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

                                    FORM 10-Q


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


                  For the quarterly period ended March 31, 2005

                                       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.)

 700 Columbia Street, Erie Basin, Building # 302, Brooklyn, New York    11231
 -------------------------------------------------------------------------------
    (Address of principal executive offices)                          (Zip Code)

                                 (718) 488-8500
                             -----------------------
              (Registrant's telephone number, including area code)

                                 Not Applicable
                             -----------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)


     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 whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Act).
                                                Yes [ ] No [X]


     The number of shares common stock,  $.001 par value,  outstanding as of May
23, 2005 was 3,792,045.


<PAGE>

                          CAPITAL BEVERAGE CORPORATION

                          QUARTERLY REPORT ON FORM 10-Q

                                TABLE OF CONTENTS

                                                                           Page
PART I.  FINANCIAL INFORMATION

  Item 1.   Financial Statements

            Consolidated Balance Sheets.................................... F-1

            Consolidated Statements of Operations.......................... F-2

            Consolidated Statements of Cash Flows.......................... F-3

            Notes to Consolidated Financial Statements................F-4 to F-8

  Item 2.   Management's Discussion and Analysis of Financial
             Condition and Results of Operations...........................  11

  Item 3.   Quantitative and Qualitative Disclosures About Market Risks....  12

  Item 4.   Controls and Procedures........................................  12

PART II. OTHER INFORMATION

  Item 1.   Legal Proceedings..............................................  13

  Item 2.   Changes in Securities and Use of Proceeds......................  13

  Item 3.   Defaults Upon Senior Securities................................  13

  Item 4.   Submission of Matters to Vote of Securities Holders............  13

  Item 5.   Other Information..............................................  13

  Item 6.   Exhibits and Reports on Form 8-K...............................  13

Signatures.................................................................  14



                                     - 2 -

<PAGE>

PART I-FINANCIAL INFORMATION

Item 1. Financial Statements

                   CAPITAL BEVERAGE CORPORATION AND SUBSIDIARY

                     d/b/a DIVERSIFIED DISTRIBUTORS NETWORK

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

                                             March 31,           December 31,
                                               2005                  2004
                                         -----------------     -----------------
                                            (Unaudited)
CURRENT ASSETS:
      Cash                               $      170,380        $       96,220
      Accounts receivable - net                 614,760               698,792
      Inventories                             2,285,561             2,097,338
      Prepaid expenses and other
        current assets                          223,014               147,905
                                         -----------------     -----------------
          TOTAL CURRENT ASSETS                3,293,715             3,040,255

PROPERTY AND EQUIPMENT                          117,310               127,765

DISTRIBUTION LICENSE                          1,065,718             1,065,718

OTHER ASSETS                                    195,293               288,122
                                         -----------------     -----------------
                                         $    4,672,036        $    4,521,860
                                         =================     =================

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
     (Accounts payable                   $    3,524,354        $    2,846,455
      Cash overdraft                            474,271               367,424
      Accrued expenses and taxes                 86,742               117,328
      Revolving loans                         1,612,928             2,007,356
      Loans payable                           2,850,531             2,500,000
      Current portion of long-term debt         105,367               104,738
      Current portion of capital lease
        obligations                              36,847                12,716
      Deposits payable                           15,000                     -
                                         -----------------     -----------------
          TOTAL CURRENT LIABILITIES           8,706,040             7,956,017
                                         -----------------     -----------------

CAPITAL LEASE OBLIGATIONS                        25,373                56,204

LONG-TERM DEBT                                        -                18,905

STOCKHOLDERS' DEFICIT:
      Preferred stock, no shares
        issued and outstanding                        -                     -
      Common stock, $.001 par value;
        authorized 20,000,000 shares;
        issued and outstanding
        3,792,045 shares                          3,793                 3,793
      Additional paid-in capital              5,986,249             5,986,249
      Accumulated deficit                   (10,049,419)           (9,499,308)
                                         -----------------     -----------------

          TOTAL STOCKHOLDERS' DEFICIT        (4,059,377)           (3,509,266)
                                         -----------------     -----------------
                                         $    4,672,036        $    4,521,860
                                         =================     =================


                 See notes to consolidated financial statements.

