SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

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

                      For Quarter Ended September 30, 1998
                                       OR

             [ ] 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: 0-13181

                          CAPITAL BEVERAGE CORPORATION
             (Exact Name of Registrant as Specified in its Charter)

                      Delaware                          13-3878747
          State or other jurisdiction of             (I.R.S. Employer
         incorporation or organization               Identification No.)

                 1111 East Tremont Avenue, Bronx, New York 10460
               (Address of Principal Executive Office) (Zip Code)

                                 (718) 409-2337
               (Registrant's telephone number including area code)

         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

         The number of shares of  registrant's  Common  Stock,  $.001 par value,
         outstanding as of August 12, 1998 was 2,378,409 shares.
<PAGE>
                          CAPITAL BEVERAGE CORPORATION
                                   FORM 10-QSB
                               September 30, 1998
                                      INDEX




PART I.  FINANCIAL INFORMATION
                                                                          PAGE
Item 1.  Financial Statements (Unaudited)                                NUMBER


         Balance sheets as of September 30, 1998 and December 31, 1997     3

         Statements of Operations for the three-month periods
           ended September 30, 1998 and 1997 and the nine month
           periods ended September 30, 1998 and 1997                       4

         Statements of Cash Flows for the nine-month periods
           ended September 30, 1998 and 1997                               5

         Notes to Financial Statements                                     6

Item 2.  Management's Discussion and Analysis or Plan of Operation         7


PART II. OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K                                  8

Signatures                                                                 9

                                        2

<PAGE>
<TABLE>
<CAPTION>
                                                    CAPITAL BEVERAGE CORPORATION

                                                            BALANCE SHEETS


                                                                                            September 30,           December 31,
                                                                                                 1998                   1997
                                                                                          -------------------    -------------------
                                                               ASSETS                         (Unaudited)

<S>                                                                                     <C>                    <C>   
CURRENT ASSETS:
     Cash                                                                               $          2,452,494   $          2,843,870
     Accounts receivable - trade, net of allowance for doubtful
         accounts of $30,000 and $65,000, respectively                                               357,004                855,472
     Inventories                                                                                     640,674                426,290
     Prepaid expenses and other                                                                      145,147                  9,548
                                                                                          -------------------    -------------------
         TOTAL CURRENT ASSETS                                                                      3,595,319              4,135,180

PROPERTY AND EQUIPMENT, less accumulated depreciation
     of $20,300 and $61,965, respectively                                                             51,454                 50,058

OTHER ASSETS:
     Intangible assets, less accumulated amortization of
         $440,000 and $320,000, respectively                                                       1,160,000              1,280,000
     Deposits                                                                                          3,290                  3,290
                                                                                          -------------------    -------------------

                                                                                        $          4,810,063   $          5,468,528
                                                                                          ===================    ===================

                                                 LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Accounts payable                                                                   $            153,135   $             67,135
     Accrued expenses and taxes                                                                       96,453                112,601
     Current portion of long-term debt                                                                66,672                 62,480
     Accrued dividends on preferred stock                                                            249,113                186,113
                                                                                          -------------------    -------------------
         TOTAL CURRENT LIABILITIES                                                                   565,373                428,329
                                                                                          -------------------    -------------------

LONG-TERM DEBT                                                                                       577,134                627,676
                                                                                          -------------------    -------------------

STOCKHOLDERS' EQUITY:
     7% Cumulative Series B Preferred Stock, par value $.01;
         issued and outstanding 300,000 shares (Liquidation value $1,200,000)                          3,000                  3,000
     Common stock, $ .001 par value; authorized 20,000,000 shares;
         issued and outstanding 2,378,409 shares                                                       2,379                  2,379
     Additional paid-in capital                                                                    5,365,573              5,365,573
     Accumulated deficit                                                                          (1,703,396)              (958,429)
                                                                                          -------------------    -------------------
         TOTAL STOCKHOLDERS' EQUITY                                                                3,667,556              4,412,523
                                                                                          -------------------    -------------------

                                                                                        $          4,810,063   $          5,468,528
                                                                                          ===================    ===================





                                                  See notes to financial statements

                                                                 -3-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                CAPITAL BEVERAGE CORPORATION

                                                                  STATEMENTS OF OPERATIONS


                                                 Three Months Ended September 30,             Nine Months Ended September 30,
                                            ----------------------------------------------------------------------------------------
                                                     1998                   1997                   1998                  1997
                                            -------------------    -------------------    -------------------   --------------------
                                                 (Unaudited)          (Unaudited)            (Unaudited)            (Unaudited)

<S>                                       <C>                    <C>                   <C>                    <C>  
SALES                                     $          2,255,136   $          5,021,824   $          6,967,264  $          10,657,661

