SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                              REPORT ON FORM 10-KSB

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

      For the fiscal year ended December 31, 1999.

          Transition Report pursuant to Section 13 or 15(d) of
          The Securities Exchange Act of 1934


      For the transition period from ___________________ to ___________________.

      Commission File No. 0-13181


                          CAPITAL BEVERAGE CORPORATION
             (Exact name of registrant as specified in its charter)

           Delaware                                     13-3878747
(State of or other jurisdiction                (IRS Employer Identification No.)
   of incorporation or organization)

1111 East Tremont Avenue,  Bronx, New York                       10460
------------------------------------------                       -----
(Address of Principal Executive Officers)                      (Zip Code)


Registrant's telephone number, including area code: (718) 409-2337

Securities registered pursuant to Section 12(b) of the Act:  None.
                                                             ----

Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.001 per share
                                (Title of Class)

  Units consisting of one (1) share of Common Stock, par value $.001 per share
       and one-half (1/2) Class A Redeemable Common Stock Purchase Warrant
                                (Title of Class)

                Class A Redeemable Common Stock Purchase Warrant
                                (Title of Class)


<PAGE>




         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the  Securities  Exchange Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of the  Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of 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. [X]

         Issuer's revenues for its most recent fiscal year were $12,903,154.

         The aggregate  market value of the voting stock held by non- affiliates
of the  Registrant,  computed by reference to the closing price of such stock as
of March 23, 2000, was approximately $5,439,000.

         Number of shares  outstanding of the issuer's  Common Stock as of March
24, 2000 was 2,378,409.



<PAGE>

                      DOCUMENTS INCORPORATED BY REFERENCE:

                                     PART I

Item 1.  BUSINESS.

         Statements  in this Form 10-K that are not  statements of historical or
current fact constitute  "forward-looking  statements" within the meaning of the
Private  Securities   Litigation  Reform  Act  of  1995.  Such   forward-looking
statements  involve  known and unknown  risks,  uncertainties  and other unknown
factors  that could  cause the actual  results of the  Company to be  materially
different  from the historical  results or from any future results  expressed or
implied by such  forward-looking  statements.  In  addition to  statements  that
explicitly describe such risks and uncertainties,  readers are urged to consider
statements labeled with the terms "believes,"  "belief,"  "expects,"  "intends,"
"anticipates"   or   "plans"   to  be   uncertain   and   forward-looking.   The
forward-looking  statements contained herein are also subject generally to other
risks and  uncertainties  that are described  from time to time in the Company's
reports and  registration  statements  filed with the  Securities  and  Exchange
Commission.

General

         Capital  Beverage   Corporation   ("Capital"  and  the  "Company")  was
incorporated  under the laws of the State of Delaware  on  December 5, 1995.  In
January 1996, the Company acquired from Consolidated Beverage  Corporation,  the
right to become the  exclusive  distributor  ("Pabst  Distribution  Rights") for
certain beer and malt liquor products ("Pabst  Products")  manufactured by Pabst
Brewing Company  ("Pabst").  The consideration paid by the Company for the Pabst
Distribution  Rights was One Million Six Hundred Thousand Dollars  ($1,600,000),
payable  Eight  Hundred  Thousand  Dollars  ($800,000)  in cash at or  prior  to
closing,  and the balance by delivery of a series of 120 promissory  notes, each
in the amount of Ten Thousand Dollars ($10,000) (collectively, the "Consolidated
Notes"). The Consolidated Notes bear interest at 9% per annum, which interest is
included in the monthly $10,000 payments.  If the Company defaults in payment of
any of the Consolidated Notes, such default may result in a re-conveyance of the
Pabst Distribution Rights to Consolidated Beverage Corporation.

         On April 30, 1999 Miller  Brewing  Company  acquired  certain brands of
alcoholic   beverage  from  the  Pabst  Brewing  Company   resulting  in  a  new
distribution  agreement for certain brands held by Capital Beverage.  The brands
of Olde  English and Hamm's are the two brands  which  Capital now  contracts to
purchase from the Miller Brewing Company on an exclusive basis.

         On July 18,  1998  and  July  30,  1998  Capital  Beverage  signed  two
distributor   agreements  with  Pittsburgh  Brewing  Company  ("Pittsburgh")  to
distribute on an exclusive  basis in the entire state of New York, the following
brands:

                Brigade, Brigade Light, Brigade Ice, Brigade N/A,
                Prime Time Lager, Prime Time Malt Liquor, Iron City,
                Iron City Light, Light Twist Acapulco Lime, Iron City

<PAGE>



               Twist, Rio Cherry, Old German, Augustiner, Evil Eye Ale,
               Evil Eye Black Jack, Evil Eye Amber Lager, Evil Eye
               Honey Brown

         All of the  distributor  agreements are subject to termination on short
notice by the brewers.

         Strategy

         Management  of the  Company  believes  it has  developed  a strategy to
effectively  market,  sell and distribute beer products throughout its marketing
territory.  This strategy  includes plans to expand the Company's  customer base
and increase sales and marketing  efforts.  The Company will continue to utilize
both "pre-sell" and "driver-sell"  sales people to drive  distribution.  In late
1999 and early 2000 the Company added two additional brands from Pittsburgh. One
of those brands,  "Night Flight" is owned and brewed by the Company. The Company
applied for and received a brewer's permit in mid 1999. As a brewer, the Company
has  broadened  and  strengthened  its  strategic  approach  to a position  as a
dominant  distribution  company.  Owning and  distributing  its own product line
allows the Company to somewhat control its own destiny as it seeks to expand its
product portfolio.

         In early 2000 the  Company  has  continued  to pursue its  strategy  of
building a quality  non-alcoholic  brand portfolio.  The agreement  reached with
Hansen's  Beverage  company of California to distribute  its product line in the
metropolitan New York area is the first major move in this direction.

         The Company will continue to seek other  additions to its product lines
that compliment the brand portfolio.

Expanding Customer Base

         In 1999 the Company turned the Pittsburgh  brand beer "Prime Time" into
a well known brand with a substantial customer base in the metropolitan New York
area. By mid-year the Company,  after obtaining its brewery license,  introduced
its own brand,  "Night Flight" and this brand is steadily growing. In 1999 these
brands accounted for over 900,000 case sales (12oz. equivalents)

         The  Company has  tripled  its  customer  base in the past year and has
become an effective alternative for brands seeking distribution in the difficult
New York  market.  The  Company  will  continue  to look at  products  that will
compliment  its existing brand  portfolio and allow for continued  growth in its
active customer base. To further this growth the Company has initiated a plan to
extend its direct distribution operation into the Long Island, New York market.

Sales and Marketing

         The  Company  employs  sales  people to obtain  new  accounts  for beer
distribution  and to increase  sales of beverages to existing  accounts for such
products in their marketing  territory.  In addition to employing a sales staff,
the Company employs sales supervisors who oversee this effort. These supervisors

                                       2

<PAGE>

work on  execution  of the sales  and  marketing  programs  of the  Company  and
directly handle key accounts.

         The Company creates  promotional  materials to assist the  distribution
and sales  effort.  In late  1999 the  Company  added a full time  merchandising
department to its sales team.

         The Company's  sales personnel will continue to receive formal training
both at Company and brewery  initiated  seminars.  The Company will  continue to
utilize the efforts of a training coordinator to conduct seminars on such topics
as brewing processes, sales call role playing and time management.

         The supervisors are also responsible for preparing weekly schematics on
key store resets  (both shelf and cooler) to secure the most  visible  positions
for maximum consumer exposure. Shelf allocations are periodically reviewed under
the  supervision  of the V.P.  of Sales  and  Marketing  to  assure  that  space
allocations  and  placement   comply  with  retailer   policies,   distribution,
philosophies and recommendations from suppliers.

