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, 2002.

        [ ]   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)

700 Columbia Street, Erie Basin, Building # 302, Brooklyn, New York    11231
 (Address of Principal Executive Officers)                          (Zip Code)

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

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 $28,838,216.

         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 27, 2003, was approximately $ 378,409.

         Number of shares outstanding of the issuer's Common Stock as of March
27, 2003 was 3,792,045.


                    DOCUMENTS INCORPORATED BY REFERENCE: None

<PAGE>

                          Capital Beverage Corporation
                         2002 Form 10-KSB Annual Report
                                TABLE OF CONTENTS


PART I             .........................................................3
 ITEM 1.  BUSINESS .........................................................3
 ITEM 2.  PROPERTIES.......................................................13
 ITEM 3.  LEGAL PROCEEDINGS................................................13
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............13
 PART II            .......................................................14
 ITEM 5.  MARKET FOR REGISTRANT'S COMMON ..................................14
 ITEM 6.  MANAGEMENT'S DISCUSSION..........................................15
 ITEM 7.  FINANCIAL STATEMENTS.............................................16
 ITEM 8.  CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ....................17
PART III           ........................................................18
 ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL.............18
 ITEM 10. EXECUTIVE COMPENSATION...........................................21
 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND..............23
 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................25
 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K ................................25
 ITEM 14. CONTROLS AND PROCEDURES .........................................26

SIGNATURES

CERTIFICATES





                                       2

<PAGE>

         SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         Certain statements contained in this Annual Report on Form 10-KSB
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
All statements included in this Annual Report, other than statements of
historical facts, regarding our strategy, future operations, financial position,
estimated revenues, projected costs, prospects, plans and objectives are
forward-looking statements. When used in this Annual Report, the words "will,"
"believe," "anticipate," "intend," "estimate," "expect," "project" and similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain these identifying words. We cannot
guarantee future results, levels of activity, performance or achievements, and
you should not place undue reliance on our forward-looking statements. Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including the risks
described in Part I - Risk Factors, and elsewhere in this Annual Report. Our
forward-looking statements do not reflect the potential impact of any future
acquisitions, mergers, dispositions, joint ventures or strategic investments. In
addition, any forward-looking statements represent our expectation only as of
the day this Annual Report was first filed with the SEC and should not be relied
on as representing our expectations as of any subsequent date. While we may
elect to update forward-looking statements at some point in the future, we
specifically disclaim any obligation to do so, even if our expectations change.


                                     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 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.

                                       3

<PAGE>

         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 Beverage now
contracts to purchase from the Miller Brewing Company on an exclusive basis.

         On December 31, 2001 Capital sold its Miller products at the request of
the Miller Brewing Company in compliance with their national consolidation plan.
Phoenix Beverage paid Capital Beverage Two Million Six Hundred Fifty Thousand
Dollars $2,650,000 for that acquisition.

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

         On June 29, 2001, pursuant to the Purchase Agreement, the Company
purchased all of the assets of Prospect's business which related to Prospect's
business of distributing beverages, including among other things, beer
distribution rights, properties, rights, leases, interests, goods and customer
lists of Prospect. The purchase price of the assets consisted of the assumption
by the Company of certain liabilities of Prospect and the issuance of an
aggregate of five hundred thousand (500,000) shares of the common stock of the
Company to the shareholders of Prospect. Inclusive with the acquisition came the
following national brands: Colt 45, Old Milwaukee, Schaefer, Schlitz, Champale,
Schmidts, Stroh, Piels, McSorleys and also an extensive list of various imports.

         All of the distributor agreements are subject to termination on short
notice by the brewers. However, New York State has one of the strongest
franchise state laws in the country which provides for fair market value
compensation in the event of termination.

                                       4

<PAGE>

         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
"pre-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 connection with the acquisition, the Company received financing
from the Connecticut Bank of Commerce in the principal amount of approximately
$5,000,000. The proceeds of the loan were used to satisfy certain of the
liabilities of Prospect and for other working capital purposes.

         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" and
"Night Flight" into well known brands with a substantial customer base in the
metropolitan New York area. In 2002, these brands accounted for over 322,783
case sales (16 oz. equivalents).

         The Company 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, upstate New York markets as well as the neighboring states of
Pennsylvania, New Jersey and Connecticut.

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
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.

         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.

                                       5

<PAGE>

         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.

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 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.

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 actual sales during Fiscal 2003 will
enable the Company to allocate toward advertising.

Employees

         As of December 31, 2002, the Company employed a staff of 102, including
7 sales managers, 22 sales people, 20 managerial/administrative and 53
distribution employees. The Company has a collective bargaining agreement with
Local 918 and has not experienced any work stoppages as a result of labor
disputes. The Company considers its employee relations to be good.

                                       6

<PAGE>

Competition

         The business conducted by the Company is highly competitive. As of
December 31, 2002, the Company competed with approximately 6 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 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 Pabst and Pittsburgh, the loss of any supplier will not adversely affect the
Company's business. Termination of the Company's Distributorship Agreement with
Pabst 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.

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

                                       7

<PAGE>

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.

Risk Factors

         In addition to other information in this Annual Report on Form 10-KSB,
the following important factors should be carefully considered in evaluating the
Company and its business because such factors currently have a significant
impact on the Company's business, prospects, financial condition and results of
operations.

Risks related to our business

Our Business is Highly Competitive. The business conducted by the Company is
highly competitive. As of December 31, 2002, the Company competed with
approximately 6 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.

We Depend On Our Agreements With Pabst And Pittsburgh Brewing. The Company is
dependent on its relationship with Pabst for a significant portion of its
anticipated future revenues. The Company anticipates that a substantial portion
of such future revenues will be derived from such relationship. In addition to
purchasing products directly from Pabst 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 Pabst and
Pittsburgh, the loss of any supplier will not adversely affect the Company's
business. Termination of the Company's distributorship agreement with Pabst
and/or Pittsburgh could have a materially adverse effect on the business of the
Company.

                                       8

<PAGE>

Our Business Is Subject To Seasonality And Fluctuation Of Quarterly Results Of
Operations. 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.

Our Business Is Subject To Government Regulation and the Possibility Of
Increased Governmental 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.

Our Business Is Subject To Possible Increase In Government Taxation. The sale of
alcoholic beverages is a business that is highly regulated and taxed at the
federal, state and local levels. 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 businesses. 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.

                                       9

<PAGE>

Our Financial Statements Include A Going Concern Opinion From Our Independent
Auditors. The Company received a going concern opinion on its financial
statements for fiscal 2002. Our auditors have stated that due to our lack of
profitability and our negative working capital, there is "substantial doubt"
about our ability to continue as a going concern. The going concern opinion from
our auditors may limit our ability to access certain types of financing, or may
prevent us from obtaining financing on acceptable terms.

Our Revenues May be Insufficient to Fund Our Operations and We May Need
Additional Financing. We believe that our anticipated cash flow from operations
could be adequate to fund our operations for the next fiscal year. There can be
no assurance, however, that we will not require additional financing prior to or
after such time. There can be no assurance that any additional financing will be
available to the Company on acceptable terms, or at all. If adequate funds are
not available, the Company may be required to delay, scale back or eliminate its
operational plans. Our inability to obtain additional financing could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Terrorist Attacks Or Acts Of War May Seriously Harm Our Business. Terrorist
attacks or acts of war may cause damage or disruption to our company, our
employees, our facilities and our customers, which could impact our revenues,
expenses and financial condition. The terrorist attacks that took place in the
United States on September 11, 2001 were unprecedented events that have created
many economic and political uncertainties, some of which may materially and
adversely affect our business, results of operations, and financial condition.
The potential for future terrorist attacks, the national and international
responses to terrorist attacks, and other acts of war or hostility have created
many economic and political uncertainties, which could materially and adversely
affect our business, results of operations, and financial condition in ways that
we currently cannot predict.

A General Economic Downturn May Reduce Our Revenues. Worldwide economic
conditions may affect demand for our products. Consumer purchases of our
products may decline during recessionary periods and also may decline at other
times when disposable income is lower.

