Form S-1

Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. x

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. ¨

The registrant hereby amends this registration statement on such date or date(s) as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the commission acting pursuant to said Section 8(a) may determine.

The information in this prospectus is not complete and may be changed. The securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

This prospectus relates to the resale by the selling stockholders of up to 57,000,000 shares of our common stock. The total number of shares sold herewith consists of: (i) 38,000,000 shares issuable upon conversion of Debentures and (ii) 19,000,000 shares issuable upon the exercise of Warrants. We are not selling any shares of common stock in this offering and therefore will not receive any proceeds from this offering. We will, however, receive proceeds from the cash exercise, if any, of Warrants to purchase an aggregate of 19,000,000 shares of common stock. All costs associated with this registration will be borne by us.

The selling stockholders may sell their shares in public or private transactions, at prevailing market prices or at privately negotiated prices. We will not receive any proceeds from the sale of the shares of common stock by the selling stockholders.

Our common stock is currently traded on the OTC Bulletin Board under the symbol CGSY. On April 14, 2008, the last reported sale price for our common stock was $0.55 per share.

INVESTING IN THESE SECURITIES INVOLVES SIGNIFICANT RISKS. SEE “ RISK FACTORS” BEGINNING ON PAGE 4.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

You may only rely on the information contained in this prospectus or that we have referred you to. We have not authorized anyone to provide you with different information. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the common stock offered by this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any common stock in any circumstances in which such offer or solicitation is unlawful. Neither the delivery of this prospectus nor any sale made in connection with this prospectus shall, under any circumstances, create any implication that there has been no change in our affairs since the date of this prospectus or that the information contained by reference to this prospectus is correct as of any time after its date.

This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including, the section entitled “Risk Factors” before deciding to invest in our common stock.

Capital Growth Systems, Inc. d/b/a Global Capacity (“Capital Growth,” “CGSI,” “we,” “us,” or the “Company”), is a publicly-traded corporation that delivers telecom logistics solutions to a global client set consisting of systems integrators, telecommunications companies, and enterprise customers. The Company helps customers improve efficiency, reduce cost, and simplify operations of complex global networks, with a particular focus on access networks – often referred to in the industry as the “last mile.” The global market for access networks is estimated at over $100 billion annually and represents a significant percentage of the overall network cost that service providers and large systems integrators incur in delivering network solutions to their global customers. The market is characterized by a large number of suppliers that offer piece parts of a customer’s end-to-end network requirement that must be effectively combined with assets from other providers to deliver a complete network solution. This dynamic creates challenges for customers seeking to procure network connectivity globally. Lack of transparency relative to the supply and pricing of network assets creates inefficient procurement practices for many customers, resulting in unnecessarily high costs and unnecessarily complex operating environments.

The Company is engaged in the delivery of network logistics solutions that enable customers to optimize and manage their complex global networks, resulting in improved efficiency, reduced cost, and simplified operations. The Company leverages a proprietary knowledge base of global telecom pricing and supply data, customized tools that analyze and optimize complex networks, and structured processes focused on the entire telecom supply chain to deliver logistics solutions to its clients. These solutions are organized around two business units: Optimization Solutions and Connectivity Solutions.

Our principal executive office is located at 500 W. Madison Street, Suite 2060, Chicago, Illinois, 60661 and our telephone number at that address is (312) 673-2400.

On March 11, 2008, the Company completed a private placement of $19 million of securities (“Purchase Agreement”) with a number of investors (“Purchasers”). The securities comprise (i) variable rate senior secured convertible debentures (“Debentures”) in an aggregate principal amount of $19 million, convertible into common stock of the Company at $0.50 per share (the “Conversion Price”)’ subject to certain possible adjustments, representing 38 million shares of common stock on an as-converted basis; and (ii) one warrant per Debenture (each a “Warrant”), providing a right to purchase 50% of the number of shares of common stock purchasable with the original principal amount of the Debentures, at a price of $0.73 per share having a term ending five years from the closing date.

