SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C.  20549
 
 REPORT
ON FORM 10-K
 
 
 xAnnual Report pursuant
to Section 13 or 15(d) of the Securities
Exchange Act of 1934
  For
the fiscal year ended December 31,
2008.
  oTransition 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)120 Rio Vista Drive, Norwood, New
      Jersey
                          07648(Address
      of Principal Executive Officers)
                          (Zip
      Code)
  Registrant's
telephone number, including area code: (201)
679-6752
 
 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)
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.   Yes o   No
x
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.   Yes o  No x
 
 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 o
  
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of the
Regulation S-K 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-K
or any amendment to this Form 10-K. x
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
 
 Large
accelerated filer  o                                                              Accelerated
filer o
 
 Non-accelerated
filer  o                                                                 Smaller
reporting company x
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
 Yes x  No o
 
 Issuer's revenues for its most recent
fiscal year were $-0-.
 
 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 April 8, 2009, was approximately
$132,000.
 
 Number of shares outstanding of the
issuer's Common Stock as of April 8, 2009 was 3,792,045.
 
 
 DOCUMENTS
INCORPORATED BY REFERENCE: None
  2
 Capital
Beverage Corporation
 2008
Form 10-K Annual Report
 TABLE
OF CONTENTS
  PART
      IPageITEM
      1.
                                      BUSINESS
                                      4ITEM
      1A.
                                      RISK
      FACTORS
                                      8ITEM
      2.
                                      PROPERTIES
                                      11ITEM
      3.
                                      LEGAL
      PROCEEDINGS
                                      11ITEM
      4.
                                      SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                                      12PART
      IIITEM
      5.
                                      MARKET
      FOR REGISTRANT'S COMMON
                                      12ITEM
      6.
                                      SELECTED
      FINANCIAL DATA
                                      14ITEM
      7.
                                      MANAGEMENT'S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
                                      15ITEM
      7A.
                                      QUANTITATIVE
      AND QUALITATIVE DISCLOSURES
                                      17ITEM
      8.
                                      FINANCIAL
      STATEMENTS
                                      17ITEM
      9.
                                      CHANGES
      IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
                                      17ITEM
      9A.
                                      CONTROLS
      AND PROCEDURES
                                      17ITEM
      9B.
                                      OTHER
      INFORMATION
                                      18PART
      IIIITEM
      10.
                                      DIRECTORS
      AND EXECUTIVE OFFICERS OF THE REGISTRANT
                                      19ITEM
      11.
                                      EXECUTIVE
      COMPENSATION
                                      22ITEM
      12.
                                      SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
                                      30ITEM
      13.
                                      CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS
                                      31ITEM
      14.
                                      PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
                                      32PART
      IVITEM
      15.
                                      EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES
                                      34SIGNATURESCERTIFICATES
   3
 SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
 
 Certain statements contained in this
Annual Report on Form 10-K 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 "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
 
 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 was included in the monthly $10,000 payments.
 
 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.
 
 4
 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.
 
 As of
September 15, 2005, the Company, entered into an Asset Purchase Agreement (the
"Asset Purchase Agreement") with Oak Beverages, Inc., a New York corporation
("Oak"), pursuant to which the Company agreed to sell, and Oak agreed to
purchase (the “Asset Sale”), the Company's exclusive distribution rights for the
Pabst brands, Pittsburgh brands and Ballantine brands (the
“Assets”).  The Asset Purchase Agreement contained customary
representations and warranties, conditions to closing (including shareholder and
brewer approval and the distribution by the Company of an Information Statement
on Schedule 14C (the "Information Statement") to its stockholders), and
termination and indemnification provisions.
 
 Immediately following the execution of
the Agreement, certain stockholders (the "Approving Stockholders") of the
Company holding an aggregate of 1,900,000 shares of the Company's common stock,
representing 50.1% of the shares outstanding, signed a written consent of
stockholders approving the Asset Purchase Agreement and the exhibits and
schedules thereto as well as the transactions contemplated
thereby.  The Approving Stockholders were Carmine N. Stella, the
Company's President, Chief Executive Officer and Chairman of the Board, Anthony
Stella, the Company's then Vice President of Sales and Marketing (and the
brother of Carmine Stella), Michael Matrisciani, a director of the Company,
Daniel Matrisciani, the Company's then Vice President of Operations and a
director, Alex Matrisciani and Monty Matrisciani (each of whom are the brothers
of Michael and Daniel Matrisciani).
 
 5
 The Company and Oak also entered into a
Sub-Distribution Agreement dated as of September 15, 2005 (the "Sub-Distribution
Agreement"), pursuant to which Oak became a Company sub-distributor of certain
Pabst beers and malt beverages (the "Products").  The Sub-Distribution
Agreement became effective when the Company filed an Information Statement on
Schedule 14C with the Securities and Exchange Commission.  Under the
terms of the Sub-Distribution  Agreement,  Oak had the right
to distribute the Products to customers located in Brooklyn, Queens, Staten
Island, Manhattan and the Bronx (the "Territory"), and in exchange for such
rights, Oak was required to pay Pabst directly for its Product purchases and,
during the first 45 days following the effective date of the Agreement (the
"45-Day  Period"), Oak was required to pay to Capital the following
amounts for Products received by Oak: (x) $.50 for each case of Products and (y)
$2.00 for each barrel of Products.  The purchase price paid by Oak to
Capital in connection with the closing of the transactions contemplated by the
Asset Purchase Agreement was reduced by an amount equal to the sum of: (i) $.25
for each case of Products purchased by Oak and sold by Oak to customers in the
Territory, plus (ii) $.50 for each case of Products purchased by Oak but not
sold to such customers, plus (iii) $1.00 for each barrel of Products purchased
by Oak and sold by Oak to customers in the Territory, plus (iv) $2.00 for each
barrel of Products purchased by Oak but not sold to such customers, all
determined during the 45-Day Period.
 
 Prior to
the closing of the transaction, the Asset Purchase Agreement and sale of Assets
to Oak were approved unanimously by the Company’s Board of Directors and the
terms of the transaction were submitted for stockholder approval. As permitted
by Delaware law and the Company’s Certificate of Incorporation, the Company
received a written consent from the majority Approving Stockholders of the
Company approving the Asset Purchase Agreement and the related Asset Sale. An
Information Statement was furnished for the purposes of informing stockholders,
in the manner required under the Securities Exchange Act of 1934, as amended, of
the Asset Sale before it was consummated.
 
 As of
December 16, 2005, the Company closed the sale of the Assets to Oak, pursuant to
the terms and conditions of the Asset Purchase Agreement. The purchase price
paid by Oak for the Assets was Nine Million Three Hundred Thousand Dollars
($9,300,000.00), of which One Million Five Hundred Thousand Dollars
($1,500,000.00), was deposited with an escrow agent, pursuant to the terms of an
escrow agreement, dated December 16, 2005 (the “Escrow Agreement”), for at least
18 months for post closing indemnification claims which may be asserted by Oak
(the “Escrow”). A substantial amount of the proceeds from the transaction were
used by the Company to repay outstanding indebtedness and for working capital
purposes.  In addition, Oak has asserted a claim for indemnification
against the remaining funds in the Escrow.  See Legal Proceedings in Item 3 of
this Annual Report on Form 10-K.
 
 As of
April 15, 2009, approximately $2,539,163 has been released from Escrow and has
been used to pay outstanding liabilities of the Company.   As of
the date of this filing there is no money remaining in Escrow.  The
Escrow account was closed in January 2009.
 
 6
 Strategy
 
 The Company will continue to use the
proceeds from the sale of the Assets for working capital purposes, including the
payment of indebtedness, trade payables and other outstanding obligations.
Following the full payment of its creditors, the Company may elect to acquire
another entity, issue dividend(s) to its stockholders or invest the net proceeds
in the discretion of the Board of Directors and management of the
Company.  Management currently anticipates that additional
transactions may take the form of a dissolution of the corporation, the
liquidation of its remaining assets, and the ultimate distribution to
stockholders of any assets remaining after satisfaction of our liabilities,
including personnel termination and related costs, sale transaction expenses and
final liquidation costs. In event of such dissolution, the residual proceeds of
the sale of the Assets would become part of a pool of assets governed by the
plan of dissolution. Alternatively, management may elect to invest the net
proceeds from the sale of the Assets in assets or operations acquired by the
Company. In such an event, no assets will be distributed to the
stockholders.
 
 Structure of the
Company
 
 After
application of the net proceeds in the manner contemplated, and assuming
ultimate release to us of the entire escrowed amount, and after deduction of
transaction costs and expenses in connection with the Asset Sale, the Company
will only hold equipment not part of the Asset Sale.
 
 The
Company does not have any ongoing operations subsequent to the Asset Sale,
except for the collection of accounts receivable and the payment of its
liabilities. As of the date hereof, the Company, as defined in Rule 12b-2 under
the Exchange Act, is a “shell company,” defined as a company with no or nominal
assets (other than cash) and no or nominal operations.
 