Loss Of Key Personnel Could Adversely Affect Our Business. Our future success
depends to a significant degree on the skills, experience and efforts of Carmine
Stella, our President and Chief Executive Officer. The loss of the services of
Mr. Stella could have a material adverse effect on our business, results of
operations and financial condition. We also depend on the ability of our
executive officers and other members of senior management to work effectively as
a team. The loss of one or more of our executive officers and other members of
senior management could have a material adverse effect on our business, results
of operations and financial condition.

                                       10

<PAGE>

We May Not Be Able To Comply In A Timely Manner With All Of The Recently Enacted
Or Proposed Corporate Governance Provisions. Beginning with the enactment of the
Sarbanes-Oxley Act of 2002 in July 2002, a significant number of new corporate
governance requirements have been adopted or proposed. We believe that we
currently comply with all of the requirements that have become effective thus
far, and with many of the requirements that will become effective in the future.
Although we currently expect to comply with all current and future requirements,
we may not be successful in complying with these requirements at all times in
the future. In addition, certain of these requirements will require us to make
changes to our corporate governance practices. For example, one Nasdaq proposal
(which may become applicable to companies listed on the OTC Bulletin Board, or
its successor, the BBX Exchange) under review by the Securities and Exchange
Commission will require that a majority of our Board of Directors be composed of
independent directors by our 2004 Annual Meeting of Stockholders. Currently, two
of the members of our Board of Directors are considered to be independent. We
may not be able to attract a sufficient number of directors in the future to
satisfy this requirement, if enacted and if it becomes applicable to our
Company. Additionally, the Commission recently passed a final rule that requires
companies to disclose whether a member of their Audit Committee satisfies
certain criteria as a "financial expert." We currently do not have an Audit
Committee member that satisfies this requirement and, we may not be able to
satisfy this, or other, corporate governance requirements at all times in the
future, and our failure to do so could cause the Commission or Nasdaq to take
disciplinary actions against us, including an action to delist our stock from
the OTC Bulletin Board or any other exchange or electronic trading system where
our shares of common stock trade.

Risks Related To Our Common Stock

Disappointing Quarterly Revenue Or Operating Results Could Cause The Price Of
Our Common Stock To Fall. Our quarterly revenue and operating results are
difficult to predict and may fluctuate significantly from quarter to quarter. If
our quarterly revenue or operating results fall below the expectations of
investors or securities analysts, the price of our Common Stock could fall
substantially.

Our Common Stock Is Particularly Subject To Volatility Because Of The Industry
That We Are In. The stock market in general has recently experienced extreme
price and volume fluctuations. In addition, the market prices of securities of
network marketing companies, have been extremely volatile, and have experienced
fluctuations that have often been unrelated or disproportionate to the operating
performance of such companies. These broad market fluctuations could adversely
affect the market price of our Common Stock.

Future Sales By Existing Security Holders Could Depress The Market Price Of Our
Common Stock. If our existing stockholders sell a large number of shares of our
Common Stock, the market price of the Common Stock could decline significantly.
Further, even the perception in the public market that our existing stockholders
might sell shares of Common Stock could depress the market price of the Common
Stock.

                                       11

<PAGE>

There Are Risks Associated With Our Stock Trading On The NASD OTC Bulletin Board
Rather Than A National Exchange. There are significant consequences associated
with our stock trading on the NASD OTC Bulletin Board rather than a national
exchange. The effects of not being able to list our securities on a national
exchange include:

-        Limited release of the market prices of our securities;
-        Limited news coverage of us;
-        Limited interest by investors in our securities;
-        Volatility of our stock price due to low trading volume;
-        Increased difficulty in selling our securities in certain states due to
         "blue sky" restrictions; and
-        Limited ability to issue additional securities or to
         secure additional financing.

There is No Assurance That An Active Public Trading Market Will Develop. There
has been an extremely limited public trading market for the Company's Common
Stock. There can be no assurances that a public trading market for the Common
Stock will develop or that a public trading market, if developed, will be
sustained. If for any reason a public trading market does not develop,
purchasers of the shares of Common Stock may have difficulty in selling their
securities should they desire to do so.

"Penny Stock" Regulations May Impose Certain Restrictions On The Marketability
of Our Securities. The Securities and Exchange Commission (the "Commission") has
adopted regulations which generally define "penny stock" to be any equity
security that has a market price (as defined) less than $5.00 per share, subject
to certain exceptions. Our Common Stock is presently subject to these
regulations which impose additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally those 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, the broker-dealer must make a
special suitability determination for the purchase of such securities and 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 transaction, of a risk
disclosure document mandated by the Commission relating to the "penny stock"
market. The broker-dealer must also disclose the commission payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the "penny stock" held in the account and information on the
limited market in "penny stocks". Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell our securities and may negatively
affect the ability of purchasers of our shares of Common Stock to sell such
securities.

                                       12

<PAGE>

Item 2.  PROPERTIES.

         The main offices and warehouse location for products are at 700
Columbia Street, Erie Basin, Building #302, Brooklyn, New York 11231. There is
over 200,000 sq. ft. of usage at this location at a cost of $29,430.58 per
month. The lease on this location is with Erie Basin Marine Associates.
Management of the Company believes that the rent paid by the Company under this
lease is less than the fair market value of similar premises within the area in
which the Company's administrative offices are located.

         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.
        ----------------------------------------------------

None.

                                       13

<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 OTC Bulletin Board. The Company's securities were delisted by the
NASDAQ Stock Market on June 19, 2001.

         The following table indicates the high and low closing prices for the
Company's, Common Stock and Class A Warrants for the period from January 1, 2001
to December 31, 2002 based upon information supplied by the NASDAQ system and
the OTC Bulletin Board. Prices represent quotations between dealers without
adjustments for retail markups, markdowns or commissions, and may not represent
actual transactions.

Common Stock


2001 Fiscal Year                            Quoted Price
----------------                            ------------
                                         High             Low
                                         ----             ---
First Quarter                            .969             .25
Second Quarter                           1.56             .35
Third Quarter                             .60             .35
Fourth Quarter                            .50             .25


2002 Fiscal Year                             Quoted Price
----------------                             ------------
                                         High             Low
                                         ----             ---
First Quarter                             .50             .11
Second Quarter                           1.17             .35
Third Quarter                             .66             .17
Fourth Quarter                            .25             .07

Class A Warrants


2001 Fiscal Year                             Quoted Price
----------------                             ------------
                                         High             Low
                                         ----             ---
First Quarter                            .125            .031
Second Quarter                           .187            .031
Third Quarter                             .09             .01
Fourth Quarter                            .09             .01

                                       14

<PAGE>

2002 Fiscal Year                             Quoted Price
----------------                             ------------
                                         High             Low
                                         ----             ---
First Quarter                             .01             .01
Second Quarter                            .05             .01
Third Quarter                             .02             .02
Fourth Quarter                              *               *

* No data available.

         On March 27, 2003 the closing price of the Common Stock as reported on
The OTC Bulletin Board was $.20. On March 27, 2003 there were 23 holders of
record of Common Stock.

Dividends

         We have not paid any cash dividends on our Common Stock to date and do
not anticipate declaring or paying any cash dividends in the foreseeable future.
In addition, future-financing arrangements, if any, may preclude or otherwise
restrict the payment of dividends.

Recent Sales of Unregistered Securities

         In December 2002, we issued 613,636 shares of Common Stock at fair
market value to officers of the Company in consideration for the guarantee of a
Company loan, related pledge and security agreement and other valuable services
provided to the Company pursuant to Section 4(2) of the Securities Act of 1933,
as amended (the "Act").

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

         Net sales for the year ended December 31, 2002 were $28,838,216,
reflecting an increase of $7,500,540 or 35% from the $21,337,676 net sales for
the year ended December 31, 2001. The increase in the year ended December 31,
2002 resulted primarily from the acquisition of Prospect as well as the
substantial growth in our Pabst related brands. Specifically, the brands Colt 45
Malt Liquor, Pabsts and McSorleys had increases of 30%, 244% and 5% respectively
over the past year.

