<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION

                             Washington D.C. 20549

                                   Form 10-K

          [X]  ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                  For the Fiscal Year Ended December 31, 1998

          [ ]   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 0-24341

                   CENTRAL EUROPEAN DISTRIBUTION CORPORATION
                   -----------------------------------------
            (Exact name of registrant as specified in its charter)


                   Delaware                            54-1865271
                   --------                            ----------
          (State or other jurisdiction      (I.R.S. employer identification no.)
          of incorporation or organization)
 
      1343 Main Street, Suite 301, Sarasota Florida          34236
      ---------------------------------------------          -----
         (Address of principal executive offices)         (Zip code)


           211 N. Union Street, Suite 100, Alexandria Virginia 22314
           ---------------------------------------------------------
                (Former address of principal executive offices)

      Registrant's telephone number, including area code:  (941) 330-1558
                                        
          Securities registered pursuant to Section 12(b) of the Act:
                                Not Applicable
          Securities registered pursuant to Section 12(g) of the Act.
                    Common Stock, par value $0.01 per share
                    ---------------------------------------
                                Title of Class

     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 [X]    No [ ]
<PAGE>
 
     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 the Form 10-K or any amendment to this
Form 10-K.  [ ]

     The aggregate market value of the voting stock held by non-affiliates of
the registrant  (based on the closing price of the registrant's common stock on
the Nasdaq Smallcap Stock Market) on March 4, 1999 was 15,671.850,*

     As of  March 5, 1999, the registrant had 3,780,000 shares of common stock
outstanding.

                      Documents Incorporated by Reference
Portions of the proxy statement for the annual meeting of stockholders to be
held on May 18, 1999 are incorporated by reference into Part III.

___________
*  Solely for purposes of this calculation, all directors and executive
   officials of the registrant and all stockholders beneficially owning more
   than 5% of the registrant's common stock are considered to be affiliates.

                                                                               2
<PAGE>
 
                               TABLE OF CONTENTS
<TABLE> 
<CAPTION> 
   PART I
                                                                                   PAGE
                                                                                   ----
   <S>                                                                             <C> 
      Item 1.     Business                                                            4
                                                                    
      Item 2.     Properties                                                         20
                                                                    
      Item 3.     Legal Proceedings                                                  20
                                                                    
      Item 4.     Submission of Matters to a Vote of Security-Holders                21
 
   PART II
 
      Item 5.     Market for Registrant's Common Equity and Related
                  Stockholder Matters                                                21
                                                                   
      Item 6.     Selected Financial Data                                            22
                                                                   
      Item 7.     Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                                23
                                                                   
      Item 7A.    Quantitative and Qualitative About Market Risk                     26
                                                                   
      Item 8.     Financial Statements and Supplementary Data                        26
                                                                   
      Item 9.     Changes in and Disagreements with Accountants on 
                  Accounting and Financial Disclosure                                45
 
   PART III
 
      Item 10.    Directors and Executive Officers of the Registrant                 45
                                                                                
      Item 11.    Executive Compensation                                             45
                                                                                
      Item 12.    Security Ownership of Certain Beneficial Owners and Management     45
                                                                                
      Item 13.    Certain Relationships and Related Transactions                     45
 
   PART IV
 
      Item  14.   Exhibits, Financial Statement Schedules and Reports  
                  on Form 8K                                                         45
                                                                       
      Signatures                                                                     48
</TABLE>

                                                                               3
<PAGE>
 
     THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN STATEMENTS THAT ARE NOT
HISTORICAL FACTS AND MAY BE FORWARD-LOOKING. SUCH STATEMENTS INVOLVE ESTIMATES,
ASSUMPTIONS, RISKS AND UNCERTAINTIES. THERE IS NO ASSURANCE THAT FUTURE RESULTS
WILL NOT DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING
STATEMENTS. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO BE MATERIALLY
DIFFERENT FROM THE FORWARD-LOOKING STATEMENTS ARE DISCLOSED UNDER THE HEADING
"BUSINESS - RISK FACTORS" AND THROUGHOUT THIS FORM 10-K.

PART I

ITEM 1.   BUSINESS

GENERAL

     The registrant ("CEDC") and its wholly owned subsidiary, Carey Agri
International Poland Sp z.o.o., a limited liability company organized under the
laws of Poland ("Carey Agri"), are referred to herein jointly as the "Company."

     The Company, formed in 1990, is a leading importer and distributor of
alcoholic beverages in Poland. The Company operates the largest nationwide next-
day alcoholic beverage delivery service in Poland through its eight regional
offices located in Poland's principal cities, including Warsaw, Krakow, Gdynia
and Katowice. The Company currently distributes approximately 300 brands in
three categories: beer, spirits and wine. The Company imports and distributes
eight international beers, including Guinness, Corona, Miller and Foster's. The
Company currently distributes approximately 250 spirit products, including
leading international brands of scotch, single malt and other whiskeys, rums,
bourbons, vodkas, tequilas, gins, brandys, cognacs, vermouths and specialty
spirits, such as Johnnie Walker, Smirnoff, Absolut, Finlandia, Bacardi, Gordon's
London Dry and Tanqueray.
 
     In addition, the Company imports and distributes 45 wine products,
including Sutter Home, Romanian Classics, Cinzano Asti, Martini Asti and Moet &
Chandon. In addition to its distribution agreements with various alcoholic
beverage suppliers, the Company is the exclusive importer for Dunhill Cigars and
Evian Water.

     The Company distributes its products throughout Poland to approximately
3,500 outlets, including off-trade establishments, such as small businesses and
multi-store retail outlets where alcoholic beverages are not consumed on
premises, and on-trade locations, such as bars, nightclubs, hotels and
restaurants, where such products are consumed.

INDUSTRY OVERVIEW

     CONSUMPTION. In 1997, Poland was the fifth largest consumer of vodka in the
world. The total market for alcoholic beverage products in Poland was
approximately $4.0 billion in 1997 at the retail level. Traditionally, the
population of Poland has primarily consumed domestic vodka, but in recent years
there has been a general shift in the population's consumption habits from vodka
to other types of alcohol that are primarily imported, such as beers, wines and
spirits. The shift in consumption habits in Poland is a result of: (i)
stabilization of the Polish economy, including increased wages as well as a
decrease in the rate of inflation from 250% in 1990 to 8.5% in 1998; (ii) an
increase in tourism, which has created a demand for imported products; (iii) an
increase in multinational firms doing business in Poland, which has brought both
capital into the country and new potential customers for the Company's products;
and (iv) increased availability and decreased prices for imported products.

     DISTRIBUTION.   Currently, the market for the distribution of alcoholic
beverages in Poland is highly fragmented. There are numerous distributors spread
throughout the country, all delivering primarily one type of product (i.e.,
domestic vodka). Furthermore, distributors have been located regionally, rather
than nationally, due to the difficulties in establishing a nationwide
distribution system, including the capital required to set up such a system.
Distributed alcohol is delivered to both off-trade sites and on-trade sites.
Off-trade sites include Polish-owned and managed businesses such as small
grocery stores as well as major chain stores. On-trade sites include bars,
nightclubs, hotels and restaurants. There has been a trend to consolidate many
off-trade sites which would be classified as "mom and pop" stores as well as a
trend toward expanding major chain stores. The Company believes that it is well
positioned to take advantage of both the trends in consumption and distribution.

                                                                               4
<PAGE>
 
RECENT ACQUISITION

     On March 12, 1999 the Company completed its acquisition of Multi Trade
Company ("MTC") of Bialystock, a city in northeastern Poland that the Company
did not serve in its distribution system. The Company acquired substantially all
the assets of MTC for approximately $2.5 million in cash and 254,258 newly
issued, unregistered shares of the Company's common stock. The acquistion of MTC
was part of the Company's strategic plan to acquire successful wholesalers in
areas where it did not operate in order to consolidate its position as the
premier distributor of alcoholic beverages in Poland. See "Business Strategy"
and note 13 to the Consolidated Financial Statements in Item 8 of this Form 10-
K.

BUSINESS STRATEGY

     The principal components of the Company's business strategy are as follows:

     EXPAND DISTRIBUTION CAPACITY. The Company plans to continue increasing its
distribution capacity by expanding the number of its regional offices in Poland
through the acquisition of existing wholesalers, particularly in areas where the
Company does not distribute directly. During the first quarter of 1999, the
Company acquired substantially all the assets of MTC in northeastern Poland. MTC
was a major regional competitor of the Company with approximately $43.0 million
in sales and approximately $0.8 million in operating profits in 1998
(unaudited). The Company would also consider acquisitions in Lublin (December
31, 1998 population--approximately 360,000) and Lodz (December 31, 1998
population--approximately 820,000).

     The Company will seek to acquire additional successful wholesalers which
are primarily involved in the vodka distribution business and are among the
leading wholesalers in their region. The Company would then add its higher
margin imported brands to complement and enhance the existing product portfolio.
While the Company has identified additional potential wholesalers and has
conducted exploratory talks about such acquisitions, it has not reached any
definitive agreements regarding the terms and conditions of any such
acquisition, including the purchase price to be paid to the sellers, and such
additional acquisitions may not be available to the Company on acceptable terms,
if at all. In such case, the Company would seek to enter these markets with its
own regional offices.

     INCREASE PRODUCT OFFERINGS.   The Company increased its exclusive imports
during 1998 by adding Black and White, White Horse, and Vat 69 Scotch whiskys,
Camus Cognac, Evian Water and Dunhill Cigars. The Company also plans to expand
its strategic product offerings in Poland through the acquisition of a high
quality wine importer, which offers a wide selection of specialty wines and by
entering into new supplier agreements to import additional products. The Company
is in exploratory talks with a wine importer, but no definitive agreement has
been reached.  The Company is also in exploratory talks to import additional
alcoholic and non-alcoholic products.

     EXPAND RETAIL MARKET.   The Company has implemented its retail business
strategy in Warsaw, where one location has been leased, remodeled and opened for
business in February 1998. The Company believes that specialty retail sales of
alcoholic beverages in Poland have yet to be developed. Currently, alcoholic
beverages are sold through grocery stores, supermarkets, small shops and gas
stations. These retail outlets sell, in general, fast moving items, primarily
domestic beer and vodka, as well as a small number of the more popular selling
imported products, which are brands often imported by the Company. There are few
stores that specialize in alcoholic beverages in Warsaw, a metropolitan area
with a population of approximately 2.4 million.


HISTORY

     CEDC's subsidiary Carey Agri was incorporated as a limited liability
company in July 1990 in Poland. It was founded by William O. Carey, who died in
early 1997, and Jeffrey Peterson, the Company's Vice Chairman and Executive Vice
President. Mr. Carey's son, William V. Carey, is the managing director of Carey
Agri and the President and Chief Executive Officer of CEDC. In February 1991,
Carey Agri was granted its first import license for Foster's Lager, which it
sold to wholesalers. With this beverage, Carey Agri sought to offer a desirable
product for which it had an exclusive import license to the market segment of
the Polish population who were benefiting from the country's
 

                                                                               5
<PAGE>
 
market transformation. Because of Carey Agri's initial success with Foster's
Lager, for which it still holds the exclusive import license for Poland, it
quickly diversified in 1992 by importing other quality brand beers from Europe
and the United States. Sales during this period were typically in high volume
consignments to other wholesalers.

     In 1993, with the acceleration of the privatization of retail outlets in
Poland, Carey Agri began to implement a systematic delivery system in Warsaw
which could deliver alcoholic beverages to retail outlets on a reliable basis.
Carey Agri leased a warehouse, purchased trucks and hired and trained
operational personnel and began to sell directly to convenience shops, small
grocery stores and newly opened pubs. Because of this business experience, Carey
Agri was prepared to take advantage of the opportunity to expand its import and
delivery capacity in Warsaw when a large, foreign-owned supermarket chain began
operations in 1993, creating a significant increase in the demand for the
Company's product line. The Warsaw model of desirable product lines and
dependable prompt delivery of product was duplicated by the Company in Krakow
(1993), Wroclaw (1994), Szczecin (1994), Gdynia (1994), Katowice (1995), Torun
(1995) and Poznan (1996).

     CEDC was incorporated in Delaware in 1997. In July 1998 the Company issued
2,000,000 shares of Common Stock in an Initial Public Offering on the Nasdaq
Smallcap Market raising net proceeds of approximately $10.6 million.


PRODUCT LINE

     The Company currently offers over 300 brands of beverages in three
categories: (a) beers; (b) spirits; and (c) wines. Its brands of imported beer
accounted for 22.0%, 17.0%, and 15.9% of net sales revenues during the twelve
month period ended December 31, 1996, 1997, and 1998 respectively. Spirits
accounted for 38.0%, 32.0%, and 79.1% of net sales revenues for the same
periods. Sales of Polish vodka in the twelve-months ended December 31, 1998
accounted for 54.1% of net sales revenues in the spirits category and imported
spirits accounted for 21.4%. Wine accounted for 13.0%, 7.0%, and 7.2% of net
revenues for the same periods. Other products were 1.4% of net sales during the
year ended December 31, 1998.

     The Company has agreements with many of the companies from which it
acquires products for sale. Certain products, however, have never been covered
by a written agreement. The Company does not believe that the absence of such
written agreements is likely to result in an adverse financial effect on the
Company because the Company has long-standing relationships with such suppliers.

   Beer

     The Company distributes imported beer through each of its regional offices.
Budweiser Budvar, Corona, Foster's Lager, Kilkenny, Pilsner Urquell and Golden
Pheasant and Miller Genuine Draft are distributed throughout Poland on an
exclusive basis.

     Most of the Company's distribution contracts for beer contain a minimum
purchase requirement and typically permit termination if the Company breaches
its agreements, such as failure to pay within a certain time period or to
properly store and transport the product. Trade credit is extended to the
Company for a period of time after delivery of products. The duration of these
agreements differ. While the sale of Guinness Stout and Budweiser Budvar each
accounted for approximately five percent of net sales for the year ended
December 31, 1996, no imported beers accounted for five percent or more of net
sales for years ended December 31, 1997 and 1998.  The Company's exclusive
agreement with Budweiser Budvar expires on December 31, 1999.

                                                                               6
<PAGE>
 
   Spirits

     The Company distributes all its imported spirit products through each of
its offices, mostly on a nonexclusive basis. The spirit products sold by the
Company include the following:

<TABLE>
<S>                            <C>                                    <C>  
Scotch Whisky:                 Johnnie Walker, Black, Blue,           Black & White
                                    Gold and Red Labels               The Dimple
                               Haig                                   White Horse
                               Chivas Regal                           VAT 69
                               Ballantines Finest                     Teacher's Highland Cream
                               Ballantines Gold Seal                  Old Smuggler
                               J&B Rare                               Whyte and McKay
 
Single Malt Whisky:            Dalmore                                Bruichladdich
 Cragganmore                   Glenkinchie
 Dalwhinne                     Oban   
 Lagavulan                     Talisker
 Isle of Jura                  Cardhu  
 
Rum:                           Bacardi Light, Gold and Black          Ron Rico, White and Gold
 Captain Morgan                Malibu
 
Other Whiskey:                 Blenders Pride                         Crown Royal
 Seven Crown                   Black Velvet                  
 Canadian Mist                                               
                                                             
Bourbon:                       Jack Daniel's Tennessee Whiskey        Forester
 Early Times                   Jim Beam                       
 
Vodkas:                        Smirnoff                               Absolut Blue
 Citron and Kurant             Finlandia   
 Tanqueray                     Polish Vodkas
 
Tequila:                       Jose Cuervo                            Pepe Lopez
 
Gins:                          Gordon's London Dry                    Beefeater
 Tanqueray
 
Brandy:                        Metaxa                                 Sandeman Capa Negra
 Raynal                        Stock
 
Cognacs:                       Hennessy                               Courvoisier
 Martell                       Camus Cognac
 
Vermouths:                     Stock Blanco, Rosa and                 Cinzano Blanco, Rosso, Rose,
                               Extra Dry Martini Bianco,              Extra Dry, Americano, Orancio
                               Rosso, Rose, Extra Dry
 
Specialty Spirits:             Bailey's Irish Cream                   Carolan's Irish Cream
                               Kahlua Coffee Liqueur                  Grand Marnier
                               Creme de Grand Marnier                 Pimm's Cup
                               Jagermeister                           Archer's                         
                               Southern Comfort                       Mandarine Napoleon
</TABLE> 


     Only the Company's sales of Polish vodka and alcoholic beverages
distributed for companies now a part of Diageo plc exceeded five percent of the
Company's net sales for the years ended December 31, 1997 and 1998. The
Company's non-exclusive contract with one such entity covers the products which
Diageo plc itself imports into Poland, including Bailey's Irish Cream and
Johnnie Walker. This contract became effective on January 1, 1995 for an
unspecified period. Each party, however, has a right to terminate it with 90
days' prior written notice. The contract imposes on the Company certain
obligations, which if it fails to satisfy could lead to the contract's immediate

                                                                               7
<PAGE>
 
termination, unless the Company cures the breach within a specified period.
There are also sales goals to be met by the Company.

