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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

Form 10-K

For the fiscal year ended December 31, 2004

For the transition period from                      to                     

Commission file number 0-24341

Central European Distribution Corporation

(Exact Name of Registrant as Specified in its Charter)

Registrant’s telephone number, including area code: (610) 660-7817

Securities registered pursuant to Section 12(b) of the Act: Not Applicable

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

Common Stock, par value $0.01 per share

(Title of Class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K.    x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes  x    No  ¨

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2004, was approximately $329,437,800 (based on the closing price of the registrant’s common stock on the NASDAQ National Stock Market).*

As of March 9, 2005, the registrant had 16,654,769 shares of common stock outstanding.

Documents Incorporated by Reference

Portions of the proxy statement for the annual meeting of stockholders to be held on May 2, 2005, are incorporated by reference into Part III.

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The disclosure and analysis of Central European Distribution Corporation, or the Company, in this report contain forward-looking statements, which provide the Company’s current expectations or forecasts of future events. Forward-looking statements in this report include, without limitation:

Words such as “believes,” “anticipates” and “intends” may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. The Company’s actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the factors described in the section entitled “Risk Factors” in this report. Other factors besides those described in this report could also affect actual results. You should carefully consider the factors described in the section entitled “Risk Factors” in evaluating the Company’s forward-looking statements.

You should not unduly rely on these forward-looking statements, which speak only as of the date of this report. The Company undertakes no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this report, or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks the Company describes in the reports it files from time to time with the Securities and Exchange Commission, or SEC.

PART I

Item 1.    Business

The Company is one of the leading importers and distributors of alcoholic beverages in Poland. The Company operates the largest nationwide next-day alcoholic beverage delivery service in Poland through its thirteen distribution centers and 78 satellite branches located in Poland’s principal cities, including Warsaw, the Company’s headquarters in Poland. The Company currently distributes approximately 770 brands in five categories: beer, spirits, wine, soft drinks and cigars. The Company is the exclusive importer and distributor in Poland for 15 international beers, including Guinness, Corona, Foster’s, Beck’s Pilsner, Bitburger and Budweiser Budvar. The Company is also one of the leading distributors of locally produced beers, distributing over 35 brands in selected regions. The Company currently distributes approximately 300 spirit products, including leading international brands of scotch, single malt and other whiskeys, rums, bourbons, Polish vodkas, tequilas, gins, brandy, cognacs, vermouths and specialty liquors, such as Johnnie Walker, Smirnoff, Absolut, Finlandia, Bacardi and Ballantines. In addition, the Company is the exclusive importer and distributor in Poland for approximately 426 wine brands, including B.Ph. de Rothschild, Torres, Bolla, Concha y Toro, Penfolds, Sutter Home, Georges Duboeuf, Mondavi, Veuve Clicquot and Codorniu. In addition to its distribution agreements with various alcoholic beverage suppliers, the Company is the exclusive importer in Poland for Dunhill Cigars, General Cigar products and Evian water.

The Company distributes its products throughout Poland to approximately 37,260 outlets, including off-trade establishments, such as small businesses, medium-size retail outlets, petrol stations, duty free stores,

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supermarkets and hypermarkets, and on-trade locations, such as bars, nightclubs, hotels and restaurants, where such products are consumed.

Industry Overview

Consumption.    In 2004, Poland was the fourth largest consumer of vodka in the world according to Company estimates. The total net value of the wholesale market for alcoholic beverage products in Poland was approximately $5.8 billion in 2004. Traditionally, the population of Poland had primarily consumed domestic vodka, but in recent years there has been an increase in the consumption of other types of alcohol, many of which are imported, such as beers, wines and spirits. This increase in consumption of beer and wine and non-vodka spirits has not negatively impacted the sales of domestic vodka, which have increased since the reduction of the excise tax by 30% in October 2002. The Company believes that the increase of consumption of beer, wine and spirits, both imported and domestic, is a result of:

Distribution.    The market for the distribution of alcoholic beverages in Poland remains highly fragmented. There are numerous alcohol distributors spread throughout the country, mainly delivering a limited range of beers, wines and spirits. Furthermore, distributors have been operating regionally, rather than nationally, due to the difficulties in establishing a nationwide distribution system, including the capital required to set up such a system, and an extremely poor road infrastructure. Distributors of alcoholic beverages deliver to both off-trade sites and on-trade sites. Off-trade sites include Polish-owned and managed businesses, such as small grocery stores, as well as major chain stores. On-trade sites include bars, nightclubs, hotels and restaurants. There has been a trend to consolidate many off-trade sites, which are classified as “mom and pop” stores, as well as a trend toward expanding major chain stores. This consolidation of chain stores is also apparent in the rapid expansion of petrol stations, which are owned and operated by major international companies, such as Shell, BP and Statoil. Many of these petrol stations contain convenience stores, which sell all types of alcoholic beverages and in many areas serve as local convenience/liquor stores. Because of its business strategy and current business operations, as more fully described below, the Company believes that it continues to be well-positioned to take advantage of both these trends in consumption and distribution.

Business Strategy

Expand Distribution Base.    The Company plans to continue increasing its distribution capacity by expanding the number of its regional offices in Poland through the acquisition of existing wholesalers and expanding their own branch network, particularly in regions where the Company does not distribute directly or does not have a leading position. The Company seeks to acquire successful wholesalers, which are primarily involved in the vodka distribution business and are among the leading wholesalers in their region. After acquiring a wholesaler, the Company adds its higher margin imported brands to complement and enhance the existing product portfolio and margin of the acquired company. This strategy permits the Company to add geographic coverage, increase its customer base, and increase the Company’s leverage with its supply partners and retail client base. The distribution base will also continue to increase through organic growth. The Company

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expects mid-single digit organic sales growth in 2005. As a result of the successful implementation of this strategy over the last seven years, the Company has increased its customer base from 7,500 in 1998 to approximately 37,260 in 2004.

In implementing this strategy, the Company completed its eleventh, twelfth and thirteenth acquisitions in 2004. In May 2004, the Company acquired Miro Sp. z o.o., which is located in the southwest region of Poland. The Company acquired Saol, another distributor of alcoholic beverages located in the southern region of Poland, in June 2004. The third acquisition occurred when the Company acquired Polnis Distribution, which is located in Lodz, the second largest city in Poland in October 2004. All three of these companies were well-positioned in their respective regions and thus these acquisitions continue to strengthen the Company’s position as the largest distributor of domestic vodka in Poland.

This strategy of acquiring leading regional distributors in Poland has and is expected to continue to increase the Company’s buying and selling leverage in the market, as well as increase the amount of sales of the Company’s imported goods, which have higher margins, into distribution channels that were not previously serviced. The Company’s buying leverage with suppliers combined with its selling leverage to retail have and are expected to continue to contribute to improving its operating profit.

Expand into Production.    The Company is exploring opportunities to vertically integrate into spirit production within Poland. Currently, Polmos Bialystok, the largest state-owned distillery in Poland located in the northeast region of Poland, is in the process of being privatized by the Polish Treasury Ministry. The Polish Treasury Ministry has provided documentation to potential bidders for at least 51% of the shares of capital stock of Polmos Bialystok. The Company is currently participating in this bidding process, and on February 24, 2005, the Polish Treasury selected the Company and three other companies to be on the short list of potential bidders. There are another five state run distilleries in Poland that the Polish Treasury Ministry has stated that they would like to privatize in 2005.

