CHILDRENS BEVERAGE GROUP INC



                           Filing Type:  10KSB/A
                           Description:  Annual Report
                           Filing Date:  Apr 17, 2001  Open as of May 16, 2001
                            Period End:  Dec 31, 2000


                      Primary Exchange:  Over the Counter Bulletin Board
                                Ticker:  TCBG




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                                Table of Contents



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             To jump to a section, double-click on the section name.

                                 10KSB OTHERDOC

PART I.........................................................................3
ITEM 1.........................................................................3
ITEM 2.........................................................................7
ITEM 3.........................................................................7
ITEM 4........................................................................10
PART II.......................................................................11
ITEM 5........................................................................11
Table 1.......................................................................11
ITEM 6........................................................................12
Table 2.......................................................................14
ITEM 7........................................................................19
Balance Sheet.................................................................20
Income Statement..............................................................21
Table 5.......................................................................22
Cash Flow Statement ..........................................................23
Table 7.......................................................................28
Table 8.......................................................................30
Table 9.......................................................................31
Table 10......................................................................32
Table 11......................................................................32
ITEM 8........................................................................39
PART III......................................................................39
ITEM 9........................................................................39
ITEM 10.......................................................................40
Table 12......................................................................40
ITEM 11.......................................................................40
Table 13......................................................................41
ITEM 12.......................................................................41
ITEM 13.......................................................................42
Table 14......................................................................42

                                EX-10.10 OTHERDOC

 ..............................................................................44


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                 UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549
                                  FORM 10-KSB/A
       (Mark one)

           X       Annual Report Pursuant to Section 13 or 15(d) of
         -----     the Securities Exchange Act of 1934

                   FOR THE FISCAL YEAR ENDED December 31, 2000

                   Transition Report Pursuant to Section 13 or 15(d)
         ------    of the Securities Exchange Act of 1934

                         Commission File Number 0-28125
                       The Children's Beverage Group, Inc.
                 (Name of Small Business Issuer in its charter)

                Delaware                                   87-0459103
     (State or other jurisdiction of                    (I.R.S. Employer
     incorporation or organization)                    Identification No.)

                   445 West Erie, Suite 106, Chicago, IL 60010
              (Address of principal executive offices) (Zip Code)

                     Issuer's telephone number:    (312) 654-0848

                237 Melvin Drive, 2nd Floor, Northbrook, IL 60062
        (Former name, former address, and former fiscal year if changed
                                from last report)

         Securities to be registered under Section 12(b) of the Exchange
                                    Act: None

         Securities to be registered under Section 12(g) of the Exchange
                 Act: Common Stock, par value $.0 0001 per share
                                (Title of Class)

         Check  whether the issuer:  (1) filed all reports  required to be filed
under  Section 13 or 15(d) of the Exchange Act during the past 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    No X
                                     ---   ---

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the best of the  registrant's  knowledge,  in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.  Yes    No X
                                          ---   ---

         State the issuer's revenue for its most recent fiscal year: $NIL.

         State the aggregate  market value of the voting and  non-voting  common
equity held by  non-affiliates  computed by  reference to the price at which the
stock was sold,  or the average  bid and ask prices of such common  equity as of
April 5, 2001: $2,137,391

         State the number of shares  outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.

--------------------------------------------------------------------------------
                  Class                    Outstanding as of March 31, 2001
--------------------------------------------------------------------------------
        Common Stock, par value                      32,262,504*
        $.0001 per share
--------------------------------------------------------------------------------
* Excludes 5,000,000 shares issued as collateral against a promissory note, see
Part II, Item 5 herein. Though issued, treated herein as not outstanding.

                    Documents Incorporated by Reference: None
            Transitional Small Business Disclosure Format: Yes    No  X
                                                              ---    ---


                                       1

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The Children's Beverage Group, Inc.

FORM 10-KSB

TABLE OF CONTENTS
                                                                            PAGE
                                                                            ----
                                     PART I

ITEM 1.   Description of Business . . . . . . . . . . . . . . . . . . . . . .  3

ITEM 2.   Description of Property . . . . . . . . . . . . . . . . . . . . . .  6

ITEM 3.   Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . .  6

ITEM 4.   Submission of Matters to a Vote of Security
          Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8

                                     PART II

ITEM 5.   Market for Common Equity and Other Stockholder
          Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9

ITEM 6.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations . . . . . . . . . . . . . . . . 10

ITEM 7.   Financial Statements  . . . . . . . . . . . . . . . . . . . . . . . 15

ITEM 8.   Changes in and Disagreements with Accountants on
          Accounting and Financial Disclosure . . . . . . . . . . . . . . . . 31

                                    PART III

ITEM 9.   Directors, Executive Officers, Promoters
          and Control Persons; Compliance with Section
          16(a) of the Exchange Act . . . . . . . . . . . . . . . . . . . . . 32

ITEM 10.  Executive Compensation  . . . . . . . . . . . . . . . . . . . . . . 33

ITEM 11.  Security Ownership of Certain Beneficial
          Owners and Management . . . . . . . . . . . . . . . . . . . . . . . 33

ITEM 12.  Certain Relationships and Related Transactions  . . . . . . . . . . 34

ITEM 13.  Exhibits and Reports on Form 8-K  . . . . . . . . . . . . . . . . . 35

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36



                                       2
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FORWARD-LOOKING STATEMENTS

         The  Company's  management  cautions  readers  that  certain  important
factors may affect the Company's  actual results and could cause such results to
differ materially from any forward-looking statements that may be deemed to have
been made in this Form 10-KSB or that are otherwise  made by or on behalf of the
Company.  For this purpose, any statements contained in the Form 10-KSB that are
not  statements  of  historical  fact  may  be  deemed  to  be   forward-looking
statements.  Without  limiting the  generality of the  foregoing,  words such as
"may,"  "expect,"  "believe,"   "anticipate,"   "intend,"  "could,"  "estimate,"
"plans," or "continue" or the negative or other variations thereof or comparable
terminology are intended to identify  forward-looking  statements.  Factors that
may affect the Company's results include,  but are not limited to, the Company's
limited operating  history,  its ability to re-initiate  productions and produce
additional   products,   its  dependence  on  one  customer  and  key  executive
management,   its  need  for  additional  financing  and  competition  from  its
competitors. The Company is also subject to risk factors that have been and will
be set forth from time to time in the Company's filings with the Commission. FOR
A COMPLETE  UNDERSTANDING OF SUCH FACTORS,  THIS ENTIRE DOCUMENT,  INCLUDING THE
FINANCIAL  STATEMENTS AND THE  ACCOMPANYING  NOTES AND THE COMPANY'S FORM 10-SB,
SHOULD BE READ IN THEIR ENTIRETY.


                                     PART I


ITEM 1.   DESCRIPTION OF BUSINESS

Overview

         The Children's Beverage Group is a Delaware corporation incorporated on
August  17,  1988  ("TCBG"  or  the  "Company").  TCGB  began  operating  in the
children's beverage market in March 1997. The Company's  corporate  headquarters
are  located  at 445 West  Erie,  Suite  106,  Chicago,  IL 60010.  The  Company
manufactures  and  markets  juice pouch  products  for the  children's  beverage
market,  although  production  and sales have been  discontinued  as of November
1999. The Company is pursuing avenues to re-initiate  production of its beverage
products, but no assurances can be given that production will be re-initiated.

         The Company focuses on providing low-cost juice drink products to major
supermarket  chains and mass merchandisers  throughout the United States.  Until
November 1999 when production halted, the Company contracted with a manufacturer
to make  juice  drink  pouches  and then fill the pouch with any flavor of juice
drink  requested by its customer.  The product was then shipped to the customer,
where it was sold under the private label of the customer.  The Company works in
tandem with the  customer to ensure that the  packaging,  graphic  design of the
label, and the juice flavors meet customer specifications.

Company History

         The Company was incorporated under the laws of the State of Delaware in
August 1988 and had no material  operations  until 1993. On March 25, 1997,  the
Company purchased all of the business and assets of a sole proprietorship  owned
by Jon A.  Darmstadter,  who was doing  business as Water  Pouch,  Inc.  ("Water
Pouch").  Water Pouch's  principal  business was  manufacturing and distributing
plastic water containers.  After purchasing Water Pouch, the Company changed its
name to The Children's  Beverage  Group,  Inc. in May 1997 and began  conducting
business in the children's beverage market.

         Subsequent to year end 1999, the Company expanded its strategy from one
of producing  private  label  beverage  products for various  retail  outlets by
capitalizing  on its patented  straw in pouch  technology by offering  long-term
licensing  of this  technology  to existing  beverage  makers.  This shift was a
result of what Management  feels is greater  opportunity and a greater chance of
achieving  profitable  operations  on a  long-term  basis.  Though a  number  of
potential customers expressed interest,  none have been willing to invest in the
technology to date.


Principal Product

         Until  November 1999,  the Company  produced all of Wal-Mart's  private
label  fruit juice pouch  product  line,  including  Great  Values and  BackPak.
BackPak was available in four  flavors,  Wild Cherry,  Fruit Punch Splash,  Slam
Dunk  Grape  and  Kickin  Orange,  and was sold in a "stand  up"  aseptic  pouch
package. Made of PET film and a foil lamentation, these packages are graphically
striking with up to six colors on each package.

         The Company's  juice pouches include a patented,  self-contained  fluid
dispensing  system  known as the "rip it sip it(TM)"  drink  system.  The system
consists of a built-in straw that is inserted  directly into the  product-filled
pouch during the manufacturing  process.  The straw is then accessed via a laser
score line. The consumer  simply tears the film and pushes the straw up from the
bottom of the pouch.


                                        3

<PAGE>

Manufacturing

         Starting in December 1998, the Company began production,  packaging and
distribution of its beverage products at a facility located near Toronto Canada.
This facility housed three of the Company's  Volpak 240 DF machines,  which were
used to manufacture its juice products. The Company leases two of these machines
and owns the third  machine.  Due to  manufacturing  problems and believing that
this  manufacturer  had  breached its  contractual  duties,  the Company  caused
manufacturing  at this  location to cease in September  1999.  The  manufacturer
refused to allow the Company to remove its equipment and soon  thereafter  filed
for bankruptcy. The bankruptcy court sold the machines as part of the process of
liquidation.  The  company  was  unsuccessful  in its  attempts  to salvage  the
equipment. See Legal Proceedings, below.

         Until November 1999, the Company's products were produced, packaged and
distributed from an off-site  facility located in the Warrenton  Products,  Inc.
("WPI")  facility in  Warrenton,  Missouri.  This  facility  houses three of the
Company's  Volpak  240 DF  machines,  which  are used to  manufacture  its juice
products. The Company owns two of these machines and leases a third machine. The
Company  rented the space in the facility at a cost of $0.15 cents per case. The
Company  managed the  manufacture of its products in this facility.  Discussions
and negotiations with Warrenton to re-initiate  production  failed.  The Company
has filed a lawsuit in January 2000 against this  manufacturer.  WPI, with other
creditors of the Company, filed an involuntary petition for relief under Chapter
7 of the  Bankruptcy  Code against the Company which was  dismissed.  Coincident
with  the  dismissal,  WPI  and  the  Company  signed  a  Stipulation  Agreement
precluding  WPI from  taking  part in the filing of an  involuntary  petition of
bankruptcy against the Company. See Legal Proceedings, below.

         The Company had anticipated  that  manufacturing  would commence in new
facilities in late 2000 in Rochester,  New York. In February  2000,  the Company
entered into a contract for the purchase of an 80,000 square foot  manufacturing
facility  on a 7 1/2  acre  site for  $975,000.  The  purchase  was  subject  to
satisfactory  environmental  contamination  testing,  approval  by the County of
Monroe  Industrial  Development  Agency  ("CMIDA"),  and  funding  by  the  U.S.
Department of Housing and Urban Development ("HUD"). Instead, funding was denied
by the City of Rochester  (New York) on behalf of CMIDA and HUD and the facility
is no longer  available under the contract.  The Company is seeking  alternative
manufacturing  facilities,  including the use of contract manufacturers,  but no
new facilities are anticipated in the foreseeable future.

New Products

         The  Company   developed  a  new  product   known  as   "Pack-A-Snack."
Pack-A-Snack  is a  prepackaged  plastic food box  containing  an  assortment of
snacks for  children,  including a 6.75 ounce juice drink pouch.  The Pack has a
12-month  shelf  life and  will be sold  directly  to  grocery  stores  and mass
merchandisers in the same manner as TCBG's juice drink products.  TCBG currently
has no contracts to distribute Pack-A-Snack.

         The Company  began  offering  its  pouch-based  technology  to existing
beverage  drink  manufacturers  ("Charter  Members")  utilizing a  manufacturing
licensing arrangement. The long history of the use of flexible pouch products in
Europe  provides a framework  for  anticipating  potential  demand in the United
States.  Utilizing its licensed patent agreement for the  "Self-Contained  Fluid
Dispensing  System" known in the trade as the "rip it sip it(TM)"  package,  the
Company is uniquely  positioned to provide an opportunity for existing  beverage
drink  producers to utilize this  technology.  The Company has  determined  that
developing   strategic   vendor   agreements   to  provide  a  "turnkey"   pouch
manufacturing solution would enhance introduction of this product.  Furthermore,
part of the Rochester  manufacturing facility would have possibly been allocated
for use as a test bed for Charter  Members to test the efficacy and  reliability
of medium-term  (approximately  six months) pouch filling  operations.  Though a
number of  potential  customers  expressed  interest,  none have been willing to
invest in the technology to date.

         Adequate  production  capacity is necessary for implementing  either or
both of  these  initiatives.  Accordingly,  since  the  Company  does  not  have
production   facilities  in  place  nor  the  financial   resources  to  open  a
manufacturing facility, these new products may never be produced.

Competition

         The market  for juice  boxes and juice  pouch  beverages  is  intensely
competitive.  The  competitive  factors  affecting  the market for the Company's
juice product include: vendor and product reputation, availability, ease of use,
product quality, price and the effectiveness of marketing and sales efforts. The
relative importance of each of these factors depends on the market segment.  The
Company's major  competitors  include Capri Sun, Hi-C Juice Drinks,  Minute Maid
Premium Juice Drinks,  Juicy Juice, Tang and MOTTS Juices. Most of the Company's
competitors  have greater  capital  resources and  experience in the  children's
beverage  industry than the Company.  There can be no assurance that the Company
will  be able to  compete  successfully  in the  children's  beverage  industry.
Competitive pressures faced by the Company could materially affect its business,
operating  results and  financial  condition.  TCBG,  however,  is continuing to
develop  private  label  packaging  opportunities  and expects  this part of the
business to increase in the next few years.



                                       4
<PAGE>

Suppliers and Contract Manufacturers

         The supplies used in the  production  and  manufacture of the Company's
products include, but are not limited to, water, concentrates, syrups, closures,
lamination and other packaging materials.  The Company is not dependent upon any
one supplier.  Management believes that there are numerous alternative suppliers
for these  materials,  therefore the loss of a supplier is not likely to disrupt
the Company's operations.

         The  Company  relied on one  contract  manufacturer  to  produce  juice
products for its sole customer.  Production at this facility  ceased in November
1999 due to disagreements  over production  levels deemed  unsatisfactory by the
Company.  On January 28, 2000, the Company filed a lawsuit against this contract
manufacturer in the U.S. District Court in the Eastern District of Missouri. The
suit  alleges  that the  contract  manufacturer  has  failed to comply  with its
contract with the Company and a subsequent letter of intent between the parties,
thereby causing the Company  irreparable harm. The loss of this manufacturer has
disrupted the Company's  operations,  and is expected to continue to disrupt its
operations, until alternative manufacturing arrangements are consummated.

One Customer

         Through  November  1999,  Wal-Mart  was the  Company's  sole  customer.
Because the Company is no longer producing any juice product,  Wal-Mart may seek
other  sources for its private  label juice  products.  The Company  cannot give
assurances  that  Wal-Mart will become a customer of the Company  again,  if and
when  manufacturing  commences.  The loss of Wal-Mart as a customer would have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.

