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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, 2004



| ̈ | 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 of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|Two Bala Plaza, Suite #300, Philadelphia, PA                   |  | 19004                               
|(Address of Principal Executive Offices)                       |  | (Zip code)                          



Registrants
telephone number, including area code: (610) 660-7817



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 ̈



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.    x



Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes  x    No ̈



The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2004, was
approximately $329,437,800 (based on the closing price of the registrants common stock on the NASDAQ National Stock Market).*



As of March 9, 2005, the registrant had 16,654,769 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 2, 2005, are incorporated by
reference into Part III.

---

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



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TABLE OF CONTENTS



|                                                                                                     |  |     
|---------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                     |  | Page
|PART I                                                                                               |  |     
|                                                                                                     | 
|Item 1.        Business.                                                                             |  | 1   
|Item 2.        Properties.                                                                           |  | 18  
|Item 3.        Legal Proceedings.                                                                    |  | 18  
|Item 4.        Submission of Matters to a Vote of Security Holders.                                  |  | 18  
|                                                                                                     | 
|PART II                                                                                              |  |     
|                                                                                                     | 
|Item 5.        Market for Registrants Common Equity and Related Stockholder Matters.                |  | 19  
|Item 6.        Selected Financial Data.                                                              |  | 21  
|Item 7.        Managements Discussion and Analysis of Financial Condition and Results of Operation. |  | 22  
|Item 7A.    Quantitative and Qualitative Disclosures about Market Risk.                              |  | 31  
|Item 8.        Financial Statements and Supplementary Data.                                          |  | 33  
|Item 9.        Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |  | 58  
|Item 9A.    Controls and Procedures.                                                                 |  | 58  
|                                                                                                     | 
|PART III                                                                                             |  |     
|                                                                                                     | 
|Item 10.      Directors and Executive Officers of the Registrant.                                    |  | 60  
|Item 11.      Executive Compensation.                                                                |  | 60  
|Item 12.      Security Ownership of Certain Beneficial Owners and Management.                        |  | 60  
|Item 13.      Certain Relationships and Related Transactions.                                        |  | 60  
|Item 14.      Principal Accountant Fees and Services.                                                |  | 60  
|                                                                                                     | 
|PART IV                                                                                              |  |     
|                                                                                                     | 
|Item 15.      Exhibits, Financial Statement Schedules and Reports on Form 8-K.                       |  | 60  
|                                                                                                     | 
|Signatures                                                                                           |  |     



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The disclosure and analysis of Central European Distribution Corporation, or the Company, in this report
contain forward-looking statements, which provide the Companys current expectations or forecasts of future events. Forward-looking statements in this report include, without limitation:



| |  |  | information concerning possible or assumed future results of operations, trends in financial results and business plans, including those relating to earnings growth and revenue
growth;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | statements about the level of the Companys costs and operating expenses relative to its revenues, and about the expected composition of its revenues;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | statements about the Companys integration of its acquisitions;
| | - |  | ---------------------------------------------------------------



| |  |  | information about the Polish regulations on the Companys business;
| | - |  | -------------------------------------------------------------------



| |  |  | other statements about the Companys plans, objectives, expectations and intentions; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | other statements that are not historical facts.
| | - |  | -----------------------------------------------



Words such as believes, anticipates and intends may identify forward-looking statements, but the absence of these
words does not necessarily mean that a statement is not forward-looking. Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to
differ materially from those expected or implied by the forward-looking statements. The Companys actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the factors described
in the section entitled Risk Factors in this report. Other factors besides those described in this report could also affect actual results. You should carefully consider the factors described in the section entitled Risk
Factors in evaluating the Companys forward-looking statements.



You should not unduly rely on these forward-looking statements, which speak only as of the date of this report. The Company undertakes no obligation to publicly revise any forward-looking statement to reflect
circumstances or events after the date of this report, or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks the Company describes in the reports it files from time to time with the Securities and
Exchange Commission, or SEC.



PART I



Item 1.    Business



The Company is one of the leading importers and distributors of alcoholic beverages in Poland. The Company operates the largest nationwide next-day alcoholic beverage delivery service in Poland through its thirteen distribution centers and
78 satellite branches located in Polands principal cities, including Warsaw, the Companys headquarters in Poland. The Company currently distributes approximately 770 brands in five categories: beer, spirits, wine, soft drinks and cigars.
The Company is the exclusive importer and distributor in Poland for 15 international beers, including Guinness, Corona, Fosters, Becks Pilsner, BitburgerandBudweiser Budvar. The Company is also one of the leading
distributors of locally produced beers, distributing over 35 brands in selected regions. The Company currently distributes approximately 300 spirit products, including leading international brands of scotch, single malt and other whiskeys, rums,
bourbons, Polish vodkas, tequilas, gins, brandy, cognacs, vermouths and specialty liquors, such as Johnnie Walker, Smirnoff, Absolut, Finlandia, BacardiandBallantines. In addition, the Company is the exclusive importer and
distributor in Poland for approximately 426 wine brands, including B.Ph. de Rothschild, Torres, Bolla, Concha y Toro, Penfolds, Sutter Home, Georges Duboeuf, Mondavi, Veuve ClicquotandCodorniu. In addition to its distribution
agreements with various alcoholic beverage suppliers, the Company is the exclusive importer in Poland for Dunhill Cigars, General Cigar products and Evian water.



The Company distributes its products throughout Poland to approximately 37,260 outlets, including off-trade establishments,
such as small businesses, medium-size retail outlets, petrol stations, duty free stores,



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supermarkets and hypermarkets, and on-trade locations, such as bars, nightclubs, hotels and restaurants, where such products are consumed.



Industry Overview



Consumption.    In 2004, Poland was the fourth largest consumer of vodka in the world according
to Company estimates. The total net value of the wholesale market for alcoholic beverage products in Poland was approximately $5.8 billion in 2004. Traditionally, the population of Poland had primarily consumed domestic vodka, but in recent years
there has been an increase in the consumption of other types of alcohol, many of which are imported, such as beers, wines and spirits. This increase in consumption of beer and wine and non-vodka spirits has not negatively impacted the sales of
domestic vodka, which have increased since the reduction of the excise tax by 30% in October 2002. The Company believes that the increase of consumption of beer, wine and spirits, both imported and domestic, is a result of:



| |  |  | stabilization of the Polish economy, including increased wages, as well as a decrease in the rate of inflation from 14.9% in 1997 to 3.5% in 2004;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an increase in tourism, which has created a demand for imported products;
| | - |  | -------------------------------------------------------------------------



| |  |  | 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;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increased availability and decreased real prices for imported products, especially after the excise tax reduction took effect October 1, 2002; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increased availability and decreased real prices for imported products after Poland joined the European Union on May 1, 2004.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



Distribution.    The market for the distribution
of alcoholic beverages in Poland remains highly fragmented. There are numerous alcohol distributors spread throughout the country, mainly delivering a limited range of beers, wines and spirits. Furthermore, distributors have been operating
regionally, rather than nationally, due to the difficulties in establishing a nationwide distribution system, including the capital required to set up such a system, and an extremely poor road infrastructure. Distributors of alcoholic beverages
deliver 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 are classified as mom and pop stores, as well as a trend toward expanding major chain stores. This consolidation of chain stores is also apparent in the rapid expansion of petrol
stations, which are owned and operated by major international companies, such as Shell, BP and Statoil. Many of these petrol stations contain convenience stores, which sell all types of alcoholic beverages and in many areas serve as local
convenience/liquor stores. Because of its business strategy and current business operations, as more fully described below, the Company believes that it continues to be well-positioned to take advantage of both these trends in consumption and
distribution.



Business Strategy



Expand Distribution Base.    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 and expanding their own branch network, particularly in regions where the Company does not
distribute directly or does not have a leading position. The Company seeks to acquire successful wholesalers, which are primarily involved in the vodka distribution business and are among the leading wholesalers in their region. After acquiring a
wholesaler, the Company adds its higher margin imported brands to complement and enhance the existing product portfolio and margin of the acquired company. This strategy permits the Company to add geographic coverage, increase its customer base, and
increase the Companys leverage with its supply partners and retail client base. The distribution base will also continue to increase through organic growth. The Company



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expects mid-single digit organic sales growth in 2005. As a result of the successful implementation of this strategy over the last seven years, the Company
has increased its customer base from 7,500 in 1998 to approximately 37,260 in 2004.



In implementing this strategy, the Company completed its eleventh, twelfth and thirteenth acquisitions in 2004. In May 2004, the Company acquired Miro Sp. z o.o., which is located in the southwest region of Poland.
The Company acquired Saol, another distributor of alcoholic beverages located in the southern region of Poland, in June 2004. The third acquisition occurred when the Company acquired Polnis Distribution, which is located in Lodz, the second largest
city in Poland in October 2004. All three of these companies were well-positioned in their respective regions and thus these acquisitions continue to strengthen the Companys position as the largest distributor of domestic vodka in Poland.



This strategy of acquiring leading regional distributors in
Poland has and is expected to continue to increase the Companys buying and selling leverage in the market, as well as increase the amount of sales of the Companys imported goods, which have higher margins, into distribution channels that
were not previously serviced. The Companys buying leverage with suppliers combined with its selling leverage to retail have and are expected to continue to contribute to improving its operating profit.



Expand into Production.    The Company is
exploring opportunities to vertically integrate into spirit production within Poland. Currently, Polmos Bialystok, the largest state-owned distillery in Poland located in the northeast region of Poland, is in the process of being privatized by the
Polish Treasury Ministry. The Polish Treasury Ministry has provided documentation to potential bidders for at least 51% of the shares of capital stock of Polmos Bialystok. The Company is currently participating in this bidding process, and on
February 24, 2005, the Polish Treasury selected the Company and three other companies to be on the short list of potential bidders. There are another five state run distilleries in Poland that the Polish Treasury Ministry has stated that they would
like to privatize in 2005.



The Company believes that the
acquisition of a distillery, either state-owned or privately-owned, would add value to the Company by:



| |  |  | adding significantly to margin expansion as production margins are integrated with current distribution margins,
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | adding selling leverage to our current distribution model as a direct distributor owning brands,
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | tapping into the growing international vodka market with our own exports, and
| | - |  | -----------------------------------------------------------------------------



| |  |  | impacting positively to existing Company valuation.
| | - |  | ---------------------------------------------------



Increase Product Offerings.    The Companys strategy to offer new products through its next-day national distribution
system is a key focus. The Company focuses on products that fit its distribution model of higher value/margin products and that would also add value to its current product mix. The Company is also exploring opportunities in non-alcoholic products
such as energy drinks and imported waters that remain growth opportunities in Poland.



Consolidation of Existing Offices/Warehouses.    The Company plans to consolidate the 78 satellite branches it currently operates in Poland. With fourteen acquisitions in the last six years,
the Company believes it can consolidate certain smaller branches into larger branches without losing profitability. The Company estimates that it will consolidate approximately five to ten smaller branches into larger branches in 2005. It is
expected that this consolidation would result in improved cash flow as inventory days are reduced and have minimal impact on the profit and loss as the Company expects to keep most of the sales revenue from the consolidation. However, the
consolidation of smaller branches typically does not necessarily create significant savings as not all sales and administrative personnel are made redundant. Key sales and administrative personnel may be moved to larger neighboring branches.
Moreover, the Company may incur increased logistical costs as products may have to be moved longer distances as branches are closed. The overall process of consolidating branches is a positive one for the Company and continues to help create a more
efficient, streamlined nationwide distribution platform.



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History



The Companys wholly owned 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, Jeffrey Peterson (who served as the Companys Vice Chairman until February 2004) and William V. Carey, President and Chief Executive Officer of the Company. In February 1991, Carey Agri was granted its first
import beer license. With this license, the Company started to import various beers, including Fosters lager, Grolsch and products from Anheuser Busch, and sold them to wholesalers. With these beverages, Carey Agri sought to offer more
products for which it had an exclusive import license and to market and sell these products to the segment of the Polish population who were benefiting from the countrys 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 opening of retail outlets in Poland, Carey Agri began to implement a direct delivery system in Warsaw, which could deliver alcoholic beverages to retail outlets on a reliable next-day 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 large foreign-owned supermarket chains 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 replicated by the Company in the cities of Krakow (1993), Wroclaw (1994), Szczecin (1994), Gdynia (1994), Katowice (1995), Torun (1995) and Poznan (1996).



The Company was incorporated in Delaware in 1997. In July 1998, the Company
issued 2,000,000 shares of its common stock in an initial public offering on the Nasdaq SmallCap Market raising net proceeds of approximately $10.6 million. In June 1999, the Company was accepted onto the Nasdaq National Market where it trades under
the symbol CEDC.



The Company currently offers
approximately 770 brands of beverages and other products in five categories: (i) beers, (ii) spirits, (iii) wines, (iv) soft drinks, and (v) cigars. The sales mix is outlined in the table below:



|                 |  |      |   |  |      |   |  |      |  
|---------------- |  | ---- | - |  | ---- | - |  | ---- | -
|                 |  | 2002 |   |  | 2003 |   |  | 2004 |  
|Imported beer    |  | 3.5  | % |  | 1.6  | % |  | 1.2  | %
|Imported spirits |  | 2.5  | % |  | 1.5  | % |  | 1.4  | %
|Imported wines   |  | 3.2  | % |  | 3.2  | % |  | 2.6  | %
|Domestic vodka   |  | 68.0 | % |  | 70.7 | % |  | 75.1 | %
|Domestic beer    |  | 8.0  | % |  | 10.2 | % |  | 6.9  | %
|Domestic spirits |  | 6.5  | % |  | 4.9  | % |  | 5.0  | %
|Domestic wines   |  | 6.3  | % |  | 6.2  | % |  | 6.3  | %
|Other products   |  | 2.0  | % |  | 1.7  | % |  | 1.5  | %
|                 |  |      |   |  |      |   |  |      |  
|Total            |  | 100  | % |  | 100  | % |  | 100  | %



Beer



The Company distributes imported beer through each of its
regional offices. Amsterdam, Becks, Bitburgr, Budweiser Budvar, Corona, Fosters, Franziskaner, Grolsch, Guinness, Hasseroder, Hoegaarden, Kilkenney, Kostrizer, Leffe, and Stella Artois are distributed and marketed
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 but typically range from one to three



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years with an automatic extension period unless one of the parties chooses to terminate the agreement. Under the terms of these contracts, the Company is
responsible for the marketing of these products, subject to applicable Polish rules and regulation. The Company contributes up to 50% of the marketing budget for each brand depending upon the length of the contract.



In the past few years, the Company has increased the amount of Polish beer
that it distributes. This decision to increase its distribution of Polish beer resulted from the nature of the market place in a few select regions of Poland where the Company has enjoyed and continues to enjoy a strong competitive advantage. As a
result of the requests from the Companys client base in these areas and as a way of protecting market share, the Company offers Polish beer. The Company has no immediate plans to increase its distribution of Polish beer on a national scale,
but it will increase its distribution of Polish beer in those strategic areas where the Company decides it is in the best interest of the Company. Although the actual amount of Polish beer distributed has increased, the amount of Polish beer
distributed as a percentage of total sales decreased from 10.2% in 2003 to 6.9% in 2004.



Polish Vodka



The
Company purchases all of its domestic vodka products from 17 local distilleries and carries approximately 133 different brands. Some of the leading domestic vodka brands the company distributes include the following:



|                 |  |                
|---------------- |  | ---------------
|Wyborowa         |  | Absolwent      
|Bols             |  | Zubrówka       
|Luksusowa        |  | Smirnoff       
|Belvedere/Chopin |  | Soplica        
|Sobieski         |  | Zoldkowa Gorzka



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. The contracts are generally for one year with an automatic extension clause, which has been standard
practice within the industry for the past 12 years. To date, the Company has never had a distribution contract terminated by any of the local vodka producers. The Company has no obligation to perform any marketing activities with or on behalf of any
local vodka producer.



In 2004, over 5% of the Companys
net sales resulted from sales of products purchased from the following companies: Polmos Bialystok (19%), Sobieski Distribution (13%), Unicom Bols Group (10%) and Polmos Zielona Gora (7%).



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Imported Spirits



The Company distributes all its imported spirit products through each of its offices, mostly on a non-exclusive basis. Some
of the better known spirit products sold by the Company include the following (the Company is the exclusive importer of the products denoted by an * below):



|                                                      |             |                    
|----------------------------------------------------- | ----------- | -------------------
|Scotch Whisky/ Whisky:                                |             | Single Malt Whisky:
|Johnnie Walker Black, Blue, Green, Goldand Red Labels |             | Glenkinchie        
|                                                      | Glenfiddich
|Ballantines Fines                                    |             | Talisker           
|Ballantines Gold Seal                                |             |                    
|Grants                                               |             |                    
|Black&White                                           |             |                    
|Chivas Regal                                          |             |                    
|Dewars                                               |             |                    
|Hankey Bannister                                      |             |                    
|Macallan                                              |             |                    
|Passport                                              |             |                    
|Teachers                                             |             |                    
|VAT69                                                |             |                    
|Royal Salute                                          |             |                    
|The Dimple                                            |             |                    
|Black Bush                                            |             |                    
|Connemara                                             |             |                    
|Magdalen                                              |             |                    
|Old Smuggler                                          |             |                    
|Scottish Leader                                       |             |                    
|Williams*                                            |             |                    
|Jameson                                               |             |                    
|Paddy                                                 |             |                    
|Tullamore Dew                                         |             |                    
|Famous Grouse                                         |             |                    
|Canadian Special Old                                  |             |                    

|               |  |                         |  |                 
|-------------- |  | ----------------------- |  | ----------------
|               |  |                        
|Bourbon:       |  | Rum:                    |  | Imported Vodkas:
|Bakers         |  | Bacardi Light and Black |  | Absolut Range   
|Basil Haydens |  | Havana Club             |  | Blavod          
|Bookers        |  | Captain Morgan          |  | Finlandia Range 
|Jack Daniels  |  |                         |  | Level One       
|Jim Beam       |  |                         |  | SKYY            
|Knob Creek     |  |                         |  |                 
|Wild Turkey    |  |                         |  |                 
|               |  |                        
|Tequila:       |  | Gins:                   |  | Cognacs:        
|Jose Cuervo*   |  | Finsbury*               |  | Remy Martin     
|Sierra*        |  | Gordons London Dry Gin |  | Hennessy        
|Camino         |  | Beefeater Gin           |  | Martell         
|Olmeca         |  | Bombay Sapphire Gin     |  | Courvoisier     
|Sauza          |  |                         |  | Camus*          



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|                                       |  |                        |  |                   
|-------------------------------------- |  | ---------------------- |  | ------------------
|                                       |  |                       
|Brandy:                                |  |                        |  |                   
|Raynal*                                |  |                        |  |                   
|Stock 84*                              |  |                        |  |                   
|Torres*                                |  |                        |  |                   
|Metaxa                                 |  |                        |  |                   
|Brandy 1804                            |  |                        |  |                   
|Capa Negra                             |  |                        |  |                   
|Napoleon Grand Montand                 |  |                        |  |                   
|Paul De Lissac                         |  |                        |  |                   
|Soberano Solera                        |  |                        |  |                   
|St. Remy                               |  |                        |  |                   
|Brunel*                                |  |                        |  |                   
|Couronnier*                            |  |                        |  |                   
|Courriere*                             |  |                        |  |                   
|Hobson*                                |  |                        |  |                   
|                                       |  |                       
|Specialty Spirits:                     |  |                        |  |                   
|Baileys Irish Cream                   |  | D.O.M Benedictine      |  | Grappa Piave*     
|Liquors Bols                           |  | Drambuie               |  | Grappa Primavera* 
|Liquors De Kuyper                      |  | Grand Marnier          |  | Ouzo Nostalgia*   
|Calvados                               |  | Grappa Fior di vite    |  | Amaretto Gozio*   
|Campari Bitter                         |  | Hankey Bannister Cream |  | Amaretto Florence*
|Carolans Irish Cream                   |  | Jagermeister           |  | AmarettoVenice*   
|Cointreau                              |  | Kahlua Coffie Liqueur  |  | Eclisse*          
|Becherovka                             |  | Passoa                 |  | Sambuca*          
|Amarula Cream                          |  | Sheridans             |  | Stock Limonce*    
|Archers Peach Schnapps                |  | Southern Comfort       |  | Keglevich*        
|Ballinel Whisky Cream                  |  | Cana-Rio*              |  | Whiskream*        
|Napoleon Mandarine*                    |  |                        |  |                   
|                                       |  |                       
|Vermouths:                             |  |                        |  |                   
|Cinzano Bianco, Extra Dry, Rose, Rosso |  |                       
|Martini Bianco, Extra Dry, Rose, Rosso |  |                       
|Filipetti Bianco, Rosso                |  |                        |  |                   
|Stock Bianco, Rosso, Dry*              |  |                        |  |                   



| | * | exclusive import
| | - | ----------------



The contracts for distribution of imported products on a non-exclusive basis have substantially the same terms as the contracts for distribution of
products from local vodka producers.



The contracts for
distribution of the spirit brands the Company exclusively represents are generally one to three years in length and can be terminated with a minimum 90 days written notice by either party. The Company also shares in the local marketing costs up to a
limit of 50% depending upon the length of the contract being served.



Wine



The Company represents approximately 60
wine suppliers and imports and distributes approximately 426 products through each of its offices on an exclusive basis. The Company imports wine through a wholly owned subsidiary, The Cellars of Fine Wines, which works directly with the suppliers
of the wine brands listed below. Additionally, the Company distributes other various sparkling wines, vermouths and champagnes on a non-exclusive basis, including Moet & Chandon, Dom Perignon, Piper Heidseck, MartiniandCinzano.



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List of Exclusive Wine Brands by Supplier



French Wines

(Champagnes)



Veuve Clicquot
Ponsardin

Krug



French Wines



B.Ph. de
Rothschild

Kressmann

Borie Manoux

Louis Latour

De Ladoucette

J. Moreau & Fils

Domaine Laroche

George Duboeuf

J. Faiveley

Leon Beyer

M. Chapoutier

Louis Bernard

CFGV



Californian Wines



Robert Mondavi

Trinchero Estate

Marimar Torres

Sutter Home

Opus One



Spanish Wines



Miguel Torres

Jean Leon

Marques de Vitoria

Faustino

Bodegas Victorianas

Codorniu

Felix Solis



Italian Wines



Banfi

Frescobaldi

Cecchi

Luce de la Vite

Marchesi di Barolo

Santa Margherita

Bolla

Coltiva

Casa Girelli

Botter



Chilean Wines



Concha y Toro

Miguel Torres Chile

Rothschild Chile

Caliterra

Sena

Errazuriz

El Descanso



Australian Wines



Penfolds



South African Wines



Winecorp

New Zealand Wines



Jackson Estate



Argentinian Wines



Trivento



Greek Wines



Boutari



Portugal Wines



Sogrape Vinhos

Forrester



German Wines



Deforth

Morhena



The Company has been working with the same suppliers for four years and has
either verbal or written contracts. Where a written contract is in place, it is usually valid for between one and three years with a three to six month termination clause exercisable by either party. With selected contracts, the Company also shares
in the local marketing costs on either a defined amount or revenue percentage basis. Where a label does not have sufficient demand, the Company will consolidate shipments abroad before receiving the goods into Poland where they are stored in the
Companys bonded warehouse until cleared by customs for sale.