         The  Company  offers  bonuses  to sales  personnel  who market and sell
additional  product to existing  customers  and  maintain  established  goals on
reorders of  products.  This  incentive  program is designed to achieve long and
steady growth for additional product placements.

         Consistent  with the  Company's  plan to expand its customer  base,  it
expects  to incur  additional  selling  and  marketing  costs  of  approximately
$150,000  in the next  fiscal  year.  Such  estimates  have  been  derived  from
management's plans and budgets for 2000.


Distribution

         The  Company   has   implemented   a  strategy  to  achieve   effective
distribution  of their products in their  territory.  Under this  strategy,  the
Company acts as an exclusive  distributor  for its products  subject to policies
and  procedures  determined  by the brewers so that all orders for products come
through the Company.  The products are sold into the marketplace in a variety of
ways.

         The Company  maintains its pre-sell sales force and continues to expand
its driver-sell sales force added in 1999 to increase its direct distribution in
the  entire  metropolitan  market.  Beyond  that and  because of the size of its
territory the Company also relies on independent  licensed beverage  wholesalers
that are responsible  for hiring and  maintaining  their own staffs and trucking
fleets to distribute their products to the wholesale and/or retail customers.

         The  Company's   objective  in  utilizing   these  alternate  means  of
distribution  to  service  each  sector  within  the  territory  is to  increase
effective sales and distribution efforts.

                                       3

<PAGE>

Advertising

         The Company intends to present to the trade and the consumer an ongoing
marketing campaign.  To achieve this, the Company will establish and maintain an
advertising  and  marketing  budget.  Such  budget  will  be used  primarily  to
participate in various  advertising  programs  established  by the breweries.  A
proposed  budget of $.05 per case  based upon  monthly  estimated  sales  during
Fiscal 2000 of 100,000 cases will enable the Company to allocate $5000 per month
toward this advertising.

Employees

         As of December 31, 1999, the Company  employed a staff of 54, including
2   sales   supervisors,   2   sales   manager,   30   sales   people,   and  20
managerial/administrative  and distribution employees. The Company does not have
any collective  bargaining agreements and has not experienced any work stoppages
as a result of labor disputes.  The Company considers its employee  relations to
be good.

Competition

         The  business  conducted  by the Company is highly  competitive.  As of
December 31, 1999, the Company competed with  approximately 7 other companies in
the  metropolitan  New  York  area  that  are  engaged  in  businesses  that are
substantially  similar to that engaged in by the Company.  Some of the Company's
competitors are better  capitalized,  better financed more  established and more
experienced  than the Company and may offer beer,  beverage and related products
at lower prices or concessions than the Company.  Should the Company not be able
to compete effectively,  its results of operations and financial condition could
be materially adversely affected.

Sources of Supply

         In addition to  purchasing  products  directly  from Pabst,  Miller and
Pittsburgh  Brewing,  the Company intends to purchase  products from a number of
nationally   known  beer  and   beverage   companies.   Since  there  are  other
manufacturers  of alcoholic and nonalcoholic  products sold by the Company,  the
Company  does not  anticipate  difficulty  in  obtaining  such  products  if its
relationship  with one or more of its  suppliers  terminates.  Management of the
Company believes that except for Miller and Pittsburgh, the loss of any supplier
will not adversely affect the Company's  business.  Termination of the Company's
Distributorship  Agreement with Miller and/or Pittsburgh could have a materially
adverse effect on the business of the Company.

Seasonality

         The Company's business is subject to substantial  seasonal  variations.
Historically,  a significant portion of the Company's net sales and net earnings
have been  realized  during the month of December  and the months of May through
September,  and  levels  of net  sales  and net  earnings  have  generally  been
significantly  lower during the period from  October  through  April  (excluding
December). The Company believes that this is the general pattern associated with
other  beverage  distributors  with  which it  competes.  If for any  reason the
Company's sales were to be  substantially  below seasonal norms during the month
of  December  and/or  the  months  of  May  through  September,   the  Company's
anticipated revenues and earnings could be materially and adversely affected.

                                       4

<PAGE>

Government Regulation

         Wholesale and retail  distribution of alcoholic  beverages is regulated
by federal and state law. The Company's business is highly regulated by federal,
state and local laws and  regulations.  The company  must comply with  extensive
laws and regulations regarding such matters as state and regulatory approval and
licensing  requirements,  trade and pricing  practices,  permitted  and required
labeling,  advertising,  promotion and marketing  practices,  relationships with
distributors and related  matters.  Since the Company intends to distribute such
alcoholic  beverages  in New York  State,  the  Company  is  required  to obtain
authorization  from the Federal Bureau of Alcohol,  Tobacco and Firearms  (BATF)
and the New York State Liquor Authority (SLA). The Company has received from the
BATF and SLA its required  licenses.  In the experience of management,  although
such agencies may impose conditions on the grant of such licenses, such licenses
are ordinarily  granted.  In the event, either the SLA or the BATF should impose
conditions on the grant of such licenses,  the Company intends to take all steps
necessary to satisfy such conditions. There can be no assurance that the various
governmental regulations applicable to the beverage industry will not be changed
so as to impose more stringent  requirements on the Company.  If the Company was
to fail to be in compliance with any applicable  governmental  regulation,  such
failure  could  cause the  Company's  licenses to be revoked and have a material
adverse effect on the business of the Company. The Company's beer operations may
be  subject to  increased  taxation  by  federal,  state and local  governmental
agencies as compared with those of non-alcohol related business. In addition, if
federal or state  excise  taxes are  increased,  the  Company  may have to raise
prices to maintain  present profit margins.  The Company does not believe that a
price  increase  due to increased  taxes will reduce unit sales,  but the actual
effect  will  depend  on the  amount  of any  such  increase,  general  economic
conditions and other  factors.  Higher taxes may reduce overall demand for beer,
and thus negatively impact sales of the Company's beer products.

Item 2.  PROPERTIES.

         The  Company  leases two  locations  in the Bronx.  The main office and
picking  location  for  products  are  at  1111  E.  Tremont  Avenue.  There  is
approximately  10,000 sq. ft. of usage at this  location at a cost of $4,000 per
month.  The lease on this location is with East Tremont  Partners.  East Tremont
Partners  is a New  York  partnership  in which  Mr.  Stella  holds a  one-sixth
interest.  Management of the Company  believes that the rent paid by the Company
under  this  lease is less than  what it would be  required  to pay for  similar
premises  within  the area in which the  Company's  administrative  offices  are
located.

         The  Company  also  leases  space for  additional  storage at 425 Devoe
Avenue.  The premise  has  approximately  15,000 sq. ft.  which cost the Company
$7,000 per month.  Management believes that the rent paid by it under this lease
is also less than the fair market value of similar  premises  within the area in
which such premises are located.

                                       5

<PAGE>

         Management  believes that the facilities used by it in the operation of
its business are  adequately  covered by insurance and are suitable and adequate
for their respective purposes.

Item 3. LEGAL PROCEEDINGS.

         Management  is not  aware of any  material  legal  proceedings  pending
against the Company.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
        ----------------------------------------------------

         (a) On  November 22, 1999,  the  Company  held  its  annual  meeting of
Shareholders.