 We will
continue to incur claims, liabilities and expenses, which will reduce the
realizable value of our remaining assets and the amount potentially available
for distribution to stockholders. Claims, liabilities and expenses from
operations (such as salaries, directors' and officers' insurance, payroll and
taxes, legal, accounting and consulting fees and miscellaneous office expenses)
will continue to be incurred subsequent to the Asset Sale. These expenses will
have to be satisfied from our remaining assets and, therefore, will reduce the
net realizable value of those assets.
 
 The
Company intends to comply with the periodic reporting requirements of the
Exchange Act for so long as we are subject to those requirements.  We
have an obligation to continue to comply with the applicable reporting
requirements of the Securities Exchange Act of 1934, as amended, even though
compliance with such reporting requirements is economically
burdensome
 
 7
 Employees
 
 As of
December 31, 2005, all employees were terminated, except for Carmine Stella who
continues to serve as the Company's Chief Executive Officer.
 
 
 ITEM
1A.          RISK
FACTORS
 
 In
addition to other information in this Annual Report on Form 10-K, 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 Difficult To Evaluate
Because We Have No Ongoing Operations and Minimal Assets.As
the Company currently has no ongoing operations and only minimal assets, there
is a risk that we will be unable to continue as a going concern and consummate a
business combination. We have no significant assets or financial resources. We
will, in all likelihood, sustain operating expenses without corresponding
revenues, at least until the consummation of a business combination. This may
result in our incurring a net operating loss that will increase continuously
until we can consummate a business combination with a profitable business
opportunity. We cannot assure you that we can identify a suitable business
opportunity and consummate a business combination.
 
 We Will Continue To Incur Claims,
Liabilities And Expenses. We will continue to incur claims, liabilities
and expenses, which will reduce the realizable value of our remaining assets and
the amount potentially available for distribution to stockholders. Claims,
liabilities and expenses from operations (such as salaries, directors' and
officers' insurance, payroll and taxes, legal, accounting and consulting fees
and miscellaneous office expenses) will continue to be incurred. These expenses
will have to be satisfied from our remaining assets and, therefore, will reduce
the net realizable value of those assets.
 
 Our Business Will Have No Revenues
Unless And Until We Merge With Or Acquire An Operating Business.  As of the date hereof, the Company, as defined in Rule 12b-2
under the Exchange Act, is a “shell company,” defined as a company with no or
nominal assets (other than cash) and no or nominal operations. We currently have
no revenues from operations. We may not realize any revenues unless and until we
successfully merge with or acquire an operating business.
 
 Future Success Is Highly Dependent On
The Ability Of Management To Locate AndAttract A Suitable
Acquisition.The
nature of our operations is highly speculative and there is a consequent
risk of loss of your investment. The success of our plan of operation will
depend to a great extent on the operations, financial condition
and management of the identified business opportunity. While management
intends to seek business combination(s) with entities having established
operating histories, we cannot assure you that we will be successful in
locating candidates meeting that criterion. In the event we complete a
business combination, the success of our operations may be dependent upon
management of the successor firm or venture partner firm, and numerous
other factors beyond our control.
 
 8
 The Company Has No Existing Agreement
For A Business Combination Or OtherTransaction. We have no
agreement with respect to engaging in a merger or joint venture with, or
acquisition of, a private or public entity. No assurances can be given that
we will successfully identify and evaluate suitable business opportunities
or that we will conclude a business combination. We cannot guarantee we
will be able to negotiate a business combination on favorable
terms.
 
 We Cannot Guarantee That The Final
Distributions To the Company Will Be Made From Escrow. On the closing
date of the Asset Sale, the Company, Oak and Dealy and Silberstein LLP, as
escrow agent, entered into an Escrow Agreement, pursuant to which at the
closing, Oak deposited $1.5 million of the purchase price in an escrow account
with the escrow agent (the “Escrow”). This amount is being held to satisfy
potential purchase price adjustments and any claims for indemnification that Oak
may have for breaches of the Company's representations, warranties, covenants or
other obligations in the Asset Purchase Agreement. Upon each of the 6 month, 12
month and 18 month anniversaries of the closing date, one third of this amount
(less any outstanding claims for indemnification) shall be delivered by the
escrow agent to Capital. The final distribution of these funds shall be
delivered by the escrow agent to Capital upon the later of the 18 month
anniversary of the closing date, or the date upon which all pending claims are
resolved.  We cannot guarantee that the final distributions to Capital
from the escrow agent will be made. As of April 15, 2009,
approximately $2,539,163 has been released from Escrow and has been used to pay
outstanding liabilities of the Company.
 
 Our Financial Statements Include A
Going Concern Opinion From Our Independent Auditors.  The
Company received a going concern opinion on its financial
statements.  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.
 
 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 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 recent
Nasdaq rule approved by the Commission requires that a majority of our Board of
Directors be composed of independent directors by our 2006 Annual Meeting of
Stockholders.  Currently, two (2) 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.  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.
 
 9
 Risks Related To 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.
 
 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.
 
 10
 ITEM
2.           PROPERTIES
 
 Currently, the Company neither rents
nor owns any properties.
 
 ITEM
3.           LEGAL
PROCEEDINGS
 
 On June 26, 2007, the Company filed a
complaint against Oak Beverages, Inc. ("Oak"), Victoria Beverage, Inc.
("Victoria"), and Dealy & Silberstein, LLP, solely in its capacity
as escrow agent, in the U.S. District Court for the Southern District
of New York (the "Court"), seeking a declaratory judgment that, under the
parties' Asset Purchase Agreement, dated September 15, 2005 and Escrow
Agreement, dated December 16, 2005, the Company is not required to
indemnify Oak and Victoria for unemployment insurance contributions based
on the experience rating account held by Oak and maintained by the State of
New York Department of Labor ("NYDOL").
  On July
23, 2007, Oak and Victoria filed with the Court an answer, counterclaim, and
cross-claim in response to the Company's complaint alleging that the Asset
Purchase Agreement was "deliberately structured" such that any
liability, which would include the disputed unemployment
taxes, would be retained by the Company post-closing and would not be
transferred to Oak.  On August 15, 2007, the Company filed a
reply to Oak and Victoria's counterclaim.
  On August
6, 2008, the parties reached a settlement agreement.  The settlement
provided that the Company pay Oak the sum of $100,000.00 in full settlement of
all claims.  The settlement also provided that the balance of the
funds held in escrow, be released to the Company with the exception of the
amount of $55,739.00 which will continue to be held in escrow in connection with
a unrelated pending claim asserted by a third party.  The settlement
agreement was executed as of August 28, 2008 and included a Joint Stipulation
and Order of Dismissal with Prejudice (the "Joint Stipulation"), which
was signed by all parties.  Judge Buchwald signed and entered the
Joint Stipulation on September 8, 2008, which formally concluded the
action.
 
 In
January 2009, the Company settled a claim made by the Pabst Brewing Company
(Pabst Claim) for $27,869.50 which represents one half of the Pabst
Claim.  At January 30, 2009 the total amount held in escrow was
$55,875.50 including accrued interest of $136.50.  On January 30,
2009, the escrow agent issued the Company a check for $22,006 which represents
the balance remaining in escrow after payment of the Pabst Claim settlement and
$6,000 in fees owed to the escrow agent.
  11
 ITEM
4.           SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
 
 No matters were submitted to a vote of
the holders of the Company’s Common Stock during the last quarter of its fiscal
year ended December 31, 2008.
 
 PART II
 
 ITEM
5.           MARKET FOR REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
 The Company's Common Stock commenced
trading on The Nasdaq SmallCap Market on the effectiveness of the Company's
Initial Public Offering on July 17, 1997 under the symbol "CBEV".  The
Common Stock is 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 for the period from
January 1, 2007 to December 31, 2008 based upon information supplied by the OTC
Bulletin Board.  Prices represent quotations between dealers without
adjustments for retail markups, markdowns or commissions, and may not represent
actual transactions.
  2007 Fiscal Year
                                    
                                    Quoted Price ($)High
                                    
                                    
                                    LowFirst
      Quarter
                                    
                                    
                                    .32
                                    
                                    
                                    
                                    .10Second
      Quarter
                                    
                                    
                                    .25
                                    
                                    
                                    
                                    .18Third
      Quarter
                                    
                                    
                                    .24
                                    
                                    
                                    
                                    .17Fourth
      Quarter
                                    
                                    
                                    .17
                                    
                                    
                                    
                                    .13
  2008 Fiscal Year
                                    
                                    Quoted Price ($)High
                                    
                                    
                                    LowFirst
      Quarter
                                    
                                    
                                    .13
                                    
                                    
                                    
                                    .10Second
      Quarter
                                    
                                    
                                    .13
                                    
                                    
                                    
                                    .10Third
      Quarter
                                    
                                    
                                    .11
                                    
                                    
                                    
                                    .04Fourth
      Quarter
                                    
                                    
                                    .04
                                    
                                    
                                    
                                    .04
  On April 8, 2009, the closing price of
the Common Stock as reported on the OTC Bulletin Board was $.07.  As
of April 8, 2009, there were 165 holders of record of Common Stock.
 
 12
 Recent Sales of Unregistered
Securities
 
 We did not sell any unregistered
securities during the fourth quarter of the fiscal year covered in this
report.
 
 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.
 