                                       F-1

<PAGE>


                   CAPITAL BEVERAGE CORPORATION AND SUBSIDIARY

                     d/b/a DIVERSIFIED DISTRIBUTORS NETWORK

                      CONSOLIDATED STATEMENTS OF OPERATIONS



                                               Three Months Ended March 31,
                                           -------------------------------------
                                                 2005                2004
                                           -----------------   -----------------
                                              (Unaudited)         (Unaudited)

NET SALES                                  $     5,084,278     $     7,749,854
COST OF SALES                                    3,738,602           5,845,680
                                           -----------------   -----------------
GROSS PROFIT                                     1,345,676           1,904,174

COSTS AND EXPENSES:
      Selling and delivery                         352,985             377,832
      General and administrative                 1,302,732           1,353,937
      Non-cash compensation                              -              91,724
      Amortization and depreciation                 37,570              37,648
                                           -----------------   -----------------
                                                 1,693,287           1,861,141
                                           -----------------   -----------------

(LOSS) INCOME FROM OPERATIONS                     (347,611)             43,033

INTEREST EXPENSE, net                             (202,499)           (188,276)
                                           -----------------   -----------------

NET LOSS                                   $      (550,110)    $      (145,243)
                                           =================   =================

LOSS PER SHARE - BASIC AND DILUTED         $         (0.15)    $         (0.04)
                                           =================   =================

WEIGHTED AVERAGE NUMBER OF SHARES
      USED IN CALCULATION OF BASIC AND
      DILUTED LOSS PER SHARE                     3,792,045           3,792,045
                                           =================   =================




                See notes to consolidated financial statements.

                                       F-2
<PAGE>

                   CAPITAL BEVERAGE CORPORATION AND SUBSIDIARY

                     d/b/a DIVERSIFIED DISTRIBUTORS NETWORK

                            STATEMENTS OF CASH FLOWS


                                                Three Months Ended March 31,
                                              ----------------------------------
                                                    2005               2004
                                              ----------------  ----------------
                                                 (Unaudited)       (Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:
      Net loss                                $      (550,110)  $      (145,243)
                                              ----------------  ----------------
      Adjustments to reconcile net loss
        to net cash provided by operating
        activities:
                Depreciation and amortization          37,570           129,372

      Changes in assets and liabilities:
           Accounts receivable                         84,032          (574,672)
           Inventories                               (188,223)         (671,265)
           Prepaid expenses                           (75,109)           12,846
           Other assets                                92,829             9,023
           Deposits payable                           (15,000)          (15,000)
           Accounts payable and
             accrued expenses                         647,313         1,634,452
                                              ----------------  ----------------
                Total adjustments                     583,412           524,756
                                              ----------------  ----------------

NET CASH PROVIDED BY OPERATING ACTIVITIES              33,302           379,513
                                              ----------------  ----------------

CASH FLOWS FROM INVESTING ACTIVITIES                        -                 -
                                              ----------------  ----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Revolving loans                                (394,428)         (348,057)
      Cash overdraft                                  106,847                 -
      Principal payments of capital lease
        obligations                                    (3,816)           (3,881)
      Proceeds from loan payable                      350,531                 -
      Payments of long-term debt                      (18,276)          (25,413)
                                              ----------------  ----------------
NET CASH PROVIDED BY (USED IN)
  FINANCING ACTIVITIES                                 40,858          (377,351)
                                              ----------------  ----------------

NET INCREASE IN CASH                                   74,160             2,162

CASH - BEGINNING OF PERIOD                             96,220           189,276
                                              ----------------  ----------------

CASH - END OF PERIOD                          $       170,380   $       191,438
                                              ================  ================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
      INFORMATION:
           Cash paid for interest             $       157,339   $       144,113
                                              ================  ================


                 See notes to consolidated financial statements.

                                      F-3

<PAGE>

                   CAPITAL BEVERAGE CORPORATION AND SUBSIDIARY
                    (d/b/a Diversified Distributors Network)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                   THREE MONTHS ENDED MARCH 31, 2005 AND 2004
                                   (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  prepared  in  accordance  with  generally  accepted  accounting
     principles,  but which is not required for interim  reporting  purposes has
     been  condensed  or  omitted.  The  accompanying   consolidated   financial
     statements  should be read in conjunction with the  consolidated  financial
     statements  and notes thereto  contained in the Company's  Annual Report on
     Form 10-K.