COST OF GOODS SOLD                                   2,067,401              4,676,265              6,396,070              9,591,376
                                           -------------------    -------------------    -------------------   --------------------

GROSS PROFIT                                           187,735                345,559                571,194              1,066,285
                                           -------------------    -------------------    -------------------   --------------------

OPERATING EXPENSES
     Selling and delivery                              121,025                 54,408                225,677                202,357
     General and administrative                        306,558                464,006              1,065,819              1,057,077
                                           -------------------    -------------------    -------------------   --------------------
                                                       427,583                518,414              1,291,496              1,259,434
                                           -------------------    -------------------    -------------------   --------------------

LOSS FROM OPERATIONS                                  (239,848)              (172,855)              (720,302)              (193,149)

INTEREST EXPENSE                                       (14,217)               (28,078)               (43,653)               (82,038)

INTEREST INCOME                                         29,232                 27,425                 91,608                 27,425
                                           -------------------    -------------------    -------------------   --------------------

LOSS BEFORE INCOME TAXES                              (224,833)              (173,508)              (672,347)              (247,762)

INCOME TAXES                                             4,417                  4,100                  9,620                  1,000
                                           -------------------    -------------------    -------------------   --------------------

NET INCOME (LOSS)                                     (229,250)              (177,608)              (681,967)              (248,762)

CUMULATIVE PREFERRED STOCK DIVIDENDS                    21,000                      -                 63,000                      -
                                           -------------------    -------------------    -------------------   --------------------

NET LOSS APPLICABLE TO COMMON
     SHAREHOLDERS                         $           (250,250)  $           (177,608)  $           (744,967) $            (248,762)
                                           ===================    ===================    ===================   ====================

LOSS PER  COMMON SHARE - BASIC            $              (0.11)  $              (0.08)  $              (0.30) $               (0.16)
                                           ===================    ===================    ===================   ====================

WEIGHTED AVERAGE NUMBER OF
     COMMON SHARES                                  2,378,409              2,188,825              2,378,409              1,556,881
                                           ===================    ===================    ===================   ====================




                                                              See notes to financial statements

                                                                             -4-

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                   CAPITAL BEVERAGE CORPORATION

                                                     STATEMENT OF CASH FLOWS

                                                                                              Nine Months Ended September 30,
                                                                                         ------------------------------------------
                                                                                                1998                   1997
                                                                                         --------------------   -------------------
                                                                                             (Unaudited)           (Unaudited)
<S>                                                                                   <C>                     <C>  
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                                                          $            (681,967) $           (248,762)
                                                                                         --------------------   -------------------
     Adjustments to reconcile net loss to                                                                        
         net cash used in operating activities:
            Depreciation and amortization                                                            123,335               165,197

     Changes in assets and liabilities:
         Decrease (increase) in accounts receivable                                                  498,468              (315,197)
         Increase in inventories                                                                    (214,384)             (143,449)
         Increase in prepaid expenses and other                                                     (135,599)                 (337)
         Increase in accounts payable and accrued expenses                                            69,852               (87,907)
                                                                                         --------------------   -------------------
                                                                                                     341,672              (381,693)
                                                                                         --------------------   -------------------

NET CASH USED IN OPERATING ACTIVITIES                                                               (340,295)             (630,455)
                                                                                         --------------------   -------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Capital expenditures                                                                             (4,731)               (2,999)
                                                                                         --------------------   -------------------

CASH USED IN INVESTING ACTIVITIES                                                                     (4,731)               (2,999)
                                                                                         --------------------   -------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Due from affiliate                                                                                    -                57,837
     Payments of note payable                                                                        (46,350)             (297,061)
     Deferred registration cost                                                                            -               130,783
     Increase in additional paid in capital                                                                -             3,803,378

                                                                                         --------------------   -------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                                                  (46,350)            3,694,937
                                                                                         --------------------   -------------------

NET (DECREASE) INCREASE IN CASH                                                                     (391,376)            3,061,483

CASH - BEGINNING OF PERIOD                                                                         2,843,870               126,927
                                                                                         --------------------   -------------------

CASH - END OF PERIOD                                                                   $           2,452,494  $          3,188,410
                                                                                         ====================   ===================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
     INFORMATION:

     Cash paid for interest                                                            $              43,653  $             82,038
                                                                                         ====================   ===================

     Cash paid for taxes                                                               $               9,620  $              1,000
                                                                                         ====================   ===================





                                                See notes to financial statements

                                                               -5-
</TABLE>
<PAGE>

                       CAPITAL BEVERAGE CORPORATION, INC.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1998

                                   (Unaudited)


1.       BASIS OF PRESENTATION

                  The accompanying  financial statements reflect all adjustments
         which,  in  the  opinion  of  management,  are  necessary  for  a  fair
         presentation  of the  financial  position and the results of operations
         for the interim periods presented.

