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 September 30, 2008
  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.)120
      Rio Vista Drive, Norwood, New Jersey
                07648(Address
      of principal executive offices)
                (Zip
      Code)
 
 (201)
679-6752
 (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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
 
 Large
accelerated filer  o                                         Accelerated
filer  o                                           Non-accelerated
filer  x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
 Yes xNo o
 
 The
number of shares of common stock, $.001 par value, outstanding as of November
13, 2008 was 3,792,045.
 
 
 CAPITAL
BEVERAGE CORPORATION
 
 QUARTERLY
REPORT ON FORM 10-Q
 
 TABLE
OF CONTENTS
  PagePART I - FINANCIAL INFORMATIONItem
      1.    Financial Statements (Unaudited)
                3Balance
      Sheets
                3Statements
      of Operations
                4Statements
      of Cash Flows
                5Notes
      to Financial Statements
                6Item
      2.    Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
                9Item
      3.    Quantitative and Qualitative Disclosures About Market
      Risks
                10Item
      4.    Controls and Procedures
                10PART II - OTHER INFORMATIONItem
      1. -  Legal Proceedings
                11Item
      1A. –Risk Factors
                11Item
      2 -  Unregistered Sales of Equity Securities and Use
      of  Proceeds
                11Item
      3 -  Defaults Upon Senior Securities
                11Item
      4 -  Submission of Matters to Vote of Securities
    Holders
                11Item
      5 -  Other Information
                11Item
      6.   Exhibits
                11Signatures
                12
 
 2
 PART
I-FINANCIAL INFORMATION
 
 Item
1. Financial Statements
 
 CAPITAL BEVERAGE
      CORPORATIONBALANCE
      SHEETSASSETS
  September
      30,
                
                
                December
      31,2008
                
                
                2007(Unaudited)CURRENT
      ASSETS:Cash
                
                $
                34,036
                
                
                $
                188Restricted
      cash
                
                
                55,821
                
                
                
                742,977Other
      Receivable-Current Portion
                
                
                -
                
                
                
                5,000TOTAL
      CURRENT ASSETS
                
                
                89,857
                
                
                
                748,165OTHER
      ASSETS
                
                
                2,319
                
                
                
                1,929$
                92,176
                
                
                $
                750,094LIABILITIES AND STOCKHOLDERS'
      DEFICITCURRENT
      LIABILITIES:Accounts
      payable
                
                $
                996,074
                
                
                $
                1,171,190Accrued
      expenses and taxes
                
                
                219
                
                
                
                42,544Loan
      payable
                
                
                25,000
                
                
                
                -TOTAL
      CURRENT LIABILITIES
                
                
                1,021,292
                
                
                
                1,213,734STOCKHOLDERS'
      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
                
                
                
                3,793Additional
      paid-in capital
                
                
                5,986,249
                
                
                
                5,986,249Accumulated
      deficit
                
                
                (6,919,158
                )
                
                
                (6,453,682
                )TOTAL
      STOCKHOLDERS' DEFICIT
                
                
                (929,116
                )
                
                
                (463,640
                )$
                92,176
                
                
                $
                750,094
  See
      notes to unaudited financial statements.
 3
  CAPITAL BEVERAGE CORPORATIONSTATEMENTS OF
      OPERATIONS
  Three
      Months Ended September 30,
                
                
                Nine
      Months Ended September 30,2008
                
                
                2007
                
                
                2008
                
                
                2007(Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)REVENUES
                
                $
                
                
                
                $
                
                
                
                $
                -
                
                
                $
                -COSTS
      AND EXPENSES:General
      and administrative
                
                
                144,627
                
                
                
                350,222
                
                
                
                367,226
                
                
                
                436,933144,627
                
                
                
                350,222
                
                
                
                367,226
                
                
                
                436,933OTHER
      INCOME (EXPENSE):Legl
      settlement
                
                
                (100,210
                )
                
                
                -
                
                
                
                (100,210
                )
                
                
                -Sale
      of liquor license
                
                
                -
                
                
                
                25,000
                
                
                
                -
                
                
                
                25,000Interest
      income
                
                
                567
                
                
                
                1,978
                
                
                
                1,960
                
                
                
                3,805NET
      LOSS
                
                $
                (244,271
                )
                
                $
                (323,244
                )
                
                $
                (465,477
                )
                
                $
                (408,128
                )NET
      LOSS PER SHARE:Basic
      and diluted
                
                $
                (0.06
                )
                
                $
                (0.09
                )
                
                $
                (0.12
                )
                
                $
                (0.11
                )WEIGHTED
      AVERAGE NUMBER OF SHARES:Basic
      and Diluted
                