         (b) At said meeting, the following five individuals were elected by the
following  vote  to  serve  as  directors  until  the  next  annual  meeting  of
stockholders and until their successors are elected and qualified:

                               FOR                       AGAINST

Carmine Stella              2,322,559                    51,400
Carol Russell               2,324,159                    49,800
Robert A. Vessa             2,324,159                    49,800
Dawn A. Collins             2,320,059                    53,900
Joseph M. Luzzi             2,322,559                    51,400

         (c) At said  meeting  2,357,009  shares of Common  Stock  were voted in
favor of, 9,550  shares of Common  Stock were voted  against and 7,400 shares of
Common Stock  abstained to a proposal to ratify the appointment of Feldman Sherb
Horowitz & Co. to serve as the independent  certified public accountants for the
2000 fiscal year.

                                       6
<PAGE>




                                     PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         The  Company's  Units,  Common  Stock  and Class A  Warrants  commenced
trading on the Nasdaq  SmallCap  Market on the  effectiveness  of the  Company's
Initial Public  Offering on July 17, 1997 under the symbols  "CBEVU," "CBEV" and
"CBEVW,"  respectively.  The Common Stock and Warrants are regularly  quoted and
traded on the Nasdaq  SmallCap  Market.  The Company's Units were de-listed from
trading on August 29, 1997

         The following table indicates the high and low prices for the Company's
Units,  Common  Stock and Class A Warrants  for the period from July 17, 1997 to
December 31, 1999 based upon information  supplied by the NASDAQ system.  Prices
represent  quotations  between dealers  without  adjustments for retail markups,
markdowns or commissions, and may not represent actual transactions.

Common Stock

1997 Fiscal Year                                 Quoted Price
----------------                                 ------------
                                                 High         Low
                                                 ----         ---
First Quarter                                    DID NOT TRADE
Second Quarter                                   DID NOT TRADE
Third Quarter                                    8 3/8        4 3/8
Fourth Quarter                                   6 1/2        5



1998 Fiscal Year                                 Quoted Price
----------------                                 ------------
                                                 High         Low
                                                 ----         ---
First Quarter                                    7            4.5
Second Quarter                                   7.47         6.37
Third Quarter                                    7.5          4.87
Fourth Quarter                                   6            4.5


1999 Fiscal Year                                 Quoted Price
----------------                                 ------------
                                                 High         Low
                                                 ----         ---
First Quarter                                    6.688        4.813
Second Quarter                                   8.563        3.00
Third Quarter                                    3.750        2.063
Fourth Quarter                                   5.00         2.50

                                       7

<PAGE>

Class A Warrants

1997 Fiscal Year                                 Quoted Price
----------------                                 ------------
                                                 High         Low
                                                 ----         ---
First Quarter                                    DID NOT TRADE
Second Quarter                                   DID NOT TRADE
Third Quarter                                    3 3/8        3/4
Fourth Quarter                                   1 7/8        7/8

1998 Fiscal Year                                 Quoted Price
----------------                                 ------------
                                                 High         Low
                                                 ----         ---
First Quarter                                    1.62         .62
Second Quarter                                   2.94         1.12
Third Quarter                                    3            1
Fourth Quarter                                   2            .75


1999 Fiscal Year                                 Quoted Price
----------------                                 ------------
                                                 High         Low
                                                 ----         ---
First Quarter                                    2.125        1.00
Second Quarter                                   2.750        .750
Third Quarter                                    .938         .500
Fourth Quarter                                   1.125        .375


         On March 23, 2000 the closing  price of the Common Stock as reported on
NASDAQ SmallCap  Market was $2.875.  On March 23, 2000 the closing price for the
Class A Warrant  reported on NASDAQ  SmallCap was $.50.  On March 23, 2000 there
were 15 holders of record of Common Stock.

Item 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         The  following  discussion  and  analysis  provides  information  which
management  believes is  relevant  to an  assessment  and  understanding  of the
Company's   results  of  operations  and  financial   operations  and  financial
conditions.  This  discussion  should be read in conjunction  with the financial
statements and notes thereto appearing elsewhere herein.

Results of Operations

Year ended December 31, 1999 ("Fiscal  1999") as compared to year ended December
31, 1998 ("Fiscal 1998")

         Net  sales for the year  ended  December  3 1,  1999 were  $12,903,154,
reflecting an increase of $4,330,169 or 50% from the $8,572,985 of net sales for
the year ended December 31, 1998.

                                       8

<PAGE>

         Net sales for 1999 were favorably  impacted primarily for the following
two (2) reasons:

         1. The  impact of the  distribution of new products from the Pittsburgh
            Brewing Company as well as management decisions to directly brew its
            own brand of beer (Night Flight), and
         2. The added territory  associated  with the  distribution of these new
            products give Capital a larger customer base.

         Cost of sales was  $10,428,057 or 81 % of net sales for fiscal 1999, as
compared to  $7,984,408  or 93% of net sales for fiscal  1998.  The  increase in
dollar  terms,  of $2,443,649 in cost of sales from 1998 to fiscal 1999 reflects
the significantly higher net sales in fiscal 1999 as compared to fiscal 1998.

         The company's  gross margin was $2,475,097 or 19% of net sales, in 1999
as compared to $588,577 or 7% of net sales in fiscal 1998. The increase in gross
margin is due to the new product lines associated with  distribution  agreements
with the Pittsburgh Brewing Company, Capital's exclusive control of distribution
over the labels from  Pittsburgh as well as its new and present  ability to brew
its own brand called "Night Flight."

         Selling  and  delivery  expenses  were  $1,025,068  in  fiscal  1999 as
compared to $310,410 for fiscal 1998  reflecting  an increase of $714,658.  This
increase is primarily due to the  implementation  of a driver sales force in the
first quarter of 1999 which significantly expanded our distribution territory.

         General and administrative  expenses were $2,140,674 for fiscal 1999 as
compared to $1,518,959 for fiscal 1998.  This represents an increase of $621,715
or 41% from  fiscal  1998.  This  increase  is due  primarily  to the  following
factors:  (1)  additions  to both  labor and space  which were  required  in our
warehousing department to handle the incremental sales volume recorded in fiscal
1999, and (2) the  additional  professional  fees and travel  expenses that were
incurred  by the  due  diligence  process  conducted  in  association  with  the
potential acquisition of the Pittsburgh Brewing Company.

         CAP  Communications  Ltd.  ("CAPCOM")  was formed in  November  1998 to
explore,  as an ancillary to beverage sales, the rapidly expanding prepaid phone
card market.  Working in conjunction with Orion  Telecommunications  Corporation
("OTC"),  with offices in New York,  Capital  Beverage began an investigation of
this new potential market. OTC provided funding to Capital Beverage to determine
the parameters required to make OTC phone cards a success here in New York.

                                       9
<PAGE>

         CAPCOM  generated  over  $645,000  in phone card  revenues  during this
one-year  study.  It became  obvious  that  CAPCOM's  success was  predicted  on
shifting  from direct  retail sale  marketing  to wholesale  distribution.  This
distribution  program  would be aimed at major phone card  distributors  with an
established sales network and to major companies with a strong retail base.

         CAPCOM also determined that three  components were necessary for OTC to
be successful. OTC had to operate their own switches, control their own customer
service and provide a line of credit to major wholesale phone card  distributors
with whom CAPCOM would be doing business.  OTC immediately  implemented  each of
these programs.

         As a result of the study and  modifications in OTC's operation,  CAPCOM
has entered into an agreement with OTC to open a wholesale  distribution  center
in  Bayside,  New  York  for  distribution  of OTC  cards  to  CAPCOM  wholesale
distributors. Management has estimated that sales will increase dramatically for
the year 2000 due to these new changes implemented.

Material Change in Financial Condition, Liquidity and Capital Resources

         The Company's working capital decreased from $2,457,022 at December 31,
1998 to  $1,812,050  at December 31,  1999.  The decrease of $644,972 was due to
direct result of the 1999 losses incurred in operations.

