January 27, 2014)#

Amendment to Amended and Restated Employment Agreement, dated as of January 24, 2014, by
and between Castle Brands Inc. and Alfred J. Small (incorporated by reference to Exhibit 10.4 to
our current report on Form 8-K ﬁled on January 27, 2014)#

Extension and Amendment Agreement, dated as of October 24, 2015, by and between Castle
Brands (USA) Corp. and Pallini S.p.A. (f/k/a Pallini Internazionale S.r.l.) (incorporated by
reference to Exhibit 10.1 to our current report on Form 8-K ﬁled on October 29, 2015)(2)
Amendment to Third Amended and Restated Employment Agreement, dated as of February 1,
2016, by and between Castle Brands Inc. and Mark Andrews (incorporated by reference to
Exhibit 10.1 to our current report on Form 8-K ﬁled on February 3, 2016)#

(b)
Exhibit
Number

10.37

10.38

10.39

21.1

23.1

31.1

31.2

32.1

Exhibit

Amendment to Employment Agreement, dated as of February 1, 2016, by and between Castle
Brands Inc. and John Glover (incorporated by reference to Exhibit 10.2 to our current report on
Form 8-K ﬁled on February 3, 2016)#

Amendment to Amended and Restated Employment Agreement, dated as of February 1, 2016, by
and between Castle Brands Inc. and T. Kelley Spillane (incorporated by reference to Exhibit 10.3
to our current report on Form 8-K ﬁled on February 3, 2016)#

Amendment to Amended and Restated Employment Agreement, dated as of February 1, 2016, by
and between Castle Brands Inc. and Alfred J. Small (incorporated by reference to Exhibit 10.4 to
our current report on Form 8-K ﬁled on February 3, 2016)#

List of Subsidiaries*

Consent of EisnerAmper LLP*

Certiﬁcation of CEO Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002*

Certiﬁcation of CFO Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002*
Certiﬁcation of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002*
XBRL Instance Document.*

101.INS
101.SCH XBRL Taxonomy Extension Schema Document.*
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.*
101.DEF XBRL Taxonomy Extension Deﬁnition Linkbase Document.*
101.LAB XBRL Taxonomy Extension Label Linkbase Document.*
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.*

Filed herewith

*
# Management Compensation Contract
(1) Previously ﬁled as an exhibit to our Registration Statement on Form S-1 (File No. 333-128676), which

was declared effective on April 5, 2006, and incorporated by reference herein.

(2) Conﬁdential portions of this document are omitted pursuant to a request for conﬁdential treatment that

has been granted by the Commission, and have been ﬁled separately with the Commission.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the

registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized,
on June 13, 2016.

SIGNATURES

CASTLE BRANDS INC.

By: /s/ ALFRED J. SMALL

Alfred J. Small
Senior Vice President, Chief Financial
Officer, Secretary and Treasurer
(Principal Financial Officer and Principal
Accounting Officer)

POWER OF ATTORNEY

Each individual whose signature appears below constitutes and appoints each of Richard J. Lampen and
Alfred J. Small, such person’s true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for such person and in such person’s name, place and stead, in any and all capacities, to sign
any and all amendments to this report on Form 10-K, and to ﬁle the same, with all exhibits thereto, and all
documents in connection therewith, with the Securities and Exchange Commission, granting unto each said
attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully to all intents and purposes as such person might
or could do in person, hereby ratifying and conﬁrming all that any said attorney-in-fact and agent, or any
substitute or substitutes of any of them, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below

by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

/s/ RICHARD J. LAMPEN
Richard J. Lampen

/s/ ALFRED J. SMALL
Alfred J. Small

/s/ MARK ANDREWS
Mark Andrews

/s/ JOHN F. BEAUDETTE
John F. Beaudette

/s/ HENRY C. BEINSTEIN
Henry C. Beinstein

/s/ PHILLIP FROST, M.D.
Phillip Frost, M.D.