Patents and Trademarks

         The Company has been granted a worldwide license to use the U.S. patent
on the fluid dispensing  patent. The patent was applied for and issued to Jon A.
Darmstadter,  the President and Chief Executive Officer of the Company in August
1999.  The  patent  is used in TCBG's  production  of its  juice  products.  Mr.
Darmstadter has entered into a license  agreement with the Company (the "License
Agreement")  allowing  the Company to use the patent in  exchange  for $1.00 per
year. Under the License Agreement,  the Company maintains the exclusive right to
use the patent in its  production  of juice pouch  products  for the life of the
patent (approximately 20 years). Additionally, the Company has trademark for the
"RIP IT SIP  IT(TM)." The bond holders of the  Industrial  Revenue  Bonds have a
security interest in the Company's license on this patent and on the trademark.

         Although  intellectual  property may derive the Company some value,  at
the  present  time,  management  believes  that other  factors,  such as product
innovations, are of more significance in the Company's particular industry. TCBG
avoids  infringing on patents of others by monitoring on a regular basis patents
issued with respect to food and beverage packaging.

         TCBG has applied for exclusive use of the trademark "Pack-A-Snack." The
Company has also applied for exclusive  use of the  trademark  "Cool Kid," which
may be licensed to  customers  who want the  product  produced  under this brand
name.

Government Regulation

         The manufacturing,  packaging, labeling, advertising,  distribution and
sale of TCBG's  products are subject to one or more federal  agencies  including
the Federal Food, Drug and Cosmetic Act, the Occupational  Safety and Health Act
and various federal and state statutes regulating the production,  sale, safety,
advertising,  labeling  and  ingredients  of such  products.  The Company is not
subject  to any  state  or  federal  approvals.  To  the  best  of  management's
knowledge, the Company complies with applicable state and federal laws necessary
to operate a beverage production and distribution company.

         The  Company  intends  to  manufacture  certain  products  pursuant  to
contracts  with  customers who will  distribute  the products under their own or
other  trademarks.  Such customers are subject to the  governmental  regulations
discussed  in  this  section  in  connection  with  their  purchase,  marketing,
distribution and sale of such products,  and the Company will be subject to such
regulations in connection with the manufacture of such products and its delivery
of services to such  customers.  However,  although the Company's  customers are
independent  companies,  and their labeling,  marketing and distribution of such
products is beyond the  Company's  control,  the failure of these  customers  to
comply with applicable laws or regulations  could have a material adverse effect
on the Company.  Governmental regulations in foreign countries where the Company
plans to sell products may prevent or delay entry into the market or require the
reformulation of certain of the Company's products. Compliance with such foreign
governmental  regulations  generally will be the responsibility of the Company's
customers in those  countries.  Those customers are  independent  companies over
which the Company will have no control.


                                       5
<PAGE>

         TCBG cannot predict the impact of possible changes that may be required
in response to future legislation,  rules or inquiries made from time to time by
governmental agencies. Food and Drug Administration  regulations may, in certain
circumstances,  affect  the  ability  of the  Company,  as well as others in the
industry,  to develop and market new products.  However, TCBG does not presently
believe  that  existing  applicable  legislative  and  administrative  rules and
regulations will have a significant impact on operations.

Employees

         All production and distribution of TCBG's products have been outsourced
to contract  manufacturers.  In the future,  the Company plans on hiring its own
production and  distribution  employees in  conjunction  with the opening of its
Rochester, New York manufacturing facility, see Description of Property,  below.
As of  December  31,  2000,  the  Company  had one  full-time  employee  and one
part-time employee.

Industry Segments

         No  information  is presented as to industry  segments.  The Company is
presently solely engaged in the principal  business of manufacturing  children's
beverage products.

ITEM 2.   DESCRIPTION OF PROPERTY

         TCBG  owns  no  real   property.   The  Company   headquarters   occupy
approximately  1,400 square feet of office space located at 445 West Erie, Suite
106,  Chicago,  IL 60010.  The Company leases this space under a  noncancellable
operating lease through January 31, 2004. Total rent for 2000 was $30,600, which
represents a prior office lease.  The future minimum rent for the remaining term
of the lease is approximately $82,400.


ITEM 3.   LEGAL PROCEEDINGS

Flavorchem Corporation Dispute

         Flavorchem Corporation  ("Plaintiff") v. The Children's Beverage Group,
Inc. and Jon Darmstadter,  Case No. 98 M1-165579, filed in the Chancery Division
of the Circuit  Court of Cook  County,  Illinois in  December  1998.  Flavorchem
Corporation  is  seeking  $42,542.53,  alleging  breach of  contract  and losses
(interest)  related  thereto.  The  dispute  arises out of an alleged  breach of
contract  (entered in 1996) between Beverage Pouch Systems,  Inc. and Flavorchem
concerning certain flavoring ingredients.  The claim alleges that the Company is
legally responsible for the alleged liability associated with the aforementioned
Beverage Pouch System contract with Flavorchem.

         An  appearance  and answer  have been  filed on behalf of the  Company.
Pursuant to a Motion to Strike  Plaintiff's  Affirmative  Defenses,  the Company
filed Amended Affirmative Defenses,  which have not been answered or objected to
as of March 30, 2000. This matter was dismissed for Want of Prosecution on March
27, 2000,  but was  reinstated  on April 26, 2000.  Plaintiff  has filed a First
Request  for  Interrogatories  and  Documents.  The  matter  was  scheduled  for
discovery status on June 21, 2000, but it has been delayed due to the illness of
one of the legal representatives in this matter.

Sweet Ripe Drinks, Ltd. Dispute

         The Company had a contractual relationship with Sweet Ripe Drinks, Ltd.
("Sweet Ripe"), a Canadian company,  whereby Sweet Ripe bottled and packaged the
Company's beverage product using machinery  provided by the Company.  During the
course of dealing,  there  arose  certain  disputes  between the parties as to a
variety of  continuing  manufacturing  problems.  Believing  Sweet Ripe to be in
breach of its  contractual  duties,  having provided an opportunity to cure, the
Company  caused its bottling and packaging at Sweet Ripe to cease.  In response,
Sweet  Ripe  refused  to allow the  Company  to remove  its  machinery.  Shortly
thereafter,  Sweet Ripe filed a Notice of Intention to File a Proposal under the
Canadian  Bankruptcy  and  Insolvency  Act,  which in  effect,  caused a stay of
proceedings.  The Company  then  petitioned  a Master of the  Superior  Court of
Justice to lift the stay of  proceedings  so that the Company could proceed with
an action to recover the manufacturing equipment. In arguing against the stay of
proceedings, Sweet Ripe asserted that the Company owes approximately $700,000 to
Sweet Ripe. The Master did not agree to lift the stay of proceedings  but rather
adjourned that matter subject to any orders that the Bankruptcy Court might make
with  regard to the  matter.  The  Bankruptcy  Court  required  the  filing of a
monetary  proof of claim which was filed in late  January 2000 and the claim was
denied due to Sweet Ripe's  counterclaim.  The Company appealed that decision on
February 16, 2000. On October 25, 2000,  the Ontario  Superior  Court of Justice
issued an ORDER, which includes the following:



                                       6
<PAGE>

         This Court orders that pursuant to s. 101 of the Courts of Justice Act,
         R.S.O.  1990, c. C-43 and s. 67 of the PPSA and effective 12:01 a.m. on
         the date hereof,  Ernst & Young, Inc. (the "Receiver") be and is hereby
         appointed  receiver and manager,  without  security,  of the Equipment,
         including  any and all  rights  in and  thereto,...and  subject  to the
         provisions hereof, the Receiver is hereby empowered and authorized, but
         not obligated,  to take possession and control of the Equipment and any
         and all proceeds, receipts and disbursements arising out of or from the
         Equipment, until further order of this court,...

Additionally,

         This Court orders that the Receiver be and is hereby directed to:
         (a)      sell  or  attempt  to  sell,  by  lot or in  bulk,  all of the
                  Equipment by way of a sale by sealed tender  substantially  on
                  the terms,  conditions  and  provisions  of the  Invitation to
                  Tender and Conditions of Sale...

         (d)      conduct the tender sale process  substantially  in  accordance
                  with this Order, the Invitation to Tender...

The  deadline for receipt of sealed  tender  offers is set for November 20, 2000
with the closing of sale  pursuant to the tender  offers  scheduled for December
4--8, 2000.

         The equipment at issue is valued at approximately $1.6 million.  Two of
the three major pieces of equipment at issue are leased and the Company owns the
remaining   equipment.   The  Company's  outside  legal  counsel  resigned  from
representing the Company as a result of the bankruptcy petition, described later
herein. As a result of this ORDER, the Company deems it unlikely that any of the
proceeds  will be returned to the Company and has written off the  remaining net
book value of the equipment, approximately $1,369,412.

Warrenton Products, Inc. Dispute

         The Company had a contractual  relationship  with  Warrenton  Products,
Inc.  ("WPI"),  a Missouri  corporation,  whereby WPI bottled and  packaged  the
Company's beverage product using machinery  provided by the Company.  During the
course of dealing, certain disputes arose between the parties about a variety of
manufacturing  problems,  including  disagreements over production levels deemed
unsatisfactory  by the Company.  In November 1999, WPI  unilaterally  decided to
discontinue  manufacturing  the  Company's  product for its sole  customer.  The
Company contended that WPI breached its contractual  obligations to the Company.
The Company entered into a letter of intent with WPI in December 1999 that would
subsequently allow for the reinitiating of production at WPI's facilities. Based
on WPI's  unwillingness  to cure conditions as provided for in either  document,
the Company  engaged  outside legal  counsel to handle its legal  representation
with respect to any related proceedings.

         On January 28,  2000,  the Company  filed a lawsuit  against WPI in the
U.S. District Court in the Eastern District of Missouri.  Besides recovering the
damages caused by WPI's discontinuing production,  the Company has requested the
Court to release the three major pieces of the  Company's  production  equipment
located at WPI which are valued at approximately $1.5 million.  Two of the three
major  pieces of  equipment  are  owned and the  Company  leases  the  remaining
equipment.  WPI has  offered  to  release  this  equipment,  and the  Company is
negotiating a settlement amount with WPI for the release of the equipment.

         On  February  3, 2000,  WPI filed a lawsuit  against the Company in the
Circuit  Court of  Warren  County,  Missouri.  This  lawsuit  alleges  breach of
contract,  promissory estoppel and fraudulent  misrepresentation,  which alleges
damages of  approximately  $2.0 million  plus  interest and costs and also seeks
punitive damages. On June 8, 2000, the Federal Court ruled that the two lawsuits
are to be  consolidated  into one proceeding in the United States District Court
in St. Louis. As a result, the litigation pending in the Circuit Court of Warren
County  has been  removed  to  Federal  Court.  The  parties  are now  beginning
discovery.  The Company  intends to vigorously  defend against the WPI claim and
prosecute its claim.

         On  August  20,  2000,  WPI  joined  with  other  parties  in filing an
involuntary  petition for relief under Chapter 7 of the Bankruptcy  Code against
the Company.  As explained  below, the Court dismissed this petition in an Order
entered on October 11, 2000. In a  Stipulation  attached to the Order to dismiss
the  involuntary  petition,  the  Company  waived  all  rights  relative  to the
Bankruptcy Code against WPI as a result of its filing this involuntary petition.
Furthermore,  WPI agreed not to file or to induce or encourage  the filing of an
involuntary petition against the Company in the future.

Capri Sun Dispute

         In February  2000,  Capri Sun,  Inc.  and Rudolph Wild GMBH & Co. KG, a
German limited partnership,  (collectively,  the "Plaintiffs") filed a Motion to
Reinstate  Case and Enforce  Settlement  Agreement in the  Northern  District of
Illinois, old case no. 97 C 1961 (Settlement  Agreement).  The Company has filed
its response to the Motion,  and Plaintiffs'  reply was filed on March 28, 2000.
The Company has denied  three of the four alleged  breaches  raised by Capri Sun
and offers to discontinue  use of the color blue on all future press runs of its
pouches.


                                       7
<PAGE>

         On July 21, 2000, the presiding  judge in this case issued a Memorandum
Opinion and Order refusing to reinstate the case,  dismissing  Plaintiffs Motion
and denying all relief.  Specifically,  on alleged breach number 4 (above),  the
Court held that use of the color  blue by the  Company  was de  minimus  and the
Company has agreed to discontinue use of the color.

Rochester, New York Plant Offer

         In February 2000, the Company  entered into a contract for the purchase
of an  80,000  square  foot  manufacturing  facility  on a 7 1/2  acre  site for
$975,000. The purchase was subject to satisfactory  environmental  contamination
testing,  approval  by  the  County  of  Monroe  Industrial  Development  Agency
("CMIDA"),  and funding by the U.S.  Department of Housing and Urban Development
("HUD").  Instead,  funding  was denied by the City of  Rochester  (New York) on
behalf  of CMIDA  and HUD and the  facility  is no  longer  available  under the
contract. The Company is seeking alternative manufacturing facilities, including
the use of contract manufacturers,  but no new facilities are anticipated in the
foreseeable future.

Bankruptcy Petition

         On August 30, 2000, Danisco Flexible Schupbach AG ("DFS"),  P.S. Custom
Broker  ("P.S.  Custom");  Hub Group St. Louis L.P.  ("Hub City") and  Warrenton
Products,  Inc. ("WPI") (collectively,  the "Involuntary  Petitioners") filed an
involuntary  petition for relief under Chapter 7 of the Bankruptcy  Code against
The Children's  Beverage Group, Inc. ("TCBG") (the "Involuntary  Petition").  On
September  20,  2000,  TCBG filed 'the Motion To Dismiss  seeking to dismiss the
Involuntary  Petition or to have the Court abstain from the Involuntary Petition
on the grounds that (i) the Involuntary  Petition was not properly filed because
certain of the  Involuntary  Petitioners'  claims  were  subject to a  bona-fide
dispute;  and (ii)  dismissal or abstention is in the best interest of creditors
and TCBG under  section 305 of the  Bankruptcy  Code.  On  September  22,  2000,
Specialized Metal Services,  Inc.  ("Specialized  Metal") filed a Motion To File
Joinder To Involuntary  Petition (the "Joinder Motion") and TCBG objected to the
Joinder Motion. On September 29, 2000, TCBG sent notice of the Motion To Dismiss
to all of its known  creditors.  Due and proper  notice of the Motion To Dismiss
was given and no other or further notice is required. The Court, based upon good
cause shown, had previously  shortened the twenty (20) day notice period for the
hearing on the Motion To Dismiss. A reasonable opportunity to object or be heard
regarding  the relief  requested  in the Motion to Dismiss has been given and no
objections having been made to the dismissal of the Involuntary  Petition or any
objects having being overruled.  DFS, Hub City, PS Custom and Specialized  Metal
have agreed to and consent to the dismissal of the Involuntary Petition. WPI has
agreed to and consents to the dismissal of the Involuntary Petition on the terms
and conditions of the Stipulation (the "WPI stipulation"). Specialized Metal has
agreed to withdraw the Joinder Motion.  TCBG has agreed to waive fees, costs and
damages under section 303 of the  Bankruptcy  Code relating to the filing of the
Involuntary Petition.

         Based upon the Motion To Dismiss and the evidence presented,  dismissal
of the  Involuntary  Petition is in the best interest of TCBG and its creditors.
Any  agreements  between any of the  Involuntary  Petitioners  and TCBG has been
adequately  disclosed to the Court. The following summary of the dismissal order
was entered on October 11, 2000:

         THE COURT ORDERED THAT:  The  Involuntary  Petition filed against TCBG,
         Case No.  00 B 25342,  is  dismissed  pursuant  to  section  305 of the
         Bankruptcy Code; The Joinder Motion is withdrawn,  with prejudice;  The
         Bankruptcy Court shall retain jurisdiction to enforce the terms of this
         Order;  The  Bankruptcy  Court  shall  retain  jurisdiction  to  decide
         disputes   concerning  the  WPI  Stipulation,   its  interpretation  or
         performance of the terms and conditions of the WPI Stipulation; and All
         parties  shall  bear  there  own fees and  costs  with  respect  to the
         Involuntary Petition.