                                       15

<PAGE>

         Cost of sales was $21,595,102 or 75% of net sales for the year ended
December 31, 2002, as compared to $15,965,943 or 75% of net sales for the year
ended December 31, 2001. The cost of goods sold as a percentage of sales for the
year ended December 31, 2002, has held stable for the past two years. This
percentage is an acceptable benchmark for our industry and is a fair
representation for the variety of our current brands sold.

         Selling, general and administrative expenses for the year ended
December 31, 2002 were $7,679,593 as compared to $6,462,819 for the respective
2001 period. The increase in the year ended December 31, 2002 was due primarily
to the costs incurred in the acquisition of Prospect Beverages Inc., as well as
the increase in costs to deliver the higher sales volume. It is important to
note that management has made substantial cuts in the selling, general and
administrative expenses in the last half of the year ended 2002. When comparing
July thru December for both year ends 2001 and 2002 we have lowered our expenses
from $4,617,795 to $3,577,065 respectively for a savings of $1,040,730 in
contrast to the higher sales volumes for the same period. These management cost
cutting control measures are still in effect currently in the first quarter of
2003.

         Interest expense for the year ended December 31, 2002 was $473,275 as
compared to $341,985 for the respective 2001 period. The increase in the period
ended December 31, 2002 was due primarily to interest paid on the Hudson United
line of credit and additional leases acquired with the acquisition in June of
2001. (Interest on the credit line represents a full year of borrowing in 2002,
as compared to a half year in 2001).

Liquidity and Capital Resources

         Cash used in operations for the year ended December 31, 2002 was
$1,249,343. The increase in inventories of $470,688 was due to higher purchases
of inventory caused by the additional products added to our product line due to
the acquisition.

         Working capital deficiency increased from ($1,037,327) at December 31,
2001 to ($2,418,137) at December 31, 2002 to due to the operating loss of the
Company.

         At December 31, 2002 the Company's primary sources of liquidity were
$120,242 in cash, $481,000 in accounts receivable and $2,385,580 in inventories.

Item 7.  FINANCIAL STATEMENTS.

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

                                       16

<PAGE>

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

         Feldman Sherb & Co., P.C., a professional corporation of certified
public accountants ("Feldman") was the independent accounting firm for Company,
for the fiscal years ended December 31, 2001 and 2000 and the four month ten day
period ended May 10, 2002. The report of Feldman on the 2001 and 2000
consolidated financial statements of the Company contained no adverse opinion,
disclaimer of opinion or modification of the opinion.

         Feldman was merged into Grassi & Co., CPA's, P.C., ("Grassi") and the
principal accountants who had been responsible for the Company's audit during
the years ended December 31, 2001 and 2000 left and started their own firm
called Sherb & Co., LLP ("Sherb"). As a result, on May 11, 2002, the Company
dismissed Grassi and selected Sherb to serve as independent public accountants
for the fiscal year 2002.

         During the two most recent fiscal years and through May 10, 2002, the
Company did not consult with Sherb regarding the application of accounting
principles to a specific or contemplated transaction. Neither the Company nor
anyone on its behalf consulted with Sherb regarding the type of audit opinion
that might be rendered on the Company's financial statements or any matter that
was the subject of a disagreement or event as defined at Item 304(a)(2) of
Regulation S-B.

         The decision to change accountants was recommended and approved by the
board of directors of the Company. During the period from January 1, 1999 to May
10, 2002, and through the date of this report, there were no disagreements with
Feldman on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Feldman, would have caused it to make reference to the
subject matter of the disagreements in connection with its reports on the
Company's financial statements as described on Item 304(a)(1)(iv)(A). In
addition, there were no such events as described under Item 304(a)(1)(iv)(B) of
Regulation S-B during such periods.

         On September 19, 2002 the Company provided Grassi, with a copy of the
disclosures it made in response to Item 304(a) of Regulation S-B, and requested
that Grassi provide its response letter, addressed to the United States
Securities and Exchange Commission, pursuant to Item 304(a)(3) of Regulation
S-B, stating whether it agrees with the statements made by the Company and, if
not, stating the respects in which it does not agree. A copy of Grassi's letter
was attached as an exhibit to the Current Report on Form 8-K, dated May 11,
2002.

                                       17

<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      50     President, Chief Executive Officer,
                                       Chairman of the Board of Directors

         Anthony Stella         52     Vice President of Sales and Marketing

         Carol Russell*         47     Secretary, Treasurer and Director

         Joseph M. Luzzi*       55     Director

         Michael Matrsciani*    47     Director

         Daniel Matrisciani     56     Director and Vice President of Operations

         Vito Cardinale*        43     Director
-----------------------
*  Member of the Compensation Committee and/or Audit Committee.

         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.

         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.

                                       18

<PAGE>

         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.

         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.

         Michael  Matrisciani - Mr.  Matriscinai  has been a Director of the
Company since June 2001. Mr.  Matrisciani  has been in the beverages
distribution  his entire  career.  He managed a group of  beverage  centers for
years  before  entering  into the  wholesale business.  Mr.  Matrisciani
started with  Prospect  Beverages,  Inc. as a sales  manager and went on to
become a principal and CFO. He has  certificates in finance and real estate from
NYU in NYC. He is also a Dale Carnegie  graduate.  Mr.  Matrisciani is a board
member of the New York  State  Beer  Wholesalers  association  and  board
member  of SCI,  an  international  conservation  and humanitarian organization.

         Daniel  Matrisciani - Mr.  Matrisciani has been a Director and Vice
President of Operations  since June 2001. Mr.  Matrisciani has been  involved in
the beer  business for almost 40 years.  He has  successfully  owned and
operated,  with his partners a chain of Thrifty Beverage Centers in the NYC
market place.  Mr.  Matrisciani was a principal and director of wholesaler
relations with Prospect Beverages,  Inc. a company he founded  with his
partners in 1981.  Mr.  Matrisciani  is a decorated  veteran of the Vietnam
conflict, having served as a crew chief on a UH-1B helicopter gunship (huey).

         Vito Cardinale - Mr.  Cardinale has been a Director of the Company
since June 2001. Mr.  Cardinale has held various  positions as President and CEO
of Cardinale  Enterprises Inc., a real estate holding and business venture
corporation.  With holdings in various companies  from 1981 to the present.  Mr.
Cardinale is currently  CEO of School Time  Products,  Inc.,  an  educational
publisher and wholesaler  distributor to the New York City Board of Education.
He is also President,  and CEO, of Unlimited Office  Products,  Inc., an office
equipment  company,  PC and technology  company selling throughout the New York
City metropolitan area. Mr. Cardinale holds a B.S. degree in Industrial and
Mechanical  Engineering  from the City University of N.Y. Mr.  Cardinale has
held positions as President, Vice  President  and Board  Member for  various
organizations,  such as Gateway  Rotary,  Chamber  of  Commerce,  YMCA and Make
A Wish Foundation  (Rainbow's  Hope). He is also a life member of Safari Club
International,  North American Hunting Club, Buck Masters,  the Sheep
Foundation, Bass Masters and other various sporting organizations throughout the
world.

                                       19

<PAGE>

         The Company has established a compensation committee and an audit
committee. The compensation committee reviews executive salaries, administers
any bonus, incentive compensation and stock option plans of the Company,
including the Company's 1996 Incentive Stock Option Plan, and approves the
salaries and other benefits of the executive officers of the Company. In
addition, the compensation committee consults with the Company's management
regarding pension and other benefit plans, and compensation policies and
practices of the Company. The compensation committee consists of Carol Russell,
Michael Matrisciani and Joseph Luzzi.

         The audit committee reviews, among other matters, the professional
services provided by the Company's independent auditors, the independence of
such auditors from management of the Company, the annual financial statements of
the Company and the Company's system of internal accounting controls. The audit
committee also reviews such other matters with respect to the accounting,
auditing and financial reporting practices and procedures of the Company as it
may find appropriate or as may be brought to its attention.

