<PAGE>




                       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 June 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>

<TABLE>
<CAPTION>

                                    CAPITAL BEVERAGE CORPORATION

                                           BALANCE SHEETS


                                                                                               June 30, 1998         December 31,
                                                                                                    1998                 1997
                                                                                             -------------------  ------------------
                                                                                                  (Unaudited)     
                                            ASSETS
<S>                                                                                      <C>                     <C>    

CURRENT ASSETS:
     Cash                                                                                  $          2,436,060   $       2,843,870
     Accounts receivable - trade, net of allowance for doubtful
         accounts of $40,000 and $65,000, respectively                                                  496,732             855,472
     Inventories                                                                                        693,019             426,290
     Prepaid expenses and other                                                                         180,454               9,548
                                                                                             -------------------    ----------------
         TOTAL CURRENT ASSETS                                                                         3,806,265           4,135,180

PROPERTY AND EQUIPMENT, less accumulated depreciation
     of $19,085 and $61,965, respectively                                                                50,375              50,058

OTHER ASSETS:
     Intangible assets, less accumulated amortization of
         $400,000 and $320,000, respectively                                                          1,200,000           1,280,000
     Deposits                                                                                             3,290               3,290
                                                                                             -------------------    ----------------

                                                                                           $          5,059,930   $       5,468,528
                                                                                             ===================    ================

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Accounts payable                                                                      $            146,338   $          67,135
     Accrued expenses and taxes                                                                         108,082             112,601
     Current portion of long-term debt                                                                   65,244              62,480
     Accrued dividends on preferred stock                                                               228,113             186,113
                                                                                             -------------------    ----------------
         TOTAL CURRENT LIABILITIES                                                                      547,777             428,329
                                                                                             -------------------    ----------------

LONG-TERM DEBT                                                                                          594,347             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                                                                             (1,453,146)           (958,429)
                                                                                             -------------------    ----------------
         TOTAL STOCKHOLDERS' EQUITY                                                                   3,917,806           4,412,523
                                                                                             -------------------    ----------------

                                                                                           $          5,059,930   $       5,468,528
                                                                                             ===================    ================





                        See notes to financial statements

                                       -3-


</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                          CAPITAL BEVERAGE CORPORATION

                            STATEMENTS OF OPERATIONS


                                                    Three Months Ended June 30,                    Six Months Ended June 30,
                                           -------------------------------------------   -------------------------------------------
                                                   1998                   1997                   1998                  1997
                                           -------------------    -------------------    -------------------   --------------------
                                                 (Unaudited)          (Unaudited)            (Unaudited)            (Unaudited)
<S>                                     <C>                    <C>                    <C>                   <C>    

SALES                                    $          2,488,413   $          3,755,798   $          4,712,128  $           5,635,837

COST OF GOODS SOLD                                  2,238,127              3,293,000              4,328,669              4,915,111
                                           -------------------    -------------------    -------------------   --------------------

GROSS PROFIT                                          250,286                462,798                383,459                720,726
                                           -------------------    -------------------    -------------------   --------------------

OPERATING EXPENSES
  Selling and delivery                                 50,737                103,802                104,652                147,949
  General and administrative                          350,899                259,450                759,261                593,071
                                           -------------------    -------------------    -------------------   --------------------
                                                      401,636                363,252                863,913                741,020
                                           -------------------    -------------------    -------------------   --------------------

LOSS FROM OPERATIONS                                 (151,350)                99,546               (480,454)               (20,294)

INTEREST EXPENSE                                      (14,553)               (28,393)               (29,436)               (53,960)

INTEREST INCOME                                        30,540                      -                 62,376                      -
                                           -------------------    -------------------    -------------------   --------------------

LOSS BEFORE INCOME TAXES                             (135,363)                71,153               (447,514)               (74,254)

INCOME TAXES                                            4,045                  1,572                  5,203                  5,100
                                           -------------------    -------------------    -------------------   --------------------

NET INCOME (LOSS)                                    (139,408)                69,581               (452,717)               (79,354)

CUMULATIVE PREFERRED STOCK DIVIDENDS                   21,000                 35,625                 42,000                 71,250
                                           -------------------    -------------------    -------------------   --------------------

NET LOSS APPLICABLE TO COMMON
     SHAREHOLDERS                         $           (160,408)  $             33,956   $          (494,717) $            (150,604)
                                            ===================    ===================    ===================   ====================

LOSS PER  COMMON SHARE - BASIC            $              (0.07)  $               0.03   $             (0.21) $               (0.12)
                                            ===================    ===================    ===================   ====================

WEIGHTED AVERAGE NUMBER OF
     COMMON SHARES                                   2,378,409              1,240,909             2,378,409              1,240,909
                                            ===================    ===================    ===================   ====================


