Karim Varela believes he was providing a valuable public service with i-Booze.com, a liquor delivery service he started in mid 2008.

Following in the footsteps of Kozmo.com, a short-lived delivery service during the dot-com days, i-Booze took orders for beer, wine, cigarettes, snacks and other products from a Web page and delivered them within an hour.

Varela, 28, who works with mobile application developers at AT&T in Redmond, started the venture in his Bellevue garage.

Soon he employed three people handling deliveries averaging $22, mostly 12 packs of beer to people living in downtown Seattle condos. The state gave him licenses to sell and deliver alcohol and tobacco, just not hard liquor.

But then in April, the city of Bellevue told him the business was violating its home-base business zoning standards because it had more than two employees.

Varela relocated to an Eastlake warehouse and filed for a new liquor license, but kept running the business.

"I wasn't going to stop the business and shut it down,'' he said.

While he waited for the license, a state liquor board conducted a sting, placing an order in Seattle.

"Five minutes later they stormed the warehouse with three officers," Varela said.

The license application is still pending, but apparently the city of Seattle has objected.

"They thought our business model was conducive to serving intoxicated people, which is against the law," Varela said.

City Attorney Tom Carr was more specific. He said liquor licensees are prohibited from selling to intoxicated people and Varela's "business plan does not include any provision to apply this rule. In fact, his advertisements seem to encourage intoxicated people to buy from him."

Carr said the city also objected because the business operated in the city "knowing that he needed a license, selling liquor without a license for three months until he was caught by the liquor control board" and because he has a recent DUI conviction.

Varela learned this the hard way. In September, he was summoned to court to face misdemeanor charges for seling alcohol without a license and possessing alcohol with intent to sell it.

On Monday he plea bargained for a six-month continuance, so the charges will be dropped if he doesn't offend within six months. Meanwhile, he has to pay a $200 fine and perform 20 hours of community service, which he hopes to fulfill by providing Web development services to a local charity.

"It was really nasty,'' he said over lunch today. "If they would have just told me I'm not allowed to sell I would have stopped."

Varela shuttered i-Booze in August, just as it was starting to see positive cash flow.

Gone are his plans to expand to San Francisco and Las Vegas, along with an investor who was expected to sign on in September. Altogether Varela lost about $40,000 on the venture.

But Varela still has a good job and other business plans.

"I've got a ton of ideas," he said. "Whether or not the government lets me do i-Booze, I've learned a lot."