2.   GOING CONCERN

     The accompanying financial statements have been prepared on a going-concern
     basis, which presumes that the Company will be able to continue to meet its
     obligations and realize its assets in the normal course of business.

     As  shown in the  accompanying  financial  statements,  the  Company  has a
     history of losses with an accumulated deficit of $10,049,419 and $9,499,308
     at March 31, 2005 and December 31, 2004, respectively. The Company also has
     a working capital deficiency of $5,412,325 and $4,915,762 at March 31, 2005
     and December 31, 2004,  respectively.  These conditions  raise  substantial
     doubt  about the  Company's  ability to continue  as a going  concern.  The
     Company's  continuation as a going concern is dependent upon its ability to
     ultimately attain profitable  operations,  generate sufficient cash flow to
     meet its obligations, and obtain additional financing as may be required.

3.   SIGNIFICANT ACCOUNTING POLICIES

     Principles of Consolidation - The financial statements include the accounts
     of the Company and Cap Com, its  wholly-owned  subsidiary.  All significant
     intercompany   balances   and   transactions   have  been   eliminated   in
     consolidation.

     Inventories - Inventories of beer and other beverage products are stated at
     the lower of cost, determined by the first-in, first-out method, or market.

                                      F-4

<page>

     Shipping  and  handling  costs - The  Company  accounts  for  shipping  and
     handling costs as a component of "Cost of Sales".

     Property and  Equipment - Property and equipment are stated at cost and are
     depreciated over the estimated useful lives of the related assets,  ranging
     from 5 to 39 years.  Depreciation  is  computed  on the  straight-line  and
     accelerated  methods for both financial  reporting and income tax purposes.
     Depreciation expense for the three months ended March 31, 2005 and 2004 was
     $10,455 and $10,533, respectively.

     Income  Taxes - The  Company  follows  Statement  of  Financial  Accounting
     Standards No. 109 - Accounting for Income Taxes, which requires recognition
     of  deferred  tax  assets  and  liabilities  for the  expected  future  tax
     consequences of events that have been included in the financial  statements
     or tax returns. Under this method,  deferred tax assets and liabilities are
     based on the differences  between the financial  statement and tax bases of
     assets and  liabilities  using  enacted tax rates in effect for the year in
     which the differences are expected to reverse.

     Use of Estimates - The  preparation  of financial  statements in conformity
     with generally accepted  accounting  principles requires management to make
     estimates and  assumptions  that affect the reported  amounts of assets and
     liabilities and disclosure of contingent assets and liabilities at the date
     of the  financial  statements  and the  reported  amounts  of  revenue  and
     expenses  during the  reporting  period.  Actual  results could differ from
     those estimates.

     Fair Value of Financial  Instruments - The Company  considers its financial
     instruments,  which are carried at cost, to  approximate  fair value due to
     their near-term maturities.

     Distribution License - The Company's license to distribute certain beverage
     products  in New York  City,  is  recorded  at  cost.  The  license  has an
     indefinite  life and is tested  annually  for  impairment  under  SFAS 142.
     Pursuant to SFAS 142 the Company  took an  impairment  of the  distribution
     license in the first  quarter of 2002 in the amount of  $860,000  which was
     recorded  as a  cumulative  effect of change in  accounting  principle.  At
     December  31,  2004,  the  Company  impaired  the  Distribution  License by
     $3,336,744. (see Note 4)

     Revenue  Recognition - Wholesale sales are recognized at the time goods are
     shipped.

     Loss per  Common  Share - Loss per  common  share is based on the  weighted
     average number of shares outstanding. Potential common shares includable in
     the computation of fully diluted per share results are not presented in the
     financial statements as their effect would be anti-dilutive.

     Stock  based  compensation  -  Financial   Accounting  Statement  No.  123,
     Accounting for Stock Based Compensation,  encourages,  but does not require
     companies to record compensation cost for stock-based employee compensation
     plans at fair  value.  The  Company  has chosen to  continue to account for
     stock-based   compensation   using  the  intrinsic  method   prescribed  in
     Accounting  Principles Board Opinion No. 25, Accounting for Stock Issued to
     Employees, and related interpretations.  Accordingly, compensation cost for

                                       F-5

<PAGE>

     stock options is measured as the excess, if any, of the quoted market price
     of the Company's stock at the date of the grant over the amount an employee
     must pay to acquire the stock.  The  Company  has  adopted the  "disclosure
     only"  alternative  described in SFAS 123 and SFAS 148,  which  require pro
     forma disclosures of net income and earnings per share as if the fair value
     method of accounting had been applied.