The Company believes that the acquisition of a distillery, either state-owned or privately-owned, would add value to the Company by:

Increase Product Offerings.    The Company’s strategy to offer new products through its next-day national distribution system is a key focus. The Company focuses on products that fit its distribution model of higher value/margin products and that would also add value to its current product mix. The Company is also exploring opportunities in non-alcoholic products such as energy drinks and imported waters that remain growth opportunities in Poland.

Consolidation of Existing Offices/Warehouses.    The Company plans to consolidate the 78 satellite branches it currently operates in Poland. With fourteen acquisitions in the last six years, the Company believes it can consolidate certain smaller branches into larger branches without losing profitability. The Company estimates that it will consolidate approximately five to ten smaller branches into larger branches in 2005. It is expected that this consolidation would result in improved cash flow as inventory days are reduced and have minimal impact on the profit and loss as the Company expects to keep most of the sales revenue from the consolidation. However, the consolidation of smaller branches typically does not necessarily create significant savings as not all sales and administrative personnel are made redundant. Key sales and administrative personnel may be moved to larger neighboring branches. Moreover, the Company may incur increased logistical costs as products may have to be moved longer distances as branches are closed. The overall process of consolidating branches is a positive one for the Company and continues to help create a more efficient, streamlined nationwide distribution platform.

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History

The Company’s wholly owned subsidiary, Carey Agri, was incorporated as a limited liability company in July 1990 in Poland. It was founded by William O. Carey, who died in early 1997, Jeffrey Peterson (who served as the Company’s Vice Chairman until February 2004) and William V. Carey, President and Chief Executive Officer of the Company. In February 1991, Carey Agri was granted its first import beer license. With this license, the Company started to import various beers, including Foster’s lager, Grolsch and products from Anheuser Busch, and sold them to wholesalers. With these beverages, Carey Agri sought to offer more products for which it had an exclusive import license and to market and sell these products to the segment of the Polish population who were benefiting from the country’s market transformation. Because of Carey Agri’s initial success with Foster’s lager, for which it still holds the exclusive import license for Poland, it quickly diversified in 1992 by importing other quality brand beers from Europe and the United States. Sales during this period were typically in high volume consignments to other wholesalers.

In 1993, with the acceleration of the opening of retail outlets in Poland, Carey Agri began to implement a direct delivery system in Warsaw, which could deliver alcoholic beverages to retail outlets on a reliable next-day basis. Carey Agri leased a warehouse, purchased trucks and hired and trained operational personnel and began to sell directly to convenience shops, small grocery stores and newly opened pubs. Because of this business experience, Carey Agri was prepared to take advantage of the opportunity to expand its import and delivery capacity in Warsaw when large foreign-owned supermarket chains began operations in 1993, creating a significant increase in the demand for the Company’s product line. The Warsaw model of desirable product lines and dependable prompt delivery of product was replicated by the Company in the cities of Krakow (1993), Wroclaw (1994), Szczecin (1994), Gdynia (1994), Katowice (1995), Torun (1995) and Poznan (1996).

The Company was incorporated in Delaware in 1997. In July 1998, the Company issued 2,000,000 shares of its common stock in an initial public offering on the Nasdaq SmallCap Market raising net proceeds of approximately $10.6 million. In June 1999, the Company was accepted onto the Nasdaq National Market where it trades under the symbol “CEDC”.

The Company currently offers approximately 770 brands of beverages and other products in five categories: (i) beers, (ii) spirits, (iii) wines, (iv) soft drinks, and (v) cigars. The sales mix is outlined in the table below:

Beer

The Company distributes imported beer through each of its regional offices. Amsterdam, Beck’s, Bitburgr, Budweiser Budvar, Corona, Foster’s, Franziskaner, Grolsch, Guinness, Hasseroder, Hoegaarden, Kilkenney, Kostrizer, Leffe, and Stella Artois are distributed and marketed throughout Poland on an exclusive basis.

Most of the Company’s distribution contracts for beer contain a minimum purchase requirement and typically permit termination if the Company breaches its agreements, such as failure to pay within a certain time period or to properly store and transport the product. Trade credit is extended to the Company for a period of time after delivery of products. The duration of these agreements differ but typically range from one to three

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years with an automatic extension period unless one of the parties chooses to terminate the agreement. Under the terms of these contracts, the Company is responsible for the marketing of these products, subject to applicable Polish rules and regulation. The Company contributes up to 50% of the marketing budget for each brand depending upon the length of the contract.

In the past few years, the Company has increased the amount of Polish beer that it distributes. This decision to increase its distribution of Polish beer resulted from the nature of the market place in a few select regions of Poland where the Company has enjoyed and continues to enjoy a strong competitive advantage. As a result of the requests from the Company’s client base in these areas and as a way of protecting market share, the Company offers Polish beer. The Company has no immediate plans to increase its distribution of Polish beer on a national scale, but it will increase its distribution of Polish beer in those strategic areas where the Company decides it is in the best interest of the Company. Although the actual amount of Polish beer distributed has increased, the amount of Polish beer distributed as a percentage of total sales decreased from 10.2% in 2003 to 6.9% in 2004.

Polish Vodka

The Company purchases all of its domestic vodka products from 17 local distilleries and carries approximately 133 different brands. Some of the leading domestic vodka brands the company distributes include the following:

The Company’s agreements with various state-owned Polish vodka producers may be terminated by either party without cause with one month prior written notice. The contracts are generally for one year with an automatic extension clause, which has been standard practice within the industry for the past 12 years. To date, the Company has never had a distribution contract terminated by any of the local vodka producers. The Company has no obligation to perform any marketing activities with or on behalf of any local vodka producer.

In 2004, over 5% of the Company’s net sales resulted from sales of products purchased from the following companies: Polmos Bialystok (19%), Sobieski Distribution (13%), Unicom Bols Group (10%) and Polmos Zielona Gora (7%).

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Imported Spirits

The Company distributes all its imported spirit products through each of its offices, mostly on a non-exclusive basis. Some of the better known spirit products sold by the Company include the following (the Company is the exclusive importer of the products denoted by an * below):

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The contracts for distribution of imported products on a non-exclusive basis have substantially the same terms as the contracts for distribution of products from local vodka producers.

The contracts for distribution of the spirit brands the Company exclusively represents are generally one to three years in length and can be terminated with a minimum 90 days written notice by either party. The Company also shares in the local marketing costs up to a limit of 50% depending upon the length of the contract being served.

Wine

The Company represents approximately 60 wine suppliers and imports and distributes approximately 426 products through each of its offices on an exclusive basis. The Company imports wine through a wholly owned subsidiary, The Cellars of Fine Wines, which works directly with the suppliers of the wine brands listed below. Additionally, the Company distributes other various sparkling wines, vermouths and champagnes on a non-exclusive basis, including Moet & Chandon, Dom Perignon, Piper Heidseck, Martini and Cinzano.