Other Commitment and Contingencies

         On October 6, 2000,  an agreement  was entered into between the Company
and four  creditors  resulting from the  involuntary  bankruptcy  petition.  The
agreement  stipulates  payments in the amount of  $64,171.32 to the creditors in
full  and  complete  satisfaction  of any and all  claims  held by the  creditor
against the Company.  These  amounts were paid by October 11, 2000. In addition,
the  Company  is  committed  to  Danisco  to  purchase  goods in the  amount  of
$73,909.58  upon the earlier of (a) the Company request to ship the goods or (b)
twelve months after entry of a final order dismissing the petition,  October 11,
2001.

         The Company is involved in various other  litigation  incidental to its
business.  It is the opinion of management  that the outcome of such  litigation
will not have a material adverse effect on the Company's  financial  position or
results of operations.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         On October 22, 1999,  Jon A.  Darmstadter,  the sole owner of 6,469,504
outstanding shares of Common Stock and 1,000,000  outstanding shares of Series A
Preferred Stock (58.22% of the total votes entitled to be cast),  took action by
less than unanimous written consent of the stockholders to amend and restate the
Company's  Certificate of  Incorporation.  This amendment reduced the conversion
rate of the  Company's  Series A  Preferred  Stock  from  1-for-25  to  1-for-5.
Therefore,  on a change in control of  ownership  of the  Company,  the Series A
Preferred  Stock holder will  automatically  receive five shares of Common Stock
for each share of Preferred Stock that he holds.


                                       8
<PAGE>

PART II

ITEM 5.   MARKET PRICE FOR COMMON EQUITY AND OTHER RELATED SHAREHOLDER MATTERS

Market Information

         Prior to the filing of its  registration  statement (Form 10-SB/A),  on
January 15, 2000,  no shares of the Company's  Common Stock had been  registered
with the  Securities and Exchange  Commission  (the  "Commission")  or any state
securities agency of authority.  The Company's Common Stock has been traded on a
limited basis in the over-the-counter market and quotations are published on the
OTC  Bulletin  Board  under the symbol  "TCBG",  and in the  National  Quotation
Bureau, Inc. "pink sheets" under The Children's Beverage Group, Inc.

         The following  table sets forth the range of high and low bid prices of
the Common Stock for each fiscal  quarterly  period.  Prices reported  represent
prices between dealers, do not include retail markups,  markdowns or commissions
and do not represent actual transactions.


                                                FISCAL YEAR
                                           1999             2000
                                       High     Low     High     Low
                                      -----    -----   -----    -----
               First Quarter          $2.97    $1.09   $0.94    $0.06
               Second Quarter         $1.59    $1.31   $0.52    $0.19
               Third Quarter          $1.97    $0.84   $0.52    $0.15
               Fourth Quarter         $1.19    $0.56   $0.35    $0.06



         The  ability of  individual  shareholders  to trade  their  shares in a
particular  state may be subject to various rules and regulations of that state.
A number of states  require that an issuer's  securities  be registered in their
state or  appropriately  exempted from  registration  before the  securities are
permitted  to  trade  in that  state.  Presently,  the  Company  has no plans to
register  its  securities  in any  particular  state.  Further,  most likely the
Company's  shares will be subject to the  provisions  of Section  15(g) and Rule
15g-9 of the Securities  Exchange Act of 1934, as amended (the "Exchange  Act"),
commonly referred to as the "penny stock" rule. Section 15(g) sets forth certain
requirements for transactions in penny stocks and Rule 15g-9(d)(1)  incorporates
the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.

         The Commission  generally defines penny stock to be any equity security
that  has a  market  price  less  than  $5.00  per  share,  subject  to  certain
exceptions.  Rule 3a51-1 provides that any equity security is considered to be a
penny  stock  unless  that  security  is:  registered  and  traded on a national
securities exchange meeting specified criteria set by the Commission; authorized
for  quotation on The NASDAQ  Stock  Market;  issued by a registered  investment
company;  excluded from the definition on the basis of price (at least $5.00 per
share) or the issuer's net tangible  assets;  or exempted from the definition by
the Commission.  If the Company's shares are deemed to be a penny stock, trading
in the shares  will be subject to  additional  sales  practice  requirements  on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors,  generally persons with assets in excess of $1,000,000
or annual income exceeding $200,000, or $300,000 together with their spouse.

         For  transactions  covered by these rules,  broker-dealers  must make a
special  suitability  determination for the purchase of such securities and must
have received the purchaser's  written  consent to the transaction  prior to the
purchase.  Additionally,  for any  transaction  involving a penny stock,  unless
exempt,  the rules require the delivery,  prior to the first  transaction,  of a
risk  disclosure  document  relating to the penny stock market.  A broker-dealer
also must disclose the  commissions  payable to both the  broker-dealer  and the
registered representative,  and current quotations for the securities.  Finally,
monthly  statements  must be sent  disclosing  recent price  information for the
penny stocks held in the account and  information on the limited market in penny
stocks. Consequently,  these rules may restrict the ability of broker-dealers to
trade and/or maintain a market in the Company's  Common Stock and may affect the
ability of shareholders to sell their shares.


                                       9
<PAGE>

Holders

         As of March 31, 2001,  there were  approximately  603 record holders of
the  Company's  common  stock.  This  amount  does not take into  account  those
shareholders  whose  certificates  are  held in the  name of  broker-dealers  or
otherwise in street or nominee name.

Dividend Policy

         During 1998, the Company  declared a  one-for-eight  stock dividend and
issued  2,550,030  shares of  Common  Stock.  The  Company  has never  paid cash
dividends on its capital  stock and does not intend to do so in the  foreseeable
future.  TCBG  currently  intends to retain its earnings for the  operation  and
expansion of the business.  The Company's  continued need to retain earnings for
operations and expansion are likely to limit its ability to pay dividends in the
future.

         Dividends,  if any, will be contingent upon the Company's  revenues and
earnings, if any, capital requirements and financial conditions.  The payment of
dividends,  if any,  will be within the  discretion  of the  Company's  Board of
Directors.


TRANSFER AGENT

         The Company has designated Atlas Stock Transfer  Corporation 5899 South
State Street, Ste. 24, Salt Lake City, UT 84107, as its transfer agent.


ITEM 6.   MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITIONS AND
          OPERATIONS

         The  following  discussion  of the  Company's  financial  condition and
results of operations  should be read with the Company's  financial  statements,
including the notes, included elsewhere in this Form 10-KSB.

Overview

         The Company has  experienced  recurring  losses since inception and has
negative working capital and cash flows from  operations.  For the periods ended
December 31, 1997,  1998,  1999 and 2000, the Company  experienced a net loss of
$404,972,  $1,985,420,  $6,481,421 and $5,737,113,  respectively. As of December
31, 2000, the Company has a working capital deficit of $9,241,002.

         The Company's ability to continue as a going concern is contingent upon
its ability to secure additional financing,  re-initiate  production and product
sales and attain profitable  operations.  In addition,  the Company's ability to
continue  as a going  concern  must be  considered  in  light  of the  problems,
expenses and complications  frequently  encountered by entrance into established
markets and the competitive environment in which the Company operates.

         Management is pursuing  various  sources of debt and equity  financing.
Although  the  Company  plans to pursue  additional  financing,  there can be no
assurance  that the  Company  will be able to secure  financing  when  needed or
obtain  financing on terms  satisfactory to the Company.  Failure to secure such
financing  may result in the Company  continuing  the depletion of its available
funds.  Without  such funds the  Company has been would be unable to comply with
its payment obligations under its obligations to Industrial Revenue Bond holders
bank loans and with its vendors and would continue noncomplying with its payment
obligations.

         The  Company is  pursuing  avenues  to  re-initiate  production  of its
beverage  products in 2001. A U.S. contract  manufacturer,  whom the Company was
utilizing to produce its beverage products,  discontinued production in November
1999.  The  Company  has sued  this U.S.  contract  manufacturer  for  breach of
contract.  Furthermore,  seeking an alternative producer requires the release of
major pieces of the equipment.  All  Company-owned  and financed major pieces of
equipment are currently either held at the U.S.  contract  manufacturer's  plant
(three major pieces of equipment). The Company is negotiating the release of the
equipment.  There can be no assurance that the Company will be able to negotiate
a contract with a manufacturing  facility to produce its beverage  product as an
interim measure.  Failure to develop such an interim  manufacturing  arrangement
may result in the Company  continuing  the  depletion  of its  available  funds.
Without  such  funds the  Company  has been  unable to comply  with its  payment
obligations  under its  obligations to Industrial  Revenue Bond holders and with
its vendors and would continue noncomplying with its payment obligations.

         The  Company is in  default  on its  Industrial  Revenue  Bond  ("IRB")
Obligations.  This has resulted in the Company  being  approximately  $96,700 in
arrears on its IRB  obligations.  As a result,  the  Company is  technically  in
default on its bonds  (principal due of $7,420,000),  which are deemed currently
due and payable.  This default increases the difficulty of obtaining  additional
financing or negotiating interim manufacturing.


                                       10
<PAGE>

         The Company  closed on an  Industrial  Revenue Bond issuance in October
1999  relating to opening its own plant in Rochester,  New York (the  "Rochester
Plant").  The  Company  has lost its  rights  to the  plant  for  which it had a
purchase  contract  and  relinquished  its  right to its "good  faith"  deposits
related  thereto.  No  assurance  can be given that the Company  will be able to
arrange for production in the  foreseeable  future.  The Company is aggressively
seeking alternative interim production sources for its beverage products.

         In order to meet anticipated  expenses over the next twelve months, the
Company  intends to seek  additional  capital through the sale of common shares.
The Company is currently  registered on the OTC Bulletin  Board. No underwriter,
agent or other  person has agreed to assist the Company in  distributing  any of
its common  shares,  and no  actions  have been  taken to  ascertain  whether to
register  such  shares  under  the  Securities  Act of  1933,  as  amended  (the
"Securities  Act") or rely on exemptions  from  registration  to distribute such
shares.  No  assurance  can be  given  that  the  Company  will  be able to sell
securities or raise additional financing to meet its operating needs, or that if
available,  such sales could be effected on terms acceptable to the Company.  If
the  Company  is not able to sell  additional  securities  or  raise  additional
financing to meet its operating  expenses,  there is substantial  doubt that the
Company will be able to continue as a going concern.

         When the Company is  operating,  it expects  sales to be seasonal.  The
juice drink beverage industry generally  experiences its highest sales by volume
during the spring and summer  months and its lowest  sales by volume  during the
winter months.  As a result,  working  capital  requirements  and cash flow vary
substantially  throughout the year.  Consumer demand for products is affected by
weather conditions. Cool, wet spring or summer weather could result in decreased
sales of product  and could have an adverse  effect on the  Company's  financial
position, cash flows and results of operations.


Results of Operations

         The following selected financial  information has been derived from the
Company's  financial  statements.   The  information  set  forth  below  is  not
necessarily  indicative  of results of future  operations  and should be read in
conjunction with the financial  statements and notes thereto appearing elsewhere
in this Form 10-KSB.

         The following table sets forth the percentage relationship to net sales
of principal items  contained in the Company's  Statements of Operations for the
year  ended  December  31,  1999.  Since  there were no sales for the year ended
December 31, 2000, no reasonable  basis for percentage  relationships  exist and
accordingly  none are  reflected  within the table.  Any  percentages  discussed
throughout this analysis are stated on an approximate basis.



                                                         Years Ended
                                                         December 31,
                                                       2000        1999
                                                     -------     -------

               Net sales                                 N/A       100.0%
               Cost of sales                             N/A       139.4%
                                                     -------     -------
                    Gross loss                           N/A       (39.4%)
               Selling, general and
                 administrative expenses                 N/A       115.3%
               Impairment of long-lived assets           N/A           -
                                                     -------     -------

                    Operating loss                       N/A      (154.7%)
               Loss on disposal of equipment             N/A           -
               Loss on building and equipment
                 deposits forfeited                      N/A           -
               Other income                              N/A           -
               Interest income                           N/A         0.6%
               Interest expense                          N/A       (25.6%)
                                                     -------     -------
               Net loss                                  N/A      (179.7%)
                                                     =======     =======


                                       11
<PAGE>

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

         Net Sales.  Net sales decreased to zero for the year ended December 31,
2000 from  $3,606,987  for the year ended December 31, 1999. The decrease in net
sales is  attributable  to the Company's  products  being  manufactured  through
co-packing  relationships in 1999 with third-party  manufacturers.  One of these
co-packers   entered  into   bankruptcy   during  1999.  The  second   co-packer
discontinued  manufacturing  the Company's  product in November 1999.  Thus, all
production for and orders from Wal-Mart, the Company's sole customer,  ceased in
November 1999.

         Cost of Sales.  Cost of sales  decreased to $326,249 for the year ended
December 31, 2000 from  $5,027,152  for the year ended  December  31, 1999.  The
decrease  in cost of  sales  is  attributable  to the  co-packing  relationships
ceasing during 1999, as described above.  Primary components of cost of sales in
1999 were co-packing fees, ingredients,  packaging,  freight costs and equipment
repairs.  The  incurrence  of  cost of  sales  in 2000  primarily  reflects  the
write-off  of  inventory  that has  exceeded its safe usage date and the cost of
packaging  which cannot be utilized as a result of  negotiated  settlement  with
Capri Sun.

         Selling,  General  and  Administrative  Expenses.  Selling  general and
administrative  expenses decreased to $1,187,068 for the year ended December 31,
2000 from  $4,160,697  for the year ended  December  31,  1999.  The decrease in
selling,  general and administrative expenses in 2000 was primarily attributable
to a decrease in sales  promotion  expense of  $2,250,000  which  related to the
sponsorship  of an Indy  Racing  League  car team  plus  approximately  $500,000
reduction in professional fees plus  approximately  $200,000 in employee related
expenses.

         Impairment of  Long-lived  Assets.  Impairment of long-lived  assets of
$517,090  was  incurred  in the year  ended  December  31,  2000  while none was
recorded  in the year ended  December  31,  1999.  This  relates to  capitalized
issuance costs and fees associated  with the issuance of the Industrial  Revenue
Bonds in October 1999 which were being  ratably  amortized  over the life of the
bonds.  As a result of the  Company's  being in default on the  payment of these
bonds,  the future value of the  unamortized  remaining  cost of these costs are
deemed impaired and were written-off in 2000.

         Loss on  Disposal  of  Equipment.  Loss on  disposal  of  equipment  of
$1,101,388  was  incurred  in the year ended  December  31,  2000 while none was
recorded in the year ended December 31, 1999.  Nearly $1,097,000 of this loss on
disposal  of  equipment  related  to the  write-off  of the net  book  value  of
equipment held by a Canadian  manufacturer who provided the Company's production
of children's  beverages during the first nine months of 1999. This manufacturer
entered  into  bankruptcy  in 1999  and  disputes  related  to  monies  that the
manufacturer deemed were owed to them resulted in the manufacturer  holding this
equipment.  An involuntary  petition for relief in the U.S.  Bankruptcy Court by
certain of the Company's creditors resulted in the Company's Canadian attorneys,
who were  handling the case,  to resign just as this matter was going before the
Ontario  Superior Court of Justice.  As a result,  counsel did not represent the
Company,  and the  equipment  was placed in  receivership  and was ordered to be
sold.  As the Company does expect to realize any of the proceeds from this sale,
the remaining net book value was written off.

         Loss on Building and Equipment Deposits Forfeited. Loss on building and
equipment  deposits  forfeited  of  $2,006,705  was  incurred  in the year ended
December 31, 2000 while none was  recorded in the year ended  December 31, 1999.
In February  2000,  the Company  entered  into a contract for the purchase of an
80,000 square foot manufacturing facility on a 7 1/2 acre site for $975,000. The
purchase  was  subject  to  satisfactory  environmental  contamination  testing,
approval by the County of Monroe Industrial  Development  Agency ("CMIDA"),  and
funding  by the U.S.  Department  of  Housing  and  Urban  Development  ("HUD").
Instead,  funding  was denied by the City of  Rochester  (New York) on behalf of
CMIDA and HUD and the facility is no longer  available under the contract.  As a
result,  the escrow deposit of $50,000 on the property was forfeited  along with
$638,800 on deposit with two equipment vendors to cover their costs on equipment
orders for the facility.  Additionally, the Company had approximately $1,317,905
down  payment  on  eight  more  additional  Volpak  production  lines  that  the
manufacturer is treating as recovery of their costs incurred and damages.