     The Company's agreements with various state-owned Polish vodka producers
may be terminated by either party without cause with one month prior written
notice. Products are delivered based on the Company's standard order forms.


   Wine

     The Company offers two brands of wine on an exclusive basis: the Sutter
Home Wines from the United States and Romanian Classic Wines from Romania. These
wines, which include standard red and white varieties, are offered through all
of the Company's regional offices. The Company also offers on a non-exclusive
basis the following sparkling wines and champagnes: Cinzano Asti, Gran Cinzano,
Gran Festa, Martini Asti, Martini Brut, Moet & Chandon Dom Perignon, Brut
Imperial and Mumm Cordon Rouge.


   Non-Alcoholic Products

     During 1998 the Company received the exclusive distribution rights for two
non-alcoholic brand-name products to add to its nationwide distribution system.
Both Evian Water products and Dunhill Cigars were added during the third quarter
of 1998.

SALES AND MARKETING

     As an early entrant in the post-Communist market in Poland, the Company has
over seven years of experience in introducing, developing and refining
marketing, sales and customer service practices in the diverse and rapidly
developing Polish economy, which it believes is a competitive advantage in the
alcoholic beverage distribution business.

     The Company employs approximately 70 salespeople who are assigned to one of
its eight regional offices. Each regional office has a sales manager, who may
also be the office manager, who meets with the salespeople of that office on a
daily basis to review products and payments before the salespeople begin calling
on customers. The sales force at each office is typically divided into three
categories: (a) vodka accounts; (b) import accounts; and (c) key accounts.
Salespeople, who are paid on commission, return to the office later in the day
to process orders so that products can be dispatched the next morning.


DISTRIBUTION SYSTEM

     The Company's headquarters are located in Warsaw, the capital of Poland, in
and around which, as of December 31, 1998, the Company estimates that 2.4
million people, or 6% of the country's population, lived. Sales and service
offices are presently located in seven major regional centers in central, north,
south and western Poland where, as of the same date, another 8.3 million, or 21%
of the population, lived. The Company estimates that the regional sales and
service centers deliver to surrounding cities covering an additional 6.0 million
people or an additional 15% of the population. Thus, the Company estimates that
it currently reaches 43% of Poland's population through direct sales and
distribution based on census data as of June 30, 1997. Other areas in Poland are
served through arrangements with wholesalers. See "Business Strategy."

     The Company has developed its own centrally controlled, national next-day
distribution system for its alcoholic beverage products, and has the ability to
leverage its distribution to include non-alcoholic beverage products in its
system. The Company believes that it is the only independent distribution
business which currently has this capability in Poland. For imported products,
the distribution network begins with a central bonded warehouse in Warsaw.

                                                                               8
<PAGE>
 
Products can remain in this warehouse without customs and other duties being
paid until the product is actually needed for sale. At such point, the product
is transferred to the Company's consolidation warehouse at the same location or
shipped directly to one of the regional office warehouses connected to each of
the Company's sales locations outside of Warsaw. Based on current sales and
projections, the regional offices are provided with deliveries on a weekly or
bi-weekly basis so that they are able to respond to their customers' needs on a
next-day basis.

     For products which the Company delivers for others who themselves import
the products into Poland, the distribution chain begins at the Company's
consolidation warehouse in Warsaw. From there, the product is delivered to
customers using the same procedures as described above.

     Except at peak periods during the summer holidays and other similar times
such as Christmas, all deliveries are made by Company-trained employees using
Company-owned or leased vehicles. During such busy periods, the Company relies
on independent contractors, which are usually small family-run businesses with
which the Company has had relationships for several years.


MARKET FOR PRODUCT LINE

     In the year ended December 31, 1998, approximately 65% of the Company's
total sales were through off-trade locations where the alcoholic beverages are
not consumed, another 25% through on-trade locations where the alcoholic
beverages are consumed, and the other 10% through other wholesalers.

   Off-Trade Market

     There are two components of the Company's sales to locations where
alcoholic beverages are not consumed on premises. The most significant are
small, usually Polish-owned and managed businesses, including small grocery
stores. At December 31, 1998, the Company sold products to approximately 3,500
such business outlets, which typically stock and sell relatively few alcoholic
beverage products and wish to have access to the most popular selling brands.
The other components of the off-trade business are large supermarket chains,
which are typically non-Polish-owned, as well as smaller multi-store retail
outlets operated by major Western energy companies in connection with the sale
of gasoline products. The large supermarket chains typically offer a wide
selection of alcohol products, while the smaller retail outlets offer a more
limited selection.

   On-Trade Market

     There are three components to the Company's sales to locations where
alcoholic beverages are consumed: sales to (i) bars and nightclubs; (ii) hotels;
and (iii) restaurants. Bars and nightclubs are usually locally managed
businesses, although they may be owned and operated in major cities by a non-
Polish national. Hotels include worldwide chains such as Marriott, Sheraton and
Holiday Inn, as well as the major Polish chain, Orbis. Restaurants are typically
up-scale and located in major urban areas. This latter category also includes
one major, United States-based pizza chain which operates in Poland.

   Wholesale Trade

     The Company also sells products throughout Poland through other
wholesalers. There are no written agreements with these wholesalers.

                                                                               9
<PAGE>
 
   Control of Bad Debts

     The Company believes that its close monitoring of customer accounts both at
the relevant regional office and from Warsaw has contributed to its success in
maintaining a low ratio of bad debts to net sales. During the years ended
December 31, 1996, 1997 and 1998, bad debt expense as a percentage of net sales
was 0.08%, 0.12% and 0.17% of net sales, respectively. Management believes the
proposed acquisition of computer upgrades for interoffice financial and
administrative controls will assist in maintaining a low ratio of bad debts to
net sales as the Company continues to expand.


COMPETITION

     The Company, as an early entrant in the post-Communist market in Poland,
has over seven years of experience in introducing, developing and refining
marketing, sales and customer service practices in the diverse and rapidly
developing Polish economy, which it believes is a competitive advantage in the
alcoholic beverage distribution business. The Company believes that it is
currently the only independent national distributor of an extensive and
diversified alcoholic beverage line in Poland. Some of the international drink
companies doing business in Poland, which import their own products but use the
Company on a nonexclusive basis to distribute their products, could develop
nationwide distribution systems, but have not and the Company believes these
companies will concentrate on expanding their sales organizations. These
entities include, Seagrams, Diageo plc, Allied Domecq and Bacardi. The Company
was the largest single distributor in 1996, 1997 and 1998 for Diageo plc
products in Poland.

     The Company competes with various regional distributors in all of its
offices. This competition is particularly vigorous with respect to domestic
vodka brands. One of the larger, foreign-owed chain stores also sells directly
to smaller retailers. The Company addresses this regional competition, in part,
through offering to customers in the region a single source supply of more
products than its regional competitors typically offer.

     The brands of beers, wines and spirits distributed by the Company compete
with other brands in each category, including some the Company itself
distributes. The Company expects this competition to increase as it adds more
brands, as international drinks and brewery companies expand production in
Poland and as the Polish produced products are distributed more efficiently. In
addition, the international drinks companies with which the Company competes in
the import sector of its business have greater managerial, financial and other
resources than does the Company.


DIRECTORS AND EXECUTIVE OFFICERS

     The directors and executive officers and their ages of CEDC as of March 15,
1999, are set forth below:

<TABLE>
<CAPTION>
          Name                                     Age     Position(s)                                       
          ----                                     ---     -----------                                       
          <S>                                      <C>     <C>                                                 
          William V. Carey....................     34      Chairman, President and Chief Executive Officer    
          Jeffrey Peterson....................     48      Vice Chairman and Executive Vice President         
          Joseph S. Conti.....................     62      Director                                           
          James T. Grossmann..................     58      Director                                           
          James B. Kelly......................     57      Director                                           
          Jan W. Laskowski....................     42      Director                                           
          Joe M. Richardson...................     46      Director                                           
          Robert Bohojlo......................     36      Vice President and Chief Financial Officer         
          Evangelos Evangelou.................     31      Chief Operating Officer                             
</TABLE>

     Directors and executive officers of CEDC are elected to serve until they
resign or are removed, or are otherwise disqualified to serve, or until their
successors are elected. All directors of CEDC are elected annually
at 

                                                                              10
<PAGE>
 
the annual meeting of stockholders. Executive officers of CEDC generally are
appointed at the board's first meeting after each annual meeting of
stockholders.

     WILLIAM V. CAREY has served as Chairman, President and Chief Executive
Officer of CEDC since its inception. Mr. Carey began working for Carey Agri in
1990 and in 1993, Mr. Carey instituted and supervised the direct delivery system
for Carey Agri's nationwide expansion. Mr. Carey, a 1987 graduate of the
University of Florida, played briefly on the professional golf circuit before
joining the Company. Mr. Carey is a member of the American Chamber of Commerce
in Poland.

     JEFFREY PETERSON has served as Vice Chairman, Executive Vice President and
director of CEDC since its inception. Mr. Peterson was a co-founder of Carey
Agri in 1990, and is a member of the management board of that entity. Prior
thereto, Mr. Peterson contracted with African, Middle Eastern, South American
and Asian governments and companies for the supply of American agricultural
exports and selected agribusiness products, such as livestock, feed supplements
and veterinary supplies. Mr. Peterson has worked with international banks and
United States government entities to facilitate support for exports from the
United States.

     JOSEPH S. CONTI has served as a Consultant and Senior Advisor to the Polish
American Enterprise Fund ("PAEF") since May 1992.  In this capacity, he
currently serves as Chairman of the Board of Directors of the First Polish
American Bank, a majority owned investment of the PAEF.  Mr. Conti also serves
as Chairman of the Board of Directors of the Enterprise Credit Corporation, a
wholly owned subsidiary of the PAEF.  He previously served as Vice Chairman of
the Board of Directors on Bank Rolno-Przemyslowy, a minority-owned investment of
the PAEF, until its sale to Rabobank in 1997.  Prior to consulting to the PAEF,
Mr. Conti spent 23 years with Bankers Trust Company, retiring in April 1992 as a
Senior Vice President.

     JAMES T. GROSSMANN, a retired United States foreign service officer, has
served as a director of CEDC since its inception. With the United States Agency
for International Development ("U.S.A.I.D."), during the years 1977 to 1996,
Mr. Grossmann served in emerging markets in Central Europe, Central America,
Africa and Asia with a concentration on developing private sector trading and
investment through United States government-sponsored aid programs. Immediately
prior to his retirement in 1996, he managed a $300 million mass privatization
and capital markets development program that assisted 14 former state-controlled
countries in Central Europe transition to market economies.

     JAMES B. KELLY, a former Deputy Assistant Secretary of Commerce of the
United States specializing in international economic policy, has served as a
director of CEDC since its inception. Mr. Kelly is currently the President of
SynXis Corporation, a software development company, a position he has held since
August 1996. From July 1992 to August 1996, Mr. Kelly was the International 
Vice-President of BDM International, an international information technology
company with sales in 1996 of over $1.0 billion, where he was in charge of
penetrating foreign technology markets by acquisition, alliance and direct
sales.

     JAN W. LASKOWSKI has served as a director of CEDC since its inception. Mr.
Laskowski has lived and worked in Poland since 1991. He was the Vice President
and member of the management board of American Bank in Poland ("Amerbank")
until February 1999, a position he had held since 1996, where he was responsible
for business development. Before joining Amerbank in 1991, Mr. Laskowski worked
in London for Bank Liechtenstein (UK) Ltd from 1989 to 1991. He began his career
with Credit Suisse, also in London, where he worked for 11 years.

     JOE M. RICHARDSON has served as a director of CEDC since its inception.
Since October 1994, Mr. Richardson has served as the Director of Sales and
Marketing Europe of Sutter Home Winery Inc., where he is responsible for
developing and managing the importation, distribution and sales of Sutter Home
Wines within Europe. From October 1993 until October 1994, Mr. Richardson
assisted Carey Agri in marketing development. Prior thereto, Mr. Richardson had
19 years experience in the wine industry.

     ROBERT BOHOJLO joined the Company in January 1998 as Vice President and
Chief Financial Officer. From February 1995 to December 1997, he held a similar
position in Media Express, the publisher of the second largest daily newspaper
in Poland. Prior thereto, he worked with Coopers and Lybrand and ABB Poland
carrying out financial and business consultancy projects. Mr. Bohojlo is a
graduate of the University of Stockholm and obtained his training and business
experience in Sweden and Canada.

                                                                              11
<PAGE>
 
     EVANGELOS EVANGELOU joined the Company in September 1998. From October 1993
until July 1998, Mr. Evangelou was both Assistant Manager and General Manager of
Louis Poland where he was responsible for the day to day operations of all food
and beverage outlets within Warsaw International Airport. Prior to coming to
Poland for Louis, Mr. Evangelou was in food and beverage management in the
United Kingdom.

EMPLOYEES

     The Company had approximately 220 full-time employees as of December 31,
1998. Substantially all employees were employed in Poland and, as required by
Polish law, have labor agreements with the Company. The Polish Labor Code, which
applies to each of these agreements, requires that certain benefits be provided
to employees, such as the length of vacation time and maternity leave. This law
also restricts the discretion of the Company's management to terminate employees
without cause and requires in most instances a severance payment of one to three
months salary. The Company made required monthly payments of 48% of an
employee's salary to the governmental health and pension system and has
established a Social Benefit Fund as required by Polish law, but does not
provide other additional benefit programs. The Social Benefits system was
changed under Polish law effective January 1, 1999, but the Company believes
that it will not have a material effect on the Company's earnings. None of the
Company's employees are unionized. The Company believes that its relations with
its employees are good.

REGULATION 

     The Company's business of importing and distributing alcoholic beverages is
subject to extensive regulation. The Company believes it is operating with all
licenses and permits material to its business. The Company is not subject to any
proceedings calling into question its operations in compliance with any
licensing and permit requirements.