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List of Exclusive Wine Brands by Supplier

French Wines

(Champagnes)

Veuve Clicquot Ponsardin

Krug

French Wines

B.Ph. de Rothschild

Kressmann

Borie Manoux

Louis Latour

De Ladoucette

J. Moreau & Fils

Domaine Laroche

George Duboeuf

J. Faiveley

Leon Beyer

M. Chapoutier

Louis Bernard

CFGV

Californian Wines

Robert Mondavi

Trinchero Estate

Marimar Torres

Sutter Home

Opus One

Spanish Wines

Miguel Torres

Jean Leon

Marques de Vitoria

Faustino

Bodegas Victorianas

Codorniu

Felix Solis

Italian Wines

Banfi

Frescobaldi

Cecchi

Luce de la Vite

Marchesi di Barolo

Santa Margherita

Bolla

Coltiva

Casa Girelli

Botter

Chilean Wines

Concha y Toro

Miguel Torres Chile

Rothschild Chile

Caliterra

Sena

Errazuriz

El Descanso

Australian Wines

Penfolds

South African Wines

Winecorp

New Zealand Wines

Jackson Estate

Argentinian Wines

Trivento

Greek Wines

Boutari

Portugal Wines

Sogrape Vinhos

Forrester

German Wines

Deforth

Morhena

The Company has been working with the same suppliers for four years and has either verbal or written contracts. Where a written contract is in place, it is usually valid for between one and three years with a three to six month termination clause exercisable by either party. With selected contracts, the Company also shares in the local marketing costs on either a defined amount or revenue percentage basis. Where a label does not have sufficient demand, the Company will consolidate shipments abroad before receiving the goods into Poland where they are stored in the Company’s bonded warehouse until cleared by customs for sale.

Sales Organization

The Company employs approximately 419 salespeople who are assigned to one of its thirteen distribution centers and 78 satellite branches. Each distribution center and satellite branch has a sales manager, who meets with the salespeople twice a week to review products and payments before the salespeople begin calling customers. The sales force at each office is typically divided into two categories: traditional trade and key accounts. Salespeople work on a daily pre-order system, which is routed by region. The salespeople contact approximately 20 customers per day. At the end of their day, they return to the office or telephone in their orders, which are processed and dispatched the next morning. The sales force work exclusively on a commission basis

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and are supplied with a company car and a mobile phone. Approved travel expenses are covered by the Company. The Company conducts periodic training to improve the salesmen’s knowledge of the Company’s products as well as improve the sales force’s skills.

Marketing

The Company has its own marketing department, which consists of ten people, including six brand managers, who manage the marketing support of the brands the Company imports exclusively into Poland. The Company manages a combined marketing budget for all exclusive brands of approximately $2.5 million, of which the Company contributes up to 50% of the total budget. The brand owners contribute the remaining part. The Company is responsible for all of the marketing efforts within Poland from point-of-sale production, below-the-line promotions, print work and public relation events, as well as overseeing the draft beer operations throughout Poland.

Distribution System

The Company’s headquarters are located in Warsaw, the capital of Poland. There are another twelve distribution centers and 78 satellite branches located throughout Poland.

In October 2000, the Company moved into a new distribution facility in Warsaw. The facility is approximately 9,765 square meters of warehouse (including bonded warehouse) and 2,230 square meters of office space currently used for the headquarters. Management believes the warehouse facility has enough space to permit the Company to expand for the next two to three years without any further major investment.

The Company has developed its own de-centralized, national, next-day distribution system for its alcoholic beverage products, and has the ability to leverage its distribution capacity to include other products that meet its product guidelines as regards to incremental gross margin and operating profit.

For imported products not sourced from the European Union, the distribution network begins with the Company’s customs warehouse in Warsaw. Products can remain in this warehouse without customs and other duties being paid until the product is needed for sale. At such point, the product is transferred to the Company’s consolidation warehouse at the same location and shipped directly to one of the twelve regional office/warehouse facilities connected to each of the Company’s sales locations outside of Warsaw. Imported products sourced from the European Union that are subject to excise tax enter our tax registered warehouse before entering our main warehouse. Imported products sourced from the European Union that are not subject to excise tax enter the main warehouse directly. For a further description of the import process see the “Import of Products” section below.

Based on current sales projections, the regional distribution centers and satellite branches are provided with deliveries on a weekly or bi-weekly basis so that they are able to respond to their customers’ needs on a next-day basis. Because of the poor road infrastructure in Poland, the Company currently operates through thirteen distribution centers and 78 satellite branches. The Company expects to merge five to ten of the satellite branches during 2005, as there is current overlap with recently acquired companies.

For products the Company buys in Poland, the distribution chain begins with the importer/producer that ships product directly to each warehouse in Poland at the importer/producer’s cost. Once the product is entered into the branch inventory, it can be sold and delivered to customers within 24 hours.

Except at peak periods during the summer holidays and other peak times such as Christmas, all deliveries are made by Company-trained employees using Company-owned or leased vehicles. During busy periods, the Company uses independent contractors to supplement its own fleet. These contractors are usually small family-run businesses with which the Company has had relationships for several years. The Company has over 292 delivery trucks it uses for its direct deliveries in Poland. The Company replaces its fleet every three to five years, which is an ongoing process handled by its fleet management department.

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Market for Product Line

In 2004, approximately 95% of the Company’s total sales were through off-trade locations (including 6% through other wholesalers, a decrease from 12% in 2003), where the alcoholic beverages are not consumed, and 5% through on-trade locations, where the alcoholic beverages are consumed. A breakdown by value of the off-trade and on-trade is provided below.

Off-Trade Market

There are two components of the Company’s sales to locations where alcoholic beverages are not consumed on premises. The most significant are small, usually Polish-owned and managed businesses, including small grocery stores. At December 31, 2004, the Company sold products to approximately 31,411 such business outlets, which typically stock and sell relatively few alcoholic beverage products and wish to have access to the most popular selling brands. The other components of the off-trade business are large supermarket chains, which are typically non-Polish-owned, as well as smaller multi-store retail outlets operated by major Western energy companies in connection with the sale of gasoline products. The large supermarket chains typically offer a wide selection of alcohol products, while the smaller retail outlets offer a more limited selection.

The Company also sells products throughout Poland through other wholesalers. There are a few written agreements with these wholesalers as this distribution channel is going through a major consolidation and the Company’s strategy is to go directly to retail outlets, bypassing this distribution channel.

On-Trade Market

There are three components to the Company’s sales to locations where alcoholic beverages are consumed: (i) bars and nightclubs, (ii) hotels, and (iii) restaurants. Bars and nightclubs are usually locally managed businesses, although they may be owned and operated in major cities by a non-Polish national. Hotels include worldwide chains such as Marriott, Sheraton, Holiday Inn, Hyatt and Radisson, as well as the major Polish chain, Orbis. Restaurants are typically up-scale and located in major urban areas. At December 31, 2004, the Company sold products to approximately 5,850 on-trade accounts.

Financial Information about Geographic Access

During each of the last three years, all of the Company’s revenue has been derived from customers in Poland, where all of the Company’s customers are located, and all of the Company’s long-lived assets are located in Poland.

Control of Bad Debts

The Company believes that its close monitoring of customer accounts both at the relevant regional office and from Warsaw has contributed to its success in maintaining a low ratio of bad debts to net sales. During 2002, 2003 and 2004, bad debt expense as a percentage of net sales, were approximately 0.49%, 0.14% and 0.13% of net sales. Management believes the ongoing enhancement of computer systems for interoffice financial and administrative controls will assist in maintaining a low ratio of bad debts to net sales as the Company continues

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to expand. A more detailed explanation of the bad debts provision is available in “Management’s Discussion and Analysis and Financial Condition and Results of Operation.”

Competition

The Company, as an early entrant in the post-Communist market in Poland, has over 12 years of experience in introducing, developing and refining sales, marketing and customer service practices in the diverse and rapidly developing Polish economy. The Company believes this experience gives it a competitive advantage in the alcoholic beverage distribution business. The Company believes that it is currently the only independent national distributor of an extensive and diversified alcoholic beverage line in Poland.

The Company competes with various regional distributors in all of its distribution centers and satellite branches. This competition is particularly vigorous with respect to domestic vodka brands. One of the largest, foreign-owned chain stores also sells to smaller retailers. The Company addresses this regional competition, in part, through offering to customers in the region a single source supply of more products than its regional competitors typically offer and the Company is able to leverage its market share to be price competitive while still maintaining its margins.