Proceeds pursuant to the Agreement, net of $1.7 million of advisory fees paid to Capstone Investments and Aequitas Capital Management, were used to extinguish the senior secured debt as well as all remaining junior subordinated debt that had not been converted to equity prior to the execution of the Purchase Agreement. These outstanding balances were $6.6 million and $2.0 million, respectively, at the closing date. The remaining proceeds were retained for working capital purposes. In addition to the cash paid fees, the Company issued to Capstone a warrant to purchase 2,660,000 shares of common stock. Such warrant contains substantially similar terms and conditions (including exercise price and expiration date) to the Warrants issued to the Purchasers and described below, but does not carry registration rights.

The Debentures mature five years from the closing date. Each Debenture contains a 5% coupon for the first two years and a 10% coupon for the last three years. The coupon shall be paid quarterly in arrears and may, at the Company’s option, be paid in cash or in shares of common stock pursuant to certain prescribed calculations to determine value, contingent upon the Company having sufficient authorized but unissued common stock to enable it to issue all of the shares underlying the Debentures, Warrants, and the corresponding interest payment. A late fee of 16% per annum is payable with respect to any late payments.

During the first year, the Company will have the right to call up to 25% of the Debentures outstanding at 105% of their stated value (plus all interest that would have accrued on the prepaid amount if the Debentures were held to maturity). In the second year, the Company may call up to 100% of the Debentures upon tender of the full amount owing with respect to the Debentures (plus all interest that would have accrued on the prepaid amount were the Debentures held to maturity), provided the Company is in compliance with all of its obligations under the Debentures and satisfies all “equity conditions” as discussed in greater detail below. The Debentures are subject to a number of other restrictions, conditions, sanctions, and negative covenants. The Debentures are convertible from time to time at the option of their holders at the “Conversion Price.” The “Conversion Price” is $0.50 per share, subject to certain possible adjustments.

The Purchase Agreement calls for the issuance of Warrants comprising the right to purchase up to 50% of the shares issuable per the Debentures (19 million shares of common stock in the aggregate for all of the Warrants) at an exercise price of $0.73 per share (subject to adjustment as discussed below). The Warrants expire five years from the closing date. The Warrants may be exercised for cash or on a cashless basis and are subject to certain other conditions.

The Company has entered into a “Registration Rights Agreement,” pursuant to which it is obligated to file a registration statement (of which this prospectus is a part) to register all or the maximum amount permitted by the SEC (collectively the “Maximum Amount”) of the common stock of the Company underlying the Debentures and Warrants (subject to the obligation to file one or more subsequent registration statements as necessary to register the remaining unregistered shares until all of the underlying securities are eligible for resale under Rule 144 without volume limitation), which contains certain liquidated damages if not timely filed. The Company has agreed that it shall file to register all of the shares of common stock underlying the Debentures and Warrants (“Registrable Securities”) promptly following the closing of the offering pursuant to the Purchase Agreement (“Closing Date”), subject to cutback of the amount to be registered if required by the Securities and Exchange Commission (“SEC”) pursuant to Rule 415 (subject to the obligation in such event to subsequently register the unregistered securities by September 30, 2008). It is obligated to, among other things, file the registration statement pursuant to the Securities Act of 1933 on the earlier of the fifteenth calendar day following the date it files its annual report on Form 10-KSB or May 1, 2008 and cause the registration statement to be declared effective no later than sixty days following the filing date (or ninety days following the filing date if the registration statement undergoes a “full review” by the Securities and Exchange Commission). Failure to meet any of these obligations constitutes an “Event,” which subjects the Company to liquidated damages of 2% of the original principal amount of the Debenture of the holder for each month in which it occurs and on each monthly anniversary thereof, of a liquidated damages obligation equal to 2% of the original principal amount of the Debenture of the holder, subject to an aggregate cap of 12% of the original principal amount of the Debenture, payable in cash unless otherwise agreeable to the Company and the Debenture holder (and interest accrues on unpaid liquidated damages at 18% per annum).