Sales
Organization



The Company employs approximately 419
salespeople who are assigned to one of its thirteen distribution centers and 78 satellite branches. Each distribution center and satellite branch has a sales manager, who meets with the salespeople twice a week to review products and payments before
the salespeople begin calling customers. The sales force at each office is typically divided into two categories: traditional trade and key accounts. Salespeople work on a daily pre-order system, which is routed by region. The salespeople contact
approximately 20 customers per day. At the end of their day, they return to the office or telephone in their orders, which are processed and dispatched the next morning. The sales force work exclusively on a commission basis



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and are supplied with a company car and a mobile phone. Approved travel expenses are covered by the Company. The Company conducts periodic training to
improve the salesmens knowledge of the Companys products as well as improve the sales forces skills.



Marketing



The Company has its own marketing department, which consists of ten people, including six brand managers, who manage the marketing support of the brands
the Company imports exclusively into Poland. The Company manages a combined marketing budget for all exclusive brands of approximately $2.5 million, of which the Company contributes up to 50% of the total budget. The brand owners contribute the
remaining part. The Company is responsible for all of the marketing efforts within Poland from point-of-sale production, below-the-line promotions, print work and public relation events, as well as overseeing the draft beer operations throughout
Poland.



Distribution System



The Companys headquarters are located in Warsaw, the capital of
Poland. There are another twelve distribution centers and 78 satellite branches located throughout Poland.



In October 2000, the Company moved into a new distribution facility in Warsaw. The facility is approximately 9,765 square meters of warehouse (including
bonded warehouse) and 2,230 square meters of office space currently used for the headquarters. Management believes the warehouse facility has enough space to permit the Company to expand for the next two to three years without any further major
investment.



The Company has developed its own de-centralized,
national, next-day distribution system for its alcoholic beverage products, and has the ability to leverage its distribution capacity to include other products that meet its product guidelines as regards to incremental gross margin and operating
profit.



For imported products not sourced from the European
Union, the distribution network begins with the Companys customs warehouse in Warsaw. Products can remain in this warehouse without customs and other duties being paid until the product is needed for sale. At such point, the product is
transferred to the Companys consolidation warehouse at the same location and shipped directly to one of the twelve regional office/warehouse facilities connected to each of the Companys sales locations outside of Warsaw. Imported
products sourced from the European Union that are subject to excise tax enter our tax registered warehouse before entering our main warehouse. Imported products sourced from the European Union that are not subject to excise tax enter the main
warehouse directly. For a further description of the import process see the Import of Products section below.



Based on current sales projections, the regional distribution centers and satellite branches 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. Because of the poor road infrastructure in Poland, the Company currently operates through thirteen distribution centers and 78 satellite branches. The Company
expects to merge five to ten of the satellite branches during 2005, as there is current overlap with recently acquired companies.



For products the Company buys in Poland, the distribution chain begins with the importer/producer that ships product directly to each warehouse in Poland
at the importer/producers cost. Once the product is entered into the branch inventory, it can be sold and delivered to customers within 24 hours.



Except at peak periods during the summer holidays and other peak times such as Christmas, all deliveries are made by Company-trained employees using
Company-owned or leased vehicles. During busy periods, the Company uses independent contractors to supplement its own fleet. These contractors are usually small family-run businesses with which the Company has had relationships for several years.
The Company has over 292 delivery trucks it uses for its direct deliveries in Poland. The Company replaces its fleet every three to five years, which is an ongoing process handled by its fleet management department.



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Market for Product Line



In 2004, approximately 95% of the Companys total sales were through off-trade locations (including 6% through other wholesalers, a decrease from
12% in 2003), where the alcoholic beverages are not consumed, and 5% through on-trade locations, where the alcoholic beverages are consumed. A breakdown by value of the off-trade and on-trade is provided below.



|                                    |  |     |  
|----------------------------------- |  | --- | -
|Off-trade Locations                 |  |     |  
|Supermarket and locally-owned shops |  | 71  | %
|Wholesalers                         |  | 6   | %
|Hypermarkets                        |  | 15  | %
|Gas Stations                        |  | 3   | %
|On-trade Locations                  |  | 5   | %
|                                    |  |     |  
|Total                               |  | 100 | %



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, 2004, the Company sold products to approximately 31,411
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.



The Company also sells products throughout Poland through other wholesalers. There are a few written agreements with these wholesalers as this distribution channel is going through a major consolidation and the Companys strategy is to
go directly to retail outlets, bypassing this distribution channel.



On-Trade Market



There are three components to
the Companys sales to locations where alcoholic beverages are consumed: (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, Holiday Inn, Hyatt and Radisson, as well as the major Polish chain, Orbis. Restaurants are typically up-scale and located in major urban areas. At December
31, 2004, the Company sold products to approximately 5,850 on-trade accounts.



Financial Information about Geographic Access



During each of the last three years, all of the Companys revenue has been derived from customers in Poland, where all of the Companys customers are located, and all of the Companys long-lived assets
are located in Poland.



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 2002, 2003 and 2004, bad debt expense as a percentage of net sales, were approximately 0.49%, 0.14% and 0.13% of
net sales. Management believes the ongoing enhancement of computer systems for interoffice financial and administrative controls will assist in maintaining a low ratio of bad debts to net sales as the Company continues



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to expand. A more detailed explanation of the bad debts provision is available in Managements Discussion and Analysis and Financial Condition and
Results of Operation.



Competition



The Company, as an early entrant in the post-Communist market in Poland, has
over 12 years of experience in introducing, developing and refining sales, marketing and customer service practices in the diverse and rapidly developing Polish economy. The Company believes this experience gives it 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.



The Company competes with various regional distributors in all of its
distribution centers and satellite branches. This competition is particularly vigorous with respect to domestic vodka brands. One of the largest, foreign-owned chain stores also sells 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 and the Company is able to leverage its market share to be price competitive while still
maintaining its margins.



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 to see increased competition from Heineken, SAB and Carlsberg in the import beer sector while the
Company believes that the import wine and import spirit categories will remain less competitive.



Employees



The Company
had approximately 2,015 full-time employees as of December 31, 2004. All employees, except for a few employees, were employed in Poland and have agreements with the Company. Polish labor law requires that certain benefits be provided to employees,
such as the number of days of vacation, maternity leave and bonuses paid upon retirement based upon years worked in the Company. The 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 makes required monthly payments up to 19.83% of an employees salary to the governmental health and pension system. The Companys employees are not
unionized. The Company believes that its relations with its employees are good. The Company also grants other health benefits to selected key management personnel.



Regulation



The Companys business of importing and distributing alcoholic beverages is subject to 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 operation in compliance with any licensing and permit requirements.



Import of Products



With the accession of Poland to the European Union on May 1, 2004, Poland adopted the established customs rules and regulations of the European Union
which were different than the customs rules and regulations of Poland prior to May 1, 2004. As a result, the customs borders between Poland and other countries that are members of the European Union, or the Member States, were removed. Furthermore,
customs duties and quotas in effect prior to May 1, 2004, were cancelled between Member States, and external trade measures have been unified under a common customs tariff known as the Community Customs Code. Poland was also granted inclusion in the
European Unions customs agreements with countries outside of the European Union.



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In 2004, approximately 15% of the Companys total exclusive import portfolio was from countries
outside the European Union. The result of Poland having the European Unions preferential tariff measures, applied to products the Company is importing from outside the European Union, has resulted in the substantial reduction of duties for
these products. For example, the duty for cigars imported from Cuba decreased from 173% to 9.1%, duty for wine imported from the United States, Australia, New Zealand, Chile, South Africa decreased from 30% to anywhere from 3% to 10% depending on
the country of origin. Duty for beer imported from Mexico decreased from 30% to 0%.



Import Licenses and Quotas



Prior to May 1, 2004, the Polish Ministry of Economy required a wide range of permits, licenses and quotas on imported alcoholic beverages and cigars. As of May 1, 2004, the Ministry of Economy no longer requires licenses and quotas but
only requires an import permit for wine sourced outside the European Union. The Company applies for the import permit for all wine sourced outside the European Union every four months, as required by applicable law, at the Agricultural Market
Agency, which is a Polish agency that acts under European Union legislation and reports wine importation figures to the central European Union register. The first permit was given to the Company by the Agricultural Market Agency in May 2004, and
thereafter, the Agricultural Market Agency has renewed the Companys permit every four months. As the main function of the Agricultural Market Agency is to acquire statistical information of the amount of European Union-sourced and non European
Union-sourced wine sold within the European Union, the Company believes that the Agricultural Market Agency will continue to issue the permit to the Company.



Storing of Imported Products



All products imported by the Company from countries outside of the European Union must enter the Companys customs warehouse, which is described
below, where they are stored until the Company has to transport the products to clients or to other Company warehouses. At the time of transportation, the products are cleared by Polish Customs Agents.



As of May 1, 2004, European Union sourced products that are not subject to an
excise tax enter the Companys main warehouse directly without any additional customs procedures. European Union sourced products that are subject to an excise tax enter the Companys tax registered warehouse, which is described
below, where the excise tax is accounted for. Once the excise tax is accounted for, the products enter the main warehouse where they are prepared for distribution.



Customs Warehouse



The Company is required to obtain a permit from the Director of the Regional Customs Office and the approval of health authorities to open and operate the
customs warehouse. The applicable health concerns are the same as those discussed under Wholesale Activities with regard to non-custom warehouses. The Company received its current permit on December 28, 1998, 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.



Tax Registered Warehouse



The Company is required to obtain a permit from the Director of the Regional
Customs Office to operate its tax registered warehouse. As of May 1, 2004, the Company has operated its tax registered warehouse, where European Union sourced products that are subject to excise tax such as beer, wine and spirits are stored (under
the supervision of the Council of the European Union Directives on the General Arrangements for Products Subject to Excise Duty) and registered. Once registered, the documentation for the amount of excise tax to be paid and the date the taxes are
due to the Polish Ministry of Finance is prepared by the Company and the



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Regional Customs Office. Once the excise tax documentation is prepared, the products enter the main warehouse for distribution.



The Company received its permit from the Regional Customs Office on April 29,
2004. This permit is valid until April 30, 2007. The Company must make accurate and timely payments of the excise tax in order to keep the existing permit effective. The Company believes that if it continues to make accurate and timely payments of
its excise tax obligations, the Regional Customs House will reissue this permit when it expires.



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 for three of its product lines: beer, wine and spirits. The permit with regard to beer is
issued for two years; the current permit will expire on March 28, 2005. The permit with regard to spirits is issued for one year; the current permit will expire on December 31, 2005. The permit for wine is issued for two years; the current permit
will expire on March 28, 2005. The permits require that the Company sell 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 the permit or if it introduces into the Polish market alcohol products that have not been approved for trade. The Company also obtained separate permits for each of its
subsidiaries. The Company has never been denied any general permits and expects that these permits will be renewed when they expire.



Health Requirements



The Company must obtain the approval of the local health authorities to open and operate its warehouses. This approval is a requirement for obtaining the
permit for wholesale activities. The health authorities are primarily concerned with sanitation and proper storage of alcoholic beverages, 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 the 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. As of May 1, 2004, the norms established by the
Polish Normalization Committee have complied with European Union Standards and have harmonized once conflicting Polish standards with standards from European Union countries so that once obligatory Polish requirements such as sanitation testing and
inspections are no longer required by the Polish Normalization Committee. Therefore, a certificate from the European Union-based producers of the products the Company imports is acceptable to the local Polish Health Authorities without further
requirements.



Approval of Health Authorities



For all products sourced outside of the European Union,
the Company is required to receive proper health permits at the time the products are imported into Poland. The local Polish health authorities are charged with the



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responsibility to insure that all products entering Poland from outside the European Union have been previously approved for importation and sale in the
European Union by the European Union health authorities. The Company has been in compliance for all of its imported products with the statutes of the European Union regarding standards and health requirements.



Advertising Ban



In 2001, the government introduced significant changes to the Alcohol
Awareness Law by separating regulations concerning beer from regulations concerning other alcoholic beverages. Previously, the government had implemented a ban on advertising on all alcoholic beverages.



According to the new regulations, above-the-line activities for beer are
allowed but are limited to the following: billboard advertising only if 20% of the surface of the billboard is dedicated to health warnings concerning alcohol consumption, advertising in the press is limited to the inside of a publication (no front
or back cover advertising is allowed), television advertising is only allowed between the hours of 8:00 p.m. and 6:00 a.m. and no advertising can be associated with sexual attractiveness, relaxation, health, sport or incorporate children in any way
in the advertisement. No above-the-line activities, even limited activities, are permitted for other alcoholic beverages.



The government regulations for below-the-line promotions remain the same as in previous years for all alcoholic beverages. The government allows direct
mail campaigns, promotions such as game contests, the packaging of gifts with an alcoholic beverage (i.e., a free glass is attached to a bottle of spirits) and other similar promotions. However, incentive promotions have to be conducted
within the alcohol section of each store. In the on-premise outlets, below-the-line activities are allowed by the government.



The Company strictly adheres to the government regulations regarding above-the-line and below-the-line advertising and promotion. To date, the Company has
not been in violation of these regulations.



Regulation of
Retail Sales



The Company operates six retail outlets for
alcoholic beverages under the name Fine Wine and Spirits. Under Polish law, each of these outlets must have a retail permit to sell alcoholic beverages to potential clients. The length of such permits varies from one to three years and
is renewable. Also, each new store needs to acquire a certificate from the local health authorities to sell its products. The Company, to obtain the above permits, must first have a lease agreement with the owner of the building. Furthermore, for
each lease agreement, the Company requires a long term notice period in order to safeguard its investments. All present retail outlets operate with valid retail licenses, which can be renewed at the expiration date.



Available Information



The Company maintains an Internet website at http://www.ced-c.com. Please note that our Internet address is included
in this annual report as an inactive textual reference only. The information contained on our website is not incorporated by reference into this annual report and should not be considered part of this report.



We file annual, quarterly and current reports, proxy statements and other
information with the SEC. We make our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, amendments to those reports and most of our other SEC filings available free of charge through our Internet website as
soon as reasonably practicable after we electronically file these materials with the SEC. You may read and copy any document we file with the SEC at the SECs public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference room. These filings are also available to the public over the Internet at the SECs website at http://www.sec.gov. In addition, we provide paper copies of our SEC
filings free of charge upon request. Please contact the corporate Secretary of the Company at 610.660.7817 or at our address set forth on the cover page of this annual report.



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We have adopted a code of ethics applicable to all of our officers, directors and employees, including
our Chief Executive Officer and Chief Financial Officer (who is also our Principal Accounting Officer). The code of ethics is publicly available on our website at http://www.ced-c.com/investor.htm. We intend to disclose any amendment to, or
waiver from, any provision in our code of ethics that applies to our Chief Executive Officer and Chief Financial Officer by posting such information on our website at http://www.ced-c.com/investor.htm.



Risk Factors



The inability to adequately manage exchange-rate risk could affect our financial results and our ability to make
financial projections.



Our operations are conducted
primarily in Poland. Our functional currency is the Polish zloty while our reporting currency is the U.S. dollar. Our financial instruments consist mainly of cash and cash equivalents, accounts payable and receivable, inventories, bank loans,
overdraft facilities and long-term debt. Most of the monetary assets represented by these financial instruments are located in Poland. Consequently, they are subject to currency translation risk when reporting in U.S. dollars.



If the U.S. dollar increases in value against the Polish zloty, the value in
U.S. dollars of assets, liabilities, revenues and expenses originally recorded in the Polish zloty will decrease. Conversely, if the U.S. dollar decreases in value against the Polish zloty, the value in U.S. dollars of assets, liabilities, revenues
and expenses originally recorded in Polish zloty will increase. Thus, increases and decreases in the value of the U.S. dollar can have an impact on the value in U.S. dollars of our non-U.S. dollar assets, liabilities, revenues and expenses, even if
the value of these items has not changed in their original currency.



The following table sets forth, for the periods indicated, the average 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 9, 2005, the rate was PLN
2.91.



|                                       |  |                         |  |      |  |      |  |     
|-------------------------------------- |  | ----------------------- |  | ---- |  | ---- |  | ----
|                                       |  | Year ended December 31,
|                                       |  | 2001                    |  | 2002 |  | 2003 |  | 2004
|Exchange rate at end of period         |  | 3.99                    |  | 3.84 |  | 3.74 |  | 2.99
|Average exchange rate during period(1) |  | 4.08                    |  | 4.02 |  | 3.89 |  | 3.54
|Highest exchange rate during period    |  | 4.50                    |  | 4.26 |  | 4.09 |  | 4.06
|Lowest exchange rate during period     |  | 3.94                    |  | 3.84 |  | 3.67 |  | 2.97

---

|(1) | The average of the exchange rates on the last day of each quarter during the applicable period.
|--- | -----------------------------------------------------------------------------------------------



The inability to maintain and expand our senior management would threaten our ability to implement all of our business
strategies.



The management of future growth will require
the ability to retain qualified management personnel and to attract and train new personnel. Senior leadership is necessary to develop the financial and cost controls, information systems and marketing activities needed for us to prosper. Further,
the successful integration of acquired companies requires substantial attention from our senior management team. Failure to successfully retain and hire needed personnel to manage our growth and development would have a material adverse effect on
our ability to implement our business plan and grow our business.



A significant number of our largely short-term and non-exclusive supply contracts may be unexpectedly terminated, which would materially and adversely affect our ability to generate revenue and operating profits.



We distribute approximately 93% of the alcoholic beverages in our portfolio
on a non-exclusive basis. Furthermore, most of our distribution agreements for these beverages have a term of approximately one year, although several of such agreements can be terminated by either party without cause on relatively short notice.



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For example, the distribution agreements with respect to domestic vodka (which accounted for approximately 75% of our net sales in 2004) can be terminated on
one month notice. Any termination of a significant number of our supply contracts would adversely affect our ability to generate revenue and operating profits.



In 2004, we purchased over 5% of net sales from the following suppliers: Polmos Bialystok (19%), Sobieski Distribution (13%), Unicom Bols Group (10%)
and Polmos Zielona Gora (7%). We have one-year supply contracts with each of these companies. The termination of our relationship with any of these entities could have a material adverse effect on our revenue and operating profits.



Market consolidation could lead to margin pressure.



There were approximately 1,000 alcohol distributors in Poland in 1995. In
2004, approximately 200 were actively conducting business in the marketplace. We expect this number to decrease and stabilize to approximately 50 alcohol distributors that would control approximately 90% of the market. During this period of
consolidation, we expect the weaker distributors to maintain low prices in an effort to stay solvent and viable, which could put downward pressure on our existing gross margins as we continue to gain market share. As a result, we will continue to
monitor these potential events and will attempt to balance maintaining gross margins and sales to be in line with our strategic objectives during this transitional period.



Risks Related to Acquisitions



The failure to smoothly integrate the operations, management and other personnel of acquired companies could adversely
affect our ability to maximize our business activities and financial performance.



Our growth will depend in part on our ability to acquire additional distribution capacity and effectively integrate these acquisitions into our existing operations and systems of management and financial controls.
Risks associated with acquisitions include, but are not limited to, integration of sales personnel, retention of key management, standardization of management and controls, harmonization of sales and marketing strategies and procedures and
implementation of group financial reports and controls. We may not be able to successfully integrate the operations of any acquisition, which could negatively impact our financial performance.



Furthermore, since we have a history of maintaining the operational
independence of the companies we acquire, there are risks that the managers of our subsidiaries, who were once the owners of their own companies, will not successfully implement our business strategies and management and cost-control systems. Our
senior management team residing in Warsaw may not be able to coordinate the business activities of the groups various subsidiaries in order to maximize the groups business potential as a nationwide distribution network.



The implementation of anti-monopoly regulations could threaten our basic
business strategy of growing through acquisitions once we reach approximately a 35% to 40% market share.



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, or the Anti-Monopoly Office, if the Anti-Monopoly Office determines that the acquisition has a negative impact on the competitiveness of the Polish market. The current body of Polish anti-monopoly law is not well established and,
therefore, it is difficult to predict how the Anti-Monopoly Office will act on an application. Generally, 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. The Anti-Monopoly Office may not approve any or all of our proposed acquisitions, which action would
negatively impact our ability to institute our business plan and grow our business.



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We may vertically integrate into production, the integration and management of which could deter
results from the existing distribution business and could deter our overall results.



As part of our overall business strategy, we identified both state-owned and privately-owned distilleries in Poland that we may seek to acquire. Currently, Polmos Bialystok, the largest state-owned distillery in
Poland located in the northeast region of Poland, is in the process of being privatized by the Polish Treasury Ministry. The Polish Treasury Ministry has provided documentation to potential bidders for at least 51% of the shares of capital stock of
Polmos Bialystok. We are currently participating in this bidding process, and on February 24, 2005, the Polish Treasury selected the Company and three other companies to be on the short list of potential bidders. We have limited experience in the
production of alcohol, and thus, we may not be able to successfully integrate the acquisition of Polmos Bialystok if our bid is accepted and the acquisition is concluded. However, we plan to maintain the current management of Polmos Bialystok if our
bid is accepted and the acquisition is concluded. We believe that Polmos Bialystok has solid administrative and technical management personnel that we would maintain and who would continue to manage the distillery on a day to day basis. As with all
prior acquisitions, we plan to develop an integration plan to help ensure that the acquisition of Polmos Bialystok would successfully integrate with the company and would not disrupt our distribution business.



Risks Related to Investments in Poland and Emerging Markets



Emerging economies, such as Poland in which we
operate, can be more volatile and perform differently than the United States due to increased risks of adverse political, regulatory or economic developments. The value of our common stock may be adversely affected by developments that would not
affect other U.S. issuers without substantial operations in emerging markets.



In general, investing in the securities of issuers with substantial operations in foreign 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 similar jurisdictions. The Polish market could be subject to greater social, economic, regulatory and political uncertainties than the United States which could have an adverse effect on the market value and liquidity of our
common stock. For example, we are currently required to have permits to import products, maintain and operate our warehouses, and distribute our products to wholesalers. Many of these permits, such as our general permit for wholesale trade, must be
renewed when they expire. Although we believe that the applicable Polish governmental agency will renew our permits upon their expiration, our permits may not be renewed. Additionally, our permits may be revoked prior to their expiration date. If
permits that are material to our business are either revoked or not renewed, our business could be negatively affected. However, we believe that from a regulatory and economic point of view the risks have been significantly reduced as a result of
Poland having joined the European Union on May 1, 2004, as laws and regulatory rules have been and are in the process of conforming to European Union standards.



Our stockholders could experience unusual expense and uncertainty in trying to enforce any judicial judgment against us.



We are organized under the laws of Delaware. Therefore, our stockholders are
able to affect service of process in the United States upon CEDC and may be able to affect service of process upon our directors. However, we are a holding company, all of the operating assets of which are located outside the United States. As a
result, you may not be able to enforce against our assets judgments of United States courts predicated upon the civil liability provisions of United States laws. In addition, awards of punitive damages in actions brought in the United States or
elsewhere may not be enforceable in Poland.



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Item 2.    Properties.



Headquarters; Sales Offices and Warehouses



The Company has entered into leases for its Warsaw headquarters and most of its other twelve distribution centers and 78 regional branches. The amount of office and warehouse space leased for each distribution center and satellite branch
varies between 40 and 7,400 square meters depending on the size of the business. The monthly lease payments, which are denominated in Polish zloty, vary between $67 and $23,362 for the regional distribution centers and satellite branches and are
approximately $96,000 per month in Warsaw ($54,930 for the customs and consolidation warehouse and $41,070 for the office space for Company headquarters). The Warsaw lease is for seven years, commencing May 1, 2003, without termination. Most of the
other leases can be terminated by either party on approximately three months prior notice.