The brands of beers, wines and spirits distributed by the Company compete with other brands in each category, including some the Company itself distributes. The Company expects to see increased competition from Heineken, SAB and Carlsberg in the import beer sector while the Company believes that the import wine and import spirit categories will remain less competitive.

Employees

The Company had approximately 2,015 full-time employees as of December 31, 2004. All employees, except for a few employees, were employed in Poland and have agreements with the Company. Polish labor law requires that certain benefits be provided to employees, such as the number of days of vacation, maternity leave and bonuses paid upon retirement based upon years worked in the Company. The law also restricts the discretion of the Company’s management to terminate employees without cause and requires in most instances a severance payment of one to three months’ salary. The Company makes required monthly payments up to 19.83% of an employee’s salary to the governmental health and pension system. The Company’s employees are not unionized. The Company believes that its relations with its employees are good. The Company also grants other health benefits to selected key management personnel.

Regulation

The Company’s business of importing and distributing alcoholic beverages is subject to regulation. The Company believes it is operating with all licenses and permits material to its business. The Company is not subject to any proceedings calling into question its operation in compliance with any licensing and permit requirements.

Import of Products

With the accession of Poland to the European Union on May 1, 2004, Poland adopted the established customs rules and regulations of the European Union which were different than the customs rules and regulations of Poland prior to May 1, 2004. As a result, the customs borders between Poland and other countries that are members of the European Union, or the Member States, were removed. Furthermore, customs duties and quotas in effect prior to May 1, 2004, were cancelled between Member States, and external trade measures have been unified under a common customs tariff known as the Community Customs Code. Poland was also granted inclusion in the European Union’s customs agreements with countries outside of the European Union.

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In 2004, approximately 15% of the Company’s total exclusive import portfolio was from countries outside the European Union. The result of Poland having the European Union’s preferential tariff measures, applied to products the Company is importing from outside the European Union, has resulted in the substantial reduction of duties for these products. For example, the duty for cigars imported from Cuba decreased from 173% to 9.1%, duty for wine imported from the United States, Australia, New Zealand, Chile, South Africa decreased from 30% to anywhere from 3% to 10% depending on the country of origin. Duty for beer imported from Mexico decreased from 30% to 0%.

Import Licenses and Quotas

Prior to May 1, 2004, the Polish Ministry of Economy required a wide range of permits, licenses and quotas on imported alcoholic beverages and cigars. As of May 1, 2004, the Ministry of Economy no longer requires licenses and quotas but only requires an import permit for wine sourced outside the European Union. The Company applies for the import permit for all wine sourced outside the European Union every four months, as required by applicable law, at the Agricultural Market Agency, which is a Polish agency that acts under European Union legislation and reports wine importation figures to the central European Union register. The first permit was given to the Company by the Agricultural Market Agency in May 2004, and thereafter, the Agricultural Market Agency has renewed the Company’s permit every four months. As the main function of the Agricultural Market Agency is to acquire statistical information of the amount of European Union-sourced and non European Union-sourced wine sold within the European Union, the Company believes that the Agricultural Market Agency will continue to issue the permit to the Company.

Storing of Imported Products

All products imported by the Company from countries outside of the European Union must enter the Company’s customs warehouse, which is described below, where they are stored until the Company has to transport the products to clients or to other Company warehouses. At the time of transportation, the products are cleared by Polish Customs Agents.

As of May 1, 2004, European Union sourced products that are not subject to an excise tax enter the Company’s main warehouse directly without any additional custom’s procedures. European Union sourced products that are subject to an excise tax enter the Company’s tax registered warehouse, which is described below, where the excise tax is accounted for. Once the excise tax is accounted for, the products enter the main warehouse where they are prepared for distribution.

Customs Warehouse

The Company is required to obtain a permit from the Director of the Regional Customs Office and the approval of health authorities to open and operate the customs warehouse. The applicable health concerns are the same as those discussed under “Wholesale Activities” with regard to non-custom warehouses. The Company received its current permit on December 28, 1998, which is for an unspecified period of time. The continued effectiveness of the permit is conditioned on the Company’s complying with the requirements of the permit which are, in general, the proper payment of customs duties and maintenance of an insurance policy.

Tax Registered Warehouse

The Company is required to obtain a permit from the Director of the Regional Customs Office to operate its tax registered warehouse. As of May 1, 2004, the Company has operated its tax registered warehouse, where European Union sourced products that are subject to excise tax such as beer, wine and spirits are stored (under the supervision of the Council of the European Union Directives on the General Arrangements for Products Subject to Excise Duty) and registered. Once registered, the documentation for the amount of excise tax to be paid and the date the taxes are due to the Polish Ministry of Finance is prepared by the Company and the

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Regional Customs Office. Once the excise tax documentation is prepared, the products enter the main warehouse for distribution.

The Company received its permit from the Regional Customs Office on April 29, 2004. This permit is valid until April 30, 2007. The Company must make accurate and timely payments of the excise tax in order to keep the existing permit effective. The Company believes that if it continues to make accurate and timely payments of its excise tax obligations, the Regional Customs House will reissue this permit when it expires.

Wholesale Activities

The Company must have additional permits from the Minister of Economy and appropriate health authorities to operate its wholesale distribution business. Furthermore, it must comply with rules of general applicability with regard to packaging, labeling and transporting products.

General Permits

The Company is required to have permits for the wholesale trade for three of its product lines: beer, wine and spirits. The permit with regard to beer is issued for two years; the current permit will expire on March 28, 2005. The permit with regard to spirits is issued for one year; the current permit will expire on December 31, 2005. The permit for wine is issued for two years; the current permit will expire on March 28, 2005. The permits require that the Company sell its products only to those who have appropriate permits to resell the products. A permit can be revoked or not renewed if the Company fails to observe laws applicable to its business as an alcohol wholesaler, fails to follow the requirements of the permit or if it introduces into the Polish market alcohol products that have not been approved for trade. The Company also obtained separate permits for each of its subsidiaries. The Company has never been denied any general permits and expects that these permits will be renewed when they expire.

Health Requirements

The Company must obtain the approval of the local health authorities to open and operate its warehouses. This approval is a requirement for obtaining the permit for wholesale activities. The health authorities are primarily concerned with sanitation and proper storage of alcoholic beverages, as well as cigars. These authorities can monitor the Company’s compliance with health regulations. Similar regulations apply to the transport of alcoholic beverages and cigars, and the drivers of such transports must themselves submit health records to the appropriate authorities.

General Norms

The Company must comply with a set of rules, usually referred to generally as “Polish Norms,” which constitute legal regulations concerning, as applicable to the Company, standards according to which alcoholic beverages and cigars are packaged, stored, labeled and transported. These norms are established by the Polish Normalization Committee. As of May 1, 2004, the norms established by the Polish Normalization Committee have complied with European Union Standards and have harmonized once conflicting Polish standards with standards from European Union countries so that once obligatory Polish requirements such as sanitation testing and inspections are no longer required by the Polish Normalization Committee. Therefore, a certificate from the European Union-based producers of the products the Company imports is acceptable to the local Polish Health Authorities without further requirements.

Approval of Health Authorities

For all products sourced outside of the European Union, the Company is required to receive proper health permits at the time the products are imported into Poland. The local Polish health authorities are charged with the

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responsibility to insure that all products entering Poland from outside the European Union have been previously approved for importation and sale in the European Union by the European Union health authorities. The Company has been in compliance for all of its imported products with the statutes of the European Union regarding standards and health requirements.