         The audit committee has reviewed and discussed the audited financial
statements included in the Company's Form 10-KSB for the fiscal year ended
December 31, 2002 with management. The audit committee has received the written
disclosures and the letter from the independent accountants reviewed by
Independence Standards Board Standard No. 1, as may be modified or supplemented,
and discussed with the auditors the auditors' independence.

         Based on the review and discussions noted above, the audit committee
recommended to the Board of Directors that the audited financial statements be
included in the Company 2002 Form 10-KSB.

            The audit committee consists of three members Carol Russell, Vito
Cardinale and Joseph Luzzi, all of whom are "independent" for purposes of stock
exchange listing standards.

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, 2002, all Section 16(a) filing requirements applicable
to its officers, directors and greater than ten percent beneficial owners were
satisfied.

                                       20

<PAGE>

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

         The following table sets forth the compensation paid to the Named
Executive Officers for the fiscal years ending December 31, 2000, 2001 and 2002.
<TABLE>
<CAPTION>

                           Summary Compensation Table

                                        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                   2002    $241,105.07           -0-                    -0-                     0-
President, Chief Executive Officer, 2001    $300,504.20           -0-                    -0-                     0-
Chairman of the Board               2000    $301,982.00           -0-                    -0-                     0-



Anthony Stella                      2002    $151,709.02           -0-                    -0-                     0-
Vice President of Sales             2001    $181,977.18           -0-                    -0-                     0-
and Managing Director               2000    $171,146.00           -0-                    -0-                     0-


Carol Russell                       2002     $80,868.60           -0-                     -0-                    0-
Secretary Treasurer                 2001    $101,750.74           -0-                     -0-                    0-
and Director                        2000    $ 82,500.00           -0-                     -0-                    0-


Daniel Matrisciani                  2002    $155,647.94           -0-                     -0-                    0-
Vice President of                   2001    $100,297.69           -0-                     -0-                    0-
Operations and Director

</TABLE>

         There were no options granted or exercised during the last fiscal year
to the Company's Chief Executive Officer and the other executive officers named
in the above Summary Compensation Table.

         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.

      As of June 2001, the Company entered into an employment agreement with
Alex Matrisciani pursuant to which Mr. Matrisciani agreed to serve as the
Company's director of supplier relationships. The term of Mr. Matrisciani's
employment under the agreement is three years with options in favor of Mr.
Matrisciani to extend the term for an additional two years. The Company agreed
to pay Mr. Matrisciani an annual base salary of $172,000. Mr. Matrisciani's
employment agreement contains other customary provisions including provisions
regarding confidentiality and solicitation.

                                       21

<PAGE>

      As of June 2001, the Company entered into an employment agreement with
Daniel Martisciani pursuant to which Mr. Matrisciani agreed to serve as the
Company's vice president of operations. The term of Mr. Matrisciani's employment
under the agreement is three years with options in favor of Mr. Matrisciani to
extend the terms of an additional two years. The Company agreed to pay Mr.
Matrisciani an annual base salary of $192,000. In addition to the base salary,
Mr. Matrisciani is entitled to receive bonuses based upon the Company's
performance. Mr. Matrisciani's employment agreement contains other customary
provisions including provisions regarding confidentiality and solicitation.

      As of June 2001, the Company entered into an employment agreement with
Michael Matrisciani pursuant to which Mr. Matrisciani agreed to serve as the
Company's director of administration. The term of Mr. Matrisciani's employment
under the agreement is three years in favor of Mr. Matrisciani to extend the
term of an additional two years. The Company agreed to pay Mr. Matrisciani an
annual base salary of $192,000. In addition to the base salary, Mr. Matrisciani
is entitled to receive bonuses based upon the Company's performance. Mr.
Matrisciani's employment agreement contains other customary provisions including
provisions regarding confidentiality and solicitation.

      As of June 2001, the Company entered into an employment agreement with
Monty Martisciani pursuant to which Mr. Matrisciani agreed to serve as the
Company's director of sales and marketing. The term of Mr. Matrisciani's
employment under the agreement is three years with options in favor of Mr.
Matrisciani to extend the terms of an additional two years. The Company agreed
to pay Mr. Matrisciani an annual base salary of $192,000. In addition to the
base salary, Mr. Matrisciani is entitled to receive bonuses based upon the
Company's performance. Mr. Matrisciani's employment agreement contains other
customary provisions including provisions regarding confidentiality and
solicitation.

      As of June 2001, the Company entered into an employment agreement with
Anthony Stella pursuant to which Mr. Stella agreed to serve as the Company's
vice president of sales and marketing. The term of Mr. Stella's employment under
the agreement is three years with options in favor of Mr. Stella to extend the
terms of an additional two years. The Company agreed to pay Mr. Stella an annual
base salary of $190,000. In addition to the base salary, Mr. Stella is entitled
to receive bonuses based upon the Company's performance. Mr. Stella's employment
agreement contains other customary provisions including provisions regarding
confidentiality and solicitation.

                                       22

<PAGE>

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

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

      The following table sets forth as of April 8, 2003, certain information
with respect to the beneficial ownership of Common 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:


                                       23
<PAGE>


Name and Address of         Shares of Common         Percentage (%) of
Beneficial Owner (1)         Stock Owned (5)         Common Stock (5)
-------------------         -----------------        -----------------

Carmine Stella(2)               712,500                   18.79%

Anthony Stella(3)               237,500                    6.26%

Carol Russell                         0                       0%

Joseph Luzzi                          0                       0%

Alex Matrisciani(4)             237,500                     6.26%

Michael Matrisciani(4)          237,500                     6.26%

Daniel Matrisiciani(4)          237,500                     6.26%

Vito Cardinale                        0                        0%

Monty Matrisciani(4)            237,500                     6.26%

All officers and directors    1,900,000                     50.1%
as a group(nine (9) persons)

(1)      The address of each Stockholder shown above except as otherwise
         indicated is c/o Capital Beverage  Corporation,  700 Columbia Street,
         Erie Basin, Building # 302, Brooklyn, New York 11231.
(2)      Does not include  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.
(4)      Alex  Matrisciani,  Michael  Matrisciani,  Daniel  Matrisciani  and
         Monty  Matrisciani  are brothers.  Daniel  Matrisciani and Michael
         Mastrisciani are each a director of the Company.
(5)      Beneficial ownership as reported in the table above has been determined
         in accordance with Item 403 of Regulation S-K of the Securities Act of
         1933 and Rule 13(d)-3 of the Securities Exchange Act, and based upon
         3,792,045 shares of Common Stock outstanding.


                                       24

<PAGE>

The following table presents information as of April 8, 2003 with respect to
compensation plans under which equity securities were authorized for issuance by
the Company.
<TABLE>
<CAPTION>

                      Equity Compensation Plan Information
                    -----------------------------------------
                                                                                             Number of securities
                                                                                           remaining available for
                                Number of Securities to be    Weighted-average exercise     future issuance under
                                 issued upon exercise of        price of outstanding       equity compensation plans
                                   outstanding options,         options, warrants and      (excluding securities
        Plan category              warrants and rights                 rights               reflected in column (a)
       --------------         ------------------------------  -------------------------    --------------------------
<S>                                         <C>                         <C>                          <C>

                                            (a)                         (b)                          (c)
Equity compensation plans
approved by security holders....             0                         $1.52                       350,000

Equity compensation plans not
approved by security
holders...                                   0                             0                             0
Total.....................                   0                         $1.52                       350,000

</TABLE>

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

         In 2002 the Company's recycling services were provided by an entity
whose principal shareholder, Joseph Luzzi, is also a director of the Company.
The services provided were compensated through the value of scrap material
picked up by Boro Recycling.

         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.

                                       25

<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

Item     a.                EXHIBITS AND REPORTS ON FORM 8-K
                           ---------------------------------

(a)(1)  Financial Statements.
                                      Index

         Independent Auditors' Report                                F - 2

         Consolidated Financial Statement

           Consolidated Balance Sheet                                F - 3
           Consolidated Statements of Operations                     F - 4
           Consolidated Statements of Stockholders' Equity           F - 5
           Statements of Cash flows                                  F - 6
           Notes to Financial Statements                             F - 7 -18

<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, 2002 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 2002 and 2001. 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 auditing standards generally
accepted in the United States of America. 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 consolidated financial statements referred to above
present fairly, the consolidated financial position of Capital Beverage
Corporation and Subsidiary as of December 31, 2002 and the consolidated results
of its operations and its cash flows for the years ended December 31, 2002 and
2001 in conformity with accounting principles generally accepted in the United
States of America.