Customs and Consolidation Warehouse



The customs and consolidation warehouse is a 9,765 square meter leased facility located in Warsaw. The lease is for seven years commencing May 1, 2003, and the monthly rental, denominated in U.S. dollars, is
approximately $54,930 per month as of December 31, 2004.



Retail Outlets



The Company has entered into a long term or indefinite
term lease agreement for each of its six retail outlets. All the lease agreements can be terminated by mutual consent or by three to six months prior notice by either party. The lessor, however, has, in each case, waived its right to terminate
the agreement for three years, provided, that the Company is performing its obligations thereunder. Lease payments, which are denominated in Polish zloty, currently range from $780 to $5,585 per month.



Item 3.    Legal Proceedings.



The Company is not aware of any pending or threatened legal actions other than disputes arising in the ordinary course of its business that would not, if determined adversely to the Company, have a material adverse
effect on its business and operations.



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, 2004.



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##### Table of Contents

PART II



Item 5.    Market for Registrants Common Equity and Related Stockholder Matters.



Market Information



The Companys common stock has been traded on the NASDAQ National Market or the National Market under the symbol CEDC since June 1999.
Prior to June 1999, the Company traded on the NASDAQ Small Cap Market since the Companys initial public offering in July 1998. The following table sets forth the high and low bid prices for the common stock, as reported on the NASDAQ National
Market, for each of the Companys fiscal quarters in 2003 and 2004. These prices represent inter-dealer quotations, which do not include retail mark-ups, mark-downs or commissions and do not necessarily represent actual transactions. The prices
for 2003 have also been adjusted to reflect the impact of the 3 for 2 stock split in May 2004.



|               |  |      |       |     |   |      
|-------------- |  | ---- | ----- | --- | - | -----
|               |  | High |       | Low
|2003           |  |      |       |     |   |      
|First Quarter  |  | $    | 13.65 |     | $ | 8.13 
|Second Quarter |  |      | 16.60 |     |   | 8.39 
|Third Quarter  |  |      | 18.57 |     |   | 11.78
|Fourth Quarter |  |      | 27.89 |     |   | 17.60
|               |  |     
|2004           |  |      |       |     |   |      
|First Quarter  |  | $    | 24.08 |     | $ | 20.16
|Second Quarter |  |      | 26.08 |     |   | 18.74
|Third Quarter  |  |      | 25.59 |     |   | 22.04
|Fourth Quarter |  |      | 30.22 |     |   | 22.73



On March 9, 2005, the
last reported sales price of the common stock was $36.98 per share.



Holders



As of February 25, 2005, there were approximately 7,753
beneficial owners, and as of March 9, 2005 there were 63 stockholders of record of common stock.



Dividends



The Company
has never declared or paid any dividends on its common stock. Future dividends will be subject to approval by the Companys board of directors and will depend upon, among other things, the results of the Companys operations, capital
requirements, surplus, general financial condition and contractual restrictions and such other factors as the board of directors may deem relevant. The Company does not intend to pay cash dividends on its common stock in the foreseeable future.



The Company has instituted a policy of having all of its
subsidiaries (except Carey Agri) pay dividends to their respective stockholders, either the Company or Carey Agri. The subsidiaries, except for Carey Agri, will distribute 50% of their respective current years after tax profits except for those
generated during the first year of ownership. As at December 31, 2004, the Companys subsidiaries, will provide for dividends of approximately $6,046,000 to Carey Agri and the Company or, $5,396,000 to the Company and $650,000 to Carey Agri.



These dividends are being used initially to pay down
acquisition debt and to fund the day-to-day operations of the Company. At December 31, 2004, the subsidiaries had approximately $52.4 million of retained earnings.



Since the Company is a holding company with no business operations of its own, its ability to pay dividends will be
dependent upon either cash flows and/or earnings of its subsidiaries and the payment of funds by those



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##### Table of Contents

subsidiaries to the Company. As Polish limited liability companies, the subsidiaries are permitted to declare dividends only twice a year from their retained
earnings, computed under Polish Accounting Regulations after the audited financial statements for that year have been provided to and approved by stockholders.



Equity Compensation Plans



The following table provides information with respect to the Companys equity compensation plans as of December 31, 2004.



Equity Compensation Plan Information

|                                                           |  |                                                                                          |  |                                                                          |       |                                                                                                                                         |          
|---------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ | ----- | --------------------------------------------------------------------------------------------------------------------------------------- | ---------
|Plan Category                                              |  | Number of Securities to beIssued Upon Exercise ofOutstanding Options,Warrants and Rights |  | Weighted-AverageExercise Price ofOutstanding Options,Warrants and Rights |       | Number of SecuritiesRemaining Available forFuture Issuance
UnderEquity Compensation Plans (Excluding SecuritiesReflected in Column (a))
|                                                           |  | (a)                                                                                      |  | (b)                                                                      |       | (c)                                                                                                                                    
|Equity Compensation Plans Approved by Security Holders     |  | 1,095,297                                                                                |  | $                                                                        | 13.01 |                                                                                                                                         | 1,481,638
|Equity Compensation Plans Not Approved by Security Holders |  |                                                                                         |  |                                                                          |      |                                                                                                                                         |         
|Total                                                      |  | 1,095,297                                                                                |  | $                                                                        | 13.01 |                                                                                                                                         | 1,481,638



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##### Table of Contents

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. In May 2004, the Company executed a 3 for
2 stock split. The comparatives for prior years shown below have been adjusted to reflect this change.



|                                                                   |  |                                              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|------------------------------------------------------------------ |  | -------------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                   |  | Year ended December 31,                      |        
|                                                                   |  | 2000                                         |         |   | 2001 |   |         | 2002 |  |   | 2003    |   |  | 2004 |        
|                                                                   |  | (in thousands, except for per share amounts) |        
|Income Statement Data:                                             |  |                                              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net sales                                                          |  | $                                            | 131,233 |   |      | $ | 178,236 |      |  | $ | 293,965 |   |  | $    | 429,118 |   |  | $ | 580,744 |  
|Cost of goods sold                                                 |  |                                              | 113,687 |   |      |   | 154,622 |      |  |   | 255,078 |   |  |      | 372,638 |   |  |   | 506,413 |  
|                                                                   |  |                                              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Gross profit                                                       |  |                                              | 17,546  |   |      |   | 23,614  |      |  |   | 38,887  |   |  |      | 56,480  |   |  |   | 74,331  |  
|Sales, general and administrative expenses                         |  |                                              | 14,698  |   |      |   | 18,759  |      |  |   | 26,273  |   |  |      | 34,313  |   |  |   | 45,946  |  
|                                                                   |  |                                              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Operating income                                                   |  |                                              | 2,848   |   |      |   | 4,855   |      |  |   | 12,614  |   |  |      | 22,167  |   |  |   | 28,385  |  
|Non-Operating income / (expense)                                   |  |                                              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Interest expense                                                   |  |                                              | (955    | ) |      |   | (1,345  | )    |  |   | (1,586  | ) |  |      | (1,633  | ) |  |   | (2,441  | )
|Interest income                                                    |  |                                              | 261     |   |      |   | 77      |      |  |   | 99      |   |  |      | 133     |   |  |   | 326     |  
|Realized and unrealized foreign currency transaction losses, net   |  |                                              | (494    | ) |      |   | (12     | )    |  |   | (176    | ) |  |      | (92     | ) |  |   | (19     | )
|Other income / (expense), net                                      |  |                                              | (172    | ) |      |   | 83      |      |  |   | 113     |   |  |      | (59     | ) |  |   | 193     |  
|                                                                   |  |                                              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Income before income taxes                                         |  |                                              | 1,488   |   |      |   | 3,658   |      |  |   | 11,064  |   |  |      | 20,516  |   |  |   | 26,444  |  
|Income taxes                                                       |  |                                              | (503    | ) |      |   | (1,132  | )    |  |   | (2,764  | ) |  |      | (5,441  | ) |  |   | (4,614  | )
|                                                                   |  |                                              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income                                                         |  | $                                            | 985     |   |      | $ | 2,526   |      |  | $ | 8,300   |   |  | $    | 15,075  |   |  | $ | 21,830  |  
|                                                                   |  |                                              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income per common share, basic                                 |  | $                                            | 0.10    |   |      | $ | 0.26    |      |  | $ | 0.68    |   |  | $    | 0.98    |   |  | $ | 1.34    |  
|                                                                   |  |                                              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income per common share, diluted                               |  | $                                            | 0.10    |   |      | $ | 0.25    |      |  | $ | 0.66    |   |  | $    | 0.96    |   |  | $ | 1.31    |  
|                                                                   |  |                                              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Average number of outstanding shares of common stock at year end   |  |                                              | 9,752   |   |      |   | 10,007  |      |  |   | 12,535  |   |  |      | 15,747  |   |  |   | 16,718  |  
|                                                                   | 
|                                                                   |  | December 31,                                 |        
|                                                                   |  | 2000                                         |         |   | 2001 |   |         | 2002 |  |   | 2003    |   |  | 2004 |        
|                                                                   |  | (in thousands)                               |        
|Balance Sheet Data:                                                |  |                                              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Cash and cash equivalents                                          |  | $                                            | 2,428   |   |      | $ | 2,466   |      |  | $ | 2,237   |   |  | $    | 6,229   |   |  | $ | 10,491  |  
|Working capital                                                    |  |                                              | 9,362   |   |      |   | 6,883   |      |  |   | 14,373  |   |  |      | 35,016  |   |  |   | 50,910  |  
|Total assets                                                       |  |                                              | 59,311  |   |      |   | 68,977  |      |  |   | 130,800 |   |  |      | 187,470 |   |  |   | 291,704 |  
|Long-term debt and capital lease obligations, less current portion |  |                                              | 7,988   |   |      |   | 3,495   |      |  |   | 6,623   |   |  |      | 497     |   |  |   | 1,873   |  
|Stockholders equity                                               |  |                                              | 16,492  |   |      |   | 20,756  |      |  |   | 41,381  |   |  |      | 83,054  |   |  |   | 120,316 |  



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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 following discussion regarding variations in operating results should be read considering the rates of inflation in
Poland and the fluctuations of the Polish zloty compared to the U.S. Dollar during the periods presented. The rate of inflation in Poland was 1.1% in 2002, 1.7% in 2003, and 3.5% in 2004. Using average National Bank of Poland exchange rates for the
full year, the zloty in comparison to the U.S. Dollar appreciated by 9% in 2004, 2.6% in 2003 and 3.7% in 2002.



On May 1, 2004, Poland joined the European Union and, as a result, products manufactured within the European Union will no longer be subject to import
duties, which may have a positive impact on the Companys future business as the pricing of the Companys imported product portfolio becomes aligned with local product. It is important to note that while Poland joined the European Union in
May 2004, joining the European Union does not automatically result in joining the EURO zone. This is a separate process with different admission requirements. Poland is currently forecasting joining the EURO zone in 2008.



In order to aid understanding, we have prepared tables which segment the
income statement information as presented in the financial statements into those elements of the income statement which relate to operations acquired by the Company during the reporting period and those which relate to operations owned in both
reporting periods. Key definitions are:



Total Operations
2004:This represents actual reported results for the year ended December 31, 2004.



Operations Acquired:These are the eliminations of the amounts generated by the 2004 and the 2003 acquired subsidiaries for the equivalent pre-acquisition period of 2003 (the equivalent pre-acquisition
period for 2003 is defined as the period from January 1, 2003 through the date of the acquisition of the entity acquired) so as to present the 2004 continuing operations results for the same year on year periods.



Continuing Operations 2004:The amounts for 2004 generated by
the same subsidiaries owned in 2003 and for the same period of time as in 2003.



Total Operations 2003:This is the extract from the income statement for total operations for the year ended December 31, 2003.



Also found in this report are references to the term cash on delivery, or COD. Normal trade terms from the
Companys Polish vodka suppliers are 60 days, however, the Company is offered by some of these suppliers significant discounts if the Company pays for goods when delivered. The discounts offered are considerably in excess of the effective rate
the Company would pay for 60-day terms on our bank facilities. COD is also referenced in discussions regarding margin and short term banking facilities.



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##### Table of Contents

Results of Operations



Year Ended December 31, 2004 Compared to Year Ended December 31, 2003



|                                                |  |                                    |   |  |                    |   |  |                          |   |  |                     |  
|----------------------------------------------- |  | ---------------------------------- | - |  | ------------------ | - |  | ------------------------ | - |  | ------------------- | -
|Twelve Months to December 31,                   |  | TotalOperations2004                |   |  | Operationsacquired |   |  | Continuingoperations2004 |   |  | TotalOperations2003 |  
|                                                |  | (in thousands, except percentages) |  
|Net Sales                                       |  | 580,744                            |   |  | 105,677            |   |  | 475,067                  |   |  | 429,118             |  
|Cost of goods sold, including excise taxes      |  | 506,413                            |   |  | 94,156             |   |  | 412,257                  |   |  | 372,638             |  
|Gross profit                                    |  | 74,331                             |   |  | 11,521             |   |  | 62,810                   |   |  | 56,480              |  
|                                                |  | 12.8                               | % |  | 10.9               | % |  | 13.2                     | % |  | 13.2                | %
|Selling, general and administrative expenses    |  | 45,946                             |   |  | 7,241              |   |  | 38,705                   |   |  | 34,313              |  
|Operating income                                |  | 28,385                             |   |  | 4,280              |   |  | 24,105                   |   |  | 22,167              |  
|                                                |  | 4.9                                | % |  | 4.1                | % |  | 5.1                      | % |  | 5.2                 | %
|Non operating income / (expenses)               |  |                                    |   |  |                    |   |  |                          |   |  |                     |  
|                                                |  |                                    |   | 
|Interest income                                 |  | 326                                |   |  | 40                 |   |  | 286                      |   |  | 133                 |  
|Interest expense                                |  | (2,441                             | ) |  | (656               | ) |  | (1,785                   | ) |  | (1,633              | )
|Realized and unrealized foreign exchange losses |  | (19                                | ) |  | (5                 | ) |  | (14                      | ) |  | (92                 | )
|Other income/(expense), net                     |  | 193                                |   |  | 38                 |   |  | 155                      |   |  | (59                 | )
|Income before taxes                             |  | 26,444                             |   |  | 3,697              |   |  | 22,747                   |   |  | 20,516              |  
|                                                |  | 4.6                                | % |  | 3.5                | % |  | 4.8                      | % |  | 4.8                 | %
|Income tax expense                              |  | 4,614                              |   |  | 312                |   |  | 4,302                    |   |  | 5,441               |  
|Net income                                      |  | 21,830                             |   |  | 3,385              |   |  | 18,445                   |   |  | 15,075              |  
|                                                |  | 3.8                                | % |  | 3.2                | % |  | 3.9                      | % |  | 3.5                 | %



Net Sales



Total net sales for 2004 increased by 35.3% or $151.6
million to $580.7 million. Net sales from continuing operations increased 10.7% or $45.9 million to $475.1 million for 2004 from a base figure of $429.1 million for 2003. The growth in 2004 is, however, diluted by the previously planned downsizing
of a subsidiary acquired in April 2003. Excluding this subsidiary, sales from continuing operations increased by 13.7%. The increase in net sales from continuing operations was mainly due to the following factors.



| |  |  | Sales productivity.    The Company through the use of improved sales management skills was able to increase the net sales achieved per salesman.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sales coverage.    The Company was able to increase the number of accounts served.
| | - |  | ----------------------------------------------------------------------------------



| |  |  | Impact of foreign exchange rate.    The Polish Zloty appreciated against the U.S. Dollar by 9% for the year ended December 31, 2004.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



Gross Profit



Total gross profit on net sales increased by 31.6% or $17.9 million to $74.3
million in 2004. The growth in gross profit from continuing operations was 11.2%. As a percentage of net sales, total gross profit for 2004 and 2003 was 12.8% and 13.2%. This decline in gross profit was primarily due to the lower gross profit
margins from the acquired businesses. Newly acquired business take time to develop the growth of higher margin import sales. The gross profit attributable to net sales from continuing operations remained constant at 13.2%.



On May 1, 2004, Poland joined the European Union (EU). This accession finally
removed all duty restrictions on goods imported from the EU as well as reducing duty rates for countries with which the EU has regional agreements. The final elimination of cross border duties has significantly increased the Companys
performance in imported product, particularly wines and imported spirits, the growth of which in sales value is



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##### Table of Contents

described in the below table. Import beer sales grew more slowly for the six months ending December 31, 2004, primarily due to strong competition from
domestic brands and unseasonably cold weather in the third quarter.



|                                        |  |      |        |      |   |        |  |    |  
|--------------------------------------- |  | ---- | ------ | ---- | - | ------ |  | -- | -
|Six Months to December 31,              |  | 2003 |        | 2004 |   | %      | 
|(Sales in thousands except percentages) |  |      |        |      |   |        | 
|Imported Beers                          |  | $    | 3,243  |      | $ | 3,356  |  | 3  | %
|Imported Spirits                        |  |      | 3,525  |      |   | 5,168  |  | 47 | %
|Imported Wines                          |  |      | 6,888  |      |   | 9,383  |  | 36 | %
|Other Imported Product                  |  |      | 439    |      |   | 484    |  | 10 | %
|                                        |  |      |        |      |   |        |  |    |  
|Total Imported Product                  |  | $    | 14,095 |      | $ | 18,391 |  | 30 | %
|                                        |  |      |        |      |   |        |  |    |  



Operating Expenses



Total selling, general and administrative, or S,G&,A
expenses increased 33.8% from $34.3 million in 2003 to $45.9 million in 2004. S,G&A attributable to continuing operations increased by 12.8% to $38.7 million. As a percentage of total net sales total S,G&A was 7.9% for 2004, down from 8.0%
for 2003. S,G&A for continuing operations in 2004 was 8.1% of net sales.



Primary reasons for the increase in SG&A were an increase in depreciation of equipment in 2004 and the additional SG&A related to the acquired entities. Depreciation of equipment in total increased by 64.7%
from $1.7 million in 2003 to $2.8 million in 2004. During 2004, the Company continued to bring on line its investment in systems upgrades, fleet rotations, and its investment in a new regional distribution center. Since most of this upgrade was a
one time increase, the rate of growth of depreciation for the year ending December 31, 2004, is not expected to continue in future periods. Included in S,G&A is a portion of costs that are variable with volume such as transport and logistics.



Bad debt expense in total increased 17.8% from $592,000 in
2003 to $758,596 for 2004. This increase is less than the rate of sales growth and has been achieved through consistent management of the age profile of our trade receivables and diligent review of acquisitions to ensure that all provisions are made
as part of the fair value assessment.



Operating Income



Total operating income increased 28.0% or $6.2 million to
$28.4 million for 2004. Expressed as a percentage of net sales, operating profit for 2004 was 4.9% as opposed to 5.2% for 2003. The reduction in the operating profit margin percent was primarily from the increase in depreciation expense as well as
the impact of gross profit margins as noted above. Operating income attributable to continuing operations increased 8.7% or $1.9 million to $24.1 million. The reasons for the increase of operating profit were due to the factors stated above.



Interest Expense



Total interest expense increased by 49.5% or $808,000 to $2.4 million for
2004. Interest cover declined from 13.6 times in 2003 to 11.7 times in 2004. Interest cover is the number of times that interest expense divides into operating profit. The increase in interest expense was from higher average borrowings, in line with
business growth and increases in the Polish Zloty borrowing rates. The one month Warsaw inter-bank rate (WIBOR) increased from 5.21% at the end of 2003, to 6.46% at the end of 2004.



Bank loans and overdrafts as of December 31, 2004, was 6.4% of net sales, as compared to 7.1% as of December 31, 2003.



Net Realized and Unrealized Foreign Currency Losses



The net charge relating to foreign exchange losses
decreased to $19,000 for 2004 from $92,000 for 2003.



24



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##### Table of Contents

Income Tax



The total tax charge for 2004 was $4.6 million, which represented 17.4% of pre-tax profits. For 2003, the charge was $5.4
million, which represented 26.5% of pre-tax profits. The reduction in our effective tax rate, was principally due to a change in Polish tax rates from 27% in 2003 to 19% in 2004.



Net Income



Total net income increased by 44.8% or $6.8 million to $21.8 million for the year ended December 31, 2004. The increase was due to the factors noted
above.



Total Operations 2003:This
represents actual reported results for the year ended December 31, 2003.



Operations Acquired:These are the eliminations of the amounts generated by the 2003 and the 2002 acquired subsidiaries for the equivalent pre-acquisition period of 2002 (the equivalent pre-acquisition
period for 2002 is defined as the period from January 1, 2002 through the date of the acquisition of the entity acquired) so as to present the 2003 continuing operations results for the same year on year periods.



Continuing Operations 2003:The amounts for 2003 generated by
the same subsidiaries owned in 2003 and for the same period of time as in 2002.



Total Operations 2002:This is the extract from the income statement for total operations for the year ended December 31, 2002.



|                                                |  |                                    |   |  |                    |   |  |                          |   |  |                     |  
|----------------------------------------------- |  | ---------------------------------- | - |  | ------------------ | - |  | ------------------------ | - |  | ------------------- | -
|Twelve Months to December 31,                   |  | TotalOperations2003                |   |  | Operationsacquired |   |  | Continuingoperations2003 |   |  | Totaloperations2002 |  
|                                                |  | (in thousands, except percentages) |  
|Net Sales                                       |  | 429,118                            |   |  | 100,979            |   |  | 328,139                  |   |  | 293,965             |  
|Cost of goods sold, including excise taxes      |  | 372,638                            |   |  | 88,575             |   |  | 284,063                  |   |  | 255,078             |  
|Gross profit                                    |  | 56,480                             |   |  | 12,404             |   |  | 44,076                   |   |  | 38,887              |  
|                                                |  | 13.2                               | % |  | 12.2               | % |  | 13.4                     | % |  | 13.2                | %
|Selling, general and administrative expenses    |  | 34,313                             |   |  | 7,241              |   |  | 27,072                   |   |  | 26,273              |  
|Operating income                                |  | 22,167                             |   |  | 5,163              |   |  | 17,004                   |   |  | 12,614              |  
|                                                |  | 5.2                                | % |  | 5.1                | % |  | 5.2                      | % |  | 4.3                 | %
|Non operating income / (expenses)               |  |                                    |   |  |                    |   |  |                          |   |  |                     |  
|Interest income                                 |  | 133                                |   |  | 23                 |   |  | 110                      |   |  | 99                  |  
|Interest expense                                |  | (1,633                             | ) |  | (318               | ) |  | (1,315                   | ) |  | (1,586              | )
|Realized and unrealized foreign exchange losses |  | (92                                | ) |  |                   |   |  | (92                      | ) |  | (178                | )
|Other income/(expense), net                     |  | (59                                | ) |  | (71                | ) |  | (130                     | ) |  | 115                 |  
|Income before taxes                             |  | 20,516                             |   |  | 4,939              |   |  | 15,577                   |   |  | 11,064              |  
|                                                |  | 4.8                                | % |  | 4.9                | % |  | 4.7                      | % |  | 3.8                 | %
|Income tax expense                              |  | 5,441                              |   |  | 854                |   |  | 4,587                    |   |  | 2,764               |  
|Net income                                      |  | 15,075                             |   |  | 4,085              |   |  | 10,990                   |   |  | 8,300               |  
|                                                |  | 3.5                                | % |  | 4.0                | % |  | 3.3                      | % |  | 2.8                 | %



Net Sales



Total net sales for 2003 increased by 46.0% or $135.2
million to $429.1 million. Net sales from continuing operations increased 11.6% or $34.2 million to $328.1 million for 2003 from a base figure of $294.0 million for 2002. The increase in net sales from continuing operations was mainly due to two
factors:



| |  |  | Sales productivity.    The Company through the use of improved sales management skills was able to increase the net sales achieved per salesman.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sales coverage.    The Company was able to increase the number of accounts served.
| | - |  | ----------------------------------------------------------------------------------



25



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##### Table of Contents

Gross Profit



Total gross profit on net sales increased by 45.2% or $17.6 million to $56.5 million in 2003. The growth in gross profit
from continuing operations was 13.3%. As a percentage of net sales total gross profit for 2003 and 2002 was 13.2%. The gross profit attributable to net sales from continuing operations increased from 13.2% to 13.4%. The increases in core gross
profit can be attributed to the improved product mix being achieved in subsidiaries following operational reviews and implementation of marketing and sales coverage strategies.