Advertising Ban

In 2001, the government introduced significant changes to the Alcohol Awareness Law by separating regulations concerning beer from regulations concerning other alcoholic beverages. Previously, the government had implemented a ban on advertising on all alcoholic beverages.

According to the new regulations, above-the-line activities for beer are allowed but are limited to the following: billboard advertising only if 20% of the surface of the billboard is dedicated to health warnings concerning alcohol consumption, advertising in the press is limited to the inside of a publication (no front or back cover advertising is allowed), television advertising is only allowed between the hours of 8:00 p.m. and 6:00 a.m. and no advertising can be associated with sexual attractiveness, relaxation, health, sport or incorporate children in any way in the advertisement. No above-the-line activities, even limited activities, are permitted for other alcoholic beverages.

The government regulations for below-the-line promotions remain the same as in previous years for all alcoholic beverages. The government allows direct mail campaigns, promotions such as game contests, the packaging of gifts with an alcoholic beverage (i.e., a free glass is attached to a bottle of spirits) and other similar promotions. However, incentive promotions have to be conducted within the alcohol section of each store. In the on-premise outlets, below-the-line activities are allowed by the government.

The Company strictly adheres to the government regulations regarding above-the-line and below-the-line advertising and promotion. To date, the Company has not been in violation of these regulations.

Regulation of Retail Sales

The Company operates six retail outlets for alcoholic beverages under the name “Fine Wine and Spirits”. Under Polish law, each of these outlets must have a retail permit to sell alcoholic beverages to potential clients. The length of such permits varies from one to three years and is renewable. Also, each new store needs to acquire a certificate from the local health authorities to sell its products. The Company, to obtain the above permits, must first have a lease agreement with the owner of the building. Furthermore, for each lease agreement, the Company requires a long term notice period in order to safeguard its investments. All present retail outlets operate with valid retail licenses, which can be renewed at the expiration date.

Available Information

The Company maintains an Internet website at http://www.ced-c.com. Please note that our Internet address is included in this annual report as an inactive textual reference only. The information contained on our website is not incorporated by reference into this annual report and should not be considered part of this report.

We file annual, quarterly and current reports, proxy statements and other information with the SEC. We make our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, amendments to those reports and most of our other SEC filings available free of charge through our Internet website as soon as reasonably practicable after we electronically file these materials with the SEC. You may read and copy any document we file with the SEC at the SEC’s public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. These filings are also available to the public over the Internet at the SEC’s website at http://www.sec.gov. In addition, we provide paper copies of our SEC filings free of charge upon request. Please contact the corporate Secretary of the Company at 610.660.7817 or at our address set forth on the cover page of this annual report.

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We have adopted a code of ethics applicable to all of our officers, directors and employees, including our Chief Executive Officer and Chief Financial Officer (who is also our Principal Accounting Officer). The code of ethics is publicly available on our website at http://www.ced-c.com/investor.htm. We intend to disclose any amendment to, or waiver from, any provision in our code of ethics that applies to our Chief Executive Officer and Chief Financial Officer by posting such information on our website at http://www.ced-c.com/investor.htm.

Risk Factors

The inability to adequately manage exchange-rate risk could affect our financial results and our ability to make financial projections.

Our operations are conducted primarily in Poland. Our functional currency is the Polish zloty while our reporting currency is the U.S. dollar. Our financial instruments consist mainly of cash and cash equivalents, accounts payable and receivable, inventories, bank loans, overdraft facilities and long-term debt. Most of the monetary assets represented by these financial instruments are located in Poland. Consequently, they are subject to currency translation risk when reporting in U.S. dollars.

If the U.S. dollar increases in value against the Polish zloty, the value in U.S. dollars of assets, liabilities, revenues and expenses originally recorded in the Polish zloty will decrease. Conversely, if the U.S. dollar decreases in value against the Polish zloty, the value in U.S. dollars of assets, liabilities, revenues and expenses originally recorded in Polish zloty will increase. Thus, increases and decreases in the value of the U.S. dollar can have an impact on the value in U.S. dollars of our non-U.S. dollar assets, liabilities, revenues and expenses, even if the value of these items has not changed in their original currency.

The following table sets forth, for the periods indicated, the average exchange rate (expressed in current zloty) quoted by the National Bank of Poland. Such rates are set forth as zloty per U.S. dollar. At March 9, 2005, the rate was PLN 2.91.

The inability to maintain and expand our senior management would threaten our ability to implement all of our business strategies.

The management of future growth will require the ability to retain qualified management personnel and to attract and train new personnel. Senior leadership is necessary to develop the financial and cost controls, information systems and marketing activities needed for us to prosper. Further, the successful integration of acquired companies requires substantial attention from our senior management team. Failure to successfully retain and hire needed personnel to manage our growth and development would have a material adverse effect on our ability to implement our business plan and grow our business.

A significant number of our largely short-term and non-exclusive supply contracts may be unexpectedly terminated, which would materially and adversely affect our ability to generate revenue and operating profits.

We distribute approximately 93% of the alcoholic beverages in our portfolio on a non-exclusive basis. Furthermore, most of our distribution agreements for these beverages have a term of approximately one year, although several of such agreements can be terminated by either party without cause on relatively short notice.

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For example, the distribution agreements with respect to domestic vodka (which accounted for approximately 75% of our net sales in 2004) can be terminated on one month notice. Any termination of a significant number of our supply contracts would adversely affect our ability to generate revenue and operating profits.

In 2004, we purchased over 5% of net sales from the following suppliers: Polmos Bialystok (19%), Sobieski Distribution (13%), Unicom Bols Group (10%) and Polmos Zielona Gora (7%). We have one-year supply contracts with each of these companies. The termination of our relationship with any of these entities could have a material adverse effect on our revenue and operating profits.

Market consolidation could lead to margin pressure.

There were approximately 1,000 alcohol distributors in Poland in 1995. In 2004, approximately 200 were actively conducting business in the marketplace. We expect this number to decrease and stabilize to approximately 50 alcohol distributors that would control approximately 90% of the market. During this period of consolidation, we expect the weaker distributors to maintain low prices in an effort to stay solvent and viable, which could put downward pressure on our existing gross margins as we continue to gain market share. As a result, we will continue to monitor these potential events and will attempt to balance maintaining gross margins and sales to be in line with our strategic objectives during this transitional period.

Risks Related to Acquisitions

The failure to smoothly integrate the operations, management and other personnel of acquired companies could adversely affect our ability to maximize our business activities and financial performance.

Our growth will depend in part on our ability to acquire additional distribution capacity and effectively integrate these acquisitions into our existing operations and systems of management and financial controls. Risks associated with acquisitions include, but are not limited to, integration of sales personnel, retention of key management, standardization of management and controls, harmonization of sales and marketing strategies and procedures and implementation of group financial reports and controls. We may not be able to successfully integrate the operations of any acquisition, which could negatively impact our financial performance.

Furthermore, since we have a history of maintaining the operational independence of the companies we acquire, there are risks that the managers of our subsidiaries, who were once the owners of their own companies, will not successfully implement our business strategies and management and cost-control systems. Our senior management team residing in Warsaw may not be able to coordinate the business activities of the group’s various subsidiaries in order to maximize the group’s business potential as a nationwide distribution network.

The implementation of anti-monopoly regulations could threaten our basic business strategy of growing through acquisitions once we reach approximately a 35% to 40% market share.