                
                3,792,045
                
                
                
                3,792,045
                
                
                
                3,792,045
                
                
                
                3,792,045
  See
      notes to unaudited financial
statements.
   4
 CAPITAL BEVERAGE CORPORATIONSTATEMENTS OF CASH
      FLOWS
  Nine
      Months Ended September 30,2008
                
                
                2007(Unaudited)
                
                
                (Unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                
                $
                (465,477
                )
                
                $
                (408,128
                )Adjustments
      to reconcile net loss from continuingoperations
      to net cash used in operating activities:Changes
      in assets and liabilities:Other
      receivable
                
                
                5,000
                
                
                
                (10,000
                )Other
      assets
                
                
                (390
                )
                
                
                1,601Accounts
      payable
                
                
                (175,116
                )
                
                
                173,925Accrued
      officer salary
                
                
                -
                
                
                
                167,618Accrued
      expenses and taxes
                
                
                (42,325
                )
                
                
                14,987Total
      adjustments
                
                
                (212,832
                )
                
                
                348,131NET
      CASH USED IN OPERATING ACTIVITIES
                
                
                (678,308
                )
                
                
                (59,997
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Payment
      of loan payable
                
                
                (6,000
                )
                
                
                -Proceeds
      from loan payable
                
                
                31,000
                
                
                
                -NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                
                
                25,000
                
                
                
                -DECREASE
      IN CASH
                
                
                (653,308
                )
                
                
                (59,997
                )CASH
      - BEGINNING OF PERIOD
                
                
                743,165
                
                
                
                803,955CASH
      - END OF PERIOD
                
                $
                89,857
                
                
                $
                743,958SUPPLEMENTAL
      DISCLOSURE OF CASH FLOWINFORMATION:Cash
      paid for interest
                
                $
                -
                
                
                $
                -Cash
      paid for taxes
                
                $
                -
                
                
                $
                -
  See
      notes to unaudited financial
statements.
  5
  CAPITAL BEVERAGE
      CORPORATION
                
                NOTES TO UNAUDITED FINANCIAL
      STATEMENTS
                
                NINE MONTHS ENDED SEPTEMBER 30, 2008 AND
      2007
  1. BASIS OF PRESENTATION AND
DESCRIPTION OF BUSINESS
  The
accompanying unaudited financial statements of Capital Beverage Corporation (the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not include
all the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments necessary to present fairly the information set forth therein have
been included. Operating results for the nine months ended September 30, 2008
are not necessarily indicative of the results that may be experienced for the
fiscal year ending December 31, 2008.
  The
accompanying financial statements should be read in conjunction with the
Company's Form 10-K/A for the fiscal year ended December 31, 2007, which was
filed on May 9, 2008.
  Capital
Beverage Corporation (the “Company” or “Capital”) was formed in December 1995 to
operate as a wholesale distributor of beer and other beverages in New York City.
On December 16, 2005, the Company sold substantially all of its assets to Oak
Beverages, Inc. In December 1998, CAP Communications, Ltd. (“Cap Com”), a
wholly-owned subsidiary, was organized to market domestic and long distance
prepaid telephone calling cards to distributors and to the general public. In
December 2006, the Company dissolved Cap Com.
  The
Company will continue to use the proceeds from the sale of the Assets for
working capital purposes, including the payment of indebtedness, trade payables
and other outstanding obligations. Following the full payment of its creditors,
the Company may elect to acquire another entity, issue dividend(s) to its
stockholders or invest the net proceeds at the discretion of the Board of
Directors and management of the Company. Management currently anticipates that
additional transactions may take the form of a dissolution of the corporation,
the liquidation of its remaining assets, and the ultimate distribution to
stockholders of any assets remaining after satisfaction of its liabilities,
including personnel termination and related costs, sale transaction expenses and
final liquidation costs. In the event of such dissolution, the residual proceeds
of the sale of the Assets would become part of a pool of assets governed by the
plan of dissolution. Alternatively, management may elect to invest the net
proceeds from the sale of the Assets in assets or operations acquired by the
Company. In such an event, no assets will be distributed to the
stockholders.
  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.
  The
Company has not generated revenue since the sale of assets in December 2005. As
a result, current operations are not an adequate source of cash to fund future
operations. The report of the independent registered public accounting firm for
the year ended December 31, 2007 contains an explanatory paragraph regarding the
Company’s ability to continue as a going concern. The Company’s ability to
continue as a going concern is dependent on its ability to obtain necessary
financing to meet obligations and repay its liabilities when they become due or
be acquired by an operating company. The Company plans to continue to provide
for capital requirements from the cash from the sale of its assets. There are no
assurances that the Company will have sufficient funds to pay its obligations as
they become due or be acquired by an operating company.
   6
  3. SIGNIFICANT ACCOUNTING
POLICIES
  Cash and Cash Equivalents- Cash and cash equivalents include cash on hand and cash in banks in
demand and time deposit accounts with maturities of 90 days or
less.
  Restricted Cash– As
per the terms of the settlement agreement with Oak Beverages, Inc. (see Note 5)
the escrow agent shall pay and deliver to the Company all except $55,739 which
will be held in escrow to guarantee the satisfaction of a pending claim by Pabst
Brewing Company.  As a result $55,739, plus interest, is classified as
restricted cash on the Company’s balance sheet.
  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 basis 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.
  Income (loss) per Common
Share- Net 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.
  New Accounting
Pronouncements– Management does not believe that any other recently
issued, but not yet effective, accounting standards, if currently adopted, could
have a material effect on the accompanying financial statements.
  4. CONCENTRATION OF CREDIT
RISK
  The
Company maintains its cash balances at various financial institutions. These
balances are insured by the Federal Deposit Insurance Corporation up to
$250,000. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk on cash on
deposit.
  