         At December 31, 1999, the Company's primary resources of liquidity were
$897,934 in cash, $703,597 in accounts receivable and $956,654 in inventories.



Item 7.  FINANCIAL STATEMENTS.

         See  financial  statements  following  Item 13 of this Annual Report on
Form 10-KSB.

Item 8.  CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS
              ON ACCOUNTING AND FINANCIAL DISCLOSURE.

         None.


                                       10
<PAGE>



                                    PART III

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

Directors and Executive Officers

         The names and ages of the directors, executive officers and significant
employees, and promoters of the Company are set forth below.

          Name                Age       Position Held

    Carmine N. Stella          48       President, Chief Executive Officer,
                                        Chairman of the Board of Directors

    Robert A. Vessa            49       Director

    Anthony Stella             49       Vice President of Sales and Marketing,
                                        Director

    Carol Russell              44       Secretary, Treasurer and Director

    Dawn A. Collins            31       Director

    Joseph M. Luzzi            52       Director
-----------------------

         Carmine N. Stella - Mr. Stella has served as President, Chief Executive
Officer  and  Chairman  of the  Board of  Directors  of the  Company  since  its
inception in December  1995.  From 1991 to the present,  Mr. Stella has been the
sole officer,  director and shareholder of VSI, a wholesale and retail seller of
alcoholic and  nonalcoholic  beverages  with  $12,000,000 of sales during fiscal
1994 and  $7,000,000 of sales during fiscal 1995.  From 1986 to 1990, Mr. Stella
served as President and a director of Gotham Wholesale Beer Distributors, a beer
and   non-alcoholic   beverage   wholesaler  with  annual  sales  in  excess  of
$20,000,000.  Mr.  Stella served as a President and Director of the Empire State
Beer Distributors Association from 1984 to 1988. Mr. Stella received a B.B.A. in
Accounting from Bernard M. Baruch College, New York, New York in 1973.

         Robert A. Vessa - Mr.  Vessa  has been a Director of the Company  since
October 29, 1997. From 1984, Mr. Vessa has acted as Business Affairs Coordinator
and a member of the Board of  Directors  of the Empire  State Beer  Distributors
Association.  Mr. Vessa  received a B.B.A.  degree in Marketing and  Advertising
from Bernard M. Baruch College, City University of New York in 1973.

                                       11

<PAGE>

         Anthony Stella. - Mr. Stella has served as Vice  President  - Sales and
Marketing and an employee of the Company since  inception.  Mr. Stella has acted
as executive sales manager for Vito Santoro,  Inc., Gotham Wholesale Beer, Inc.,
Miller Home Service,  Inc. and College Point Beer  Distributors over the past 15
years . Anthony Stella is the brother of Carmine Stella.

         Carol Russell - Mrs. Russell has served as  Secretary,  Treasurer and a
Director of the Company since  February  1996.  From 1991 Mrs.  Russell has also
served as  Controller  and  Operations  Manager of VSI from 1991 to the present.
Mrs. Russell  graduated from Central  Commercial High School in New York City in
1973.

         Dawn A. Collins - Ms. Collins has been a Director of the Company  since
October 29, 1997.  Ms.  Collins has also served as an accountant  for Restaurant
Systems International, Inc. since 1995. From 1993 to 1995, Ms. Collins served as
an accountant for Ocean View  Management.  From 1991 to 1993, Ms. Collins was an
accountant with Barr Beatty Devlin & Co., Inc. Ms. Collins  received a B.B.A. in
accounting from Baruch College in 1992.

         Joseph M. Luzzi - Mr. Luzzi has been a Director  of the  Company  since
October 29,  1997.  Mr.  Luzzi has also  served as  President,  Chief  Executive
Officer and Chairman of the Board of Directors of Boro Recycling, Inc. since its
inception in December  1980.  From 1973 to 1980, Mr. Luzzi was the New York City
sales manager for the Sunshine Biscuit Company, a subsidiary of American Brands,
Inc. Mr. Luzzi attended New York City Community College from 1967 to 1969.

Compliance with Section 16(a) of  The Securities Exchange Act of 1934

         Section  16(a) of the  Securities  Exchange  Act of 1934  requires  the
Company's  directors and executive  officers,  and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities,  to file
with the Securities  and Exchange  Commission  initial  reports of ownership and
reports of changes in ownership of common stock and other equity  securities  of
the Company.  Officers,  directors and greater than ten percent shareholders are
required by SEC  regulation  to furnish  the Company  with copies of all Section
16(a) forms they file.

         Except as provided below, to the Company's  knowledge,  based solely on
its review of the copies of such  reports  furnished  to the Company  during the
year ended December 31, 1999, all Section 16(a) filing  requirements  applicable
to its officers,  directors and greater than ten percent  beneficial owners were
satisfied.

                                       12
<PAGE>



ITEM 10. EXECUTIVE COMPENSATION.
         ----------------------

         The  following  table  sets  forth the  compensation  paid to the Named
Executive Officers for the fiscal year ending December 31, 1999.
                           Summary Compensation Table
<TABLE>
<CAPTION>

                                        Annual Compensation Awards                   Long-Term Compensation
-------------------------------------------------------------------                  ----------------------
        (a)                         (b)       (c)                  (d)                     (e)                   (f)

                                                              Other Annual               Restricted          Stock Option
Name and Principal Position         Year    Salary            Compensation               Award                  Grants
-------------------------------------------------------------------------------------------------------------------------

<S>                                 <C>     <C>                    <C>                       <C>                   <C>
Carmine N. Stella                   1999    $302,642.96           -0-                       -0-                   -0-
President, Chief Executive Officer, 1998    $307,799.19           -0-                       -0-                   -0-
Chairman of the Board               1997    $291,763.68           -0-                       -0-                   -0-


Anthony Stella                      1999    $171,528.96           -0-                       -0-                   -0-
Vice President of Sales             1998    $175,579.19           -0-                       -0-                   -0-
and Managing Director               1997    $161,648.68           -0-                       -0-                   -0-


Carol Russell                       1999     $ 88,000.44          -0-                       -0-                   -0-
                                    1998     $112,115.67          -0-                       -0-                   -0-
                                    1997     $105,846.24          -0-                       -0-                   -0-
</TABLE>

         The  following  table sets forth  certain  information  with respect to
options  granted  during the last fiscal year to the Company's  Chief  Executive
Officer and the other executive officers named in the above Summary Compensation
Table.

                      Option/SAR Grants In Last Fiscal Year
<TABLE>
<CAPTION>

Name                             Number of Securities         Percent of Total         Exercise or
----                                 Underlying          Options/SARS Granted to       Base Price
                                 Options/SARS Granted   Employees in Fiscal Year        ($/Sh)        Expiration Date
                                         (#)
                                 --------------------   ------------------------     ------------    ---------------

<S>                                     <C>                        <C>                   <C>                <C>
Carmine Stella                          25,000                     14.2%                 $3.50/sh           12/31/04
Anthony Stella                          25,000                     14.2%                 $3.50/sh           12/31/04
Carol Russell                           25,000                     14.2%                 $3.50/sh           12/31/04
</TABLE>
----------------------------------
(1)      Options are exercisable for shares of Common Stock.