Under the Polish Anti-Monopoly Act, acquisitions may be blocked or have conditions imposed upon them by the Polish Office for Protection of Competition and Consumers, or the Anti-Monopoly Office, if the Anti-Monopoly Office determines that the acquisition has a negative impact on the competitiveness of the Polish market. The current body of Polish anti-monopoly law is not well established and, therefore, it is difficult to predict how the Anti-Monopoly Office will act on an application. Generally, companies that obtain control of 40% or more of their market may face greater scrutiny from the Anti-Monopoly Office than those that control a lesser share. Additionally, several types of reorganizations, mergers and acquisitions and undertakings between business entities, including acquisitions of stock, under circumstances specified in the Anti-Monopoly Act, require prior notification to the Anti-Monopoly Office. Sanctions for failure to notify include fines imposed on parties to the transaction and members of their governing bodies. The Anti-Monopoly Office may not approve any or all of our proposed acquisitions, which action would negatively impact our ability to institute our business plan and grow our business.

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We may vertically integrate into production, the integration and management of which could deter results from the existing distribution business and could deter our overall results.

As part of our overall business strategy, we identified both state-owned and privately-owned distilleries in Poland that we may seek to acquire. Currently, Polmos Bialystok, the largest state-owned distillery in Poland located in the northeast region of Poland, is in the process of being privatized by the Polish Treasury Ministry. The Polish Treasury Ministry has provided documentation to potential bidders for at least 51% of the shares of capital stock of Polmos Bialystok. We are currently participating in this bidding process, and on February 24, 2005, the Polish Treasury selected the Company and three other companies to be on the short list of potential bidders. We have limited experience in the production of alcohol, and thus, we may not be able to successfully integrate the acquisition of Polmos Bialystok if our bid is accepted and the acquisition is concluded. However, we plan to maintain the current management of Polmos Bialystok if our bid is accepted and the acquisition is concluded. We believe that Polmos Bialystok has solid administrative and technical management personnel that we would maintain and who would continue to manage the distillery on a day to day basis. As with all prior acquisitions, we plan to develop an integration plan to help ensure that the acquisition of Polmos Bialystok would successfully integrate with the company and would not disrupt our distribution business.

Risks Related to Investments in Poland and Emerging Markets

Emerging economies, such as Poland in which we operate, can be more volatile and perform differently than the United States due to increased risks of adverse political, regulatory or economic developments. The value of our common stock may be adversely affected by developments that would not affect other U.S. issuers without substantial operations in emerging markets.

In general, investing in the securities of issuers with substantial operations in foreign markets such as Poland involves a higher degree of risk than investing in the securities of issuers with substantial operations in the United States and similar jurisdictions. The Polish market could be subject to greater social, economic, regulatory and political uncertainties than the United States which could have an adverse effect on the market value and liquidity of our common stock. For example, we are currently required to have permits to import products, maintain and operate our warehouses, and distribute our products to wholesalers. Many of these permits, such as our general permit for wholesale trade, must be renewed when they expire. Although we believe that the applicable Polish governmental agency will renew our permits upon their expiration, our permits may not be renewed. Additionally, our permits may be revoked prior to their expiration date. If permits that are material to our business are either revoked or not renewed, our business could be negatively affected. However, we believe that from a regulatory and economic point of view the risks have been significantly reduced as a result of Poland having joined the European Union on May 1, 2004, as laws and regulatory rules have been and are in the process of conforming to European Union standards.

Our stockholders could experience unusual expense and uncertainty in trying to enforce any judicial judgment against us.

We are organized under the laws of Delaware. Therefore, our stockholders are able to affect service of process in the United States upon CEDC and may be able to affect service of process upon our directors. However, we are a holding company, all of the operating assets of which are located outside the United States. As a result, you may not be able to enforce against our assets judgments of United States courts predicated upon the civil liability provisions of United States laws. In addition, awards of punitive damages in actions brought in the United States or elsewhere may not be enforceable in Poland.

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Item 2.    Properties.

Headquarters; Sales Offices and Warehouses

The Company has entered into leases for its Warsaw headquarters and most of its other twelve distribution centers and 78 regional branches. The amount of office and warehouse space leased for each distribution center and satellite branch varies between 40 and 7,400 square meters depending on the size of the business. The monthly lease payments, which are denominated in Polish zloty, vary between $67 and $23,362 for the regional distribution centers and satellite branches and are approximately $96,000 per month in Warsaw ($54,930 for the customs and consolidation warehouse and $41,070 for the office space for Company headquarters). The Warsaw lease is for seven years, commencing May 1, 2003, without termination. Most of the other leases can be terminated by either party on approximately three months’ prior notice.

Customs and Consolidation Warehouse

The customs and consolidation warehouse is a 9,765 square meter leased facility located in Warsaw. The lease is for seven years commencing May 1, 2003, and the monthly rental, denominated in U.S. dollars, is approximately $54,930 per month as of December 31, 2004.

Retail Outlets

The Company has entered into a long term or indefinite term lease agreement for each of its six retail outlets. All the lease agreements can be terminated by mutual consent or by three to six months’ prior notice by either party. The lessor, however, has, in each case, waived its right to terminate the agreement for three years, provided, that the Company is performing its obligations thereunder. Lease payments, which are denominated in Polish zloty, currently range from $780 to $5,585 per month.

Item 3.    Legal Proceedings.

The Company is not aware of any pending or threatened legal actions other than disputes arising in the ordinary course of its business that would not, if determined adversely to the Company, have a material adverse effect on its business and operations.

Item 4.    Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2004.

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PART II

Item 5.    Market for Registrant’s Common Equity and Related Stockholder Matters.

Market Information

The Company’s common stock has been traded on the NASDAQ National Market or the National Market under the symbol “CEDC” since June 1999. Prior to June 1999, the Company traded on the NASDAQ Small Cap Market since the Company’s initial public offering in July 1998. The following table sets forth the high and low bid prices for the common stock, as reported on the NASDAQ National Market, for each of the Company’s fiscal quarters in 2003 and 2004. These prices represent inter-dealer quotations, which do not include retail mark-ups, mark-downs or commissions and do not necessarily represent actual transactions. The prices for 2003 have also been adjusted to reflect the impact of the 3 for 2 stock split in May 2004.

On March 9, 2005, the last reported sales price of the common stock was $36.98 per share.

Holders

As of February 25, 2005, there were approximately 7,753 beneficial owners, and as of March 9, 2005 there were 63 stockholders of record of common stock.

Dividends

The Company has never declared or paid any dividends on its common stock. Future dividends will be subject to approval by the Company’s board of directors and will depend upon, among other things, the results of the Company’s operations, capital requirements, surplus, general financial condition and contractual restrictions and such other factors as the board of directors may deem relevant. The Company does not intend to pay cash dividends on its common stock in the foreseeable future.

The Company has instituted a policy of having all of its subsidiaries (except Carey Agri) pay dividends to their respective stockholders, either the Company or Carey Agri. The subsidiaries, except for Carey Agri, will distribute 50% of their respective current years after tax profits except for those generated during the first year of ownership. As at December 31, 2004, the Company’s subsidiaries, will provide for dividends of approximately $6,046,000 to Carey Agri and the Company or, $5,396,000 to the Company and $650,000 to Carey Agri.

These dividends are being used initially to pay down acquisition debt and to fund the day-to-day operations of the Company. At December 31, 2004, the subsidiaries had approximately $52.4 million of retained earnings.

Since the Company is a holding company with no business operations of its own, its ability to pay dividends will be dependent upon either cash flows and/or earnings of its subsidiaries and the payment of funds by those

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subsidiaries to the Company. As Polish limited liability companies, the subsidiaries are permitted to declare dividends only twice a year from their retained earnings, computed under Polish Accounting Regulations after the audited financial statements for that year have been provided to and approved by stockholders.