     New Accounting Pronouncements - In December 2004, the FASB issued Statement
     123r  (revised  2004)  which  is a  revision  of FASB  Statement  No.  123,
     Accounting for  Stock-Based  Compensation.  This  Statement  supersedes APB
     Opinion No. 25,  Accounting for Stock Issued to Employees,  and its related
     implementation  guidance.  This  Statement  establishes  standards  for the
     accounting  for  transactions  in  which an  entity  exchanges  its  equity
     instruments for goods or services. It also addresses  transactions in which
     an entity  incurs  liabilities  in exchange for goods or services  that are
     based on the fair value of the entity's  equity  instruments or that may be
     settled by the issuance of those equity instruments. This Statement focuses
     primarily  on  accounting  for  transactions  in  which an  entity  obtains
     employee  services in  share-based  payment  transactions.  This  Statement
     requires a public entity to measure the cost of employee  services received
     in exchange for an award of equity instruments based on the grant-date fair
     value of the award (with limited exceptions).  That cost will be recognized
     over the period during which an employee is required to provide  service in
     exchange for the award--the  requisite  service period (usually the vesting
     period).  FASB  123r  will have a  significant  impact on the  consolidated
     financial  statements of the Company  through the expensing of stock option
     grants.  However the Company does not anticipate granting any stock options
     in the foreseeable future.

4.   DISTRIBUTION RIGHTS

     The Company  acquired these exclusive  license rights to distribute  within
     the five  boroughs  of New York City  valued at  $5,218,462  as part of the
     agreement  with Prospect  Beverages Inc. in May 2001. The rights consist of
     the Pabst brands which make up approximately 73% of sales and include brand
     names such as Colt 45,  Champale and Old Milwaukee.  The Pittsburgh  brands
     make  up  approximately  17% of  sales  and  include  brand  names  such as
     Nighflight, Mustang Lager and Primetime. All other brands make up less than
     10% of the product line. The Company  determined  that these rights have an
     indefinite  life  because  the  terms  of the  agreements  are  indefinite.
     Furthermore,  the  franchise  law  of  New  York  State,  states  that  any
     terminated distributor is entitled to get "fair market value" for the brand
     distribution rights.

     Effective  January 1, 2002, the Company adopted SFAS Nos. 141 and 142. SFAS
     142  eliminates  amortization  of  goodwill  and certain  other  intangible
     assets,  but requires  annual  testing for  impairment  (comparison of fair
     market value to carrying value).  Fair value is estimated using the present
     value of expected future cash flows and other measures.  The Company used a
     discount rate of 6%. The transitional  impairment test for the distribution
     rights  resulted in a non-cash  charge of $860,000 in the first  quarter of
     2002 which was  recorded  as a  cumulative  effect of change in  accounting
     principle.

                                       F-6

<PAGE>

     On  April  14,  2003,  the  Company   purchased  from   Metropolitan   Beer
     Distributing Corp the exclusive right to purchase the brand rights of Pabst
     Blue  Ribbon  Beer for the  additional  territory  of the Bronx  county for
     $44,000. This permits the Company to promote,  advertise,  market, sell and
     distribute  at wholesale  and retail this  beverage in the five boroughs of
     New York.

     At  December  31,  2004,  the  Company  recorded  an  impairment  of  their
     distribution  license in the amount of  $3,336,744.  The decision to impair
     the  distribution  license was based on the Company's net loss for the year
     ended   December  31,   2004.   The  Company  had  revised  its  cash  flow
     recoverability  analysis to include the year ended  December 31, 2004.  The
     cash flow  analysis  showed that the  Company  will  recover  approximately
     $1,021,000 twenty years from the balance sheet date.