  IMPORT OF PRODUCTS

  Import License

     The Company must receive a license from the Minister of Economy to be able
to import all of its alcoholic beverages except for the beer and wine brands.
The current license was issued for the period from July 31, 1998 until December
31, 2000. While in certain circumstances prescribed by Polish law, the Minister
of Economy has discretion to withdraw the import license or limit its scope, the
Company believes that such license will remain effective as long as the Company
abides by the conditions set forth therein, including, in particular, regular
reporting to the Minister of Economy on the volume of imports. The Company must
also apply each year for a license to import cigars. The Company has obtained a
license which expires on December 31, 2000.

  Import Permits

     Additionally, import permits must be obtained for specific consignments of
alcoholic beverages to be imported under the import license as well as under
customs quotas. See "--Customs Duties and Quotas." The Company must obtain such
permits for all its imported alcoholic beverages except for the beer and wine
brands. The application for a permit is usually made when products are ordered
and must specify the product, amount of product and source country. 

                                                                              12
<PAGE>
 
Permits are issued for three months, and the Company must demonstrate to
appropriate officials that each consignment it imports is covered by a permit.
Similar permits must be obtained for the import of cigars.


  Approval of Health Authorities

     Local health authorities at the place of import must also be notified of
what alcoholic beverages and cigars are being imported into Poland. This
notification is typically given when a particular shipment of products arrives
in Poland. In general, this notice permits the applicable health authorities to
determine that no product is entering the Polish market without having been
previously approved for sale in Poland. See "--Wholesale Activities--General
Norms."

  WHOLESALE ACTIVITIES

     The Company must have additional permits from the Minister of Economy and
appropriate health authorities to operate its wholesale distribution business.
Furthermore, it must comply with rules of general applicability with regard to
packaging, labeling and transporting products.


  General Permits

     The Company is required to have permits for the wholesale trade of each of
its three product lines. The permit with regard to beer is issued for two years
and the current permit expires on March 28, 2001. The permit with regard to
spirits is issued for one year and the current permit expires on December 31,
1999. The permit for wine is issued for two years and the current permit expires
on March 28, 2001. One of the conditions of these permits is that the Company
sells its products only to those who have appropriate permits to resell the
products. A permit can be revoked or not renewed if the Company fails to observe
laws applicable to its business as an alcohol wholesaler, fails to follow the
requirements of a permit or if it introduces into the Polish market alcohol
products that have not been approved for trade. The Company must also obtain
separate permits for each of its warehouses.


  Health Requirements

     The Company must obtain the approval of the local health authorities to
open and operate its warehouses. This approval is the basis for obtaining the
permit for wholesale activities. The health authorities are primarily concerned
with sanitation and proper storage of alcoholic beverages, especially those
which must be refrigerated, as well as cigars. These authorities can monitor the
Company's compliance with health regulations. Similar regulations apply to the
transport of alcoholic beverages and cigars, and the drivers of such transports
must themselves submit health records to appropriate authorities.

  General Norms

     The Company must comply with a set of rules, usually referred to generally
as "Polish Norms," which constitute legal regulations concerning, as applicable
to the Company, standards according to which alcoholic beverages and cigars are
packaged, stored, labeled and transported. These norms are established by the
Polish Normalization Committee, composed of specialists. In case of alcoholic
beverages, the committee is composed of academics working with relevant
government ministries and agencies as well as experienced businessmen working in
the alcoholic beverage industry. The Company received a certificate after an
inspection by the Central Standardization Institute, which is part of the
Ministry of Agriculture, indicating its compliance with applicable norms as of
the date thereof. Such certification also is needed to import alcoholic
beverages. Compliance with these norms also is confirmed by health authorities
when particular shipments of alcoholic beverages arrive in Poland. See "--Import
of Products--Approval of Health Authorities."

                                                                              13
<PAGE>
 
  CUSTOMS WAREHOUSE

     Since the Company operates a customs warehouse, further regulations apply,
and a permit of the President of the Main Customs Office and the approval of
health authorities are required to open and operate such a warehouse. The
applicable health concerns are the same as those discussed under "--Wholesale
Activities" with regard to non-custom warehouses. The Company received its most
current permit on December 28, 1998 from the President of the Main Customs
Office, which is for an unspecified period of time. The continued effectiveness
of the permit is conditioned on the Company's complying with the requirements of
the permit which are, in general, the proper payment of customs duties and
maintenance of an insurance policy.


  CUSTOMS DUTIES AND QUOTAS

     As a general rule, the import of alcoholic beverages and cigars into Poland
is subject to customs duties and the rates of the duties are set by the Polish
government acting through the Council of Ministers for particular types of
products. In the Company's case, the duties vary by its products lines.

     The Counsel of Ministers is authorized, however, to establish a schedule of
quotas for alcoholic beverages and cigars for which the customs duties are
substantially reduced. For example, the basic customs duty on scotch whiskey
currently imported by the Company is $21.99 per .75 liter bottle, or 395% higher
than the $3.27 duty under the quota in 1999. The difference between the basic
custom duties and the duty under the quota on other spirit products imported by
the Company were only somewhat smaller than the difference on scotch. The
difference between the basic custom duties and the duty under the quota was
considerably smaller for beer and wine products subject to customs duties and
imported by the Company. The customs duty on beer imported from the European
Union (e.g., Guinness Stout) decreased from 17.5% in 1998 to 6.0% in 1999. In
the case of beer imported from the Czech Republic (e.g., Budweiser Budvar) the
average basic duty of $2.10 per case of beer was approximately 43% higher than
the duty under the quota, and the basic customs duty of $0.15 per .75 liter
bottle of wine was 100% higher than the duty under the quota.

     Customs quotas for alcoholic beverages as well as for cigars are fixed
annually, with the current quotas being applicable through December 31, 1998.
There are no public guidelines on how the Minister of Economy has determined the
current quotas or may determine future quotas. If such quotas were substantially
reduced or eliminated, it would likely have an adverse impact on the Company's
business since the retail price of some of its imported alcohol products would
increase.

     To import alcoholic beverages and cigars under the quotas, the Company must
receive a permit which is generally valid for three months and specifies what
products and what quality thereof may be imported from what country or group of
companies. It is the Company's practice to apply for this import permit after
concluding a contract for the import of a particular group of products. The
Company has always received the import permits for which it has applied,
although there can be no assurance that it will continue to do so in the future.


  PRICE AND MARGIN CONTROLS

     In general, Polish law does not affect either the prices charged or the
margins earned by the Company on its imported liquor products. Provisions of the
tax law provide for a general ban on importing products at "dumping prices,"
generally defined as being at prices lower than for similar products in the
country of origin. Fines could be imposed for such activity. Also, the Treasury
Office, which is part of the Ministry of Finance, may order a reduction in the
price of a product it determines to be "blatantly high." This standard is
deemed met if (a) the price of a product exceeds the price of the same alcoholic
beverage in another local jurisdiction by more than 25% or of a similar
alcoholic beverage by 40% or (b) the price quoted by the seller is higher than
10% of the price quoted to the same purchaser by another seller and the former
seller cannot justify the higher price.


  ADVERTISING BAN

     Pursuant to the Alcohol Awareness Law of October 26, 1982, as amended,
there is an absolute ban on direct and indirect advertising of alcoholic
beverages in Poland. The definition of "alcoholic beverage" under such law

                                                                              14
<PAGE>
 
encompasses all the Company's products. Promotions at the point of sale and game
contests are often used to limit the law's impact. The agency charged with
enforcing this law has successfully brought numerous cases in the past few years
alleging indirect advertising in the media. The Company has not been involved in
any such proceedings and seeks to comply fully with this law.


  REGULATION OF RETAIL SALES

     As part of the Company's business strategy, it plans to operate retail
outlets for alcoholic beverages. Polish law will require each such outlet to
have a retail permit to sell the brands expected to be offered to the public.
Typically, such permits are valid for two years and are renewable. The local
health authorities must also approve the sale of alcoholic beverages for each
location. The retail permit for the Company's initial retail outlet in Warsaw is
valid from February 25, 1998 through February 24, 2000.

RISK FACTORS

  LIMITED MANAGEMENT RESOURCES; DEPENDENCE ON KEY PERSONS

     The Company is relying on a small number of key individuals to implement
its business and operations and, in particular, the services of William V.
Carey, its Chairman, President and Chief Executive Officer, and Jeffrey
Peterson, its Vice Chairman and Executive Vice President. Accordingly, the
Company may not have sufficient managerial resources to successfully manage the
increased business activity envisioned by its business strategy, although it
continues to employ an experienced manager at its Polish subsidiary. In
addition, the Company's future success depends in large part on the continued
service of Messrs. Carey and Peterson. Mr. Carey has entered into a three-year
employment agreement with the Company which commenced on July 31, 1998 and which
may be terminated by Mr. Carey only for "good reason," which includes CEDC's
failure to perform its obligations under the agreement, or by CEDC for "cause,"
as defined, which includes Mr. Carey's willful refusal to follow written orders
or willful engagement in conduct materially injurious to the Company or
continued failure to perform his required duties. The Company has purchased a
$2.5 million key man life insurance policy on the life of Mr. Carey. Mr.
Peterson has entered into a two-year employment agreement with the Company which
commenced on July 31, 1998 and which may be terminated by CEDC, with or without
cause, on three months' prior written notice. Mr. Peterson may terminate his
employment agreement only for good reason. See "Management--Compensation Plans--
Employment Agreements."

     The management of future growth will require, among other things, continued
development of the Company's financial and management controls and management
information systems, stringent control of costs, increased marketing activities,
ability to attract and retain qualified management personnel and the training of
new personnel. The Company continues to seek additional personnel in order to
manage its growth and expansion. Failure to successfully hire needed personnel
and to manage its growth and development would have a material adverse effect on
the Company's business, results of operations and financial condition.

  NONEXCLUSIVE, SHORT-TERM SUPPLY CONTRACTS

     The Company has exclusive rights to distribute in Poland certain alcoholic
beverages which during 1996, 1997 and 1998 constituted approximately $8.0
million, $8.3 million and $10.4 million, respectively, or 33%, 21% and 19%,
respectively, of its net sales.  The Company distributes the remainder of the
alcoholic beverages in its portfolio on a nonexclusive basis, and, therefore,
the Company enjoys little competitive advantage with regard to the distribution
of these beverages which are already available to the Company's competitors at
prices similar to those which the Company pays.  Furthermore, most of the
Company's distribution agreements have a term of approximately one year,
although many are automatically renewed unless one party gives notice of
termination.  Several of such agreements, however, can be terminated by one
party without cause on relatively short notice. For example, the distribution
agreements with respect to domestic vodka (which accounted for approximately
14%, 39% and 54% of the Company's net sales in 1996, 1997 and 1998,
respectively) can be terminated on one month's notice. The agreements with units
of Diageo plc, which was formed in part in 1998 from the combination of
affiliates of the Company's suppliers United Distiller and International Drinks
and Vintners, can be terminated on 90 days' prior written notice and
constituted, on a combined basis, 32%, 25% and 15% of the Company's net sales in
1996, 1997 and 1998, respectively. The termination of such agreements could have
a material adverse effect on the business and operations of the Company.

                                                                              15
<PAGE>
 
  RISKS RELATED TO GROWTH THROUGH ACQUISITIONS

     The Company's growth will depend in large part on its ability to acquire
additional distributors, increase product offerings, manage expansion, control
costs in its operations and consolidate effectively any acquisition into its
existing operations and systems of management and financial controls. Unforeseen
capital and operating expenses, or other difficulties, complications and delays
frequently encountered in connection with the expansion and integration of
acquired operations could inhibit the Company's growth. The full benefits of a
significant acquisition will require the integration of operational,
administrative, finance, sales and marketing organizations, as well as the
coordination of common sales and marketing efforts and the implementation of
appropriate operational, financial and management systems and controls. This
effort will require substantial attention from the Company's senior management
team. The diversion of management attention required by an acquisition could
have an adverse effect on the net sales and operating results of the Company.
There can be no assurance that the Company will identify suitable acquisition
candidates, that acquisitions will be consummated on acceptable terms or that
the Company will be able to successfully integrate the operations of any
acquisition. In addition, there can be no assurance that any acquired businesses
will be profitable at the time of their acquisition or will achieve or maintain
profitability levels that justify the investment therein, or that the Company
will be able to realize operating and economic efficiencies following such
acquisitions.

     The Company's ability to grow through the acquisition of additional
companies will also be dependent upon the availability of capital to complete
such acquisitions. The Company intends to finance acquisitions through a
combination of its available cash resources, bank borrowings and, in appropriate
circumstances, the further issuance of equity and/or debt securities. Acquiring
additional companies will have a significant effect on the Company's financial
position, and could cause substantial fluctuations in the Company's quarterly
and yearly operating results. Also, acquisitions could result in the recording
of significant goodwill and intangible assets on the Company's financial
statements, the amortization of which would reduce reported earnings in
subsequent years.

     Under the Polish Anti-Monopoly Act, acquisitions may be blocked or have
conditions imposed upon them by the Polish Office for Protection of Competition
and Consumers (the "Anti-Monopoly Office") if the Anti-Monopoly Office
determines that the acquisition has a negative impact on the competitiveness of
the Polish market.


  LIMITED RETAIL EXPERIENCE

     One component of the Company's growth strategy is to expand its limited
retail market for sales of alcoholic beverages. The Company has significant
retail experience only at one location in Warsaw and, accordingly, is subject to
the numerous risks of expanding a new business. Such risks include, among
others, unanticipated operating problems, lack of experience and significant
competition from existing and new retailers. There can be no assurance that the
Company will be able to conduct retail operations profitably.


  DEPENDENCE ON PRINCIPAL SUPPLIERS

     Various companies from which the Company purchases alcoholic beverages were
combined in 1998 into a new holding company structure under the name of Diageo
plc.  Purchases from such companies, on a combined basis, accounted for 38% of
the Company's net sales in 1996, 29% in 1997 and 17% in 1998.  The termination
of the Company's relationship with any of these entities could have a material
adverse effect on the business and operations of the Company.


  FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

     The Company has experienced, and expects to continue to experience,
significant fluctuations in its quarterly operating results. The Company's
future operating results are dependent upon a number of factors including, but
not limited to, the demand for its products, the timing of its sales, the length
of its sales cycle and the timing and development of any competing businesses or
products and legislation.

                                                                              16
<PAGE>
 
  REGULATION OF THE COMPANY'S BUSINESS

     The importation and distribution of alcoholic beverages in Poland are
subject to extensive regulation, requiring the Company to receive and renew
various permits and licenses to import, warehouse, transport and sell alcoholic
beverages. These permits and licenses often contain conditions with which the
Company must comply in order to maintain the validity of such permits and
licenses. The Company believes it is operating with all the licenses and permits
material to its business, and the Company is not subject to any proceeding
calling into question its operations in compliance with any licensing and permit
requirements. The import and sale of cigars by the Company is also subject to
regulation.

     There can be no assurance that the various governmental regulations
applicable to the alcoholic beverage industry will not be changed so as to
impose more stringent requirements on the Company. If the Company were to fail
to be in compliance with applicable governmental regulations or the conditions
of the licenses and permits it receives, such failure could cause the Company's
licenses and permits to be revoked and have a material adverse effect of the
Company's business, results of operations and financial condition. Further, the
applicable Polish governmental authorities, in particular the Minister of
Economy, have articulated only general standards for issuance, renewal and
termination of the licenses and permits which the Company needs to operate and,
therefore, such governmental authorities retain considerable discretionary
authority in making such decisions.


  POSSIBILITY OF INCREASED GOVERNMENTAL REGULATION

     The alcoholic beverage industry has become the subject of considerable
societal and political attention generally in recent years due to increasing
public concern over alcohol-related societal problems, including driving while
intoxicated, underage drinking and health consequences from the abuse of
alcohol. As an outgrowth of these concerns, the possibility exists for further
regulation of the alcoholic beverage industry in Poland. If alcohol consumption
in general were to come into disfavor among consumers in Poland, the Company's
business operations could be materially adversely affected. Since the Company
expects to sell cigars at its retail stores, it will also be subject to public
concern and governmental regulation over the sale and use of tobacco products.