                        See notes to financial statements

                                       -4-


</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                          CAPITAL BEVERAGE CORPORATION

                             STATEMENT OF CASH FLOWS

                                                                                                 Six Months Ended June 30,
                                                                                         ------------------------------------------
                                                                                                1998                   1997
                                                                                         --------------------   -------------------
<S>                                                                                   <C>                    <C>   
                                                                                             (Unaudited)           (Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                                                          $            (452,717) $            (79,354)
                                                                                         --------------------   -------------------
     Adjustments to reconcile net loss to                                                                        
         net cash used in operating activities:
            Depreciation and amortization                                                             82,120                83,465

     Changes in assets and liabilities:
         Decrease (increase) in accounts receivable                                                  358,740              (115,308)
         Increase in inventories                                                                    (266,729)             (155,935)
         Increase in prepaid expenses                                                               (170,906)               (9,433)
         Increase in accounts payable and accrued expenses                                            74,684               131,909
                                                                                         --------------------   -------------------
                                                                                                      77,909               (65,302)
                                                                                         --------------------   -------------------

NET CASH USED IN OPERATING ACTIVITIES                                                               (374,808)             (144,656)
                                                                                         --------------------   -------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Capital expenditures                                                                             (2,437)                    -
                                                                                         --------------------   -------------------

CASH USED IN INVESTING ACTIVITIES                                                                     (2,437)                    -
                                                                                         --------------------   -------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from note payable                                                                            -               153,331
     Due from affiliate                                                                                    -                57,837
     Payments of note payable                                                                        (30,565)              (35,916)

                                                                                         --------------------   -------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                                                  (30,565)              175,252
                                                                                         --------------------   -------------------

NET (DECREASE) INCREASE IN CASH                                                                     (407,810)               30,596

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

CASH - END OF PERIOD                                                                   $           2,436,060  $            157,523
                                                                                         ====================   ===================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
     INFORMATION:

     Cash paid for interest                                                            $              29,435  $                  -
                                                                                         ====================   ===================

     Cash paid for taxes                                                               $               4,839  $             11,877
                                                                                         ====================   ===================






                        See notes to financial statements

                                       -5-


</TABLE>



<PAGE>
                 

                          CAPITAL BEVERAGE CORPORATION
                                   FORM 10-QSB
                                  June 30, 1998
                                      INDEX




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


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

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

        Statements of Cash Flows for the six-month periods
        ended June 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>


                       CAPITAL BEVERAGE CORPORATION, INC.

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 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 six months  ended June 30, 1998 were  $4,712,128
         as compared to sales of  $5,635,837  for the six months  ended June 30,
         1997.  Sales for the  quarter  ended June 30, 1998 were  $2,488,413  as
         compared to sales of  $3,755,798  for the quarter  ended June 30, 1997.
         The cost of goods  sold as a  percentage  of  sales  for the six  month
         period in 1998  period was 92% as  compared  to 87% for the  comparable
         1997  period.  The increase in cost of goods sold,  as a percentage  of
         sales for the six  months  ended June 30,  1998,  is due  primarily  to
         discounting which the Company needed to maintain to be competitive both
         on an intrabrand and interbrand brand basis with other wholesalers.

                  Selling, general and administrative expenses for the six month
         period  ended June 30, 1998 were  $863,913 as compared to $741,020  for
         the respective 1997 period.  The increase in the six month period ended
         June 30, 1998 is due to the hiring of sales and shipping  personnel for
         the upcoming busy season,  fees with respect to being a public  company
         and increases in employee benefits and payroll taxes.

                  Interest  expense for the six month period ended June 30, 1998
         was $29,436 as compared to $53,960 for the respective 1997 period.  The
         decrease  in the six month  period  ended  June 30,  1998 is due to the
         reduction of debt.  Interest  income of $62,376  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 first  quarter  of 1998 was
         $374,808.  The increase in prepaid expenses of $170,906 and inventories
         of $266,729  was offset by a $358,740  decrease in accounts  receivable
         and a $74,684 increase in accounts payable and accrued expenses.

                  Working capital decreased from $3,706,851 at December 31, 1997
         to  $3,113,246  at June 30,  1998 as a result of the cash  required  in
         operating activities.

                  At June 30, 1998, the Company's  primary  sources of liquidity
         were $2,436,060 in cash, $496,732 in accounts  receivable,  $693,019 in
         inventories, and $180,454 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.

                                       -7-

<PAGE>



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
           June 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: August 12, 1998
                                               Carmine N. Stella, President and
                                               Chief Executive Officer,
                                               as  Registrant's duly authorized 
                                               officer




                                               Carol Russell,
                                               Secretary and Treasurer



                                      -10-