         Other  Income.  Other  income  increased  to $51,228 for the year ended
December 31, 2000 while none was  recorded in the year ended  December 31, 1999.
The increase was  attributable  to $30,000 of a good faith deposit  relinquished
from  a  potential  lender  and  the  remainder  represents  vendor  settlements
discounts  resulting from the involuntary  bankruptcy petition filed against the
Company which was dismissed.

         Interest  Income.  Interest  income  increased  to $89,461 for the year
ended  December 31, 2000 from $20,782 for the year ended  December 31, 1999.  Of
this increase,  approximately  $63,000 was  attributable  to interest  earned on
undisbursed  bond  funds  held  by the  trustee  and  approximately  $6,000  was
attributable to higher interest rates on funds invested in bank  certificates of
deposit as required under the Company's bank line of credit arrangements.


                                       12
<PAGE>

         Interest  Expense.  Interest expense decreased to $739,302 for the year
ended  December 31, 2000 from $921,343 for the year ended December 31, 1999. The
decrease was primarily due to the one-time incurrence of approximately  $395,000
in interest  expense  related to the  conversion  of  stockholder  notes payable
during the year  ended  December  31,  1999,  plus bank loans and notes  payable
decreased  to   approximately   $92,000  at  December   31,  2000   compared  to
approximately  $998,000 at December  31,  1999 which  resulted in less  interest
expense thereon plus the discontinuance of using a factor on accounts receivable
and offset by an increase in interest expense related to the Industrial  Revenue
Bonds debt initiated in October 1999.

         Net Loss.  The Company's net loss  decreased to $5,737,113 for the year
ended  December 31, 2000 from  $6,481,421  for the year ended December 31, 1999.
The decrease in the Company's net loss was primarily  attributable to a decrease
in sales promotion expense of $2,250,000, which related to the sponsorship of an
Indy Racing  League car team in 1999, a reduction of  $1,100,000  in the loss at
the gross margin level, a reduction of nearly  $720,000 in selling,  general and
administrative  expenses,  and a reduction of approximately $180,000 in interest
expense.   Additionally,   interest   income  and  other  income   increased  by
approximately  $120,000.  These  reductions  were  offset by the  write-offs  of
approximately $1,101,000 related to equipment being sold by order of the Ontario
Superior  Court of Justice and  recorded as loss on disposal of  equipment  plus
approximately $2,007,000 related to the forfeiture of deposits on the Rochester,
New York building and  production  equipment on order to be used in the building
on which  funding  was denied by the City of  Rochester  (New York) on behalf of
CMIDA and HUD plus  approximately  $517,000  related to impairment of long-lived
assets  resulting from the default due to nonpayment of debt service payments on
the Industrial Revenue Bonds.


Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

         Net  Sales.  Net  sales  increased  to  $3,606,987  for the year  ended
December  31, 1999 from  $145,954  for the year ended  December  31,  1998.  The
increase in net sales is attributable to the Company ceasing to be a development
stage enterprise and correspondingly  increasing  production and orders from the
Company's sole customer, Wal-Mart.

         Cost of Sales. Cost of sales increased to $5,027,152 for the year ended
December 31, 1999 from $171,268 for the year ended December 31, 1998. The
increase in cost of sales is attributable to the Company ceasing to be a
development stage enterprise and correspondingly increasing production and
orders from the Company's sole customer, Wal-Mart. Primary components of cost of
sales in 1999 were co-packing fees, ingredients, packaging, freight costs and
equipment repairs.

         Selling  General  and  Administrative  Expenses.  Selling  general  and
administrative  expenses increased to $4,160,697 for the year ended December 31,
1999 from  $1,943,446  for the year ended  December 31, 1998.  The 1998 expenses
were limited to personnel,  overhead,  office  equipment and  professional  fees
incurred in formulating a business plan,  developing its marketing  strategy and
initial  sales  efforts.  The  increase in Selling  general  and  administrative
expenses in 1999 was primarily  attributable  to an increase in sales  promotion
expense of $1,200,000, which related to the sponsorship of an Indy Racing League
car team and to professional fees associated with becoming a publicly  reporting
company.

         Interest  Income.  Interest  income  increased  to $20,782 for the year
ended  December 31, 1999 from $ -0- for the year ended  December  31, 1998.  The
increase was attributable to a full year of funds invested in bank  certificates
of deposit as required under the Company's bank line of credit arrangements.

         Interest  Expense.  Interest expense increased to $921,343 for the year
ended  December 31, 1999 from $16,660 for the year ended  December 31, 1998. The
increase  was due to  increasing  bank line of credit  utilization  during 1999,
incurring  a full  year  of  interest  expense  on a  $1,180,716  capital  lease
arrangement  entered  into  late in 1998 and  covering  major  equipment  lines,
drawing down  $5,080,254  of an  Industrial  Revenue  Bond in October,  1999 and
incurring  $395,267  of  interest  expense  related to  converting  $592,900  of
stockholder notes payable into common stock with a value of $988,167.

         Net Loss.  The Company's net loss  increased to $6,481,421 for the year
ended  December 31, 1999 from  $1,985,420  for the year ended December 31, 1998.
The  increase in the  Company's  net loss  reflects  the  building of  corporate
infrastructure to support initial  manufacturing  operations and expected growth
and loss on production related to inefficiencies  related to the use of contract
manufacturers.


Liquidity and Capital Resources

         The Company's ability to continue as a going concern is contingent upon
its ability to secure additional financing and attain profitable operations.  In
addition,  the  Company's  ability  to  continue  as a  going  concern  must  be
considered  in light of the  problems,  expenses  and  complications  frequently
encountered by entrance into established markets and the competitive environment
in which the Company  operates.  Management  believes  that  sufficient  capital
resources will be generated from equity investment and debt financing to provide
necessary working capital for fiscal year 2001.


                                       13
<PAGE>

         The Company's principal cash requirements are for capital  requirements
for  building  out its  Rochester,  New York plant,  funding of  ingredient  and
packaging inventory necessary to fuel beginning operations,  funding of accounts
receivable  as a  result  of  re-initiating  operations,  selling,  general  and
administrative  expenses and employee  costs.  The Company's  primary sources of
cash have been from sales of its children's beverage product which provided cash
from  operations and the proceeds from the issuance of Industrial  Revenue Bonds
designated to and supporting the build-out of the Rochester, New York plant. The
Company is  investigating  various sources for additional  financing,  including
both equity infusion and debt facility arrangements, though no representation is
made as to the  Company's  ability to secure  either forms of  financing,  or if
successful, whether may be dilutive to existing shareholders.

         The Company had only started to generate  significant revenues from its
own  operations  in the first eleven  months of 1999,  however,  production  and
product  sales  ceased in  November  1999.  Prior to the  commencement  of these
operations,  the Company had nominal revenues due to the start-up nature of such
operations,  substantial ongoing investment in business development efforts, and
expenditures  to build the  appropriate  infrastructure  to support its expected
growth.  Consequently,  the Company  has been  substantially  dependent  on debt
financing to fund its cash requirements.

         The Company had two credit facilities under secured notes payable with
maturity dates of July 9, 2000 and September 5, 2000, respectively. The Company
could borrow a maximum of $500,000 and $50,000, respectively, under these
agreements. Borrowings were collateralized by substantially all of the Company's
assets. Borrowings of $500,000 and $50,000, respectively, were outstanding on
the lines as of December 31, 1999.

         On July 19, 2000,  the Company  relinquished  the $500,000 bank line of
credit  utilizing  the  restricted  investments  of $500,000 as reflected on the
balance  sheet as of December 31, 1999 to pay off this loan.  On August 4, 2000,
the Company was forced to relinquish  it remaining  $50,000 bank line of credit.
As a result, the Company does not have any credit lines available.

         During 1999, the Company began to sell its accounts receivables under a
factoring  agreement  established  with a  financial  institution.  The  sale of
accounts  receivable  stopped  in  November  1999 due to the  discontinuance  of
production and sales in November 1999.

         The Company made a payment of 2.2 million shares of common stock valued
at $2.25 million in 1999,  related to obligations under a sponsorship  agreement
with an Indy Racing  League car team.  The  Company's  logo was displayed on the
racing team's car and provided advertising for the Company.

         Jon A. Darmstadter has made various advances against a note, payable by
the Company to him,  totaling  $930,753($186,947  in fiscal 2000 and $743,806 in
fiscal 1999,  including  interest of $36,230 and $58,826,  respectively)  due on
demand.  Interest is accrued quarterly at 12%. As of December 31, 2000, payments
of $382,267  (consisting  of principal of $78,500 in fiscal 2000 and $270,467 in
fiscal 1999 and interest of $7,860 and $25,440,  respectively)  had been made by
the Company.  Additionally, the Company made a payment to Mr. Darmstadter of 2.8
million  shares  of  restricted  common  stock  valued  at  $546,000  in 2000 in
settlement of the then  outstanding  balance on the note (consisting of $485,681
of principal and $60,319 of  interest).  The balance as of December 31, 2000 and
1999 is $2,486 and $447,899, respectively.

         In October 1999,  the County of Monroe  Industrial  Development  Agency
(the "Agency") issued $7.42 million of its Industrial Development Revenue Bonds,
Series 1999 (the  "Bonds")  under an  Indenture  of Trust dated as of October 1,
1999 (the "Indenture") by and between the Agency and the trustee. The Bonds were
issued by the  Agency  for the  purpose  of  providing  funds to the  Company to
finance  certain  costs in connection  with a project.  The Company has received
$6,500,089 of the bond proceeds which has an interest rate of 8.75%. The Company
has not made any of its  scheduled  interest  payments on these bonds since June
2000.

         Net  cash  used  for  the  Company's   operations  was  $1,051,522  and
$2,201,300  for the years ended  December 31, 2000 and 1999,  respectively.  The
decrease in net cash used for operating  activities in fiscal 2000 was primarily
due to a smaller net loss.

         Cash used in  investing  activities  was for  purchases of property and
equipment was $144,125 and  $2,862,227 for the years ended December 31, 2000 and
1999,  respectively.  The decrease in 2000  relates  primarily to a reduction in
capital spending.

         The Company's  primary sources of liquidity have been from the issuance
of common stock and borrowings from shareholders, the bank and the proceeds from
the  Industrial  Revenue  bond  financing.   Proceeds  received  from  financing
activities were used for the Company's  operations and purchases of property and
equipment.  Net cash used in  financing  activities  was $359,433 for the fiscal
year ended December 31, 2000 while net cash provided by financing activities was
$7,412,926  for the fiscal  year  ended  December  31,  1999.  Fiscal  year 1999
included $6,850,950 from the issuance of industrial revenue bonds versus none in
fiscal  2000 and  approximately  $750,000  more from net  stockholder  advances.
Repayments of third-party  financing was  approximately  $200,000 in fiscal 2000
versus fiscal 1999.


                                       14
<PAGE>

Recent Accounting Pronouncements

         In June 1998, the Financial  Accounting  Standards  Board (FASB) issued
SFAS  No.133  (SFAS133)  "Accounting  for  Derivative  Instruments  and  Hedging
Activities",  which was amended by SFAS No. 137 and 138, issued in June 1999 and
June 2000,  respectively.  SFAS 133  established  standards for  accounting  for
derivative  instruments,  including certain derivative  instruments  embedded in
other contracts, and hedging activities.  SFAS 133, as amended, is effective for
fiscal years  beginning  after June 15, 2000.  The Company does not believe that
the  adoption  of  SFAS  133  will  have a  material  effect  on  the  financial
statements.

         In March 2000,  FASB  Interpretation,  No. 44,  "Accounting for Certain
Transactions  Involving Stock Compensation-An  Interpretation of APB Opinion No.
25," (FIN 44) was issued.  FIN 44 clarifies  the  application  of APB No. 25 for
certain  stock-based  compensation  issues.  FIN 44 clarifies the  definition of
employee  for  purposes of applying  APB No. 25, the  criteria  for  determining
whether a plan qualifies as a non-compensatory plan, the accounting consequences
of various modifications to the terms of a previously fixed option or award, and
the  accounting  for an  exchange  of share  compensation  awards in a  business
combination, among other matters. FIN 44 was effective July 1, 2000, but certain
conclusions in this  interpretation  cover  specific  events that occurred after
either December 15, 1998 or January 12, 2000. The  implementation  of FIN 44 did
not  have  a  significant  impact  on  our  financial  position  or  results  of
operations.

         In  September  2000,  the FASB  issued SFAS No.  140,  "Accounting  for
Transfers and Servicing of Financial Assets and  Extinguishments of Liabilities"
(SFAS 140). SFAS 140 replaces FASB Statement No. 125,  "Accounting for Transfers
and  Servicing  of  Financial  Assets and  Extinguishment  of  Liabilities"  and
provides  accounting  and  reporting  standards  for  transfers and servicing of
financial assets and  extinguishments  of liabilities  occurring after March 31,
2001 and is effective for recognition and reclassification of collateral and for
disclosures  relating to  securitization  transactions and collateral for fiscal
years  ending after  December  31,  2000.  The Company does not believe that the
adoption of SFAS 140 will have a material effect on the financial statements.

         In December 1999, the Securities and Exchange  Commission  (SEC) issued
Staff  Accounting  Bulletin  (SAB)  No.101,  "Revenue  Recognition  in Financial
Statements."  SAB 101  provides  the SEC Staff's  view's in  applying  generally
accepted accounting  principles to selected revenue issues. The Company does not
believe  that  the  adoption  of SAB 101  will  have a  material  effect  on the
financial statements.


INFLATION

         In the opinion of management,  inflation has not had a material  effect
on the operations of the Company.

ITEM 7.   FINANCIAL STATEMENTS

         The financial  statements for The Children's  Beverage Group,  Inc. for
the years ended December 31, 2000 and 1999 was audited by DiRocco & Dombrow, PA,
independent  certified public accountants.  These financial statements have been
prepared  in  accordance  with  generally  accepted  accounting  principles  and
pursuant  to  Regulation  S-B as  promulgated  by the  Securities  and  Exchange
Commission and are included herein in response to Item 7 of this Form 10-KSB.

                             DiRocco & Dombrow, P.A.
                      3601 West Commercial Blvd., Suite 39
                         Fort Lauderdale, Florida 33309
                   Telephone (954) 731-8181 Fax (954) 739-1054


                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------

The Children's Beverage Group, Inc.
Northbrook, Illinois

We have  audited the  accompanying  balance  sheets of The  Children's  Beverage
Group,  Inc. as of December  31,  2000 and 1999 and the  related  statements  of
operations,  changes in  stockholders'  equity  (deficit) and cash flows for the
years then ended.  These  financial  statements  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes, examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of The Children's Beverage Group,
Inc. as of December  31, 2000 and 1999 and the results of their  operations  and
cash  flows for the years  then  ended in  conformity  with  generally  accepted
accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a going  concern.  As  discussed  in the  summary of
accounting  policies,  the Company has  incurred  losses  since  inception,  has
negative working capital and cash flows from operations, has numerous unresolved
legal  matters,  and  has  currently  ceased  operations.  These  factors  raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans in regard to these matters are also described in the summary
of significant  accounting policies. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.


/s/ Dirocco & Dombrow, P.A.