  POSSIBLE INCREASE IN GOVERNMENTAL TAXATION

     The import and sale of alcoholic beverages is a business that is highly
regulated and subject to taxation in Poland. The Company's operations may be
subject to increased taxation as compared with those of non-alcohol related
businesses. In such case, the Company may have to raise prices on its products
to maintain its profit margins. The effect on the Company's business operations
of such an increase will depend on the amount of any such increase, general
economic conditions and other factors, but could negatively impact sales of the
products the Company distributes. The anticipated import and sale of cigars by
the Company will also be subject to regulation and taxation.


  CUSTOMS DUTIES AND QUOTAS

     As a general rule, the import of alcoholic beverages into Poland is subject
to customs duties and the rates of the duties are set for particular types of
products. The Minister of Economy is authorized to establish a schedule of
quotas for alcoholic beverages for which the customs duties are substantially
reduced. Customs quotas for alcoholic beverages are fixed annually, with the
current quotas being applicable through December 31, 1999. There are no public
guidelines on how the Minister of Economy has determined the current quotas or
may determine future quotas. If such quotas were substantially reduced or
eliminated, it would likely have an adverse impact on the Company's business
operations since the retail price of its imported alcoholic beverages would
likely increase.

                                                                              17
<PAGE>
 
  COMPETITION LAW

     Competition in Poland is governed by the Anti-Monopoly Act, which
established the Anti-Monopoly Office to regulate monopolistic and other anti-
competitive practices. The current body of Polish anti-monopoly law is not well-
established. As a general rule, companies that obtain control of 40% or more of
their market may face greater scrutiny from the Anti-Monopoly Office than those
that control a lesser share. Additionally, several types of reorganizations,
mergers and acquisitions and undertakings between business entities, including
acquisitions of stock, under circumstances specified in the Anti-Monopoly Act,
require prior notification to the Anti-Monopoly Office. Sanctions for failure to
notify include fines imposed on parties to the transaction and members of their
governing bodies. Pursuant to the current interpretation of the Anti-Monopoly
Office, transactions between non-Polish parties affecting market conditions in
Poland may also require a notification to the Anti-Monopoly Office. The Law on
Public Trading in Securities, which came into force on January 4, 1998, provides
for an amendment to the Anti-Monopoly Act to repeal the exemption from
notification of transactions made on a stock exchange, but such law does not
stipulate whether this is applicable to stock exchanges outside Poland or only
those within Poland. There can be no assurance that the Anti-Monopoly Office
will approve any future acquisition by the Company.

  POLITICAL AND ECONOMIC ENVIRONMENT; ENFORCEMENT OF FOREIGN JUDGMENTS

     Poland has undergone significant political and economic change since 1989.
Political, economic, social and other developments in Poland could in the future
have a material adverse effect on the Company's business and operations. In
particular, changes in laws or regulations (or in the interpretations of
existing laws or regulations), whether caused by changes in the government of
Poland or otherwise, could materially adversely affect the Company's business
and operations. Currently there are no limitations on the repatriation of
profits from Poland, but there can be no assurance that foreign exchange control
restrictions, taxes or limitations will not be imposed or increased in the
future with regard to repatriation of earnings and investments from Poland. If
such exchange control restrictions, taxes or limitations are imposed, the
ability of CEDC to receive dividends or other payments from Carey Agri could be
reduced, which may have a material adverse effect on the Company.

     Poland is generally considered by international investors to be an emerging
market. There can be no assurance that political, economic, social and other
developments in other emerging markets will not have an adverse effect on the
market value and liquidity of the Common Stock. In general, investing in the
securities of issuers with substantial operations in markets such as Poland
involves a higher degree of risk than investing in the securities of issuers
with substantial operations in the United States and other similar
jurisdictions.

     CEDC is organized under the laws of the State of Delaware. Company
stockholders are able to effect service of process in the United States upon
CEDC and may be able to effect service of process upon its directors, due to the
fact that CEDC is primarily a holding company which holds all of the outstanding
securities of Carey Agri, substantially all of the assets of the Company are
located outside the United States. As a result, it may not be possible for
investors to enforce against the Company's assets judgments of United States
courts predicated upon the civil liability provisions of United States laws.
CEDC has been advised by its counsel that there is doubt as to the
enforceability in Poland, in original actions or in actions for enforcement of
judgments of U.S. courts, of civil liabilities predicated solely upon the laws
of the United States. In addition, awards of punitive damages in actions brought
in the United States or elsewhere may not be enforceable in Poland.

  INFLATION; CURRENCY RISK

     Since the fall of Communist rule in 1989, Poland has experienced high
levels of inflation and significant fluctuations in the exchange rate for the
zloty. The Polish government has adopted policies that slowed the annual rate of
inflation from approximately 250% in 1990 to approximately 15% in 1997 and to
approximately 8.5% in 1998. In addition, while the exchange rate for the zloty
per U.S. Dollar has stabilized, it continues to fluctuate. Inflation and
currency exchange fluctuations have had, and may continue to have, an adverse
effect on the financial condition and results of operations of the Company.

     Certain of the Company's operating expenses and capital expenditures are,
and are expected to continue to be, denominated in or indexed to U.S. Dollars or
other hard currencies. By contrast, substantially all of the Company's revenue
is denominated in zloty. Any devaluation of the zloty against the U.S. Dollar
that the Company is unable to 

                                                                              18
<PAGE>
 
offset through price adjustments will require the Company to use a larger
portion of its revenue to service its U.S. Dollar-denominated obligations. While
the Company may consider entering into transactions to hedge the risk of
exchange rate fluctuations, it is unlikely that the Company will be able to
obtain hedging arrangements on commercially satisfactory terms. Accordingly,
shifts in currency exchange rates may have an adverse effect on the ability of
the Company to service its U.S. Dollar denominated obligations and, thus, on the
Company's financial condition and results of operations.


  EXCHANGE RATE

     The following table sets forth, for the periods indicated, the noon
exchange rate (expressed in current zloty) quoted by the National Bank of
Poland. Such rates are set forth as zloty per U.S. Dollar. At March 24, 1999,
such rate was PLN 3.94 = $1.00.

<TABLE>
<CAPTION>
 
                                                 Year ended December 31,  
                                                --------------------------
                                                  1996     1997     1998  
                                                --------  -------  -------
     <S>                                        <C>       <C>      <C>    
     Exchange rate at end of period...........      2.88     3.53     3.50
     Average exchange rate during period (1)..      2.70     3.28     3.50
     Highest exchange rate during period......      2.88     3.56     3.81
     Lowest exchange rate during period.......      2.47     2.86     3.41 
</TABLE>

______________
     (1)  The average of the exchange rates on the last day of each month during
          the applicable period.


ITEM 2.  PROPERTIES

CUSTOMS AND CONSOLIDATION WAREHOUSE

     The Customs and Consolidation Warehouse is a 2,815 square meter leased
facility located near Warsaw. The leases are long term and the monthly rental,
denominated in Polish currency, was approximately $10,670 per month as of
December  31, 1998.


SALES OFFICES AND WAREHOUSES

     The Company also has entered into leases for its Warsaw headquarters and
each of its seven regional sales offices and warehouses. The amount of office
and warehouse space leased varies between 536 square meters in Gdynia up to
1,090 square meters in Krakow. The monthly lease payments, which are denominated
in Polish currency, vary between approximately $2,000 and $4,000 at the regional
offices and is $11,670 per month in Warsaw. The Warsaw lease can be terminated
on six months prior notice; five of the other leases can be terminated by either
party on three months prior notice; one can be terminated by either party on two
months prior notice.


RETAIL OUTLET

     The Company has entered into a lease dated August 21, 1997 for its Warsaw
retail outlet. The lease is for an indefinite term and can be terminated by
either party on three months prior notice. The lessor, however, has waived its
right to terminate the agreement for three years as long as the lessee is
performing its obligations thereunder. Lease payments are currently $2,000 per
month.

                                                                              19
<PAGE>
 
ITEM 3. LEGAL PROCEEDINGS

     The Company is involved in litigation from time to time in the ordinary
course of business. In management's opinion, such litigation, individually and
in the aggregate, is not material to the Company's financial condition or
results of operations.

     A recent examination of Carey Agri's Value Added Tax returns resulted in
deductions for certain items being challenged by the Polish tax authorities.
The Company believes it can sucessfully defend its position.  The estimated
exposure, including penalties, based on the tax authority claim, is
approximately $110,000.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1998.


PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
         STOCKHOLDER MATTERS

MARKET INFORMATION

     The Company's common stock, $0.01 per share ("Common Stock") has been
traded on the Nasdaq Smallcap Market (the "Smallcap Market") under the symbol
"CEDC" since the Company's initial public offering in July 1998. Before such
time, there was no established public trading market for the Common Stock. The
following table sets forth the high and low sales prices for the Common Stock,
as reported on the Smallcap Market for each of the Company's fiscal quarters
since trading commenced through December 31, 1998.


                                      High          Low

Quarter Ended 9/30/98                  7.000         4.375

Quarter Ended 12/31/98                 6.125         3.375

     On March 24, 1999, the last reported sales price of the Common Stock was
$6.875 per share.

HOLDERS

     As of March 5, 1999 there were 342 record holders of the Common Stock.

DIVIDENDS

     Neither CEDC nor Carey Agri has ever declared or paid any dividends on its
capital stock.  Neither company anticipates paying dividends in the forseeable
future.  Future dividends, if any, will be subject to CEDC's board of directors
and will depend upon, among other things, the results of CEDC's operations,
CEDC's capital requirements, surplus, general financial condition and
contractual restrictions and such other factors as the board of directors may
deem relevant.

     In addition, CEDC is a holding company with no business operations of its
own. Therefore, the ability of CEDC to pay dividends will be dependent upon
either cash flows and earnings of Carey Agri or the payment of funds by that
subsidiary to CEDC. As a Polish limited liability company, Carey Agri is
permitted to declare dividends only once a year from its retained earnings,
computed under Polish Accounting Regulations after the audited financial
statements for that year have been provided to and approved by shareholders and
filed with a court.

                                                                              20
<PAGE>
 
     At December 31, 1998, approximately $1.9 million in earnings of Carey Agri
were undistributed.  The Company presently intends that such funds will be
permanently reinvested in Poland and will, accordingly, not be available to pay
dividends to CEDC. Consequently at such date, no earnings were available to pay
dividends to CEDC. See Note 9 to the Notes to consolidated financial Statements
contained in Item 8 of the report on Form 10-K.

ITEM 6. SELECTED FINANCIAL DATA

     The following table sets forth selected consolidated financial data for the
periods indicated and should be read in conjunction with and is qualified by
reference to "Management's Discussion and Analysis of Financial Condition and
Results of Operations," the consolidated financial statements, the notes thereto
and the other financial data contained in Items 7 and 8 of this report on Form
10-K. Data for 1994 is unaudited but, in the opinion of management, includes
adjustments necessary to present fairly the information shown.

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                               -----------------------
INCOME STATEMENT DATA:
                                                          1994        1995        1996      1997      1998
                                                        -------     -------     -------   -------   -------
                                                      (unaudited)                                                            
                                                           (in thousands, except for per share amounts)                         
<S>                                                    <C>         <C>         <C>       <C>       <C>     
Net sales...........................................   $6,788      $16,017     $23,942   $40,189   $54,011
Cost of goods sold..................................    5,480       13,113      19,850    34,859    45,864
                                                       ------      -------     -------   -------   -------
                                                                           
Gross profit........................................    1,308        2,904       4,092     5,330     8,147
Sales, general and administrative                                          
  expenses..........................................    1,356        2,603       3,569     4,198     5,790
                                                       ------      -------     -------   -------   -------
                                                                           
Operating income (loss).............................      (48)         301         523     1,132     2,357
Non-Operating income (expense)                                             
 Interest expense...................................      (50)        (106)       (124)     (200)     (192)
 Interest income....................................      ---          ---         ---        28       170
 Realized and unrealized foreign currency                                  
  transaction losses, net...........................     (118)         (84)       (232)     (326)       (5)
 Other income (expense), net........................     (147)          84           6        15         1
                                                       ------      -------     -------   -------   -------
                                                                           
Income (loss) before income taxes...................     (363)         195         173       649     2,329
Income (taxes) credit...............................       32         (120)       (111)     (341)     (861)
                                                       ------      -------     -------   -------   -------
                                                                           
Net income (loss)...................................   $ (331)     $    75     $    62   $   308   $ 1,468
                                                       ======      =======     =======   =======   =======
                                                                           
Net income (loss) per common share,                                        
  basic and dilutive(1).............................   $(0.19)       $0.04       $0.03     $0.17     $0.56
                                                       ======      =======     =======   =======   =======
                                                                           
Average number of outstanding shares of                                    
  common stock (1)..................................    1,780        1,780       1,780     1,780     2,635

<CAPTION> 
                                                                          DECEMBER 31,
                                                                          ------------
BALANCE SHEET DATA:
                                                         1994       1995        1996      1997      1998
                                                        -------    -------     -------   -------   -------
                                                      (unaudited)                                                            
                                                                            (in thousands)
<S>                                                   <C>          <C>         <C>       <C>       <C> 
Cash................................................   $  251      $   595     $   740   $ 1,053   $ 3,628
Working capital (deficit)...........................     (221)          27        (117)     (508)   10,922
Total assets........................................    1,692        3,264       7,335    12,530    21,926
Long-term debt and capital lease obligations,                              
 less current portion...............................      ---          180         303        47       ---
Stockholders' equity (deficit)......................     (111)         (36)         26       334    12,327
</TABLE> 

_____________

(1)  Gives effect to the 1,780,000 shares of Common Stock issued in the
     reorganization and 2,000,000 shares issued in the July 1998 initial public
     offering.

                                                                              21
<PAGE>
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

     The following analysis should be read in conjunction with the Consolidated
Financial Statements and the notes thereto appearing elsewhere in this report.

OVERVIEW

     The Company's operating results are generally determined by the volume of
alcoholic beverages that can be sold by the Company through its national
distribution system, the gross profits on such sales and control of costs. The
Company purchases the alcoholic beverages it distributes from producers as well
as other importers and wholesalers. Normally purchases are made with the sellers
providing a period of time, generally between 25 and 90 days, before the
purchase price is to be paid by the Company. Since the Company's initial public
offering in July 1998, however, the Company pays for a significant portion of
its domestic vodka purchases using cash on delivery terms in order to receive
additional discounts. The Company sells the alcoholic beverages with a mark-up
over its purchase price, which mark up reflects the market price for such
individual product brands in the Polish market. The Company's bad debt provision
as a percentage of net sales was 0.08% in 1996, 0.12% in 1997 and 0.17% in 1998.

     The following comments regarding variations in operating results should be
read considering the rates of inflation in Poland during the period -- 1996,
18.5%; 1997, 14.9% and 1998 8.5%-- as well as the fluctuations of the Polish
zloty compared to the U.S. Dollar. The zloty in comparison to the U.S. Dollar
depreciated 16.6% and 22.6% in 1996 and 1997, respectively. In 1998 the zloty
appreciated 0.3% compared to the U.S. Dollar.

RESULTS OF OPERATIONS

 YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

     Net sales increased $13.82 million, or 34.4% from $40.19 million in 1997 to
$54.01 million in 1998.  This increase is mainly due to increased sales of
domestic vodka and increased market penetration by the existing distribution
system.