The Company and all of its subsidiaries (each, a “Debtor”) entered into a Security Agreement pursuant to which they granted to the Purchasers and their assigns to Enable Growth Partners, L.P., as agent for the Purchasers and their assigns (the “Agent”), a security interest in all of the assets of the Debtors (the “Collateral”), including a pledge by the Company of all of the capital stock of each of its subsidiaries. Upon an Event of Default under the Security Agreement, the Agent may exercise all rights available to any of the Purchasers, including to take possession of the Collateral and to operate the business of each Debtor.

For a more detailed explanation of the private placement, please see the section entitled “Recent Financing.”

An investment in our shares involves a high degree of risk. Before making an investment decision, you should carefully consider all of the risks described in this prospectus. If any of the risks discussed in this prospectus actually occur, our business, financial condition and results of operations could be materially and adversely affected. If this were to happen, the price of our shares could decline significantly and you may lose all or a part of your investment. Our forward-looking statements in this prospectus are subject to the following risks and uncertainties. Our actual results could differ materially from those anticipated by our forward-looking statements as a result of the risk factors below. See “Forward-Looking Statements.”

Should we choose to effect additional acquisitions, any such future acquisition shall be subject to all of the risks inherent in purchasing a new business. Shareholders must rely upon management’s estimates as to fair market value and future opportunities with respect to acquisitions of such companies. In addition, in order to attract and retain key personnel with respect to any acquisitions, including 20/20 Technologies, Inc. (“20/20”), Magenta netLogic, Limited (“Magenta”) CentrePath, Inc. (“CentrePath”), and Global Capacity Group, Inc. (“GCG”), we may be obligated to increase substantially the benefits with respect to employment agreements and equity participation rights (through the issuance of stock, warrants, options, phantom stock rights, or other assets with equity participation features) which could be substantially dilutive of existing shareholders.

With the exception of GCG, each of our operating subsidiaries has a history of losing money, and despite the foreseen nature of those losses, there can be no assurances that the integrated Company will be able to generate profits. We have lost money over our operating history and there can be no assurances that either our historical business or our business as centered on our new telecom logistics integrator strategy will prove profitable. This risk is further heightened by the fact that the integration of an acquired business often results in the incurring of substantial costs and possible disruption of the business once acquired due to differences in the culture between the entities and the possibility that key employees may either elect not to continue with the integrated entity or work under a different motivation than prior to the acquisition. In addition, customers and suppliers may modify the way they do business due to their perception of the Company post-acquisition and/or due to certain preconceived issues that they may have with the acquiring company.

We have incurred substantial debt in developing the business and in acquiring our subsidiaries, although a significant part of this has now converted to equity.

There can however be no assurances that the Company will be able to refinance or extend any existing debt. At December 31, 2007, we had incurred substantial debt with our senior secured lender and with the providers of junior subordinated debt. All of such debt was refinanced in March 2008 with a portion of the proceeds of $19 million of Debentures issued to a small group of institutional lenders, together with detached Warrant coverage and subject to a registration rights agreement obligating us to register the shares of common stock underlying the Debentures and the Warrants. There is a risk that the Company will be unable to meet all of the covenants contained in the Debentures or other associated loan documents, including the obligation to pay interest on a regular basis and the obligation to timely register the shares of common stock underlying the Debentures and Warrants, which could result in acceleration of the indebtedness and/or the incurring of penalty interest and significant penalties associated with failure to timely register the shares of common stock. There is also a risk that on maturity of the Debentures we will lack the funds to repay the same. Conversely, the Debentures are convertible into common stock at 50 cents per share, subject to a reset in the conversion price in the future, and with full ratchet anti-dilution protection. Conversion of the Debentures and exercise of the Warrants could be substantially dilutive to existing shareholders.

Our success is highly dependent on us taking principal positions in telecommunication circuit contracts, especially with ‘novations’.