DiRocco & Dombrow, P.A.
Fort Lauderdale, Florida
May 21, 2001


                                       15
<PAGE>

The Children's Beverage Group, Inc.
Balance Sheets
=============================================================================
December 31,                                         2000             1999
-----------------------------------------------------------------------------
Assets (Notes 2 and 6)

Current Assets
  Cash                                          $     13,204     $      9,653
  Restricted cash and cash equivalents               645,276          500,000
  Accounts receivable                                      -            6,176
  Inventories                                              -           94,460
-----------------------------------------------------------------------------
Total Current Assets                                 658,480          610,289
-----------------------------------------------------------------------------
Property and Equipment, Net (Notes 1 and 5)        1,761,276        4,851,163
Other Assets
  Intangible assets, net                              50,497          624,137
  Restricted cash and cash equivalents                     -        1,840,158
  Deposits                                                 -          499,588
-----------------------------------------------------------------------------
                                                $  2,470,253     $  8,425,335
=============================================================================

Liabilities and Stockholders' Equity (Deficit)

Current Liabilities
  Accounts payable                              $  1,284,285     $  1,327,577
  Accrued expenses                                   335,733          150,977
  Notes payable - bank (Note 2)                            -          550,000
  Notes payable - stockholder (Note 3)                89,980                -
  Notes payable - officer (Note 4)                     2,486          447,899
  Current portion of capital lease
   obligations (Note 5)                              766,998          766,998
  Current portion of industrial revenue
   bonds (Note 6)                                  7,420,000                -
-----------------------------------------------------------------------------
Total Current Liabilities                          9,899,482        3,243,451
-----------------------------------------------------------------------------
Long-Term Liabilities
  Capital lease obligations, less
   current maturities (Note 5)                             -                -
  Industrial revenue bonds, less
   current maturities (Note 6)                             -        7,420,000
-----------------------------------------------------------------------------
Total Long-Term Liabilities                                -        7,420,000
-----------------------------------------------------------------------------
Total Liabilities                                  9,899,482       10,663,451
-----------------------------------------------------------------------------

Commitments and Contingencies
  (Notes 4 through 13)

Stockholders' Equity (Deficit) (Note 9)
  Preferred stock, $.001 par value,
   50,000,000 shares authorized,
   1,000,000 shares outstanding                        1,000            1,000
  Common stock - $.0001 par value; 250,000,000
   shares authorized, 32,262,504 shares issued
   and outstanding at December 31, 2000 and
   29,462,504 shares issued and outstanding at
   December 31, 1999, respectively                     3,226            2,946
  Additional paid-in capital                       7,175,471        6,629,751
  Accumulated deficit                            (14,608,926)      (8,871,813)
-----------------------------------------------------------------------------
Total Stockholders' Equity (Deficit)              (7,429,229)      (2,238,116)
-----------------------------------------------------------------------------
                                                $  2,470,253     $  8,425,335
=============================================================================

See  accompanying   summary  of  accounting  policies  and  notes  to  financial
statements.


                                       16
<PAGE>

The Children's Beverage Group, Inc.
Statements of Operations
===============================================================================
                                                   Year ended        Year ended
                                                  December 31,      December 31,
                                                      2000              1999
===============================================================================

Net sales (Note 14)                               $         -       $ 3,606,987

Cost of sales                                         326,249         5,027,152
-------------------------------------------------------------------------------

Gross loss                                           (326,249)       (1,420,165)

Selling, general and administrative Expenses        1,187,068         4,160,697

Impairment of long-lived assets (Note 6)              517,090                 -
-------------------------------------------------------------------------------

Loss from operations                               (2,030,407)       (5,580,862)

Loss on disposal of equipment (Note 1)             (1,101,388)                -

Loss on building and equipment
  Deposits forfeited (Note 1)                      (2,006,705)                -

Other income                                           51,228                 -

Interest income                                        89,461            20,782

Interest expense                                     (739,302)         (921,343)
-------------------------------------------------------------------------------

Net loss                                          $(5,737,113)      $(6,481,421)
===============================================================================

Net loss per common share                         $     (0.19)      $     (0.23)
===============================================================================

Weighted average common
  shares outstanding                               30,324,042        28,126,196
===============================================================================



See  accompanying   summary  of  accounting  policies  and  notes  to  financial
statements.


                                       17
<PAGE>
<TABLE>
<CAPTION>

The Children's Beverage Group Inc.
Statement of Changes in Stockholders' Equity (Deficit)
=====================================================================================================================
                                                        Preferred Stock
                                                            Series A                Common Stock           Additional
                                                   ------------------------    ------------------------     Paid-in
                                                      Shares       Amount         Shares       Amount       Capital
---------------------------------------------------------------------------------------------------------------------
<S>                                                <C>          <C>           <C>           <C>           <C>
Balance, December 31, 1998                          1,000,000   $     1,000    25,761,337   $     2,576   $ 2,878,954

Issuance of warrants to purchase 413,000
  shares of common stock in settlement of
  negotiations with a manufacturing agent
  (Note 7)                                               --            --            --            --         413,000

Issuance of shares of common stock for
  conversion of warrants (Note 9)                        --            --         413,000            41           (41)

Contribution of $592,900 of debt by shareholder
 of corporation (Note 9)                                 --            --         988,167            99       988,068

Issuance of common stock for manufacturing
  services (Note 9)                                      --            --         100,000            10        99,990

Issuance of common stock for marketing
  services (Note 9)                                      --            --       2,200,000           220     2,249,780

Net loss                                                 --            --            --            --            --
=====================================================================================================================
Balance, December 31, 1999                          1,000,000   $     1,000    29,462,504   $     2,946   $ 6,629,751

Contribution of $546,900 of debt by shareholder
  and officer of corporation (Note 9)                    --            --       2,800,000           280       545,720


Net loss                                                 --            --            --            --            --
=====================================================================================================================


Balance, December 31, 2000                          1,000,000   $     1,000    32,262,504   $     3,226   $ 7,175,471
=====================================================================================================================

                                                   Accumulated
                                                      Deficit       Total
--------------------------------------------------------------------------------
Balance, December 31, 1998                        $(2,390,392)  $   492,138

Issuance of warrants to purchase 413,000
  shares of common stock in settlement of
  negotiations with a manufacturing agent
  (Note 9)                                               --         413,000

Issuance of shares of common stock for
  conversion of warrants (Note 9)                        --            --

Contribution of $592,900 of debt by shareholder
 of corporation (Note 9)                                 --         988,167

Issuance of common stock for manufacturing
  services (Note 9)                                      --         100,000

Issuance of common stock for marketing
  services (Note 9)                                      --       2,250,000

Net loss                                           (6,481,421)   (6,481,421)
--------------------------------------------------------------------------------
Balance, December 31, 1999                         (8,871,813)   (2,238,116)

Contribution of $592,900 of debt by shareholder
  and officer of corporation (Note 9)                    --         546,000

Net loss                                           (5,737,113)   (5,737,113)
--------------------------------------------------------------------------------
Balance, December 31, 2000                        (14,608,926)   (7,429,229)
================================================================================

</TABLE>

See  accompanying   summary  of  accounting  policies  and  notes  to  financial
statements.


                                       18
<PAGE>
<TABLE>
<CAPTION>

The Children's Beverage Group Inc.
Statements of Cash Flows
=================================================================================================================
                                                                                       Year ended    Period ended
                                                                                      December 31,   December 31,
                                                                                          2000           1999
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>            <C>
Cash Flows Used in Operating Activities
  Net loss                                                                            $(5,737,113)   $(6,481,421)
  Adjustments to reconcile net loss to net cash used in
     operating activities
     Depreciation and amortization                                                        349,404        246,368
     Amortization of Industrial Revenue Bond issuance costs                                51,960           --
     Write-off of equipment held in Canada being sold under court order (Note 1)        1,096,793           --
     Write-off of equipment deposits related to cancelled orders (Note 1)               1,357,767           --
     Write-off of deposits related to Rochester facility development (Note 1)             649,138           --
     Impairment of long-lived assets                                                      517,090           --
     Loss on sale of fixed assets                                                           4,595           --
     Noncash equity transaction charged to operations (Note 9)                               --        2,645,267
     Changes in assets and liabilities
       Decrease (increase) in accounts receivable                                           6,176         97,426
       Decrease (increase) in inventories                                                  94,460         56,795
       Increase in other assets                                                              --          (32,694)
       Increase in accounts payable                                                       373,452      1,115,983
       Increase in accrued expenses                                                       184,756        150,976
----------------------------------------------------------------------------------------------------------------
Net cash used in operating activities                                                  (1,051,522)    (2,201,300)
----------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
  Decrease(increase) in restricted cash                                                 2,194,470     (2,339,746)
  Purchase of property and equipment                                                     (144,125)    (2,862,227)
  Deposits related to Rochester facility development                                     (649,138)          --
  Proceeds from sale of fixed assets                                                       13,300           --
----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                                   1,414,506     (5,201,973)
----------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
  Proceeds from (repayment of) bank notes payable                                        (550,000)       150,500
  Proceeds from notes payable and stockholder advances                                    234,067      1,203,820
  Repayment of stockholder advances                                                       (43,500)      (275,920)
  Repayment of other notes payable                                                           --         (150,000)
  Capital lease obligation payments                                                          --         (366,424)
  Proceeds from Industrial Revenue Bonds, net of $569,050 of issuance costs in 1999                    6,850,950
----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                                (359,433)     7,412,926
----------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents                                        3,551          9,653

Cash and Cash Equivalents, at beginning of period                                           9,653            --
----------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, at end of period                                           $    13,204    $     9,653
================================================================================================================

Supplemental Disclosure of Cash Flow Information
  Cash paid during the year for interest                                              $   223,552    $   511,150

================================================================================================================
</TABLE>

Supplemental Schedule of Noncash Investing and Financing Activities

     During 1999,  the  Company  converted $592,900 of stockholder notes payable
          into common stock with a value of $988,167. Accordingly, the reduction
          of debt was recorded  with an increase to equity.  The excess value of
          the common  stock at the time of  conversion  was recorded as interest
          expense.
     During  1999,  the Company purchased machinery for $513,000 in exchange for
          common  stock  and  warrants.  Accordingly,  assets  and  equity  were
          recorded for this amount. Subsequently, the Company wrote-off $100,000
          of this amount related to the Sweet-Ripe litigation.
     During  1999,  the  Company  paid for $2,250,000 of advertising through the
          issuance of common stock. Accordingly, assets and equity were recorded
          for this amount.  The asset amount was ratably  charged to  operations
          throughout the year.
     During  2000,  the  Company converted $546,000 of stockholder/officer notes
          payable into common stock with a value of $546,000.  Accordingly,  the
          reduction of debt was recorded with an increase to equity.
     During  2000, the restricted certificate of deposits were used to repay the
          notes payable to the bank in the amount of $500,000.
     During  2000,  $416,744  accounts  payable  to  Sweet  Ripe Drinks, Ltd was
          written off against the disposal of the equipment.
================================================================================

See  accompanying   summary  of  accounting  policies  and  notes  to  financial
statements.


                                       19
<PAGE>

The Children's Beverage Group, Inc.
Summary of Accounting Policies
================================================================================

Description of Business

         The  Children's  Beverage  Group,  Inc.  (the  "Company"),  located  in
Chicago,  Illinois,  has been engaged in the  manufacture  and  distribution  of
children's  beverages to a single customer with locations  throughout the United
States.   The  Company's   products   were   manufactured   through   co-packing
relationships  with  third  party  manufacturers.  One  co-packer  entered  into
bankruptcy  during 1999 and held major equipment owned or leased by the Company.
A second co-packer discontinued production of the Company's beverage product and
also held major pieces of Company equipment.

Basis of Presentation

         Through  December  31,  1998  the  Company  was  a  development   stage
enterprise  with minimal  operations.  During the period ended December 31, 1999
the Company ceased to be a development stage enterprise.

         The  Company's  financial  statements  are presented on a going concern
basis,  which  contemplates  the  realization  of  assets  and  satisfaction  of
liabilities in the normal course of business.

         The Company has experienced recurring losses since inception and has
negative working capital and cash flows from operations. For the years ended
December 31, 1999 and 2000, the Company experienced a net loss of $6,481,421 and
$5,737,113, respectively. At December 31, 2000, the Company has a working
capital deficit of $9,241,002.

         The Company's ability to continue as a going concern is contingent upon
its ability to secure additional  financing,  reinitiate  production and sale of
its products  and attain  profitable  operations.  In  addition,  the  Company's
ability  to  continue  as a going  concern  must be  considered  in light of the
problems,  expenses and  complications  frequently  encountered by entrance into
established  markets  and the  competitive  environment  in  which  the  Company
operates.  Furthermore, the Company has recently been released from a bankruptcy
petition (see note 13,  below).  Additionally,  the Company is in default on the
Industrial  Revenue Bonds, debt and interest thereon is being paid from the debt
service reserve fund that the Company is liable to replace.  Unless financing is
obtained  in the  immediate  future,  the Company  may face  another  bankruptcy
petition, which could result in a court ordered bankruptcy.

         Management is pursuing  various  sources of debt and equity  financing.
Although  the  Company  plans to pursue  additional  financing,  there can be no
assurance  that the  Company  will be able to secure  financing  when  needed or
obtain  financing on terms  satisfactory to the Company.  Failure to secure such
financing  may result in the Company  continuing  the depletion of its available
funds.  Without  such funds the  Company has been would be unable to comply with
its payment obligations under its obligations to Industrial Revenue Bond holders
bank loans and with its vendors and would continue noncomplying with its payment
obligations.

         The  Company is  pursuing  avenues  to  re-initiate  production  of its
beverage  products in 2001. A U.S. contract  manufacturer,  whom the Company was
utilizing to produce its beverage products,  discontinued production in November
1999.  The  Company  has sued  this U.S.  contract  manufacturer  for  breach of
contract.  Furthermore,  seeking an alternative producer requires the release of
major pieces of the equipment.  All  Company-owned  and financed major pieces of
equipment are currently either held at the U.S.  contract  manufacturer's  plant
(three major pieces of equipment). The Company is negotiating the release of the
equipment.  There can be no assurance that the Company will be able to negotiate
a contract with a manufacturing  facility to produce its beverage  product as an
interim measure.  Failure to develop such an interim  manufacturing  arrangement
may result in the Company  continuing  the  depletion  of its  available  funds.
Without  such  funds the  Company  has been  unable to comply  with its  payment
obligations  under its  obligations to Industrial  Revenue Bond holders and with
its vendors and would continue noncomplying with its payment obligations.


                                       20
<PAGE>

The Children's Beverage Group, Inc.
Summary of Accounting Policies
================================================================================

         The  Company is in  default  on its  Industrial  Revenue  Bond  ("IRB")
obligations.  This has resulted in the Company  being  approximately  $96,700 in
arrears on its IRB  obligations.  As a result,  the  Company is  technically  in
default on its bonds  (principal due of $7,420,000)  which are deemed  currently
due and payable.  This default increases the difficulty of obtaining  additional
financing or negotiating interim manufacturing.

         The financial  statements do not include any adjustments to reflect the
possible future effects on the  recoverability  and  classification of assets or
the amounts and  classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.

Cash and cash equivalents

         For the purpose of the statement of cash flows,  the Company  considers
all  highly  liquid  cash   investments,   including  time  deposits,   as  cash
equivalents.

Restricted cash

         Restricted cash consists of the following:

         December 31,                                  2000            1999
         -----------------------------------------------------------------------

         Certificates of deposits used as
           Collateral against bank notes            $     --        $  500,000

         Restricted cash from industrial
           revenue bonds                            $  645,276       1,840,158

         The  restricted  cash from from  industrial  revenue  bonds  includes a
requirement  that the Company  maintains  $742,000 in a debt  service  fund.  At
December  31,  2000,  the  Company  failed  to  meet  this  requirement  and was
underfunded by $96,724.  In 2001, the cash in this fund was used to pay interest
on the bonds.

Inventories

         Inventories  are stated at the lower of cost, or market,  determined on
the  first-in,  first-out  ("FIFO")  method.  At December 31, 1999,  inventories
consist primarily of raw materials.

Property, Equipment and Depreciation

         Property and  equipment  are stated at cost.  Depreciation  is computed
over the  estimated  useful  lives of the  assets  (three  to 10  years)  by the
straight-line method.