Operating Expenses



Total S,G&A expenses increased 30.6% from $26.3 million in 2002 to $34.3 million in 2003. S,G&A attributable to continuing operations increased by
5.5% to $24.7 million. As a percentage of total net sales, total S,G&A was 8.0% for 2003, down from 8.9% for 2002. For S,G&A attributable to continuing operations for 2003, it was 8.2% of net sales. Included in S,G&A are a portion of
costs that are variable with volume such as transport and logistics.



Depreciation of equipment in total increased by 31.2% from $1,273,200 in 2002 to $1,671,800 in 2003. The increase is attributable to the Companys investment in its logistics infrastructure, that is, delivery vehicles and warehouse and
information technology facilities.



Bad debt expense in total
decreased 58.6% from $1,431,000 in 2002 to $592,000 for 2003. This decrease has been achieved through consistent management of the age profile of our trade receivables and diligent review of acquisitions to ensure that all provisions are made as
part of the fair value assessment. As a percentage of sales, the provision represents 0.1% for 2003 versus 0.5% for 2002.



Operating Income



Total operating income increased 75.7% or $9.6 million to $22.2 million for 2003. Expressed as a percentage of net sales, operating profit for 2003 was
5.2% as opposed to 4.3% for 2002. Operating income attributable to continuing operations increased 34.8% or $4.4 million to $17.0 million. The reasons for the increase of operating margins were due to the factors stated above.



Interest Expense



Total interest expense remained stable at $1.6 million for both 2002 and
2003. Interest cover increased from 7.9 times in 2002 to 13.6 times in 2003. Interest cover is the number of times that interest expense divides into operating profit.



Net Realized and Unrealized Foreign Currency Losses



The net charge relating to foreign exchange losses decreased to $92,000 for 2003 versus a net charge of $178,000 for 2002.
Following the Companys decision in November 2002 to convert all its loan obligations to Polish Zloty, its functional currency, the Company has only been exposed to foreign currency translation risk on its net working capital.



Income Tax



The total tax charge for 2003 was $5.4 million, which represented 26.5% of
pre-tax profits. For 2002, the charge was $2.8 million, which represented 25.0% of pre-tax profits.



Net Income



Total net income increased by 81.6% or $6.8 million to $15.1 million for the year ended December 31, 2003. The increase was due to the factors noted
above.



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##### Table of Contents

Liquidity and Capital Resources



In 2004, the Companys operating activities generated $8.9 million in cash compared to using $8.3 million cash in 2003.
The effects of the Companys COD policy in paying certain Vodka suppliers, is provided in the below table.



|                                                     |  |                                  |        |      |   |        |      |  |   |        |  
|---------------------------------------------------- |  | -------------------------------- | ------ | ---- | - | ------ | ---- |  | - | ------ | -
|                                                     |  | Twelve months ended December 31, |       
|                                                     |  | 2004                             |        | 2003 |   |        | 2002 | 
|                                                     |  | (in thousands)                   |       
|Net cash (used in)/generated by Operating Activities |  | $                                | 8,861  |      | $ | (8,252 | )    |  | $ | (1,850 | )
|Movement in COD support                              |  | $                                | 10,998 |      | $ | 11,863 |      |  | $ | 7,745  |  
|Pro-forma cash generated by Operating Activities     |  | $                                | 19,859 |      | $ | 3,611  |      |  | $ | 5,895  |  



Movement in COD
support represents the change in the approximate portion of inventory purchased for COD as at December 31, 2004, December 31, 2003, and December 31, 2002.



The need for additional working capital was at its highest at December 31, 2004, due to the strong seasonality of sales, evidenced by December sales being
15% of the full year sales. In addition, the Company took advantage of an increase in excise tax and resulting price increases in domestic Vodka as of January 2005, to purchase additional supplies of Vodka at year end with approximately $20 million
of extra inventory purchases as of December 31, 2004.



The net
cash used in operating activities is affected by the Companys use of COD terms. Use of COD, where the Company waives its 60 day payment terms in exchange for additional early settlement discounts, effectively replaces with bank funding the
support a business would normally receive from suppliers in managing overall working capital needs. The effect of presenting the movement in COD would be to show an increase in funds generated by operations while showing a reduction in funding. The
increased use of COD in 2003 has been driven both by increased activity and an increase in the percentage of purchases to which the Company attach COD terms. For 2004 and 2003, the percentage of COD from domestic suppliers was approximately 46% and
55%, respectively.



|                                      |  |      |         |   |      |   |         |      |  |   |         |  
|------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|December 31,                          |  | 2004 |         |   | 2003 |   |         | 2002 | 
|Sales (in thousands)                  |  | $    | 580,744 |   |      | $ | 429,118 |      |  | $ | 293,965 |  
|Cost of goods sold (in thousands)     |  | $    | 506,413 |   |      | $ | 372,638 |      |  | $ | 255,078 |  
|Debtor days (excluding VAT of 22%)    |  |      | 66.8    |   |      |   | 61.8    |      |  |   | 65.7    |  
|Inventory days (excluding VAT of 22%) |  |      | 46.4    |   |      |   | 34.3    |      |  |   | 34.8    |  
|Days payable (excluding VAT of 22%)   |  |      | (68.0   | ) |      |   | (52.8   | )    |  |   | (62.7   | )
|Net Working Capital Days              |  |      | 47.9    |   |      |   | 45.8    |      |  |   | 40.9    |  



Impacting the above
working capital days, is the effect of the year end exchange rate used to translate the balance sheet accounts as of December 31, 2004, as compared to the average exchange rate used to calculate sales and cost of goods sold. The year end exchange
rate of the Polish Zloty to U.S. Dollar was 2.99 and the average exchange rate for the year was 3.54. Eliminating the impact of foreign exchange, the net working capital days for the year ending December 31, 2004, was 41.



The Company has paid particular attention to debtor management over the past
two years. The increase in debtor days is primarily attributable to the foreign exchange impact noted above. Eliminating the impact of foreign exchange, debtor days for the year ending December 31, 2004, was 57.



Inventory days increased for the year ending December 31, 2004 and inventory
rotations have declined from 12.8 times a year in 2003 to 8.5 times in 2004. This is primarily due to inventory build up of Vodka and the effect of foreign exchange as noted above.



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##### Table of Contents

The increase in days payable is also attributable to the increased Vodka purchases at year end and the
impact of foreign exchange.



Investing activities amounted to
$9.3 million in 2004 and are in most part related to the acquisitions of Miro Sp. z o.o., Saol Sp. z o.o., Polnis Sp. z o.o. and assets acquisitions, details of which are given in note 6 to the Companys consolidated financial statements
included in this annual report. In addition the Company has been upgrading its information technology systems and has completed the construction of its new regional distribution center in the southeast region of Poland.



Financing activities generated a total of $635,000. The Company received $1.8
million as a result of option holders exercising their options during the year ended December 31, 2004. The receipt of these funds enabled the Company to reduce its debt during the year though this has returned to a similar level as the previous
year following the recent acquisitions.



The nature of the
Companys business is that it has to invest in working capital, mainly Polish vodka on COD terms, towards the end of the calendar year, which is traditionally its busiest selling period. With this in mind, the Company arranged for various
short-term funds to be available to it, which at December 31, 2004 the Company had $30,924,210 of unused credit facilities available to it under these short-term agreements.



Total forward contracted obligations are:



|                                  |  |                |        |      |   |       |  |      |       |      |   |       |  |   |       |  |   |      
|--------------------------------- |  | -------------- | ------ | ---- | - | ----- |  | ---- | ----- | ---- | - | ----- |  | - | ----- |  | - | -----
|                                  |  | 2005           |        | 2006 |   | 2007  |  | 2008 |       | 2009 |   | 2010+
|                                  |  | (in thousands)
|Obligations under property leases |  | $              | 1,152  |      | $ | 1,152 |  | $    | 1,152 |      | $ | 1,152 |  | $ | 1,152 |  | $ | 384  
|Capital leases                    |  | $              | 2,232  |      | $ | 2,878 |  |      |      |      |   |      |  |   |      |  |   |     
|Bank repayments/facility expiry   |  | $              | 37,630 |      | $ | 234   |  | $    | 234   |      |   | 234   |  |   | 234   |  |   | 938  
|                                  |  |                |        |      |   |       |  |      |       |      |   |       |  |   |       |  |   |      
|Totals                            |  | $              | 41,014 |      | $ | 4,264 |  | $    | 1,386 |      | $ | 1,386 |  | $ | 1,386 |  | $ | 1,322
|                                  |  |                |        |      |   |       |  |      |       |      |   |       |  |   |       |  |   |      



Statement on
Inflation and Currency Fluctuations



Inflation in Poland
was 3.5% for the twelve months ended December 31, 2004, as compared to 1.7% for the twelve months ended December 31, 2003.



The Companys operating cash flows and virtually all of its assets are denominated in Polish zloty. In November 2002, the Company migrated nearly all
its term loan facilities from U.S. Dollar and Euro to Polish zloty denominated loans.



The Company has banking facilities with six banks which are used to support both the Companys acquisition strategy and its COD vodka purchasing requirements. The credit lines are all denominated in Polish Zloty.



These facilities are disclosed in the financial statements as:



|                                           |  |                  |        |                  |   |       
|------------------------------------------ |  | ---------------- | ------ | ---------------- | - | ------
|                                           |  | December 31,2004 |        | December 31,2003
|                                           |  | (in thousands)  
|Overdrafts                                 |  | $                | 19,434 |                  | $ | 23,184
|Short term debt                            |  |                  | 17,962 |                  |   | 7,257 
|Bank Loans and Overdraft Facilities        |  |                  | 37,396 |                  |   | 30,441
|Current portion of long-term debt          |  |                  | 234    |                  |   | 29    
|Total long term debt, less current portion |  |                  | 1,873  |                  |   | 497   
|                                           |  |                  |        |                  |   |       
|Total                                      |  | $                | 39,503 |                  | $ | 30,967
|                                           |  |                  |        |                  |   |       



The Company is exposed
to translation risk arising from the restatement of its financial statements from Polish zloty to U.S. Dollars, a more detailed note on this risk is given in Item 7A of this annual report.



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##### Table of Contents

Seasonality



The Companys net sales have been historically seasonal with an average over 30% of the net sales occurring in the
fourth quarter. During 2004, net sales in the fourth quarter were 33% of the full year, compared to 32.6% for the fourth quarter of 2003. The table below demonstrates the movement and significance of seasonality in income statement.



|                                    |  |                                                        |         |   |                |   |        |               |  |   |                |   |  |      |         |   |      |   |         |      |  |   |         |   |  |   |         |   |  |   |         |  
|----------------------------------- |  | ------------------------------------------------------ | ------- | - | -------------- | - | ------ | ------------- |  | - | -------------- | - |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                    |  | First Quarter                                          |         |   | Second Quarter |   |        | Third Quarter |  |   | Fourth Quarter |  
|                                    |  | 2004                                                   |         |   | 2003           |   |        | 2004          |  |   | 2003           |   |  | 2004 |         |   | 2003 |   |         | 2004 |  |   | 2003    |  
|                                    |  | (in thousands except percentages and per share amount) |        
|                                    |  |                                                        |         |   |                |   |        |              
|Net Sales                           |  | $                                                      | 110,477 |   |                | $ | 79,468 |               |  | $ | 133,004        |   |  | $    | 105,122 |   |      | $ | 145,831 |      |  | $ | 104,844 |   |  | $ | 191,432 |   |  | $ | 139,684 |  
|Seasonality                         |  |                                                        | 19.0    | % |                |   | 18.5   | %             |  |   | 22.9           | % |  |      | 24.5    | % |      |   | 25.1    | %    |  |   | 24.4    | % |  |   | 33.0    | % |  |   | 32.6    | %
|Gross Profit                        |  |                                                        | 13,766  |   |                |   | 10,483 |               |  |   | 16,636         |   |  |      | 13,616  |   |      |   | 18,306  |      |  |   | 13,486  |   |  |   | 25,624  |   |  |   | 18,895  |  
|Gross Profit %                      |  |                                                        | 12.5    | % |                |   | 13.2   | %             |  |   | 12.5           | % |  |      | 13.0    | % |      |   | 12.6    | %    |  |   | 12.9    | % |  |   | 13.4    | % |  |   | 13.5    | %
|Operating Income                    |  |                                                        | 4,110   |   |                |   | 3,140  |               |  |   | 5,891          |   |  |      | 5,148   |   |      |   | 6,407   |      |  |   | 4,929   |   |  |   | 11,977  |   |  |   | 8,950   |  
|Net Income                          |  | $                                                      | 3,110   |   |                | $ | 1,917  |               |  | $ | 4,516          |   |  | $    | 3,459   |   |      | $ | 5,096   |      |  | $ | 3,604   |   |  | $ | 9,108   |   |  | $ | 6,095   |  
|Net income per common shareDiluted |  | $                                                      | 0.19    |   |                | $ | 0.14   |               |  | $ | 0.28           |   |  | $    | 0.22    |   |      | $ | 0.31    |      |  | $ | 0.22    |   |  | $ | 0.55    |   |  | $ | 0.37    |  



Acquisitions during
the year, did not have a significant impact on the seasonality trends show above.



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 seasonally higher
fourth quarter receivables.



Other Matters



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 not material to the Companys financial condition or results of
operations.



Critical Accounting Policies and Estimates



General



The Companys discussion and analysis of its financial condition and
results of operations are based upon the Companys consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial
statements requires the Company to make estimates and judgments that affect the reported amounts of net sales, expenses, assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions.



Provisions for Doubtful Debts



The Company makes general provision for doubtful debt based on the aging of its trade receivables. Where circumstances require, the Company will make
specific provision for any excess not provided for under the general provision.



Inventory



Because of
the nature of the products supplied by the Company, great attention is paid to inventory rotation. Where goods are estimated to obsolete or unmarketable they are written down to a value reflecting the saleable value in their relevant condition.



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##### Table of Contents

During the fourth quarter of 2002, the Company changed its inventory valuation methodology to better
reflect the impact of volume related supplier discounts and the costs associated with storage and handling. The basis of the adjustment is to reduce inventory and thereby reduce operating profit by the amount of volume related supplier bonuses
deemed to be within closing inventory. Against this an allocation of overheads which are attributable to inventory receipt and storage is added to inventory and thereby increases operating profit.



Goodwill and Intangibles



Acquired goodwill is no longer amortized as required by FASB 142. Instead
the Company assesses the recoverability of its goodwill at least once a year or whenever adverse events or changes in circumstances or business climate indicate that expected future cash flows (undiscounted and without interest charges) for
individual business units may not be sufficient to support the recorded goodwill. If undiscounted cash flows are not sufficient to support the goodwill, an impairment charge would be recognized to reduce the carrying value of the goodwill based on
the expected discounted cash flows of the business unit. No such charge has been considered necessary through the date of the accompanying financial statements. Intangibles (trademarks) are amortized over 10 years.



The calculation of the impairment charge for goodwill requires use of
estimates. Factoring in a deviation of +/- 10% for estimated gross profit of the acquired entities, or the discount rate as compared to managements estimate, there would still be no need for an impairment charge of goodwill.



Purchase Price Allocation



The Company accounts for its acquisition under the purchase method of
accounting in accordance with SFAS No. 141, Business Combinations, and allocate the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The determination of the values of the assets acquired and
liabilities assumed, as well as associated asset useful lives, will require management to make estimates.



Due to the numerous variables associated with our judgments and assumptions relating to the valuation of the assets acquired and liabilities assumed, both
the precision and reliability of the resulting estimates are subject to uncertainty.



Recently issued accounting pronouncements



In December 2004, the FASB issued FASB Statement No. 123(R), Share Based Payments, a revision of the prior FASB Statement No. 123, Accounting for Stock Based Compensation. This statement requires companies to expense
the fair value of employee stock options and other forms of stock-based compensation. The statement offers a number of possibilities for implementation. The Company has elected to implement the modified prospective application, which will require
the Company to begin to recognize the impact of the change in July 2005 and will not restate any prior periods. The expected impact during the second half of 2005 is approximately $1.5 million, based upon current market conditions. Management of the
Company is still in the process of evaluating what forms of compensation may be introduced in future periods in lieu of the existing option program.





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##### Table of Contents

Item 7A.    Quantitative and Qualitative Disclosure about Market Risk



Exchange Rate Fluctuations



Translation Risks



The Companys operations are conducted primarily in Poland and its functional currency is the Polish zloty and the reporting currency is the
U.S. Dollar. The Companys financial instruments consist mainly of cash and cash equivalents, accounts receivable, accounts payable and receivable, inventories, bank loans, overdraft facilities and long-term debt. All of the monetary assets
represented by these financial instruments are located in Poland. Consequently, they are subject to currency translation risk when reporting in U.S. Dollars.



If the U.S. Dollar increases in value against the Polish zloty, the value in U.S. Dollars of assets, liabilities, revenues and expenses originally
recorded in Polish zloty will decrease. Conversely, if the U.S. Dollar decreases in value against the Polish zloty, the value in U.S. Dollars of assets, liabilities, revenues and expenses originally recorded in Polish zloty will increase. Thus,
increases and decreases in the value of the U.S. Dollar can have an impact on the value in U.S. Dollar of our non-U.S. Dollar assets, liabilities, revenues and expenses, even if the value of these items has not changed in their original currency.



Transaction Risk



Commercial Exposure.The Companys
commercial foreign exchange exposure mainly arises from the purchase of imported alcoholic beverage in currencies other than the Companys functional currency of the Polish zloty. Thus, accounts payable for imported beverages are billed in
various currencies and the Company is subject to short-term changes in the currency markets for product purchases. The Company also operates a bonded warehouse where the inventory acquired from foreign suppliers is recorded in its source currency.
Thus, any currency movement on trade payables resulting from either a strengthening or weakening of the Polish zloty against a foreign suppliers currency is often compensated for by an opposite movement relating to inventories recorded in the
imported currency.



Below is a table indicating the respective
trade payables, trade receivables and imported inventory in U.S. Dollars (USD), British Pounds Sterling (GBP) and Euro (EUR).



|                  |  |               |  |               |  |               |  |              
|----------------- |  | ------------- |  | ------------- |  | ------------- |  | -------------
|(in thousands)    |  | 2004          |  | 2003         
|Trade Payables    |  | LocalCurrency |  | USDEquivalent |  | LocalCurrency |  | USDEquivalent
|USD               |  | 303,613       |  | 303,613       |  | 97,087        |  | 97,087       
|GBP               |  | 30,509        |  | 58,886        |  | 12,717        |  | 22,672       
|EUR               |  | 2,151,001     |  | 2,934,034     |  | 1,087,493     |  | 1,371,395    
|                  |  |               |  |               |  |               |  |              
|Total             |  |               |  | 3,296,513     |  |               |  | 1,491,154    
|                  |  |               |  |               |  |               |  |              
|                  |  |               |  |              
|Inventories       |  | LocalCurrency |  | USDEquivalent |  | LocalCurrency |  | USDEquivalent
|USD               |  | 627,999       |  | 627,999       |  | 271,035       |  | 271,035      
|GBP               |  |              |  |              |  | 23,062        |  | 41,115       
|EUR               |  | 496           |  | 677           |  | 506,512       |  | 638,743      
|                  |  |               |  |               |  |               |  |              
|Total             |  |               |  | 628,676       |  |               |  | 950,893      
|                  |  |               |  |               |  |               |  |              
|                  |  |               |  |              
|Trade Receivables |  | LocalCurrency |  | USDEquivalent |  | LocalCurrency |  | USDEquivalent
|USD               |  | 2,947         |  | 2,947         |  | 7,007         |  | 7,007        
|GBP               |  |              |  |              |  | 24,245        |  | 43,224       
|EUR               |  | 9,173         |  | 12,512        |  | 54,322        |  | 68,503       
|                  |  |               |  |               |  |               |  |              
|Total             |  |               |  | 15,457        |  |               |  | 118,734      
|                  |  |               |  |               |  |               |  |              



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##### Table of Contents

Financial Exposure.The Companys general policy requires our
subsidiaries to borrow funds and invest excess cash in the same currency as their functional currency, the Polish zloty, where these funds were needed for and generated by operations. Where funds were needed for investment and acquisition purposes
in previous years, they have been taken in U.S. Dollar and Euro. Total exposure to various currencies on the Companys bank funding for December 31, 2003 and 2004 is given in the table below. During 2004, the Company experienced higher Polish
Zloty borrowing rates with an increase in the one month Warsaw inter-bank rate (WIBOR) from 5.21% at the end of 2003, to 6.46% at the end of 2004, resulting in higher interest expense for the year.



|                                        |  |                    |        |      |   |       
|--------------------------------------- |  | ------------------ | ------ | ---- | - | ------
|                                        |  | 2004               |        | 2003
|                                        |  | (Thousands of USD)
|Bank loans payable in Polish zloty      |  | $                  | 21,306 |      | $ | 11,849
|Bank overdrafts payable in Polish zloty |  | $                  | 18,197 |      | $ | 19,118
|Total Bank Funding                      |  | $                  | 39,503 |      | $ | 30,967



Loans with a
contractual term of one year have been automatically renewed in the past and the Company expects them to be renewed in the future. Bank loans and overdrafts denominated in Polish zloty are also renewable after one-year and have been presented
according to their legal form. More details of the repayments dates and conditions of both the short-term and long-term loans can be found in note 8 of the financial statements.



Bank borrowings are sensitive to interest and foreign currency market risks as they usually bear interest at variable rates
and are denominated in various currencies.



|                           |  |                  |  |                 
|-------------------------- |  | ---------------- |  | ----------------
|Exchange rates             |  | December 31,2004 |  | December 31,2003
|Polish zloty / U.S. Dollar |  | 2.9904           |  | 3.7405          
|Polish zloty / EURO        |  | 4.0790           |  | 4.7170          



Interest Rate
Fluctuations



The Company may have an exposure to interest
rate movements through its bank deposits and indebtedness. During 2004, the Company used derivative financial instruments (forward foreign currency contracts) to hedge transactions denominated in foreign currencies in order to reduce the currency
risk associated with fluctuating exchange rates. The duration of the hedge contract typically did not exceed six months. At year end the Company had no open derivative contracts.



