<SUBMISSION>
<ACCESSION-NUMBER>0001015769-01-500106
<TYPE>8-K
<PUBLIC-DOCUMENT-COUNT>5
<PERIOD>20010716
<ITEMS>1
<ITEMS>2
<ITEMS>5
<ITEMS>7
<ITEMS>9
<FILING-DATE>20010716
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>CAPITAL BEVERAGE CORP
<CIK>0001020186
<ASSIGNED-SIC>5180
<IRS-NUMBER>133878747
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>8-K
<ACT>34
<FILE-NUMBER>001-13181
<FILM-NUMBER>1681759
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>1111 EAST TREMONT AVENUE
<CITY>BRONX
<STATE>NY
<ZIP>10460
<PHONE>7184092337
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>1111 EAST TREMONT AVENUE
<STREET2>1111 EAST TREMONT AVENUE
<CITY>BRONX
<STATE>NY
<ZIP>10460
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>cap8k.txt
<DESCRIPTION>CAPITAL BEVERAGE CORPORATION
<TEXT>

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


                                    FORM 8-K


                                 CURRENT REPORT

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


         Date of Report (Date of earliest event reported) June 29, 2001



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


                           Delaware 0-13181 13-3878747
                    (State or other (Commission (IRS Employer
                jurisdiction of File Number) Identification No.)
                           formation)


               700 Columbia Street, Erie Basin, Brooklyn, NY 11231
               (Address of principal executive offices) (Zip Code)



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


                1111 East Tremont Avenue, Bronx, New York 10460
          (Former name or former address, if changes since last report)



<PAGE>

Item 1.  Changes in Control of Registrant.

     As was previously reported on Form 8-K, dated May 11, 2001, on May 4, 2001,
Capital  Beverage  Corporation,  a  Delaware  corporation  (the  "Company")  and
Prospect Beverages,  Inc., a New York corporation  ("Prospect")  entered into an
Asset Purchase Agreement (the "Purchase  Agreement"),  to acquire certain assets
and liabilities of Prospect (the "Asset Purchase").

     On  June  29,  2001  (the  "Effective  Date"),  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. In addition, an officer of
Prospect joined the Board of Directors of the Company.

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

     As a  condition  to the  closing of the  Purchase  Agreement,  the  parties
thereto were required to enter into a voting agreement. See Item 5 below.

Item 2.           Acquisition or Disposition of Assets.

         See Item 1. above for a description of the Asset Purchase.

     Prospect, a New York corporation,  is a Brooklyn based Pabst Distributor of
Colt-45 Malt Liquor and other beverages.


Item 5.  Other Events.

     As of June 29,  2001,  Carmine  Stella  and  Anthony  Stella  (collectively
referred to herein as the "Capital  Stockholders"),  Monty  Matrisciani,  Daniel
Matrisciani  and  Alex  Matrisciani  (collectively  referred  to  herein  as the
"Prospect  Stockholders"),  the Company and  Prospect  entered  into a five year
Voting Agreement (the "Voting Agreement").

     Commencing  upon the first  annual  meeting of the  Company's  stockholders
after June 29, 2001,  which will be held not later than  September  30, 2001 and
during the term of the Voting  Agreement,  the  parties  agreed that the Company
shall be governed by a Board of Directors (the "Board") of eight (8) members (or
six (6) if the parties agree).  Pursuant to the Voting Agreement,  the directors
shall serve for periods of one year (the first period  commencing on the date of
the annual meeting of stockholders or sooner if elected prior thereto) and until
their successors are elected at the next annual meeting of the stockholders,  at
any  special  meeting,  or by  majority  written  consent,  as the  case may be.
Pursuant to the Voting Agreement,  the Board shall nominate and recommend to the
stockholders  of the Company  eight (8) nominees (or six (6) as the case may be)
for  election  to the  Board,  50% of  whom  shall  be  chosen  by the  Prospect
Stockholders in their sole and absolute discretion ("Prospect Nominees") and 50%
of whom shall be chosen by the Capital  Stockholders  in their sole and absolute
discretion (Capital Nominees").  Notwithstanding the foregoing,  the Board shall
not nominate a person for  election  whose  employment  has been  terminated  by
Capital for cause.  The Voting Agreement also provides that if the securities of
the Company are no longer listed on The Nasdaq Smallcap Market  ("Nasdaq"),  the
Board  shall take  immediate  action to appoint  the new board prior to the next
annual  meeting of  shareholders.  In addition,  the Prospect  Stockholders  may
request the Board,  prior to the next annual  meeting,  to seek  permission from
Nasdaq to elect the new board prior to the next annual meeting of  shareholders,
without the need for such meeting.  As of June 18, 2001,  the  securities of the
Company are no longer listed on Nasdaq.

     Each Prospect  Stockholder and each Capital  Stockholder agreed that during
the term of the Voting Agreement to vote, or cause to be voted, their respective
shares and any other  shares  acquired  after the date hereof  (less such shares
sold pursuant to Rule 144 or in other open market  transactions) (the "Shares"),
in person or by proxy, in favor of the Prospect Nominees and Capital Nominees at
every meeting of the  stockholders of the Company at which directors are elected
to  the  Board  and  at  every  adjournment  thereof.  Notwithstanding  anything
contained  therein  to the  contrary,  each  Prospect  Stockholder  and  Capital
Stockholder  may sell any of their  Shares  under Rule 144,  or  pursuant  to an
effective registration statement, at which time the Shares sold shall be free of
any restrictions or obligations  imposed by the Voting Agreement.  In connection
with any such sale,  the Company shall  provide,  or cause to be provided,  such
instructions  or opinions of counsel as are necessary to remove all legends from
such Shares.

<PAGE>

Item 7 . Financial Statements and Exhibits.

(a)      Financial Statements of Business Acquired

               The audited  balance sheet of Prospect as of August 31, 2000, and
          the related statement of operations,  changes in stockholders'  equity
          and cash flows for the year then ended,  is attached hereto as Exhibit
          99.1.

               The audited  balance sheet of Prospect as of August 31, 1999, and
          the related statement of operations,  changes in stockholders'  equity
          and cash flows for the year then ended,  is attached hereto as Exhibit
          99.2.

(b)      Pro Forma Information

               The unaudited pro forma financial information of Capital Beverage
          relating to the  Prospect  acquisition  is attached  hereto as Exhibit
          99.3.

(c)      Exhibits

               Press  Release  dated July 5, 2001 is attached  hereto as Exhibit
          99.4.

Item 9.       Regulation FD Disclosure.

               Attached  hereto is a copy of the  Company's  press release dated
          July 5, 2001.



<PAGE>



                                                     SIGNATURES


                  Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly authorized and caused the undersigned to sign this
Report on the Registrant's behalf.


