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 June 30, 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
August 22, 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 (Unaudited)
          Consolidated Balance Sheets........................................ 3
          Consolidated Statements of Operations.............................. 4
          Consolidated Statements of Cash Flows.............................. 5
          Notes to Consolidated Financial Statements......................... 6
Item 2.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations..........................................12
Item 3.   Quantitative and Qualitative Disclosures About Market Risks........13
Item 4.   Controls and Procedures............................................13

PART II - OTHER INFORMATION
Item 1 -  Legal Proceedings..................................................14
Item 2 -  Changes in Securities and Use of Proceeds..........................14
Item 3 -  Defaults Upon Senior Securities....................................14
Item 4 -  Submission of Matters to Vote of Securities Holders................14
Item 5 -  Other Information..................................................14
Item 6.   Exhibits...........................................................14
Signatures







                                       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

                                                   June 30,        December 31,
                                                     2005              2004
                                                --------------   ---------------
                                                 (Unaudited)
CURRENT ASSETS:
     Cash                                       $     120,044    $       96,220
     Accounts receivable - net of allowance
      for doubtful accounts of $60,842                417,239           698,792
     Inventories                                    1,463,269         2,097,338
     Prepaid expenses and other current assets        147,692           147,905
                                                --------------   ---------------

        TOTAL CURRENT ASSETS                        2,148,244         3,040,255

PROPERTY AND EQUIPMENT                                106,856           127,765

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

OTHER ASSETS                                           70,354           288,122
                                                --------------   ---------------

                                                $   3,391,172    $    4,521,860
                                                ==============   ===============


                      LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
     Accounts payable                           $   3,851,003    $    2,846,455
     Cash overdraft                                    89,253           367,424
     Accrued expenses and taxes                        60,149           117,328
     Revolving loans                                1,142,180         2,007,356
     Loan payable                                   2,850,531         2,500,000
     Current portion of long-term debt                 75,000           104,738
     Current portion of capital lease
      obligations                                      15,866            12,716
     Deposits payable                                  15,000                 -
                                                --------------   ---------------

        TOTAL CURRENT LIABILITIES                   8,098,982         7,956,017
                                                --------------   ---------------

CAPITAL LEASE OBLIGATIONS                              43,303            56,204

LONG-TERM DEBT                                         35,000            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                          (10,776,155)       (9,499,308)
                                                --------------   ---------------

        TOTAL STOCKHOLDERS' DEFICIT                (4,786,113)       (3,509,266)
                                                --------------   ---------------

                                                $   3,391,172    $    4,521,860
                                                ==============   ===============


            See notes to unaudited consolidated financial statements.

                                        3

<PAGE>

                   CAPITAL BEVERAGE CORPORATION AND SUBSIDIARY

                     d/b/a DIVERSIFIED DISTRIBUTORS NETWORK

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                            Three Months Ended June 30,          Six Months Ended June 30,
                                        ----------------------------------   ---------------------------------
                                              2005              2004              2005              2004
                                        ------------------  --------------   ----------------   --------------
                                             (Unaudited)      (Unaudited)        (Unaudited)       (Unaudited)
<S>                                     <C>                     <C>          <C>                <C>
NET SALES                               $       4,979,838       6,483,836    $    10,064,116    $  14,233,690
COST OF SALES                                   3,822,771       4,517,347          7,561,373       10,363,027
                                        ------------------  --------------   ----------------   --------------
GROSS PROFIT                                    1,157,067       1,966,489          2,502,743        3,870,663
                                        ------------------  --------------   ----------------   --------------

COSTS AND EXPENSES:
     Selling and delivery                         300,331         383,156            653,316          760,988
     General and administrative                 1,343,400       1,416,874          2,646,132        2,770,811
     Non-cash compensation                              -               -                  -           91,724
     Amortization and depreciation                 37,569          37,639             75,139           75,287
                                        ------------------  --------------   ----------------   --------------
                                                1,681,300       1,837,669          3,374,587        3,698,810
                                        ------------------  --------------   ----------------   --------------