 Repurchases by the
Company
 
 During the fourth quarter of 2008, we
did not repurchase any shares of our Common Stock on our behalf or for any
affiliated purchase.
  
 13
 ITEM
6.           SELECTED FINANCIAL
DATA
 
 The following data has been derived
from the audited consolidated financial statements of the Company and should be
read in conjunction with those statements.  Historical results are not
necessarily indicative of future results.
 
 December 31,2008
                      
                      
                      2007
                      
                      
                      2006
                      
                      
                      2005
                      
                      
                      2004Consolidated
      Statement of Operations Data:Revenues
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -General
      and administrative expenses
                      
                      $
                      587,657
                      
                      
                      $
                      474,864
                      
                      
                      $
                      312,398
                      
                      
                      $
                      817,248
                      
                      
                      $
                      387,306Bad
      debt reserve
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      108,426
                      
                      
                      $
                      -
                      
                      
                      $
                      -Non-cash
      compensation
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      91,724Loss
      from continuing operations
                      
                      $
                      (587,657
                      )
                      
                      $
                      (474,864
                      )
                      
                      $
                      (420,824
                      )
                      
                      $
                      (817,248
                      )
                      
                      $
                      (479,030
                      )Discontinued
      operations:Interest
      expense, net
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      17,261
                      
                      
                      $
                      (702,848
                      )
                      
                      $
                      (738,812
                      )Gain
      on sale of distribution rights
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      8,235,907
                      
                      
                      $
                      -Income
      taxes
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      (85,000
                      )
                      
                      $
                      -(Loss)
      gain from discontinued operations
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      (74,353
                      )
                      
                      $
                      (2,781,110
                      )
                      
                      $
                      (3,059,071
                      )Income
      (loss)
                      
                      $
                      (587,657
                      )
                      
                      $
                      (474,864
                      )
                      
                      $
                      (477,916
                      )
                      
                      $
                      3,849,701
                      
                      
                      $
                      (4,276,913
                      )Diluted
      income (loss) from continuing operations per share:
                      
                      $
                      (0.15
                      )
                      
                      $
                      (0.13
                      )
                      
                      $
                      (0.11
                      )
                      
                      $
                      (0.22
                      )
                      
                      $
                      (0.13
                      )Diluted
      income (loss) from discontinued operations per share:
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      (0.02
                      )
                      
                      $
                      1.23
                      
                      
                      $
                      (1.00
                      )Diluted
      income (loss) per share:
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      (0.13
                      )
                      
                      $
                      1.02
                      
                      
                      $
                      (1.13
                      )Diluted
      weighted-average number of shares outstanding:
                      
                      
                      3,792,045
                      
                      
                      
                      3,792,045
                      
                      
                      
                      3,792,045
                      
                      
                      
                      3,792,045
                      
                      
                      
                      3,792,045Consolidated
      Balance Sheet Data (at end of period):Cash
      and cash equivalents
                      
                      $
                      8,326
                      
                      
                      $
                      188
                      
                      
                      $
                      67,910
                      
                      
                      $
                      131,738
                      
                      
                      $
                      96,220Restricted
      cash
                      
                      $
                      55,876
                      
                      
                      $
                      742,977
                      
                      
                      $
                      736,045
                      
                      
                      $
                      2,513,600
                      
                      
                      $
                      -Working
      capital (deficit)
                      
                      $
                      (1,028,614
                      )
                      
                      $
                      (465,568
                      )
                      
                      $
                      7,695
                      
                      
                      $
                      (225,549
                      )
                      
                      $
                      (3,247,703
                      )Total
      assets
                      
                      $
                      66,521
                      
                      
                      $
                      750,094
                      
                      
                      $
                      807,485
                      
                      
                      $
                      2,765,535
                      
                      
                      $
                      4,521,860Total
      debt
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      4,630,999Total
      stockholders’ equity (deficit)
                      
                      $
                      (1,026,296
                      )
                      
                      $
                      (463,640
                      )
                      
                      $
                      11,225
                      
                      
                      $
                      340,435
                      
                      
                      $
                      (3,509,266
                      )
 
 
 14
 ITEM
      7.
              MANAGEMENT'S
      DISCUSSION AND ANALYSIS OR PLAN
      OF OPERATIONS
 
 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.
 
 As of
December 16, 2005, the Company closed the sale of the Assets to Oak, pursuant to
the terms and conditions of the Asset Purchase Agreement.  The
purchase price paid by Oak for the Assets was Nine Million Three Hundred
Thousand Dollars ($9,300,000.00), of which One Million Five Hundred Thousand
Dollars ($1,500,000.00), was deposited with an escrow agent, pursuant to the
terms of an escrow agreement, for at least 18 months for post closing
indemnification claims which may be asserted by Oak (the “Escrow”).  A
substantial amount of the proceeds from the transaction were used by the Company
to repay outstanding indebtedness and for working capital purposes.
 
 The
Company will continue to use the proceeds from the sale of the Assets for
working capital purposes, including the payment of indebtedness, trade payables
and other outstanding obligations.  Following the full payment of its
creditors, the Company may elect to acquire another entity, issue dividend(s) to
its stockholders or invest the net proceeds at the discretion of the Board of
Directors and management of the Company.  Management currently
anticipates that additional transactions may take the form of a dissolution of
the corporation, the liquidation of its remaining assets, and the ultimate
distribution to stockholders of any assets remaining after satisfaction of our
liabilities, including personnel termination and related costs, sale transaction
expenses and final liquidation costs.
 
 After
application of the net proceeds in the manner contemplated, and assuming
ultimate release to us of the entire escrowed amount, and after deduction of
transaction costs in connection with the Asset Sale, the Company will not have
any remaining assets.  There will be no monies left over for
distribution, and we may have to reduce or eliminate the severance pay
provision.
 
 We will
continue to incur claims, liabilities and expenses, which will reduce the
realizable value of our remaining assets and the amount potentially available
for distribution to stockholders.  Claims, liabilities and expenses
from operations (such as salaries, directors’ and officers’ insurance, payroll
and taxes, legal, accounting and consulting fees and miscellaneous office
expenses) will continue to be incurred subsequent to the Asset
Sale.  These expenses will have to be satisfied from our remaining
assets and, therefore, will reduce the net realizable value of those
assets.
 
 15
 The
Company intends to comply with the periodic reporting requirements of the
Exchange Act for so long as we are subject to those requirements.  We
have an obligation to continue to comply with the applicable reporting
requirements of the Securities Exchange Act of 1934, as amended, even though
compliance with such reporting requirements is economically
burdensome.
 
 As of
December 2, 2005, all employees were terminated, except for Carmine Stella who
will continue to serve as the Company’s Chief Executive Officer.
 
 Results
of Operations – December 31, 2008 and 2007
 
 The
Company had no revenue from operations for the twelve months ended December 31,
2008 and 2007.
 
 General
and administrative expenses for the twelve months ended December 31, 2008 and
2007 was $587,657 and $474,864, respectively, which consisted mostly of legal
fees, professional fees, tax accruals and the salary and expenses to our only
remaining employee.
 
 At
December 31, 2008 and December 31, 2007, respectively, we had working capital
deficits of $1,028,614 and $465,568, respectively.
 
 Liquidity
and Capital Resources
  The
report of our auditors on our audited financial statements for the fiscal year
ended December 31, 2008 contains a going concern qualification as we have
suffered losses for the years ended December 31, 2008 and 2007.  We
have minimal assets and have had no operative revenues since the sale of our
assets to Oak. We have the cash from the Oak Sale to conduct
operations.  As of December 31, 2008 and 2007, we had cash of $64,202
and $743,165, current assets of $64,202 and $748,165 and current liabilities of
$1,092,816 and $1,213,733, respectively.
  
 16
  ITEM
7A.          QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
 
 All of
the Company’s indebtedness that would have posed an interest rate risk have been
paid in full. As a result, the Company no longer has an interest rate
risk.
 
 ITEM
8.             FINANCIAL
STATEMENTS
 
 See financial statements following Item
15 of this Annual Report on Form 10-K.
 