The significant revenue growth in our business plan is predicated on our ability to successfully take principal positions in large telecommunication circuit contracts. A novation is the assumption of existing circuits business from a client and managing it to an improved cost basis with the same or better quality of services. Since these contracts tend to have a high dollar value, any delay in securing them will have a significant impact on our current year’s revenue and cash from operations. Customers and suppliers alike will demand credit worthiness as well. We have many such opportunities in our sales pipeline and the market appears ready to accept our innovative approach to outsourcing of these functions. In the event we do experience a delay or are ultimately unsuccessful in closing these orders, we may be forced to raise additional capital through issuance of new equity or increased debt load, or a combination of both to fund our current operations. However, there can be no assurance we will be able to raise additional capital or issue additional indebtedness, or if we do so that it will not be dilutive of existing investors. There is a risk that prospective customers may delay or not issue orders until our balance sheet is stronger and that potential suppliers of bandwidth may cutback supply of bandwidth absent cash or cash collateral.

We have incurred losses since our inception and cannot assure you that we will achieve profitability. Through December 31, 2007, we have incurred cumulative losses of $73.0 million compared to a cumulative loss of $22.6 million through December 31, 2006. To succeed, we must continue to develop new client and customer relationships and substantially increase our revenues from sales of products and services. We intend to continue to expend substantial resources to develop, improve, and market our products and services. These development and marketing expenses often must be incurred well in advance of the recognition of revenue. There is no certainty that these efforts will be successful.

We may need to obtain additional financing over time to fund operations and/or to strengthen our balance sheet to attract customers and to ensure credit from suppliers, the amount and timing of which will depend on a number of factors including the pace of expansion of our markets and customer base, development efforts and the cash flow generated by our operations. We cannot predict the extent to which we will require additional financing, and cannot assure you that additional financing will be available on favorable terms or at all times. The rights of the holders of any debt or equity we may issue in the future could be senior to the rights of shareholders, and any future issuance of equity could result in the dilution of our shareholders’ proportionate equity interests in us (including due to the full ratchet anti-dilution rights in favor of the holders of our senior debt and financing on unattractive terms). Failure to obtain financing or obtaining of financing on unattractive terms could have a material adverse effect on our business.

Our success depends to a significant degree upon the continuing contributions of our key management. These individuals have the most familiarity with the products we offer and the markets in which we offer them. The loss of any of these individuals could have a material adverse effect on our business and we do not maintain key man insurance on any of these individuals.

We face the risk of product obsolescence if we fail to develop new products.

We expect that the market for our products and services will be characterized by rapidly changing technology and new product introductions. Our success will depend, in part, upon our continued ability to provide products with the advanced technological qualities desired by our customers, to enhance and expand our existing product offerings and to develop in a timely manner new products that achieve market acceptance. Failure to enhance and expand existing product offerings or failure to develop new products could have a material adverse effect on our business, results of operations and financial condition.

Competition in our current and anticipated future markets is very intense, and it is expected that existing and new competitors will seek to replicate much of the functionality of our products and services. Additionally, there can be no assurances that we will be able to successfully develop the next generation of products and services necessary to establish a lead on the market or that if we are able to do so, that customer acceptance for these products could continue. Replication by competitors of our existing products, failure to develop new products, or failure to achieve acceptance of products could have a material adverse effect on our business and financial condition.

Given the software-intense nature of our business, once a product or service is developed, competition has the ability to lower its pricing significantly to gain market share, due to the minimal incremental cost to production. Additionally, certain aspects of the market may be lost to the extent that “free” software is developed to address this functionality. These factors could have a material adverse effect on our business and financial condition.

In the high technology business, one of the largest barriers to entry for small and start-up companies is the concern by enterprise customers and suppliers as to the viability of the Company. Even if we are profitable, we may experience significant resistance from prospective customers due to our relatively small size. This could be exacerbated as we have not attained profitability since our inception and we continue to maintain significant debt on our balance sheet. This resistance could have a material adverse effect on our results of operations and financial condition.

Defects in our software could reduce demand for our products and expose us to costly liability that would adversely affect the Company’s operating results. Our technology solutions are internally complex. Complex software may contain errors or defects, particularly when first introduced or when new versions or enhancements are released. Although we conduct extensive testing, we may not discover software defects that affect our current or new products or enhancements until after they are sold.