INCOME FROM OPERATIONS                           (524,233)        128,820           (871,844)         171,853

INTEREST EXPENSE, net                            (202,503)       (167,679)          (405,002)        (355,955)
                                        ------------------  --------------   ----------------   --------------

NET LOSS                                $        (726,736)  $     (38,859)   $    (1,276,846)   $    (184,102)
                                        ==================  ==============   ================   ==============

LOSS PER SHARE - BASIC AND DILUTED      $           (0.19)  $       (0.01)   $         (0.34)   $       (0.05)
                                        ==================  ==============   ================   ==============

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

</TABLE>
            See notes to unaudited consolidated financial statements.

                                        4

<PAGE>

                   CAPITAL BEVERAGE CORPORATION AND SUBSIDIARY

                     d/b/a DIVERSIFIED DISTRIBUTORS NETWORK

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                         Six Months Ended June 30,
                                                     ---------------------------------
                                                           2005              2004
                                                     -------------    ----------------
                                                      (Unaudited)        (Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                  <C>              <C>
     Net loss                                        $   (1,276,846)  $      (184,102)
                                                     -------------    ----------------
     Adjustments to reconcile net loss to net cash
      (used in) provided by operating activities:
            Depreciation and amortization                  75,139             167,011

     Changes in assets and liabilities:
        Accounts receivable                               281,553            (277,458)
        Inventories                                       634,069            (757,906)
        Prepaid expenses                                      213              (2,224)
        Other assets                                      163,539             (23,529)
        Accounts payable and accrued expenses             947,370             839,515
        Deposits payable                                   15,000                   -
                                                     -------------    ----------------
            Total adjustments                           2,116,883             (54,591)
                                                     -------------    ----------------

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES       840,037            (238,693)
                                                     -------------    ----------------


CASH FLOWS FROM FINANCING ACTIVITIES:
     Revolving loans                                     (865,176)            222,928
     Cash overdraft                                      (278,171)                  -
     Proceeds from loan payable                           350,531                   -
     Principal payments of capital lease obligations       (9,754)            (10,990)
     Payments of long-term debt                           (13,643)            (42,663)
                                                     -------------    ----------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES      (816,213)            169,275
                                                     -------------    ----------------

NET INCREASE (DECREASE) IN CASH                            23,824             (69,418)

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

CASH - END OF PERIOD                                 $    120,044     $       119,858
                                                     =============    ================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
     INFORMATION:
        Cash paid for interest                       $    347,220     $       355,955
                                                     =============    ================
</TABLE>


            See notes to unaudited consolidated financial statements.

                                        5

<PAGE>

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     SIX MONTHS ENDED JUNE 30, 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 $10,776,155 and
         $9,499,308 at June 30, 2005 and December 31, 2004, respectively. The
         Company also has a working capital deficiency of $5,950,738 and
         $4,915,762 at June 30, 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.

                                       6

<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 six months ended June
         30, 2005 and 2004 was $75,139 and $75,287, 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 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.

                                       7

<PAGE>

         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.

         In April 2005, the Securities and Exchange Commission's Office of the
         Chief Accountant and its Division of Corporation Finance has released
         Staff Accounting Bulletin (SAB) No.107 to provide guidance regarding
         the application of FASB Statement No.123 (revised 2004), Share-Based
         Payment. Statement No. 123(R) covers a wide range of share-based
         compensation arrangements including share options, restricted share
         plans, performance-based awards, share appreciation rights, and
         employee share purchase plans. SAB 107 provides interpretative guidance
         related to the interaction between Statement No. 123R and certain SEC
         rules and regulations, as well as the staff's views regarding the
         valuation of share-based payment arrangements for public companies. SAB
         107 also reminds public companies of the importance of including
         disclosures within filings made with the SEC relating to the accounting
         for share-based payment transactions, particularly during the
         transition to Statement No. 123R.