 ITEM
9.             CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  Not
applicable.
  ITEM
9A.[T]     CONTROLS AND
PROCEDURES
  Evaluation
of Our Disclosure Controls and Internal Controls
  Under the
supervision and with the participation of our senior management, including our
chief executive and financial officer, Carmine N. Stella, we conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end
of the period covered by this annual report (the “Evaluation
Date”).  The disclosure controls and procedures are intended to insure
that the information relating to us, including our consolidated subsidiaries,
required to be disclosed in our Securities and Exchange Commission (“SEC”)
reports (i) is recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms, and (ii) is accumulated and
communicated to our management, including our chief executive officer and chief
financial officer, as appropriate to allow timely decisions regarding required
disclosure.
  Our
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes of accounting
principles generally accepted in the United States.  Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements.  Therefore, even those systems determined to
be effective can provide only reasonable assurance of achieving their control
objectives.  In evaluating the effectiveness of our internal control
over financial reporting, our management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in
Internal Control – Integrated Framework.
  17
  Based
upon our assessment and the COSO criteria, management concluded that our
internal control over financial reporting was not effective as of December 31,
2008 due to a material weakness.  A material weakness is a deficiency,
or a combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of our
annual or interim financial statements will not be prevented or detected on a
timely basis.
  More
specifically, the material weakness relates to a lack of sufficient personnel
with appropriate knowledge, experience and training in U.S. GAAP resulting in a
lack of sufficient analysis and documentation of the application of U.S. GAAP to
transactions.
  Due to
our small size and limited financial resources, our part-time outside accountant
has been the only individual involved in our accounting and financial
reporting.  As a result, there has been no segregation of duties
within the accounting function.  This lack of segregation of duties
represents a material weakness.
  In
efforts to address this material weakness, we are planning to add additional
personnel to the internal accounting operation.
  This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management’s report in
this annual report.
  Officers’
Certifications
  Appearing
as exhibits to this Annual Report are “Certifications” of our President and
Chief Executive Officer and Treasurer.  The Certifications are
required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section
302 Certifications”).  This section of the Annual Report contains
information concerning the Controls Evaluation referred to in the Section 302
Certification.  This information should be read in conjunction with
the Section 302 Certifications for a more complete understanding of the topics
presented.
  Changes
in Internal Control Over Financial Reporting
  There
have been no changes in our internal control over financial reporting that
occurred during the quarter ended December 31, 2008 that have materially
affected or are reasonably likely to materially affect our internal control over
financial reporting.
  ITEM
9B.           OTHER
INFORMATION
  Not
applicable.
  18
 PART III
 
 ITEM
10.          DIRECTORS AND EXECUTIVE
OFFICERS OF THE REGISTRANT
 
 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 HeldCarmine
      N. Stella
                              57
                              President,
      Chief Executive Officer,Chairman
      of the Board of DirectorsCarol
      Russell
                              53
                              Secretary,
      Treasurer and DirectorJoseph
      M. Luzzi*
                              61
                              DirectorMichael
      Matrsciani
                              53
                              DirectorDaniel
      Matrisciani(1)
                              62
                              Director
      and Vice President of OperationsVito
      Cardinale*
                              49
                              Director
 
 (1)
Daniel Matrisciani resigned in his capacity as Vice President of Operations of
the Company as of December 2, 2005.
 *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.
 
 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.
 
 19
 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 since June
2001.  Mr. Matrisciani was Vice President of Operations from June 2001
to December 2, 2005.  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).  Daniel Matrisciani is the brother of Michael
Matrisciani.
 
 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.
 
 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 Vito Cardinale andJoseph Luzzi.
 
 20
 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-K
for the fiscal year ended December 31, 2008 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 2008 Form
10-K.
 
 The audit committee
consists of two membersVito Cardinale andJoseph Luzzi,
both of whom are "independent" for purposes of stock exchange listing
standards.The audit committee does not currently have an
individual who qualifies as an “audit committee financial expert” as defined by
the rules of the Securities and Exchange Commission.
 
 Code
of Ethics
 
 We have adopted a Code of Business
Conduct and Ethics that applies to our employees, officers (including our
principal executive officer, principal financial officer and controller) and
directors.  The Code of Business Conduct and Ethics is not currently
posted on our website but can be obtained free of charge by sending a request to
our Corporate Secretary at our address.  Any changes to or waivers
under the Code of Business Conduct and Ethics as it relates to our principal
executive officer, principal financial officer, controller or persons performing
similar functions will be disclosed on our website.
 
 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.
  21
 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, 2008, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were satisfied, except as provided below:
 
 None
 
 ITEM
11.           EXECUTIVE
COMPENSATION
 
 Compensation
Discussion And Analysis
 
 Objectives
 
 There is
currently one employee of the Company.  Our compensation program is
intended to provide a link between increasing the long-term value of shareholder
investment in the Company and the compensation earned by our executive officer.
The objective of our compensation program is to:
 
 ·
              Attract
      and retain executives capable of leading us to meet our business
      objectives;
 ·
              Adequately
      compensate our senior executive for achieving important near-term
      objectives;
 ·
              Align
      the interests of our executive officer and shareholders through the use of
      equity and other long-term incentives;
and
 ·
              Reward
      executive for achieving sustainable increases in the value of
      shareholders' investments.
 
 Elements
Of  Executive Compensation
 
 Certain members of management have
not received their salaries and expenses since May 1, 2005.  See Executive Compensation-
Payment of Accrued Unpaid
Salaries and Severance.  Our
compensation structure consists of base salary for executive officers and
discretionary bonus, which is linked to individual and Company performance on a
year by year basis.  Compensation also consists of the 1996 Incentive
Stock Option Plan, which allows for grants of incentive stock options. This plan
is designed to reward  executive officers for increasing the value of
shareholders' investment.
 
 Reasons
For Paying Each Element Of Compensation
 
 The
reasons for paying each element of compensation are as follows:
 
 ·
              Salary
      is paid for ongoing performance throughout the
  year.
 ·
              The
      annual bonus component of executive compensation is in place to encourage
      and reward the achievement of the various components of the Company’s
      business strategy.
 ·
              The
      stock option grants are designed to reward executives if they are
      successful in increasing the value of shareholder
      investment.  It also helps encourage executives to avoid
      behavior which results in short-term benefit at the expense of long-term
      share value.
 
 22
 Determination  Of  The  Amount  And  Formula  For  Each  Element  Of  Pay
 
 Generally, we choose to pay various
elements of compensation based on market norms and individual performance.
Specific factors considered for each element of compensation are as
follows:
 
 ·
              Base
      pay is paid around the midpoint of the market range, and better performers
      are  paid slightly higher than the
  midpoint.
 ·
              The
      bonus amount takes into account corporate performance, divisional
      performance, and quantifiable individual
goals.
 
 Specific
Forms Of Compensation And The Role Of Discretion
 
 In the past, the Compensation
Committee has retained the authority to review executive officer base
compensation and to make increases based on general performance and market
norms.  Also, the Compensation Committee has retained the authority to
make long-term incentive grants (historically stock options) based on executive
performance and market norms.  The Compensation Committee intends to
retain the discretion to make decisions about executive officer base
compensation and certain levels of stock option grants, with or without
predetermined performance goals.
 
 The Compensation Committee may make
future grants of options, restricted stock, or other equity compensation,
subject to objective performance goals.  At this time, it
has  not determined whether it would exercise discretion and reduce
the size of an award or payout even if performance goals are
met.  However, the Committee has no current  intention to
increase the size of any objectively determined equity
compensation  award, especially if performance goals are not
met.
 
 With respect to bonus payment, the
Compensation Committee uses an objective formula to determine payouts to
executive officers.  The objective measures relate to corporate
earnings, performance and divisional earnings performance, as compared to
budgeted objectives.  The formula also includes objectively measured
individual goals.
 
 How
Individual Forms Of Compensation Are Structured And Implemented To Reflect
The  Executive
Officers'  Individual  Performance  And  Contribution
 
 The Compensation Committee considers
a variety of factors, both qualitative and quantitative, in evaluating our
executive officers and making compensation decisions. Market factors and the
individual contribution of each officer of the Company impact decisions
regarding each executive officer's base pay, the size of each executive
officer's annual bonus opportunity, and the size of each executive officer's
long-term incentive  opportunity.
 
 23
 Factors  Considered
In Decisions To Increase Or Decrease Compensation Materially
 
 The Compensation Committee would
consider clear, sustained market trends in approving a material increase or
decrease in executive compensation.
 
 Impact
Amounts
Received  By  Previously  Earned  Compensation  Have  On  Other
Compensation
 
 We maintain no supplemental pension
plans or other programs in which gains from prior compensation could influence
amounts earned currently. The Compensation Committee  may consider
gains from prior awards when determining the appropriate size of long-term
incentive grants.
 
 Impact  Of  Accounting  And  Tax  Treatment  On  Various  Forms  Of
Compensation
 
 The accounting and tax treatments of
each particular form of compensation are taken  into account when
determining amounts and awards.  Our incentive payments are designed
so that they are deductible under Section 162(m) of the Internal Revenue Code,
and we intend that all compensation payments be deductible.
 
 We monitor the treatment of options
under FAS 123R in determining the form and size of  option
grants.
 
 Nonqualified options are deductible
by the Company when they are exercised, to the extent that the optionee
recognizes ordinary income rather than capital gain on exercise.
 
 Ownership  Requirements  And
Policies Regarding Hedging Risk On Company's Equity Securities
 
 We currently have no security
ownership requirements for executives, and no policies regarding hedging
economic risk and ownership.
 
 Role  Of  Executive  Officers  In  Determining  Compensation
 
 The Compensation Committee makes all
base, bonus, and equity compensation decisions regarding executive
officers.
 