         The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
incurred significant losses and has a working capital deficiency as more fully
described in Note 2. These issues 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 Note 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.




                                               Certified Public Accountants

New York, New York
April 3, 2003

                                      F - 2

<PAGE>

                   CAPITAL BEVERAGE CORPORATION AND SUBSIDIARY

                     d/b/a DIVERSIFIED DISTRIBUTORS NETWORK

                           CONSOLIDATED BALANCE SHEET

                                DECEMBER 31, 2002


                                     ASSETS

CURRENT ASSETS:
     Cash                                                   $    120,242
     Accounts receivable - net of allowance for doubtful
         accounts of $127,580                                    481,000
     Inventories                                               2,385,580
     Prepaid expenses and other current assets                     6,923
                                                             ------------
         TOTAL CURRENT ASSETS                                  2,993,745

PROPERTY AND EQUIPMENT                                           188,749

DISTRIBUTION LICENSE                                           4,358,462

OTHER ASSETS                                                     156,402
                                                              -----------

                                                            $  7,697,358
                                                              ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Accounts payable                                       $  2,374,527
     Accrued expenses and taxes                                  140,271
     Revolving loans                                           1,968,879
     Current portion of long-term debt                           846,329
     Current portion of capital lease obligations                 31,876
     Accrued dividends on preferred stock                         50,000
                                                              -----------
         TOTAL CURRENT LIABILITIES                             5,411,882
                                                              -----------

CAPITAL LEASE OBLIGATIONS                                         74,926

LONG-TERM DEBT                                                 1,657,074

STOCKHOLDERS' EQUITY:
 Preferred stock, no shares issued and outstanding                  -
 Common stock, $.001 par value; authorized
  20,000,000 shares; issued and outstanding
  3,792,045 shares                                                 3,793
 Additional paid-in capital                                    5,796,249
 Accumulated deficit                                          (5,246,566)
                                                              -----------
         TOTAL STOCKHOLDERS' EQUITY                              553,476
                                                              -----------

                                                            $  7,697,358
                                                              ===========




                 See notes to consolidated financial statements.

                                       F-3

<PAGE>

                   CAPITAL BEVERAGE CORPORATION AND SUBSIDIARY

                     d/b/a DIVERSIFIED DISTRIBUTORS NETWORK

                      CONSOLIDATED STATEMENTS OF OPERATIONS



                                              Year Ended December 31,
                                        -----------------------------------
                                              2002               2001
                                        ---------------    ----------------


NET SALES                               $  28,838,216      $   21,337,676
COST OF SALES                              21,595,102          15,965,943
                                        ---------------    ----------------
GROSS PROFIT                                7,243,114           5,371,733
                                        ---------------    ----------------

COSTS AND EXPENSES:
     Selling and delivery                   1,393,461           1,127,041
     General and administrative             6,286,132           5,335,778
                                        ---------------    ----------------
                                            7,679,593           6,462,819
                                        ---------------    ----------------

LOSS FROM OPERATIONS                         (436,479)         (1,091,086)

INTEREST EXPENSE, net                        (473,275)           (341,985)

CUMULATIVE EFFECT OF CHANGE IN
     ACCOUNTING PRINCIPLE                    (860,000)                  -
                                        ---------------    ----------------

NET LOSS BEFORE GAIN ON SALE
 OF DISTRIBUTION RIGHTS                    (1,769,754)         (1,433,071)

GAIN ON SALE OF DISTRIBUTION RIGHTS              -              2,005,617
                                        ---------------    ----------------

NET INCOME (LOSS)                       $  (1,769,754)     $      572,546
                                        ===============    ================

INCOMES (LOSS) PER SHARE - BASIC
 AND DILUTED                            $       (0.55)     $         0.21
                                        ===============    ================

WEIGHTED AVERAGE NUMBER OF SHARES
     USED IN CALCULATION OF BASIC AND
     DILUTED INCOME (LOSS) PER SHARE        3,229,545           2,778,409
                                        ===============    ================











                 See notes to consolidated financial statements.

                                       F-4

<PAGE>

                   CAPITAL BEVERAGE CORPORATION AND SUBSIDIARY

                     d/b/a DIVERSIFIED DISTRIBUTORS NETWORK

                 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, 2000       -      $    -       2,678,409  $    2,679    $   5,368,273   $   (4,049,358)    $    1,321,594

 Acquisition of assets          -           -         500,000         500          379,500             -               380,000

 Net income                     -           -            -           -                -             572,546            572,546

                           ----------  ----------  ----------- ------------  -------------- ------------------   -----------------
Balance December 31, 2001       -           -       3,178,409       3,179        5,747,773       (3,476,812)         2,274,140

 Issuance of common stock
  for services                  -           -         613,636         614           48,476             -                49,090

 Net loss                       -           -            -           -                -          (1,769,754)        (1,769,754)
                           ----------  ----------  ------------ -----------  --------------- -----------------   -----------------
Balance December 31, 2002       -      $    -       3,792,045   $   3,793      $ 5,796,249     $ (5,246,566)     $     553,476
                           ==========  ==========  ============ ===========  =============== =================   =================

</TABLE>







                 See notes to consolidated financial statements.

                                       F-5

<PAGE>

                   CAPITAL BEVERAGE CORPORATION AND SUBSIDIARY

                     d/b/a DIVERSIFIED DISTRIBUTORS NETWORK

                            STATEMENTS OF CASH FLOWS


                                                       Year Ended December 31,
                                                     ---------------------------
                                                          2002          2001
                                                     -------------  ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)                               $ (1,769,754)  $   572,546
                                                     -------------  ------------
     Adjustments to reconcile net income (loss)
      to net cash used in operating activities:
       Depreciation and amortization                      114,018       373,581
       Gain on sale of distribution rights                   -       (2,005,617)
       Issuance of common stock for services               49,090          -
       Change in accounting principle                     860,000          -

     Changes in assets and liabilities:
         Accounts receivable                              (99,810)      231,271
         Inventories                                     (470,688)      239,904
         Prepaid expenses                                   2,328        11,007
         Deferred expenses                                   -          (10,284)
         Other assets                                     (11,355)       (9,737)
         Accounts payable and accrued expenses             76,828       289,514
                                                     ------------- -------------
          Total adjustments                               520,411      (880,361)
                                                     ------------- -------------

NET CASH USED IN OPERATING ACTIVITIES                  (1,249,343)     (307,815)
                                                     ------------- -------------

CASH FLOWS FROM INVESTING ACTIVITIES
     Proceeds from sale of distribution rights               -        2,650,000
     Return of leased equipment                          (50,468)          -
     Purchase of equipment                                (5,200)          -
                                                     ------------- -------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES      (55,668)     2,650,000
                                                     ------------- -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Revolving loans                                     284,196        (91,454)
     Proceeds from (repayments to) officer               (19,148)        19,148
     Principal payments of capital lease obligations     (62,882)       (32,424)
     Payment of accrued dividends on preferred stock     (75,000)       (75,000)
     Payments of notes payable                          (136,361)          -
     Payments of long-term debt                         (838,338)       (81,011)
                                                     -------------- ------------
NET CASH USED IN FINANCING ACTIVITIES                   (847,533)      (260,741)
                                                     -------------- ------------

INCREASE (DECREASE) IN CASH                           (2,152,544)     2,081,444

CASH - BEGINNING OF YEAR                               2,272,786        191,342
                                                     -------------- ------------

CASH - END OF YEAR                                   $   120,242    $ 2,272,786
                                                     ============== ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION:
         Cash paid for interest                      $  475,577    $   497,054
                                                     ============== ============

SUPPLEMENTAL NON-CASH INVESTING AND
 FINANCING ACTIVITIES:
         Capital lease obligations                   $      -       $    14,647
                                                     ============== ============
         Acquisition of assets for stock             $      -       $   380,000
                                                     ============== ============
         Return of leased equipment                  $    83,189    $      -
                                                     ============== ============


                 See notes to consolidated financial statements.