In addition, our license and service agreements with our customers typically contain provisions designed to limit our exposure to potential product liability claims. It is possible, however, that the limitation of liability provisions contained in our license and service agreements may not be effective as a result of existing or future federal, state, or local laws, ordinances, or judicial decisions. Although we have not experienced any product liability claims to date, sale and support of our products entails the risk of such claims, which could be substantial in light of our customers’ use of many of our products in mission-critical applications. We do not maintain product liability insurance. If a claimant brings a product liability claim against us, it could have a material adverse affect on our results of operations and financial condition.

We may lack the resources to enforce any patents or other intellectual property rights we may have or a court may subsequently determine that the scope of our intellectual property protection is not as broad as presently envisioned. In any event, proprietary rights litigation can be

extremely protracted and expensive and we may lack the resources to enforce our intellectual property rights. There is not patent protection for those technologies that are the subject of trade secrets, and our ability to protect such competitive advantages will be a function of many factors that are not fully within our control, including maintenance of confidentiality agreements and general efforts to keep trade secret information from coming into the public domain. Failure to protect our patents and our confidential information (as well as associated business techniques) could have a material adverse impact upon the way in which the Company does business.

Our representatives and we may from time to time make written or oral statements that are “forward-looking,” including statements contained in this prospectus and other filings with the Securities and Exchange Commission, reports to our stockholders and news releases. All statements that express expectations, estimates, forecasts, or projections are forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended. In addition, other written or oral statements which constitute forward-looking statements may be made by us or on our behalf. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “projects,” “forecasts,” “may,” “should,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Important factors on which such statements are based are assumptions concerning uncertainties, including but not limited to uncertainties associated with the following:

We will receive no proceeds from the sale of shares of common stock offered by the selling security holders herewith. However, we will generate proceeds from the cash exercise of the Warrants, if any. We intend to use those proceeds for general corporate purposes.

See section titled “Description of Business” for a complete overview of the business of the Company.

As of December 31, 2007, the Company’s current liabilities exceeded its current assets by $7.9 million. Included in the current liabilities is $5.2 million of current maturities of long-term debt, net of $0.9 million associated with the fair value of the related warrants. This debt reflects indebtedness to its senior secured lender and the unconverted balance of its subordinated debt. Cash on hand at December 31, 2007 was $0.6 million (not including $0.2 million restricted for outstanding letters of credit) and the Company’s borrowing capacity under the asset-based loan agreement with its senior lender totaled $0.5 million. The Company has incurred net losses from continuing operations of $45.5 million and $8.9 million for the years ended December 31, 2007 and 2006, respectively, with results for 2007 including $32.1 million in non-cash expenses relating to the accounting treatment for stock, warrants, and options. Additionally, cash used in operating activities from continuing operations was $9.7 million and $3.9 million for the years ended December 31, 2007 and 2006, respectively.

The Company’s net working capital deficiency, recurring losses, and negative cash flows from operations raise doubt about its ability to continue as a going concern. Notwithstanding the above, the Company continues to find support amongst its shareholders and other investors.

There was significant capital activity during 2007 and in the ensuing months as well. The major components are summarized below:

These capital raises allowed the Company to re-finance existing indebtedness and fund its operations. On March 11, 2008, the Company closed on $19.0 million of senior secured convertible debentures. Approximately $8.9 million of the proceeds from the sale of the Debentures was used to pay off almost all previously outstanding indebtedness and $1.7 million was used to pay advisory fees to Capstone Investments and Aequitas Capital Management. The remaining proceeds will be used for working capital purposes and to support the Company’s new business development.

Total revenues for 2007 were $17.2 million compared to $1.6 million in 2006. Although not truly comparable, had there been a full year of activity reported for 2006 by the entities acquired late in the year, there would be a 3% year over year decrease in the top line. A component of that change can be traced to a shift in product development and delivery at Magenta, where management prioritized the proprietary pricing tools that have now been placed in service.

Revenues generated from Optimization Solutions totaled $7.5 million, which represents professional services, remote network management services, and the use of our automated pricing software. The Connectivity Solutions business recorded $9.7 million from the design, delivery, and management of networks.