Because all of the Companys debts are at floating rates, changes in interest rates may impact its net interest
expense, positively by way of a reduction in base rates and adversely should base rates rise. The Companys sensitivity to interest rate movements is expressed in the table below.



|                                                                       |  |                   |        |     |                   |   |        |    
|---------------------------------------------------------------------- |  | ----------------- | ------ | --- | ----------------- | - | ------ | ---
|                                                                       |  | December 31, 2004 |        |     | December 31, 2003 |  
|Average bank debt (in $000s)                                          |  | $                 | 30,069 |     |                   | $ | 25,614 |    
|Percentage subject to variable interest rates                          |  |                   | 100    | %   |                   |   | 100    | %  
|Impact (in $000s) on net interest charge from 1% change in base rates |  | $                 | 300.6  | +/ |                   | $ | 256.1  | +/





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##### Table of Contents

Item 8.    Financial Statements and Supplementary Data



Index to consolidated financial statements:



|                                                                                                                |  |      
|--------------------------------------------------------------------------------------------------------------- |  | -----
|Reports of Independent Registered Accounting Firms                                                              |  | 34   
|                                                                                                                | 
|Consolidated Balance Sheets at December 31, 2004 and 2003                                                       |  | 37   
|                                                                                                                | 
|Consolidated Statements of Income for the years ended December 31, 2004, 2003 and 2002                          |  | 38   
|                                                                                                                | 
|Consolidated Statements of Changes in Stockholders Equity for the years ended December 31, 2004, 2003 and 2002 |  | 39   
|                                                                                                                | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002                      |  | 40   
|                                                                                                                | 
|Notes to Consolidated Financial Statements                                                                      |  | 41-57





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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Shareholders

Central European Distribution Corporation:



We have completed an integrated audit of Central European Distribution
Corporations 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and an audit of its 2003 consolidated financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.



Consolidated financial statements



In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the
financial position of Central European Distribution Corporation and its subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally
accepted in the United States of America. 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 of
these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



Internal control over financial reporting



Also, in our opinion, managements assessment, included in Managements Report on Internal Control over Financial Reporting appearing under Item
9A, that the Company maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2004, based on criteria established in Internal ControlIntegrated Framework issued by the COSO. The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on managements assessment and on the effectiveness of the Companys internal control over financial reporting based on our audit. We
conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions.



A companys
internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A companys internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance



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with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial
statements.



Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.



As described in Managements Report on Internal Control over Financial Reporting appearing under Item 9A, Management has excluded Saol Sp. z o.o., Miro Sp. z o.o. and Polnis Sp. z o.o. from its assessment of
internal control over financial reporting as of December 31, 2004 because these companies were acquired by the Company in a purchase business combination during the year ended December 31, 2004. We have also excluded Saol Sp. z o.o., Miro Sp. z o.o.
and Polnis Sp. z o.o. from our audit of internal control over financial reporting. These companies are wholly-owned subsidiaries of Central European Distribution Corporation, whose total assets and total revenues represent 11.85% and 7.14%,
respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2004.



PricewaterhouseCoopers Sp. z o.o.



Warsaw, Poland

March 11, 2005





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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Shareholders



of Central European Distribution Corporation



We have audited the accompanying consolidated statements of income, changes in
shareholders equity, and cash flows for the year ended December 31, 2002 of Central European Distribution Corporation and subsidiaries, which has been included in this Form 10-K. 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 audit.



We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether 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 audit provides a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of their operations and their cash flows of Central European Distribution Corporation and subsidiaries for the year ended December 31, 2002, in conformity with U.S. generally accepted accounting
principles.





Ernst & Young Audit Sp. z o.o.



March 14,
2003



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CENTRAL EUROPEAN DISTRIBUTION CORPORATION



CONSOLIDATED BALANCE SHEETS

Amounts in columns expressed in thousands



|                                                                                                                                                  |  |              |         |   |      |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                                                                                                                  |  | December 31, |        
|                                                                                                                                                  |  | 2004         |         |   | 2003 |  
|ASSETS                                                                                                                                            |  |              |         |   |      |   |         |  
|                                                                                                                                                  |  |             
|Current Assets                                                                                                                                    |  |              |         |   |      |   |         |  
|Cash and cash equivalents                                                                                                                         |  | $            | 10,491  |   |      | $ | 6,229   |  
|Accounts receivable, net of allowance for doubtful accounts of $10,038 and $6,380 respectively                                                    |  |              | 131,799 |   |      |   | 90,071  |  
|Inventories                                                                                                                                       |  |              | 64,372  |   |      |   | 35,012  |  
|Prepaid expenses and other current assets                                                                                                         |  |              | 10,801  |   |      |   | 5,249   |  
|Deferred income taxes                                                                                                                             |  |              | 822     |   |      |   | 1,201   |  
|                                                                                                                                                  |  |              |         |   |      |   |         |  
|Total Current Assets                                                                                                                              |  |              | 218,285 |   |      |   | 137,762 |  
|                                                                                                                                                  |  |             
|Intangible assets, net                                                                                                                            |  |              | 2,543   |   |      |   | 2,506   |  
|Goodwill, net                                                                                                                                     |  |              | 51,370  |   |      |   | 35,618  |  
|Equipment, net                                                                                                                                    |  |              | 17,387  |   |      |   | 10,115  |  
|Deferred income taxes                                                                                                                             |  |              | 1,684   |   |      |   | 1,382   |  
|Other assets                                                                                                                                      |  |              | 435     |   |      |   | 87      |  
|                                                                                                                                                  |  |              |         |   |      |   |         |  
|Total Assets                                                                                                                                      |  | $            | 291,704 |   |      | $ | 187,470 |  
|                                                                                                                                                  |  |              |         |   |      |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                              |  |              |         |   |      |   |         |  
|                                                                                                                                                  |  |             
|Current Liabilities                                                                                                                               |  |              |         |   |      |   |         |  
|Trade accounts payable                                                                                                                            |  | $            | 115,678 |   |      | $ | 65,776  |  
|Bank loans and overdraft facilities                                                                                                               |  |              | 37,396  |   |      |   | 30,441  |  
|Income taxes payable                                                                                                                              |  |              | 651     |   |      |   | 977     |  
|Taxes other than income taxes                                                                                                                     |  |              | 3,108   |   |      |   | 1,230   |  
|Other accrued liabilities                                                                                                                         |  |              | 7,338   |   |      |   | 3,011   |  
|Current portions of obligations under capital leases                                                                                              |  |              | 2,970   |   |      |   | 1,282   |  
|Current portion of long-term debt                                                                                                                 |  |              | 234     |   |      |   | 29      |  
|                                                                                                                                                  |  |              |         |   |      |   |         |  
|Total Current Liabilities                                                                                                                         |  |              | 167,375 |   |      |   | 102,746 |  
|                                                                                                                                                  |  |             
|Long-term debt, less current maturities                                                                                                           |  |              | 1,873   |   |      |   | 497     |  
|Long-term obligations under capital leases                                                                                                        |  |              | 2,140   |   |      |   | 1,173   |  
|                                                                                                                                                  |  |             
|Commitments and Contingencies                                                                                                                     |  |              |         |   |      |   |         |  
|                                                                                                                                                  |  |             
|Stockholders Equity                                                                                                                              |  |              |         |   |      |   |         |  
|Preferred Stock ($0.01 par value, 1,000,000 shares authorized; no shares issued and outstanding)                                                  |  |              |        |   |      |   |        |  
|Common Stock ($0.01 par value, 40,000,000 shares authorized, 16,677,045 and 16,314,493 shares issued at December 31, 2004 and 2003,
respectively) |  |              | 166     |   |      |   | 109     |  
|Additional paid-in-capital                                                                                                                        |  |              | 55,663  |   |      |   | 52,805  |  
|Retained earnings                                                                                                                                 |  |              | 52,366  |   |      |   | 30,536  |  
|Accumulated other comprehensive income/(loss)                                                                                                     |  |              | 12,271  |   |      |   | (246    | )
|Less Treasury Stock at cost (164,025 shares at December 31, 2004 and 2003)                                                                        |  |              | (150    | ) |      |   | (150    | )
|                                                                                                                                                  |  |              |         |   |      |   |         |  
|Total Stockholders Equity                                                                                                                        |  |              | 120,316 |   |      |   | 83,054  |  
|                                                                                                                                                  |  |              |         |   |      |   |         |  
|Total Liabilities and Stockholders Equity                                                                                                        |  | $            | 291,704 |   |      | $ | 187,470 |  
|                                                                                                                                                  |  |              |         |   |      |   |         |  



See accompanying notes.





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CENTRAL EUROPEAN DISTRIBUTION CORPORATION



CONSOLIDATED STATEMENTS OF INCOME

Amounts in columns expressed in thousands

(except per share data)



|                                                                 |  |                         |         |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                 |  | Year ended December 31, |        
|                                                                 |  | 2004                    |         |   | 2003 |   |         | 2002 | 
|Net sales                                                        |  | $                       | 580,744 |   |      | $ | 429,118 |      |  | $ | 293,965 |  
|Cost of goods sold                                               |  |                         | 506,413 |   |      |   | 372,638 |      |  |   | 255,078 |  
|                                                                 |  |                         |         |   |      |   |         |      |  |   |         |  
|Gross profit                                                     |  |                         | 74,331  |   |      |   | 56,480  |      |  |   | 38,887  |  
|Selling, general and administrative expenses                     |  |                         | 41,774  |   |      |   | 31,594  |      |  |   | 23,367  |  
|Bad debt provision                                               |  |                         | 758     |   |      |   | 592     |      |  |   | 1,431   |  
|Depreciation of tangible fixed assets                            |  |                         | 2,801   |   |      |   | 1,672   |      |  |   | 1,273   |  
|Amortization of intangible assets                                |  |                         | 613     |   |      |   | 455     |      |  |   | 202     |  
|                                                                 |  |                         |         |   |      |   |         |      |  |   |         |  
|Operating income                                                 |  |                         | 28,385  |   |      |   | 22,167  |      |  |   | 12,614  |  
|Non-operating income / (expense)                                 |  |                         |         |   |      |   |         |      |  |   |         |  
|Interest expense                                                 |  |                         | (2,441  | ) |      |   | (1,633  | )    |  |   | (1,586  | )
|Interest income                                                  |  |                         | 326     |   |      |   | 133     |      |  |   | 99      |  
|Realized and unrealized foreign currency transaction losses, net |  |                         | (19     | ) |      |   | (92     | )    |  |   | (176    | )
|Other income / (expense), net                                    |  |                         | 193     |   |      |   | (59     | )    |  |   | 113     |  
|                                                                 |  |                         |         |   |      |   |         |      |  |   |         |  
|Income before income taxes                                       |  |                         | 26,444  |   |      |   | 20,516  |      |  |   | 11,064  |  
|Income tax expense                                               |  |                         | 4,614   |   |      |   | 5,441   |      |  |   | 2,764   |  
|                                                                 |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income                                                       |  | $                       | 21,830  |   |      | $ | 15,075  |      |  | $ | 8,300   |  
|                                                                 |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income per share of common stock, basic                      |  | $                       | 1.34    |   |      | $ | 0.98    |      |  | $ | 0.68    |  
|                                                                 |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income per share of common stock, diluted                    |  | $                       | 1.31    |   |      | $ | 0.96    |      |  | $ | 0.66    |  
|                                                                 |  |                         |         |   |      |   |         |      |  |   |         |  





See accompanying notes.



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CENTRAL EUROPEAN DISTRIBUTION CORPORATION



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

Amounts in columns expressed in thousands



|                                                    |  |              |  |             |                           |              |     |                  |   |                                   |   |  |       |        |   |  |   |        |  |   |        |   |  |   |        
|--------------------------------------------------- |  | ------------ |  | ----------- | ------------------------- | ------------ | --- | ---------------- | - | --------------------------------- | - |  | ----- | ------ | - |  | - | ------ |  | - | ------ | - |  | - | -------
|                                                    |  | Common Stock |  |             | AdditionalPaid-in Capital |              |     | RetainedEarnings |   | Accumulatedothercomprehensiveloss |   |  | Total
|                                                    |  | Issued       |  | In Treasury |                           |              |     |                  |  
|                                                    |  | No. ofShares |  | Amount      |                           | No. ofShares |     | Amount           |   |                                   |   |  |      
|Balance at December 31, 2001                        |  | 4,504        |  | $           | 46                        |              | 73  |                  |   | (150                              | ) |  | $     | 15,383 |   |  | $ | 7,161  |  | $ | (1,684 | ) |  | $ | 20,756 
|Net income for 2002                                 |  |             |  |             |                          |              |     |                  |   |                                   |   |  |       |       |   |  |   | 8,300  |  |   |       |   |  |   | 8,300  
|Foreign currency translation adjustment             |  |             |  |             |                          |              |     |                  |   |                                   |   |  |       |       |   |  |   |       |  |   | 313    |   |  |   | 313    
|Comprehensive income for 2002                       |  |             |  |             |                          |              |     |                  |   |                                   |   |  |       |       |   |  |   | 8,300  |  |   | 313    |   |  |   | 8,613  
|Common stock issued in private placement            |  | 800          |  |             | 8                         |              |     |                  |   |                                   |   |  |       | 7,398  |   |  |   |        |  |   |        |   |  |   | 7,406  
|Common stock issued in connection with options      |  | 409          |  |             | 3                         |              |     |                  |   |                                   |   |  |       | 943    |   |  |   |        |  |   |        |   |  |   | 946    
|Common stock issued in connection with acquisitions |  | 292          |  |             | 3                         |              |     |                  |   |                                   |   |  |       | 3,657  |   |  |   |       |  |   |       |   |  |   | 3,660  
|Balance at December 31, 2002                        |  | 6,005        |  | $           | 60                        |              | 73  |                  | $ | (150                              | ) |  | $     | 27,381 |   |  | $ | 15,461 |  | $ | (1,371 | ) |  | $ | 41,381 
|                                                    |  |              |  |             |                           |              |     |                  |   |                                   |   |  |       |        |   |  |   |        |  |   |        |   |  |   |        
|Net income for 2003                                 |  |              |  |             |                           |              |     |                  |   |                                   |   |  |       |        |   |  |   | 15,075 |  |   |        |   |  |   | 15,075 
|Foreign currency translation adjustment             |  |              |  |             |                           |              |     |                  |   |                                   |   |  |       |        |   |  |   |        |  |   | 1,125  |   |  |   | 1,125  
|Comprehensive income for 2003                       |  |              |  |             |                           |              |     |                  |   |                                   |   |  |       |        |   |  |   | 15,075 |  |   | 1,125  |   |  |   | 16,200 
|Effect of stock split June 2, 2003                  |  | 3,003        |  |             | 30                        |              | 36  |                  |   |                                   |   |  |       | (30    | ) |  |   |        |  |   |        |   |  |   |        
|Redeemable common stock                             |  |              |  |             |                           |              |     |                  |   |                                   |   |  |       | 1,781  |   |  |   |        |  |   |        |   |  |   | 1,781  
|Common stock issued in private placement            |  | 1,350        |  |             | 14                        |              |     |                  |   |                                   |   |  |       | 19,294 |   |  |   |        |  |   |        |   |  |   | 19,308 
|Common stock issued in connection with options      |  | 366          |  |             | 4                         |              |     |                  |   |                                   |   |  |       | 2,031  |   |  |   |        |  |   |        |   |  |   | 2,035  
|Common stock issued in connection with acquisitions |  | 152          |  |             | 1                         |              |     |                  |   |                                   |   |  |       | 2,348  |   |  |   |        |  |   |        |   |  |   | 2,349  
|Balance at December 31, 2003                        |  | 10,876       |  | $           | 109                       |              | 109 |                  | $ | (150                              | ) |  | $     | 52,805 |   |  | $ | 30,536 |  | $ | (246   | ) |  | $ | 83,054 
|                                                    |  |              |  |             |                           |              |     |                  |   |                                   |   |  |       |        |   |  |   |        |  |   |        |   |  |   |        
|Net income for 2004                                 |  |              |  |             |                           |              |     |                  |   |                                   |   |  |       |        |   |  |   | 21,830 |  |   |        |   |  |   | 21,830 
|Foreign currency translation adjustment             |  |              |  |             |                           |              |     |                  |   |                                   |   |  |       |        |   |  |   |        |  |   | 12,517 |   |  |   | 12,517 
|Comprehensive income for 2004                       |  |              |  |             |                           |              |     |                  |   |                                   |   |  |       |        |   |  |   | 21,830 |  |   | 12,517 |   |  |   | 34,347 
|Effect of stock split May 2, 2004                   |  | 5,438        |  |             | 54                        |              | 55  |                  |   |                                   |   |  |       | (54    | ) |  |   |        |  |   |        |   |  |   |        
|Common stock issued in connection with options      |  | 312          |  |             | 3                         |              |     |                  |   |                                   |   |  |       | 1,778  |   |  |   |        |  |   |        |   |  |   | 1,781  
|Common stock issued in connection with acquisitions |  | 51           |  |             |                           |              |     |                  |   |                                   |   |  |       | 1,134  |   |  |   |        |  |   |        |   |  |   | 1,134  
|Balance at December 31, 2004                        |  | 16,677       |  | $           | 166                       |              | 164 |                  | $ | (150                              | ) |  | $     | 55,663 |   |  | $ | 52,366 |  | $ | 12,271 |   |  | $ | 120,316
|                                                    |  |              |  |             |                           |              |     |                  |   |                                   |   |  |       |        |   |  |   |        |  |   |        |   |  |   |        



See accompanying notes.



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CENTRAL EUROPEAN DISTRIBUTION CORPORATION



CONSOLIDATED STATEMENTS OF CASH FLOWS

Amounts in columns expressed in thousands



|                                                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                              |  | Year ended December 31, |        
|                                                                                              |  | 2004                    |         |   | 2003 |   |         | 2002 | 
|Operating Activities                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income                                                                                    |  | $                       | 21,830  |   |      | $ | 15,075  |      |  | $ | 8,300   |  
|Adjustments to reconcile net income to net cash provided by / (used in) operating activities: |  |                         |         |   |      |   |         |      |  |   |         |  
|Depreciation and amortization                                                                 |  |                         | 3,414   |   |      |   | 2,127   |      |  |   | 1,475   |  
|Deferred income tax benefit                                                                   |  |                         | 228     |   |      |   | 698     |      |  |   | (654    | )
|Bad debt provision                                                                            |  |                         | 758     |   |      |   | 592     |      |  |   | 1,431   |  
|Changes in operating assets and liabilities:                                                  |  |                         |         |   |      |   |         |      |  |   |         |  
|Accounts receivable                                                                           |  |                         | (23,495 | ) |      |   | (6,862  | )    |  |   | (13,782 | )
|Inventories                                                                                   |  |                         | (21,245 | ) |      |   | (4,143  | )    |  |   | (7,329  | )
|Prepayments and other current assets                                                          |  |                         | (2,090  | ) |      |   | (1,183  | )    |  |   | (1,218  | )
|Trade accounts payable                                                                        |  |                         | 29,424  |   |      |   | (14,156 | )    |  |   | 11,008  |  
|Income and other taxes                                                                        |  |                         | 993     |   |      |   | 766     |      |  |   | (730    | )
|Other accrued liabilities and other                                                           |  |                         | (956    | ) |      |   | (1,166  | )    |  |   | (351    | )
|                                                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Cash (used in)/provided by Operating Activities                                           |  |                         | 8,861   |   |      |   | (8,252  | )    |  |   | (1,850  | )
|                                                                                              |  |                         |        
|Investing Activities                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|Purchases of equipment                                                                        |  |                         | (5,449  | ) |      |   | (2,292  | )    |  |   | (819    | )
|Proceeds from the disposal of equipment                                                       |  |                         | 1,490   |   |      |   | 647     |      |  |   | 332     |  
|Acquisitions of subsidiaries                                                                  |  |                         | (5,378  | ) |      |   | (3,874  | )    |  |   | (14,158 | )
|                                                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Cash Used In Investing Activities                                                         |  |                         | (9,337  | ) |      |   | (5,519  | )    |  |   | (14,645 | )
|                                                                                              |  |                         |        
|Financing Activities                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|Borrowings on bank loans and overdraft facility                                               |  |                         | 7,604   |   |      |   | 7,019   |      |  |   | 7,420   |  
|Payment of bank loans and overdraft facility                                                  |  |                         | (4,029  | ) |      |   |        |      |  |   |        |  
|Long-term borrowings                                                                          |  |                         | 1,518   |   |      |   |        |      |  |   | 2,845   |  
|Payment of long-term borrowings                                                               |  |                         | (4,400  | ) |      |   | (9,935  | )    |  |   | (2,351  | )
|Payment of capital leases                                                                     |  |                         | (1,838  | ) |      |   | (1,297  | )    |  |   | (248    | )
|Net proceed from private placement issuance of shares                                         |  |                         | 0       |   |      |   | 19,308  |      |  |   | 7,406   |  
|Options exercised                                                                             |  |                         | 1,780   |   |      |   | 2,035   |      |  |   | 946     |  
|Purchase of treasury shares                                                                   |  |                         |        |   |      |   |        |      |  |   |        |  
|                                                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Cash provided by Financing Activities                                                     |  |                         | 635     |   |      |   | 17,130  |      |  |   | 16,018  |  
|                                                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Currency effect on brought forward cash balances                                              |  |                         | 4,103   |   |      |   | 633     |      |  |   | 248     |  
|Net Increase / (Decrease) in Cash                                                             |  |                         | 4,262   |   |      |   | 3,992   |      |  |   | (229    | )
|Cash and cash equivalents at beginning of period                                              |  |                         | 6,229   |   |      |   | 2,237   |      |  |   | 2,466   |  
|                                                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Cash and cash equivalents at end of period                                                    |  | $                       | 10,491  |   |      | $ | 6,229   |      |  | $ | 2,237   |  
|                                                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Supplemental Schedule of Non-cash Investing Activities                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Common stock issued in connection with investment in subsidiaries(Note 6)                     |  | $                       | 2,390   |   |      | $ | 1,803   |      |  | $ | 3,660   |  
|                                                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Common Stock issued to consultants                                                            |  | $                       |        |   |      | $ |        |      |  | $ | 306     |  
|                                                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Capital leases                                                                                |  | $                       | 2,872   |   |      | $ | 2,028   |      |  | $ | 324     |  
|                                                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Supplemental disclosures of cash flow information                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|Interest paid                                                                                 |  | $                       | 2,078   |   |      | $ | 1,633   |      |  | $ | 1,528   |  
|Income tax paid                                                                               |  | $                       | 2,636   |   |      | $ | 5,221   |      |  | $ | 3,304   |  



See accompanying notes.



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CENTRAL EUROPEAN DISTRIBUTION CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amounts in columns expressed in thousands



1.    Organization and Description of Business



Central European Distribution Corporation (CEDC), a Delaware Corporation,
and its subsidiaries (collectively referred to as the Company) operates primarily as a wholesale distributor of fine wines, beers and liquors across Poland. Based in Warsaw and operating through thirteen distribution centers and 78 satellite
branches, the Company offers a 24 hour delivery service of alcoholic beverages to both the on and off trade. Since its incorporation in September 1997, the Company has acquired 100% of the outstanding common stock or 100% of the voting rights of its
15 subsidiaries.



The Company through its various subsidiaries
derives all its revenues in Poland.



2.    Significant
Accounting Policies



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



Basis of Presentation



The consolidated
financial statements include the accounts of CEDC and its subsidiaries all of which the Company wholly owns or owns 100% of the voting rights. All inter-company accounts and transactions have been eliminated in the consolidated financial statements.



CEDCs subsidiaries maintain their books of account and
prepare their statutory financial statements in Polish Zloties (PLN) in accordance with Polish statutory requirements and the Accounting Act of 29 September 1994. The subsidiaries financial statements have been adjusted to reflect accounting
principles generally accepted in the United States of America (U.S. GAAP).