                                       F-6

<PAGE>

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 2002 AND 2001

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.

         The Company entered into an Asset Purchase Agreement, dated May 4, 2001
         (the "Agreement"), to acquire certain assets and liabilities of
         Prospect Beverages Inc., a New York corporation ("Prospect"). Prospect
         is a Brooklyn based Pabst Distributor of Colt-45 Malt Liquor and other
         beverages. The Company is presently doing business as Diversified
         Distributors Network.

2.       GOING CONCERN

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

         As shown in the accompanying financial statements, the Company has a
         history of losses with an accumulated deficit of $5,246,566 at December
         31, 2002 and, as of that date, a working capital deficiency of
         $2,418,137. These conditions raise substantial doubt about the
         Company's ability to continue as a going concern. The Company's
         continuation as a going concern is dependent upon its ability to
         ultimately attain profitable operations, generate sufficient cash flow
         to meet its obligations, and obtain additional financing as may be
         required.

3.       SIGNIFICANT ACCOUNTING POLICIES

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

                                     F - 7

<PAGE>


         Inventories - Inventories of beer and other beverage products are
         stated at the lower of cost, determined by the first-in, first-out
         method, or market.
         Property and Equipment - Property and equipment are stated at cost and
         are depreciated over the estimated useful lives of the related assets,
         ranging from 5 to 39 years. Depreciation is computed on the
         straight-line and accelerated methods for both financial reporting and
         income tax purposes. Depreciation expense for the year ended
         December 31, 2002 and 2001 was $67,768 and $88,603, respectively.

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

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

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

         Distribution License - The Company's license to distribute certain
         beverage products in New York City, is recorded at cost. The license
         has an indefinite life and is tested annually for impairment under SFAS
         142. Pursuant to SFAS 142 the Company took an impairment of the
         distribution license in the first quarter of 2002 in the amount of
         $860,000 which was recorded as a cumulative effect of change in
         accounting principle. It was determined that a further impairment of
         the distribution license was not necessary during the year ended
         December 31, 2002. (See Note 5)

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

         Income (loss) per Common Share - Net income (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.

                                     F - 8

<PAGE>

         Stock based compensation - Financial Accounting Statement No. 123,
         Accounting for Stock Based Compensation, encourages, but does not
         require companies to record compensation cost for stock-based employee
         compensation plans at fair value. The Company has chosen to continue to
         account for stock-based compensation using the intrinsic method
         prescribed in Accounting Principles Board Opinion No. 25, Accounting
         for Stock Issued to Employees, and related interpretations.
         Accordingly, compensation cost for stock options is measured as the
         excess, if any, of the quoted market price of the Company's stock at
         the date of the grant over the amount an employee must pay to acquire
         the stock. The Company has adopted the "disclosure only" alternative
         described in SFAS 123 and SFAS 148, which require pro forma disclosures
         of net income and earnings per share as if the fair value method of
         accounting had been applied.

         New Accounting Pronouncements - In April 2002, the FASB issued SFAS
         No. 145 "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
         FASB Statement No. 13, and Technical Corrections." This statement
         rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of
         Debt," and an amendment of that statement, SFAS No. 44, "Accounting for
         Intangible Assets of Motor Carriers," and SFAS No. 64, "Extinguishments
         of Debt Made to Satisfy Sinking-Fund Requirements."  This statement
         amends SFAS No. 13, "Accounting for Leases," to eliminate
         inconsistencies between the required accounting for sale-leaseback
         transactions and the required accounting for certain lease
         modifications that have economic effects that are similar to
         sale-leaseback transactions.  Also, this statement amends other
         existing authoritative pronouncements to make various technical
         corrections, clarify meanings, or describe their applicability under
         changed conditions. Provisions of SFAS No. 145 related to the
         rescission of SFAS No. 4 were effective for the Company on November 1,
         2002 and provisions affecting SFAS No. 13 were effective for
         transactions occurring after May 15, 2002.  The adoption of SFAS No.
         145 did not have a material impact on our financial statements.

         In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
         Associated with Exit or Disposal Activities." This statement covers
         restructuring type activities beginning with plans initiated after
         December 31, 2002. Activities covered by this standard that are entered
         into after that date will be recorded in accordance with the provisions
         of SFAS No. 146. Management does not believe there will be a
         significant impact on our consolidated financial position or results of
         operations.

         In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
         Compensation-Transition and Disclosure," which provides alternative
         methods of transition for a voluntary change to fair value based method
         of accounting for stock-based employee compensation as prescribed in
         SFAS 123, "Accounting for Stock-Based Compensation." Additionally, SFAS
         148 required more prominent and more frequent disclosures in financial
         statements about the effects of stock-based compensation. The
         provisions of this Statement are effective for fiscal years ending
         after December 15, 2002, with early application permitted in certain
         circumstances. The Company has adopted the disclosure provisions in
         these consolidated financial statements as disclosed above under Stock
         Based Compensation.

                                     F - 9

<PAGE>

         In November 2002, the FASB Issued FASB interpretation (FIN) No. 45
         "Guarantor's Accounting and Disclosure Requirements for Guarantees,
         Including Indirect Guarantees of Indebtedness of Other." FIN No. 45
         requires guarantor to recognize, at the inception of a qualified
         guarantee, a liability for the fair value of the obligation undertaken
         in issuing or modified after December 31, 2002. Management does not
         expect adoption of this Interpretation to have a material impact on the
         Company's financial condition or results of operations.

4.       GAIN ON SALE OF DISTRIBUTION LICENSE

         In December 2001 the Company sold an exclusive license to distribute
         Pabst Products within the "territory", as defined in the licensing
         agreement to Phoenix Beverages, Inc. ("Phoenix") for $2,650,000. The
         gain on the sale was $2,005,617.

5.       DISTRIBUTION RIGHTS

         The Company acquired these exclusive license rights to distribute
         within the five boroughs of New York City valued at $5,218,462 as part
         of the agreement with Prospect in May 2001. The rights consist of the
         Pabst brands which make up approximately 58% of sales and include brand
         names such as Colt 45, Champale and Old Milwaukee. The Pittsburgh
         brands make up approximately 16% of sales and include brand names such
         as Nighflight, Mustang Lager and Primetime. Other brands make up 26% of
         sales and consist mostly of Hansens Energy Drinks. The Company
         determined that these rights have an indefinite life because the terms
         of the agreements are indefinite. Furthermore, the franchise law of New
         York State, states that any terminated distributor is entitled to get
         "fair market value" for the brand distribution rights.

         Effective January 1, 2002, the Company adopted SFAS Nos. 141 and 142.
         SFAS 142 eliminates amortization of goodwill and certain other
         intangible assets, but requires annual testing for impairment
         (comparison of fair market value to carrying value). Fair value is
         estimated using the present value of expected future cash flows and
         other measures. The Company used a discount rate of 6%. The
         transitional impairment test for the distribution rights resulted in an
         non-cash charge of $860,000 in the first quarter of 2002 which was
         recorded as a cumulative effect of change in accounting principle. It
         was determined that a further impairment of the distribution license
         was not necessary during the year ended December 31, 2002. The
         impairment test concludes that the Company will recover the full amount
         of the distribution license over 16 years based on forecasts which
         begin with 2002 sales of the Company and actual sales as of January and
         February 2003 which increase 5% annually thereafter for increased sales
         and inflation.

                                     F - 10

<PAGE>

6.       REVOLVING LOANS

         In connection with the acquisition of Prospect, the Company received
         financing in the principal amount of $5,000,000. The proceeds of the
         loan were used to satisfy certain of the liabilities of Prospect and
         for other working capital purposes. The loan carries an interest rate
         of prime plus 2% and is collateralized by the Company's accounts
         receivable, inventory, pledged property and distribution rights. In
         July 2001 the Company agreed to a term loan for $3,000,000 of the
         outstanding balance (see Note 7). At December 31, 2002 the outstanding
         balance was $2,187,500.