5.   LOANS PAYABLE AND REVOLVING LOANS

     The Company has a revolving  loan with  Entrepreneur  Growth  Capital,  LLC
     ("EGC"). The loan limit is $2,500,000 and carries an interest rate of prime
     plus 2%. The loan is collateralized by the Company's  accounts  receivable,
     inventory,  pledged  property  and  distribution  rights.  The  outstanding
     balance was  $1,612,928  and  $2,007,356 at March 31, 2005 and December 31,
     2004, respectively.

     On December 11, 2003,  the Park Slope Group,  LLC ("LLC"),  a single member
     limited  liability  company  whose sole member is Addie Realty  Properties,
     Inc.  ("Addie"),  which in turn is wholly owned by certain  officers of the
     Company  loaned the Company  $2,500,000  maturing on December  11, 2005 and
     accruing interest at 12% per annum.

     Addie and the officers of the Company have entered into this transaction in
     order to permit the  Company to pay off its term loan with EGC, to pay down
     a portion of its revolving  credit  promissory note and agreement with EGC,
     and to restructure and amend its revolving  credit  agreement with EGC upon
     terms more  favorable  than those  presently  existing and available to the
     Company from EGC. Addie has  transferred  certain real property to the LLC.
     The LLC  agreed to  borrow  $2,500,000,  secured  by a  mortgage  to Seaway
     Capital Corp. ("Seaway") under credit terms more favorable than those which
     could presently be obtained by Capital. The LLC is lending the net proceeds
     of its loan  from  Seaway to  Capital.  Addie  and the  officers  have also
     entered  into an  agreement  with EGC to pay the net proceeds of the Seaway
     loan to EGC for the  benefit  of Capital to pay off its term loan with EGC,
     to pay down a portion of Capital's  revolving  credit  promissory  note and
     agreement with EGC, and to restructure and amend Capital's revolving credit
     agreement with EGC upon terms more favorable than those presently  existing
     and available to Capital from EGC.

     On March 17, 2005,  the Company  received a loan in the amount of $350,531.
     This loan is due on demand and does not accrue any interest.

                                       F-7

<PAGE>

6.   LONG-TERM DEBT

     Long-term debt consists of the following:

                                                  March 31,       December 31,
                                                    2005             2004
                                                ------------     -------------
          Promissory note payable to
          Consolidated paid to the
          State of New York, due in
          monthly  installments of
          $10,000 including  interest
          at 10% per annum                      $  105,367       $  123,643
                  Less current portion            (105,367)        (104,738)
                                                ------------     ------------
                                                $      -0-       $   18,905
                                                ============     ============

7.   CONTINGENCIES

     On or about  February 28, 2005,  the Company was named as a defendant in an
     action which  commenced in the United States District Court for the Central
     District  of   California.   The  complaint   alleges   federal   trademark
     infringement and dilution,  unfair competition and false  advertising,  and
     civil  conspiracy.  The  plaintiffs  are seeking a permanent  injunction to
     enjoin the defendants  from using certain Blue Ox marks and related actions
     as  well as  damages  and  reasonable  attorneys'  fees.  The  parties  are
     negotiating  a  settlement  of this  action  and will  set a date  with the
     District  Court for the hearing on the  settlement.  The Company  believes,
     after consultation with counsel, that some of its defense costs and certain
     attorneys  fees in connection  with this action will be subject to coverage
     by the Company's insurance.

     On or about April 12, 2005,  the Company and an officer of the Company were
     named as defendants in a breach of contract action.  The plaintiffs allege,
     that the Company  defaulted  on its payment  under a promissory  note.  The
     complaint seeks monetary damages of  approximately  $180,000 and reasonable
     attorney  fees.  The  parties  have  agreed to meet to  discuss a  possible
     settlement  of this  action.  The Company has been making  payments on this
     note and was late on several  payments in the first  quarter of 2004.  This
     note is recorded on the Company's balance sheet.