     Cost of goods sold increased $11.01 million, or 31.6%, from $34.86 million
in 1997 to $45.86 million in 1998. As a percentage of net sales, cost of goods
sold decreased from 86.7% to 84.9%. This decrease is mainly due to increases in
the selling price for domestic vodka in the first half of the year, increased
discounts on domestic vodka due to higher purchases and, in the second half of
1998, paying for the purchases more quickly. These items offset the higher
portion of vodka sales which sells at a lower gross margin than imported alcohol
products.

     Sales, general and administrative expenses increased $1.59 million or 37.9%
from $4.20 million in 1997 to $5.79 million in 1998. This increase is mainly due
to the expansion of sales noted above and additional expenses in connection with
running a public company.  As a percentage of net sales, sales, general and
administrative expenses increased slightly from 10.4% to 10.7%.

     Interest expense increased $20,000 or 11.6% from $172,000 in 1997 to
$192,000 in 1998.  This increase is mainly due to additional borrowing required
for financing the initial public offering expenses and for supporting the higher
sales volume in the first half of the year. In the second half of the year all
outstanding debt was retired using the proceeds from the initial public
offering. As a percentage of net sales, interest expense was 0.4% in 1997 and
1998.

     In 1998, interest income was $170,000 which resulted from earnings on the
funds raised from the public offering.

     Net realized and unrealized foreign currency transactions resulted in
losses of $326,000 in 1997 and $5,000 in 1998.  Lower foreign currency losses in
1998 are due to paying foreign suppliers more quickly and to the relative
stability of the zloty in 1998, versus the U.S. dollar.  In addition, the
Company no longer considered Poland to be a

                                                                              22
<PAGE>
 
hyperinflationary country since January 1, 1998 and made the Polish zloty the
functional currency for Carey Agri's operations. Therefore, translation losses
are now accounted for in equity, in the determination of comprehensive income,
rather than in the income statement. Such translation losses were $110,000 in
1998.

     Income tax expense increased $520,000, from $341,000 in 1997 to $861,000 in
1998. This increase is mainly due to the increase in income before income taxes
from $649,000 to $2,329,000.

     The effective tax rate decreased from 52.5% in 1997 to 37.0% in 1998.
Permanent differences (for items such as non-deductible interest, taxes, and
depreciation) between financial and taxable income normally make up a
considerably lower percentage of income before income taxes when income before
income taxes is higher, as it was in 1998. For this reason, as well as the
decrease in the statutory tax rate in Poland from 38% in 1997 to 36% in 1998,
the effective tax rate was significantly lower in 1998. The Company believes its
U.S. deferred tax asset of $62,000 will be recovered by virtue of interest and
other income received from loans and other services provided to its
subsidiaries. Carey Agri's Polish deferred tax asset of $77,000 should be
recovered from future operating profits. See notes to the consolidated financial
statements for further information on income taxes.

     Net income increased $1,160,000 from $308,000 in 1997 to $1,468,000 in
1998.  This increase is due to the factors noted above.

 YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

     Net sales increased $16.25 million, or 67.9%, from $23.94 million in 1996
to $40.19 million in 1997. This increase is mainly due to the continued increase
in sales of vodka produced in Poland, the addition of Seagrams and Allied Domecq
products in January 1997, and increased market penetration by the existing
distribution system resulting in new customers.

     Costs of goods sold increased $15.01 million, or 75.6%, from $19.85 million
in 1996 to $34.86 million in 1997. This increase was mainly due to the increase
in net sales noted above. As a percentage of net sales, cost of goods sold
increased from 82.9% in 1996 to 86.7% in 1997. The higher cost factor results
from increases in sales of domestically produced vodka, which has a lower gross
profit margin than the imported brands the Company distributes.

     Sales, general and administrative expenses increased $629,000, or 17.6%,
from $3.57 million in 1996 to $4.20 million in 1997. This increase was mainly
due to the increase in net sales discussed above. As a percentage of sales,
sales, general, and administrative expenses decreased from 14.9% in 1996 to
10.4% in 1997. Increased sales levels result, to some extent, in improved
utilization of personnel and capacity without a corresponding increase in sales,
general and administrative expense.

     Interest expense increased $48,000, or 38.7%, from $124,000 in 1996 to
$172,000 in 1997. This increase reflects the effects of additional short-term
credit lines utilized to support the sales volume increases. As a percentage of
sales, interest expense decreased from 0.5% in 1996 to 0.4% in 1997.

     Net realized and unrealized foreign currency transaction losses increased
$94,000, or 40.5%, from $232,000 in 1996 to $326,000 in 1997. The increase was
mainly due to the weakness of the zloty, in which a substantial portion of the
Company's assets are denominated, versus the U.S. Dollar. As a percentage of
sales, net realized and unrealized foreign currency transaction losses decreased
from 1.0% in 1996 to 0.8% in 1997.

     Income tax expense increased $230,000, or 207.2%, from $111,000 in 1996 to
$341,000 in 1997. This increase was mainly due to the increase in income before
income taxes from $173,000 in 1996 to $649,000 in 1997. The effective tax rate
was 64.2% in 1996 and 52.5% in 1997. The decrease in the effective tax rate is
due to reasons similar to those described in the 1998/1997 comparison for
income tax expense.  See notes to the consolidated financial statements for
further information on income taxes.

     Net income increased $246,000, or 396.8%, from $62,000 in 1996 to $308,000
in 1997. This increase was due to the factors noted above.

                                                                              23
<PAGE>
 
STATEMENT OF LIQUIDITY AND CAPITAL RESOURCES

     The Company's net cash balance increased by $2,575,000 in the twelve months
of 1998 compared to an increase of $313,000 and $145,000 in the corresponding
period of 1997 and 1996. The increase in 1998 is primarily as a result of
proceeds from the initial public offering, offset in part by subsequent use of
the proceeds to retire outstanding debt and to increase working capital.

     The net cash used in operating activities was $5,924,000 in 1998 compared
to $753,000 and $32,000 provided by operations in 1997 and 1996, respectively.
This result is mainly due to higher working capital required to finance COD
purchases of domestic vodka, which enabled the Company to obtain better terms as
well as the strong sales growth in 1998.

     The net cash used in investing activities amounted to $1,039,000 in 1998
compared to $180,000 and $72,000 in 1997 and 1996, respectively. Investing
activities in 1998 consist mainly of purchases of fixed assets in the amount of
$1,052,000 which are in most part purchases of  transportation equipment.

     The net cash provided by financing activities in 1998 was $9,538,000
compared to net cash used of $260,000 in 1997 and net cash provided of $185,000
in 1996. The net proceeds from the public offering in 1998 were $10,635,000.
Following the offering, all the outstanding short-term and long-term debt and
overdraft facilities in the amount of $2,072,000 were repaid.

STATEMENT ON INFLATION AND CURRENCY FLUCTUATIONS

     Inflation in Poland was 8.5% for the whole of 1998, substantially lower
than previous years and therefore the impact on the financial statements in 1998
is less material than in previous years.

     The percentage of aggregated purchases denominated in foreign currencies
has decreased resulting in lower foreign exchange exposure. Also, all the
borrowings denominated in U.S. dollars were paid in the three months ended
September 30, 1998 using the proceeds from the public offering, which has
resulted in decreased exposure to foreign currency fluctuations. The zloty was
relatively stable in the first six months of 1998, but in the second half of the
year it fluctuated more heavily. In the initial months of 1999 the zloty
weakened by over 10% to the U.S. Dollar. Inflation and currency exchange have
had, and may continue to have an adverse effect on the financial condition and
results of operations of the Company.

SEASONALITY

     The Company's sales have been historically seasonable with over 56% of the
sales in 1997 occurring in the second half of the year, compared to nearly 60%
in 1998, of which over 31% and over 35%, respectively occurred in the last
quarter. The higher leveraging of the business and effectiveness result in a
larger share of net profits earned in the second half of the year. In fiscal
1997 and 1998, over 75% and over 63% of net income, respectively were earned in
the second half of the year.

     The Company's working capital requirements are also seasonal, and are
normally highest in the months of December and January.  Liquidity then normally
improves as collections are made on the higher sales during the months of
November and December.

OTHER MATTERS

     In March 1999 the Polish tax authorities in Warsaw assessed Value Added Tax
("VAT") of approximately $110,000 including penalties and penalty interest. The
assessment was made on the basis of alleged improper treatment of input and
output VAT on certain of the Company's transactions. The Company has appealed
the decision. The Management believes that the Company's case is defensible.
Therefore no accrual has been made in the financial statements.

     The Company continues to be involved in litigation from time to time in the
ordinary course of business. In management's opinion, the litigation in which
the Company is currently involved, individually and in the aggregate, is

                                                                              24
<PAGE>
 
not material to the Company's financial condition or results of operations.

YEAR 2000 COMPLIANCE

     The Company's software systems are Year 2000 compliant and were tested in
the fourth quarter of 1998. The compliance of the software systems is guaranteed
by the manufacturer of the software.

    The Company is presently in the final stages of Year 2000 preparations. The
Company has retained an independent consulting company to review the compliance
of its hardware and operating systems. The review is to be completed by the end
of March. A preliminary report confirms that only a small number of workstations
are non compliant. The Company is planning to replace the hardware in mid 1999
at the estimated cost of $15,000. Further, the Year 2000 compliant upgrade to
Novell, the operating system used by the Company, is commercially available and
will also be implemented in mid 1999 at an estimated cost of $20,000. The
Company estimates that the total cost of completing the Year 2000 compliance
will not exceed $50,000.

    Given the relatively small size of the Company's business with any
particular supplier or customer, the Company has not carried out compliance
tests with its suppliers or customers. Although it does not anticipate serious
problems, it cannot be certain about the effects on its business of the
uncertainties surrounding the compliance efforts of suppliers and customers.

    The Company does not expect any disruptions in its operations as a result of
any failure by the Company to be in compliance with Year 2000 requirements. It
has not yet developed a contingency plan, but plans to by September 1999. The
Company is reasonably confident that their compliance plan will be successful
but it cannot be certain that all actions taken and planned will effectively
minimize exposure to Year 2000 related risks.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

  Not Applicable


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS:

     Report of Independent Auditors
 
     Consolidated Balance Sheets at December 31, 1997 and 1998
 
     Consolidated Statements of Income for the years ended December 31, 1996,
     1997 and 1998

     Consolidated Statements of Changes in Stockholders' Equity for the years
     ended December 31, 1996, 1997 and 1998
 
     Consolidated Statements of Cash Flows for the years ended December 31,
     1996, 1997 and 1998
 
     Notes to Consolidated Financial Statement

                                                                              25
<PAGE>
 
                        REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Central European Distribution Corporation


We have audited the accompanying consolidated balance sheets of Central European
Distribution Corporation as of December 31, 1997 and 1998 and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998. These
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 auditing standards generally accepted
in the United States of America. 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 Central European
Distribution Corporation at December 31, 1997 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998 in conformity with accounting principles
generally accepted in the United States of America.



                                              /s/ Ernst & Young Audit Sp. z o.o.

Warsaw, Poland
March 12, 1999

                                                                              26
<PAGE>
 
                   CENTRAL EUROPEAN DISTRIBUTION CORPORATION

                          CONSOLIDATED BALANCE SHEETS
                   AMOUNTS IN COLUMNS EXPRESSED IN THOUSANDS


<TABLE> 
<CAPTION> 
                                                                                        December 31,
                                                                                        ----------- 
                                                                               1997                           1998
                                                                        ----------------               ---------------
                                       ASSETS
<S>                                                                     <C>                             <C>   
CURRENT ASSETS
Cash and cash equivalents                                                        $ 1,053                       $ 3,628
Accounts receivable, net of allowance for doubtful accounts of
$94,000 and $181,000 respectively                                                  6,970                        11,514
Inventories                                                                        3,280                         4,837
Prepaid expenses and other current assets                                            235                           423
Deferred income taxes                                                                103                           119
                                                                        ----------------               ---------------
TOTAL CURRENT ASSETS                                                              11,641                        20,521
 
Equipment, net                                                                       503                         1,345
Deferred charges                                                                     378                            40
Deferred income taxes                                                                  8                            20
                                                                        ----------------               ---------------
TOTAL ASSETS                                                                   $  12,530                        21,926
                                                                        ================               ===============
 
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable                                                         $   9,790                       $ 8,149
Bank loans and overdraft facilities                                                  925                             -
Income taxes payable                                                                  36                           217
Taxes other than income taxes                                                        763                         1,035
Other accrued liabilities                                                            286                           198
Current portion of long-term debt and capital lease obligations                      349                             -
                                                                        ----------------               ---------------
TOTAL CURRENT LIABILITIES                                                         12,149                         9,599
 
Long-term debt, less current maturities                                               35                             -
Capital lease obligations, less current portion                                       12                             -
 
STOCKHOLDERS' EQUITY
Preferred Stock ($0.01 par value, 1,000,000 shares authorized;
no shares issued and outstanding)                                                      -                             -
Common Stock ($0.01 par value, 20,000,000 shares authorized,
1,780,000 and 3,780,000 shares issued and outstanding)                                18                            38
Additional paid-in-capital                                                            36                        10,651
Retained earnings                                                                    280                         1,748
Accumulated other comprehensive loss                                                   -                          (110)
                                                                        ----------------               ---------------
TOTAL STOCKHOLDERS' EQUITY                                                           334                        12,327
                                                                        ----------------               ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                     $  12,530                        21,926
                                                                        ================               ===============
</TABLE>

See accompanying notes.

                                                                              27
<PAGE>
 
                   CENTRAL EUROPEAN DISTRIBUTION CORPORATION

                       CONSOLIDATED STATEMENTS OF INCOME
                   amounts in columns expressed in thousands
                            (except per share data)


<TABLE>
<CAPTION>
                                                                                Year ended December 31,
                                                                                ----------------------
                                                                    1996                   1997                    1998
                                                           -------------------     -----------------      -------------------
<S>                                                        <C>                     <C>                    <C>   
Net sales                                                          $23,942               $40,189                  $54,011
Cost of goods sold                                                  19,850                34,859                   45,864
                                                           -------------------     -----------------      -------------------
 
Gross profit                                                         4,092                 5,330                    8,147
Sales, general and administrative expenses                           3,569                 4,198                    5,790
                                                           -------------------     -----------------      -------------------
 
Operating income                                                       523                 1,132                    2,357
Non-operating income (expense)
   Interest expense                                                   (124)                 (200)                    (192)
   Interest income                                                       -                    28                      170
   Realized and unrealized foreign currency
    transaction losses, net                                           (232)                 (326)                      (5)
   Other income (expense), net                                           6                    15                       (1)
                                                           -------------------     -----------------      -------------------
 
Income before income taxes                                             173                   649                    2,329
Income tax expense                                                     111                   341                      861
                                                           -------------------     -----------------      -------------------
 
Net income                                                         $    62               $   308                  $ 1,468
                                                           ===================     =================      ===================
 
Net income per common share, basic and dilutive                    $  0.03               $  0.17                  $  0.56
                                                           ===================     =================      ===================
</TABLE>

See accompanying notes.