         In May 2005, the Financial Accounting Standards Board ("FASB") issued
         Statement of Financial Accounting Standards No. 154, "Accounting
         Changes and Error Corrections-a replacement of APB Opinion No. 20 and
         FASB Statement No. 3" ("SFAS 154"). This Statement replaces APB Opinion
         No. 20, Accounting Changes, and FASB Statement No. 3, Reporting
         Accounting Changes in Interim Financial Statements, and changes the
         requirements for the accounting for and reporting of a change in
         accounting principle. This Statement applies to all voluntary changes
         in accounting principle. It also applies to changes required by an
         accounting pronouncement in the unusual instance that the pronouncement
         does not include specific transition provisions. When a pronouncement
         includes specific transition provisions, those provisions should be
         followed.

                                       8

<PAGE>

         Opinion 20 previously required that most voluntary changes in
         accounting principle be recognized by including in net income of the
         period of the change the cumulative effect of changing to the new
         accounting principle. This Statement requires retrospective application
         to prior periods' financial statements of changes in accounting
         principle, unless it is impracticable to determine either the
         period-specific effects or the cumulative effect of the change. When it
         is impracticable to determine the period-specific effects of an
         accounting change on one or more individual prior periods presented,
         this Statement requires that the new accounting principle be applied to
         the balances of assets and liabilities as of the beginning of the
         earliest period for which retrospective application is practicable and
         that a corresponding adjustment be made to the opening balance of
         retained earnings (or other appropriate components of equity or net
         assets in the statement of financial position) for that period rather
         than being reported in an income statement. When it is impracticable to
         determine the cumulative effect of applying a change in accounting
         principle to all prior periods, this Statement requires that the new
         accounting principle be applied as if it were adopted prospectively
         from the earliest date practicable. This Statement shall be effective
         for accounting changes and corrections of errors made in fiscal years
         beginning after December 15, 2005. The Company does not believe that
         the adoption of SFAS 154 will have a significant effect on its
         financial statements.

         Other accounting standards that have been issued or proposed by the
         FASB or other standards-setting bodies that do not require adoption
         until a future date are not expected to have a material impact on the
         consolidated financial statements upon adoption.

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 Nightflight, 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.

                                       9

<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 $1,142,180 and $2,007,356 at June 30, 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 ECG, 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
         and will be paid with inventory of the Company.

                                       10

<PAGE>

6.       LONG-TERM DEBT

                  Long-term debt consists of the following on June 30, 2005 and
                  December 31, 2004:




                  Promissory note payable        $      110,000   $      123,643
                  Less current portion                  (75,000)       (104,738)
                                                 ---------------  --------------
                                                 $       35,000   $      18,905
                                                 ===============  ==============

                  On July 25, 2005, the Company reached a Stipulation of
                  Settlement with Consolidated Beverage Corporation
                  ("Consolidated") to pay the balance due to Consolidated. The
                  Company shall pay Consolidated the total sum of $112,500
                  representing the remaining $110,000 owed pursuant to the
                  original agreement and $2,500 in attorneys fees. The Company
                  shall pay Consolidated $12,500 upon the execution of the
                  Stipulation of Settlement and $10,000 on July 15, 2005. The
                  Company will pay Consolidated $5,000 per month until January
                  2007, to pay off the remaining balance.
                  (see Note 7)

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, captioned Red Bull GmbH, and Red Bull
         North America, Inc. v. Vancol Industries Inc. 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. 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. This
         action was settled pursuant to a written Stipulation of Settlement
         which was executed and delivered by Plaintiff's counsel on August 16,
         2005. Pursuant to the Stipulation of Settlement, Capital is required to
         pay Consolidated Beverage Corporation a total of $112,500.00 in
         payments over a period commencing with the execution of the Stipulation
         through the last payment on January 15, 2007. Based on the Stipulation
         of Settlement, the above-mentioned action has been discontinued.