Use of Estimates



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



Foreign Currency Translation and Transactions



For all of the Companys subsidiaries the functional currency is the local currency. Assets and liabilities of these operations are translated at the
exchange rate in effect at each year-end. The Income Statements are translated at the average rate of exchange prevailing during the respective year. Translation adjustments arising from the use of differing exchange rates from period to period are
included as a component of stockholders equity. Transaction adjustments arising from operations as well as gains and losses from any specific foreign currency transactions are included in the reported net income for the period.



The accompanying consolidated financial statements have been presented in
U.S. Dollars.



The exchange rates used on Polish zloty
denominated transactions and balances for translation purposes as of December 31, 2004 and 2003 for one U.S. Dollar were 2.99 PLN and 3.74 PLN, respectively. As of March 7, 2005, the Polish Zloty to U.S. Dollar conversion rate was 2.9364 PLN.



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CENTRAL EUROPEAN DISTRIBUTION CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Amounts in columns expressed in thousands



Tangible Fixed Assets



Tangible fixed assets are stated at cost, less accumulated depreciation. Depreciation of tangible fixed assets is computed
by the straight-line method over the following useful lives:



|                                                 |  |                           
|------------------------------------------------ |  | --------------------------
|Type                                             |  | Depreciation life in years
|Transportation equipment under capital leases    |  | 5                         
|Transportation equipment not under capital lease |  | 5                         
|Software                                         |  | 2                         
|Computers and IT equipment                       |  | 3                         
|Beer dispensing and other equipment              |  | 2-10                      
|Freehold land                                    |  | Not depreciated           
|Freehold buildings                               |  | 40                        



Leased equipment
meeting certain criteria is capitalized and the present value of the related lease payments is recorded as a liability. Amortization of capitalized leased assets is computed on a straight-line method over the useful life of the relevant assets.



Where equipment cost is less than $900 per transaction, it is
expensed to the income statement as incurred.



The Company
periodically reviews its investment in tangible fixed assets and when indicators of impairment exist and if the value of the asset is impaired, an impairment loss is recognized.



Goodwill



As required by FASB 142, acquired goodwill is no longer amortized. Instead the Company assesses the recoverability of its goodwill at least once a year or
whenever adverse events or changes in circumstances or business climate indicate that expected future cash flows (undiscounted and without interest charges) for business units of a similar economic nature may not be sufficient to support the
recorded goodwill. If undiscounted cash flows were to be insufficient to support the goodwill, an impairment charge would be recognized to reduce the carrying value of the goodwill based on the expected discounted cash flows of the business units.
No such charge has been considered necessary through the date of the accompanying financial statements.



Intangible assets other than Goodwill



Intangibles consist primarily of acquired trademarks. The trademarks are amortized on a straight-line basis over the period of the expected economic
benefits (10 years).



Revenue Recognition



Revenue derived from beverage distribution is
recognized when goods are shipped to customers and where a delivery acceptance note signed by the customer has been returned to the Company. Sales are stated net of turnover related customer discounts, an estimate of customer returns and sales tax
(VAT).



Shipping and Handling Costs



Where the Company has incurred costs in shipping goods to its warehouse
facilities, these costs are recorded as part of inventory and then to costs of goods sold. Shipping and handling costs associated with distribution are recording in Selling, General and Administrative (S,G&A) costs.



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CENTRAL EUROPEAN DISTRIBUTION CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Amounts in columns expressed in thousands



Marketing and Promotion Costs



The Company does not involve itself in direct advertising but manages the
marketing and promotional budgets of suppliers for which it has exclusive distribution rights.



Where the Company incurs marketing and promotional costs, which do not have a direct revenue benefit such costs are charged to selling, general and administrative expenses as they are incurred.



The Company incurs some listing fees which are included in selling, general
and administrative expenses but these are not considered significant.



Accounts Receivable



Accounts
receivable are recorded based on the invoice price, inclusive of VAT (sales tax), and where a delivery note has been signed by the customer and returned to the Company. The allowances for doubtful accounts are based upon the aging of the accounts
receivable. The Company makes an allowance based on a sliding scale which culminates in a 100% provision should the receivable be over one year old. However, where circumstances require, the Company will also make specific provisions for any excess
not provided for under the general provision. When a final determination is delivered to the Company regarding the non-recovery of a receivable, the Company then charges the unrecoverable amount to the accumulated allowance.



Inventories



Inventories are stated at the lower of cost (first-in, first-out method) or
market value. Cost includes customs duty (where applicable), and all costs associated with bringing the inventory to a condition for sale. These costs include importation, handling, storage and transportation costs, and exclude rebates received from
suppliers, which are reflected as reductions to closing inventory. Inventories are comprised primarily of beer, wine, spirits and non-alcoholic beverages.



Cash and Cash Equivalents



Short-term investments which have a maturity of three months or less from the date of purchase are classified as cash equivalents. As at December 31,
2004, approximately $10.5 million was in U.S. Dollars within the Company with the balance being in the accounts of the subsidiaries in accounts denominated in PLN.



Income Taxes and Deferred Taxes



The Company computes and records income taxes in accordance with the liability method. Deferred tax assets and liabilities
are recorded based on the difference between the accounting and tax basis of the underlying assets and liabilities based on enacted tax rates expected to be in effect for the year in which the differences are expected to reverse.



Employee Retirement Provisions



Under Polish labor laws, the Company is required to provide each employee
reaching her 60thbirthday if the employee is a women and his 65thbirthday if the employee is a man while employed by the Company with a bonus of one month salary. The Company expenses these amounts when incurred as they do
not represent a material amount in aggregate. Retirements benefits in Poland are generally paid by the State and are financed by taxes paid by employees currently.



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CENTRAL EUROPEAN DISTRIBUTION CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Amounts in columns expressed in thousands



Employee Stock-Based Compensation



At December 31, 2004, the Company has the 1997 Stock Incentive Plan (the
Incentive Plan) under which all stock-based compensation awards are granted to directors, executives, and other employees and to non-employee service providers of the Company. The Incentive Plan is described more fully in Note 13. The
Company accounts for grants to employees under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. For grants to employees, no stock-based employee
compensation cost is reflected in net income, as all options granted under those plans had an exercise price at least equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net
income and earnings per share if the company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.



|                              |  |      |        |      |   |        |  |   |      
|----------------------------- |  | ---- | ------ | ---- | - | ------ |  | - | -----
|                              |  | 2004 |        | 2003 |   | 2002  
|Net income as reported        |  | $    | 21,830 |      | $ | 15,075 |  | $ | 8,300
|Pro forma net income          |  | $    | 19,424 |      | $ | 11,973 |  | $ | 7,165
|                              |  |      |       
|Pro forma earnings per share: |  |      |        |      |   |        |  |   |      
|Basic                         |  | $    | 1.19   |      | $ | 0.79   |  | $ | 0.59 
|Diluted                       |  | $    | 1.16   |      | $ | 0.76   |  | $ | 0.57 



Stock-based
compensation awards are also granted to non-employee service providers under the Incentive Plan. The Company accounts for grants to non-employee service providers in accordance with the fair value method of FASB Statement No. 123.



In December 2004, the FASB issued FASB Statement No. 123(R), Share Based
Payments, a revision of the prior FASB Statement No. 123, Accounting for Stock Based Compensation. This statement requires companies to expense the fair value of employee stock options and other forms of stock-based compensation. The statement
offers a number of possibilities for implementation. The Company has elected to implement the modified prospective application, which will require the Company to begin to recognize the impact of the change in July 2005 and will not restate any prior
periods. The expected impact during the second half of 2005 is approximately $1.5 million, based upon current market conditions. Management of the Company is still in process of evaluating what forms of compensation may be introduced in future
periods in lieu of the existing option program.



Financial Instruments



In November
2002, the Company made the decision to convert nearly all (98%) of its non-Polish zloty denominated debt into Polish zloty. This decision was made because the falling interest rates in Poland versus the costs of hedging instruments no longer
justified any perceived benefit of holding non-Polish zloty debt.



During 2004, the Company used derivative financial instruments (forward foreign currency contracts) to hedge transactions denominated in foreign currencies in order to reduce the currency risk associated with fluctuating exchange rates.
Such contracts were used primarily to hedge certain foreign denominated obligations. The Companys policy was to maintain hedge coverage only on existing obligations. The derivative instruments were valued at fair value and the gains and losses
on these contracts offset changes in the values of the related exposures in accordance with SFAS 138 (Accounting for Certain Instruments and Certain Hedging Activities). The principal currencies hedged were the U.S. Dollar, and the Euro. The
duration of the hedge contract typically did not exceed six months. At year end, the Company had no open derivative contracts.



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CENTRAL EUROPEAN DISTRIBUTION CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Amounts in columns expressed in thousands



Comprehensive Income/(Loss)



Comprehensive income / (loss) 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. The foreign translation gains/(losses) on the
re-measurements from PLN to U.S. dollars are classified separately and are the only component of accumulated other comprehensive income included in stockholders equity.



During 2004, the Polish zloty strengthened and as a result changed from a cumulative comprehensive loss to a comprehensive
gain. During the year ended December 31, 2004, the Company recorded foreign currency translation gains of $12.2 million and reported this amount as part of the accumulated comprehensive gain in stockholders equity. Additionally, translation
gains and losses with respect to long-term subordinated inter-company loans with the parent company are charged to other comprehensive gains. No deferred tax benefit has been recorded on the comprehensive gain in regards to the long-term
inter-company transactions with the parent company, as the repayment of any equity investment is not anticipated in the foreseeable future.



Segment Reporting



The Company operates in one industry segment, the distribution of alcoholic and non-alcoholic beverages. These activities are conducted by the
Companys subsidiaries in Poland. Substantially all revenues, operating profits and assets relate to this business. CEDC assets (excluding inter-company loans and investments) located in the United States of America represent less than 1% of
consolidated assets.



Sales made by retail shops owned by the
Company are insignificant for the business.



Net Income
Per Common Share



Net income per common share is
calculated in accordance with SFAS No. 128, Earnings per Share. Basic earnings per share (EPS) are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the year. The
stock options and warrants discussed in Note 11 were included in the computation of diluted earnings per common share (Note 10).



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CENTRAL EUROPEAN DISTRIBUTION CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Amounts in columns expressed in thousands



3.    Trade Receivables and Allowances for Doubtful Accounts



Changes in the allowance for doubtful accounts during each of the three
years in the period ended December 31, 2004 were as follows:



|                                                     |  |                         |         |   |      |   |        |      |  |   |       
|---------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------
|                                                     |  | Year ended December 31,
|                                                     |  | 2004                    |         |   | 2003 |   |        | 2002
|Net trade receivablesexcluding VAT                  |  | $                       | 116,261 |   |      | $ | 79,058 |      |  | $ | 56,351
|VAT (sales tax)                                      |  |                         | 25,576  |   |      |   | 17,393 |      |  |   | 12,397
|                                                     |  |                         |         |   |      |   |        |      |  |   |       
|Gross trade receivables                              |  | $                       | 141,837 |   |      | $ | 96,451 |      |  | $ | 68,748
|                                                     |  |                         |         |   |      |   |        |      |  |   |       
|Allowances for Doubtful Debts                        |  |                         |         |   |      |   |        |      |  |   |       
|Balance, beginning of year                           |  | $                       | 6,380   |   |      | $ | 3,945  |      |  | $ | 1,930 
|Effect of FX movement on opening balance             |  |                         | 1,552   |   |      |   | 104    |      |  |   | 74    
|Provision for bad debtsreported in income statement |  |                         | 758     |   |      |   | 592    |      |  |   | 1,357 
|Charge-offs, net of recoveries                       |  |                         | (621    | ) |      |   | (964   | )    |  |   |      
|Increase in allowance from purchase of subsidiaries  |  |                         | 1,969   |   |      |   | 2,703  |      |  |   | 584   
|                                                     |  |                         |         |   |      |   |        |      |  |   |       
|Balance, end of year                                 |  | $                       | 10,038  |   |      | $ | 6,380  |      |  | $ | 3,945 
|                                                     |  |                         |         |   |      |   |        |      |  |   |       
|Trade receivables, net                               |  | $                       | 131,799 |   |      | $ | 90,071 |      |  | $ | 64,803
|                                                     |  |                         |         |   |      |   |        |      |  |   |       



4.    Income
and Deferred Taxes



The Company operates in two tax
jurisdictions, the State of Delaware in the United States of America and Poland. All Polish subsidiaries file their own corporate tax returns as well as account for their own deferred tax assets. The Company does not file a tax return in Delaware
based upon its consolidated income, but based on the income statement for transactions occurring in the United States of America.



Total income tax expense varies from expected income tax expense computed at Polish statutory rates (28% in 2002, 27% in 2003 and 19% in 2004) as follows:



|                                                          |  |                         |       |   |      |   |       |      |  |   |       |  
|--------------------------------------------------------- |  | ----------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                          |  | Year ended December 31, |      
|                                                          |  | 2004                    |       |   | 2003 |   |       | 2002 | 
|Tax at Polish statutory rate                              |  | $                       | 5,035 |   |      | $ | 5,539 |      |  | $ | 3,098 |  
|Tax rate differences                                      |  |                         | (359  | ) |      |   | (720  | )    |  |   | (335  | )
|Effect of changes in tax rates on net deferred tax assets |  |                         |      |   |      |   | 620   |      |  |   | (12   | )
|Permanent differences                                     |  |                         | (62   | ) |      |   | 2     |      |  |   | 13    |  
|                                                          |  |                         |       |   |      |   |       |      |  |   |       |  
|Income tax expense                                        |  | $                       | 4,614 |   |      | $ | 5,441 |      |  | $ | 2,764 |  
|                                                          |  |                         |       |   |      |   |       |      |  |   |       |  



Total Polish income
tax payments (or amounts used as settlements against other statutory liabilities) during 2004, 2003 and 2002 were $2,636,000, $5,221,000 and $3,304,000 respectively. CEDC has paid no U.S. income taxes and has net operating U.S. loss carry-forward
totaling $3,454,000, of which $1,174,000 will expire in 2017 and $2,280,000 will expire beyond 2018.



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CENTRAL EUROPEAN DISTRIBUTION CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Amounts in columns expressed in thousands



Significant components of the Companys deferred tax assets are as follows:



|                                                                   |  |              |       |      |   |      
|------------------------------------------------------------------ |  | ------------ | ----- | ---- | - | -----
|                                                                   |  | December 31,
|                                                                   |  | 2004         |       | 2003
|Deferred tax assets:                                               |  |              |       |      |   |      
|Allowance for doubtful accounts receivable                         |  | $            | 939   |      | $ | 935  
|Unrealized foreign exchange losses/(gains), net                    |  |              | 16    |      |   | 40   
|Accrued expenses, deferred income and prepaid, net                 |  |              | 324   |      |   | 601  
|Tax benefit derived from sales to subsidiaries                     |  |              | 241   |      |   | 257  
|CEDC operating loss carry-forward benefit, Expiring in 2012  2018 |  |              | 1,209 |      |   | 774  
|                                                                   |  |              |       |      |   |      
|Net deferred tax asset                                             |  | $            | 2,729 |      | $ | 2,607
|                                                                   |  |              |       |      |   |      
|Deferred tax liability                                             |  |              |       |      |   |      
|Deferred income                                                    |  | $            | 84    |      | $ | 15   
|Timing differences in finance type leases                          |  | $            | 139   |      | $ | 9    
|                                                                   |  |              |       |      |   |      
|Net deferred tax liability                                         |  | $            | 223   |      | $ | 24   
|                                                                   |  |              |       |      |   |      
|Total net deferred tax asset                                       |  | $            | 2,729 |      | $ | 2,607
|Total net deferred tax liability                                   |  | $            | 223   |      | $ | 24   
|                                                                   |  |              |       |      |   |      
|Total net deferred tax                                             |  | $            | 2,506 |      | $ | 2,583
|                                                                   |  |              |       |      |   |      
|Classified as:                                                     |  |              |       |      |   |      
|Current deferred tax asset                                         |  | $            | 822   |      | $ | 1,201
|Non-current deferred tax asset                                     |  |              | 1,684 |      |   | 1,382
|                                                                   |  |              |       |      |   |      
|                                                                   |  | $            | 2,506 |      | $ | 2,583
|                                                                   |  |              |       |      |   |      



In December 2003,
legislation was enacted which reduced the corporate income tax rates in Poland effective January 1, 2004. The enacted tax rate of 27% was reduced to 19%. This impacted the value of the brought forward deferred tax assets by approximately $620,000.



No deferred taxes have been recorded for the remaining
undistributed earnings as the Company intends to permanently reinvest these earnings.



The 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. CEDCs U.S. federal income tax returns are also subject to examination by the U.S. tax authorities. As the application of tax laws and regulations, and transactions are susceptible to varying interpretations, amounts reported in
the consolidated financial statements could be changed at a later date upon final determination by the tax authorities.



5.    Intangible Assets other than Goodwill



The acquired trademarks in the amount of $4,261,403 had accumulated amortization of $1,718,704 and $1,712,000 for 2004 and 2003 respectively.



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CENTRAL EUROPEAN DISTRIBUTION CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Amounts in columns expressed in thousands



Estimated aggregate future amortization expense for intangible assets is as follows:



|      |  |   |      
|----- |  | - | -----
|2005  |  | $ | 564  
|2006  |  |   | 564  
|2007  |  |   | 564  
|2008  |  |   | 564  
|2009  |  |   | 287  
|      |  |   |      
|Total |  | $ | 2,543
|      |  |   |      



6.    Goodwill
& Acquisitions (put in comparative tables)



Overview



The Companys strategy and
objectives regarding its acquisition policy are to acquire regionally strong alcohol distributors in order to build market share and construct a nationwide distribution network in order to attract and retain national clients and to strengthen its
buying leverage. The price paid by the Company in making its acquisitions is based on earnings projections of the acquired company operating under the Companys business model. During the second quarter of 2004, the Company acquired 100% of the
voting rights of Miro Sp. z o.o. based in western Poland (June 2004) and Saol Sp. z o.o. (May 2004) based in the Krakow region. In the fourth quarter of 2004, the Company acquired 100% of the voting rights of Polnis Sp. z o.o. (October 2004) based
in central Poland. The Company also acquired certain trading assets and liabilities related to alcohol distribution, the details of these transactions are listed below and have been accounted for as business combinations.



During the year 2003, the Company acquired 100% of the voting rights in
Dako-Galant (April 2003), Panta Hurt (September 2003) and Multi-Ex (November 2003), three distributors of alcohol beverages in Poland. These companies were acquired by the Company in a purchase business combination.



Goodwill, presented net of accumulated amortization in the consolidated
balance sheets, consists of:



|                                          |  |        |  |       
|----------------------------------------- |  | ------ |  | ------
|Acquisition Cost                          |  | 2004   |  | 2003  
|Balance as at December 31,                |  | 36,308 |  | 26,002
|Impact of Foreign exchange                |  | 256    |  | 231   
|Additional cost from prior years          |  | 2,211  |  | 298   
|Acquisition through business combinations |  | 13,458 |  | 9,777 
|                                          |  |        |  |       
|Balance as at December 31,                |  | 52,233 |  | 36,308
|                                          |  |        |  |       
|                                          |  |       
|Cumulative Depreciation                   |  |        |  |       
|Balance as at December 31,                |  | 690    |  | 679   
|Impact of Foreign exchange                |  | 173    |  | 11    
|Impairment losses                         |  |       |  |      
|                                          |  |        |  |       
|Balance as at December 31,                |  | 863    |  | 690   
|                                          |  |        |  |       
|NBV                                       |  | 51,370 |  | 35,618
|                                          |  |        |  |       



Additional cost from
prior years, represent, fair value adjustments made to the book value of entities acquired in 2003, for which updated information became available after the original acquisition date.



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CENTRAL EUROPEAN DISTRIBUTION CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Amounts in columns expressed in thousands



The Company adopted SFAS No. 142 effective January 1, 2002. Under SFAS No.142 goodwill is no longer
amortized but reviewed at the beginning of the fiscal year for impairment, or more frequently if certain indicators arise.



Fair value of assets purchased and liabilities assumed



|                                                            |  |              |        |   |      |   |        |  
|----------------------------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                                                            |  | December 31, |       
|                                                            |  | 2004         |        |   | 2003 |  
|Current Assets                                              |  |              |        |   |      |   |        |  
|Cash and cash equivalents                                   |  | $            | 342    |   |      | $ | 718    |  
|Accounts receivable, net of allowance for doubtful accounts |  |              | 7,152  |   |      |   | 18,407 |  
|Inventories                                                 |  |              | 3,184  |   |      |   | 6,548  |  
|Prepaid expenses and other current assets                   |  |              | 37     |   |      |   | 753    |  
|Deferred income taxes                                       |  |              | 5      |   |      |   | 936    |  
|                                                            |  |              |        |   |      |   |        |  
|Total Current Assets                                        |  |              | 10,720 |   |      |   | 27,362 |  
|                                                            |  |             
|Equipment, net                                              |  |              | 560    |   |      |   | 1,881  |  
|Total Assets                                                |  | $            | 11,280 |   |      | $ | 29,243 |  
|                                                            |  |              |        |   |      |   |        |  
|                                                            |  |             
|LIABILITIES AND STOCKHOLDERS EQUITY                        |  |              |        |   |      |   |        |  
|Current Liabilities                                         |  |              |        |   |      |   |        |  
|Trade accounts payable                                      |  | $            | 10,861 |   |      |   | 26,494 |  
|Bank loans and overdraft facilities                         |  |              | 2,011  |   |      |   | 3,070  |  
|Income taxes payable                                        |  |              | 28     |   |      |   | 46     |  
|Taxes other than income taxes                               |  |              | (38    | ) |      |   | 383    |  
|Other accrued liabilities                                   |  |              | 897    |   |      |   | 2,099  |  
|                                                            |  |              |        |   |      |   |        |  
|Total Current Liabilities                                   |  |              | 13,759 |   |      |   | 32,092 |  
|                                                            |  |             
|Long-term debt, less current maturities                     |  |              |       |   |      |   | 446    |  
|                                                            |  |             
|Net identifiable assets and liabilities                     |  |              | (2,479 | ) |      |   | (3,295 | )
|Goodwill on acquisition                                     |  |              | 13,458 |   |      |   | 9,777  |  
|                                                            |  |             
|Consideration paid, satisfied in shares                     |  |              | 2,390  |   |      |   | 1,890  |  
|Consideration paid, satisfied in cash                       |  |              | 5,720  |   |      |   | 4,592  |  
|Consideration to be paid, presented in liabilities          |  |              | 2,869  |   |      |   |       |  
|                                                            |  |              |        |   |      |   |        |  
|Cash (acquired)                                             |  | $            | 342    |   |      | $ | 718    |  
|                                                            |  |              |        |   |      |   |        |  
|Net Cash Outflow                                            |  | $            | 5,378  |   |      | $ | 3,874  |  



The Companys
carrying value of goodwill is approximately $53.0 million at December 31, 2004 and is attributable to its only reporting unit (wholesale spirit division). The Company has completed its impairment review of goodwill and as a result concluded that
there is no impairment to be recognized at December 31, 2004.