                          CAPITAL BEVERAGE CORPORATION



                          By: /s/ Carmine Stella
                              --------------------
                              Name: Carmine Stella
                              Title:   President and Chief Executive Officer

Dated:  July 13, 2001

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>2
<FILENAME>prospect83100.txt
<DESCRIPTION>PROSPECT BEVERAGES - AUGUST 31, 2000
<TEXT>

Exhibit No. 99.1

                            PROSPECT BEVERAGES, INC.

                               TABLE OF CONTENTS


                                                                        PAGE
                                                                       NUMBER

INDEPENDENT AUDITORS' REPORT                                              1

FINANCIAL STATEMENTS FOR THE
    YEAR ENDED AUGUST 31, 2000:

    Balance Sheet                                                         2

    Statement of Operations                                               3

    Statement of Changes in Stockholders' Equity (Deficiency)             4

    Statement of Cash Flows                                               5

    Notes to Financial Statements                                        6-9

AUDITORS' REPORT ON SUPPLEMENTARY
    INFORMATION FOR THE YEAR ENDED
    AUGUST 31, 2000:                                                     10

    Schedule of Cost of Goods Sold                                       11

    Schedule of Selling and Delivery, and General and
       Administrative Expenses                                           11






<PAGE>



INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Prospect Beverages, Inc.
700 Columbia Street
Brooklyn, NY 11231

Gentlemen:

We have audited the accompanying balance sheet of Prospect Beverages, Inc. as of
August  31,  2000,  and  the  related  statements  of  operations,   changes  in
stockholders'  equity (deficiency) and cash flows for the year then ended. These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

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

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going  concern.  However,  the  following  conditions
raise  substantial  doubt about its ability to continue as a going  concern.  As
discussed in Note 5 to the financial statements, the Company's line of credit to
a bank are subject to compliance  with  provisions of a loan  agreement.  During
2000 and  subsequent to August 31, 2000, the bank claims that the Company was in
violation of certain provisions of the loan agreement. In January 2001, the bank
demanded payment of the outstanding principal of approximately  $3,700,000,  and
accrued  interest  to be  repaid  on March  31,  2001.  Management  has met with
representatives of the bank in an attempt to restructure the agreement; however,
at the present time, future financing for the Company is not determinable. Since
the bank claims that all of the Company's  assets are pledged as collateral  for
the loans,  foreclosure by the bank would seriously impair the Company's ability
to realize its investment in assets through future successful operations.

As reflected in the accompanying  financial  statements,  the Company incurred a
net loss of $871,802 for the year ended August 31, 2000.  As discussed in Note 1
to the financial  statements,  the Company and most of its customers are engaged
in the beer and beverage  industries.  The sales have been adversely affected by
loss of customers  through  attrition and by  transhipping of the Company's main
product, Colt 45 to other competitors.  Realization of the carrying value of the
assets  included in the balance  sheet  referred  to above is  dependent  on the
Company's successful future operations.

Because of the  significance  of the  uncertainties  described in the  preceding
paragraphs,  we are unable to express,  and we do not express, an opinion on the
financial statements referred to in the first paragraph.


/s/ Chaifetz & Schrieber, P.C.
March 13, 2001



<PAGE>



PROSPECT BEVERAGES, INC.

BALANCE SHEET
AUGUST 31, 2000

ASSETS

CURRENT ASSETS:

Accounts receivable                                                $    317,517
Inventory                                                             2,229,908
Prepaid expenses                                                         22,510
                                                                     -----------
      Total current assets                                            2,569,935
                                                                     -----------

Fixed assets                                                             80,672
Distribution rights - net                                             5,112,225
Security deposits                                                       130,780
                                                                     -----------

TOTAL ASSETS                                                       $  7,893,612
                                                                     ===========


LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable                                                   $  2,368,277
Note payable - bank                                                   3,767,244
Accrued expenses                                                         17,240
Customer deposits payable                                               119,425
                                                                     -----------
      Total current liabilities                                       6,272,186

Loan payable - officers, subordinated                                   940,650
                                                                     -----------
      Total liabilities                                               7,212,836
                                                                     -----------

STOCKHOLDERS' EQUITY:

Common stock - no par value, 1,000 shares authorized;
      40 shares issued and outstanding
Additional paid-in capital                                            2,221,674
Deficit                                                              (1,540,898)
                                                                     -----------
      Total stockholders' equity                                        680,776
                                                                     -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $  7,893,612
                                                                     ===========



   The accompanying notes are an integral part of these financial statements.
                                      - 2 -


<PAGE>





PROSPECT BEVERAGES, INC.

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 2000


SALES - NET                                                        $ 19,260,717

COST OF GOODS SOLD                                                   15,744,043
                                                                    ------------

GROSS PROFIT                                                          3,516,674
                                                                    ------------
OPERATING EXPENSES:

Selling and delivery                                                  1,607,464
General and administrative                                            2,341,900
                                                                    ------------
     Total operating expenses                                         3,949,364
                                                                    ------------
LOSS FROM OPERATIONS                                                   (432,690)
                                                                    ------------
OTHER INCOME (EXPENSE):
Interest income                                                             746
Interest expense                                                       (438,858)
                                                                    ------------
      Total other income (expense)                                     (438,112)
                                                                    ------------
LOSS BEFORE INCOME TAXES                                               (870,802)

INCOME TAXES                                                              1,000
                                                                    ------------
NET LOSS                                                           $   (871,802)
                                                                    ============





   The accompanying notes are an integral part of these financial statements.
                                      - 3 -


<PAGE>




PROSPECT BEVERAGES, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEAR ENDED AUGUST 31, 2000


                                  Additional                       Total
                                   Paid-in                      Stockholders'
                                   Capital       Deficit     Equity (Deficiency)
                              --------------   ----------   --------------------

Balance, September 1, 1999   $      4,827     $ (669,096)  $      (664,269)

Capital contributions from
      stockholders              2,216,847                        2,216,847
                              --------------   ----------   --------------------

Balance, September 1, 1999
    (Restated)                  2,221,674       (669,096)        1,552,578

Net loss                                        (871,802)         (871,802)
                              --------------   ----------   --------------------

Balance, August 31, 2000     $   2,221,674    $(1,540,898) $       680,776
                              ===============  ==========   ====================















   The accompanying notes are an integral part of these financial statements.
                                      - 4 -


<PAGE>



PROSPECT BEVERAGES, INC.