                                       11

<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 six months ended June 30, 2005 were $10,064,116,
reflecting a decrease of $4,169,574 or 29.3% from the $14,233,690 of net sales
for the six months ended June 30, 2004. This decrease in the six months ended
June 30, 2005 resulted primarily from the following events: poor weather
conditions in the first quarter of this year 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. Additionally, due to manufacturers
price increases in our Pittsburgh products Capital was forced to scale down our
marketing scope in outside markets as well as in New York due to uncompetitive
pricing. This price effect also forced Capital to discontinue selling various
imported labels which were low volume high margin items used as tag along sales
to the leading high volume Pittsburgh products.

         Cost of sales was $ 7,561,373 or 75.2 % of net sales for the six months
ended June 30, 2005, as compared to $10,363,027 or 72.8% of net sales for the
six months ended June 30, 2004. The cost of sales as a percentage of net sales
was higher than last year due to a change in the customer base. Capital decided
to sell more products in the wholesale division in the second quarter to relieve
some of its selling and delivery costs.

         Selling, general and administrative expenses for the six months ended
June 30, 2005 were $3,299,448 as compared to $3,531,799 for the respective 2004
period, reflecting a 7% decrease in overall expenses. The decrease in the six
months ended June 30, 2005 was due primarily to the substantial decrease in our
sales volume.

         Non-cash compensation of $91,724 for the six months ended June 30, 2004
is the amortization of deferred compensation for warrants issued in the fourth
quarter of 2003. This amount was fully amortized in 2004.

         Depreciation and amortization for the six months ended June 30, 2005
was $75,139 a decrease of $148 from $75,287 during the six months ended June 30,
2004.

                                       12

<PAGE>

         Interest expense for the six month period ended June 30, 2005 was
$405,002 compared to $355,955 for the respective 2004 period. The increase in
the six month period ended June 30, 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 six months ended June 30, 2005 was
$840,037. This was primarily due to a decrease in inventories and accounts
receivable of $634,069 and 281,553, respectively and an increase in accounts
payable of $947,370, offset by our net loss for the six months ended June 30,
2005 of $1,276,846.

         Cash used in financing activities resulted primarily from paying down
revolving loans of $865,176 and the decrease in our cash overdraft of $278,171,
offset primarily by proceeds from a loan payable of $350,531.

          Working capital deficiency increased from ($4,915,762) at December 31,
2004 to ($5,950,738) at June 30, 2005, due primarily to the net loss incurred
for the six months.

         At June 30, 2005, the Company's primary sources of liquidity were
$120,044 in cash, $417,239 in accounts receivable and $1,463,269 in inventories.

AGGREGATE CONTRACTUAL OBLIGATIONS

                                         Payment due by period

Contractual Obligations         Total       Less than 1 year      1-3 years
-----------------------     ----------      ----------------      ---------
Long-Term Debt Obligations    $112,500           $77,500           $35,000

Capital Lease Obligations      $59,169           $15,866           $43,303

Revolving Loans             $1,142,180        $1,142,180               -0-

Loans Payable               $2,850,531        $2,850,531               -0-
                            ----------        ----------             -----

         TOTAL              $4,164,380        $4,086,077           $78,303
                            ==========        ==========           =======

Item 3.  Quantitative and Qualitative Disclosures About Market Risks

Interest Rate Risk

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
Company could be materially adversely affected if there is a significant rise in
interest rates, due to the fact that this revolving loan carries a rate of prime
plus 2%.

Item 4. Controls and Procedures

          As required by SEC Rule 13a-15(b), we carried out an evaluation as of
June 30, 2005, 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 of the end of the quarter covered by this report. 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.

                                       13

<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. This action was settled
pursuant to a written Stipulation of Settlement which was executed and delivered
by Plaintiff's counsel on August 16, 2005. Pursuant to the Stipulation of
Settlement, Capital is required to pay Consolidated Beverage Corporation a total
of $112,500.00 in payments over a period commencing with the execution of the
Stipulation through the last payment on January 15, 2007. Based on the
Stipulation of Settlement, the above-mentioned action has been discontinued.


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

(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

                                       14

<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:         August 22, 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)