Fair Value of Financial Instruments

         The carrying  amounts  reported in the balance sheets for cash and cash
equivalents,  accounts  receivable,  and accounts payable approximate fair value
because of the immediate or short-term maturity of these financial  instruments.
The carrying amount  reported for notes payable and long-term debt  approximates
fair value  because,  in general,  the  interest on the  underlying  instruments
approximates market rates.

Use of Estimates

         Preparation of the accompanying financial statements in accordance with
generally accepted  accounting  principles requires management to make estimates
and assumptions  about current and future events that affect the reported assets
and  liabilities  and the disclosure of contingent  assets and liabilities as of
the date of the financial  statements  and the reported  amounts of revenues and
costs and expenses during the reporting  period.  Actual results may differ from
those estimates.

Revenue Recognition

         The Company  recognizes  revenue and the related  costs when product is
shipped.

Advertising Costs

         Advertising  costs,  aggregating $1,005 in 2000 and $2,259,000 in 1999,
are expensed as incurred.

Taxes on Income

         Income taxes are  accounted  for using the asset and  liability  method
under  which  deferred  income  taxes  are  recognized  for  the  estimated  tax
consequences of temporary  differences  between the financial statement carrying
amounts and the tax basis of assets and  liabilities  and for the  benefits,  if
any, of tax credit or loss carryforwards. The amounts of any future tax benefits
are  reduced by a  valuation  allowance  to the  extent  such  benefits  are not
expected to be realized.

Net Loss Per Share

         Net loss per share is calculated  using the weighted  average number of
common shares outstanding during the period.


                                       21
<PAGE>

The Children's Beverage Group, Inc.
Summary of Accounting Policies
================================================================================

Recent Accounting Pronouncements

         In June 1998, the Financial  Accounting  Standards  Board (FASB) issued
SFAS  No.133  (SFAS133)  "Accounting  for  Derivative  Instruments  and  Hedging
Activities",  which was amended by SFAS No. 137 and 138, issued in June 1999 and
June 2000,  respectively.  SFAS 133  established  standards for  accounting  for
derivative  instruments,  including certain derivative  instruments  embedded in
other contracts, and hedging activities.  SFAS 133, as amended, is effective for
fiscal years  beginning  after June 15, 2000.  The Company does not believe that
the  adoption  of  SFAS  133  will  have a  material  effect  on  the  financial
statements.

         In March 2000,  FASB  Interpretation,  No. 44,  "Accounting for Certain
Transactions  Involving Stock Compensation-An  Interpretation of APB Opinion No.
25," (FIN 44) was issued.  FIN 44 clarifies  the  application  of APB No. 25 for
certain  stock-based  compensation  issues.  FIN 44 clarifies the  definition of
employee  for  purposes of applying  APB No. 25, the  criteria  for  determining
whether a plan qualifies as a non-compensatory plan, the accounting consequences
of various modifications to the terms of a previously fixed option or award, and
the  accounting  for an  exchange  of share  compensation  awards in a  business
combination, among other matters. FIN 44 was effective July 1, 2000, but certain
conclusions in this  interpretation  cover  specific  events that occurred after
either December 15, 1998 or January 12, 2000. The  implementation  of FIN 44 did
not  have  a  significant  impact  on  our  financial  position  or  results  of
operations.

         In  September  2000,  the FASB  issued SFAS No.  140,  "Accounting  for
Transfers and Servicing of Financial Assets and  Extinguishments of Liabilities"
(SFAS 140). SFAS 140 replaces FASB Statement No. 125,  "Accounting for Transfers
and  Servicing  of  Financial  Assets and  Extinguishment  of  Liabilities"  and
provides  accounting  and  reporting  standards  for  transfers and servicing of
financial assets and  extinguishments  of liabilities  occurring after March 31,
2001 and is effective for recognition and reclassification of collateral and for
disclosures  relating to  securitization  transactions and collateral for fiscal
years  ending after  December  31,  2000.  The Company does not believe that the
adoption of SFAS 140 will have a material effect on the financial statements.

         In December 1999, the Securities and Exchange  Commission  (SEC) issued
Staff  Accounting  Bulletin  (SAB)  No.101,  "Revenue  Recognition  in Financial
Statements."  SAB 101  provides  the SEC Staff's  view's in  applying  generally
accepted accounting  principles to selected revenue issues. The Company does not
believe  that  the  adoption  of SAB 101  will  have a  material  effect  on the
financial statements.

Reclassifications

         Certain amounts in the accompanying 1999 financial statements have been
reclassified to conform with the 2000 presentation.





                                       22
<PAGE>

The Children's Beverage Group, Inc.
Notes to Financial Statements
================================================================================

1.    Property and Equipment

         Property  and  equipment  are  summarized  by major  classification  as
follows:


               December 31,                             2000           1999
               -----------------------------------------------------------------

               Machinery and equipment (Note 5)      $1,987,549     $3,645,484
               Automobiles                                5,000         43,775
               Furniture and fixtures                    36,882         36,882
               Computers and peripherals                 34,308         34,308
               Construction in progress                       -      1,357,567
               -----------------------------------------------------------------
                                                      2,063,739      5,118,016
               Less accumulated depreciation           (302,463)      (266,853)
               -----------------------------------------------------------------

               Total                                 $1,761,276     $4,851,163
               =================================================================


On October 25, 2000,  the Ontario  Superior  Court of Justice - Commercial  List
entered an ORDER  whereby all the Company's  equipment in Canada  related to the
Sweet Ripe  dispute was placed in  receivership  with the  stipulation  that the
receiver  attempt to sell this equipment in settlement of certain claims related
to the Sweet  Ripe  bankruptcy  case over which the court has  jurisdiction.  An
involuntary  petition for relief in the U.S.  Bankruptcy Court by certain of the
Company's  creditors  resulted in the  Company's  Canadian  attorneys,  who were
handling  the case,  to resign just as this matter was going  before the Ontario
Superior Court of Justice.  As a result,  counsel did not represent the Company,
and the  equipment  was  placed  in  receivership  and was  ordered  to be sold.
Accordingly,  the  Company  deems it  unlikely  that it will  receive any of the
proceeds  of sale  and has  written-off  the  remaining  net  book  value of the
equipment,   approximately  $1,369,412.  See  note  13,  below,  for  additional
information regarding this matter.

The Company had anticipated that manufacturing  would commence in new facilities
in late 2000 in Rochester,  New York. In February 2000, the Company entered into
a contract for the purchase of an 80,000 square foot manufacturing facility on a
7 1/2  acre  site  for  $975,000.  The  purchase  was  subject  to  satisfactory
environmental contamination testing, approval by the County of Monroe Industrial
Development Agency ("CMIDA"),  and funding by the U.S. Department of Housing and
Urban Development ("HUD").  Instead, funding was denied by the City of Rochester
(New York) on behalf of CMIDA and HUD and the  facility  is no longer  available
under the contract.  As a result,  the escrow deposit of $50,000 on the property
was forfeited along with $638,800 on deposit with two equipment vendors to cover
their costs on equipment orders for the facility.  Additionally, the Company had
approximately $1,357,800 down payment on eight more additional Volpak production
lines that the  manufacturer is treating as recovery of their costs incurred and
damages.


2.   Notes Payable - Bank

         The Company had two credit  facilities under secured notes payable with
maturity dates of July 9, 2000 and September 5, 2000, respectively.  The Company
could  borrow a maximum of  $500,000  and  $50,000,  respectively,  under  these
agreements. Borrowings were collateralized by substantially all of the Company's
assets.  Borrowings of $500,000 and $50,000,  respectively,  were outstanding on
the lines as of December 31, 1999.

On July 19, 2000,  the Company  relinquished  the  $500,000  bank line of credit
utilizing  the  restricted  investments  of $500,000 as reflected on the balance
sheet as of  December  31,  1999 to pay off this loan.  On August 4,  2000,  the
Company was forced to relinquish it remaining  $50,000 bank line of credit. As a
result, the Company does not have any credit lines available.




                                       23
<PAGE>

The Children's Beverage Group, Inc.
Notes to Financial Statements
================================================================================

3.  Notes Payable - Stockholder

         The Company had two notes payable to a stockholder  with maturity dates
of November  10, 1999 and December  20,  1999,  respectively.  Interest was paid
periodically at 12%. The stockholder  advanced an additional $330,000 during the
first quarter of 1999.  During May 1999 the Company entered into an agreement to
convert  approximately  $592,900 of outstanding  stockholder  notes payable into
988,167  shares of common stock which were issued  during July 1999.  The common
stock had a value of $988,167. The excess value of the common stock was recorded
as interest expense at the time of conversion.

         During August 2000, the stockholder advanced $89,980.  Interest will be
paid periodically at 12%. The advance is payable on demand.


4.  Notes Payable - Officer and Related Party Transactions

         The Company's  President and Chief  Executive  Officer and its majority
shareholder has made various  advances  against a note to the Company that total
$930,753($186,947 in fiscal 2000 and $743,806 in fiscal 1999, including interest
of  $36,230  and  $58,826,  respectively)  due on  demand.  Interest  is accrued
quarterly at 12%. As of December 31, 2000,  payments of $382,267  (consisting of
principal  of $78,500 in fiscal 2000 and $270,467 in fiscal 1999 and interest of
$7,860 and $25,440,  respectively)  had been made by the Company.  Additionally,
the  Company  made  a  payment  to Mr.  Darmstadter  of 2.8  million  shares  of
restricted  common  stock valued at $546,000 in 2000 in  settlement  of the then
outstanding balance on the note (consisting of $485,681 of principal and $60,319
of  interest).  The  balance  as of  December  31,  2000 and 1999 is $2,486  and
$447,899, respectively.

         During  1999,  the  Company  reimbursed  its  president  $5,500  on the
purchase of fixed assets made by him on the Company's behalf.

         The Company has been granted a worldwide license to use the U.S. patent
on the "rip it sip it(TM)" drink  system.  The patent was applied for and issued
to Mr.  Darmstadter  in  August  1999.  The  patent  is  used  in the  Company's
production of its juice  products.  In September 1999, Mr.  Darmstadter  entered
into a license  agreement  with the  Company,  which was amended in January 2000
(the "License  Agreement"),  the License Agreement allows the Company to use the
patent in exchange for a $1.00 annual fee. Pursuant to the Employment  Agreement
between the Company  and Mr.  Darmstadter,  in the event that the control of the
Company changes, Mr. Darmstadter would receive a royalty in the amount of $0.005
per pouch of children's beverage product sold by the Company.  Under the License
Agreement,  the Company  maintains the exclusive  right to use the patent in its
production of juice pouch products for the life of the patent  (approximately 20
years).


5.  Capital Lease Obligations

         The Company  leases  certain  machinery  and  equipment  under  capital
leases. As lessee, the Company assumes all taxes,  maintenance costs,  insurance
and other  operating  costs over the life of the lease.  During the years  ended
December 31, 2000 and 1999,  principal and interest  payments under these leases
amounted to $-0- and $430,606, respectively.

         Two of the pieces of leased equipment were held in Canada with a former
contract manufacturer who petitioned for bankruptcy protection with the Canadian
courts.  In 2000, the Company's outside legal counsel resigned from representing
the Company as a result of the involuntary bankruptcy petition,  described later
herein,  filed  against  the  Company.  As a result of an ORDER by the  Canadian
bankruptcy  court, the equipment was sold by the Court appointee  Receiver.  The
Company  deems it  unlikely  that any of the  proceeds  will be  returned to the
Company  and  has  written  off the  remaining  net  book  value  of the  leased
equipment, approximately $867,587.




                                       24
<PAGE>

The Children's Beverage Group, Inc.
Notes to Financial Statements
================================================================================

Property recorded under such leases at December 31 consist of:

                                           2000             1999
--------------------------------------------------------------------------------

Machinery and equipment                 $  524,433      $ 1,630,716

Less accumulated depreciation               69,924          162,454
--------------------------------------------------------------------------------

Total                                   $  454,509      $ 1,468,262
================================================================================

Future minimum lease payments,  excluding  operating costs, in the aggregate and
for the years succeeding December 31, 2000 are:

Year ending December 31,                                     Amount
--------------------------------------------------------------------------------
2001                                                      $ 829,557
--------------------------------------------------------------------------------
Total future minimum lease payments                         829,557

Less amount representing interest                            62,559
--------------------------------------------------------------------------------
Net capital lease obligation                                766,998

Less current portion*                                       766,928
--------------------------------------------------------------------------------
Long-term portion                                         $       -
================================================================================

  * Since  the  Company  is in arrears on payment of the minimum lease payments,
    all payments are treated as currently payable.


6.   Industrial Revenue Bonds

         The Company, as borrower, entered into a financing arrangement with the
County of Monroe Industrial Development Agency (serving Rochester,  New York) to
issue $7,420,000 industrial development revenue bonds. The closing took place in
October,  1999 and  $4,892,224 was released and $188,030 was applied to interest
on the bonds for a total net obligation of $5,080,254 outstanding as of December
31,  1999.  Additionally,  $1,306,799  was  released,  $450,324  was  applied to
interest   on  the  bonds  and   interest   earnings  on   restricted   cash  of
($62,653)during the year ended December 31, 2000. Thus, the total net obligation
outstanding  at  December  31,  2000 was  $6,774,724.  The  bonds  have a stated
interest rate of 8.75% and are payable , as follows:

         2001     $1,144,250
         2002      1,145,938
         2003      1,143,688
         2004      1,142,500
         2005      1,141,938
         2006      1,141,562
         2007      1,145,938
         2008      1,144,188
         2009      1,141,313
         2010      1,141,875

The bonds are collateralized by nearly all the assets of the Company.


                                       25
<PAGE>

The Children's Beverage Group, Inc.
Notes to Financial Statements
================================================================================

         The  Company is in  default  on its  Industrial  Revenue  Bond  ("IRB")
obligations.  The Company last made partial payment of its bond obligation as of
June 29, 2000 and since then reserve funds have been used to pay interest to the
bond  holders.  This has resulted in the Company being  underfunded  in the debt
service  reserve  fund by $96,723 as of  December  31,  2000.  As a result,  the
Company is  technically  in default on its bonds  (principal  due of $7,200,000)
which are deemed currently due and payable.

         As a result of this default,  the  capitalized  issuance costs and fees
associated with the Industrial Revenue Bonds, which were being ratably amortized
over the life of the bonds,  are deemed  impaired and are being  written-off  in
2000.  The  unamortized  cost at the  determination  date of the  impairment was
$517,090.

7.       Leases

         The  Company  entered  into  a new  lease  for  office  space  under  a
noncancellable  operating lease through January 31, 2004. Total rent expense for
2000 and 1999 was $30,600 and $22,650, respectively,  which included for part of
1999 a prior office  lease under which  payments  were made on a  month-to-month
basis and for the remainder of 1999 and 2000 under a prior lease agreement which
was  effectively  cancelled  on January  31,  2001.  The future  minimum  rental
payments required under the new lease over the next four years is $82,400 broken
down as follows:

                    December 31,                          Amount
                    --------------------------------------------
                    2001                            $     24,400
                    2001                                  27,400
                    2002                                  28,200
                    2003                                   2,400
                    --------------------------------------------
                    Total                           $     82,400
                    ============================================


8.       Income Taxes

         The reasons for the  differences  between income taxes at the statutory
income tax rates and the provision  (benefit) for income taxes are summarized as
follows:


     December 31,                                   2000           1999
     ----------------------------------------------------------------------

     Income tax benefits at statutory rate     $ (2,188,000)  $ (2,593,000)
     Change in valuation allowance related to
       deferred tax benefit carryforwards      $  2,188,000   $  2,593,000
     ----------------------------------------------------------------------
     Income tax benefit                        $          -   $          -
     ----------------------------------------------------------------------

         Due to net operating losses and the uncertainty of realization,  no tax
benefit has been recognized for operating losses.

         At December 31,  2000,  net  operating  losses of  approximately  $14.3
million are available for carryforward  against future years' taxable income and
expire through the year 2020. The Company's ability to utilize its net operating
loss  carryforwards is uncertain and thus a valuation  reserve has been provided
against the Company's net deferred tax assets.