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CENTRAL EUROPEAN DISTRIBUTION CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Amounts in columns expressed in thousands



Assuming consummation of Miro, Saol and Polnis acquisitions, as well as prior year acquisitions and
the issuance of common shares as of January 1, 2002, the un-audited pro-forma consolidated operating results for 2002, 2003 and 2004 are as follows. It should be noted however that the entities acquired had been engaged in other activities included
in the result outside of their core business of alcohol distribution, which were no longer continued after acquisition.



|                                           |  |      |         |      |   |         |  |   |        
|------------------------------------------ |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                           |  | 2004 |         | 2003 |   | 2002   
|Net sales                                  |  | $    | 620,345 |      | $ | 628,929 |  | $ | 611,587
|Net income                                 |  |      | 21,734  |      |   | 11,670  |  |   | 9,720  
|Net income per share data:                 |  |      |         |      |   |         |  |   |        
|Basic earnings per share of common stock   |  | $    | 1.33    |      | $ | 0.76    |  | $ | 0.80   
|Diluted earnings per share of common stock |  | $    | 1.30    |      | $ | 0.74    |  | $ | 0.78   



7.    Equipment



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



|                                          |  |                 |   |  |               |   |  |                                 |   |  |               |   |  |                           |   |  |       |        |  
|----------------------------------------- |  | --------------- | - |  | ------------- | - |  | ------------------------------- | - |  | ------------- | - |  | ------------------------- | - |  | ----- | ------ | -
|                                          |  | Land &Buildings |   |  | MotorVehicles |   |  | MotorVehiclesunderCapitalLeases |   |  | Plant&Equipt |   |  | ComputerHardware&software |   |  | Total |       
|Acquisition Cost                          |  |                 |   |  |               |   |  |                                 |   |  |               |   |  |                           |   |  |       |        |  
|Balance as at December 31, 2003           |  | 3,485           |   |  | 6,356         |   |  | 2,839                           |   |  | 3,507         |   |  | 1,183                     |   |  | $     | 17,370 |  
|Effects of foreign exchange movement      |  | 874             |   |  | 1,405         |   |  | 712                             |   |  | 881           |   |  | 297                       |   |  |       | 4,168  |  
|Acquisition through business combinations |  |                |   |  | 452           |   |  |                                |   |  | 60            |   |  | 48                        |   |  |       | 560    |  
|Cash expenditures                         |  | 3,725           |   |  | 851           |   |  |                                |   |  | 549           |   |  | 324                       |   |  |       | 5,449  |  
|Capitalization of finance leases          |  |                |   |  |              |   |  | 2,872                           |   |  |              |   |  |                          |   |  |       | 2,872  |  
|Disposals                                 |  | (443            | ) |  | (1,900        | ) |  | (383                            | ) |  | (79           | ) |  | (71                       | ) |  |       | (2,926 | )
|                                          |  |                 |   |  |               |   |  |                                 |   |  |               |   |  |                           |   |  |       |        |  
|Balance as at December 31, 2004           |  | 7,641           |   |  | 7,165         |   |  | 6,040                           |   |  | 4,918         |   |  | 1,781                     |   |  |       | 27,544 |  
|                                          |  |                 |   |  |               |   |  |                                 |   |  |               |   |  |                           |   |  |       |        |  
|                                          |  |                 |   |  |               |  
|Cumulative Depreciation                   |  |                 |   |  |               |   |  |                                 |   |  |               |   |  |                           |   |  |       |        |  
|Balance as at December 31, 2003           |  | 640             |   |  | 3,661         |   |  | 347                             |   |  | 2,311         |   |  | 296                       |   |  |       | 7,255  |  
|Effects of foreign exchange movement      |  | 161             |   |  | 1,239         |   |  | 87                              |   |  | 580           |   |  | 74                        |   |  |       | 2,141  |  
|Depreciation charge                       |  | 154             |   |  | 1,018         |   |  | 906                             |   |  | 425           |   |  | 298                       |   |  |       | 2,801  |  
|Disposals                                 |  | (212            | ) |  | (1,714        | ) |  | (12                             | ) |  | (47           | ) |  | (53                       | ) |  |       | (2,039 | )
|                                          |  |                 |   |  |               |   |  |                                 |   |  |               |   |  |                           |   |  |       |        |  
|Balance as at December 31, 2004           |  | 742             |   |  | 4,204         |   |  | 1,328                           |   |  | 3,269         |   |  | 615                       |   |  |       | 10,158 |  
|                                          |  |                 |   |  |               |   |  |                                 |   |  |               |   |  |                           |   |  |       |        |  
|                                          |  |                 |   |  |               |  
|Net book value December 31, 2003          |  | 2,845           |   |  | 2,695         |   |  | 2,492                           |   |  | 1,196         |   |  | 887                       |   |  |       | 10,115 |  
|Net book value December 31, 2004          |  | 6,899           |   |  | 2,961         |   |  | 4,712                           |   |  | 1,649         |   |  | 1,166                     |   |  |       | 17,387 |  



8.    Bank
Loans and Overdraft Facilities



The Company has banking
facilities with six banks which are used to support both the Companys acquisition strategy and its Cash on Delivery (COD) vodka purchasing requirements. The credit lines are denominated in Polish Zloty.



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CENTRAL EUROPEAN DISTRIBUTION CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Amounts in columns expressed in thousands



These facilities are disclosed in the financial statements as:



|                                           |  |                  |        |                  |   |       
|------------------------------------------ |  | ---------------- | ------ | ---------------- | - | ------
|                                           |  | December 31,2004 |        | December 31,2003
|Overdrafts                                 |  | $                | 19,434 |                  | $ | 23,184
|Short term debt                            |  |                  | 17,962 |                  |   | 7,257 
|Bank Loans and Overdraft Facilities        |  |                  | 37,396 |                  |   | 30,441
|Current portion of long-term debt          |  |                  | 234    |                  |   | 29    
|Total long term debt, less current portion |  |                  | 1,873  |                  |   | 497   
|                                           |  |                  |        |                  |   |       
|Total                                      |  | $                | 39,503 |                  | $ | 30,967
|                                           |  |                  |        |                  |   |       



|                                              |  |              |       
|--------------------------------------------- |  | ------------ | ------
|Principal repayments for the followings years |  | December 31,
|2005                                          |  | $            | 37,630
|2006                                          |  | $            | 234   
|2007                                          |  | $            | 234   
|2008 and beyond                               |  | $            | 1,406 
|                                              |  |              |       
|Total                                         |  | $            | 39,504
|                                              |  |              |       



During the fourth
quarter of 2003, the Company secured group facilities with one of Polands leading banks so as to improve cash management throughout the group. This facility was used to consolidate our banking relationship to six banks. This action increased
total facilities to approximately $48.5 million. The overdraft and short term loan facilities are subject to renewal between April and December 2005 and the Company does not foresee any difficulties in successfully renegotiating them.



9.    Lease Obligations



In November 2000, the Company entered into a non-cancelable operating lease,
for its main warehouse and office in Warsaw, which stipulated monthly payments of $130,000 for five years, this lease cannot be terminated. In February 2003, the Company renegotiated this lease by signing a seven-year agreement starting from May 1,
2003 at a lower rent of $96,000 per month. The following is a schedule by years of the future rental payments under the non-cancelable operating lease as of December 31, 2004.



|           |  |   |      
|---------- |  | - | -----
|2005       |  | $ | 1,152
|2006       |  |   | 1,152
|2007       |  |   | 1,152
|2008       |  |   | 1,152
|2009       |  |   | 1,152
|Thereafter |  |   | 384  
|           |  |   |      
|           |  | $ | 6,144
|           |  |   |      



The Company also has
rental agreements for all of the regional offices and warehouse space. Monthly rentals range from approximately $67 to $23,362. All of the regional office and warehouse leases can be terminated by either party within two or three months prior
notice. The retail shop lease has no stated expiration date, but can be terminated by either party with three months prior notice.



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CENTRAL EUROPEAN DISTRIBUTION CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Amounts in columns expressed in thousands except per share data



The rental expense incurred under operating leases during 2004, 2003 and 2002 was as follows:



|             |  |      |       |      |   |       |  |   |      
|------------ |  | ---- | ----- | ---- | - | ----- |  | - | -----
|             |  | 2004 |       | 2003 |   | 2002 
|Rent expense |  | $    | 4,627 |      | $ | 3,700 |  | $ | 3,211
|             |  |      |       |      |   |       |  |   |      



During 2004, the
Company continued its policy of renewing its transportation fleet by way of capital leases. The future minimum lease payments for the assets under capital lease at December 31, 2004 are as follows:



|                   |  |   |      
|------------------ |  | - | -----
|2005               |  | $ | 2,232
|2006               |  |   | 2,878
|                   |  |   |      
|Gross payments due |  | $ | 5,110
|Less interest      |  |   | 204  
|                   |  |   |      
|Net payments due   |  | $ | 4,906
|                   |  |   |      



10.    Earnings
per share



The following table sets forth the computation
of basic and diluted earnings per share for the periods indicated.



|                                                                                                                                                                                   |  |      |        |      |   |        |  |   |       
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                                                                                                                                                                                   |  | 2004 |        | 2003 |   | 2002  
|Basic:                                                                                                                                                                             |  |      |        |      |   |        |  |   |       
|Net income                                                                                                                                                                         |  | $    | 21,830 |      | $ | 15,075 |  | $ | 8,300 
|                                                                                                                                                                                   |  |      |        |      |   |        |  |   |       
|Weighted average shares of common stock outstanding                                                                                                                                |  |      | 16,308 |      |   | 15,267 |  |   | 12,123
|                                                                                                                                                                                   |  |      |        |      |   |        |  |   |       
|Basic earnings per share                                                                                                                                                           |  | $    | 1.34   |      | $ | 0.98   |  | $ | 0.68  
|                                                                                                                                                                                   |  |      |        |      |   |        |  |   |       
|Diluted:                                                                                                                                                                           |  |      |        |      |   |        |  |   |       
|Net income                                                                                                                                                                         |  | $    | 21,830 |      | $ | 15,075 |  | $ | 8,300 
|                                                                                                                                                                                   |  |      |        |      |   |        |  |   |       
|Weighted average shares of common stock outstanding                                                                                                                                |  |      | 16,308 |      |   | 15,267 |  |   | 12,123
|                                                                                                                                                                                   |  |      |        |      |   |        |  |   |       
|Net effect of dilutive employee stock options based on the treasury stock method                                                                                                   |  |      | 410    |      |   | 480    |  |   | 364   
|Net effect of dilutive stock options  based on the treasury stock method in regards to IPO options/warrants, contingent shares from
acquisition and options issued to consultants |  |      |       |      |   |       |  |   | 49    
|                                                                                                                                                                                   |  |      |        |      |   |        |  |   |       
|Totals                                                                                                                                                                             |  |      | 16,718 |      |   | 15,747 |  |   | 12,536
|                                                                                                                                                                                   |  |      |        |      |   |        |  |   |       
|Diluted earnings per share                                                                                                                                                         |  | $    | 1.31   |      | $ | 0.96   |  | $ | 0.66  
|                                                                                                                                                                                   |  |      |        |      |   |        |  |   |       



Options compensation
to consultants, contingent shares for acquisitions and employee stock options granted have been included in the above calculations of diluted earnings per share since the exercise price is less than the average market price of the common stock
during portions of 2004. The warrants granted to the underwriters in connection with the Companys initial public offering were all exercised during 2002.



In May 2004, the Company executed a 3 for 2 stock split. The comparatives for 2003 and 2002 shown above have been adjusted to reflect this change.



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CENTRAL EUROPEAN DISTRIBUTION CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Amounts in columns expressed in thousands



11.    Stock Option Plans and Warrants



The Company has elected to follow APB 25 and related Interpretations for its
employee stock options because the alternative fair value accounting provided for under FASB Statement 123 requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, no compensation
expense is recognized when the exercise price of the Companys employee stock options equals the market price of the underlying stock on the date of grant.



The Companys 1997 Stock Incentive Plan (Incentive Plan) provides for the grant of stock options, stock appreciation rights,
restricted stock and restricted stock units to directors, executives, and other employees (employees) of the Company and to non-employee service providers of the Company. Following a shareholder resolution on April 2003 and the stock
split of June 2003 and May 2004, the Incentive Plan authorizes, and the Company has reserve for future issuance, up to 3,937,500 shares of Common Stock (subject to anti-dilution adjustment in the event of a stock-split, re-capitalization, or similar
transaction). The Compensation Committee of the Board of Directors of the Company administers the Incentive Plan.



The Company also operates an Executive Bonus Plan under which officers of the Company are awarded stock options after achievement of agreed earnings
targets. The number of stock options granted is based on the operating results achieved in the year prior to the date of the grant. The stock option price is based on the fair market value of the Common Stock on the date of grant. The Stock Options
are awarded under the provisions of the Incentive Plan.



The
option exercise price for stock options granted under the Incentive Plan may not be less than fair market value but in some cases may be in excess of the Common Stock on the date of grant. The Company uses the stock option price based on the closing
price of the Common Stock on the day before the date of grant if such price is not materially different than the opening price of the Common Stock on the day of the grant. Accordingly, there is no compensation expense recorded for options granted
under the Incentive Plan to employees. Stock options may be exercised up to 10 years after the date of grant except as otherwise provided in the particular stock option agreement. Payment for the shares must be by cash, which must be received by the
Company prior to any shares being issued. Stock options granted as part of an employee employment contract vest after 12 months. Stock options granted as part of a loyalty program vest after three years.



Pro forma information regarding net income and earnings per share is required
by Statement 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of Statement 123. The fair value of these stock options were estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for 2002, 2003, and 2004, respectively: risk-free interest rate of 1.9%, 1.9% and 2.4% dividend yields of 0.0%; volatility factors of the expected market price of the
Companys common stock of 1.05, 1.25 and 1.15; and a weighted-average expected life of the option of 3.4 years.



The Black-Scholes option valuation method was developed for use in the 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 option have characteristics significantly
different form 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.



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CENTRAL EUROPEAN DISTRIBUTION CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Amounts in columns expressed in thousands



A summary of the Companys stock option activity, and related information for the years ended
December 31 follows:



|                            |  |           |   |  |                                 |   |  |          |   |  |      |       |      |   |       |  |   |     
|--------------------------- |  | --------- | - |  | ------------------------------- | - |  | -------- | - |  | ---- | ----- | ---- | - | ----- |  | - | ----
|Employees and Insiders Only |  | Options   |   |  | Weighted-Average Exercise Price
|                            |  | 2004      |   |  | 2003                            |   |  | 2002     |   |  | 2004 |       | 2003 |   | 2002 
|Outstanding at January 1,   |  | 724,650   |   |  | 654,750                         |   |  | 568,125  |   |  | $    | 22.18 |      | $ | 5.21  |  | $ | 3.59
|Effect of Stock Split       |  | 362,325   |   |  |                                |   |  |         |   |  |      |       |      |   |      |  |   |    
|Granted                     |  | 349,750   |   |  | 367,900                         |   |  | 267,375  |   |  | $    | 14.79 |      | $ | 25.24 |  | $ | 7.89
|Exercised                   |  | (315,628  | ) |  | (283,750                        | ) |  | (142,875 | ) |  | $    | 5.78  |      | $ | 5.07  |  | $ | 3.73
|Forfeited                   |  | (25,800   | ) |  | (14,250                         | ) |  | (37,875  | ) |  |      |      |      | $ |      |  | $ | 5.37
|                            |  |           |   |  |                                 |   |  |          |   |  |      |       |      |   |       |  |   |     
|Outstanding at December 31, |  | 1,095,297 |   |  | 724,650                         |   |  | 654,750  |   |  | $    | 13.01 |      | $ | 22.18 |  | $ | 5.21
|Exercisable at December 31, |  | 388,375   |   |  | 412,250                         |   |  | 420,750  |   |  | $    | 8.84  |      | $ | 6.27  |  | $ | 4.69
|                            |  |          
|Total Options               |  | Options   |   |  | Weighted-Average Exercise Price
|                            |  | 2004      |   |  | 2003                            |   |  | 2002     |   |  | 2004 |       | 2003 |   | 2002 
|Outstanding at January 1,   |  | 724,650   |   |  | 737,250                         |   |  | 680,625  |   |  | $    | 22.50 |      | $ | 5.45  |  | $ | 3.71
|Effect of Stock Split       |  | 362,325   |   |  |                                |   |  |         |   |  |      |       |      |   |      |  |   |    
|Granted                     |  | 349,750   |   |  | 367,900                         |   |  | 327,375  |   |  | $    | 14.79 |      | $ | 25.24 |  | $ | 7.93
|Exercised                   |  | (315,628  | ) |  | (366,250                        | ) |  | (232,875 | ) |  | $    | 5.78  |      | $ | 5.60  |  | $ | 3.89
|Forfeited                   |  | (25,800   | ) |  | (14,250                         | ) |  | (37,875  | ) |  |      |      |      |   |      |  | $ | 5.37
|                            |  |           |   |  |                                 |   |  |          |   |  |      |       |      |   |       |  |   |     
|Outstanding at December 31, |  | 1,095,297 |   |  | 724,650                         |   |  | 737,250  |   |  | $    | 13.01 |      | $ | 22.50 |  | $ | 5.45
|Exercisable at December 31, |  | 388,375   |   |  | 412,250                         |   |  | 420,750  |   |  | $    | 8.84  |      | $ | 6.14  |  | $ | 5.13



During 2002, 2003, and
2004, respectively, the range of exercise prices were $7.73 to $10.84; $8.23 to $25.06; and $20.47 to $25.31. During 2002, 2003, and 2004, respectively, the weighted average remaining contractual life of options outstanding were 7 years, 5 years,
and 3 years. Exercise prices for options outstanding as of December 31, 2004 ranged from $1.78 to $25.31. The weighted average remaining contractual life of those options is 3 years.



For stock options granted to non-employee service providers, the Company accounted for these grants in accordance with the
fair value method in Statement 123. The fair value of these stock options were estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 2002, 2003 and 2004, respectively: risk-free
interest rate of 1.9%, 1.9% and 2.38%; dividend yields of 0,0%; volatility factors of the expected market price of the Companys common stock of 1.05, 1.25. and 1.15; and a weighted-average expected life of the option of 3.4 years. No options
were granted to outside consultants during 2004.



12.    Stockholders Equity



Treasury Stock



On November 27, 2000, the
Companys Board of Directors authorized a share repurchase program to buy up to 300,000 shares in the open market. The Company repurchased 96,150 shares in 2000 and 13,200 shares in the 2001 in open market for an aggregate cost of $150,000
through December 31, 2001. These shares have been treated as treasury stock. All share quantities have been adjusted for the stock split which occurred in May 2004.



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CENTRAL EUROPEAN DISTRIBUTION CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Amounts in columns expressed in thousands



Dividend Policy



The Company has instituted a policy of having all of its subsidiaries (except Carey Agri) pay dividends to their respective
shareholders, either the Company or Carey Agri. The subsidiaries, except for Carey Agri, will distribute 50% of their respective current years after tax profits except for those generated during the first year of ownership. As at December 31, 2004,
the Companys subsidiaries will provide for dividends of approximately $6,046,000 to Carey Agri and the Company. Based upon the Companys shareholdings, CEDC will receive $5,396,000 and Carey Agri will receive $650,000.



Redeemable Stock



Certain common stock issued in connection with the acquisition of Damianex
was subject to a put option, which allows the seller to require the Company to repurchase the shares at $12.00 per share during the period between April 25, 2003 and April 29, 2003. The common stock attributable to this option has been classified as
redeemable common stock at an amount of $12.00 per share ($1,781,000). The put option expired unexercised on April 29, 2003 and the liability was transferred to shareholder equity.



Restricted Stock



The Company issues common stock as part of the consideration given in connection with its acquisitions. These securities are issued in private placements
and are not publicly tradable. In addition, the recipients of these securities generally agree to contractual lock-up periods ranging from six months to three years, and the certificates representing these securities bear restrictive legends setting
forth the restrictions on transfer. If the holder of these securities satisfies the holding period under Rule 144 of the Securities Act 1933 and the lock-up period has expired, counsel for the Company will render an opinion to the transfer agent
advising that the certificate representing the restricted securities can be reissued without restrictive legend.



13.    Financial Instruments, Commitments and Contingent Liabilities



Financial Instruments and Their Fair Values



Financial instruments include cash and cash equivalents, accounts receivable, certain other current assets, trade accounts
payable, overdraft facilities and other payables. These financial instruments are disclosed separately in the consolidated balance sheets and their carrying values approximate their fair market values. Financial instruments are denominated in stable
currencies and they are of a short-term nature whose interest rates 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.
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. The Company routinely assesses the financial strength of its customers. As of
December 31, 2004 and 2003, the Company had no significant concentrations of credit risk. The Company has not experienced large credit losses in the past. The Company restricts temporary cash investments to financial institutions with high credit
ratings.



Inflation and Currency Risk



The Polish government has adopted policies that in recent years have lowered
and made more predictable the countrys level of inflation. The annual rate of inflation was approximately 1.1% in 2002, 1.7% in 2003 and



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CENTRAL EUROPEAN DISTRIBUTION CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Amounts in columns expressed in thousands



3.5% in 2004. Using average National Bank of Poland exchange rates for the full year, the zloty in comparison to the U.S. Dollar appreciated by 9% in 2004,
2.6% in 2003 and 3.7% in 2002.



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 portion of the Companys supply of products could be curtailed at any time.



In 2004, over 5% of the Companys net sales resulted from sales of
products purchased from the following companies: Polmos Bialystok (19%), Sobieski Distribution (13%), Unicom Bols Group (10%), and Polmos Zielona Gora (7%).



Contingent liabilities



The Company is involved in litigation from time to time and has claims against it in connection with matters arising in the ordinary course of business.
In the opinion of management, the outcome of these proceedings will not have a material adverse effect on the Companys operations.



During 2003, the Company received a decision regarding a tax dispute in one of its subsidiaries which resulted in additional tax payable of $146,000. The
Subsidiary is still disputing the basis of the decision though should it fail to successfully argue its case there is a risk of a subsequent adjustment totaling $181,000.



14.    Related Party Transactions



In January of 2005, the Company entered into a rental agreement for a facility located in the northern region of Poland, for
which the Chief Operating Officer of the Company has a 33% ownership. The monthly rental to be paid by the Company for this location is approximately $18,000 per month and relates to facilities to be shared by two companies within the group.



15.    Derivative financial instruments



Effective January 1, 2001, the Company adopted SFAS 133, which
establishes accounting and reporting standards for derivative instruments. All derivatives, whether designated as hedging relationships or not, are required to be recorded on the balance sheet at fair value. The Company uses derivatives to moderate
the financial market risks of its business operations. Derivative products such as forward contracts are used to hedge the foreign currency market exposures underlying certain liabilities with financial institutions. The Companys accounting
policies for these instruments are based on its designation of these instruments as hedging transactions. An instrument is designated as a hedge based in part on its effectiveness in risk reduction and one-to-one matching of derivatives with the
related balance sheet risk.



The Company has designated forward
contracts as fair value hedges (i.e., hedging the exposure to changes in the fair value of the foreign denominated bank loans), the gain or loss on the derivative instrument as well as the offsetting gain or loss on the hedged item attributable to
the hedged risk are recognized in earnings in the current period.



The adoption of SFAS 133 on January 1, 2001, resulted in no cumulative adjustment to the financial statements.



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CENTRAL EUROPEAN DISTRIBUTION CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Amounts in columns expressed in thousands



For currency forward contracts, effectiveness is measured by using the forward-to-forward rate
compared to the underlying economic exposure.



16.    Subsequent events



There were no material events subsequent to December 31, 2004.