8.   SUBSEQUENT EVENTS

     On April 15,  2005,  the Company  entered  into a letter of intent with Oak
     Beverages Inc. ("Oak"), pursuant to which the Company agreed to sell to Oak
     its  exclusive  distribution  rights and saleable  inventory.  The proposed
     purchase price for the exclusive distribution rights is $10,500,000 payable
     as follows:  (i) $7,500,000 to be paid at closing in immediately  available
     funds,  and (ii) $3,000,000 to paid in 24 equal  quarterly  installments of
     $125,000 commencing 90 days following the date of the closing, inclusive of
     interest.  In  addition,  Oak  will  pay to the  Company  for the  saleable
     inventory  an  amount  equal  to the  price  paid  by the  Company  for the
     inventory.  According  to the terms of the letter of  intent,  Oak will not
     assume  any  liabilities  or  obligations  of  the  Company.  The  proposed
     transaction is subject to and conditioned  upon the completion of Oak's due
     diligence  review  of the  Company,  the  negotiation  and  execution  of a
     definitive purchase agreement,  and the satisfaction of certain conditions,
     including the approval of the Company's  stockholders and certain suppliers
     of the  Company's  products.  The  Company  believes  that  the  definitive
     agreement  will be  executed  during  the  next  few  weeks  and  that  the
     transaction will close during the summer of 2005.

                                      F-8
<PAGE>

                Special Note Regarding Forward-Looking Statements

     This Quarterly  Report on Form 10-Q contains  "forward-looking"  statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. For this purpose
any statements  contained  herein that are not statements of historical fact may
be deemed to be forward-looking statements.  Without limiting the foregoing, the
words "believes,"  "anticipates," "plans," "expects" and similar expressions are
intended  to  identify  forward-looking  statements.  These  statements  involve
unknown  risks,  uncertainties  and other  factors,  which may cause our  actual
results  to  differ  materially  from  those  implied  by  the  forward  looking
statements.  Among the  important  factors  that could cause  actual  results to
differ  materially  from  those  indicated  by such  forward-looking  statements
include those risks identified in "Item 7 - Management's Discussion and Analysis
of Financial  Condition and Results of Operations" and other risks identified in
our Form 10-K for the year ended  December 31, 2004 and  presented  elsewhere by
management  from  time  to  time.  Such  forward-looking   statements  represent
management's  current expectations and are inherently  uncertain.  Investors are
warned that actual results may differ from management's expectations.

Item 2. Management's  Discussion and Analysis of Financial Condition and
        Results of Operations

Results of Operations

Net sales for the three months ended March 31, 2005 were $5,084,278,  reflecting
a decrease of $2,665,576 or 34.4% from the $7,749,854 of net sales for the three
months ended March 31, 2004.  This  decrease in the three months ended March 31,
2005 resulted  primarily from the following events:  poor weather  conditions in
the first  quarter as well as the effect of the price  increase  in last  year's
second  quarter which  created a  substantial  buy in by our account base in the
month of March last year.

Cost of sales was  $3,738,602  or 73.5% of net sales for the three  months ended
March 31, 2005,  as compared to  $5,845,680  or 75.4% of net sales for the three
months ended March 31, 2004.  The cost of sales as a percentage of net sales was
some what better than last year for the same period due to the  discounting  and
quantity  purchases  offered to drive sales prior to our price increase on April
1, 2004.

Selling,  general and  administrative  expenses for the three months ended March
31, 2005 were  $1,655,717  as compared to  $1,731,769  for the  respective  2004
period,  reflecting a 4% decrease in overall expenses. The decrease in the three
months ended March 31, 2005 was due primarily to the substantial decrease in our
sales volume.

Non-cash  compensation  of $91,724 for the three  months ended March 31, 2004 is
the  amortization  of deferred  compensation  for warrants  issued in the fourth
quarter of 2003. This amount was fully amortized in 2004.

Interest  expense for the three month  period  ended March 31, 2005 was $202,499
compared to $188,276 for the respective  2004 period.  The increase in the three
month  period  ended  March 31,  2005 was due  primarily  to the higher  cost of
borrowing associated with Capital's exceeding their negotiated line of credit at
various   times   during   the   first   quarter   to  meet   its   obligations.


Liquidity and Capital Resources

Cash  provided  by  operations  for the three  months  ended  March 31, 2005 was
$33,302.  This was primarily due to an increase in accounts payable in the first
quarter  offset  primarily  by our net loss,  increase  in our  inventories  and
prepaid expenses.

                                     - 10 -

<PAGE>

Cash  provided  by  financing  activities  resulted  primarily  from  additional
borrowings  in the amount of $350,531 and a cash  overdraft  of $106,847  offset
primarily by payments of our revolving loans of $394,428

Working capital  deficiency  increased from ($4,915,762) at December 31, 2004 to
($5,412,325)  at  March  31,  2005 due to the net loss  incurred  for the  three
months.