Equity Compensation Plans

The following table provides information with respect to the Company’s equity compensation plans as of December 31, 2004.

Equity Compensation Plan Information

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Item 6.    Selected Financial Data

The following table sets forth selected consolidated financial data for the periods indicated and should be read in conjunction with and is qualified by reference to “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the consolidated financial statements, the notes thereto and the other financial data contained in Items 7 and 8 of this report on Form 10-K. In May 2004, the Company executed a 3 for 2 stock split. The comparatives for prior years shown below have been adjusted to reflect this change.

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operation

The following analysis should be read in conjunction with the consolidated financial statements and the notes thereto appearing elsewhere in this report.

Overview

The following discussion regarding variations in operating results should be read considering the rates of inflation in Poland and the fluctuations of the Polish zloty compared to the U.S. Dollar during the periods presented. The rate of inflation in Poland was 1.1% in 2002, 1.7% in 2003, and 3.5% in 2004. Using average National Bank of Poland exchange rates for the full year, the zloty in comparison to the U.S. Dollar appreciated by 9% in 2004, 2.6% in 2003 and 3.7% in 2002.

On May 1, 2004, Poland joined the European Union and, as a result, products manufactured within the European Union will no longer be subject to import duties, which may have a positive impact on the Company’s future business as the pricing of the Company’s imported product portfolio becomes aligned with local product. It is important to note that while Poland joined the European Union in May 2004, joining the European Union does not automatically result in joining the EURO zone. This is a separate process with different admission requirements. Poland is currently forecasting joining the EURO zone in 2008.

In order to aid understanding, we have prepared tables which segment the income statement information as presented in the financial statements into those elements of the income statement which relate to operations acquired by the Company during the reporting period and those which relate to operations owned in both reporting periods. Key definitions are:

Total Operations 2004: This represents actual reported results for the year ended December 31, 2004.

Operations Acquired: These are the eliminations of the amounts generated by the 2004 and the 2003 acquired subsidiaries for the equivalent pre-acquisition period of 2003 (the equivalent pre-acquisition period for 2003 is defined as the period from January 1, 2003 through the date of the acquisition of the entity acquired) so as to present the 2004 continuing operations results for the same year on year periods.

Continuing Operations 2004: The amounts for 2004 generated by the same subsidiaries owned in 2003 and for the same period of time as in 2003.

Total Operations 2003: This is the extract from the income statement for total operations for the year ended December 31, 2003.

Also found in this report are references to the term “cash on delivery”, or COD. Normal trade terms from the Company’s Polish vodka suppliers are 60 days, however, the Company is offered by some of these suppliers significant discounts if the Company pays for goods when delivered. The discounts offered are considerably in excess of the effective rate the Company would pay for 60-day terms on our bank facilities. COD is also referenced in discussions regarding margin and short term banking facilities.

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Results of Operations

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Net Sales

Total net sales for 2004 increased by 35.3% or $151.6 million to $580.7 million. Net sales from continuing operations increased 10.7% or $45.9 million to $475.1 million for 2004 from a base figure of $429.1 million for 2003. The growth in 2004 is, however, diluted by the previously planned downsizing of a subsidiary acquired in April 2003. Excluding this subsidiary, sales from continuing operations increased by 13.7%. The increase in net sales from continuing operations was mainly due to the following factors.

Gross Profit

Total gross profit on net sales increased by 31.6% or $17.9 million to $74.3 million in 2004. The growth in gross profit from continuing operations was 11.2%. As a percentage of net sales, total gross profit for 2004 and 2003 was 12.8% and 13.2%. This decline in gross profit was primarily due to the lower gross profit margins from the acquired businesses. Newly acquired business take time to develop the growth of higher margin import sales. The gross profit attributable to net sales from continuing operations remained constant at 13.2%.

On May 1, 2004, Poland joined the European Union (EU). This accession finally removed all duty restrictions on goods imported from the EU as well as reducing duty rates for countries with which the EU has regional agreements. The final elimination of cross border duties has significantly increased the Company’s performance in imported product, particularly wines and imported spirits, the growth of which in sales value is

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described in the below table. Import beer sales grew more slowly for the six months ending December 31, 2004, primarily due to strong competition from domestic brands and unseasonably cold weather in the third quarter.

Operating Expenses

Total selling, general and administrative, or S,G&,A expenses increased 33.8% from $34.3 million in 2003 to $45.9 million in 2004. S,G&A attributable to continuing operations increased by 12.8% to $38.7 million. As a percentage of total net sales total S,G&A was 7.9% for 2004, down from 8.0% for 2003. S,G&A for continuing operations in 2004 was 8.1% of net sales.

Primary reasons for the increase in SG&A were an increase in depreciation of equipment in 2004 and the additional SG&A related to the acquired entities. Depreciation of equipment in total increased by 64.7% from $1.7 million in 2003 to $2.8 million in 2004. During 2004, the Company continued to bring on line its investment in systems upgrades, fleet rotations, and its investment in a new regional distribution center. Since most of this upgrade was a one time increase, the rate of growth of depreciation for the year ending December 31, 2004, is not expected to continue in future periods. Included in S,G&A is a portion of costs that are variable with volume such as transport and logistics.

Bad debt expense in total increased 17.8% from $592,000 in 2003 to $758,596 for 2004. This increase is less than the rate of sales growth and has been achieved through consistent management of the age profile of our trade receivables and diligent review of acquisitions to ensure that all provisions are made as part of the fair value assessment.

Operating Income

Total operating income increased 28.0% or $6.2 million to $28.4 million for 2004. Expressed as a percentage of net sales, operating profit for 2004 was 4.9% as opposed to 5.2% for 2003. The reduction in the operating profit margin percent was primarily from the increase in depreciation expense as well as the impact of gross profit margins as noted above. Operating income attributable to continuing operations increased 8.7% or $1.9 million to $24.1 million. The reasons for the increase of operating profit were due to the factors stated above.

Interest Expense

Total interest expense increased by 49.5% or $808,000 to $2.4 million for 2004. Interest cover declined from 13.6 times in 2003 to 11.7 times in 2004. Interest cover is the number of times that interest expense divides into operating profit. The increase in interest expense was from higher average borrowings, in line with business growth and increases in the Polish Zloty borrowing rates. The one month Warsaw inter-bank rate (WIBOR) increased from 5.21% at the end of 2003, to 6.46% at the end of 2004.

Bank loans and overdrafts as of December 31, 2004, was 6.4% of net sales, as compared to 7.1% as of December 31, 2003.

Net Realized and Unrealized Foreign Currency Losses

The net charge relating to foreign exchange losses decreased to $19,000 for 2004 from $92,000 for 2003.

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Income Tax

The total tax charge for 2004 was $4.6 million, which represented 17.4% of pre-tax profits. For 2003, the charge was $5.4 million, which represented 26.5% of pre-tax profits. The reduction in our effective tax rate, was principally due to a change in Polish tax rates from 27% in 2003 to 19% in 2004.

Net Income

Total net income increased by 44.8% or $6.8 million to $21.8 million for the year ended December 31, 2004. The increase was due to the factors noted above.

Total Operations 2003: This represents actual reported results for the year ended December 31, 2003.

Operations Acquired: These are the eliminations of the amounts generated by the 2003 and the 2002 acquired subsidiaries for the equivalent pre-acquisition period of 2002 (the equivalent pre-acquisition period for 2002 is defined as the period from January 1, 2002 through the date of the acquisition of the entity acquired) so as to present the 2003 continuing operations results for the same year on year periods.