     The net deferred tax assets consist of the following:
                                                    2000           1999
     ----------------------------------------------------------------------

     Net operating loss carryforwards          $  4,781,000   $  3,387,000
     Valuation allowance                         (4,781,000)    (3,387,000)
     ----------------------------------------------------------------------

     Net deferred tax assets                   $          -   $          -
     ======================================================================


                                       26
<PAGE>

The Children's Beverage Group, Inc.
Notes to Financial Statements
================================================================================

9.    Stockholders' Equity

Common Stock Issuances
         Common stock was issued in 1999, as follows:

          a)   Sales of common stock - In  connection  with private  placements,
               the Company sold 1,450,000 shares in July 1998 for $812,000.

          b)   On September 17, 1999, the Company  entered into a Patent License
               Agreement  ("the  Agreement")  with its Chairman.  The patent was
               applied for and issued to the Company's  Chairman in August 1999.
               The Agreement provides the Company the exclusive right to use the
               U.S.  patent used in the production of the Company's  juice pouch
               products  for the  life of the  patent  in  exchange  for a $1.00
               annual fee unless a change-in- control event occurs. In the event
               that a change-in-control event occurs, the Chairman would receive
               a royalty  in the  amount  of  $0.0005  per  pouch of  children's
               beverage product sold by the Company.

          c)   On March 24, 1999, the Company issued  2,200,000 shares of common
               stock to satisfy its $2,250,000  obligations  under a sponsorship
               agreement with an Indy Racing League car team.

          d)   On  April  23,  1999,  the  Company  entered  into  a  Settlement
               Agreement  with a vendor,  under  which the  Company  issued  the
               vendor warrants to purchase 413,000 shares of common stock at par
               value in exchange for  machinery  and  equipment  with a value of
               $413,000.  In  addition,  on March 24, 1999,  the Company  issued
               100,000  shares of common stock to another  vendor as payment for
               an additional  $100,000 of machinery and equipment  which because
               of  bankruptcy  of the vendor is not deemed  recoverable  and has
               been written off.

          e)   During May 1999 the Company  entered into an agreement to convert
               approximately  $592,900 of outstanding  stockholder notes payable
               into 988,167 shares of common stock which were issued during July
               1999. The common stock had a value of approximately $988,000. The
               excess value of the common stock was recorded as interest expense
               at the time of conversion.

          f)   In November 1999, stock warrants issued to a vendor in April 1999
               were converted to 413,000 shares of the Company's common stock.

          g)   During  August  2000 the Company  entered  into an  agreement  to
               convert  and  treat  as  a  capital  contribution   approximately
               $546,000 of  outstanding  stockholder/officer  notes payable into
               2,800,000  shares of  restricted  common  stock which were issued
               during   September   2000.  The  common  stock  had  a  value  of
               approximately $546,000.


Preferred Stock

         The Series A preferred  stockholders  shall be entitled to 25 votes for
each share owned by them on all matters required or permitted to be submitted to
a vote of stockholders of the Company. The Series A preferred  stockholders also
share  ratably with common  stockholders  in dividends  (if any) declared by the
Board of Directors and in  liquidation  rights upon the  Company's  liquidation,
dissolution  or winding up. In the event of a change in control of the  Company,
the Series A Preferred Stock  automatically  converts into five shares of common
stock, subject to anti-dilution rights.



                                       27
<PAGE>

The Children's Beverage Group, Inc.
Notes to Financial Statements
================================================================================

10.    Promissory Note and Common Stock Collateral

During March, 2000, the Company negotiated a Promissory Note arrangement whereby
the lender  promised to provide debt  financing  of up to  $750,000,  payable by
March 12, 2001, at an interest rate of 12%. This  Promissory Note called for the
issuance  of  5,000,000  shares of the  Company's  common  stock  into an escrow
account for the benefit of the lender to act as collateral  ("Collateral") which
was issued at that time. The Collateral was to be returned upon repayment of all
principal  and  interest.  As of  December  31,  2000,  no funds had been issued
against the Promissory  Note. The Company began working with the Escrow Agent to
return the Collateral.

In August,  2000,  the lender paid the Company  $30,000 as "Good Faith"  earnest
money in  conjunction  with his proposed  purchase of the largest  shareholder's
stock holdings.  The lender did not make the additional "Good Faith" payments as
required by his agreement with the Company, and accordingly, he relinquished any
rights he might have to consummating  the purchase of the  shareholder's  stock.
The $30,000 has been recorded as other income.


11.    Common Stock Issued and Outstanding

         The Company has  250,000,000  shares of $.0001 par value  common  stock
authorized.  As of  December  31,  2000,  37,262,504  are  shown as  issued  and
outstanding, but 5,000,000 shares were issued as collateral against a Promissory
Note, as described in Note 10, above,  which represented a contingent  issuance.
The Company is working with the escrow agent and the potential lender's attorney
for the  return of these  shares  issued as  collateral.  Accordingly,  only the
remaining  32,262,504  shares of common  stock  will be  treated  as issued  and
outstanding  common  stock as of  December  31,  2000 for  accounting  purposes,
including the  determination  of weighted  average common stock  outstanding for
determining  basic and diluted  net loss per share.  As of  December  31,  1999,
29,049,504 shares of common stock were issued and outstanding.


12.    Stock Options

         In  February  2000,  the  Company  initiated  a Stock  Option Plan (the
"Plan") that provides the ability to issue up to five million (5,000,000) of the
Company's   common   stock  to  its   employees,   directors   or  key   service
providers/consultants with an exercise price above fair market value, as defined
in the Plan, at the date of grant. In conjunction with the Plan's adoption,  the
board of directors  approved the grant of incentive stock options,  representing
2,033,200 shares of common stock, to all officers and full-time employees. These
options  began  vesting  within six (6) months after  issuance and will be fully
vested at the  second  anniversary  date of their  grant,  so long as the option
holder  remains an employee  of the  Company.  These  issued  options  expire in
February  2005 and are  exercisable  at prices  ranging  from $0.62 to $0.68 per
share. As a result of the involuntary  bankruptcy  petition  against the Company
(described  in  Note  2,  above),  payment  of  employees  by  the  Company  was
discontinued  as of the week  ending  September  29,  2000 and their  employment
status relative the granted stock options is unclear.


13.    Commitments and Contingencies

Sweet Ripe Drinks, Ltd. Dispute

         The Company had a contractual relationship with Sweet Ripe Drinks, Ltd.
("Sweet Ripe"), a Canadian company,  whereby Sweet Ripe bottled and packaged the
Company's beverage product using machinery  provided by the Company.  During the
course of dealing,  there  arose  certain  disputes  between the parties as to a
variety of  continuing  manufacturing  problems.  Believing  Sweet Ripe to be in
breach of its  contractual  duties,  having provided an opportunity to cure, the
Company  caused its bottling and packaging at Sweet Ripe to cease.  In response,
Sweet Ripe refused to


                                       28
<PAGE>

The Children's Beverage Group, Inc.
Notes to Financial Statements
================================================================================

allow the Company to remove its machinery.  Shortly thereafter, Sweet Ripe filed
a Notice of  Intention  to File a Proposal  under the  Canadian  Bankruptcy  and
Insolvency Act, which in effect, caused a stay of proceedings.  The Company then
petitioned  a  Master  of the  Superior  Court  of  Justice  to lift the stay of
proceedings  so that the  Company  could  proceed  with an action to recover the
manufacturing equipment. In arguing against the stay of proceedings,  Sweet Ripe
asserted that the Company owes approximately  $700,000 to Sweet Ripe. The Master
did not agree to lift the stay of proceedings  but rather  adjourned that matter
subject to any orders  that the  Bankruptcy  Court might make with regard to the
matter.  The  Bankruptcy  Court required the filing of a monetary proof of claim
which was filed in late  January  2000 and the  claim  was  denied  due to Sweet
Ripe's counterclaim. The Company appealed that decision on February 16, 2000. On
October 25, 2000, the Ontario  Superior Court of Justice issued an ORDER,  which
includes the following:

         This Court orders that pursuant to s. 101 of the Courts of Justice Act,
         R.S.O.  1990, c. C-43 and s. 67 of the PPSA and effective 12:01 a.m. on
         the date hereof,  Ernst & Young, Inc. (the "Receiver") be and is hereby
         appointed  receiver and manager,  without  security,  of the Equipment,
         including  any and all  rights  in and  thereto,...and  subject  to the
         provisions hereof, the Receiver is hereby empowered and authorized, but
         not obligated,  to take possession and control of the Equipment and any
         and all proceeds, receipts and disbursements arising out of or from the
         Equipment, until further order of this court,...

Additionally,

         This Court orders that the Receiver be and is hereby directed to:
         (b)      sell  or  attempt  to  sell,  by  lot or in bulk,  all of  the
                  Equipment by way of a sale by sealed tender  substantially  on
                  the  terms,  conditions  and  provisions  of the Invitation to
                  Tender and Conditions of Sale...
         (d)      conduct the tender sale process  substantially  in  accordance
                  with this Order, the Invitation to Tender...

The  deadline for receipt of sealed  tender  offers is set for November 20, 2000
with the closing of sale  pursuant to the tender  offers  scheduled for December
4--8, 2000.

         The equipment at issue is valued at approximately $1.6 million.  Two of
the three  major  pieces of  equipment  at issue are  leased  and the  remaining
equipment is owned by the Company.  The Company's outside legal counsel resigned
from representing the Company as a result of the bankruptcy petition,  described
later herein.  As a result of this ORDER, the Company deems it unlikely that any
of the  proceeds  will  be  returned  to the  Company  and has  written  off the
remaining net book value of the equipment, approximately $1,369,412.

Warrenton Products, Inc. Dispute

         The Company had a contractual  relationship  with  Warrenton  Products,
Inc.  ("WPI"),  a Missouri  corporation,  whereby WPI bottled and  packaged  the
Company's beverage product using machinery  provided by the Company.  During the
course of dealing, certain disputes arose between the parties about a variety of
manufacturing  problems,  including  disagreements over production levels deemed
unsatisfactory  by the Company.  In November 1999, WPI  unilaterally  decided to
discontinue  manufacturing  the  Company's  product for its sole  customer.  The
Company contended that WPI breached its contractual  obligations to the Company.
The Company entered into a letter of intent with WPI in December 1999 that would
subsequently allow for the reinitiating of production at WPI's facilities. Based
on WPI's  unwillingness  to cure conditions as provided for in either  document,
the Company  engaged  outside legal  counsel to handle its legal  representation
with respect to any related proceedings.

On  January  28,  2000,  the  Company  filed a lawsuit  against  WPI in the U.S.
District  Court in the Eastern  District of  Missouri.  Besides  recovering  the
damages caused by WPI's discontinuing production,  the Company has requested the
Court to release the three major pieces of the  Company's  production  equipment
located at WPI


                                       29
<PAGE>

The Children's Beverage Group, Inc.
Notes to Financial Statements
================================================================================

which are valued at approximately $1.5 million. Two of the three major pieces of
equipment  are owned and the remaining  equipment is leased by the Company.  WPI
has  offered  to release  this  equipment,  and the  Company  is  negotiating  a
settlement amount with WPI for the release of the equipment.

         On  February  3, 2000,  WPI filed a lawsuit  against the Company in the
Circuit  Court of  Warren  County,  Missouri.  This  lawsuit  alleges  breach of
contract,  promissory estoppel and fraudulent  misrepresentation,  which alleges
damages of  approximately  $2.0 million  plus  interest and costs and also seeks
punitive damages. On June 8, 2000, the Federal Court ruled that the two lawsuits
are to be  consolidated  into one proceeding in the United States District Court
in St. Louis. As a result, the litigation pending in the Circuit Court of Warren
County  has been  removed  to  Federal  Court.  The  parties  are now  beginning
discovery.  The Company  intends to vigorously  defend against the WPI claim and
prosecute its claim.

         On  August  20,  2000,  WPI  joined  with  other  parties  in filing an
involuntary  petition for relief under Chapter 7 of the Bankruptcy  Code against
the Company.  As explained  below, the Court dismissed this petition in an Order
entered on October 11, 2000. In a  Stipulation  attached to the Order to dismiss
the  involuntary  petition,  the  Company  waived  all  rights  relative  to the
Bankruptcy Code against WPI as a result of its filing this involuntary petition.
Furthermore,  WPI agreed not to file or to induce or encourage  the filing of an
involuntary petition against the Company in the future.

Capri Sun Dispute

         In February  2000,  Capri Sun,  Inc.  and Rudolph Wild GMBH & Co. KG, a
German limited partnership,  (collectively,  the "Plaintiffs") filed a Motion to
Reinstate  Case and Enforce  Settlement  Agreement in the  Northern  District of
Illinois, old case no. 97 C 1961 (Settlement  Agreement).  The Company has filed
its response to the Motion,  and Plaintiffs'  reply was filed on March 28, 2000.
The Company has denied  three of the four alleged  breaches  raised by Capri Sun
and offers to discontinue  use of the color blue on all future press runs of its
pouches.

         On July 21, 2000, the presiding  judge in this case issued a Memorandum
Opinion and Order refusing to reinstate the case,  dismissing  Plaintiffs Motion
and denying all relief.  Specifically,  on alleged breach number 4 (above),  the
Court held that use of the color  blue by the  Company  was de  minimus  and the
Company has agreed to discontinue use of the color.

Bankruptcy Petition

         On August 30, 2000, Danisco Flexible Schupbach AG ("DFS"),  P.S. Custom
Broker  ("P.S.  Custom");  Hub Group St. Louis L.P.  ("Hub City") and  Warrenton
Products,  Inc. ("WPI") (collectively,  the "Involuntary  Petitioners") filed an
involuntary  petition for relief under Chapter 7 of the Bankruptcy  Code against
The Children's  Beverage Group, Inc. ("TCBG") (the "Involuntary  Petition").  On
September  20,  2000,  TCBG filed 'the Motion To Dismiss  seeking to dismiss the
Involuntary  Petition or to have the Court abstain from the Involuntary Petition
on the grounds that (i) the Involuntary  Petition was not properly filed because
certain of the  Involuntary  Petitioners'  claims  were  subject to a  bona-fide
dispute;  and (ii)  dismissal or abstention is in the best interest of creditors
and TCBG under  section 305 of the  Bankruptcy  Code.  On  September  22,  2000,
Specialized Metal Services,  Inc.  ("Specialized  Metal") filed a Motion To File
Joinder To Involuntary  Petition (the "Joinder Motion") and TCBG objected to the
Joinder Motion. On September 29, 2000, TCBG sent notice of the Motion To Dismiss
to all of its known  creditors.  Due and proper  notice of the Motion To Dismiss
was given and no other or further notice is required. The Court, based upon good
cause shown, had previously  shortened the twenty (20) day notice period for the
hearing on the Motion To Dismiss. A reasonable opportunity to object or be heard
regarding  the relief  requested  in the Motion to Dismiss has been given and no
objections having been made to the dismissal of the Involuntary  Petition or any
objects having being overruled.  DFS, Hub City, PS Custom and Specialized  Metal
have agreed to and consent to the dismissal of the



                                       30
<PAGE>

The Children's Beverage Group, Inc.
Notes to Financial Statements
================================================================================

Involuntary  Petition.  WPI has agreed to and  consents to the  dismissal of the
Involuntary  Petition on the terms and conditions of the  Stipulation  (the "WPI
Stipulation"). Specialized Metal has agreed to withdraw the Joinder Motion. TCBG
has agreed to waive fees,  costs and damages under section 303 of the Bankruptcy
Code relating to the filing of the Involuntary Petition.