 7
  5. LITIGATION
  On June
26, 2007, the Company filed a complaint against Oak Beverages, Inc.
("Oak"), Victoria Beverage, Inc. ("Victoria"), and Dealy &
Silberstein, LLP, solely in its capacity as escrow agent, in the U.S.
District Court for the Southern District of New York (the "Court"), seeking a
declaratory judgment that, under the parties' Asset Purchase Agreement, dated
September 15, 2005 and Escrow Agreement, dated December 16, 2005, the Company is
not required to indemnify Oak and Victoria for unemployment insurance
contributions based on the experience rating account held by Oak and maintained
by the State of New York Department of Labor
("NYDOL").
  On July
23, 2007, Oak and Victoria filed with the Court an answer, counterclaim, and
cross-claim in response to the Company's complaint alleging that the Asset
Purchase Agreement was "deliberately structured" such that any
liability, which would include the disputed unemployment
taxes, would be retained by the Company post-closing and would not be
transferred to Oak.  On August 15, 2007, the Company filed a
reply to Oak and Victoria's counterclaim.
  On August
6, 2008, the parties reached a settlement agreement.  The settlement
provided that the Company pay Oak the sum of $100,000.00 in full settlement of
all claims.  The settlement also provided that the balance of the
funds held in escrow, be released to the Company with the exception of the
amount of $55,739.00 which will continue to be held in escrow in connection with
a unrelated pending claim asserted by a third party.  The settlement
agreement was executed as of August 28, 2008 and included a Joint Stipulation
and Order of Dismissal with Prejudice (the "Joint Stipulation"), which
was signed by all parties.  Judge Buchwald signed and entered the
Joint Stipulation on September 8, 2008, which formally concluded the
action.
   
  8
  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, 2007 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
 
 Management’s
Discussion and Analysis
 
 As of
December 16, 2005, the Company closed the sale of the Assets to Oak, pursuant to
the terms and conditions of the Asset Purchase Agreement.  The
purchase price paid by Oak for the Assets was Nine Million Three Hundred
Thousand Dollars ($9,300,000.00), of which One Million Five Hundred Thousand
Dollars ($1,500,000.00), was deposited with an escrow agent, pursuant to the
terms of an escrow agreement, for at least 18 months for post closing
indemnification claims which may be asserted by Oak (the “Escrow”).  A
substantial amount of the proceeds from the transaction were used by the Company
to repay outstanding indebtedness and for working capital purposes.
 
 The Company will continue to use the
proceeds from the sale of the Assets for working capital purposes, including the
payment of indebtedness, trade payables and other outstanding
obligations.  Following the full payment of its creditors, the Company
may elect to acquire another entity, issue dividend(s) to its stockholders or
invest the net proceeds at the discretion of the Board of Directors and
management of the Company.  Management currently anticipates that
additional transactions may take the form of a dissolution of the corporation,
the liquidation of its remaining assets, and the ultimate distribution to
stockholders of any assets remaining after satisfaction of our liabilities,
including personnel termination and related costs, sale transaction expenses and
final liquidation costs.
 
 After application of the net proceeds
in the manner contemplated, and assuming ultimate release to us of the entire
escrowed amount, and after deduction of transaction costs in connection with the
Asset Sale, the Company will not have any remaining assets.  There
will be no monies left over for distribution, and we may have to reduce or
eliminate the severance pay provision.
 