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 2000

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                            $  (871,802)
                                                                     -----------
Adjustments to reconcile net loss
 to net cash provided by operating
 activities:
  Depreciation and amortization                                         222,559
 Changes in operating assets and liabilities:
  Decrease in accounts receivable                                           939
  Increase in inventory                                                (383,336)
  Decrease in prepaid expenses                                           59,328
  Increase in accounts payable and accrued expenses                   1,093,712
  Increase in customer deposits payable                                  45,533
  Decrease in due to customers                                           (6,135)
                                                                     -----------
        Total adjustments                                             1,032,600
                                                                     -----------
Net cash provided by operating activities                               160,798
                                                                     -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to bank                                                     (220,769)
                                                                     -----------

NET DECREASE IN CASH                                                    (59,971)

CASH - SEPTEMBER 1, 1999                                                 59,971
                                                                     -----------
CASH - AUGUST 31, 2000                                              $     -
                                                                     ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
      Interest                                                      $   438,858
                                                                     ===========
      Income taxes                                                  $     3,199
                                                                     ===========







   The accompanying notes are an integral part of these financial statements.
                                      - 5 -


<PAGE>



PROSPECT BEVERAGES, INC.

NOTES TO FINANCIAL STATEMENTS
AUGUST 31,
2000


1.    ORGANIZATION AND BUSINESS

      Prospect  Beverages,  Inc. (the "Company") was formed in June 1988, in the
      State of New York, to operate as a wholesale distributor of beer and other
      beverages in New York City.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Revenue Recognition  - Revenues  are  recognized  generally at the time of
      delivery of merchandise.

      Use of Estimates - The presentation 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 revenues and
      expenses during the reporting  period.  Actual  results  could differ from
      those estimates.

      Inventory - Inventory, is valued  at the lower of cost,  determined by the
      first-in, first-out method, or market.

      Accounts Receivable - At August 31, 2000, the Company has recorded an
      allowance for uncollectible accounts receivable in the amount of $3,000.

      Property and Equipment - Property and equipment are stated at cost and are
      being depreciated over the related assets estimated useful lives,
      generally 5 to 10 years, using the straight-line and accelerated methods
      for both financial reporting and income tax purposes. Leasehold
      improvements, in accordance with the Internal Revenue Code, are amortized
      on a straight-line basis over 39 years. The difference between
      depreciation and amortization calculated under such methods and methods
      acceptable under generally accepted accounting principles is not material
      to these financial statements. Related depreciation and amortization
      expense for the year ended August 31, 2000 was $77,818.

      Distribution Rights - The Company's licenses to distribute certain
      beverage products in New York City, are recorded at cost. Such costs are
      amortized on a straight-line basis over 40 years. Amortization for the
      year ended August 31, 2000 was $144,741 and accumulated amortization at
      August 31, 2000 was $1,353,527, which includes accumulated amortization of
      $616,153 from a prior period adjustment (see Note 7).



                                      - 6 -


<PAGE>





PROSPECT BEVERAGES, INC.

NOTES TO FINANCIAL STATEMENTS
AUGUST 31,
2000


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      Income Taxes - The Company has elected S Corporation status for federal
      and New York state income tax purposes and, accordingly, profits and
      losses of the Company are reportable on the tax returns of its sole
      shareholder. Earnings subsequent to the election may be withdrawn by the
      stockholder without any further federal or New York state tax consequences
      to him. The Company has a New York City net operating loss carry forward
      for tax purposes from 1999 and prior years of $653,713. No tax benefit has
      been calculated due to the alternative minimum tax assessed on officers'
      salaries by New York City.

      Advertising - The Company expenses advertising costs as incurred.
      Advertising expense was $22,779 for the year ended August 31, 2000.

3.    REALIZATION OF ASSETS

      The accompanying financial statements have been prepared in conformity
      with generally accepted accounting principles, which contemplates the
      continuation of the Company as a going concern. The Company has sustained
      substantial operating losses in recent years and has used substantial
      amounts of working capital to acquire distribution rights. Further, at
      August 31, 2000, current liabilities exceed current assets by $3,702,251.

      The cancellation of the line of credit by LaSalle National Bank
      ("LaSalle") (see Note 5) plus the inability by the Company to obtain
      another lender eliminates the ability of the Company to operate in a
      competitive environment.

      In view of these matters, realization of a major portion of the assets in
      the accompanying balance sheet is dependent upon continued operations of
      the Company, which in turn is dependent upon the Company's ability to meet
      its financing requirements, and the success of its future operations.

      Although, that in the event the Company sells its distribution rights,
      which fair value is estimated to exceed the working capital deficiency,
      the inability to obtain financing restricts the Company to operate as a
      going concern.






                                      - 7 -


<PAGE>





PROSPECT BEVERAGES, INC.

NOTES TO FINANCIAL STATEMENTS
AUGUST 31,
2000

4.    FIXED ASSETS

      Fixed assets are made up of the following:

      Trucks and autos                                      $   432,789
      Machinery and equipment                                   257,772
      Leasehold improvements                                     43,632
                                                              ---------
                                                                734,193

      Less: accumulated depreciation and amortization           653,521
                                                              ---------
                                                            $    80,672
                                                              =========
 5.   NOTE PAYABLE - BANK

      The Company has a line of credit at LaSalle, which it entered into under a
      loan and security agreement (the "Credit Agreement") dated August 31,
      1998. The Company has been unable to meet its minimum Tangible Net Worth
      requirement, as defined in the Credit Agreement. Commencing January 1,
      2000, the credit line is renewable monthly and the total credit line limit
      is to automatically reduce by $25,000 per month. At August 31, 2000, the
      total credit line amounted to $4,075,000. The credit line has a sub-limit
      based on certain percentage limitations of eligible accounts receivable
      and includes a $1,856,250 special accommodation at August 31, 2000, which
      is being reduced semimonthly by $18,750.

      The line of credit is secured by substantially all of the Company's
      assets. The annual interest rate charged on amounts financed under this
      line of credit is 2% above LaSalle's annual prime lending rate. The
      agreement will automatically renew from month to month. The Company's
      officers have subordinated their loans to the Company totaling $940,650 to
      the borrowing from the Bank (see Note 5). At August 31, 2000, the Company
      owed LaSalle $3,767,244.

      In January 2001, LaSalle sent the Company a final default letter demanding
      total repayment of the outstanding note due on March 31, 2001.

6.    NOTES PAYABLE - OFFICERS

      During February and August 1999, the Company's officers extended loans to
      the Company, as evidenced by promissory notes payable to these officers,
      totaling $940,650, which bears interest at an annual rate of 8%. Interest
      is payable January 31, 2001. The Company's officers have agreed to forfeit
      interest of $75,252 that has been accrued as of August 31, 2000, and
      accordingly has not been recorded as an expense.


                                      - 8 -


<PAGE>



PROSPECT BEVERAGES, INC.

NOTES TO FINANCIAL STATEMENTS
AUGUST 31,
2000



 7.   PRIOR PERIOD ADJUSTMENT

      Additional paid-in capital has been increased by $2,216,847 at September
      1, 1999, to correct for the failure of the Company to record the value of
      the distribution rights given to the Company by its shareholders from 1998
      to 1994, totaling $2,833,000, net of accumulated amortization of $616,153
      for such period. This value is based upon the respective shareholder costs
      to acquire such rights.