The gross margin rate was 29% for 2007 compared to 48% in 2006. The change is the result of shifts in staff utilization and product mix. In addition, as the software license business is entirely proprietary, gross margins on that particular line are quite high; however, a decision was made to re-tool those offerings in the short-term to better deliver the integrated product suite.

Operating expenses increased $29.6 million for the year ended December 31, 2007 as compared to December 31, 2006. The primary reason for this increase is due to the acquisitions of 20/20, Magenta, CentrePath, and GCG during the second half of 2006. As a result, the year ended December 31, 2007 includes a full year of operating expenses related to these activities compared to less than four months of operating expenses during the year ended December 31, 2006. The majority of operating expenses consist of compensation, professional fees, and depreciation and amortization. Included in compensation expense for 2007 are non-cash charges of $13.8 million related to the accounting treatment of certain stock option grants as compared to $1.8 million for 2006. This is driven by the application of Statement of Financial Accounting Standards (“SFAS”) No. 123R, Share-Based Payment (SFAS 123R) to the executive compensation packages approved at the end of the year as well as the severance provision for the former CEO. Professional services also include similar non-cash charges of $4.3 million for 2007 as compared to $0.5 million for 2006. Depreciation and amortization expense relates primarily to the network operations center (“NOC”) in the suburbs of Boston and the fair value assigned to the Company’s intellectual property.

The remaining compensation, professional fees, and other operating costs relate to the continuing efforts in building and supporting current operations to integrate several disparate entities into a world-class telecommunications logistics provider. In the second half of 2007, management increased its efforts to contain costs and reduce expenses. Occupancy commitments were addressed – specifically including the location in the suburbs of Boston – and shell space in the NOC was reduced by two thirds.

Any significant increase in future operating costs is expected to be a direct result of a corresponding increase in revenues, excluding any additional stock-based compensation expense. Any significant increase in revenues is anticipated to outpace the increase in related operating costs.

Results for the year ended December 31, 2007 reflect interest of $11.9 million on the various facilities closed throughout the year, including related warrant coverage. This interest includes $3.1 million related to the amortization of the fair value assigned to the warrants issued with the debt. In addition, the Company recognized $4.4 million related to a beneficial conversion feature associated with the issuance of the junior secured facility. The debt had a weighted average interest rate of 12.8%.

On January 19, 2007, we closed on an equity funding of $15.9 million toward the issuance of Units comprised of 15,869.4 shares of Series AA preferred stock (convertible into common stock at $0.45 per Share) and warrants to purchase an additional 15,869.4 shares of Series AA preferred stock. We also entered into a registration rights agreement with the Units purchasers which obligates us to file a registration statement to register the shares of common stock underlying the Units within 90 days following the termination of the Units offering and to cause the registration statement to be declared effective no later than 180 days following the date of termination of the offering. There is a penalty of 1% of the purchase price of the Units per month for each month that the we are late in the initial filing or the declaration of effectiveness of the registration statement, subject to a cap of 12% in the aggregate of the original Units’ purchase price, and with the penalty to be payable in common stock issuable based upon the ten-days’ average trailing value of our shares of common stock for the applicable period. As of December 31, 2007, we had not filed a registration statement and therefore were obligated to issue 4,784,623 shares of common representing a non-cash registration rights penalty of $2.5 million. Holders of the affected shares include certain members of our Board of Directors. We have issued the shares associated with such penalty.

The results from 2006, as currently displayed in comparison, reflect our subsidiaries, Frontrunner Networks Systems Corporation (“Frontrunner”) and Nexvu Technologies, LLC (“Nexvu”), as discontinued operations whereas, in prior years, they represented the majority of the activity of the Company.