 24
 The
following table sets forth the compensation paid to the Named Executive Officers
for the fiscal years ending December 31, 2007 and 2008.
  Summary Compensation
  TableAnnual Compensation Awards
                                                                  
                                                                  
                                                                  Long-Term Compensation(a)
                                                                  (b)
                                                                  
                                                                  (c)
                                                                  
                                                                  
                                                                  (d)
                                                                  
                                                                  
                                                                  (e)
                                                                  
                                                                  
                                                                  (f)Other
      Annual
                                                                  
                                                                  
                                                                  Restricted
                                                                  
                                                                  
                                                                  Stock
      OptionName and Principal Position
                                                                  Year
                                                                  
                                                                  Salary
                                                                  
                                                                  
                                                                  Compensation
                                                                  
                                                                  
                                                                  Award
                                                                  
                                                                  
                                                                  GrantsCarmine
      N. Stella
                                                                  2008
                                                                  
                                                                  $
                                                                  210,027.96
                                                                  
                                                                  
                                                                  
                                                                  -0-
                                                                  
                                                                  
                                                                  
                                                                  -0-
                                                                  
                                                                  
                                                                  
                                                                  -0-President,
      Chief Executive Officer,
                                                                  2007
                                                                  
                                                                  $
                                                                  210,027.96
                                                                  
                                                                  
                                                                  
                                                                  -0-
                                                                  
                                                                  
                                                                  
                                                                  -0-
                                                                  
                                                                  
                                                                  
                                                                  -0-Chairman
      of the BoardAnthony
      Stella
                                                                  2008
                                                                  
                                                                  
                                                                  -0-
                                                                  
                                                                  
                                                                  
                                                                  -0-
                                                                  
                                                                  
                                                                  
                                                                  -0-
                                                                  
                                                                  
                                                                  
                                                                  -0-Vice
      President of Sales
                                                                  2007
                                                                  
                                                                  
                                                                  -0-
                                                                  
                                                                  
                                                                  
                                                                  -0-
                                                                  
                                                                  
                                                                  
                                                                  -0-
                                                                  
                                                                  
                                                                  
                                                                  -0-and
      Managing DirectorCarol
      Russell
                                                                  2008
                                                                  
                                                                  
                                                                  -0-
                                                                  
                                                                  
                                                                  
                                                                  -0-
                                                                  
                                                                  
                                                                  
                                                                  -0-
                                                                  
                                                                  
                                                                  
                                                                  -0-Secretary
      Treasurer
                                                                  2007
                                                                  
                                                                  
                                                                  -0-
                                                                  
                                                                  
                                                                  
                                                                  -0-
                                                                  
                                                                  
                                                                  
                                                                  -0-
                                                                  
                                                                  
                                                                  
                                                                  -0-and
      DirectorDaniel
      Matrisciani
                                                                  2008
                                                                  
                                                                  
                                                                  -0-
                                                                  
                                                                  
                                                                  
                                                                  -0-
                                                                  
                                                                  
                                                                  
                                                                  -0-
                                                                  
                                                                  
                                                                  
                                                                  -0-Vice
      President of
                                                                  2007
                                                                  
                                                                  
                                                                  -0-
                                                                  
                                                                  
                                                                  
                                                                  -0-
                                                                  
                                                                  
                                                                  
                                                                  -0-
                                                                  
                                                                  
                                                                  
                                                                  -0-Operations
      and Director
  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 expired in October, 2003.  In June 2004, Mr.
Stella’s employment agreement was extended for an additional two years in
accordance with the terms of his expired 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.  In June 2004, Mr. Matrisciani’s
employment agreement was extended 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. As of December 31, 2005,
Mr. Matrisciani’s employment agreement was terminated.
 
 25
 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.  In June 2004, Mr. Matrisciani’s
employment agreement was extended 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 December
31, 2005, Mr. Matrisciani’s employment agreement was terminated.
 
 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 for an
additional two years.  In June 2004, Mr. Matrisciani’s employment
agreement was extended 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 December 31, 2005, Mr.
Matrisciani’s employment agreement was terminated.
 
 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.  In June
2004, Mr. Matrisciani’s employment agreement was extended 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 December 31, 2005, Mr. Matrisciani’s employment
agreement was terminated.
 
 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.  In June 2004, Mr. Stella’s employment agreement
was extended 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. As of December 31, 2005, Mr. Stella’s employment agreement was
terminated.
 
 All financial consideration in each of
the aforementioned employment agreements were reduced by thirty percent (30%)
for an undetermined period of time.
 
 26
 Payment of Accrued Unpaid
Salaries and Severance
 
 Certain
members of management have not received their salaries and expenses since May 1,
2005. Accordingly, the following individuals are entitled to be paid accrued and
unpaid salaries from the proceeds from the Asset Sale received by the Company in
the amounts set forth adjacent to their names (such amounts calculated as of
December 31, 2008): Carmine Stella ($482,660.42); Anthony Stella ($39,654);
Michael Mastrisciani ($40,067.51); Daniel Mastrisciani ($40,067.50); Monty
Mastrisciani ($40,067.50); and Alex Mastrisciani ($35,479.50).  The
Company has reimbursed such employees for out-of-pocket expenses incurred by
them in connection with the performance of their duties which, as of December
31, 2008, total approximately $20,000.00.As of December
31, 2008, out-of-pocket expenses of $41,000.00 incurred by such employees have
accrued but have not been paid to such employees.
 
 In
addition, under the terms of employment agreements between the Company and such
members of management, such employees are, upon the termination of their
employment with the Company, entitled to severance payments equal to four (4)
weeks of a base salary for each year of service provided to the Company. The
proceeds from the Asset Sale were used to pay severance to following employees
each of whom were terminated as of the closing date of the Asset Sale in the
amounts set forth adjacent to their names: Anthony Stella ($102,000); Michael
Mastrisciani ($47,000); Daniel Mastrisciani ($47,000); Monty Mastrisciani
($47,000); and Alex Mastrisciani ($41,000). Carmine Stella was not terminated as
of the closing date, and therefore, he is not be entitled to any severance
payment. He will, however, continue to serve as the Company's Chief Executive
Officer, and will be paid $210,000 per annum.
 
 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.
 
 27
 The Company's 2003 Stock Option Plan,
which was subject to shareholder approval, was approved by the Compensation
Committee and ratified by the Board of Directors on December 30, 2003 and
February 20, 2004, respectively. A total of 1,500,000 shares of Common Stock
were authorized and reserved for issuance under the 2003 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.  In December
2003, the Company granted 1,500,000 non-qualified options to employees and
officers of the Company pursuant to the 2003 Stock Option Plan exercisable for
10 years at $.23 per share.  Subsequently, the Compensation Committee
and Board of Directors elected not to submit the 2003 Stock Option Plan to the
shareholders for approval in order to avoid the expense of seeking shareholder
approval. Since the 2003 Stock Option Plan was not approved by the shareholders
of the Company within twelve months and in accordance with the terms of the
plan, it automatically terminated.  In accordance with the terms of
the plan, any options issued and outstanding prior to termination, remain
outstanding and continue to have full force and effect.
 
 Compensation
Committee Interlocks and Insider Participation
 
 The Compensation Committee currently
consists of Vito Cardinale and Joseph Luzzi.  The Compensation
Committee is responsible for making recommendations to the Board of Directors
regarding  executive compensation matters. The Board of Directors has
determined that all members of the Compensation Committee are "independent" in
accordance with applicable the Securities and Exchange Commission
rules.  There are no relationships  or transactions relating
to the members of the Compensation Committee that require disclosure under Item
407(e)(4) of Regulation S-K.
 
 Compensation
Committee Report
 
 The information contained in this
report shall not be deemed to be "soliciting material" or to be "filed" with the
Securities and Exchange Commission or subject to Regulation 14A or 14C other
than  as  set forth in Item 407 of
Regulation  S-K,  or  subject to the liabilities
of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), except to the extent that we specifically request that the information
contained in this report be treated as soliciting material, nor shall such
information be incorporated by reference into any past or future filing under
the Securities Act of 1933, as amended (the "Securities  Act"), or the
Exchange Act, except to the extent that we specifically incorporate
it  by reference in such filing.
 
 28
 The Compensation Committee has
reviewed and discussed the Compensation Discussion and Analysis required by Item
402(b) of Regulation  S-K  with  management and,
based on such review and discussions, the Compensation Committee
recommended  to the Board that the Compensation Discussion and
Analysis be included in this annual report.
 
 By the Compensation
Committee:
 
 Vito Cardinale
 Joseph Luzzi
   29
 ITEM
12.            SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
 
 The following table sets forth as of
April 14, 2009, 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:
 
 Name
      and Address of Beneficial Owner
      (1)
                Shares
      of Common Stock Owned
    (3)
                Percentage
      (%) of
                  Common Stock (3)Carmine
      Stella
                712,500
                18.8%Anthony
      Stella
                237,500
                6.3%Carol
      Russell
                0
                0%Joseph
      Luzzi
                0
                0%Alex
      Matrisciani(2)
                237,500
                6.3%Michael
      Matrisciani(2)
                237,500
                6.3%Daniel
      Matrisiciani(2)
                237,500
                6.3%Vito
      Cardinale
                0
                0%Monty
      Matrisciani(2)
                237,500
                6.3%Wachovia
      Corporation
                  One
      Wachovia Center
                  Charlotte,
      NC  28288-0137
                264,500
                6.98%Casimir
      Capital L.P.
                  100
      Broadway, 11th
      Floor
                  New
      York, NY 10005
                1,000,000(4)
                20.9%All
      officers and  directors as a group (nine (9)
      persons)
                1,900,000
                50%
 
 (1)
              The
      address of each Stockholder shown above except as otherwise indicated is
      c/o Capital Beverage Corporation, 120 Rio Vista Drive, Norwood, New Jersey
      07648.
 (2)
              Alex
      Matrisciani, Michael Matrisciani, Daniel Matrisciani and Monty Matrisciani
      are brothers.  Daniel Matrisciani and Michael Mastrisciani are
      each a director of the Company.
 (3)
              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.
 (4)
              Includes
      warrants to purchase an aggregate of 1,000,000 shares of Common Stock,
      exercisable at $1.00 per share.
 