                                                                              28
<PAGE>
 
                   CENTRAL EUROPEAN DISTRIBUTION CORPORATION

          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                   Amounts in columns expressed in thousands

<TABLE>
<CAPTION>
                                                                               Retained          Accumulated                  
                                                            Additional         Earnings             other                     
                                  Common Stock               Paid-in-        (Accumulated       comprehensive                 
                            --------------------------                                                                        
                            No. of Shares       Amount        Capital           Deficit)             loss            Total    
                            -------------       ------     -------------    ---------------     -------------    -------------
<S>                         <C>                 <C>        <C>              <C>                 <C>              <C>          
Balance at December 31,                                                                                                       
1995                               1,780           $18          $    36             $  (90)            $   -          $   (36)
Net income and                                                                                                                
comprehensive income                                                                                                          
for 1996                               -             -                -                 62                 -               62 
                            -------------       ------     --------------   ---------------     -------------    -------------
Balance at December 31,                                                                                                     
1996                               1,780            18               36                (28)                -               26    
Net income and                                                                                            
comprehensive income                                                                                      
for 1997                               -             -                -                308                 -              308    
                            -------------       ------     --------------   ---------------     -------------    -------------
Balance at December 31,                                                                                                       
1997                               1,780            18               36                280                 -              334    
Net income for 1998                    -             -                -              1,468                 -            1,468    
Foreign currency                                                                                                       
translation adjustment                 -             -                -                  -              (110)            (110)   
                            -------------       ------     --------------   ---------------     -------------    -------------
Comprehensive income                                                                                                          
for 1998                               -             -                -              1,468              (110)           1,358    
Common stock issued in                                                                                                  
connection with initial                                                                                                 
public offering                    2,000            20           10,615                  -                 -           10,635    
                            -------------       ------     --------------   ---------------     -------------    -------------
Balance at December 31,                                                                                                
1998                               3,780           $38          $10,651             $1,748             $(110)         $12,327    
                            =============       ======     ==============   ===============     =============    =============   
</TABLE>

See accompanying notes.

                                                                              29
<PAGE>
 
                   CENTRAL EUROPEAN DISTRIBUTION CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                   Amounts in columns expressed in thousands

<TABLE>
<CAPTION>
                                                                            Year ended December 31,
                                                         --------------------------------------------------------- 
                                                              1996                  1997                 1998
                                                         ---------------      ----------------     --------------- 
<S>                                                      <C>                  <C>                  <C> 
OPERATING ACTIVITIES                                     
Net income                                               $            62      $           308      $         1,468 
Adjustments to reconcile net income to net cash                                                                    
 provided by (used in) operating activities:                                                                       
   Depreciation and amortization                                      67                  168                  199 
   Deferred income tax benefit                                       (18)                  (1)                 (28)
   Gain on the disposal of equipment                                  (7)                  (3)                 (42)
   Bad debt provision                                                 19                   48                   94 
   Changes in operating assets and liabilities:                                                                    
      Accounts receivable                                         (2,652)              (2,807)              (4,638)
      Inventories                                                   (612)              (1,620)              (1,557)
      Prepayments and other current assets                           (84)                 (63)                (188)
      Trade accounts payable                                       2,915                4,650               (1,641)
      Income and other taxes                                         613                   73                  453 
      Other accrued liabilities and other                           (271)                   -                  (44)
                                                         ---------------      ---------------      --------------- 
                                                                                                                     
Net Cash Provided By (Used In) Operating Activities                   32                  753               (5,924)
                                                                                                                   
INVESTING ACTIVITIES                                                                                               
Purchases of equipment                                              (336)                (240)              (1,052)
Proceeds from the disposal of equipment                              264                   60                   53 
Purchases of marketable securities                                     -                    -               (7,842)
Proceeds from sale of marketable securities                            -                    -                7,842 
Acquisitions                                                           -                    -                  (40)
                                                         ---------------      ---------------      --------------- 
                                                                                                                   
Net Cash Used In Investing Activities                                (72)                (180)              (1,039)
                                                                                                                   
FINANCING ACTIVITIES                                                                                               
Borrowings on overdraft facility                                  17,531               12,892               24,575 
Payment of overdraft facility                                    (17,747)             (12,608)             (24,875)
Payment of capital lease obligations                                 (62)                (183)                (113)
Short-term borrowings                                                840                  600                  725 
Payment of short-term borrowings                                    (402)                (815)              (1,350)
Long-term borrowings                                                 205                   87                  139 
Payment of long-term borrowings                                     (180)                  (9)                (422)
Costs paid in 1997 in connection with public offering                  -                 (224)                   - 
Net proceeds form initial public offering                              -                    -               10,859 
                                                         ---------------      ---------------      --------------- 
Net Cash Provided By (Used In) Financing Activities                  185                 (260)               9,538 
                                                         ---------------      ---------------      --------------- 
Net Increase in Cash                                                 145                  313                2,575 
Cash and cash equivalents at beginning of period                     595                  740                1,053 

                                                         ---------------      ---------------      ---------------  
Cash and cash equivalents at end of period               $           740      $         1,053      $         3,628
                                                         ===============      ===============      =============== 
</TABLE>

See accompanying notes.

                                                                              30
<PAGE>
 
                   CENTRAL EUROPEAN DISTRIBUTION CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   Amounts in tables expressed in thousands
                        (except per share information)


1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Central European Distribution Corporation (CEDC) was organized as a Delaware
Corporation in September 1997 to operate as a holding company through its sole
subsidiary, Carey Agri International Poland Sp. z o.o. (Carey Agri). CEDC and
Carey Agri are referred to herein as the Company.

CEDC's authorized capital stock consists of 20.0 million shares of common stock,
$0.01 par value, and 1.0 million shares of preferred stock, $0.01 par value. No
shares of preferred stock have been issued and its terms and conditions will be
established by the Board of Directors at a later date.

In November 1997, CEDC issued 1,780,000 shares of its common stock to the former
stockholders of Carey Agri in exchange for all the issued and outstanding shares
of Carey Agri. This reorganization resulted in no changes in relative equity
interests among the stockholders and no adjustments of the underlying net assets
of Carey Agri. The new capital structure has been reported in a manner
comparable to a pooling of interests in the accompanying consolidated financial
statements. All share and per share data have been presented in accordance with
the new capital structure.

In July 1998, CEDC had an initial public offering of 2,000,000 shares (at $6.50
per share) receiving net proceeds of approximately $10.6 million. The shares are
currently quoted on the Nasdaq SmallCap Market.

Carey Agri is a Polish limited liability company with headquarters in Warsaw,
Poland. Carey Agri distributes alcoholic beverages throughout Poland and all
activities are conducted within that country. It currently has branches in the
following Polish cities: Warsaw, Krakow, Szczecin, Gdynia, Wroclaw, Torun,
Katowice and Poznan. Pursuant to Polish statutory requirements, Carey Agri may
pay an annual dividend, based on its audited Polish financial statements, to the
extent of its retained earnings as defined. At December 31, 1998, approximately
$1,880,000 was available for payment of dividends. Substantially all of the
Company's assets are located in Poland. The Company's activities are
substantially in one industry segment -- the distribution of alcoholic
beverages.


2. ACCOUNTING POLICIES

The significant accounting policies and practices followed by the Company are as
follows:

Basis of Presentation

Since CEDC had no operations prior to September 1997, the accompanying
consolidated financial statements related to the period to this date reflect the
activities of Carey Agri only.

Carey Agri maintains its books of account and prepares its financial statements
in Polish zloties (PLN) in accordance with Polish statutory requirements and the
Accounting Act of 29 September 1994. The exchange rate was approximately 3.5 PLN
per USD at December 31, 1997 and 1998. However, the USD has strengthened to
approximately 3.9 PLN per USD by March 1999.

The accompanying consolidated financial statements include adjustments,
translations, and reclassifications, which are appropriate to present the
Company's consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America (US GAAP).

                                                                              31
<PAGE>
 
                   CENTRAL EUROPEAN DISTRIBUTION CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   Amounts in tables expressed in thousands
                        (except per share information)


Foreign Currency Translation and Transactions

As stated above, Carey Agri maintains its books of account in Polish zloties.
The accompanying consolidated financial statements have been prepared in US
Dollars. For all periods prior to January 1, 1998, transactions and balances not
already measured in US Dollars (primarily Polish zloties) have been remeasured
into US Dollars in accordance with the relevant provisions of US Financial
Accounting Standard (FAS) No. 52 "Foreign Currency Translation" as applied to
entities in highly inflationary economies.

Under FAS No. 52, revenues, costs, capital and non-monetary assets and
liabilities are translated at historical exchange rates prevailing on the
transaction dates. Monetary assets and liabilities are translated at exchange
rates prevailing on the balance sheet date. Exchange gains and losses arising
from remeasurement of monetary assets and liabilities that are not denominated
in US Dollars are credited or charged to operations.

Effective January 1, 1998, the Company no longer considered Poland to be a
hyper-inflationary economy. Therefore, the Company has ceased accounting for its
Polish activities using provisions applicable to hyper-inflationary economies on
January 1, 1998 and has treated the Polish zloty as its functional currency. See
the discussion below regarding the effect of this change on comprehensive
income.


Equipment

Equipment is stated at cost, less accumulated depreciation. Depreciation is
computed by the straight-line method over the following useful lives:


                    Type                           Depreciation life in years
       ------------------------------------        --------------------------

       Transportation Equipment                                6
       Beer Dispensing and Other Equipment                    2-10

Equipment under capital lease is depreciated over the shorter of the useful life
or the lease term.


Revenue Recognition

Revenue is recognized when goods are shipped to customers.


Advertising and Promotion Costs

Advertising and promotion costs are expensed as incurred. Advertising and
promotion costs not reimbursed by suppliers were approximately  $280,000,
$85,000, and $660,000 in 1996, 1997 and 1998, respectively.


Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or
market. Cost includes customs duty and transportation costs. Inventories are
comprised primarily of beer, wine and spirits.

                                                                              32
<PAGE>
 
                   CENTRAL EUROPEAN DISTRIBUTION CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   Amounts in tables expressed in thousands
                        (except per share information)

Cash and Cash Equivalents

Short-term investments that have a maturity of three months or less from the
date of purchase are classified as cash equivalents.  Virtually all of this
amount was located in bank accounts in Poland at December 31, 1998.


Estimates

The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results may differ from
those estimates and such differences may be material to the financial
statements.


Income Taxes

The Company computes and records income taxes in accordance with the liability
method.


Comprehensive Income

In June 1997, the Financial Accounting Standards Board (FASB) issued its
Statement No. 130, "Reporting Comprehensive Income." This standard became
effective for the Company in 1998, and it requires the disclosure of
comprehensive income which is defined as all changes in equity during a period
except those resulting from investments by owners and distributions to owners.
Comprehensive income includes net income adjusted by, among other items, foreign
currency translation adjustments. As disclosed in this Note 2, until January 1,
1998, the Company remeasured transactions and results of its Polish subsidiary
in accordance with FAS No. 52 as applied to entities in highly inflationary
economies. Therefore, exchange gains and losses arising from remeasurement of
these monetary assets and liabilities were credited or charged to net income.
However, in 1998 since Poland was no longer considered a highly inflationary
economy, these remeasurements were recorded as a separate component of equity
and, under FAS No. 130, included as the only component of other comprehensive
loss.


Net Income Per Common Share

Net income per common share is calculated under the provisions of FAS No. 128,
"Earnings per Share". The average number of shares outstanding was 1,780,000 in
1996 and 1997 and 2,634,795 in 1998. The stock options and warrants discussed in
Note 11 were not included in the computation of diluted earnings per common
share as the exercise price was greater than the average market price of the
common shares in 1998 and, therefore, the effect would be antidilutive.


Reclassifications

Certain amounts in the financial statements have been reclassified from the
prior year to conform to the current year presentation.

                                                                              33
<PAGE>
 
                   CENTRAL EUROPEAN DISTRIBUTION CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   Amounts in tables expressed in thousands
                        (except per share information)


3. EQUIPMENT

Equipment, presented net of accumulated depreciation in the balance sheets,
consists of:

<TABLE>
<CAPTION>
                                                             December 31,
                                                      -------------------------
                                                         1997           1998  
                                                      ----------     ----------
     <S>                                              <C>            <C>    
     Transportation equipment                             $ 259         $1,035 
     Beer dispensing and other equipment                    523            788 
                                                          -----         ------ 
                                                            782          1,823 
                                                                               
     Less accumulated depreciation                         (279)          (478)
                                                          -----         ------ 
     Equipment, net                                       $ 503         $1,345 
                                                          =====         ====== 
</TABLE>

                                                                                
4. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                             December 31,
                                                      -------------------------
                                                         1997           1998  
                                                      ----------     ----------
     <S>                                              <C>            <C>       
     Loan denominated in US Dollars                     $  205          $   -
     Loans denominated in Polish zloty                      78              -
     Current portion of these loans                       (248)             -
                                                        ------          -----
     Long-term portion                                  $   35          $   -
                                                        ======          =====
</TABLE>

The Company had a revolving credit line with a bank for $205,000 at December 31,
1997, which was paid in 1998 using the proceeds from the initial public
offering. The loan was used for working capital purposes with annual interest of
LIBOR plus 3.5% (approximately 9.5% at December 31, 1997). The loan was
collateralized by a bill of exchange and personal guaranties by two officers and
directors of the Company.

At December 31, 1997, the Company had seven loans denominated in Polish zloty
with an interest rate equal to WIBOR (Warsaw Inter-Bank Rate) plus 3% (29.1% at
December 31, 1997). The loans were fully paid in 1998 using the proceeds from
the initial public offering.

                                                                              34
<PAGE>
 
                   CENTRAL EUROPEAN DISTRIBUTION CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   Amounts in tables expressed in thousands
                        (except per share information)


5. LEASE OBLIGATIONS

At December 31, 1998, the future minimum lease payments under operating leases
are as follows:

<TABLE>
<CAPTION>
                                                        Operating
                                                          Leases
                                                        ---------
   <S>                                                  <C>
   1999                                                      $173
   2000                                                       146
   2001                                                        97
                                                        ---------
   Total                                                     $416
                                                        =========
</TABLE>

Rent expense incurred under operating leases during 1996, 1997 and 1998 was as
follows:

<TABLE>
<CAPTION>
                                              1996       1997       1998   
                                             ------     ------     ------  
   <S>                                       <C>        <C>        <C>     
   Rent expense                              $  301     $  583     $  519  
                                             ======     ======     ======   
</TABLE>

Certain non-cancelable leases are classified as capital leases, and the leased
assets were included as part of equipment. Other leases are classified as
operating leases and are not capitalized. The depreciation for assets under
capital leases is included in depreciation expense.

Capitalized leases related mainly to transportation and beer dispensing
equipment. In 1998, all such leases expired or were settled early using the
proceeds from the initial public offering. Under most of these leases, the
Company was able to purchase the equipment at the end of the lease terms at a
price below market value. Capital leases caused non-cash additions to equipment
of  $312,000 and $46,000 in the years ended December 31, 1996 and 1997,
respectively. These are not reflected in the Consolidated Statements of Cash
Flows. There were no new capital leases in 1998.

Operating leases relate mainly to the leasing of the customs and consolidation
warehouse in Warsaw, Warsaw headquarters, the seven regional offices and
warehouses, and the retail shop in Warsaw. Monthly rentals range from
approximately $2,000 to $11,670 per month. The customs and consolidation
warehouse lease expires in September 2001.  The Warsaw headquarters lease can be
terminated with six months prior notice.  All of the regional office and
warehouse leases can be terminated by either party with two or three months
prior notice. The retail shop lease has no stated expiration date, but can be
terminated by either party with three months prior notice. The lessor has waived
this right to terminate the agreement until August 2000 providing the Company
performs its obligations under the lease.