 8.   LEASE COMMITMENTS

      The Company leases its office and warehouse facilities under a
      noncancellable operating lease arrangement which requires minimum monthly
      payments of $23,750 through August 1, 2012. Rent expense for the year
      ended August 31, 2000, was $382,604.

      The Company leases its trucks, autos, and office equipment under various
      cancellable operating term lease agreements, which aggregate approximately
      $30,000 per month.

 9.   CAPITAL STRUCTURE

      The Company has 40 shares of no par value common stock issued and
      outstanding. Common shares are voting and dividends are paid at the
      discretion of the Board of Directors.






                                      - 9 -


<PAGE>





                            SUPPLEMENTARY INFORMATION






<PAGE>














AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION


To the Board of Directors
Prospect Beverages, Inc.
700 Columbia Street
Brooklyn, NY 11231

Gentlemen:

Our audit was  conducted  for the  purpose  of  forming  an opinion on the basic
financial statements taken as a whole. The supplementary  information,  schedule
of selling and delivery,  and general and  administrative  expenses for the year
ended August 31, 2000, contained on pages 11 and 12 is presented for purposes of
additional  analysis and is not required  for a fair  presentation  of financial
position,  results of  operations,  and cash flows.  All  information  contained
therein is the  representation of the Company's  management.  In accordance with
the Company's request, our audit did not encompass the detailed  classifications
of such supplementary information,  accordingly, we do not express an opinion on
such information.




/s/ Chaifetz & Schreiber
March 13, 2001






                                     - 10 -


<PAGE>




PROSPECT BEVERAGES, INC.

SCHEDULE OF COST OF GOODS SOLD
FOR THE YEAR ENDED AUGUST 31, 2000


COST OF GOODS SOLD:
Inventory - beginning                                              $  1,846,572
Purchases                                                            13,429,272
Excise taxes                                                          1,116,199
Warehouse and driver salaries                                         1,008,595
Other direct costs                                                      143,760
Employee welfare                                                        209,971
Payroll taxes                                                           103,947
Freight-in                                                              115,635
                                                                    ------------
Total cost of goods available for sale                               17,973,951
Less:   inventory - ending                                            2,229,908
                                                                    ------------
COST OF GOODS SOLD                                                 $ 15,744,043
                                                                    ============









               See Auditors' Report on Supplementary Information.
                                      - 11-


<PAGE>





PROSPECT BEVERAGES, INC.

SCHEDULE OF SELLING AND DELIVERY, AND GENERAL AND
      ADMINISTRATIVE EXPENSES
FOR THE YEAR ENDED AUGUST 31, 2000

SELLING AND DELIVERY:
Sales salaries                                                    $     549,422
Truck rentals and expenses                                              425,648
Travel and auto                                                         346,168
Salesmen commissions                                                    193,642
Payroll taxes                                                            56,493
Advertising                                                              22,779
Entertainment                                                            11,093
Conventions                                                               2,219
                                                                    ------------
      Total                                                       $   1,607,464
                                                                    ============

GENERAL AND ADMINISTRATIVE:
Rent                                                              $     382,604
Office salaries                                                         379,486
Officers' salaries                                                      358,800
Insurance                                                               243,213
Depreciation and amortization                                           222,559
Utilities                                                               189,988
Telephone                                                                98,932
Professional fees                                                        71,955
Payroll taxes                                                            65,532
Computer                                                                 51,949
Office and postage                                                       47,884
Employee welfare                                                         44,403
Employee benefits                                                        38,378
Repairs and maintenance                                                  37,114
Consulting                                                               31,722
Bank charges                                                             23,591
Security                                                                 12,199
Dues and subscriptions                                                    9,630
Licenses and permits                                                      5,985
Penalties                                                                 5,882
Equipment rentals                                                         4,903
Miscellaneous taxes                                                       4,889
Miscellaneous                                                             3,852
Messenger                                                                 2,631
Donations                                                                 2,250
Gifts                                                                     1,569
                                                                    ------------
    Total                                                         $   2,341,900
                                                                    ============

               See Auditors' Report on Supplementary Information.
                                      - 12-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>3
<FILENAME>prospect83199.txt
<DESCRIPTION>PROSPECT BEVERAGES - AUGUST 31, 1999
<TEXT>

Exhibit No. 99.2

                            PROSPECT BEVERAGES, INC.

                               TABLE OF CONTENTS


                                                                         PAGE
                                                                        NUMBER

INDEPENDENT AUDITORS' REPORT                                               1

FINANCIAL STATEMENTS FOR THE
    YEAR ENDED AUGUST 31, 1999:

    Balance Sheet                                                          2

    Statement of Operations                                                3

    Statement of Cash Flows                                                4

    Statement of Changes in Stockholders' Deficiency                       5

    Notes to Financial Statements                                         6-9

AUDITORS' REPORT ON SUPPLEMENTARY
    INFORMATION FOR THE YEAR ENDED
    AUGUST 31, 1999:                                                      10

    Schedule of Cost of Goods Sold                                        11

    Schedule of Selling and Delivery, and General and
       Administrative Expenses                                            12




<PAGE>


INDEPENDENT AUDITORS" REPORT

To the Board of Directors
Prospect Beverages, Inc.
700 Columbia Street
Brooklyn, NY 11231

Gentlemen:

We have audited the accompanying balance sheet of Prospect Beverages, Inc. as of
August 31,  1999,  and the  related  statements  of  operations,  cash flows and
changes in  stockholders'  deficiency for the year then ended.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

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

In our  opinion,  such  financial  statements  present  fairly,  in all material
respects,  the financial position of Prospect  Beverages,  Inc. as of August 31,
1999 and the results of its operations,  cash flows and changes in stockholders'
deficiency  for the  year  then  ended in  conformity  with  generally  accepted
accounting principles.



/s/ Chaifetz & Schrieber, P.C.
December 20, 1999 (Except for Notes 5 and 10, which are as of January 20, 2000).



<PAGE>


PROSPECT BEVERAGES, INC.

BALANCE SHEET
AUGUST 31,
1999

ASSETS

CURRENT ASSETS:
Cash                                                   $      59,971
Accounts receivable                                          318,456
Inventory                                                  1,846,572
Prepaid expenses                                              81,838
                                                        -------------
      Total current assets                                 2,306,837
                                                        -------------

Fixed assets                                                 158,490
Distribution rights - net                                  3,040,119
Security deposits                                            130,780
                                                        -------------

TOTAL ASSETS                                           $   5,636,226
                                                        =============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY

CURRENT LIABILITIES:
Accounts payable                                       $   1,075,861
Note payable - bank                                        3,988,013
Accrued expenses                                             215,944
Customer deposits payable                                     73,892
Due to customers                                               6,135
                                                        -------------
      Total current liabilities                            5,359,845

Notes payable - officers, subordinated                       940,650
                                                        -------------
      Total liabilities                                    6,300,495
                                                        -------------

STOCKHOLDERS' DEFICIENCY:
Common stock - no par value, 1,000 shares authorized;
      40 shares issued and outstanding                         4,827
Deficit                                                     (669,096)
                                                        -------------
            Total stockholders' deficiency                  (664,269)
                                                        -------------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY         $   5,636,226
                                                        =============


   The accompanying notes are an integral part of these financial statements.
                                      - 2 -


<PAGE>




PROSPECT BEVERAGES, INC.