         Based upon the Motion To Dismiss and the evidence presented,  dismissal
of the  Involuntary  Petition is in the best interest of TCBG and its creditors.
Any  agreements  between any of the  Involuntary  Petitioners  and TCBG has been
adequately  disclosed to the Court. The following summary of the dismissal order
was entered on October 11, 2000:

         THE COURT ORDERED THAT:  The  Involuntary  Petition filed against TCBG,
         Case No.  00 B 25342,  is  dismissed  pursuant  to  section  305 of the
         Bankruptcy Code; The Joinder Motion is withdrawn,  with prejudice;  The
         Bankruptcy Court shall retain jurisdiction to enforce the terms of this
         Order;  The  Bankruptcy  Court  shall  retain  jurisdiction  to  decide
         disputes   concerning  the  WPI  Stipulation,   its  interpretation  or
         performance of the terms and conditions of the WPI Stipulation; and All
         parties  shall  bear  there  own fees and  costs  with  respect  to the
         Involuntary Petition.

Other Commitment and Contingencies

         On October 6, 2000,  an agreement  was entered into between the Company
and four  creditors  resulting from the  involuntary  bankruptcy  petition.  The
agreement  stipulates  payments in the amount of  $64,171.32 to the creditors in
full  and  complete  satisfaction  of any and all  claims  held by the  creditor
against the Company.  These  amounts were paid by October 11, 2000. In addition,
the  Company  is  committed  to  Danisco  to  purchase  goods in the  amount  of
$73,909.58  upon the earlier of (a) the Company request to ship the goods or (b)
twelve months after entry of a final order dismissing the petition,  October 11,
2001.

         The Company is involved in various other  litigation  incidental to its
business.  It is the opinion of management  that the outcome of such  litigation
will not have a material adverse effect on the Company's  financial  position or
results of operations.



14.    Sole Customer and Contract Manufacturer and Concentration of Risk

         All  of  the  Company's   sales  during  1999  were  to  one  customer.
Outstanding  accounts  receivable  at  December  31,  1999  were due  from  such
customer.  The Company has stopped shipping product to the customer. The loss of
this customer would have a material  adverse  effect on the Company's  financial
condition and results of operations.

         The  Company  relied on one  contract  manufacturer  to  produce  juice
products for its sole  customer.  As  described  in note 8, above,  the contract
manufacturer  discontinued  production  in November  1999.  This  discontinuance
disrupted  the  Company's  operations  and no  product  has been  shipped to the
Company's  only  customer  since  November  1999.  Discussions  took place in an
attempt to re-initiate  production,  but lack of cooperation has resulted in the
filing of a complaint against this contract manufacturer.

         On January 28, 2000,  legal  counsel for the Company  filed a complaint
with the United States  District  Court,  Eastern  District of Missouri  against
Warrenton Products, Inc. ("WPI"), a Missouri corporation,  alleging that WPI did
not meet  its  contractual  obligations  to  perform  its  manufacturing  of the
Company's  product and refuses to allow the Company's to remove its  specialized
equipment. On February 3, 2000, WPI filed a lawsuit against the Company alleging
damages of approximately $2.0 million plus interest, costs and punitive damages.
The Company  intends to vigorously  defend  against the WPI claim and vigorously
prosecute its claim.

         On  August  20,  2000,  WPI  joined  with  other  parties  in filing an
involuntary  petition for relief under Chapter 7 of the Bankruptcy  Code against
the Company.  As explained  below, the Court dismissed this petition in an Order
entered on October 20, 2000. In a  Stipulation  attached to the Order to dismiss
the  involuntary  petition,  the  Company  waived  all  rights  relative  to the
Bankruptcy Code against WPI as a result of its filing this involuntary petition.
Furthermore,  WPI agreed not to file or to induce or encourage  the filing of an
involuntary petition against the company in the future.



ITEM 8.   CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING AND
          FINANCIAL DISCLOSURE.

         There have been no  disagreements  with the  Company's  accountants  on
accounting or financial disclosure during the past two fiscal years.



                                       31
<PAGE>

PART III

ITEM 9.   DIRECTORS,  EXECUTIVE  OFFICERS,  PROMOTERS   AND   CONTROL   PERSONS;
          COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

Executive Officers and Directors

         As of December 31, 2000,  the  executive  officers and directors of the
Company were as follows:

     NAME               AGE             POSITION
     ----               ---             --------
  Jon A. Darmstadter    48              President and Chief Executive
                                        Officer, Director
  Edward R. Ferry       50              Director


         None of the  officers  and/or  directors of the Company are officers or
directors  of  any  other  publicly  traded  corporation,  nor  have  any of the
directors  and/or officers filed any bankruptcy  petition,  been convicted in or
been the  subject of any  pending  criminal  proceedings,  or the subject or any
order,  judgment,  or decree  involving  the  violation  of any state or federal
securities laws within the past five years.

         The business experience of each  of the persons listed above during the
past five years is as follows:

         Jon A.  Darmstadter  has served as the  President  and Chief  Executive
Officer and a director of the Company since March 1997. Mr.  Darmstadter is also
the founder and  president of  Children's  Net Logic,  Inc.,  a privately  held,
internet related start-up in Arizona.  From 1995 to March 1997, Mr.  Darmstadter
was a sole proprietor of a venture known as Water Pouch,  which was purchased by
the  Company  in  March  1997.  Prior to his  position  with  the  Company,  Mr.
Darmstadter  held  positions as Product  Development/Brand  Manager and National
Sales Manager for United Beverage of Ohio. Prior to working with United Beverage
of Ohio, Mr. Darmstadter was National Sales Manager for Bidderman Industries,  a
brand marketer of men's designer clothing.

         Edward R.  Ferry has served the  Company  in the  Marketing  department
since May 1997 and a director of the Company since January 1999. >From June 1990
to   May   1997,    Mr.   Ferry   served   as   the   President   of   Corporate
Confectionary/Confection Werks, a specialty chocolate manufacturing company that
he  owned.  Prior to his  involvement  with  Corporate  Confectionary/Confection
Werks, he was the Midwest Sales Manager for Ralph Lauren Ladies Wear.



Board Composition

         Each  member  of  the  board  is  elected  on an  annual  basis  by the
stockholders. At each annual meeting of stockholders,  directors are elected for
the next year. Each director serves for a one year term.

         Each officer is elected by, and serves at the discretion of, the board.
There are no family relationships among any of the directors, executive officers
or key employees.

Board Committees

         The board has not established any committees.

Compensation of Directors

         Messrs.  Darmstadter  and  Ferry  receive  no  compensation  for  being
directors of the Company.


Compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").


                                       32
<PAGE>

         None of the Directors,  officers and beneficial owners of more than 10%
of the outstanding  Common Stock (each a "Reporting  Person") has failed to file
on a timely basis  reports  required by Section 16(a) of the Exchange Act during
the most recent fiscal year.

ITEM 10.  EXECUTIVE COMPENSATION

         The following table sets forth certain summary  information  concerning
the compensation  earned by the Company's sole named executive  officer and sets
forth all  compensation  actually  paid or accrued by the Company  for  services
rendered to the Company for the years ended December 31, 1998,  1999 and 2000 to
the Company's Chief Executive Officer and President.  No other executive officer
of the Company has earned a salary greater than $100,000 annually for any of the
periods  depicted.  The table excludes  certain  perquisites  and other personal
benefits  received by this  officer  that do not exceed the lesser of $50,000 or
10% of any such officer's salary and bonus disclosed in the table.

                           Summary Compensation Table


NAME AND PRINCIPAL                               ALL OTHER
POSITION             YEAR   SALARY    BONUS    COMPENSATION
                           --------   ------   ------------
Jon A. Darmstadter,  1998  $ 80,000   $  -0-     $    -0-
President, C.E.O.    1999  $104,000   $  -0-     $    -0-
                     2000  $ 78,000   $  -0-     $    -0-


Employment Agreement


The  Company has  entered  into an  employment  agreement  with Mr.  Darmstadter
effective as of January 1, 1999. Mr. Darmstadter has been hired as the Company's
President  and Chief  Executive  Officer.  The  agreement  is for a term of five
years. The agreement  provides for a base annual salary of $104,000 in 1999, and
he is eligible for performance based bonuses and equity-based  compensation.  In
the event of a change in  control  of the  Company  (as  defined  therein),  the
Company  has agreed to grant Mr.  Darmstadter  a royalty in the amount of $0.005
per pouch of  children's  beverage  product  sold by the  Company,  payable on a
quarterly basis. Mr. Darmstadter is not a full-time officer of the Company.




ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following  table sets forth the  beneficial  ownership of shares of
voting stock of the Company as of December 31, 1999,  for: (i) each person known
by TCBG to  beneficially  own 5% or more of the  shares  of  outstanding  common
stock;  (ii) each of TCBG's executive  officers and directors;  and (iii) all of
TCBG's  executive  officers  and  directors  as a  group.  Except  as  otherwise
indicated, all shares are beneficially owned, and investment and voting power is
held by the persons named as owners.

         Unless  otherwise  noted (1) each of the persons  listed below has sole
voting and investment power with respect to the shares beneficially owned by him
as set  forth  opposite  his name and (2) the  address  for each of the  persons
listed  below is:  c/o The  Children's  Beverage  Group,  Inc.,  445 West  Erie,
Chicago, Illinois 60010.



                                                            Common Stock
                                                     ---------------------------
                                                       Beneficially Owned(a)(b)
Name and Address of Beneficial Owner                 No. of Shares   % of Class
------------------------------------                 -------------   -----------

Jon A. Darmstadter(c)                                    9,269,731        28.73%

Felicia Murray(d)                                        2,464,313         7.64%

Edward R. Ferry(e)                                         145,000         0.45%

All executive officers and directors as a
  group (2 persons)                                      9,414,731        29.18%




                                       33
<PAGE>

*Represents less than one percent of the total.

(a)  Beneficial  ownership is  determined  in  accordance  with the rules of the
     Securities  and  Exchange  Commission  and  generally  includes  voting  or
     investment power with respect to securities,  subject to community property
     laws, where applicable.
(b)  The calculations in this table of the percentage of outstanding  shares are
     based on 32,262,504  shares of the Company's common stock outstanding as of
     December 31, 2000. Excludes 5,000,000 shares issued as collateral against a
     promissory note, see Part II, Item 5 herein. Though issued,  treated herein
     as not outstanding.
(c)  Does not include  1,000,000 shares of Series A Preferred Stock,  which have
     25 votes per share, and  automatically  convert into one share common stock
     for each share of preferred stock upon a change-in-control  event,  subject
     to anti-dilution provisions.

     Mr.  Darmstadter  owns 100% of the Company's  outstanding  preferred stock.
     Includes  50,000 shares of common stock held by Mr.  Darmstadter's  son and
     150,000  shares of common  stock held in the name of his former  wife.  Mr.
     Darmstadter's  combined ownership of common stock and preferred stock gives
     him  control  over  58.22% of the votes that can be cast in any  meeting of
     stockholders.
(d)  Former  officer and  director of the  Company.  Subsequent  to December 31,
     2000, Jon A. Darmstadter won a personal judgment lawsuit against Ms. Murray
     which resulted in the awarding of her shares to Mr. Darmstadter. The shares
     have not yet been transferred as of this writing.
(e)  Includes 30,000 shares of common stock held in the name of Mr. Ferry's son.
     Mr.  Ferry  is  one of the  Company's  directors  and  serves  as the  Vice
     President of Marketing.


ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company has been granted a worldwide license to use the U.S. patent
on the "rip it sip it(TM)" drink  system.  The patent was applied for and issued
to Jon A. Darmstadter,  the President and Chief Executive Officer of the Company
in August 1999. The patent is used in TCBG's  production of its juice  products.
In September  1999, Mr.  Darmstadter  entered into a license  agreement with the
Company,  which was  amended  in January  2000 (the  "License  Agreement"),  the
License  Agreement  allows the Company to use the patent in exchange for a $1.00
annual fee.  Pursuant to the  Employment  Agreement  between the Company and Mr.
Darmstadter,  in the  event  that  the  control  of  the  Company  changes,  Mr.
Darmstadter  would  receive a  royalty  in the  amount  of  $0.005  per pouch of
children's  beverage  product  sold by the  Company.  See Item  10. -  Executive
Compensation - Employment  Agreement.  Under the License Agreement,  the Company
maintains the exclusive right to use the patent in its production of juice pouch
products for the life of the patent (approximately 20 years).

         During the year ended December 31, 1999, the Company  reimbursed Jon A.
Darmstadter, the President and Chief Executive Officer of the Company, $5,500 on
the purchase of fixed assets he made on the Company's behalf.

         Additionally,  Mr. Darmstadter has made various advances against a note
to the  Company  that total  $930,753($186,947  in fiscal  2000 and  $743,806 in
fiscal 1999,  including  interest of $36,230 and $58,826,  respectively)  due on
demand.  Interest is accrued quarterly at 12%. As of December 31, 2000, payments
of $382,267  (consisting  of principal of $78,050 in fiscal 2000 and $270,467 in
fiscal 1999 and interest of $7,860 and $25,440,  respectively)  had been made by
the Company.  Additionally, the Company made a payment to Mr. Darmstadter of 2.8
million  shares  of  restricted  common  stock  valued  at  $546,000  in 2000 in
settlement of the then  outstanding  balance on the note (consisting of $485,681
of principal and $60,319 of  interest).  The balance as of December 31, 2000 and
1999 is $2,486 and $447,899, respectively.


                                       34
<PAGE>

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

 (A) EXHIBITS

     Exhibit No.               Exhibit Name
     ----------                ------------


         3.1      Amended and Restated  Certificate of Incorporation  previously
                  filed as Exhibit 3.1 to Form 10-SB dated November 15, 1999

         3.2      Amended and Restated By-Laws of Registrant previously filed as
                  Exhibit 3.2 to Form 10-SB dated November 15, 1999

         3.3      Certificate  of  Designations  of  Series  A  Preferred  Stock
                  previously  filed as Exhibit 3.3 to Form 10-SB dated  November
                  15, 1999

         4.1      Form of Common Stock  Certificate  previously filed as Exhibit
                  4.1 to Form 10-SB/A dated January 14, 2000

         4.2      Form of Series A Preferred Stock Certificate  previously filed
                  as Exhibit 4.2 to Form 10-SB dated November 15, 1999

         4.3      Registration  Rights  Agreement  between  the  Company  and  a
                  warrant  holder  dated  April  23,  1999  previously  filed as
                  Exhibit 4.3 to Form 10-SB dated November 15, 1999

         4.4      Debt  Conversion  Agreement  between  the  Company  and Ranger
                  Enterprises,  Inc.  dated  May 10,  1999  previously  filed as
                  Exhibit 4.4 to Form 10-SB dated November 15, 1999

         10.1     Amended and Restated Employment  Agreement between the Company
                  and Jon A. Darmstadter previously filed as Exhibit 4.3 to Form
                  10-SB dated  November  15, 1999  Exhibit  10.1 to Form 10-SB/A
                  dated January 14, 2000

         10.2     Patent  License  Agreement  between  the  Company  and  Jon A.
                  Darmstadter  dated  September  14,  1999  previously  filed as
                  Exhibit 10.2 to Form 10-SB dated November 15, 1999

         10.3     Assignment  and Assumption  Agreement  between the Company and
                  Water Pouch dated January 11, 1999 previously filed as Exhibit
                  10.1 to Form 10-SB dated November 15, 1999

         10.4     Amendment to Patent License Agreement

         10.5     Rochester Purchase Contract, February 2000

         10.6     Jon A. Darmstadter Note dated January 2, 1999

         10.7     Pledge & Assignment (Bond)

         10.8     Payment in Lieu of Tax Agreement

         10.9     Security Agreement

         10.10    Rental Agreement for office facilities

         21.1     Subsidiaries

         27       Financial Data Schedule




                                       35
<PAGE>

                                SIGNATURES

In accordance  with Section 13 or 15(d) of the Securities  Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly organized.


                       The Children's Beverage Group, Inc.
                                  (Registrant)



                                      By: /s/ Jon A. Darmstadter
                                          -----------------------------
          Date: April 16, 2001            Jon A. Darmstadter
                                          CEO, President, Chairman,
                                          & Principal Financial Officer



In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

        Name                       Position               Date
        ----                       --------               ----

                                   CEO, President,
                                   Chairman, &
                                   Principal Financial
        /s/ Jon A. Darmstadter     Officer & Director     April 16, 2001
        -----------------------    -------------------    -------------------
          Jon A. Darmstadter







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