6. SHORT-TERM BANK LOANS AND OVERDRAFT FACILITIES

The Company had a USD short-term loan with a bank (other than the one noted in
Note 4) for $350,000 at December 31, 1997. Interest was at LIBOR (1 month) plus
2.75% (8.75% at December 31, 1997). The loans were collateralized by a blank
bill of exchange, pledge on inventory of PLN 1,000,000, the assignment of
receivables from seven of the Company's largest customers and the assignment of
an insurance policy on inventory. The loan was fully paid in 1998 using the
proceeds from the initial public offering.

The Company had a short-term USD loan with another bank for $175,000 at December
31, 1997. Interest on the loan was at LIBOR plus 1.5% (7.3% at December 31,
1997). The loan was paid in January 1998.

At December 31, 1997 the Company had a loan with a bank (the same bank discussed
in Notes 4 and 10) for $300,000. The loan was paid in full using the proceeds
from the initial public offering in 1998. The loan was collateralized by a blank
bill of exchange, a pledge on inventory of PLN 700,000 and the assignment of an
insurance policy on inventory. Interest on the loan was at LIBOR (1 month) plus
2.25% (8.25% at December 31, 1997).

                                                                              35
<PAGE>
 
                   CENTRAL EUROPEAN DISTRIBUTION CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   Amounts in tables expressed in thousands
                        (except per share information)


On October 27, 1997 the Company signed an agreement with another bank for a
short-term loan of $100,000. The proceeds of the loan were used to purchase
Bulgarian wine. The annual interest rate equaled LIBOR (1 month) plus 2.75%
(8.75% at December 31, 1997). The loan was collaterized by a blank bill of
exchange. The entire debt was paid in the first quarter of 1998.

The Company's borrowing arrangements (including long-term debt described in Note
4) contained various financial and non-financial covenants and restrictions
which the Company complied with or which were waived by the lenders.

Total interest paid in 1996, 1997 and 1998 is substantially equal to interest
expense.

The weighted average interest rate for short-term bank loans and overdraft
facilities outstanding was 8.31% for U.S. Dollar denominated debt at December
31, 1997.


7. DEFERRED CHARGES

Costs incurred in connection with the initial public offering, totaling
$378,000, were included in deferred charges in the December 31, 1997 balance
sheet. The accrued portion of $154,000 at December 31, 1997 is not reflected in
the Consolidated Statements of Cash Flows. This amount and other charges
incurred subsequently were charged to stockholders' equity in 1998.

Costs incurred to December 31, 1998 in connection with the purchase of Multi
Trade Company (see Note 13), totaling $40,000, are included in deferred charges
in the December 31, 1998 balance sheet. This amount and other charges incurred
subsequently will be allocated to the net assets acquired in 1999.

8. FINANCIAL INSTRUMENTS, COMMITMENTS AND CONTINGENT LIABILITIES

Financial Instruments With On-Balance Sheet Risk and Their Fair Values

Financial instruments with on-balance sheet risk include cash and cash
equivalents, marketable securities, accounts receivable, certain other current
assets, trade accounts payable, bank loans  and overdraft facilities, long-term
debt and other payables. These financial instruments are shown separately in the
consolidated balance sheets and their carrying values approximate their fair
values. This is because all of these financial instruments have short maturity
periods or carry interest at rates which approximate current market rates.


Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of accounts receivable from Polish companies. The
Company restricts temporary cash investments to financial institutions with high
credit standing. Credit is given to customers only after a thorough review of
their credit worthiness. The Company does not normally require collateral with
respect to credit sales. As of December 31, 1997 and 1998, the Company had no
significant concentrations of credit risk. The Company has not experienced large
credit losses in the past.


Inflation and Currency Risk

Since the fall of Communist rule in 1989, Poland has experienced high levels of
inflation and significant fluctuations in the exchange rate for the zloty. The
Polish government has adopted policies that slowed the annual rate of inflation
from approximately 250% in 1990 to approximately 18% in 1996, 14% in 1997 and
8.5% in 1998. In addition, the exchange rate for the zloty has stabilized and
the rate of devaluation of the zloty has decreased since 1991. However,
inflation and currency exchange fluctuations have had, and may continue to have,
an adverse effect on the financial condition and results of operations of the
Company.

                                                                              36
<PAGE>
 
                   CENTRAL EUROPEAN DISTRIBUTION CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   Amounts in tables expressed in thousands
                        (except per share information)


A portion of Carey Agri's accounts payable and operating expenses are, and are
expected to continue to be, denominated in or indexed to U.S. Dollars or other
non-Polish currency. By contrast, substantially all of the Company's revenue is
denominated in zloty. Any devaluation of the zloty against the U.S. Dollar or
other currencies that the Company is unable to offset through price adjustments
will require the Company to use a larger portion of its revenue to service its
non-zloty denominated obligations. While the Company may consider entering into
transactions to hedge the risk of exchange rate fluctuations, it is unlikely
that the Company will be able to obtain hedging arrangements on commercially
satisfactory terms. Accordingly, shifts in currency exchange rates may have an
adverse effect on the ability of the Company to service its non-zloty
denominated obligations and, thus, on the Company's financial condition and
results of operations.


Supply contracts

The Company has various agreements covering its sources of supply which, in some
cases, may be terminated by either party on relatively short notice. Thus, there
is a risk that a significant portion of the Company's supply of products could
be curtailed at any time.


Contingent liabilities

The Company is involved in litigation and has claims against it for matters
arising in the ordinary course of business. In the opinion of management, the
outcome will not have a material adverse effect on the Company.

9. INCOME TAXES

Income tax expense consists of the following:

<TABLE>
<CAPTION>
                                                                       Year ended December 31, 
                                                                       ----------------------
                                                                  1996          1997          1998
                                                               ----------    ----------    ----------
   <S>                                                         <C>           <C>           <C>
   Current Polish income tax expense                              $ 129         $ 342        $ 889                             
   Deferred Polish income tax (benefit) expense, net                (18)           (1)          34                             
   Deferred US income tax benefit                                     -             -          (62)                            
                                                               --------      --------      -------
   Total income tax expense                                       $ 111         $ 341        $ 861
                                                               ========      ========      =======
</TABLE>

Total Polish income tax payments (or amounts used as settlements against other
statutory liabilities) during 1996, 1997 and 1998 were $130,000, $295,000 and
$725,000 respectively.

Total income tax expense varies from expected income tax expense computed at
Polish statutory rates (40% in 1996, 38% in 1997 and 36% in 1998) as follows:

<TABLE>
<CAPTION>
                                                                        Year ended December 31, 
                                                               --------------------------------------
                                                                  1996          1997          1998      
                                                               ----------    ----------    ----------
   <S>                                                         <C>           <C>           <C>           
   Tax at Polish statutory rate                                   $  69          $ 247         $ 838
   Bad debt expense not expected to be tax deductible                 4             15             2
   Reduction in deferred tax asset valuation allowance                -              -           (32)
   Tax rate differential resulting from US activities                 -              -             6
</TABLE> 

                                                                              37
<PAGE>
 
                   CENTRAL EUROPEAN DISTRIBUTION CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   Amounts in tables expressed in thousands
                        (except per share information)

<TABLE> 
   <S>                                                            <C>            <C>           <C> 
   Effect of foreign currency exchange rate change on net 
   deferred tax assets                                               13             23             1
 
   Permanent differences:
      Interest on overdue taxes                                       5              8             6
      Non-taxable interest                                            -              -            (9)
      Non-deductible social taxes                                     7             11             -
      Non-deductible depreciation                                     4              7             4
      Non-deductible transportation taxes                             -              -            23
      Other non-deductible expenses                                   9             30            22
                                                                  -----          -----         -----
   Income tax expense                                             $ 111          $ 341         $ 861
                                                                  =====          =====         =====
</TABLE>

                                                                              38
<PAGE>
 
                   CENTRAL EUROPEAN DISTRIBUTION CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   Amounts in tables expressed in thousands
                        (except per share information)


Significant components of the Company's deferred tax liabilities and assets are
as follows:

<TABLE>
<CAPTION>
                                                                                         December 31,                
                                                                           ---------------------------------------  
                                                                                 1997                   1998   
                                                                           ----------------       ---------------- 
<S>                                                                        <C>                    <C> 
Deferred tax assets:                                                                                                  
   Allowance for doubtful accounts receivable                                        $  23                   $  59           
   Depreciation and other fixed asset basis differences                                  8                      20           
   Unrealized foreign exchange losses                                                   53                       1           
   Accrued expenses and deferred income                                                 27                       -           
   Capital lease obligations                                                            23                       -           
   CEDC operating loss carryforward benefit, expiring in 2012 - 2013                    10                      62           
                                                                                    ------                   -----        
Total deferred tax assets                                                              144                     142           
Less valuation allowance                                                               (33)                     (3)
                                                                                    ------                   -----
Net deferred tax asset                                                               $ 111                   $ 139
                                                                                    ======                   =====
                                                                                                                  
Shown as:                                                                                                         
Current deferred tax asset                                                           $ 103                   $ 119
Long-term deferred tax asset                                                             8                      20
                                                                                    ------                   -----
                                                                                     $ 111                   $ 139
                                                                                    ======                   =====  
</TABLE>

Valuation allowances are provided when it is more likely than not that some or
all of the deferred tax assets will not be realized in the future. These
evaluations are based on expected future taxable income and expected reversals
of the various net deductible temporary differences.

Management intends that the undistributed earnings from the Polish subsidiary of
$1,880,000 will be permanently reinvested. Therefore, no deferred taxes have
been created for these earnings. If the earnings were distributed in the form of
a dividend or otherwise, a portion would be subject to both U.S. income taxes
and Polish withholding taxes, less an adjustment for foreign tax credits. The
Company estimates the deferred tax liability to be approximately $75,000 based
on the undistributed earnings of Carey Agri at December 31, 1998. This amount
would, in part, be available to reduce some portion of U.S. tax liability from
foreign source income. Determination of the actual amount of U.S. income tax
liability that would be incurred is complex and subject to various factors
existing at the time of any distribution of foreign earnings to CEDC.

The corporate income tax rates in Poland were changed effective January 1, 1997
from 40% in 1996 to 38% in 1997, 36% in 1998, 34% in 1999 and 32% in 2000.

Carey Agri's tax liabilities (including corporate income tax, Value Added Tax
(VAT), social security and other taxes) may be subject to examinations by Polish
tax authorities for up to five years from the end of the year the tax is
payable. A recent examination of Carey Agri's VAT  returns resulted in
deductions for certain items being challenged by the tax authorities. The
Company believes it can defend its position and no tax provision has been
recorded. The estimated exposure, including penalties, based on the tax
authority claim is approximately $110,000. CEDC's US federal income tax returns
are also subject to examination by US tax authorities. Because the application
of tax laws and regulations to many types of transactions is susceptible to
varying interpretations, amounts reported in the financial statements could be
changed at a later date upon final determination by the tax authorities.

                                                                              39
<PAGE>
 
                   CENTRAL EUROPEAN DISTRIBUTION CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   Amounts in tables expressed in thousands
                        (except per share information)


10. RELATED PARTY TRANSACTIONS

Loan to Officer

The Company has an advance receivable (denominated in PLN without interest) from
its President which has a balance at December 31, 1997 and 1998 of $24,000 and
$17,000, respectively.  This was paid in full in February 1999.


Bank Borrowing

A director of CEDC was a vice president and member of the management board of
the bank from which the Company had borrowings of $505,000 at December 31, 1997
(Notes 4 and 6).


Supplier of Wine

A director of CEDC is a director of one of the Company's suppliers of wine.
Purchases from this company amounted to approximately $300,000, $570,000 and
$750,000 in 1996, 1997 and 1998, respectively.


Receivable from Affiliate

During 1997, the Company wrote off a receivable of approximately $4,000 from an
affiliated company.


11. STOCK OPTION PLANS AND WARRANTS

In October 1995, the United States Financial Accounting Standards Board issued
FAS No. 123, "Accounting for Stock-Based Compensation." This standard defines a
fair value based method of accounting for an employee stock option or similar
equity instrument plan. This statement gives entities a choice of recognizing
related compensation expense by adopting the fair value method or to measure
compensation using the intrinsic value approach under Accounting Principles
Board (APB) Opinion No. 25, the former standard. If APB No. 25 is elected, FAS
No. 123 requires supplemental disclosure to show the effects of using the FAS
No. 123 measurement criteria. The Company has elected to follow APB No. 25.  No
expense has been recognized for any of the employee/director options granted in
1998 pursuant to APB No. 25 as the exercise price and market price at the date
of grant were the same.


Incentive Plan

In November 1997, the CEDC 1997 Stock Incentive Plan ("Incentive Plan") was
created. This Incentive Plan provides for the grant of stock options, stock
appreciation rights, restricted stock and restricted stock units to directors,
executives, and other employees of CEDC and any of its subsidiaries or of any
service provider. The Incentive Plan authorizes the issuance of up to 750,000
shares of Common Stock (subject to anti-dilution adjustments in the event of a
stock split, recapitalization, or similar transaction). The compensation
committee of the board of directors will administer the Incentive Plan. The
Company has reserved 750,000 shares for future issuance in relation to the
Incentive Plan.

The option exercise price for incentive stock options granted under the
Incentive Plan may not be less than 100% of the fair market value of the Common
Stock on the date of grant of the option. Options may be exercised up to 10
years after grant, except as otherwise provided in the particular option
agreement. Payment for shares purchased under the Incentive Plan shall be made
in cash or cash equivalents. With respect to any participant who owns stock
possessing more than 10% of the voting power of all classes of stock of CEDC,
however, the exercise price of any incentive stock option granted must equal at
least 110% of the fair market value on the grant date and the maximum term of an
incentive stock option must not exceed five years.

Options granted under the Incentive Plan are generally not transferable and may
be exercised within a specific number of months, depending on the reason, after
the termination of the optionee's employment.

CEDC'S board of directors may amend the Incentive Plan with respect to common
shares as to which grants have not been made. However, CEDC's stockholders must
approve amendments in certain situations.

                                                                              40
<PAGE>
 
                   CENTRAL EUROPEAN DISTRIBUTION CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   Amounts in tables expressed in thousands
                        (except per share information)


As indicated above, the Incentive Plan authorizes the grant of stock
appreciation rights, restricted stock and restricted stock units. No such grants
or awards have yet been made.

A summary of the Company's stock option activity, and related information for
the year ended December 31, 1998 follows:

<TABLE>
<CAPTION>
                                                   Options      Weighted-Average
                                                    (000)        Exercise Price
      <S>                                          <C>          <C>
      Outstanding at January 1, 1998                     -                 -
      Granted in 1998                                  152             $6.45
      Exercised in 1998                                  -                 -
      Forfeited in 1998                                  -                 -
                                                    ------          --------
      Outstanding at December 31, 1998                 152             $6.45

      Exercisable at December 31, 1998                  27             $6.50

      Weighted-average fair value of options 
      granted during 1998                                              $0.32    
                                                                       
</TABLE>

Exercise prices for options outstanding as of December 31, 1998 ranged from
$5.70 to $6.50. The weighted-average remaining contractual life of those options
is approximately 5 years. The table above does not include options mentioned
below where the exercise price is unknown or for the warrants discussed below.


Stock Options Granted

CEDC has granted stock options in early 1998 to its executive officers and
members of the Board of Directors for 82,500 shares of Common Stock in
connection with its initial public offering. The exercise price for 57,500 of
these options is the initial public offering price of $ 6.50 per share. The
exercise price of 10,000 options was the average trading price of Common Stock
for the last five trading days of 1998 of $5.70. The exercise price of 15,000
options will be the average trading price of Common Stock for the last five
trading days of 1999.