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1999

SALES - NET                                                $   22,448,422

COST OF GOODS SOLD                                             18,125,048
                                                            --------------

GROSS PROFIT                                                    4,323,374
                                                            --------------

OPERATING EXPENSES:
Selling and delivery                                            2,103,019
General and administrative                                      2,394,756
                                                            --------------
     Total operating expenses                                   4,497,775
                                                            --------------

LOSS FROM OPERATIONS                                             (174,401)
                                                            --------------

OTHER INCOME (EXPENSE):
Interest income                                                    12,881
Miscellaneous income                                               12,200
Interest expense                                                 (432,451)
                                                            --------------
      Total other income (expense)                               (407,370)
                                                            --------------

LOSS BEFORE INCOME TAXES                                         (581,771)

INCOME TAXES                                                        1,000
                                                            --------------
NET LOSS                                                   $     (582,771)
                                                            ==============





   The accompanying notes are an integral part of these financial statements.
                                      - 3 -


<PAGE>



PROSPECT BEVERAGES, INC.

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 1999

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss                                                   $    (582,771)
                                                            -------------
Adjustments to reconcile net loss to
 net cash used in operating activities:
      Depreciation and amortization                              226,738
Changes in operating assets and liabilities:
      Decrease in accounts receivable                            200,928
      Increase in inventory                                      (52,776)
      Decrease in due from suppliers                             267,959
      Decrease in prepaid expenses                                17,347
      Decrease in security deposits                               20,778
      Decrease in accounts payable
       and accrued expenses                                   (1,235,535)
      Increase in customer deposits payable                       22,786
      Increase in due to customers                                 6,135
                                                            -------------
        Total adjustments                                       (525,640)
                                                            -------------
Net cash used in operating activities                         (1,108,411)
                                                            -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets                                        (311,620)
                                                            -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from bank                                             160,099
Note proceeds from officers                                      940,650
                                                            -------------
Net cash provided by financing activities                      1,100,749
                                                            -------------

NET DECREASE IN CASH                                            (319,282)

CASH - SEPTEMBER 1, 1998                                         379,253
                                                            -------------

CASH - AUGUST 31, 1999                                     $      59,971
                                                            =============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
   Interest                                                $     421,526
                                                            =============



   The accompanying notes are an integral part of these financial statements.
                                      - 4 -


<PAGE>




PROSPECT BEVERAGES, INC.

STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE YEAR ENDED AUGUST 31, 1999

<TABLE>
<CAPTION>
                                                                                         Total
                                             Additional                               Stockholders'
                                             Paid-in                                    Equity
                                             Capital              Deficit             (Deficiency)
                                          -------------        -----------            ------------

<S>                                             <C>                   <C>                  <C>
Balance - beginning of year as
   previously reported                   $    4,827           $   2,234,297          $  2,239,124

Prior period adjustment - (see Note 7)         -                 (2,320,622)           (2,320,622)
                                          -------------        -------------          -------------

Balance - beginning of year as restated       4,827                 (86,325)              (81,498)

Net loss                                       -                   (582,771)             (582,771)
                                          -------------        -------------          -------------

Balance - ending                         $    4,827           $    (669,096)         $   (664,269)
                                          =============        ==============         =============


</TABLE>




   The accompanying notes are an integral part of these financial statements.
                                      - 5 -


<PAGE>



PROSPECT BEVERAGES, INC.

NOTES TO FINANCIAL STATEMENTS
AUGUST 31,
1999



1.    ORGANIZATION AND BUSINESS

      Prospect   Beverages,  Inc.  (the  "Company")  was  formed in  June  1988,
      in the State of New York,  to operate  as a  wholesale distributor of beer
      and other beverages in New York City.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Revenue Recognition - Revenues are recognized  generally  at  the  time of
      delivery of merchandise.

      Use of Estimates - The presentation 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 revenues and
      expenses during the reporting period. Actual results could differ from
      those estimates.

      Inventory - Inventory, is valued at  the  lower of cost, determined by the
      first-in, first-out method, or market.

      Property and Equipment - Property and equipment are stated at cost and are
      being   depreciated   over the related  assets   estimated  useful  lives,
      generally  5 to 10 years,   using  the   straight-line   and   accelerated
      methods  for   both   financial    reporting  and   income  tax  purposes.
      Leasehold improvements,  in accordance  with  the  Internal  Revenue Code,
      are amortized on a straight-line  basis  over  39 years.   The  difference
      between   depreciation  and  amortization  calculated  under  such methods
      and  methods  acceptable  under  generally accepted accounting  principles
      is not material to  these  financial   statements.   Related  depreciation
      and   amortization   expense  for  the  year  ended  August  31,  1999 was
      $130,907.

      Accounts Receivable - At August 31, 1999, the Company has recorded an
      allowance for uncollectible accounts receivable in the amount of $3,000.

      Income Taxes - The Company has elected S Corporation status for federal
      and New York state income tax purposes and, accordingly, profits and
      losses of the Company are reportable on the tax returns of its sole
      shareholder. Earnings subsequent to the election may be withdrawn by the
      stockholder without any further federal or New York state tax consequences
      to him. The Company has a New York City net operating loss carry forward
      from 1996 of $280,452. No tax benefit has been calculated due to the
      alternative minimum tax assessed on officers' salaries by New York City.

                                      - 6 -


<PAGE>





PROSPECT BEVERAGES, INC.

NOTES TO FINANCIAL STATEMENTS
AUGUST 31,
1999



2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      Advertising - The Company expenses advertising costs as incurred.
      Advertising expense was $23,442 for the year ended August 31, 1999.

      Distribution Rights - The Company's licenses to distribute certain
      beverage products in New York City, is recorded at cost. Such costs are
      amortized on a straight-line basis over 40 years. Amortization for the
      year ended August 31, 1999 was $95,831 and accumulated amortization at
      August 31, 1999 was $592,633.