         The Company has also received over advance loans during the year. The
         interest rate on over advance loans is prime plus 4% the outstanding
         balance was $1,968,879 at December 31, 2002.

7.       LONG-TERM DEBT

             Long-term debt consists of the following:

             Promissory note payable to State of New York,      $      315,903
             due in monthly installments of $10,000 including
             interest at 10% per annum
             Term loan with the Connecticut Bank of Commerce
             in the amount of $3,000,000 payable in monthly
             principal installments of $62,500, the loan is
             collateralized by the Company's accounts
             receivable, inventory, pledged property and
             distribution rights                                     2,187,500
                                                               ----------------
                                                                     2,503,403
             Less current portion                                     (846,329)
                                                               ----------------
                                                                 $   1,657,074
                                                               ================


                                     F - 11

<PAGE>

8.       INCOME TAXES

         At December 31, 2002 the Company had a net operating loss carryover of
         $3,300,000 available as offsets against future taxable income, if any,
         which expire at various dates through 2017. The Company has a deferred
         tax asset of $1,300,000 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:


                                                  Year Ended December 31,
                                               ------------------------------
                                                     2002           2001
                                                ------------   -------------
         Computed expected income tax (benefit) $  (360,000)    $   215,000
         Utilization of net operating loss
         carryforward                                  -           (215,000)
         Benefits not recorded                      360,000            -
                                                ------------   -------------
                                                $      -        $      -
                                                ============   =============

9.       PROPERTY AND EQUIPMENT

         Property and equipment, at cost, consist of the following as of
         December 31, 2002:

                           Leasehold improvements        $   65,200
                           Computer equipment                16,418
                           Machinery and equipment          241,109
                                                         -----------
                                                            322,727
                           Less accumulated depreciation   (133,978)
                                                         -----------
                                                         $  188,749
                                                         ===========

    The Company has machinery and equipment under capital leases of $117,322.

                                     F - 12

<PAGE>

10.      CAPITAL LEASE OBLIGATIONS

         The Company has various capital lease obligations which are
         collateralized by equipment. Interest rates under the agreements are 0%
         to 9.9% per annum, with monthly principal and interest payments of
         $7,584.

         Future minimum lease payments and the present value of the minimum
         lease payments under the noncancellable capital lease obligations as of
         December 31, 2002 are as follows:

              2003                                     $       31,876
              2004                                             31,876
              2005                                             30,548
              2006                                             17,334
                                                       ---------------
              Total future minimum lease payments             111,634
              Less amounts representing interest                4,832
                                                       ---------------
              Present value of minimum lease payments         106,802
              Less current maturities                          31,876
                                                       ---------------
              Total long - term obligations            $       74,926
                                                       ===============


11.      LEASE COMMITMENTS

         In June 2001 the Company moved to the offices and warehouse facilities
         of Prospect. This space is under a noncancellable operating lease which
         requires minimum monthly payments of $29,431 through 2012. Rent expense
         for 2002 and 2001 was $347,052 and $202,059, respectively.


                                     F - 13

<PAGE>

12.      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 maintains its cash
         balances at various financial institutions. These balances are insured
         by the Federal Deposit Insurance Corporation up to $100,000. The
         Company has not experienced any losses in such accounts and believes it
         is not exposed to any significant credit risk on cash on deposit.

         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.

13.      MAJOR CUSTOMER AND SUPPLIER INFORMATION

         Sales to a single customer in 2002 and 2001 accounted for 6% and 10% of
         net sales, respectively. Purchases from major suppliers were
         approximately $14,512,000 and $11,100,000 in 2002 and 2001,
         respectively.

14.      ACQUISITION

         In May 2001 pursuant to the Agreement, the Company purchased all of the
         assets of Prospect's business which relate to Prospect's business of
         distributing beverages, including among other things, beer distribution
         rights, properties, rights, leases, interests, goods and customer lists
         of Prospect. The purchase price of the assets consists of the
         assumption by the Company of certain liabilities of Prospect and the
         issuance to Prospect shareholders of five hundred thousand (500,000)
         shares of the common stock of the Company.

         Pabst Brewing Company, the key supplier approved the transfer of the
         distribution rights for the Pabst Brewing Company brands from Prospect
         to the Company.

         On June 15, 2001, the Company closed on the acquisition of the assets
         of Prospect. The common stock issued to Prospect shareholders was
         recorded at $.76 ($.84 closing price on May 4, 2001 less a 10%
         discount) per share.

         The acquisition was recorded using the purchase method of accounting by
         which the assets are valued at fair market value at the date of
         acquisition. The following table summarizes the acquisition.

                                     F - 14

<PAGE>


                  Purchase price                       $       380,000
                  Liabilities assumed                        6,267,358
                  Fair value of assets acquired             (6,897,010)
                                                      -----------------
                  Reduction of long-term assets        $      (249,652)
                                                      =================


                The following unaudited pro-forma condensed statement of
            operations for the year ended December 31, 2001 reflects the
            combined results of Capital Beverage and Prospect as if the
            acquisition had occurred on January 1, 2000.


                                                   December 31, 2001
                                                ------------------------
                  Revenues                         $       30,244,014
                                                ------------------------
                  Gross Profit                              6,998,909
                                                ------------------------
                  Operating Expenses                        8,605,396
                                                ------------------------
                  Net Loss                         $       (1,948,472)
                                                ------------------------
                  Net Loss Per Share               $            (0.61)
                                                ------------------------


15.        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.

           As of June 2001, the Company entered into an employment agreement
           with Alex Matrisciani pursuant to which Mr. Matrisciani agreed to
           serve as the Company's director of supplier relationships. The term
           of Mr. Matrisciani's employment under the agreement is three years
           with options in favor of Mr. Matrisciani to extend the term for an
           additional two years.  The Company agreed to pay Mr. Matrisciani an
           annual base salary of $172,000.  Mr. Matrisciani's employment
           agreement contains other customary provisions including provisions
           regarding confidentiality and solicitation.


                                     F - 15

<PAGE>

           As of June 2001, the Company entered into an employment agreement
           with Daniel Martisciani pursuant to which Mr. Matrisciani agreed to
           serve as the Company's vice president of operations. The term of Mr.
           Matrisciani's employment under the agreement is three years with
           options in favor of Mr. Matrisciani to extend the terms for an
           additional two years.  The Company agreed to pay Mr. Matrisciani an
           annual base salary of $192,000.  In addition to the base salary, Mr.
           Matrisciani is entitled to receive bonuses based upon the Company's
           performance.  Mr. Matrisciani's employment agreement contains other
           customary provisions including provisions regarding confidentiality
           and solicitation.

           As of June 2001, the Company entered into an employment agreement
           with Michael Matrisciani pursuant to which Mr. Matrisciani agreed to
           serve as the Company's director or administration. The term of Mr.
           Matrisciani's employment under the agreement is three years in favor
           of Mr. Matrisciani to extend the term for an additional two years.
           The Company agreed to pay Mr. Matrisciani an annual base salary of
           $192,000.  In addition to the base salary, Mr. Matrisciani is
           entitled to receive bonuses based upon the Company's performance. Mr.
           Matrisciani's employment agreement contains other customary
           provisions including provisions regarding confidentiality and
           solicitation.

           As of June 2001, the Company entered into an employment agreement
           with Monty Martisciani pursuant to which Mr. Matrisciani agreed to
           serve as the Company's director and sales of marketing. The term of
           Mr. Matrisciani's employment under the agreement is three years with
           options in favor of Mr. Matrisciani to extend the terms for an
           additional two years.  The Company agreed to pay Mr. Matrisciani an
           annual base salary of $192,000.  In addition to the base salary, Mr.
           Matrisciani is entitled to receive bonuses based upon the Company's
           performance.  Mr. Matrisciani's employment agreement contains other
           customary provisions including provisions regarding confidentiality
           and solicitation.