At March 31, 2005 the Company's  primary  sources of liquidity  were $170,380 in
cash, $614,760 in accounts receivable and $2,285,561 in inventories.

Item 3.   Quantitative and Qualitative Disclosures About Market Risks

     Not applicable.

Item 4.   Controls and Procedures

As of March 31, 2005, we carried out an evaluation,  under the  supervision  and
with the participation of our management,  including our Chief Executive Officer
and  Treasurer,  of  the  effectiveness  of  the  design  and  operation  of our
disclosure controls and procedures,  as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934. Based upon that evaluation, our Chief
Executive  Officer and  Treasurer  concluded  that our  disclosure  controls and
procedures  were  effective  in enabling us to record,  process,  summarize  and
report  information  required to be included in our periodic SEC filings  within
the required time period.

There have been no changes in our internal control over financial reporting that
occurred during the period covered by this report that have materially affected,
or are  reasonably  likely to  materially  affect,  our  internal  control  over
financial reporting.

                                     - 11 -
<PAGE>

PART II--OTHER INFORMATION

Item 1.  Legal Proceedings

On or about February 28, 2005, the Company was named as a defendant in an action
which commenced in the United States District Court for the Central  District of
California,  captioned Red Bull GmbH, and Red Bull North America, Inc. v. Vancol
Industries  Inc.,  et al. (Case No. LACV  03-6731-DDP).  The  complaint  alleges
federal  trademark  infringement  and  dilution,  unfair  competition  and false
advertising,  and civil  conspiracy.  The  plaintiffs  are  seeking a  permanent
injunction to enjoin the defendants from using certain Blue Ox marks and related
actions as well as damages  and  reasonable  attorneys'  fees.  The  parties are
negotiating  a  settlement  of this action and will set a date with the District
Court  for  the  hearing  on  the  settlement.   The  Company  believes,   after
consultation with counsel,  that some of its defense costs and certain attorneys
fees in connection with this action will be subject to coverage by the Company's
insurance.

On or about  April 12,  2005,  the  Company  and  Carmine  Stella  were named as
defendants in a breach of contract  action which  commenced in the Supreme Court
of the State of New York,  captioned Albert Thompson,  et al. v. Carmine Stella,
et. al. (Index No. 11020/2005). The plaintiffs, Albert Thompson and Consolidated
Beverage  Corporation  allege that the Company  defaulted on its payment under a
promissory note. The complaint seeks monetary damages of approximately  $180,000
and  reasonable  attorney  fees.  The  parties  have agreed to meet to discuss a
possible  settlement of this action. A Stipulation of Adjournment  extending the
time for the Company to answer or otherwise move with regard to the complaint to
June 6, 2005 was filed with the District Court.  The Company  believes that this
action will not have a material effect on the Company's financial position.

Item 2. Changes in Securities and Use of Proceeds

  None

Item 3. Defaults Upon Senior Securities

  None

Item 4. Submission of Matters to Vote of Securities Holders

  None

Item 5. Other Information

  None

Item 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits

   31.1   Certification  of Chief Executive  Officer  pursuant to Section 302 of
          the Sarbanes Oxley Act of 2002

   31.2   Certification  of  Treasurer  pursuant to Section 302 of the  Sarbanes
          Oxley Act of 2002

   32.1   Certification  of Chief  Executive  Officer and Treasurer  pursuant to
          Section 906 of the Sarbanes Oxley Act of 2002

(b)  Reports on Form 8-K

     During the first  quarter of 2005,  we did not file any reports on Form 8-K
with the Securities and Exchange Commission.

                                     - 12 -

<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.



Date: May 23, 2005                     CAPITAL BEVERAGE CORPORATION
                                       ----------------------------
                                               (Registrant)



                                   By: /s/ Carmine N. Stella
                                       -----------------------------------------
                                       Carmine N. Stella
                                       President and Chief Executive Officer
                                       (Principal Executive Officer)




                                   By: /s/ Carol Russell
                                       -----------------------------------------
                                       Carol Russell
                                       Secretary and Treasurer (Principal
                                       Financial Officer and Accounting Officer)




                                     - 13 -