3.    REALIZATION OF ASSETS

      The accompanying financial statements have been prepared in conformity
      with generally accepted accounting principles, which contemplates
      continuation of the Company as a going concern. However, the Company has
      sustained substantial operating losses and has used substantial amounts of
      working capital to acquire distribution rights. Further, at August 31,
      1999, current liabilities exceed current assets by $3,053,008, and total
      liabilities exceed total assets by $664,269. In the event that the Company
      has to sell its distribution rights, whose fair value is estimated to
      exceed the working capital deficiency, management believes that it can
      continue to operate in a competitive environment given its facility and
      expertise.

      In view of these matters, realization of a major portion of the assets in
      the accompanying balance sheet is dependent upon continued operations of
      the Company, which in turn is dependent upon the Company's ability to meet
      its financing requirements, and the success of its future operations.
      Management believes that actions presently being taken to revise the
      Company's operating and financial requirements as well as the potential
      working capital available to it from the sale of its distribution rights,
      if required, provide the opportunity for the Company to continue as a
      going concern.

4.    FIXED ASSETS

      Fixed assets are made up of the following:

      Trucks and autos                                  $    432,789
      Machinery and equipment                                257,772
      Leasehold improvements                                  43,632
                                                          ----------
                                                             734,193
      Less: accumulated depreciation and amortization        575,703
                                                          ----------
                                                        $    158,490
                                                          ==========
                                      - 7 -


<PAGE>



PROSPECT BEVERAGES, INC.

NOTES TO FINANCIAL STATEMENTS
AUGUST 31,
1999



 5.   NOTE PAYABLE - BANK

      The Company has a line of credit at LaSalle National Bank ("LaSalle")
      which it entered into under a loan and security agreement (the "Credit
      Agreement") dated August 31, 1998. As a result of the prior period
      adjustment (see Note 7) the Company has been unable to meet its minimum
      Tangible Net Worth requirement, as defined in the Credit Agreement.
      Consequently, during January 2000 the credit line was reduced to
      $4,275,000 under a letter agreement with LaSalle. The credit line has a
      sub-limit based on certain percentage limitations of eligible accounts
      receivable and includes a $2,325,000 special accommodation at August 31,
      1999 which is being reduced semimonthly by $18,750. Commencing January 31,
      2000, the credit line is renewable monthly and the total credit line limit
      is to automatically reduce by $25,000 per month.

      The line of credit is secured by substantially all of the Company's
      assets. The annual interest rate charged on amounts financed under this
      line of credit is increased from the previous "% to 2% above LaSalle's
      annual prime lending rate, effective December 31, 1999. The agreement will
      automatically renew from month to month. The Company's officers have
      subordinated their loans to the Company totaling $940,650 to the borrowing
      from the Bank (see Note 10). At August 31, 1999, the Company owed LaSalle
      $3,988,013.

 6.   NOTES PAYABLE - OFFICERS

      During February and August 1999, the Company's officers extended loans to
      the Company, as evidenced by promissory notes payable to these officers,
      totaling $946,650, which bears interest at an annual rate of 8%. Interest
      is payable January 31, 2001.

 7.   PRIOR PERIOD ADJUSTMENT

      Retained earnings at September 1, 1998, has been adjusted to correct for
      errors made in the overstatement of inventory, understatement of certain
      liabilities and overstatement of certain other assets at August 31, 1998.
      Had the errors not been made, net income for 1998 would have decreased
      $2,317,622 net of income taxes of $3,000.






                                      - 8 -


<PAGE>






PROSPECT BEVERAGES, INC.

NOTES TO FINANCIAL STATEMENTS
AUGUST 31,
1999



 8.   LEASE COMMITMENTS

      The Company leases its office and warehouse facilities under a
      noncancellable operating lease arrangement which requires minimum monthly
      payments of $23,750 through August 1, 2012. Rent expense for the year
      ended August 31, 1999, was $347,350.

      The Company leases its trucks, autos, and office equipment under various
      cancellable operating term lease agreements, which aggregate approximately
      $30,000 per month.

 9.   CAPITAL STRUCTURE

      The Company has 40 shares of no par value common stock issued and
      outstanding. Common shares are voting and dividends are paid at the
      discretion of the Board of Directors.

10.   SUBSEQUENT EVENT

      On January 20, 2000, loans payable to the officers in the amount of
      $940,650 was subordinated to LaSalle with no expiration date.







                                      - 9 -


<PAGE>





                            SUPPLEMENTARY INFORMATION






<PAGE>




AUDITORS" REPORT ON SUPPLEMENTARY INFORMATION


To the Board of Directors
Prospect Beverages, Inc.
700 Columbia Street
Brooklyn, NY 11231

Gentlemen:

Our audit was  conducted  for the  purpose  of  forming  an opinion on the basic
financial statements taken as a whole. The supplementary  information,  schedule
of selling and delivery,  and general and  administrative  expenses for the year
ended August 31, 1999, contained on pages 11 and 12 is presented for purposes of
additional  analysis and is not required  for a fair  presentation  of financial
position,  results of  operations,  and cash flows.  All  information  contained
therein is the  representation of the Company's  management.  In accordance with
the Company's request, our audit did not encompass the detailed  classifications
of such supplementary information,  accordingly, we do not express an opinion on
such information.




/s/ Chaifetz & Schreiber, P.C.
December 20, 1999



                                     - 10 -



<PAGE>





PROSPECT BEVERAGES, INC.

SCHEDULE OF COST OF GOODS SOLD
FOR THE YEAR ENDED AUGUST 31, 1999

COST OF GOODS SOLD:
Inventory - beginning                                   $    1,793,796
Purchases                                                   15,633,666
Excise taxes                                                 1,596,639
Warehouse salaries                                             518,064
Other direct costs                                             262,609
Payroll taxes                                                   51,980
Freight-in                                                     114,866
                                                          -------------
Total cost of goods available for sale                      19,971,620
Less:   inventory - ending                                   1,846,572
                                                          -------------
COST OF GOODS SOLD                                      $   18,125,048
                                                          =============





               See Auditors' Report on Supplementary Information.
                                      - 11-


<PAGE>



PROSPECT BEVERAGES, INC.