Continuing Operations 2003: The amounts for 2003 generated by the same subsidiaries owned in 2003 and for the same period of time as in 2002.

Total Operations 2002: This is the extract from the income statement for total operations for the year ended December 31, 2002.

Net Sales

Total net sales for 2003 increased by 46.0% or $135.2 million to $429.1 million. Net sales from continuing operations increased 11.6% or $34.2 million to $328.1 million for 2003 from a base figure of $294.0 million for 2002. The increase in net sales from continuing operations was mainly due to two factors:

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Gross Profit

Total gross profit on net sales increased by 45.2% or $17.6 million to $56.5 million in 2003. The growth in gross profit from continuing operations was 13.3%. As a percentage of net sales total gross profit for 2003 and 2002 was 13.2%. The gross profit attributable to net sales from continuing operations increased from 13.2% to 13.4%. The increases in core gross profit can be attributed to the improved product mix being achieved in subsidiaries following operational reviews and implementation of marketing and sales coverage strategies.

Operating Expenses

Total S,G&A expenses increased 30.6% from $26.3 million in 2002 to $34.3 million in 2003. S,G&A attributable to continuing operations increased by 5.5% to $24.7 million. As a percentage of total net sales, total S,G&A was 8.0% for 2003, down from 8.9% for 2002. For S,G&A attributable to continuing operations for 2003, it was 8.2% of net sales. Included in S,G&A are a portion of costs that are variable with volume such as transport and logistics.

Depreciation of equipment in total increased by 31.2% from $1,273,200 in 2002 to $1,671,800 in 2003. The increase is attributable to the Company’s investment in its logistics infrastructure, that is, delivery vehicles and warehouse and information technology facilities.

Bad debt expense in total decreased 58.6% from $1,431,000 in 2002 to $592,000 for 2003. This decrease has been achieved through consistent management of the age profile of our trade receivables and diligent review of acquisitions to ensure that all provisions are made as part of the fair value assessment. As a percentage of sales, the provision represents 0.1% for 2003 versus 0.5% for 2002.

Operating Income

Total operating income increased 75.7% or $9.6 million to $22.2 million for 2003. Expressed as a percentage of net sales, operating profit for 2003 was 5.2% as opposed to 4.3% for 2002. Operating income attributable to continuing operations increased 34.8% or $4.4 million to $17.0 million. The reasons for the increase of operating margins were due to the factors stated above.

Interest Expense

Total interest expense remained stable at $1.6 million for both 2002 and 2003. Interest cover increased from 7.9 times in 2002 to 13.6 times in 2003. Interest cover is the number of times that interest expense divides into operating profit.

Net Realized and Unrealized Foreign Currency Losses

The net charge relating to foreign exchange losses decreased to $92,000 for 2003 versus a net charge of $178,000 for 2002. Following the Company’s decision in November 2002 to convert all its loan obligations to Polish Zloty, its functional currency, the Company has only been exposed to foreign currency translation risk on its net working capital.

Income Tax

The total tax charge for 2003 was $5.4 million, which represented 26.5% of pre-tax profits. For 2002, the charge was $2.8 million, which represented 25.0% of pre-tax profits.

Net Income

Total net income increased by 81.6% or $6.8 million to $15.1 million for the year ended December 31, 2003. The increase was due to the factors noted above.

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Liquidity and Capital Resources

In 2004, the Company’s operating activities generated $8.9 million in cash compared to using $8.3 million cash in 2003. The effects of the Company’s COD policy in paying certain Vodka suppliers, is provided in the below table.

Movement in COD support represents the change in the approximate portion of inventory purchased for COD as at December 31, 2004, December 31, 2003, and December 31, 2002.

The need for additional working capital was at its highest at December 31, 2004, due to the strong seasonality of sales, evidenced by December sales being 15% of the full year sales. In addition, the Company took advantage of an increase in excise tax and resulting price increases in domestic Vodka as of January 2005, to purchase additional supplies of Vodka at year end with approximately $20 million of extra inventory purchases as of December 31, 2004.

The net cash used in operating activities is affected by the Company’s use of COD terms. Use of COD, where the Company waives its 60 day payment terms in exchange for additional early settlement discounts, effectively replaces with bank funding the support a business would normally receive from suppliers in managing overall working capital needs. The effect of presenting the movement in COD would be to show an increase in funds generated by operations while showing a reduction in funding. The increased use of COD in 2003 has been driven both by increased activity and an increase in the percentage of purchases to which the Company attach COD terms. For 2004 and 2003, the percentage of COD from domestic suppliers was approximately 46% and 55%, respectively.

Impacting the above working capital days, is the effect of the year end exchange rate used to translate the balance sheet accounts as of December 31, 2004, as compared to the average exchange rate used to calculate sales and cost of goods sold. The year end exchange rate of the Polish Zloty to U.S. Dollar was 2.99 and the average exchange rate for the year was 3.54. Eliminating the impact of foreign exchange, the net working capital days for the year ending December 31, 2004, was 41.

The Company has paid particular attention to debtor management over the past two years. The increase in debtor days is primarily attributable to the foreign exchange impact noted above. Eliminating the impact of foreign exchange, debtor days for the year ending December 31, 2004, was 57.

Inventory days increased for the year ending December 31, 2004 and inventory rotations have declined from 12.8 times a year in 2003 to 8.5 times in 2004. This is primarily due to inventory build up of Vodka and the effect of foreign exchange as noted above.

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The increase in days payable is also attributable to the increased Vodka purchases at year end and the impact of foreign exchange.

Investing activities amounted to $9.3 million in 2004 and are in most part related to the acquisitions of Miro Sp. z o.o., Saol Sp. z o.o., Polnis Sp. z o.o. and assets acquisitions, details of which are given in note 6 to the Company’s consolidated financial statements included in this annual report. In addition the Company has been upgrading its information technology systems and has completed the construction of its new regional distribution center in the southeast region of Poland.

Financing activities generated a total of $635,000. The Company received $1.8 million as a result of option holders exercising their options during the year ended December 31, 2004. The receipt of these funds enabled the Company to reduce its debt during the year though this has returned to a similar level as the previous year following the recent acquisitions.

The nature of the Company’s business is that it has to invest in working capital, mainly Polish vodka on COD terms, towards the end of the calendar year, which is traditionally its busiest selling period. With this in mind, the Company arranged for various short-term funds to be available to it, which at December 31, 2004 the Company had $30,924,210 of unused credit facilities available to it under these short-term agreements.

Total forward contracted obligations are:

Statement on Inflation and Currency Fluctuations

Inflation in Poland was 3.5% for the twelve months ended December 31, 2004, as compared to 1.7% for the twelve months ended December 31, 2003.

The Company’s operating cash flows and virtually all of its assets are denominated in Polish zloty. In November 2002, the Company migrated nearly all its term loan facilities from U.S. Dollar and Euro to Polish zloty denominated loans.

The Company has banking facilities with six banks which are used to support both the Company’s acquisition strategy and its COD vodka purchasing requirements. The credit lines are all denominated in Polish Zloty.

These facilities are disclosed in the financial statements as:

The Company is exposed to translation risk arising from the restatement of its financial statements from Polish zloty to U.S. Dollars, a more detailed note on this risk is given in Item 7A of this annual report.

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Seasonality

The Company’s net sales have been historically seasonal with an average over 30% of the net sales occurring in the fourth quarter. During 2004, net sales in the fourth quarter were 33% of the full year, compared to 32.6% for the fourth quarter of 2003. The table below demonstrates the movement and significance of seasonality in income statement.