17.    Quarterly financial information (Unaudited)



|                                     |  |               |         |   |                |   |        |               |  |   |                |   |  |      |         |   |      |   |         |      |  |   |         |   |  |   |         |   |  |   |         |  
|------------------------------------ |  | ------------- | ------- | - | -------------- | - | ------ | ------------- |  | - | -------------- | - |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                     |  | First Quarter |         |   | Second Quarter |   |        | Third Quarter |  |   | Fourth Quarter |  
|                                     |  | 2004          |         |   | 2003           |   |        | 2004          |  |   | 2003           |   |  | 2004 |         |   | 2003 |   |         | 2004 |  |   | 2003    |  
|Net Sales                            |  | $             | 110,477 |   |                | $ | 79,468 |               |  | $ | 133,004        |   |  | $    | 105,122 |   |      | $ | 145,831 |      |  | $ | 104,844 |   |  | $ | 191,432 |   |  | $ | 139,684 |  
|Seasonality                          |  |               | 18.1    | % |                |   | 18.5   | %             |  |   | 24.5           | % |  |      | 24.5    | % |      |   | 24.4    | %    |  |   | 24.4    | % |  |   | 33.0    | % |  |   | 32.6    | %
|Gross Profit                         |  |               | 13,766  |   |                |   | 10,483 |               |  |   | 16,636         |   |  |      | 13,616  |   |      |   | 18,306  |      |  |   | 13,486  |   |  |   | 25,624  |   |  |   | 18,895  |  
|Gross Profit %                       |  |               | 13.2    | % |                |   | 13.2   | %             |  |   | 13.0           | % |  |      | 13.0    | % |      |   | 12.6    | %    |  |   | 12.9    | % |  |   | 13.4    | % |  |   | 13.5    | %
|Operating Income                     |  |               | 4,110   |   |                |   | 3,140  |               |  |   | 5,891          |   |  |      | 5,148   |   |      |   | 6,407   |      |  |   | 4,929   |   |  |   | 11,977  |   |  |   | 8,950   |  
|Net Income                           |  | $             | 3,110   |   |                | $ | 1,917  |               |  | $ | 4,516          |   |  | $    | 3,459   |   |      | $ | 5,096   |      |  | $ | 3,604   |   |  | $ | 9,108   |   |  | $ | 6,095   |  
|Net Income per Common Share Diluted |  | $             | 0.19    |   |                | $ | 0.14   |               |  | $ | 0.28           |   |  | $    | 0.22    |   |      | $ | 0.31    |      |  | $ | 0.22    |   |  | $ | 0.55    |   |  | $ | 0.37    |  



57



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##### Table of Contents

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.



PricewaterhouseCoopers Sp. z o.o. was engaged by the Company on March 18, 2003, to replace Ernst & Young Audit Sp. z o.o., or E&Y, as the
Companys independent public accountants. The decision to change accountants was recommended by the audit committee and approved by the board of directors.



E&Ys reports on the Companys consolidated financial statements for the year ended December 31, 2002, did not contain an adverse opinion
or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. During 2002, there were no disagreements with E&Y on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which if not resolved to the satisfaction of E&Y, would have caused them to make reference thereto in their reports on the financial statements for such years.



The Company provided E&Y with a copy of the foregoing disclosures and
filed a copy of E&Ys letter, dated March 28, 2003, stating that it found no basis for disagreement with such statements, with the SEC. A copy of E&Ys letter regarding this disclosure was filed with Exhibit 23.2 to the
Companys annual report on Form 10-K for the year ended December 31, 2003.



Item 9A.    Control and Procedures.



Disclosure Controls and Procedures.    Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934) refer to the controls and
other procedures of a company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms. A companys internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.



Based upon the evaluation of the Companys disclosure controls and procedures as of the end of the period covered by this report, the Chief Executive
Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures were effective at the reasonable assurance level.



Inherent Limitations in Internal Control over Financial Reporting.    The Companys management, including the Chief
Executive Officer and Chief Financial Officer, does not expect that the Companys disclosure controls and procedures or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the limitations in all control systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been detected. Further, the design of any control system is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future conditions. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Accordingly, the
Companys disclosure controls and procedures are designed to provide reasonable assurance that the controls and procedures will meet their objectives.



Changes to Internal Control over Financial Reporting.    The Chief Executive Officer and the Chief Financial Officer conclude
that, during the most recent fiscal quarter, there have been no changes in the Companys internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Companys internal
controls over financial reporting.



58



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##### Table of Contents

Managements Report on Internal Control over Financial Reporting.    The
Companys management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15(d)-15(f) of the Securities Exchange Act of 1934). Management assessed the
effectiveness of the Companys internal control over financial reporting as of December 31, 2004, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal ControlIntegrated
Framework.



Management has excluded Saol Sp z o.o., Miro
Sp z o.o. and Polnis Sp z o.o. from its assessment of internal controls over financial reporting as of December 31, 2004, because these companies were acquired by the Company in a purchase business combination during the year ended December 31,
2004. These companies are wholly-owned subsidiaries of the Company, whose total assets and total revenues represent 11.85 % and 7.14 %, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31,
2004.



Based on its assessment, management has concluded that
the Companys internal control over financial reporting was effective as of December 31, 2004.



Managements assessment of the effectiveness of the Companys internal control over financial reporting as of December 31, 2004, has been
audited by PricewaterhouseCoopers Sp z o.o., an independent registered public accounting firm, as stated in their report which appears under Item 8 of this annual report.



59



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##### Table of Contents

PART III



Item 10.    Directors and Executive Officers of the Registrant.



The information regarding our executive officers and directors required by this item is incorporated into this annual report by reference to our proxy
statement for the annual meeting of stockholders to be held on May 2, 2005. We will file our proxy statement for our 2005 annual meeting of stockholders within 120 days of December 31, 2004, our fiscal year-end.



Item 11.    Executive Compensation.



The information regarding executive compensation required by this item is incorporated into this annual report by reference to our proxy statement for the annual meeting of stockholders to be held on May 2, 2005. We
will file our proxy statement for our 2005 annual meeting of stockholders within 120 days of December 31, 2004, our fiscal year-end.



Item 12.    Security Ownership of Certain Beneficial Owners and Management.



The information regarding security ownership of certain beneficial owners and management is incorporated into this annual report by reference to our proxy
statement for the annual meeting of stockholders to be held on May 2, 2005. We will file our proxy statement for our 2005 annual meeting of stockholders within 120 days of December 31, 2004, our fiscal year-end.



Item 13.    Certain Relationships and Related Transactions.



The information regarding certain relationships and related transactions required by this item is incorporated into this annual report by reference to our
proxy statement for the annual meeting of stockholders to be held on May 2, 2005. We will file our proxy statement for our 2005 annual meeting of stockholders within 120 days of December 31, 2004, our fiscal year-end.



Item 14.    Principal Accountant Fees and Services.



The information regarding principal accountant fees and services required by this item is incorporated into this annual report by reference to the proxy
statement for the annual meeting of stockholders to be held on May 2, 2005. We will file our proxy statement for our 2005 annual meeting of stockholders within 120 days of December 31, 2004, our fiscal year-end.



PART IV



Item 15.    Exhibits, Financial Statement Schedules and Reports on Form 8-K.



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



Report of Independent Auditors



Consolidated Balance Sheets at December 31, 2003 and 2004



Consolidated Statements of Income for the years ended December 31, 2002, 2003
and 2004



Consolidated Statements of Changes in
Stockholders Equity for the years ended December 31,

2002, 2003 and 2004



60



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##### Table of Contents

Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2003 and 2004



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.



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                                      
|2.1           |  | Contribution Agreement among Central European Distribution Corporation, William V. Carey, William V. Carey Stock Trust, Estate of William
O. Carey 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)
|              | 
|2.2           |  | Investment Agreement for Damianex S.A. dated April 22, 2002, among Carey Agri International Poland Sp. z o.o., Central European
Distribution Corporation, Michael Ciapala, Boguslaw Barnat and Iwona Barnat (filed as Exhibit 2 to the Current Report on Form 8-K/A filed on May 14, 2002, and incorporated herein by reference)                                                                         
|              | 
|2.3           |  | Share Purchase Agreement for AGIS S.A. dated April 24, 2002, among Carey Agri International Poland Sp. z o.o., Central European
Distribution Corporation, Jacek Luczak and Slawomir Wisniewski (filed as Exhibit 2.2 to the Current Report on Form 8-K/A filed on June 3, 2002, and incorporated herein by reference)                                                                                    
|              | 
|2.4           |  | Share Purchase Agreement for Onufry S.A. dated October 15, 2002, among Carey Agri International Poland Sp. z o.o., Central European
Distribution Corporation, Zbigniew Trafalski and Henryk Gawin (filed as Exhibit 2.4 to the Annual Report on Form 10-K filed on March 17, 2003, and incorporated herein by reference)                                                                                 
|              | 
|2.5           |  | Share Purchase Agreement for Dako Sp. z o.o. dated April 16, 2003, among Carey Agri International Poland Sp. z o.o., Central European
Distribution Corporation, Waclaw Dawidowicz and Miroslaw Sokalski (filed as Exhibit 2.1 to the Quarterly Report on Form 10-Q filed on May 15, 2003, and incorporated herein by reference)                                                                          
|              | 
|2.6           |  | Share Purchase Agreement for Panta Hurt Sp. z o.o. dated September 5, 2003, among Carey Agri International Poland Sp. z o.o., Central
European Distribution Corporation, Wlodzimierz Szydlarski, Sylwester Zakrzewski and Wojciech Piatkowski (filed as Exhibit 2.6 to the Quarterly Report on Form 10-Q filed on November 14, 2003, and incorporated herein by reference)                               
|              | 
|2.7           |  | Share Purchase Agreement for Multi-Ex S.A. dated November 14, 2003, among Carey Agri International Sp. z o.o., Piotr Pabianski and Ewa
Maria Pabianska (filed as Exhibit 2.7 to the Annual Report on Form 10-K filed on March 15, 2004, and incorporated herein by reference)                                                                                                                            
|              | 
|2.8           |  | Share Purchase Agreement for Multi-Ex S.A. dated November 14, 2003, between Central European Distribution Corporation and Piotr Pabianski
(filed as Exhibit 2.8 to the Annual Report on Form 10-K filed on March 15, 2004, and incorporated herein by reference)                                                                                                                                         
|              | 
|2.9           |  | Share Purchase Agreement for Multi-Ex S.A. dated December 18, 2003, between Central European Distribution Corporation and Piotr Pabianski
(filed as Exhibit 2.9 to the Annual Report on Form 10-K filed on March 15, 2004, and incorporated herein by reference)                                                                                                                                         



61



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##### Table of Contents

|              |  |                                                                                                                                                                                                                                                                                                                               
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit Description                                                                                                                                                                                                                                                                                                           
|              | 
|2.10          |  | Share Sale Agreement for Miro sp. z.o.o. dated May 14, 2004, among Central European Distribution Corporation, Mirozlawem Grzadkowskim,
Halina Grzadkowska, Jackiem Grzadkowskim and Kinga Grzadkowska (filed as Exhibit 2.10 to the Quarterly Report on Form 10-Q filed on May 10, 2004, 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           |  | Certificate of Amendment of Certificate of Incorporation (filed as Exhibit 3.1 to the Quarterly Report on Form 10-Q filed on May 10, 2004,
and incorporated herein by reference)                                                                                                                                              
|              | 
|3.3           |  | Amended and Restated Bylaws (filed as Exhibit 3.2 to the Annual Report on Form 10-K filed on March 15, 2004, 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)                                                                                                                                                                                               
|              | 
|10.1          |  | 1997 Stock Incentive Plan as amended (filed as Exhibit A to the definitive Proxy Statement as filed with the Securities and Exchange
Commission on March 26, 2003, and incorporated herein by reference)                                                                                                                      
|              | 
|10.2*         |  | Employment Agreement dated as of August 1, 2004, between William V. Carey and Central European Distribution
Corporation                                                                                                                                                                                                       
|              | 
|10.3          |  | Employment Agreement dated as of February 7, 2003, between Central European Distribution Corporation and Neil Crook (filed as Exhibit 10.14
to the Annual Report on Form 10-K filed on March 17, 2003, and incorporated herein by reference)                                                                                  
|              | 
|10.4*         |  | Employment Agreement dated as of September 16, 2004, between Evangelos Evangelou and Central European Distribution
Corporation                                                                                                                                                                                                
|              | 
|10.5          |  | Employment Agreement dated as of January 17, 2005, between the Company and Chris Biedermann (filed as Exhibit 10.1 to the Current Report on
Form 8-K filed on December 7, 2004, and incorporated herein by reference)                                                                                                         
|              | 
|10.6*         |  | Employment Agreement dated as of October 1, 2004, between the Company and James Archbold                                                                                                                                                                                                                                      
|              | 
|10.7          |  | Executive Bonus Plan (filed as Exhibit 10.6 to the Annual Report on Form 10-K filed on March 15, 2002, and incorporated herein by
reference)                                                                                                                                                                                  
|              | 
|10.8          |  | Lease Agreement for warehouse at Bokserska Street 66a, Warsaw, Poland (filed as Exhibit 10.15 to the Current Report on Form 8-K filed on
April 16, 2001, and incorporated herein by reference)                                                                                                                                
|              | 
|10.9          |  | Annex 2 to Lease Agreement dated February 19, 2003, for the warehouse located at Bokserska Street 66a, Warsaw, Poland (filed as Exhibit
10.11 to the Annual Report on Form 10-K filed on March 15, 2004, and incorporated herein by reference)                                                                                
|              | 
|21*           |  | Subsidiaries of the Company                                                                                                                                                                                                                                                                                                   
|              | 
|23.1*         |  | Consent of PricewaterhouseCoopers Sp. z o.o.                                                                                                                                                                                                                                                                                  
|              | 
|23.2*         |  | Consent of Ernst & Young Audit Sp. z o. o.                                                                                                                                                                                                                                                                                    
|              | 
|24.1*         |  | Power of Attorney (contained on signature page)                                                                                                                                                                                                                                                                               
|              | 
|31.1*         |  | Certificate of the CEO pursuant to Rule 13a-15(a) or Rule 15d-15(a)                                                                                                                                                                                                                                                           
|              | 
|31.2*         |  | Certificate of the CFO pursuant to Rule 13a-15(a) or Rule 15d-15(a)                                                                                                                                                                                                                                                           
|              | 
|32.1*         |  | Certification of the CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                            
|              | 
|32.2*         |  | Certification of the CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                            

---

|* | Filed herewith.
|- | ---------------



62



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##### Table of Contents

(b) Reports on form 8-K in the last quarter of 2004



On December 7, 2004, we filed a current report on Form 8-K regarding (i) the
hiring of Chris Biedermann as our chief financial officer and the description of Mr. Biedermanns employment agreement between Mr. Biedermann and us, and (ii) the resignation of Neil Crook as our chief financial officer.



(c) Exhibits



The response to this portion of Item 15 is submitted in the response to Item 15(a)(3).



(d) Financial Statement Schedules



None.





63



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##### Table of Contents

SIGNATURES



Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



CENTRAL EUROPEAN DISTRIBUTION CORPORATION (Registrant)By:

/s/    WILLIAM V. CAREYWilliam V. Carey Chairman, President and Chief Executive Officer




Date: March
15, 2005







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##### Table of Contents

POWER OF ATTORNEY



Each person whose individual signature appears below hereby authorizes and appoints William V. Carey and Chris Biedermann,
and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on
behalf of each person, individually and in each capacity stated below, and to file, any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or
his substitute or substitutes may lawfully do or cause to be done by virtue thereof.



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                                                    |  |                                                                               |  |               
|--------------------------------------------------- |  | ----------------------------------------------------------------------------- |  | --------------
|Signature                                           |  | Title                                                                         |  | Date          
|                                                    |  |                                                                              
|/s/    WILLIAM V.
CAREYWilliam V.
Carey             |  | Chairman, President and Chief Executive Officer (principal executive officer) |  | March 15, 2005
|                                                    |  |                                                                              
|/s/    CHRISTOPHER BIEDERMANNChristopher Biedermann |  | Chief Financial Officer (principal financial and accounting officer)          |  | March 15, 2005
|                                                    |  |                                                                              
|/s/    DAVID BAILEYDavid Bailey                     |  | Director                                                                      |  | March 15, 2005
|                                                    |  |                                                                              
|/s/    N. SCOTT FINEN. Scott Fine                   |  | Director                                                                      |  | March 15, 2005
|                                                    |  |                                                                              
|/s/    TONY HOUSHTony Housh                         |  | Director                                                                      |  | March 15, 2005
|                                                    |  |                                                                              
|/s/    ROBERT P. KOCHRobert P. Koch                 |  | Director                                                                      |  | March 15, 2005
|                                                    |  |                                                                              
|/s/    JAN W.
LASKOWSKIJan W.
Laskowski             |  | Director                                                                      |  | March 15, 2005
|                                                    |  |                                                                              
|/s/    RICHARD ROBERTSRichard Roberts               |  | Director                                                                      |  | March 15, 2005







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##### Table of Contents

EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                                      
|2.1           |  | Contribution Agreement among Central European Distribution Corporation, William V. Carey, William V. Carey Stock Trust, Estate of William
O. Carey 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)
|              | 
|2.2           |  | Investment Agreement for Damianex S.A. dated April 22, 2002, among Carey Agri International Poland Sp. z o.o., Central European
Distribution Corporation, Michael Ciapala, Boguslaw Barnat and Iwona Barnat (filed as Exhibit 2 to the Current Report on Form 8-K/A filed on May 14, 2002, and incorporated herein by reference)                                                                         
|              | 
|2.3           |  | Share Purchase Agreement for AGIS S.A. dated April 24, 2002, among Carey Agri International Poland Sp. z o.o., Central European
Distribution Corporation, Jacek Luczak and Slawomir Wisniewski (filed as Exhibit 2.2 to the Current Report on Form 8-K/A filed on June 3, 2002, and incorporated herein by reference)                                                                                    
|              | 
|2.4           |  | Share Purchase Agreement for Onufry S.A. dated October 15, 2002, among Carey Agri International Poland Sp. z o.o., Central European
Distribution Corporation, Zbigniew Trafalski and Henryk Gawin (filed as Exhibit 2.4 to the Annual Report on Form 10-K filed on March 17, 2003, and incorporated herein by reference)                                                                                 
|              | 
|2.5           |  | Share Purchase Agreement for Dako Sp. z o.o. dated April 16, 2003, among Carey Agri International Poland Sp. z o.o., Central European
Distribution Corporation, Waclaw Dawidowicz and Miroslaw Sokalski (filed as Exhibit 2.1 to the Quarterly Report on Form 10-Q filed on May 15, 2003, and incorporated herein by reference)                                                                          
|              | 
|2.6           |  | Share Purchase Agreement for Panta Hurt Sp. z o.o. dated September 5, 2003, among Carey Agri International Poland Sp. z o.o., Central
European Distribution Corporation, Wlodzimierz Szydlarski, Sylwester Zakrzewski and Wojciech Piatkowski (filed as Exhibit 2.6 to the Quarterly Report on Form 10-Q filed on November 14, 2003, and incorporated herein by reference)                               
|              | 
|2.7           |  | Share Purchase Agreement for Multi-Ex S.A. dated November 14, 2003, among Carey Agri International Sp. z o.o., Piotr Pabianski and Ewa
Maria Pabianska (filed as Exhibit 2.7 to the Annual Report on Form 10-K filed on March 15, 2004, and incorporated herein by reference)                                                                                                                            
|              | 
|2.8           |  | Share Purchase Agreement for Multi-Ex S.A. dated November 14, 2003, between Central European Distribution Corporation and Piotr Pabianski
(filed as Exhibit 2.8 to the Annual Report on Form 10-K filed on March 15, 2004, and incorporated herein by reference)                                                                                                                                         
|              | 
|2.9           |  | Share Purchase Agreement for Multi-Ex S.A. dated December 18, 2003, between Central European Distribution Corporation and Piotr Pabianski
(filed as Exhibit 2.9 to the Annual Report on Form 10-K filed on March 15, 2004, and incorporated herein by reference)                                                                                                                                         
|              | 
|2.10          |  | Share Sale Agreement for Miro sp. z.o.o. dated May 14, 2004, among Central European Distribution Corporation, Mirozlawem Grzadkowskim,
Halina Grzadkowska, Jackiem Grzadkowskim and Kinga Grzadkowska (filed as Exhibit 2.10 to the Quarterly Report on Form 10-Q filed on May 10, 2004, 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           |  | Certificate of Amendment of Certificate of Incorporation (filed as Exhibit 3.1 to the Quarterly Report on Form 10-Q filed on May 10, 2004,
and incorporated herein by reference)                                                                                                                                                                                                                         
|              | 
|3.3           |  | Amended and Restated Bylaws (filed as Exhibit 3.2 to the Annual Report on Form 10-K filed on March 15, 2004, and incorporated herein by
reference)                                                                                                                                                                                                                                                       





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##### Table of Contents

|              |  |                                                                                                                                                                                                                                               
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit Description                                                                                                                                                                                                                           
|              | 
|4.1           |  | Form of Common Stock Certificate (filed as Exhibit 4.1 to the 1997 Registration Statement and incorporated herein by
reference)                                                                                                               
|              | 
|10.1          |  | 1997 Stock Incentive Plan as amended (filed as Exhibit A to the definitive Proxy Statement as filed with the Securities and Exchange
Commission on March 26, 2003, and incorporated herein by reference)                                      
|              | 
|10.2*         |  | Employment Agreement dated as of August 1, 2004, between William V. Carey and Central European Distribution
Corporation                                                                                                                       
|              | 
|10.3          |  | Employment Agreement dated as of February 7, 2003, between Central European Distribution Corporation and Neil Crook (filed as Exhibit 10.14
to the Annual Report on Form 10-K filed on March 17, 2003, and incorporated herein by reference)  
|              | 
|10.4*         |  | Employment Agreement dated as of September 16, 2004, between Evangelos Evangelou and Central European Distribution
Corporation                                                                                                                
|              | 
|10.5          |  | Employment Agreement dated as of January 17, 2005, between the Company and Chris Biedermann (filed as Exhibit 10.1 to the Current Report on
Form 8-K filed on December 7, 2004, and incorporated herein by reference)                         
|              | 
|10.6*         |  | Employment Agreement dated as of October 1, 2004, between the Company and James Archbold                                                                                                                                                      
|              | 
|10.7          |  | Executive Bonus Plan (filed as Exhibit 10.6 to the Annual Report on Form 10-K filed on March 15, 2002, and incorporated herein by
reference)                                                                                                  
|              | 
|10.8          |  | Lease Agreement for warehouse at Bokserska Street 66a, Warsaw, Poland (filed as Exhibit 10.15 to the Current Report on Form 8-K filed on
April 16, 2001, and incorporated herein by reference)                                                
|              | 
|10.9          |  | Annex 2 to Lease Agreement dated February 19, 2003, for the warehouse located at Bokserska Street 66a, Warsaw, Poland (filed as Exhibit
10.11 to the Annual Report on Form 10-K filed on March 15, 2004, and incorporated herein by reference)
|              | 
|21*           |  | Subsidiaries of the Company                                                                                                                                                                                                                   
|              | 
|23.1*         |  | Consent of PricewaterhouseCoopers Sp. z o.o.                                                                                                                                                                                                  
|              | 
|23.2*         |  | Consent of Ernst & Young Audit Sp. z o. o.                                                                                                                                                                                                    
|              | 
|24.1*         |  | Power of Attorney (contained on signature page)                                                                                                                                                                                               
|              | 
|31.1*         |  | Certificate of the CEO pursuant to Rule 13a-15(a) or Rule 15d-15(a)                                                                                                                                                                           
|              | 
|31.2*         |  | Certificate of the CFO pursuant to Rule 13a-15(a) or Rule 15d-15(a)                                                                                                                                                                           
|              | 
|32.1*         |  | Certification of the CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                            
|              | 
|32.2*         |  | Certification of the CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                            

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|* | Filed herewith.
|- | ---------------