SCHEDULE OF SELLING AND DELIVERY, AND GENERAL AND
      ADMINISTRATIVE EXPENSES
FOR THE YEAR ENDED AUGUST 31, 1999

SELLING AND DELIVERY:
Sales salaries                                          $      758,533
Truck rentals and expenses                                     447,420
Drivers salaries                                               425,393
Travel and auto                                                311,309
Payroll taxes                                                  104,155
Entertainment                                                   32,767
Advertising                                                     23,442
                                                          -------------
      Total                                             $    2,103,019
                                                          =============

GENERAL AND ADMINISTRATIVE:
Officers' salaries                                      $      392,800
Rent                                                           347,350
Office salaries                                                330,088
Insurance                                                      273,922
Depreciation and amortization                                  226,738
Utilities                                                      119,424
Bank charges                                                   116,699
Professional fees                                              112,782
Employee welfare                                                98,111
Telephone                                                       93,485
Computer                                                        67,072
Payroll taxes                                                   63,773
Office and postage                                              44,992
Penalties                                                       38,131
Repairs and maintenance                                         19,833
Consulting                                                      19,650
Miscellaneous                                                   11,102
Equipment rentals                                               10,122
Bad debts                                                        3,000
Donations                                                        2,240
Security                                                         2,207
Licenses and permits                                             1,235
                                                          -------------
    Total                                               $    2,394,756
                                                          =============

               See Auditors' Report on Supplementary Information.
                                      - 12-



<PAGE>




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.3
<SEQUENCE>4
<FILENAME>proformafs.txt
<DESCRIPTION>PRO FORMA FINANCIAL STATEMENTS
<TEXT>

Exhibit No. 99.3

                UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

     The following Unaudited Pro Forma Combined Financial  Statements of Capital
Beverage and  Prospect  give effect to the merger  between  Capital and Prospect
under the purchase  method of accounting  prescribed  by  Accounting  Principles
Board Opinion No. 16,  Business  Combinations.  These pro forma  statements  are
presented for  illustrative  purposes only. The pro forma  adjustments are based
upon  available   information  and  assumptions  that  management  believes  are
reasonable. The Unaudited Pro Forma Combined Financial Statements do not purport
to represent  what the results of  operations  or financial  position of Capital
Beverage  would actually have been if the merger had in fact occurred on January
1, 2001 or January  1, 2000,  nor do they  purport  to  project  the  results of
operations or financial position of Capital Beverage for any future period or as
of any date, respectively. Under the purchase method of accounting, tangible and
identifiable  intangible assets acquired and liabilities assumed are recorded at
their  estimated fair values and useful lives of assets acquired and liabilities
assumed are based on  preliminary  valuation and are subject to final  valuation
adjustments.

     These Unaudited Pro Forma Combined Financial  Statements do not give effect
to any  restructuring  costs or to any potential cost savings or other operating
efficiencies  that could  result from the merger  between  Capital  Beverage and
Prospect.

     The  consolidated  financial  statements  of Capital  Beverage for the year
ended  December  31,  2000,  are derived  from  audited  consolidated  financial
statements and are included in the Form 10-KSB/A as filed by Capital Beverage on
June 4, 2001,  with the Securities  and Exchange  Commission.  The  consolidated
financial  statements  of Capital  Beverage for the three months ended March 31,
2001,  are derived from  unaudited  consolidated  financial  statements  and are
included in the Form 10-QSB as filed by Capital  Beverage on May 15, 2001,  with
the Securities and Exchange Commission.

     You  should  read the  financial  information  in this  section  along with
Capital Beverage's historical consolidated financial statements and accompanying
notes in prior  Securities and Exchange  Commission  filings and in this amended
Current Report on Form 8-K.


<PAGE>

                          Capital Beverage Corporation
                   Unaudited Pro Forma Combined Balance Sheet
                                 March 31, 2001


<TABLE>
<CAPTION>

                                                                                  Pro Forma adjustments
                                                                            -----------------------------------
                                             CAPITAL          PROSPECT            DR                 CR              Pro Forma
                                          --------------    ------------    ----------------   ----------------   ---------------
Assets

<S>                                      <C>              <C>                                                    <C>
Cash                                     $     137,924    $        -                                             $       137,924
Accounts receivable, net                       421,540          171,838                                                  593,378
Inventories                                    529,239        1,456,664                                                1,985,903
Prepaid expenses and other                      17,145            1,033                                                   18,178
                                          --------------    ------------                                          ---------------
   Total Current Assets                      1,105,848        1,629,535                                                2,735,383

Property and equipment                         241,265           57,707                                                  298,972

Intangible assets                              760,000        5,028,946   $         960,731                            6,749,677
Deferred expenses                              225,539             -                                                     225,539
Other assets                                    32,703          130,780                                                  163,483
                                          --------------    ------------                                          ---------------

   Total Assets                          $   2,365,355    $   6,846,968                                          $    10,173,054
                                          ==============    ============                                          ===============

Liabilities and Stockholders' Equity

Accounts payable                         $     339,813    $   2,518,677                                          $     2,858,490
Note payable-bank                                 -           3,726,772                                                3,726,772
Accrued expenses and taxes                     179,092           49,809                                                  228,901
Loan payable - stockholder                        -              70,000                                                   70,000
Customer deposits payable                         -             121,791                                                  121,791
Current portion of long-term debt               82,786             -                                                      82,786
Current portion of
 capital lease obligations                      40,785             -                                                      40,785
Accrued dividends on preferred stock           200,000             -                                                     200,000
                                          --------------    ------------                                          ---------------
   Total Current Liabilities                   842,476        6,487,049                                                7,329,525

Capital lease obligations                      155,292             -                                                     155,292

Long-term debt                                 382,866          940,650                                                1,323,516

Stockholders' equity (deficit):
Common Stock, 2,678,409 actual shares;
      3,178,409 pro forma shares                 2,679             -                           $           500             3,179
Additional paid-in capital                   5,368,273        2,221,674           2,221,674            379,500         5,747,773
Accumulated deficit                         (4,386,231)      (2,802,405)                             2,802,405        (4,386,231)
                                          --------------    ------------                                          ---------------
   Total Stockholders' Equity (deficit)        984,721         (580,731)                                               1,364,721
                                          --------------    ------------                                          ---------------

                                         $   2,365,355    $   6,846,968                                         $     10,173,054
                                          ==============    ============                                          ===============


</TABLE>



              See notes to unaudited pro forma financial statements

<PAGE>

                          Capital Beverage Corporation
                          Unaudited Pro Forma Combined
                            Statements of Operations
                          Year Ended December 31, 2000

<TABLE>
<CAPTION>

                                                                                    Pro Forma adjustments
                                                                              -----------------------------------
                                     CAPITAL                PROSPECT                 DR                CR               Pro Forma
                               ------------------    ---------------------    ----------------   ----------------    ---------------
<S>                          <C>                   <C>                                                             <C>
Net sales                    $       17,172,121    $         18,870,473                                            $   36,042,594
Cost of sales                        14,537,102              16,243,991                                                30,781,093
                               -------------------   ---------------------                                           ---------------
Gross profit                          2,635,019               2,626,482                                                 5,261,501
                               -------------------   ---------------------                                           ---------------

Selling and delivery                  1,214,583               1,596,933                                                 2,811,516
General and administrative            2,418,094               2,450,116     $       48,000                              4,868,210
                               -------------------   ---------------------                                           ---------------
 Total Operating Expenses             3,632,677               4,047,049                                                 7,679,726
                               -------------------   ---------------------                                           ---------------

Operating Loss                         (997,658)             (1,420,567)                                               (2,418,225)