 We will
continue to incur claims, liabilities and expenses, which will reduce the
realizable value of our remaining assets and the amount potentially available
for distribution to stockholders.  Claims, liabilities and expenses
from operations (such as salaries, directors’ and officers’ insurance, payroll
and taxes, legal, accounting and consulting fees and miscellaneous office
expenses) will continue to be incurred subsequent to the Asset
Sale.  These expenses will have to be satisfied from our remaining
assets and, therefore, will reduce the net realizable value of those
assets.
 
 The Company intends to comply with the
periodic reporting requirements of the Exchange Act for so long as we are
subject to those requirements.  We have an obligation to continue to
comply with the applicable reporting requirements of the Securities Exchange Act
of 1934, as amended, even though compliance with such reporting requirements is
economically burdensome.
 
 9
 As of December 2, 2005, all employees
were terminated, except for Carmine Stella who will continue to serve as the
Company’s Chief Executive Officer.
 
 RESULTS
OF OPERATIONS
 
 The
Company had no revenue from operations for the nine months ended September 30,
2008.
  General and administrative expenses for
the nine months ended September 30, 2008 were $367,226, which consisted mostly
of legal fees, tax accruals and the salary and expenses to our only remaining
employee.  General and administrative expenses for the nine months
ended September 30, 2007 were $436,933.
 
 At September 30, 2008 and December 31,
2007, respectively, we had a working capital (deficit) of ($931,435) and
($465,569), respectively.
  Item
3.  Quantitative and Qualitative Disclosures About Market
Risks
 
 All of
the Company’s indebtedness that would have posed an interest rate risk have been
paid in full. As a result, the Company no longer has an interest rate
risk.
  Item
4. Controls and Procedures
 
 We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Securities Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and
Treasurer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, as ours are designed to do, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
 
 As
required by SEC Rule 13a-15(b), we carried out an evaluation as of September 30,
2008, 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.
 
 10
 PART
II—OTHER INFORMATION
  Item
1.  Legal Proceedings –
 
 On June
26, 2007, the Company filed a complaint against Oak Beverages, Inc.
("Oak"), Victoria Beverage, Inc. ("Victoria"), and Dealy &
Silberstein, LLP, solely in its capacity as escrow agent, in the U.S.
District Court for the Southern District of New York (the "Court"), seeking a
declaratory judgment that, under the parties' Asset Purchase Agreement, dated
September 15, 2005 and Escrow Agreement, dated December 16, 2005, the Company is
not required to indemnify Oak and Victoria for unemployment insurance
contributions based on the experience rating account held by Oak and maintained
by the State of New York Department of Labor ("NYDOL").  On July
23, 2007, Oak and Victoria filed with the Court an answer, counterclaim, and
cross-claim in response to the Company's complaint alleging that the Asset
Purchase Agreement was "deliberately structured" such that any
liability, which would include the disputed unemployment
taxes, would be retained by the Company post-closing and would not be
transferred to Oak.  On August 15, 2007, the Company filed a
reply to Oak and Victoria's counterclaim.
  Subsequently,
the Court ordered the parties to submit to mediation,
which took place on August 6, 2008 and at which the parties reached a
settlement agreement.  The settlement provided that the Company pay Oak the
sum of $100,000.00 in full settlement of all claims.  The settlement
also provided that the balance of the funds held in escrow, be released to the
Company with the exception of the amount of $55,739.00 which will continue to be
held in escrow in connection with a unrelated pending claim asserted by a third
party.  The settlement agreement was executed as of August 28, 2008
and included a Joint Stipulation and Order of Dismissal with Prejudice (the
"Joint Stipulation"), which was signed by all parties.  Judge Buchwald
signed and entered the Joint Stipulation on September 8, 2008, which formally
concluded the action.
  Item 1A- Risk Factors-- There
have been no material changes in our risk factors from those disclosed in our
2007 Annual Report on Form 10-K.
 
 Item 2 – Unregistered Sales of Equity
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 theSarbanes
      Oxley Act of 2002
 
 31.2
              Certification
      of Treasurer pursuant to Section 302 of the SarbanesOxley
      Act of 2002
 
 32.1
              Certification
      of Chief Executive Officer and Treasurer pursuant toSection
      906 of the Sarbanes Oxley Act of
2002
 
  11
 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(Registrant)Date:   November
      13, 2008
                By:
                /s/ Carmine
      N. StellaCarmine
      N. Stella
                  President
      and Chief Executive Officer
                  (Principal
      Executive Officer)By:
                /s/
      Carol RussellCarol
      Russell
                  Secretary
      and Treasurer (Principal
                  Financial
      Officer and Accounting Officer)