         The  following  table sets forth  certain  information  with respect to
options  exercised  during the last fiscal year by the Company's Chief Executive
Officer and the executive officers named in the Summary  Compensation Table, and
with respect to unexercised  options held by such persons at the end of the last
fiscal year:

         Aggregate Option/SAR Exercises In Last Fiscal Year And  Fiscal Year-End
         Option/SAR Values
<TABLE>
<CAPTION>

                      Shares                                Number of Securities           Value of Unexercised in the Money
                    Acquired on     Value Realized         Underlying Unexercised                   Options/SARs at
      Name        Exercise (#)(1)        $                Options/SARS at FY-End (#)                 FY-End ($) (2)
      ----        ---------------   --------------        --------------------------       ---------------------------------

                                                         Exercisable     Unexercisable        Exercisable       Unexercisable
                                                         -----------     -------------        -----------       -------------
<S>                      <C>             <C>                 <C>               <C>                 <C>                <C>
                        -0-             -0-                 -0-               -0-                 -0-                -0-
</TABLE>
                                       13

<PAGE>

         Each  director  of  the  Company  is  entitled  to  receive  reasonable
out-of-pocket  expenses incurred in attending meetings of the Board of Directors
of the Company.  The members of the Board of Directors  meet at least  quarterly
during the Company's fiscal year, and at such other times duly called.

Employment Agreements

      The  Company  entered  into an  employment  agreement  with Mr.  Stella on
October  1, 1996  which  provides  for a  three-year  term and  includes  annual
compensation of $300,000, plus certain fringe benefits including health and life
insurance.  The  contract  was renewed  for another  three years and will expire
October, 2003. There were no changes made to the original contract.

Stock Option Plans and Agreements

      The Company's 1996  Incentive  Stock Option Plan was approved by the Board
of  Directors  and  holders of Common  Stock of the  Company on June 19, 1996 to
provide for the grant of incentive  stock options  within the meaning of Section
422 of the  Internal  Revenue  Code of 1986 to  officers  and  employees  of the
Company.  A total of  350,000  shares of Common  Stock has been  authorized  and
reserved for issuance  under the 1996  Incentive  Stock Option Plan,  subject to
adjustment to reflect changes in the Company's  capitalization  in the case of a
stock split, stock dividend or similar event.  175,000 options have been granted
under the Company's 1996 Incentive  Stock Option Plan. The 1996 Incentive  Stock
Option Plan will be administered by the  Compensation  Committee,  which has the
sole authority to interpret the 1996  Incentive  Stock Option Plan, to determine
the persons to whom options will be granted,  to determine  the basis upon which
the options will be granted,  and to determine the exercise price,  duration and
other terms of options to be granted under the 1996 Incentive Stock Option Plan;
provided  that,  (i) the exercise  price of each option  granted  under the 1996
Incentive  Stock  Option Plan may not be less than the fair market  value of the
Common Stock on the day of the grant of the option, (ii) the exercise price must
be paid in cash and or stock upon exercise of the option, (iii) no option may be
exercisable  for more than 10 years after the date of grant,  and (iv) no option
is transferable  other than by will or the laws of descent and distribution.  No
option is exercisable  after an optionee ceases to be employed by the Company or
a subsidiary of the Company,  subject to the right of the Compensation Committee
to extend the exercise  period for not more than 90 days  following  the date of
termination  of  an  optionee's  employment.  If  an  optionee's  employment  is
terminated by reason of disability, the Compensation Committee has the authority
to extend the exercise  period for not more than one year  following the date of
termination of the optionee's  employment.  If an optionee dies holding  options
that were not fully exercised, such options may be exercised in whole or in part
within one year of the optionee's  death by the executors or  administrators  of
the optionee's  estate or by the optionee's  heirs. The vesting period,  if any,
specified for each option will be accelerated upon the occurrence of a change of
control or threatened change of control of the Company


                                       14
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

      The following table sets forth as of March 23, 2000,  certain  information
with respect to the beneficial  ownership of Common Stock and Preferred Stock by
each person or entity known by the Company to be the  beneficial  owner of 5% or
more of such shares, each officer and director of the Company,  and all officers
and directors of the Company as a group:


Name and Address of      Shares of Common      Percentage (%) of
Beneficial Owner(1)      Stock Owned           Common Stock
-------------------      ----------------      -----------------
Carmine Stella(2)           409,091                 17.2%
Anthony Stella(3)            77,273                  3.3%
Carol Russell                  0                      0
Dawn Collins                   0                      0
Joseph Luzzi                   0                      0
Robert Vessa                   0                      0
All officers and
directors as a group
six (6) persons)            486,364                 20.5%

------------------
(1)  The address of each Stockholder  shown above except as otherwise  indicated
     is c/o Capital Beverage  Corporation,  1111 East Tremont Avenue, Bronx, New
     York 10460.
(2)  Does not include (i) 300,000 shares of Common Stock that may be acquired by
     Mr.  Stella upon  conversion  of the  300,000  shares of Series B Preferred
     Stock that were issued to Mr. Stella upon  consummation  of the Merger;  or
     (ii)  333,600  shares of Common  stock that may be acquired  by Mr.  Stella
     beginning  July 17,  1998  upon  exercise  of  333,600  additional  Class A
     Warrants held by Mr. Stella.
(3)  Does not include  83,400 shares of Common Stock that may be acquired by Mr.
     Anthony  Stella  beginning  July 17, 1998 upon  exercise of 83,400  Class A
     Warrants held by him.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
          ----------------------------------------------

         The  Company  leases two  locations  in the Bronx.  The main office and
picking  location  for  products  are  at  1111  E.  Tremont  Avenue.  There  is
approximately  10,000 sq. ft. of usage at this  location at a cost of $4,000 per
month.  The lease on this location is with East Tremont  Partners.  East Tremont
Partners  is a New  York  partnership  in which  Mr.  Stella  holds a  one-sixth
interest.  Management of the Company  believes that the rent paid by the Company
under  this  lease is less than  what it would be  required  to pay for  similar
premises  within  the area in which the  Company's  administrative  offices  are
located.

         In 1999 the  Company's  recycling  services  were provided by an entity
whose  principal  shareholder,  Joseph Luzzi, is also a director of the Company.
Such services amounted to $63,814.

                                       15

<PAGE>

         Although  the Company  has no present  intention  of entering  into any
affiliated   transactions,   the  Company  believes  that  material   affiliated
transactions  between  the  Company  and  its  directors,   officers,  principal
shareholders or any affiliates  thereof should be in the future on terms no less
favorable than could be obtained from unaffiliated third parties.

         With  respect  to  each  of the  foregoing  transactions,  the  Company
believes  that the terms of such  transactions  were as fair to the  Company  as
could be obtained  from an  unrelated  third  party.  Future  transactions  with
affiliates  will be on terms no less  favorable  than  could  be  obtained  from
unaffiliated  parties  and will be  approved  by a majority  of the  independent
and/or disinterested members of the board of directors.




                                       16
<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

ITEM     A.                EXHIBITS AND REPORTS ON FORM 8-K

(A)(1)  FINANCIAL STATEMENTS.

                   CAPITAL BEVERAGE CORPORATION AND SUBSIDIARY

                              FINANCIAL STATEMENTS

                                      INDEX

                                                                        Page
                                                                       Number
                                                                    ------------
INDEPENDENT AUDITORS' REPORT                                               F - 2

CONSOLIDATED FINANCIAL STATEMENTS:

      Balance Sheet                                                        F - 3

      Statements of Operations                                             F - 4

      Statements of Stockholders' Equity                                   F - 5

      Statements of Cash Flows                                             F - 6

      Notes to Financial Statements                               F - 7 - F - 12




                                      F - 1


<PAGE>



                          INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
Capital Beverage Corporation and Subsidiary

         We have audited the accompanying  consolidated balance sheet of Capital
Beverage  Corporation  and  Subsidiary  as of December  31, 1999 and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
the years ended December 31, 1999 and 1998.  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 audit.