 30
 
 The
following table presents information as of April 14, 2009 with respect to
compensation plans under which equity securities were authorized for issuance by
the Company.
 
 Equity
Compensation Plan Information
 
 Plan category
                Number
      of Securities to be issued upon exercise of outstanding options,
      warrantsand rights
                Weighted-average
      exercise price of outstanding options, warrants and rights
                Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column (a)(a)
                (b)
                (c)Equity
      compensation plans approved by security holders
                0
                --
                --Equity
      compensation plans not approved by security holders
                1,850,000
                $.62
                0Total
                1,850,000
                $.62
                0
 
 
 ITEM
13.             CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
 There were no transactions during the
fiscal year ended December 31, 2008, or any currently proposed transactions, to
which the Company was or is to be a party, in which the amount involved exceeds
$120,000, and in which any director or executive officer, or any security holder
who is known by the Company to own of record or beneficially more than 5% of any
class of Company’s common stock, or any member of the immediate family of any of
the foregoing persons, has or will have a direct or indirect material
interest.
 
 Director  Independence
 
 We have
adopted standards for director independence pursuant to the rules of the
Securities and Exchange Commission. The Board considered relationships,
transactions and/or arrangements with each of the directors and concluded that
all of the directors, except Messrs. Joseph Luzzi and Vito Cardinale meet the
applicable criteria for independence. In addition, the Board has determined that
each member of our Audit Committee and Compensation  Committee is
independent under applicable SEC rules.
 
 31
 Termination of Personal
Guaranties and Release of Pledged Collateral
 
 In
connection with a loan in the aggregate principal amount of $2.5 million
provided to the Company by Seaway, each of Alex Mastrisciani, Daniel
Mastrisciani, Michael Mastrisciani and Monty Mastrisciani pledged real property
owned by them located in Brooklyn, New York as collateral for such loan. The
security interest held by Seaway in such collateral was released on the closing
date of the Asset Sale upon the repayment of the loan by the
Company.
 
 In
connection with a revolving line of credit provided by EGC to the Company, the
Company pledged all of its assets as collateral for such loan. In addition,
Carmine Stella, the Company's President, and Chief Executive Officer personally
guaranteed the  Company's obligations to Entrepreneur Capital. The
guaranty provided by Mr. Stella terminated on the closing date of the Asset Sale
upon repayment of the line of credit by the Company.
 
 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 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.
 
 ITEM
14.        PRINCIPAL ACCOUNTANT FEES
AND SERVICES
 
 Audit
and Other Professional Fees
 
 Consistent with the Audit Committee’s
responsibility for engaging our independent auditors, subsequent to January 1,
2005, all audit and permitted non-audit services require pre-approval by the
Audit Committee. Subsequent to January 1, 2005, all services performed by the
auditors will be pre-approved.
 
 
 32
 
 During the fiscal years ended December
31, 2008 and 2007 fees for services provided by Sherb & Co., LLP were as
follows (rounded to the nearest $1,000):
 
 Audit
Fees
 
 The aggregate fees billed to the
Company by Sherb & Co., LLP for the audit of our annual financial statements
for the years ended December 31, 2008 and for the review of our quarterly
reports on Form 10-Q for the same year totaled $37,000.  The aggregate
fees billed to the Company by Sherb & Co., LLP for the audit of our annual
financial statements for the year ended December 31, 2007 and for the review of
our quarterly reports on Form 10-Q for the same year totaled
$37,000.
 
 Audit
Related Fees
 
 There was a fee of $1,550 and $875 paid
to Sherb & Co., LLP for services rendered in connection with SEC
EDGARization filings during the year ended December 31, 2008 and 2007,
respectively and $1,500 paid to Sherb & Co., LLP for assistance with an SEC
comment letter.  There were no fees paid to Sherb & Co., LLP for
services rendered in connection with employee benefit plan audits, SEC
registration statements, due diligence, assistance and consultation on financial
accounting and reporting standards during the years ended December 31, 2008 and
2007.
 
 Financial
Information Systems Design and Implementation Fees
 
 There were no fees paid to Sherb &
Co., LLP for financial information systems design or implementation during the
years ended December 31, 2008 and 2007.
 
 Tax
Fees
 
 There were no fees paid to Sherb &
Co., LLP for services rendered in connection with tax audits and appeals, advise
on mergers and acquisition and technical assistance during the years ended
December 31, 2008 and 2007.
 
 All
Other Fees
 
 There were no additional fees paid to
Sherb & Co., LLP for professional fees related to all other services during
fiscal years ended December 31, 2008 and 2007.
 
 33
 
 PART IV
 
 ITEM
15.             EXHIBITS AND FINANCIAL
STATEMENT SCHEDULES
 
 (a)(1)
              Financial
      Statements.
  Index
 
 Report
      of
      Independent Registered Public
 Accounting
      Firm
              F -
      2
 
 Financial
Statements
 Balance
      Sheets
              F -
      3
 Statements
      of Operations
              F -
      4
 Statements
      of Stockholders' Deficit
              F -
      5
 Statements
      of Cash flows
              F -
      6
 Notes
      to Financial Statements
              F -
      7 -12
 
 (a)(2)
              Financial
      Statement Schedules.
 
 (b)           Exhibits
 
 1.1
              Form
      of Underwriting Agreement.*
 
 1.2
              Form
      of Agreement Among Underwriters.*
 
 1.3
              Form
      of Selected Dealer Agreement.*
 
 3.1
              Certificate
      of Incorporation.*
 
 3.2
                Certificate
      of Designations, As Amended, Relating to Series A Preferred
      Stock.*
 
 3.3
              Form
      of Certificate of Designations Relating to Series B Preferred
      Stock.*
 
 3.4
              ByLaws.*
 
 4.1
              Specimen
      Common Stock Certificate.*
 
 4.2
              Specimen
      Series A Preferred Stock
Certificate.*
 
 4.3
              Specimen
      Series B Preferred Stock
Certificate.*
 
 4.4
              Specimen
      Class A Warrant Certificate.*
 
 4.5
              Form
      of Convertible Bridge Note.*
 
 34
 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.*
 
 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)
 
 35
 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)
 
 10.16
              2003
      Stock Option Plan (Incorporated by reference to Registrant’s Annual Report
      on Form 10-KSB for the annual period ending December 31,
    2003)
 
 10.17
              Asset
      Purchase Agreement, dated as of September 15, 2005, between Registrant and
      Oak Beverages Inc. (Incorporated by reference to Registrant’s Current
      Report on Form 8-K  dated September 15,
  2005)
 
 10.18
                Sub-Distribution
      Agreement dated as of September 15, 2005 between the Registrant and Oak
      Beverages Inc. (Incorporated by reference to Registrant’s Current Report
      on Form 8-K dated September 15,
2005)
 
 10.19
                Escrow
      Agreement, dated as of December 16, 2005, between Registrant, Oak
      Beverages Inc. and escrow agent. (Incorporated by reference to
      Registrant’s Annual Report on Form 10-KSB for the annual period ending
      December 31, 2005.)
 
 10.20
              Amendment
      to Escrow Agreement, dated as of December 16, 2005, between Registrant,
      Oak Beverages Inc. and escrow agent. (Incorporated by reference to
      Registrant’s Annual Report on Form 10-KSB for the annual period ending
      December 31, 2005.)
 
 31.1
              Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley
      Act of 2002
 
 31.2
              Certification
      of Treasurer pursuant to Section 302 of the Sarbanes Oxley Act of
      2002
 
 32.1
              Certification
      of Chief Executive Officer and Treasurer pursuant to Section 906 of the
      Sarbanes Oxley Act of 2002
 
 *           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.
 
 36
 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 15th day of
April, 2009.
 