                  Certain  financial  information  which is normally included in
         financial  statements is prepared in accordance with generally accepted
         accounting principles,  but which is not required for interim reporting
         purposes has been  condensed  or omitted.  The  accompanying  financial
         statements should be read in conjunction with the financial  statements
         and notes  thereto  contained in the  Company's  Annual  Report on Form
         10-KSB.






                                       -6-

<PAGE>



ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

                  The following  discussion  and analysis  provides  information
         which   management   believes  is  relevant   to  an   assessment   and
         understanding  of the  Company's  results of  operations  and financial
         condition.  This  discussion  should  be read in  conjunction  with the
         financial statements and notes thereto appearing elsewhere herein.

a.   Results of Operations

                  Sales  for the nine  months  ended  September  30,  1998  were
         $6,967,264  as  compared  to sales of  $10,657,661  for the nine months
         ended  September 30, 1997.  Sales for the quarter  ended  September 30,
         1998 were $2,255,136 as compared to sales of $5,021,824 for the quarter
         ended  September  30, 1997.  The cost of goods sold as a percentage  of
         sales for the nine month  period in 1998  period was 92% as compared to
         90% for the comparable 1997 period. The increase in cost of goods sold,
         as a percentage of sales for the nine months ended  September 30, 1998,
         is due  primarily  to the  vast  amount  of  transhipping  of our  core
         products in our marketing area. The Company's  response was to maintain
         discounting to key accounts in order to remain somewhat competitive and
         not lose all market share. Management has initiated numerous complaints
         to its suppliers  regarding the transhipping  problem which the Company
         believes is a violation of the suppliers'  contractual  obligations and
         the Company has been advised that its suppliers  have  commenced a full
         investigation of all metro New York wholesalers.

                  Selling,  general  and  administrative  expenses  for the nine
         month period ended  September  30, 1998 were  $1,291,496 as compared to
         $1,259,434  for the  respective  1997 period.  The increase in the nine
         month period ended September 30, 1998 is due primarily to the increased
         fees associated with being a public company.

                  Interest expense for the nine month period ended September 30,
         1998 was $43,653 as compared to $82,038 for the respective 1997 period.
         The decrease in the nine month period ended  September  30, 1998 is due
         to the  reduction  of debt.  Interest  income for the nine month period
         ended  September  30,  1998 was  $91,608 as compared to $27,425 for the
         respective 1997 period.  The increase in the nine month period resulted
         from interest earned on cash proceeds received from the public offering
         of the Company's stock.

b.   Liquidity and Capital Resources

                  Cash used in  operations  for the nine months ended  September
         30, 1998 was $340,295. The increase in prepaid expenses of $135,599 and
         inventories  of $214,384 was offset by a $498,468  decrease in accounts
         receivable  and a $69,851  increase  in  accounts  payable  and accrued
         expenses.

                  Working capital decreased from $3,706,851 at December 31, 1997
         to $3,029,946 at September 30, 1998 as a result of the cash required in
         operating activities.


                                       -7-

<PAGE>



                  At  September  30,  1998,  the  Company's  primary  sources of
         liquidity  were  $2,452,494 in cash,  $357,004 in accounts  receivable,
         $640,674 in inventories, and $145,147 in prepaid and other expenses.

                  Management  believes  it has  sufficient  sources  of  working
         capital to adequately meet the Company's needs through the end of 1998.

c.       Year 2000

                  The Company  recognizes  that a challenging  problem exists in
that many computer  systems  worldwide do not have the capability of recognizing
the year 2000 or the years thereafter. No easy technological "quick fix" has yet
been developed for this problem.  While the issue is not of significance for the
Company because of its minimal  reliance on computers,  this "Year 2000 Computer
Problem"  creates  risk for the  Company  from  unforeseen  problems  in its own
computer  systems  and from third  parties  with whom the  Company  deals.  Such
failures of third parties' computer systems could have a material adverse effect
on the Company and its ability to conduct its business in the future.














                                       -8-

<PAGE>





PART II - OTHER INFORMATION


Item 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a)        Exhibits:

           Number                   Description

                27           Financial Data Schedule

(b)        Reports on Form 8-K

           No reports on Form 8-K were filed during the quarter ended  September
30, 1998.




                                       -9-

<PAGE>



                                   SIGNATURES


         Pursuant to the  requirements  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.

                                       CAPITAL BEVERAGE CORPORATION



Date: November 12, 1998                /S/Carmine N. Stella
                                       Carmine N. Stella, President and
                                       Chief Executive Officer,
                                       as  Registrant's duly authorized officer



                                       /S/Carol Russell
                                       Carol Russell,
                                       Secretary and Treasurer





                                      -10-