Interest income                          29,689                     935                                                    30,624
Interest expense                        (55,872)               (449,545)                                                 (505,417)
                                -------------------   ---------------------                                          ---------------
Net Loss                             (1,023,841)             (1,869,177)                                               (2,893,018)

Preferred stock dividends               (45,500)                   -                                                      (45,500)
Income taxes                               -                       (625)                                                     (625)
                                -------------------   ---------------------                                          ---------------

Net loss applicable
 to common shareholders      $       (1,069,341)    $        (1,869,802)                                           $   (2,939,143)
                                ===================   =====================                                          ===============

Net loss per share
 - Basic and diluted         $            (0.42)    $             -                                                $        (0.97)
                                ===================   =====================                                          ===============

WEIGHTED AVERAGE SHARES               2,528,409                   -                500,000                              3,028,409
                                ===================   =====================                                          ===============


</TABLE>



              See notes to unaudited pro forma financial statements


<PAGE>


                          Capital Beverage Corporation
                          Unaudited Pro Forma Combined
                            Statements of Operations
                        Three Months Ended March 31, 2001

<TABLE>
<CAPTION>

                                                                                Pro Forma adjustments
                                                                          ------------------------------------
                                       CAPITAL              PROSPECT             DR                CR                Pro Forma
                                  ----------------     ----------------   ----------------    ----------------   ----------------
<S>                             <C>                  <C>                                                       <C>
Net sales                       $       2,632,568    $       4,474,369                                         $       7,106,937
Cost of sales                           2,154,529            3,609,787                                                 5,764,316
                                  ----------------     ----------------                                          ----------------
Gross profit                              478,039              864,582                                                 1,342,621

Selling and delivery                      233,020              382,649                                                   615,669
General and administrative                566,961              674,330  $       12,000                                 1,253,291
                                  ----------------     ----------------                                          ----------------
 Total Operating Expenses                 799,981            1,056,979                                                 1,868,960

Operating Loss                           (321,942)            (192,397)                                                 (526,339)

Interest income                               120                  184                                                       304
Interest expense                          (15,048)            (124,699)                                                 (139,747)
                                  ----------------     ----------------                                          ----------------

Net Loss                        $        (336,870)   $        (316,912)                                        $        (665,782)
                                  ================     ================                                          ================

Net loss per share
 - Basic and diluted            $           (0.13)   $            -                                            $           (0.21)
                                  ================     ================                                          ================

WEIGHTED AVERAGE SHARES                 2,678,409                 -            500,000                                 3,178,409

</TABLE>


              See notes to unaudited pro forma financial statements

<PAGE>
                          Capital Beverage Corporation
                         Unaudited Pro Forma Adjustments

Pro Forma adjustments reflect the following transaction:

Pro Forma adjustments - Statements of Operations Year Ended December 31, 2000
-----------------------------------------------------------------------------

                                                       DR               CR
                                                       --               --

Amortization expense                            $    48,000
 Accumulated amortization - Intangible assets                     $   48,000

To amortize increase in intangible assets over 20 years


Pro Forma adjustments - Balance Sheet March 31, 2001
----------------------------------------------------

Additional paid-in capital                        2,221,674
Intangible assets                                   580,731
 Accumulated deficit                                               2,802,405

Intangible assets                                   380,000
 Common Stock                                                            500
 Additional paid-in capital                                          379,500

To record the  acquisition  of certain  assets and  liabilities  of  Prospect by
Capital Beverage for five hundred thousand  (500,000) shares of Capital Beverage
common stock.  The  acqusition  was  accounted for under the purchase  method of
accounting.  The common  stock issued to Prospect  shareholders  was recorded at
$.76  ($.84  closing  price  on May 4,  2001  less a 10%  discount)  per  share.
Prospect's  accumulated  deficit and additional  paid-in capital were eliminated
against intangible assets.


Pro Forma  adjustments - Statements  of Operations  Three Months Ended March 31,
2001
--------------------------------------------------------------------------------

Amortization expense                                 12,000
 Accumulated amortization - Intangible assets                         12,000

To amortize increase in intangible assets over 20 years



             See notes from unaudited pro forma financial statements

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.4
<SEQUENCE>5
<FILENAME>pr7501.txt
<DESCRIPTION>CLOSING OF ACQUISITION
<TEXT>

Item 9. - Regulation FD Disclosure

Exhibit No. 99.4

Capital  Beverage  Closes  Acquisition  of  Assets  of  Brooklyn-based  Prospect
Beverages, Inc.

NEW YORK-(BUSINESS WIRE)-July 5, 2001-Capital Beverage Corporation (OTCBB:CBEV -
news) today announced that it has closed the acquisition,  pursuant to the Asset
Purchase  Agreement,  to acquire  certain  assets and  liabilities  of  Prospect
Beverages, Inc., the Brooklyn-based Pabst Distributor of Colt-45 Malt Liquor.

"We are  pleased to  announce  that the  acquisition  of the assets of  Prospect
Beverages,  Inc. by Capital  Beverage  Corporation  has closed"  said Carmine N.
Stella,  President  of  Capital  Beverage.  Capital  was also able to secure the
necessary financing to replace Prospect's current debt position.

With the acquisition of Prospect  Beverages Capital now distributes the two most
popular brands of malt liquor in the market place: Colt 45 and Olde English 800.
"With the combined  malt liquor  products,  Capital's  management  believes that
Capital will be the  pre-eminent  distributor of malt beverages to small grocers
and bodegas in the New York City area, "said Monty  Matrisciani,  Vice President
of Sales for Capital.

"This  acquisition will position Capital Beverage as the leading  distributor of
malt beverages in the Greater New York City market",  said Mr. Stella.  "Capital
expects this acquisition to have a positive effect on its earnings by the end of
this year.  Capital should be able to exceed $40 million dollars in sales within
the next year. The  consolidation  of Capital and Prospect will cut the combined
overhead  substantially  through  the  synergies  of  distribution  that will be
created by the  consolidation," Mr. Stella stated. "We believe this will lead to
additional opportunities to expand our marketing territories," Mr. Stella added.

"Hopefully, this acquisition will be the first step in a process that will place
Capital into a highly  competitive  position with the other major  wholesales in
the  New  York  City  marketing  area.  It  is  difficult  to  effectuate  these
consolidations  but the result  should  place  Capital  in a powerful  marketing
position  in the New York Area Malt  Beverage  distribution  business"  said Mr.
Stella.

"At  the  same  time,  Capital  will be in a  stronger  position  to  distribute
additional brands of beer and soda to both on premise and off premise customers.
There are many  brands in the market  today that are  looking  for an  alternate
method of  getting to the  market.  We will be the ones that can get them to the
levels that their brands deserve, " Mr. Matrisciani added.

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


<PAGE>


</TEXT>
</DOCUMENT>
</SUBMISSION>