Revenues for the twelve-month period ended December 31, 2006 and 2005 were heavily influenced by Frontrunner. The total revenues during 2006 and 2005 were $14.8 million and $15.7 million, respectively, of which $12.0 million and $14.3 million were derived by our Frontrunner segment, representing over 81% and 92%, respectively, of our consolidated revenues. Frontrunner revenues were generated from installation of voice and data systems as well as through maintenance contracts on installed systems. Maintenance revenues for Frontrunner for the twelve-month period ended December 31, 2006 and 2005, whether contractual or time and material-based, represented $7.1 million and $7.9 million, or 60% and 55%, respectively, of Frontrunner’s total revenues. The decrease was due to $0.4 million of lower moves/adds/changes sales in

2006 when compared to 2005 and a decrease in the number of customers under maintenance contracts, resulting in a reduction in maintenance revenue of $0.4 million. Customers under contract at December 31, 2006 and 2005 were 230 and 279, respectively. Frontrunner was notified by one large customer of its intent not to renew its annual maintenance agreement, which was expected to negatively impact maintenance revenue by $0.6 million in 2007. Installation revenue generated from Frontrunner during 2006 and 2005 totaled $4.9 million and $6.4 million, respectively, or 40% and 45%, respectively, of its total revenues. The reduction in Frontrunner’s installation revenue in 2006 from 2005 was the direct result of companies adopting newer telecommunication technology, which resulted in an overall increase in competition. Frontrunner’s ability to increase installation revenue will be highly dependent upon its ability to source this newer technology at a price point that allows them to be more competitive. Another factor includes Frontrunner’s ability to adequately train its employees and technicians on selling and supporting this newer technology. Nexvu revenues for each of the twelve-month periods ended December 31, 2006 and 2005 were $1.3 million, of which $1.0 million was derived from consulting services in both periods with the remaining revenues related to software licensing sales and related maintenance fees. During 2006, one customer accounted for approximately 80% of Nexvu’s overall revenue. We did not anticipate generating any revenue from this customer in 2007 – which will have a significant negative impact on Nexvu’s business. Our acquisition of CentrePath, which generates revenue by providing network control services, along with related consulting services contributed approximately $0.7 million of additional revenue during 2006. Revenues generated in 2006 from our acquisitions of 20/20 and Magenta (in September) and GCG (in December) through December 31, 2006 totaled $0.5 million and $0.4 million, respectively.

The gross margin rate was 49% for 2006 compared to 46% in 2005. Frontrunner’s overall gross margins, which accounted for 81% and 76% of the overall gross margin dollars generated during 2006 and 2005, were 49% and 46%, respectively. Frontrunner’s installation margins were 28% and 27%, while maintenance revenues gross margins were 54% and 52% during 2006 and 2005, respectively. Frontrunner’s maintenance gross margin improved slightly as a result of implementing several cost cutting measures during 2006 in response to an overall reduction in Frontrunner’s maintenance revenue from several customers not renewing their annual support agreements. Since a large percentage of those maintenance costs are fixed in nature, any significant reduction in maintenance revenue would have a deteriorating effect on the related gross margins. The Nexvu gross margin rate for 2006 was 52% and 47% for the years ended 2006 and 2005, respectively. The increase in gross margin percentage was due to an overall reduction in royalty costs incurred during the year. In 2005, we paid a company $150,000 in royalties versus $0 in 2006. We had begun the process of renegotiating our license agreement with this company, which could result in higher royalty payments in the future. The recently acquired entities (20/20, Magenta, CentrePath, and GCG) had a combined gross margin of 48% and accounted for approximately 10% of the overall gross margin dollars recognized in 2006.

Frontrunner absorbs a majority of the selling, general, and administrative expenses due to the relative size of the organization compared to the rest of the entities. Also, the total operating expenses only include 20/20, Magenta, CentrePath, and GCG from their respective acquisition dates through December 31, 2006. The majority of our operating expenses consist of compensation expenses and professional fees. Of the total $14.9 million and $9.0 million of operating expenses recognized during 2006 and 2005, Frontrunner comprises $7.2 million and $6.4 million, respectively. When comparing Frontrunner’s operating expenses from 2006 to 2005, the increase of $0.8 million was primarily due to a goodwill impairment charge of $1.4 million, partially offset by $0.6 million of lower levels of compensation and travel and entertainments costs. The decrease in these costs was the result of an overall reduction in headcount as Frontrunner’s revenue had declined from $14.3 million in 2005 to $12.0 million 2006. Operating expenses for Nexvu and the Company accounted for $5.8 million during 2006, up from $2.7 million for the year ended 2005. During 2006, we adopted FAS123(R), which resulted in the recognition of stock compensation expense of $1.8 million for stock options and warrants issued to employees, which was classified in compensation costs. The Company had expensed executive bonuses totaling $0.6 million and had an increase in compensation costs of $0.1 million during 2006. The Company also had an overall increase in professional fees and outside services of $0.7 million in 2006, when compared to the prior year of which approximately $0.4 million