         We conducted our audit 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, the consolidated  financial position of Capital Beverage Corporation and
Subsidiary  as of  December  31,  1999  and  the  consolidated  results  of  its
operations  and its cash flows for the years ended December 31, 1999 and 1998 in
conformity with generally accepted accounting principles.

                                           /s/Feldman Sherb Horowitz & Co, P.C.
                                              Feldman Sherb Horowitz & Co., P.C.
                                              Certified Public Accountants

New York, New York
March 8, 2000

                                      F - 2


<PAGE>
                   CAPITAL BEVERAGE CORPORATION AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEET

                                DECEMBER 31, 1999


                                     ASSETS

CURRENT ASSETS:

  Cash                                                       $          897,934
  Accounts receivable - net of allowance for doubtful
    accounts of $60,000                                                 703,597
  Inventories                                                           956,654
  Prepaid expenses and other current assets                             135,098
                                                                  --------------
TOTAL CURRENT ASSETS                                                  2,693,283

PROPERTY AND EQUIPMENT                                                   91,558

DISTRIBUTION LICENSE                                                    960,000

OTHER ASSETS                                                             39,857
                                                                  --------------

                                                             $        3,784,698
                                                                  ==============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

  Accounts payable                                           $          284,034
  Accrued expenses and taxes                                            162,438
  Current portion of long-term debt                                      74,292
  Current portion of capital lease obligations                            6,356
  Accrued dividends on preferred stock                                  354,113
                                                                  --------------
TOTAL CURRENT LIABILITIES                                               881,233


CAPITAL LEASE OBLIGATIONS                                                27,278

LONG-TERM DEBT                                                          485,252

STOCKHOLDERS' EQUITY:

  7% Cumulative Series B Preferred Stock, par value $.01;
    issued and outstanding 300,000 shares
    (Liquidation value $1,200,000)                                        3,000
  Common stock, $ .001 par value; authorized 20,000,000 shares;
    issued and outstanding 2,378,409 shares                               2,379
  Additional paid-in capital                                          5,365,573
  Accumulated deficit                                                (2,980,017)
                                                                  --------------
TOTAL STOCKHOLDERS' EQUITY                                            2,390,935
                                                                  --------------
                                                            $         3,784,698
                                                                  ==============




                 See notes to consolidated financial statements.

                                       F-3
<PAGE>
                   CAPITAL BEVERAGE CORPORATION AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                      Year Ended December 31,
                                                  -----------------------------
                                                       1999             1998
                                                  ------------     ------------


NET SALES                                         $ 12,903,154     $  8,572,985

COST OF SALES                                       10,428,057        7,984,408
                                                  ------------     ------------
GROSS PROFIT                                         2,475,097          588,577
                                                  ------------     ------------

COSTS AND EXPENSES:

     Selling and delivery                            1,025,068          310,410
     General and administrative                      2,140,674        1,518,959
                                                  ------------     ------------
                                                     3,165,742        1,829,369
                                                  ------------     ------------

LOSS FROM CONTINUING OPERATIONS                       (690,645)      (1,240,792)

INTEREST EXPENSE                                       (53,385)         (57,522)

INTEREST INCOME                                         71,966          116,790
                                                  ------------     ------------

NET LOSS FROM CONTINUING OPERATIONS                   (672,064)      (1,181,524)

LOSS FROM DISCONTINUED OPERATIONS                         --               --
                                                  ------------     ------------

NET LOSS                                              (672,064)      (1,181,524)

PREFERRED STOCK DIVIDENDS                              (84,000)         (84,000)
                                                  ------------     ------------

NET LOSS APPLICABLE TO COMMON SHAREHOLDERS        $   (756,064)    $ (1,265,524)
                                                  ============     ============

LOSS PER SHARE - BASIC AND DILUTED                $      (0.32)    $      (0.53)
                                                  ============     ============

WEIGHTED AVERAGE NUMBER OF SHARES
     USED IN CALCULATION OF BASIC AND
     DILUTED LOSS PER SHARE                          2,378,409        2,378,409
                                                  ============     ============











                 See notes to consolidated financial statements.

                                       F-4
<PAGE>

                   CAPITAL BEVERAGE CORPORATION AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>


                                        Preferred Stock     Common Stock      Additional                      Total
                                        ---------------  ------------------     Paid-In   Accumulated     Stockholders'
                                         Shares  Amount    Shares    Amount     Capital     Deficit          Equity
                                        ------- -------  ---------- -------  ----------- -------------- ---------------

<S>                                     <C>     <C>       <C>       <C>     <C>          <C>            <C>
Balance December 31, 1998               300,000 $ 3,000   2,378,409 $ 2,379 $ 5,365,573  $   (958,429)  $ 4,412,523

Net loss - restated                        -       -           -       -           -       (1,181,524)   (1,181,524)

Dividends payable to preferred
 shareholders                              -       -           -       -           -          (84,000)      (84,000)
                                        ------- -------  ---------- -------  ----------- -------------- ---------------
Balance December 31, 1998 - restated    300,000   3,000   2,378,409   2,379   5,365,573    (2,223,953)    3,146,999

Net loss                                   -       -           -       -           -         (672,064)     (672,064)

Dividends payable to preferred
 shareholders                              -       -           -       -           -          (84,000)      (84,000)
                                        ------- -------  ---------- -------  ----------- -------------- ---------------
Balance December 31, 1999               300,000 $ 3,000   2,378,409 $ 2,379 $ 5,365,573  $ (2,980,017)  $ 2,390,935
                                        ======= =======  ========== =======  =========== ============== ===============

</TABLE>











                See notes to consolidated financial statements.

                                       F-5
<PAGE>
                   CAPITAL BEVERAGE CORPORATION AND SUBSIDIARY

                            STATEMENTS OF CASH FLOWS



                                                       Year Ended December 31,
                                                     ---------------------------
                                                         1999           1998
                                                     -----------    ------------

CASH FLOWS FROM OPERATING ACTIVITIES:

  Net loss                                           $ (672,064) $   (1,181,524)
                                                     -----------    -----------
   Adjustments to reconcile net loss
    to net cash used in operating activities:
   Depreciation and amortization                        171,032         164,925
   Increase in net assets - discontinued operations        --             --

   Changes in assets and liabilities:
   (Increase) decrease in accounts receivable         (361,828)         441,331
    Increase in inventories                           (377,555)        (152,809)
   (Increase) decrease in prepaid expenses              21,501         (147,051)
    Decrease in other assets                            35,805            --
   (Decrease) increase in accounts payable and
    accrued expenses                                    75,530          275,206
                                                     -----------    -----------
                                                      (435,515)         581,602
                                                     -----------    -----------

NET CASH USED IN OPERATING ACTIVITIES               (1,107,579)        (599,922)
                                                     -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES

  Purchases of equipment                               (10,203)          (8,726)
                                                     -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:

  Principal payments of capital lease
   obligations                                          (4,894)           --
  Distributions to stockholders                           --            (84,000)
  Payments of long-term debt                           (68,131)         (62,481)
                                                     -----------    -----------
NET CASH USED IN FINANCING ACTIVITIES                  (73,025)        (146,481)
                                                     -----------    -----------
DECREASE IN CASH                                    (1,190,807)        (755,129)

CASH - BEGINNING OF YEAR                             2,088,741        2,843,870
                                                     -----------    -----------
CASH - END OF YEAR                                 $   897,934      $ 2,088,741
                                                     ===========    ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
     INFORMATION:

  Cash paid for interest                           $    53,299      $    57,522
                                                     ===========    ===========

SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:

  Capital lease obligations                        $    38,388      $     --
                                                     ===========    ===========


                 See notes to consolidated financial statements.