/s/ DR. RICHARD M. KRASNO
Dr. Richard M. Krasno

/s/ STEVEN D. RUBIN
Steven D. Rubin

/s/ MARK ZEITCHICK
Mark Zeitchick

President and Chief Executive Officer and Director
(Principal Executive Officer)

Senior Vice President, Chief Financial Officer, Secretary
and Treasurer (Principal Financial Officer and Principal
Accounting Officer)

Director

Date

June 13, 2016

COMPARISON OF CUMULATIVE TOTAL RETURN

The following graph compares the cumulative total stockholder return on our common stock from

March 31, 2011 through March 31, 2016 to the cumulative total return for (i) the Russell 2000 Index
(the ‘‘Russell 2000 Index’’) and (ii) a peer group that we selected that consists of alcoholic and non-alcoholic
beverage companies. The peer group is comprised of Wilamette Valley Vineyards, Inc., Craft Brew Alliance
Inc., Scheid Vineyards Inc., Crimson Wine Group, Ltd. and Jones Soda Co. (the ‘‘Peer Index’’). Total return
values were calculated based on cumulative total return assuming the investment, at the closing price on
March 31, 2011, of $100 in each of our common stock, the Russell 2000 Index, and the Peer Index. In
calculating total annual stockholder return, reinvestment of dividends, if any, is assumed. The indices are
included for comparative purpose only. They do not necessarily reﬂect management’s opinion that such indices
are an appropriate measure of the relative performance of our common stock. This graph is not ‘‘soliciting
material,’’ is not deemed ﬁled with the Securities and Exchange Commission and is not to be incorporated by
reference in any of our ﬁlings under the Securities Act of 1933, as amended, or the Securities Exchange Act
of 1934, as amended, whether made before or after the date hereof and irrespective of any general
incorporation language in any such ﬁling.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Castle Brands, Inc., the Russell 2000 Index,
and a Peer Group

$450

$400

$350

$300

$250

$200

$150

$100

$50

3/11

3/12

3/13

3/14

3/15

3/16

Castle Brands, Inc.

Russell 2000

Peer Group

$100 invested on 3/31/11 in stock or index, including reinvestment of dividends.
Fiscal year ending March 31.

[This page intentionally left blank.]

OFFICERS

Richard J. Lampen
President and Chief
Executive Offıcer

John S. Glover
Chief Operating Offıcer

Alfred J. Small
Senior Vice President,
Chief Financial Offıcer,
Treasurer and Secretary

T. Kelley Spillane
Senior Vice President —
Global Sales

Alejandra Peña
Senior Vice President —
Marketing

DIRECTORS

Mark Andrews, Chairman
John F. Beaudette
Henry C. Beinstein
Phillip Frost, M.D.
Dr. Richard M. Krasno
Richard J. Lampen
Steven D. Rubin
Mark Zeitchick

CORPORATE INFORMATION

TRANSFER AGENT

Continental Stock Transfer and
Trust Company
17 Battery Place, 8th Floor
New York, NY 10004
212.509.4000

CORPORATE
HEADQUARTERS

122 East 42nd Street
Suite 5000
New York, NY 10168
646.356.0200

COMMON STOCK

Castle Brands Inc.’s
common stock trades on the
NYSE MKT under the symbol
ROX.

AUDITORS

EisnerAmper LLP
New York

COUNSEL

Greenberg Traurig, P.A.
Miami

ANNUAL REPORT ON
FORM 10-K

Copies of our Annual Report on
Form 10-K, as amended, for the
ﬁscal year ended March 31, 2016
can be accessed via our
website at:
http://investor.castlebrandsinc.com/
annuals-proxies.cfm

ADDITIONAL INFORMATION

Copies of our ﬁlings with the
U.S. Securities and Exchange
Commission and other information
may be obtained at our investor
relations website:
http://investor.castlebrandsinc.com/
or by contacting:

Castle Brands Inc.
122 East 42nd Street
Suite 5000
New York, NY 10168
Attention: Investor Relations
646.356.0200