 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
      15, 2009Carmine
      N. Stella
                                  
                                  President
      and Chairman ofthe
      Board of Directors/s/ Carol Russell
                                  
                                  Secretary,
      Treasurer
                                  April
      15, 2009Carol
      Russell
                                  
                                  and
      Director/s/ Joseph Luzzi
                                  
                                  Director
                                  April
      15, 2009Joseph
      Luzzi/s/ Michael Matrisciani
                                  
                                  Director
                                  April
      15, 2009Michael
      Matrisciani/s/ Daniel Matrisciani
                                  
                                  Director
                                  April
      15, 2009Daniel
      Matrisciani/s/ Vito Cardinale
                                  
                                  Director
                                  April
      15, 2009Vito
      Cardinale




37


CAPITAL
BEVERAGE CORPORATION
 
 FINANCIAL
STATEMENTS
 
 
 INDEX
  Page
      NumberREPORT
      OF INDEPENDENT REGISTERED PUBLICACCOUNTING
      FIRM
                F -
      2FINANCIAL
      STATEMENTS:Balance
      Sheets
                F -
      3Statements
      of Operations
                F -
      4Statements
      of Stockholders' Deficit
                F -
      5Statements
      of Cash Flows
                F -
      6Notes
      to Financial Statements
                F -
      7 to F - 12
 
  
 
 REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Board of
Directors and Stockholders
 Capital
Beverage Corporation
 
 We have
audited the accompanying balance sheets of Capital Beverage Corporation as of
December 31, 2008 and 2007 and the related statements of operations,
stockholders' deficit and cash flows for the years ended December 31, 2008 and
2007.  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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly we express no such opinion. 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 audits provide a
reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Capital Beverage Corporation as of
December 31, 2008 and 2007 and the results of their operations and their cash
flows for the years ended December 31, 2008 and 2007, in conformity with
accounting principles generally accepted in the United States of
America.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  The Company has incurred
significant losses 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 financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
 
 
 /s/ Sherb
& Co., LLP Certified
Public Accountants
 
 New York,
New York
 April 6,
2009
 
 F-2
 CAPITAL BEVERAGE
  CORPORATIONBALANCE SHEETSASSETS  December 31,2008
                                                
                                                
                                                2007CURRENT
      ASSETS:Cash
                                                
                                                $
                                                8,326
                                                
                                                
                                                $
                                                188Restricted
      cash
                                                
                                                
                                                55,876
                                                
                                                
                                                
                                                742,977Other
      receivable - current portion
                                                
                                                
                                                -
                                                
                                                
                                                
                                                5,000TOTAL
      CURRENT ASSETS
                                                
                                                
                                                64,202
                                                
                                                
                                                
                                                748,165OTHER
      ASSETS
                                                
                                                
                                                2,319
                                                
                                                
                                                
                                                1,929$
                                                66,521
                                                
                                                
                                                $
                                                750,094LIABILITIES
      AND STOCKHOLDERS' DEFICITCURRENT
      LIABILITIES:Accounts
      payable
                                                
                                                $
                                                1,092,816
                                                
                                                
                                                $
                                                1,213,733TOTAL
      CURRENT LIABILITIES
                                                
                                                
                                                1,092,816
                                                
                                                
                                                
                                                1,213,733STOCKHOLDERS'
      DEFICIT:Preferred
      stock, $.01 par value; authorized 1,000,000 shares;
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -No
      shares issued and outstandingCommon
      stock, $.001 par value; authorized 20,000,000 shares;issued
      and outstanding 3,792,045 shares
                                                
                                                
                                                3,793
                                                
                                                
                                                
                                                3,793Additional
      paid-in capital
                                                
                                                
                                                6,011,249
                                                
                                                
                                                
                                                5,986,249Accumulated
      deficit
                                                
                                                
                                                (7,041,338
                                                )
                                                
                                                
                                                (6,453,681
                                                )TOTAL
      STOCKHOLDERS' DEFICIT
                                                
                                                
                                                (1,026,296
                                                )
                                                
                                                
                                                (463,639
                                                )$
                                                66,521
                                                
                                                
                                                $
                                                750,094
  See
      notes to financial
statements.
 F-3
 CAPITAL BEVERAGE
  CORPORATIONSTATEMENTS OF
  OPERATIONS
   Year
      Ended December 31,2008
                                  
                                  
                                  2007REVENUES
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -COSTS
      AND EXPENSES:General
      and administrative
                                  
                                  
                                  587,657
                                  
                                  
                                  
                                  474,864587,657
                                  
                                  
                                  
                                  474,864NET
      LOSS
                                  
                                  $
                                  (587,657
                                  )
                                  
                                  $
                                  (474,864
                                  )NET
      LOSS PER SHAREBasic
                                  
                                  $
                                  (0.15
                                  )
                                  
                                  $
                                  (0.13
                                  )Diluted
                                  
                                  $
                                  (0.15
                                  )
                                  
                                  $
                                  (0.13
                                  )WEIGHTED
      AVERAGE NUMBER OF SHARES:Basic
                                  
                                  
                                  3,792,045
                                  
                                  
                                  
                                  3,792,045Diluted
                                  
                                  
                                  3,792,045
                                  
                                  
                                  
                                  3,792,045
   See
      notes to financial
statements.




F-4


CAPITAL BEVERAGE
  CORPORATIONSTATEMENTS OF STOCKHOLDERS'
      DEFICIT
  Additional
                                
                                
                                
                                
                                
                                TotalPreferred
      Stock
                                
                                
                                Common
      Stock
                                
                                
                                Paid-In
                                
                                
                                Accumulated
                                
                                
                                Stockholders'Shares
                                
                                
                                Amount
                                
                                
                                Shares
                                
                                
                                Amount
                                
                                
                                Capital
                                
                                
                                Deficit
                                
                                
                                DeficitBalance
      December 31, 2006
                                
                                
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                3,792,045
                                
                                
                                $
                                3,793
                                
                                
                                $
                                5,986,249
                                
                                
                                $
                                (5,978,817
                                )
                                
                                $
                                11,225Net
      loss
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (474,864
                                )
                                
                                
                                (474,864
                                )Balance
      December 31, 2007
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                3,792,045
                                
                                
                                
                                3,793
                                
                                
                                
                                5,986,249
                                
                                
                                
                                (6,453,681
                                )
                                
                                
                                (463,639
                                )Capital
      contributed
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                25,000
                                
                                
                                
                                -
                                
                                
                                
                                25,000Net
      loss
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (587,657
                                )
                                
                                
                                (587,657
                                )Balance
      December 31, 2008
                                
                                
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                3,792,045
                                
                                
                                $
                                3,793
                                
                                
                                $
                                6,011,249
                                
                                
                                $
                                (7,041,338
                                )
                                
                                $
                                (1,026,296
                                )
   See
      notes to financial
statements.




F-5


CAPITAL BEVERAGE
  CORPORATIONSTATEMENTS OF CASH
  FLOWS
  Year
      Ended December 31,2008
                              
                              
                              2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                              
                              $
                              (587,657
                              )
                              
                              $
                              (474,864
                              )Adjustments
      to reconcile net loss from operationsto
      net cash used in operating activities:Changes
      in assets and liabilities:Other
      receivable
                              
                              
                              4,610
                              
                              
                              
                              (3,399
                              )Accounts
      payable and accrued expenses
                              
                              
                              (120,915
                              )
                              
                              
                              417,472Total
      adjustments
                              
                              
                              (116,306
                              )
                              
                              
                              414,073NET
      CASH USED IN OPERATING ACTIVITIES
                              
                              
                              (703,963
                              )
                              
                              
                              (60,791
                              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Capital
      contributed
                              
                              
                              25,000
                              
                              
                              
                              -NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                              
                              
                              25,000
                              
                              
                              
                              -NET
      DECREASE IN CASH
                              
                              
                              (678,963
                              )
                              
                              
                              (60,791
                              )CASH
      - BEGINNING OF YEAR
                              
                              
                              743,165
                              
                              
                              
                              803,956CASH
      - END OF YEAR
                              
                              $
                              64,202
                              
                              
                              $
                              743,165SUPPLEMENTAL
      DISCLOSURE OF CASH FLOWINFORMATION:Cash
      paid for interest
                              
                              $
                              -
                              
                              
                              $
                              -Cash
      paid for taxes
                              
                              $
                              -
                              
                              
                              $
                              -
  See
      notes to financial
statements.
 
 F-6
 CAPITAL BEVERAGE
CORPORATION
 
 NOTES TO FINANCIAL
STATEMENTS
 
 YEARS ENDED DECEMBER 31,
2008 AND 2007
 
 
 1.
              ORGANIZATION AND
      DESCRIPTION OF BUSINESS
 
 Capital
Beverage Corporation (the “Company” or “Capital”) was formed in December 1995 to
operate as a wholesale distributor of beer and other beverages in New York City.
On December 16, 2005, the Company sold substantially all of its assets to Oak
Beverages, Inc.  In December 1998, CAP Communications, Ltd. (“Cap
Com”), a wholly-owned subsidiary, was organized to market domestic and long
distance prepaid telephone calling cards to distributors and to the general
public.  In December 2006, the Company dissolved Cap Com.
 
 The
Company will continue to use the proceeds from the sale of the Assets for
working capital purposes, including the payment of indebtedness, trade payables
and other outstanding obligations. Following the full payment of its creditors,
the Company may elect to acquire another entity, issue dividend(s) to its
stockholders or invest the net proceeds at the discretion of the Board of
Directors and management of the Company.  Management currently
anticipates that additional transactions may take the form of a dissolution of
the corporation, the liquidation of its remaining assets, and the ultimate
distribution to stockholders of any assets remaining after satisfaction of its
liabilities, including personnel termination and related costs, sale transaction
expenses and final liquidation costs. In the event of such dissolution, the
residual proceeds of the sale of the Assets would become part of a pool of
assets governed by the plan of dissolution. Alternatively, management may elect
to invest the net proceeds from the sale of the Assets in assets or operations
acquired by the Company. In such an event, no assets will be distributed to the
stockholders.
 
 2.
              GOING
      CONCERN
 
 The
accompanying financial statements have been prepared on a going-concern basis,
which presumes that the Company will be able to continue to meet its obligations
and realize its assets in the normal course of business.
 