                                       F-6
<PAGE>

                   CAPITAL BEVERAGE CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1999 AND 1998

1.       DESCRIPTION OF BUSINESS

         Capital  Beverage  Corporation  (the  "Company") was formed in December
         1995 to operate as a wholesale  distributor of beer and other beverages
         in New York City. In December  1998,  CAP  Communications,  Ltd.  ("Cap
         Comm"), a wholly-owned subsidiary, was organized to market domestic and
         long distance  prepaid  telephone  calling cards to distributors and to
         the general public.  Cap Comm was in the development  stage at December
         31, 1998.

2.       SIGNIFICANT ACCOUNTING POLICIES

         PRINCIPLES  OF  CONSOLIDATION  - The financial  statements  include the
         accounts of the Company and Cap Comm, its wholly-owned subsidiary.  All
         significant intercompany balances and transactions have been eliminated
         in consolidation.

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

         PROPERTY AND  EQUIPMENT - Property and equipment are stated at cost and
         are depreciated  over the estimated useful lives of the related assets,
         ranging  from  5  to  39  years.   Depreciation   is  computed  on  the
         straight-line and accelerated  methods for both financial reporting and
         income tax purposes.

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

                                      F - 7


<PAGE>




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

         FAIR  VALUE  OF  FINANCIAL  INSTRUMENTS  - The  Company  considers  its
         financial  instruments,  which are carried at cost, to approximate fair
         value due to their near-term maturities.

         DISTRIBUTION  LICENSE - The  Company's  license to  distribute  certain
         beverage  products in New York City, is recorded at cost.  Amortization
         is provided on a straight-line basis over ten years.

         REVENUE  RECOGNITION - Wholesale sales are recognized at the time goods
         are shipped.  Revenue on prepaid phone cards is recognized when the end
         user utilizes calling time and upon expiration of such card.

         LOSS  PER  COMMON  SHARE - Net loss  per  common  share is based on the
         weighted average number of shares outstanding.  Potential common shares
         includable  in the  computation  of fully diluted per share results are
         not  presented  in the  financial  statements  as their effect would be
         anti-dilutive.

         NEW  ACCOUNTING  PRONOUNCEMENTS  - The Company will adopt  Statement of
         Financial  Accounting  Standard No. 133 ("SFAS No. 133"),  " Accounting
         for Derivative  Instruments and Hedging  Activities" for the year ended
         December 31, 1999.  SFAS No. 133 establishes a new model for accounting
         for  derivatives  and hedging  activities  and  supersedes and amends a
         number of existing standards.  The application of the new pronouncement
         is not expected to have a material  impact on the  Company's  financial
         statements.

3.       DISTRIBUTION LICENSE

         The  Company has  acquired an  exclusive  license to  distribute  Pabst
         Products within the "territory", as defined in the licensing agreement.
         The Company paid $1,600,000,  of which $800,000 was paid at the closing
         and the  balance  in a note  payable  in 120  monthly  installments  of
         $10,000 each, inclusive of interest at 9% per annum.

         Maturities of the notes over the next five years are: 2000  -  $74,292;
         2001 - $81,011; 2002 - $88,338; 2003 - $96,327; 2004 - $105,038.

                                      F - 8


<PAGE>




4.       WARRANTS

         In July 1997,  the Company  sold  800,000  units for  $3,803,000  after
         expenses. The units consisted of one share of Common Stock and one half
         Class A Redeemable Common Stock Purchase Warrant.  Two Class A warrants
         entitle the holder to purchase  one share of Common  Stock at $6.25 per
         share. The warrants are exercisable commencing July 17, 1998 and expire
         on July 16, 2002.  The warrants are  redeemable by the Company at $.001
         per  warrant  under  terms as  defined  in the  warrant  agreement.  At
         December  31,  1999,   1,659,000  Class  A  warrants  were  issued  and
         outstanding.

         The Company issued a unit purchase warrant to the underwriter for $100,
         enabling the  underwriter to purchase up to 80,000 units at an exercise
         price of at least 120  percent  of the  initial  offering  price of the
         units. The Company has reserved 120,000 shares of Common Stock to cover
         the exercise of such warrant.

5.       INCOME TAXES

         At December 31, 1999, the Company had a net operating loss carryover of
         $2,500,000  available as offsets against future taxable income, if any,
         which expire at various dates through  2014.The  Company has a deferred
         tax asset of $1,000,000 arising from such net operating loss deductions
         and has  recorded a  valuation  allowance  for the full  amount of such
         deferred tax asset.

         The  difference  between  the  recorded  income  tax  benefits  and the
         computed tax benefits using a 40 percent effective rate are as follows:
<TABLE>
<CAPTION>

                                                                      Year Ended December 31,

                                                            -------------------------------------------
                                                                   1999                     1998
                                                            ------------------       ------------------
<S>                                                    <C>                      <C>
Computed expected income tax (benefit)                 $             (270,000)  $             (473,000)
Non-deductible items                                                    20,000                   17,000
Temporary differences                                                  (2,000)                  (2,000)
Benefits not recorded                                                  252,000                  458,000
                                                            ------------------       ------------------
                                                       $                     -  $                     -
                                                            ==================       ==================
</TABLE>






                                      F - 9


<PAGE>



6.       PROPERTY AND EQUIPMENT

         Property  and  equipment,  at  cost,  consist  of the  following  as of
December 31, 1999:

Leasehold improvements                     $                  60,000
Computer equipment                                            16,418
Machinery and equipment                                       48,654
                                                --------------------
                                                             125,072

Less accumulated depreciation                               (33,514)
                                                --------------------
                                           $                  91,558
                                                ====================

         The  Company  has  machinery  and  equipment  under  capital  leases of
$38,388.

7.       CAPITAL LEASE OBLIGATIONS

         The  Company  has  various   capital   lease   obligations   which  are
         collateralized  by equipment.  Interest  rates under the agreements are
         7.6%, with monthly principal and interest payments of $700.

         Future  minimum  lease  payments  and the present  value of the minimum
         lease payments under the noncancellable capital lease obligations as of
         December 31, 1999 are as follows:

2000                                                    $                  9,098
2001                                                                       9.098
2002                                                                       9,098
2003                                                                       8,881
2004                                                                       2,802
                                                              ------------------
Total future minimum lease payments                                       38,977
Less amounts representing interest                                         5,343
                                                              ------------------
Present value of minimum lease payments                                   33,634
Less current maturities                                                    6,356
                                                              ------------------
Total long - term obligations                           $                 27,278
                                                              ==================


                                     F - 10


<PAGE>



         At December 31, 1999 property and equipment  includes  equipment  under
         capital lease  obligations with a total cost of $38,388 and accumulated
         amortization of $4,478.

8.       LEASE COMMITMENTS

         The Company  renegotiated the lease of its warehouse and administrative
         facilities in April 1998 thereby  reducing its monthly rental  payments
         from  $10,000  to $4,000 for the  remainder  of its lease  term,  which
         expires in 2001. A principal shareholder in the company has a one-sixth
         interest in the lessor.  Additional warehouse space was acquired from a
         customer on a  month-to-month  basis  commencing  October 1998.  Rental
         payments of $7,000 per month are  offsettable  against amounts due from
         the  customer  until the balance is  liquidated.  In November  1999 the
         Company agreed to pay $4,000 per month,  and the remaining  $3,000 will
         be offsettable against amounts due from the customer.  Rent expense for
         1999 and 1998 was $107,258 and $83,000, respectively.