           As of June 2001, the Company entered into an employment agreement
           with Anthony Stella pursuant to which Mr. Stella agreed to serve as
           the Company's vice president of sales and marketing. The term of Mr.
           Stella's employment under the agreement is three years with options
           in favor of Mr. Stella to extend the terms for an additional two
           years.  The Company agreed to pay Mr. Stella an annual base salary of
           $190,000.  In addition to the base salary, Mr. Stella is entitled to
           receive bonuses based upon the Company's performance.  Mr. Stella's
           employment agreement contains other customary provisions including
           provisions regarding confidentiality and solicitation.

16.        STOCK OPTIONS AND WARRANTS

           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
           Class A Redeemable  Common Stock Purchase  Warrants.   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 were to expire on July 16, 2002 but were  extended  one year
           to July 16, 2003.  The warrants  are  redeemable by the Company at
           $.001  per  warrant   under   terms  as  defined  in  the  warrant
           agreement.   At December 31, 2002, 1,659,000 Class A warrants were
           issued and outstanding.

                                     F - 16

<PAGE>

           1996 Stock Option Plan

           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 laws of descent
           and distribution.

 Stock warrant activity for the year ended December 31, 2002 is summarized as
 follows:

                                          Number of Shares    Weighted average
                                                               exercise price
                                         ------------------ -------------------
   Outstanding at December 31, 2001            350,000        $    1.52
     Granted                                      -                 -
     Exercised                                    -                 -
                                         ------------------ -------------------
   Outstanding at December 31, 2002            350,000        $    1.52
                                         ================== ===================

 The following table summarizes the Company's stock options and warrants
 outstanding at December 31, 2002:

                             Options and warrants outstanding and exercisable
                             ------------------------------------------------
      Range of exercise       Number      Weighted average     Weighted average
           price                          remaining life        exercise price
     -------------------- ------------  -------------------- -------------------
     $  3.50 - 3.85          175,000            7                 $   3.55
     $     0.05              175,000            8                 $   0.50
                          ------------
                             350,000
                          ============

                                     F - 17

<PAGE>

17.        STOCKHOLDERS' EQUITY

           In December 2002, the Company issued 613,636 shares of common stock
           to officers of the Company. In consideration for these shares the
           officers guaranteed the loan of the Company as described in Note 5,
           related pledge and security agreement and other valuable services
           provided to the Company. Accordingly, the Company recorded the
           issuance of these shares as stock based compensation for the fair
           market value at the date of issuance.

                                     F - 18


<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 14.  CONTROLS AND PROCEDURES

         Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
Treasurer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures, as defined in Exchange Act Rules 13a-14(c)
and 15d-14(c). Based upon that evaluation, the Company's Chief Executive Officer
and Treasurer concluded that the Company's disclosure controls and procedures
are effective in enabling the Company to record, process, summarize and report
information required to be included in the Company's periodic SEC filings within
the required time period.

         There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal controls
subsequent to the date the Company carried out its evaluation.

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.*

                                       26

<PAGE>

 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 *

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.*

                                       27

<PAGE>

10.10    Asset Purchase Agreement, dated as of May 4, 2001 between Registrant
         and Prospect Beverage Corporation (Incorporated by reference to
         Registrant's Current Report on Form 8-K filed on May 14, 2001.)

10.11    Voting Agreement, dated as of June 29, 2001, among Carmine Stella and
         Anthony Stella, Monty Matrisciani, Michael Matrisciani, Daniel
         Matrisciani and Alex Matrisciani, Registrant and Prospect Beverage
         Corporation (Incorporated by reference to Registrant's Current Report
         on Form 8-K/A filed on December 31, 2001.)

10.12    Employment Agreement, dated as of June 29, 2001, between Registrant and
         Alex Matrisciani. (Incorporated by reference to Registrant's Annual
         Report on Form 10-KSB for the annual period ending December 31, 2001.)

10.13    Employment Agreement, dated as of June 29, 2001 between Registrant and
         Daniel Matrisiciani. (Incorporated by reference to Registrant's Annual
         Report on Form 10-KSB for the annual period ending December 31, 2001.)

10.14    Employment Agreement, dated as of June 29, 2001, between Registrant and
         Michael Matrisiciani. (Incorporated by reference to Registrant's Annual
         Report on Form 10-KSB for the annual period ending December 31, 2001)

10.15    Employment Agreement, dated as of June 29, 2001, between Registrant and
         Monty Matrisiciani. (Incorporated by reference to Registrant's Annual
         Report on Form 10-KSB for the annual period ending December 31, 2001.)

99.1     Certification of Chief Executive Officer and Treasurer

* 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.


                                       28

<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 11 day of April, 2003.

                                           CAPITAL BEVERAGE CORPORATION


                                           By:/s/ Carmine N. Stella
                                              ----------------------
                                              Carmine N. 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 N. Stella            Chief Executive Officer,        April 11, 2003
-----------------------------    President and Chairman of
Carmine N. Stella                the Board of Directors



/s/Carol Russell                 Secretary and Treasurer         April 11, 2003
----------------------------        and Director
Carol Russell

/s/ Joseph Luzzi                 Director                        April 11, 2003
----------------------------
Joseph Luzzi

/s/ Anthony Stella               Vice President of Sales         April 11, 2003
-----------------------------    and Managing Director
Anthony Stella

/s/ Michael Matrisciani          Director                        April 11, 2003
-----------------------------
Michael Matrisciani

/s/ Daniel Matrisciani           Director and Vice               April 11, 2003
-----------------------------    President of Operations
Daniel Matrisciani

/s/ Vito Cardinale               Director                        April 11, 2003
-----------------------------
Vito Cardinale


<PAGE>
                                  CERTIFICATION

            Pursuant to Section 302 of the Sarbanes Oxley Act of 2002

I, Carmine Stella, certify that:

1. I have reviewed this annual report on Form 10-KSB of Capital Beverage
Corporation.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:

         a) designed such internal controls to ensure that material information
relating to the registrant and its subsidiaries (collectively, the "Company") is
made known to me by others within the Company, particularly during the period in
which this annual report is being prepared;

         b) evaluated the effectiveness of the registrant's internal controls as
of a date within 90 days prior to the filing date of this annual report (the
"Evaluation Date"); and

         c)       presented in this annual report my conclusions  about the
effectiveness  of the  disclosure  controls and procedures based on my
evaluation as of the Evaluation Date;

5.       I have  disclosed,  based on our  most  recent  evaluation,  to the
registrant's  auditors  and the  audit  committee  of the registrant's board of
directors:

         a) all significant deficiencies (if any) in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

         b)       any fraud,  whether or not material,  that involves
management or other employees who have a significant role in the registrant's
internal controls; and

6. I have indicated in this annual report whether or not there were significant
changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.

Date:  April 11, 2003                      /s/ Carmine Stella
                                           ------------------
                                           Carmine Stella
                                           President and Chief Executive Officer



<PAGE>

                                  CERTIFICATION

            Pursuant to Section 302 of the Sarbanes Oxley Act of 2002

I, Carol Russell, certify that:

1. I have reviewed this annual report on Form 10-KSB of Capital Beverage
Corporation.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:

         a) designed such internal controls to ensure that material information
relating to the registrant and its subsidiaries (collectively, the "Company") is
made known to me by others within the Company, particularly during the period in
which this annual report is being prepared;

         b) evaluated the effectiveness of the registrant's internal controls as
of a date within 90 days prior to the filing date of this annual report (the
"Evaluation Date"); and

         c)       presented in this annual report my conclusions  about the
effectiveness  of the  disclosure  controls and procedures based on my
evaluation as of the Evaluation Date;

5. I have  disclosed,  based on our  most  recent  evaluation,  to the
registrant's  auditors  and the  audit  committee  of the registrant's board of
directors:

         a) all significant deficiencies (if any) in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

         b)       any fraud,  whether or not material,  that involves
management or other employees who have a significant role in the registrant's
internal controls; and

6. I have indicated in this annual report whether or not there were significant
changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.

Date:  April 11, 2003                                /s/ Carol Russell
                                                     -----------------
                                                     Carol Russell
                                                     Treasurer