The Company has granted stock options under the Incentive Plan for 129,250
shares of Common Stock in September 1998 to certain of its employees. Options
for 21,500 shares have an exercise price of $6.50 and may be exercised from
September 1999 to September 2001. Options for 43,000 shares will have an
exercise price based on the market value of common shares as of August 1999 and
are exercisable from September 2000 to September 2001. Options for 64,750 shares
will have an exercise price based on the market value of common shares as of
August 2000 and are exercisable from August 2001 to September 2001.

Pro forma information regarding net income and earnings per share is
required by FAS No. 123, and has been determined as if the Company had accounted
for its incentive stock options under the fair value method of that Statement.

In regards to the options granted in connection with the initial public
offering, the Company has estimated the fair market value of the stock
underlying these options to be approximately 50% of the planned public offering
price due to various uncertainties as of the time of grant. This is less than
the present value of the expected exercise price. Therefore, the fair value of
the options granted in connection with the initial public offering has been
estimated to be minimal under the provisions of FAS No. 123.

As for the other stock options granted to employees, the fair value for the
first 21,500 options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumption for 1998:
risk-free interest rate of 5.5% dividend yield of 0%, volatility factors of the
expected market price of the Company's Common Stock of 0.68, and a weighted-
average expected life of the option of 2 years.

                                                                              41
<PAGE>
 
                   CENTRAL EUROPEAN DISTRIBUTION CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   Amounts in tables expressed in thousands
                        (except per share information)


The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The effect of any
forfeitures is recognized when they occur. The Company's pro forma information
for 1998 follows (1997 and 1996 not included as no stock options were granted
before 1998):

<TABLE> 
          <S>                                     <C>   
          Net income as recorded                  $ 1,468
          Pro forma net income                    $ 1,450
          Pro forma earnings per share:
          Primary and fully diluted               $  0.55
</TABLE> 

Options Given to Vendor

In late 1998, the Company gave options to a vendor for 50,000 shares of common
stock in exchange for a three-year service contract. These options are
exercisable from March 1999 until September 2001 at the following prices: $6.50
until September 1999, $8.00 until September 2000, and $9.00 until September
2001. Under APB 25 and FASB 123, the fair value of options given to vendors must
be expensed over the service period. Using the Black Scholes method described
above, with similar assumptions, the fair value of these options was $75,000.
This amount will expensed over three years.


Warrants

In connection with the planned public offering, the Company agreed to sell to
the Representatives or their designees (for nominal consideration) warrants to
purchase 200,000 shares of Common Stock from the Company. The warrants are
exercisable at any time during a period of four years commencing one year from
the date of the final prospectus used in the Company's initial public offering.
The exercise price of the warrants is 130% of the initial public offering price
($8.45 per share).


12. ALLOWANCE FOR DOUBTFUL ACCOUNTS

Changes in the allowance for doubtful accounts during each of the three years in
the period ended December 31, 1998 were as follows:

<TABLE>
<CAPTION>
                                                    Year ended December 31,    
                                               ------------------------------- 
                                                 1996       1997        1998   
                                               --------   --------    -------- 
     <S>                                       <C>        <C>         <C>      
     Balance, beginning of year                  $  36      $  49        $  94 
     Provision for bad debts                        19         48           94 
     Charge-offs, net of recoveries                 (6)        (3)          (7)
                                               -------    -------     -------- 
     Balance, end of year                        $  49      $  94        $ 181 
                                               =======    =======     ========  
</TABLE>

                                                                              42
<PAGE>
 
                   CENTRAL EUROPEAN DISTRIBUTION CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   Amounts in tables expressed in thousands
                        (except per share information)


13. SUBSEQUENT EVENTS

Purchase of assets from Multi Trade Company

In March 1999, the Company purchased a significant portion of the assets,
including the trademark, of Multi Trade Company S.C. (MTC). MTC is a distributor
of alcoholic beverages located in Bialystok, Poland. The purchase price was
approximately $2.5 million cash plus 254,230 unregistered newly issued shares of
common stock with a 3-year restriction on sale. Unaudited sales and assets of
MTC for its recently completed year ended December 31, 1998 amount to
approximately 80% and 45%, respectively, of the Company's consolidated sales and
assets. The excess of the cost over the fair value of tangible and intangible
assets acquired will be amortized over a fifteen-year period.



                                                                              43
<PAGE>
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         Not Applicable.


PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
         The information with respect to directors and executive officers of the
Company is incorporated herein by reference to the proxy statement for the
annual meeting of stockholders to be held on May 18, 1999.
 
ITEM 11. EXECUTIVE COMPENSATION

         The information with respect to executive compensation and transactions
is incorporated herein by reference to the proxy statement for the annual
meeting of stockholders to be held on May 18, 1999.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information with respect to security ownership of certain
beneficial owners and management is incorporated herein by reference to the
proxy statement for the annual meeting of stockholders to be held on May 18,
1999.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information with respect to certain relationships and related
transactions is incorporated herein by reference to the proxy statement for the
annual meeting of stockholders to be held on May 18, 1999.


PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K


     (a)(1) The following consolidated financial statements of the Company and
report of independent auditors are included in Item 8 of the Form 10-K.

     Report of Independent Auditors

     Consolidated Balance Sheets at December 31,1997 and 1998

     Consolidated Statements of Income for the years ended December 31, 1996,
        1997 and 1998

     Consolidated Statements of Changes in Stockholders' Equity for the years
        ended December 31, 1996, 1997, and 1998

     Consolidated Statements of Cash Flows for the years ended December 31,
        1996, 1997 and 1998

     Notes to Consolidated Financial Statements



     (a)(2)  Schedules

     All schedules for which provision is made in the applicable accounting
     regulations of the Securities and Exchange Commission either have been
     included in the Company's consolidated financial statements or the notes
     thereto, are not required under the related instructions or are
     inapplicable, and therefore have been omitted.

 
     (a)(3)  The following exhibits are either provided with this Form 10-K or
are incorporated herein by reference.

Exhibit
Number                   Exhibit Description
-------                  -------------------

2.1       Contribution Agreement among Central European Distribution Corporation
          and William V. Carry, William V. Carry Stock Trust, Estate of William
          O. Carry and Jeffrey Peterson dated November 28, 1997 (Filed as
          Exhibit 2.1 to the Registration Statement on Form SB- 2, File No. 333-
          42387, with the Commission on December 17, 1997 [the "1997
          Registration Statement'] and incorporated herein by reference.)

3.1       Certificate of Incorporation (Filed as Exhibit 3.1 to the 1997
          Registration Statement and incorporated herein by reference.)

                                                                              44
<PAGE>
 
3.2       Bylaws (Filed as Exhibit 3.2 to the 1997 Registration Statement and
          incorporated herein by reference.)

4.1       Form of Common Stock Certificate (Filed as Exhibit 4.1 to the 1997
          Registration Statement and incorporated herein by reference.)

4.2       Form of Warrant Agreement and attached form of Representatives'
          Warrant (Filed as Exhibit 4.2 to Amendment No. 1 on Form S-1 to Form
          SB-2 Registration Statement, File No. 333-42387, with the Commission
          on April 17, 1998 [the "First 1998 Registration Statement"] and
          incorporated herein by reference.)

10.1      1997 Stock Incentive Plan (Filed as Exhibit 10.1 to the 1997
          Registration Statement and incorporated herein by reference.)

10.1(a)   Amendment to 1997 Stock Incentive Plan (Filed as 10.1(a) to Amendment
          No. 2 to Form S-1 Registration Statement, File No. 333-42387, with the
          Commission on May 19, 1998 [the "Second 1998 Registration Statement"]
          and incorporated herein by reference.)
 
10. 2     Employment agreement with William V. Carey (Filed as Exhibit 10.8 to
          the 1997 Registration Statement and incorporated herein by reference.)
 
10.2(a)   Amendment to employment agreement with William V. Carey (Filed as
          Exhibit 10.9(a) to the Second 1998 Registration Statement and
          incorporated herein by reference.)
 
10.3      Employment agreement with Jeffrey Peterson (Filed as Exhibit 10.9 to
          the 1997 Registration Statement and incorporated herein by reference.)
 
10.4      Employment agreement with Robert Bohojlo and the Company (Filed as
          Exhibit 10.11 to the First 1998 Registration Statement and
          incorporated herein by reference.)
 
10.5      Employment agreement with International Poland Sp. z o.o. Registration
          Statement and Robert Bohojlo and Carey Agri (Filed as Exhibit 10.12 to
          the incorporated herein by First 1998 reference.)

10.6      Employment agreement with Evangelos Evangelou and CEDC

10.7      Employment agreement with Evangelos Evangelou and Carey Agri

10.8      Form of distribution contract with Polmos vodka producers (Filed as
          Exhibit 10.5 to the 1997 Registration Statement and incorporated
          herein by reference.)

10.9      Distribution contract between Carey Agri and United Distillers
          Finalandia Group Sp z.o.o. dated January 1, 1995 (Filed as Exhibit
          10.4 to the 1997 Registration Statement and incorporated herein by
          reference.)

10.10     Distribution contract with UDV Poland Sp. z.o.o. dated July 3, 1997
          (Filed as Exhibit 10.6 to the 1997 Registration Statement and
          incorporated herein by reference)

10.11     (a) Amendment, updated, to the distribution contract with UDV Poland
          Sp. Z.o.o. dated July 3, 1997 (Filed as Exhibit 10.6 (a) to the first
          first 1998 Registration Statement and incorporated herein by
          reference.)

21        Subsidiaries of the Company (Filed as Exhibit 21 to the 1997
          Registration Statement and incorporated herein by reference.)

23        Consent of Ernst & Young Audit Sp. z o.o.

27        Financial Data Schedule

          (b) Reports on form 8-K in the fourth quarter of 1998

          No reports were filed on Form 8-K by the Company during the last
          quarter of 1998.

                                                                              45
<PAGE>
 
          (c)  Exhibits

          The response to this portion of Item 14 is submitted in response to
          Item 14 (a) (3).

          (d)  Financial Statement Schedules

          The response to this portion of Item 14 is submitted in response to
          Item 14 (a) (2).

                                                                              46
<PAGE>
 
                                  SIGNATURES

Pursuant to the requirements of the 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.

                                Central European
                                Distribution Corporation

                                By:         /s/  William V. Carey
                                   ---------------------------------------------
                                                William V.Carey
                                Chairman, President, and Chief Executive Officer
 
                                Date: March 29, 1999


Pursuant to the requirements of the Securities Exchange Act of 1933, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated below.

<TABLE> 
<CAPTION> 

          SIGNATURE                                        TITLE                                     DATE
          ---------                                        -----                                     ----
<S>                                          <C>                                               <C> 
     /s/  William V. Carey                   Chairman, President and Chief Executive           March 29, 1999
------------------------------------                                                           -------------- 
          William V. Carey                   Officer (Principal executive officer)


     /s/  Jeffrey Peterson                   Vice Chairman and Executive Vice President        March 29, 1999
------------------------------------                                                           -------------- 
          Jeffrey Peterson


     /s/  Robert Bohojlo                     Vice President and Chief Financial Officer        March 29, 1999
------------------------------------                                                           -------------- 
           Robert Bohojlo                   (Principal financial and accounting officer)


     /s/  Joseph S. Conti                    Director                                          March 29, 1999
------------------------------------                                                           -------------- 
          Joseph S. Conti

     /s/  James T. Grossmann                                                                   March 25, 1999
____________________________________         Director                                          ______________
          James T. Grossmann 


     /s/  James B. Kelly                     Director                                          March 29, 1999
------------------------------------                                                           -------------- 
          James B. Kelly


     /s/  Jan W. Laskowski                   Director                                          March 29, 1999
------------------------------------                                                           -------------- 
          Jan W. Laskowski


     /s/  Joe M. Richardson                  Director                                          March 29, 1999
------------------------------------                                                           -------------- 
          Joe M. Richardson
</TABLE> 

                                                                              47
<PAGE>
 

Exhibit
Number                   Exhibit Description
-------                  -------------------

2.1       Contribution Agreement among Central European Distribution Corporation
          and William V. Carry, William V. Carry Stock Trust, Estate of William
          O. Carry and Jeffrey Peterson dated November 28, 1997 (Filed as
          Exhibit 2.1 to the Registration Statement on Form SB- 2, File No. 333-
          42387, with the Commission on December 17, 1997 [the "1997
          Registration Statement'] and incorporated herein by reference.)

3.1       Certificate of Incorporation (Filed as Exhibit 3.1 to the 1997
          Registration Statement and incorporated herein by reference.)

3.2       Bylaws (Filed as Exhibit 3.2 to the 1997 Registration Statement and
          incorporated herein by reference.)

4.1       Form of Common Stock Certificate (Filed as Exhibit 4.1 to the 1997
          Registration Statement and incorporated herein by reference.)

4.2       Form of Warrant Agreement and attached form of Representatives'
          Warrant (Filed as Exhibit 4.2 to Amendment No. 1 on Form S-1 to Form
          SB-2 Registration Statement, File No. 333-42387, with the Commission
          on April 17, 1998 [the "First 1998 Registration Statement"] and
          incorporated herein by reference.)

10.1      1997 Stock Incentive Plan (Filed as Exhibit 10.1 to the 1997
          Registration Statement and incorporated herein by reference.)

10.1(a)   Amendment to 1997 Stock Incentive Plan (Filed as 10.1(a) to Amendment
          No. 2 to Form S-1 Registration Statement, File No. 333-42387, with the
          Commission on May 19, 1998 [the "Second 1998 Registration Statement"]
          and incorporated herein by reference.)
 
10. 2     Employment agreement with William V. Carey (Filed as Exhibit 10.8 to
          the 1997 Registration Statement and incorporated herein by reference.)
 
10.2(a)   Amendment to employment agreement with William V. Carey (Filed as
          Exhibit 10.9(a) to the Second 1998 Registration Statement and
          incorporated herein by reference.)
 
10.3      Employment agreement with Jeffrey Peterson (Filed as Exhibit 10.9 to
          the 1997 Registration Statement and incorporated herein by reference.)
 
10.4      Employment agreement with Robert Bohojlo and the Company (Filed as
          Exhibit 10.11 to the First 1998 Registration Statement and
          incorporated herein by reference.)
 
10.5      Employment agreement with International Poland Sp. z o.o. Registration
          Statement and Robert Bohojlo and Carey Agri (Filed as Exhibit 10.12 to
          the incorporated herein by First 1998 reference.)

10.6      Employment agreement with Evangelos Evangelou and CEDC

10.7      Employment agreement with Evangelos Evangelou and Carey Agri

10.8      Form of distribution contract with Polmos vodka producers (Filed as
          Exhibit 10.5 to the 1997 Registration Statement and incorporated
          herein by reference.)

10.9      Distribution contract between Carey Agri and United Distillers
          Finalandia Group Sp z.o.o. dated January 1, 1995 (Filed as Exhibit
          10.4 to the 1997 Registration Statement and incorporated herein by
          reference.)

10.10     Distribution contract with UDV Poland Sp. z.o.o. dated July 3, 1997
          (Filed as Exhibit 10.6 to the 1997 Registration Statement and
          incorporated herein by reference)

10.11     (a) Amendment, updated, to the distribution contract with UDV Poland
          Sp. Z.o.o. dated July 3, 1997 (Filed as Exhibit 10.6 (a) to the first
          first 1998 Registration Statement and incorporated herein by
          reference.)

21        Subsidiaries of the Company (Filed as Exhibit 21 to the 1997
          Registration Statement and incorporated herein by reference.)

23        Consent of Ernst & Young Audit Sp. z o.o.

27        Financial Data Schedule

          (b) Reports on form 8-K in the fourth quarter of 1998

          No reports were filed on Form 8-K by the Company during the last
          quarter of 1998.