 The
Company has not generated revenue since the sale of assets in December 2005. As
a result, current operations are not an adequate source of cash to fund future
operations. The report of the independent registered public accounting firm for
the year ended December 31, 2008 contains an explanatory paragraph regarding the
Company’s ability to continue as a going concern. The Company’s ability to
continue as a going concern is dependent on its ability to obtain necessary
financing to meet obligations and repay its liabilities when they become due or
be acquired by an operating company. The Company plans to continue to provide
for capital requirements from the cash from the sale of its
assets.  There are no assurances that the Company will have sufficient
funds to pay its obligations as they become due or be acquired by an operating
company.
 
 F-7
 3.
              SIGNIFICANT ACCOUNTING
      POLICIES
 
 Cash and Cash
Equivalents - Cash and cash equivalents include cash on hand and cash in
banks in demand and time deposit accounts with maturities of 90 days or
less.
 
 Restricted Cash – All
funds held in escrow were released on January 30, 2009.
 
 Income Taxes - The
Company follows Statement of Financial Accounting Standards No. 109 - Accounting
for Income Taxes, which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
tax assets and liabilities are based on the differences between the financial
statement and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
reverse.
 
 Use of Estimates -
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting
period.  Actual results could differ from those
estimates.
 
 Fair Value of Financial
Instruments - The Company considers its financial instruments, which are
carried at cost, to approximate fair value due to their near-term
maturities.
 
 Income (loss) per Common
Share - Net loss per common share is based on the weighted average number
of shares outstanding. Potential common shares includable in the computation of
fully diluted per share results are not presented in the financial statements as
their effect would be anti-dilutive.
 
 New Accounting
Pronouncements– Management
does not believe that any other recently issued, but not yet effective,
accounting standards, if currently adopted, could have a material effect on the
accompanying financial statements.
 
 4.
              CONCENTRATION OF
      CREDIT RISK
 
 The
Company maintains its cash balances at various financial
institutions.  These balances are insured by the Federal Deposit
Insurance Corporation up to $250,000.  The Company has not experienced
any losses in such accounts and believes it is not exposed to any significant
credit risk on cash on deposit.
 
 F-8
 5.
              LITIGATION
 
 On June
26, 2007, the Company filed a complaint against Oak Beverages, Inc.
("Oak"), Victoria Beverage, Inc. ("Victoria"), and Dealy &
Silberstein, LLP, solely in its capacity as escrow agent, in the U.S.
District Court for the Southern District of New York (the "Court"), seeking a
declaratory judgment that, under the parties' Asset Purchase Agreement, dated
September 15, 2005 and Escrow Agreement, dated December 16, 2005, the Company is
not required to indemnify Oak and Victoria for unemployment insurance
contributions based on the experience rating account held by Oak and maintained
by the State of New York Department of Labor
("NYDOL").
  On July
23, 2007, Oak and Victoria filed with the Court an answer, counterclaim, and
cross-claim in response to the Company's complaint alleging that the Asset
Purchase Agreement was "deliberately structured" such that any
liability, which would include the disputed unemployment
taxes, would be retained by the Company post-closing and would not be
transferred to Oak.  On August 15, 2007, the Company filed a
reply to Oak and Victoria's counterclaim.
  On August
6, 2008, the parties reached a settlement agreement.  The settlement
provided that the Company pay Oak the sum of $100,000.00 in full settlement of
all claims.  The settlement also provided that the balance of the
funds held in escrow, be released to the Company with the exception of the
amount of $55,739.00 which will continue to be held in escrow in connection with
a unrelated pending claim asserted by a third party.  The settlement
agreement was executed as of August 28, 2008 and included a Joint Stipulation
and Order of Dismissal with Prejudice (the "Joint Stipulation"), which
was signed by all parties.  Judge Buchwald signed and entered the
Joint Stipulation on September 8, 2008, which formally concluded the
action.
 
 In
January 2009, the Company settled a claim made by the Pabst Brewing Company
(Pabst Claim) for $27,869.50 which represents one half of the Pabst
Claim.  At January 30, 2009 the total amount held in escrow was
$55,875.50 including accrued interest of $136.50.  On January 30,
2009, the escrow agent issued the Company a check for $22,006 which represents
the balance remaining in escrow after payment of the Pabst Claim settlement and
$6,000 in fees owed to the escrow agent.
 
 6.      INCOME
TAXES
 
 At
December 31, 2008 the Company had a net operating loss carryover of $1,745,000
available as offsets against future taxable income, if any, which expire at
various dates through 2028.  The Company has a deferred tax asset of
$698,000 arising from net operating loss deductions and an alternative minimum
tax credit and has recorded a valuation allowance for the full amount of such
deferred tax asset.
 
 F-9
 The
following is a reconciliation between the expected income tax expense (benefit),
assuming a statutory Federal tax rate of 35%, and the actual income tax expense
(benefit):
 
 Year
      Ended December 31,2008
                      
                      
                      2007Expected
      income tax (benefit)
                      
                      $
                      (205,000
                      )
                      
                      $
                      (166,000
                      )State
      tax expense (benefit), net of Federal effect
                      
                      
                      (29,000
                      )
                      
                      
                      (24,000
                      )Utilization
      of net operating loss carryforward
                      
                      
                      -
                      
                      
                      
                      -Increase
      in valuation allowance
                      
                      
                      234,000
                      
                      
                      
                      190,000$
                      -
                      
                      
                      $
                      -
 
 The
following is a schedule of the Company’s net deferred tax assets as
of:
 
 December
      31,2008
                  
                  
                  2007Net
      operating loss carryforward
                  
                  $
                  698,000
                  
                  
                  $
                  463,000Alternative
      minimum tax credit
                  
                  
                  25,000
                  
                  
                  
                  25,000Valuation
      allowance
                  
                  
                  (723,000
                  )
                  
                  
                  (488,000
                  )Net
      deferred tax asset
                  
                  $
                  -
                  
                  
                  $
                  -
  7.
              STOCKHOLDERS’
      DEFICIT, STOCK OPTIONS AND WARRANTS
 
 During
the year ended December 31, 2008 and in the first quarter of 2009, an unrelated
third party advanced the Company $25,000 and $14,000, respectively in order for
the Company to pay professional expenses.  The Company does not have
to repay the unrelated third party for monies received and therefore credited
additional paid-capital for receiving said funds.
 
 Stock
Options
 
 The
Company’s outstanding stock options were issued in 2003 pursuant to the
Company’s 2003 Incentive Stock Option Plan (2003 Plan) and in 1999 and 2000
pursuant to the Company’s 1996 Incentive Stock Option Plan (1996
Plan).
 
 Under the
2003 Plan, the Company issued 1,500,000 options exercisable at $.23 per share
which expire in December 2013.
 
 F-10
 Under the
1996 Plan, the Company issued 175,000 options in December 1999 exercisable at
$3.55 per share which expire in 2009 and another 175,000 options in December
2000 exercisable at $.05 per share which expire in 2010.
 
 A summary
of the Company’s stock option activity and related information for the years
ended December 31, 2008, 2007 and 2006 is as follows (in thousands, except per
share amounts):
 
 Shares
                  
                  
                  Weighted
      Average Exercise PriceOutstanding
      at January 1, 2006
                  
                  
                  1,850
                  
                  
                  
                  $0.53Granted
                  
                  
                  -
                  
                  
                  
                  -Exercised
                  
                  
                  -
                  
                  
                  
                  -Cancelled
                  
                  
                  -
                  
                  
                  
                  -Outstanding
      as December 31, 2008
                  
                  
                  1,850
                  
                  
                  
                  $0.53
  A summary
of options outstanding and exercisable at December 31, 2008 is as follows (in
thousands, except per share amounts):
  Options
      Outstanding
                      
                      
                      Options
      ExercisableRange
      of
                          Exercise
      Prices
                      
                      Options
                      
                      
                      Weighted
      Average Remaining Life (in years)
                      
                      
                      Weighted
      Average Exercise Price
                      
                      
                      Range
      of
                          Exercise
      Prices
                      
                      
                      OptionsDecember
      31, 2008$0.23  -  $3.50
                      
                      
                      1,850
                      
                      
                      
                      5
                      
                      
                      
                      $0.53
                      
                      
                      
                      $0.05
      - $3.50
                      
                      
                      
                      1,850
 
 Warrants
 
 In
October 2003, the Company issued 1,000,000 warrants to Casimir Capital L.P. in
accordance with the terms of a consulting agreement.  The warrants
expire in October 2013.
 
 A summary
of the Company’s stock warrant activity and related information for the years
ended December 31, 2008, 2007 and 2006 is as follows (in thousands, except per
share amounts):
 
 F-11
 Warrants
                
                
                Weighted
      Average Exercise PriceOutstanding
      at December 31, 2005
                
                
                1,000
                
                
                
                $1.00Granted
                
                
                -
                
                
                
                -Exercised
                
                
                -
                
                
                
                -Cancelled
                
                
                -
                
                
                
                -Outstanding
      as December 31, 2008
                
                
                1,000
                
                
                
                $1.00
 
  F-12