9.       CONCENTRATION OF CREDIT RISK

         The Company is subject to credit risk  through  trade  receivables  and
         short-term  cash  investments.   Credit  risk  with  respect  to  trade
         receivables is mitigated to a degree because of management's  knowledge
         of the  local  marketplace  and the  relative  creditworthiness  of the
         customers to which it extends credit.  Short-term cash  investments are
         placed  with  high  credit  quality  financial  institutions,   thereby
         limiting the amount of credit exposure.

         The Company's  operations,  and therefore its revenues are concentrated
         in the New York City Metropolitan area.  Additionally,  the majority of
         the  Company's   revenues  are  derived  from  the  sale  of  alcoholic
         beverages.  Downturns  in New York City's  economic  activities  and/or
         negative  changes  in the  publics  perception  of the  consumption  of
         alcoholic beverages may adversely affect the Company's operations.

10.      MAJOR CUSTOMER AND SUPPLIER INFORMATION

         Sales to a  single  customer  in 1999 and 1998  were 14% and 13% of net
         sales,  respectively.  Purchases of  Pabst  products were approximately
         $3,000,000 and $3,200,000 in 1999 and 1998, respectively.

11.      RELATED PARTY TRANSACTION

         The Company's carting and recycling  services are provided by an entity
         whose  principle  shareholder  is also a director of the Company.  Such
         services approximated $63,000 in 1999 and $200,000 in 1998.

                                     F - 11


<PAGE>



12.      EMPLOYMENT AGREEMENT

         The  Company  has an  agreement  for the  services of an officer of the
         Company as President and Chief Executive Officer ("CEO"). The agreement
         expires on October 2003 and provides for base  compensation of $300,000
         per year payable in equal weekly payments.  The agreement also provides
         for  participation  in whatever  executive  stock option plan is agreed
         upon by the board of  directors,  the use of a luxury  car,  health and
         welfare  coverage for the officer and his family,  coverage and benefit
         of pension  plan in the event that a plan is  approved  by the board of
         directors,  reimbursement  of all expenses  reasonably  incurred in the
         performance  of duties under the  agreement,  four weeks paid  vacation
         annually,  six paid  personal  days and sick days in  keeping  with the
         Company's policy regarding executives, four weeks paid leave of absence
         and if the Company ceases  employment for any reason,  the officer will
         receive four weeks pay for each year of service with the Company.  Such
         payment will be pro-rated for the portion of the final year of service.

13.      STOCK OPTIONS

         The  Company's  1996  Incentive  Stock  Option  Plan  (the  "Plan") was
         approved  by the Board of Directors  and holders of Common Stock of the
         Company  on June 19, 1996 to provide for the grant of  incentive  stock
         options  within the meaning of Section 422 of the Internal Revenue Code
         of  1986 to officers and  employees of the Company.  A total of 350,000
         shares of Common Stock has been  authorized  and reserved for issuance,
         subject   to   adjustment   to   reflect   changes  in  the   Company's
         capitalization  in the case of a stock split, stock dividend or similar
         event. The Plan will be  administered by the  Compensation   Committee,
         which  has the sole  authority to determine the persons to whom options
         will  be granted, to determine the basis upon which the options will be
         granted, and  to determine the exercise price, duration and other terms
         of  options to be granted provided that, (i) the exercise price of each
         option  granted  under  the Plan may not be less  than the fair  market
         value of  the Common Stock on the day of the grant of the option,  (ii)
         the  exercise  price must be paid in cash and or stock upon exercise of
         the  option,  (iii) no option may be exercisable for more than 10 years
         after  the date of grant, and (iv) no option is transferable other than
         by will or the laws of descent and distribution.

         On  December  30,  1999,  175,000  options  were granted.  In 1999, had
         compensation  cost for the Plan been determined based on the fair value
         at  the grant dates for awards under the Plan,  the  Company's net loss
         and  net loss per share would have  increased to the pro forma  amounts
         indicated below:

                                                   As          Pro
                                                 Reported     Forma

                                                ----------  ----------

Net loss                                        ($672,064)   ($993,662)
Basic and diluted net loss per share            ($0.32)      ($0.42)

The fair value of each option  grant is estimated on the date of grant using the
Black  Scholes   option-pricing  method  with  the  following  weighted  average
assumptions  used for grants in 1999;  dividend  yield 0%,  expected  volatility
50%, risk-free interest rate 7.00%, expected lives in years 5.

The weighted  average fair value of stock options  granted during the year ended
December 31, 1999 was $3.50.  No employee stock options were granted in 1998.


                                     F - 12


<PAGE>

(A) (2)  EXHIBITS

         A list and description of exhibits filed as part of this Form 10-KSB is
provided in the attached Exhibit Index.

ITEM 27. EXHIBITS.

 1.1     Form of Underwriting Agreement.*
 1.2     Form of Agreement Among Underwriters.*
 1.3     Form of Selected Dealer Agreement.*
 3.1     Certificate of Incorporation.*
 3.2     Certificate of Designations, As Amended, Relating to Series A Preferred
         Stock.*
 3.3     Form  of  Certificate  of  Designations  Relating to Series B Preferred
         Stock.*
 3.4     ByLaws.*
 4.1     Specimen Common Stock Certificate.*
 4.2     Specimen Series A Preferred Stock Certificate.*
 4.3     Specimen Series B Preferred Stock Certificate.*
 4.4     Specimen Class A Warrant Certificate.*
 4.5     Form of Convertible Bridge Note.*
 4.6     Form of  Class A Warrants Issued to Certain Members of Management.*
 4.7     Form of Class A Warrants Issued in 1996 Private  Placement  Financing.*
 4.8     Form of  Representative's   Unit  Purchase  Option   Agreement.*
 4.9     Form  of  Warrant  Agreement.*
10.1     Agreement  with  Consolidated  Beverage   Corp.   relating   to   Pabst
         Distribution Rights *
10.2     Form  of  Series  of  Promissory   Notes   to   Consolidated   Beverage
         Corporation *
10.3     Bill of Sale from Consolidated Beverage Corp. to Registrant.*
10.4     Distributorship Agreement with Pabst Brewing Company *



<PAGE>

10.5     Agency Agreement with Vito Santoro, Inc.*
10.6     Employment Agreement between Registrant and Carmine N. Stella.*
10.7     1996 Incentive Stock Option Plan.*
10.8     Agreement  with  Carmine  N.  Stella relating to Option to acquire Vito
         Santoro, Inc.*
10.9     Merger Agreement relating to Vito Santoro, Inc.*
*        Incorporated  by reference to  Registrant's  Registration  Statement on
Form SB-2, and amendments thereto,  Registration No. 333-9995 declared effective
on July 17, 1997.

(B)      REPORTS ON FORM 8-K.

                  None.



<PAGE>



                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
Registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly executed on this ___ day of March, 2000.

                                          CAPITAL BEVERAGE CORPORATION

                                          BY:/S/ CARMINE STELLA
                                          Carmine Stella
                                          President, Chief Executive Officer
                                          and Chairman of the Board of Directors

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

SIGNATURE                                   TITLE                     Date



/S/ CARMINE STELLA                  Chief Executive Officer,      March 29, 2000
--------------------------          President and Chairman of
                                    the Board of Directors

/S/ ROBERT VESSA                    Director                      March 29, 2000
--------------------------
Robert Vessa

 /S/CAROL RUSSELL                   Secretary and Treasurer       March 29, 2000
-----------------------------       and Director
Carol Russell

/S/ DAWN COLLINS                    Director                      March 29, 2000
-----------------------------
Dawn Collins

/S/ JOSEPH LUZZI                    Director                      March 29, 2000
-----------------------------
Joseph Luzzi

/S/ ANTHONY STELLA                  Vice President of Sales       March 29, 2000
-----------------------------       and Marketing Director
Anthony Stella