related to stock warrants issued and $0.1 million related to the issuance of common stock to a non-employee related to consulting services provided. These costs were partially offset by lower operating costs for Nexvu of $0.3 million, which were primarily compensation-related as the result of an overall reduction in headcount. The remaining increase in operating costs in 2006 when compared to 2005 was due to our acquisitions of 20/20 (including Magenta), CentrePath, and GCG, which totaled $1.5 million, $0.3 million, and $0.1 million, respectively. The increase in depreciation and amortization was the result of the identified intangible assets and fixed assets associated with our acquisitions of 20/20 (and its subsidiary, Magenta), CentrePath, and GCG. The total amount of amortization and depreciation expense recognized during 2006 was $0.2 million, $0.2 million, and $0.1 million, respectively.

Interest expense for 2006 was $3.9 million compared to $0.3 million during 2005. The increase in interest expense is the direct result of the additional indebtedness to facilitate our acquisitions of 20/20 (and Magenta), CentrePath, and GCG during 2006, along with our additional indebtedness. Of the increase in interest expense, approximately $2.8 million related to expense allocated to the stock warrants issued in connection with the debt.

Cash used in operating activities from continuing operations during the years ended December 31, 2007 and 2006 was $9.7 million and $3.9 million, respectively. The cash used in operating activities was principally due to the net loss for the year. There was a significant variance between operating loss and net cash used in operating activities from continuing operations during the year due to non-cash stock compensation of $13.8 million, debt-related stock warrant expense issued of $11.5 million, consulting expenses paid in stock and warrants of $4.3 million, registration rights penalty of $2.5 million and non-cash depreciation and amortization expense of $3.5 million.

The cash used in investing activities from continuing operations was $0.4 million and $10.3 million for the years ended December 31, 2007 and 2006, respectively. During 2006, the Company made three investments in acquisitions for 20/20 (including Magenta), CentrePath, and GCG. We did not make any acquisitions during 2007.

Net cash provided by financing activities from continuing operations during the period ended December 31, 2007 and 2006 was $14.4 million and $16.4 million, respectively. The cash provided from financing activities during the period ended December 31, 2007 was due to the issuance of common stock offset by payments made on debt. The cash provided from financing activities during the period ended December 31, 2006 was the result of the additional indebtedness from the issuance of a mandatory convertible debt, which totaled $1.3 million and other short-term debt to acquire 20/20 (including Magenta), CentrePath, and GCG, which totaled $2.5 million, $7.9 million, and $4.7 million, respectively.

Historically our working capital requirements have been met through proceeds of private equity offerings and debt issuances. On March 11, 2008, we completed a private placement of $19.0 million of securities with a number of investors. The proceeds, net of $1.7 million of advisory fees, were used to extinguish the senior secured debt as well as all remaining subordinated debt that had not been converted to equity previously. The outstanding balances of the senior secured and the subordinated debt were $6.6 million and $2.0 million, respectively. The remaining proceeds were retained for working capital purposes. We currently believe our working capital will be sufficient to fund the business until we start generating positive cash flow from operations, which we expect will occur starting in the second quarter of 2008. However, if our revenues do not materialize as anticipated, we may be forced to raise additional capital through issuance of new equity or increasing our debt load, or a combination of both.

The following table summarizes our future contractual obligations as of December 31, 2007:

From time to time, we may evaluate potential acquisitions of businesses, products, or technologies. A portion of our cash may be used to acquire or invest in complementary businesses or products or to obtain the right to use third party technologies. In addition, in making such acquisitions or investments, we may assume obligations or liabilities that may require us to make payments or otherwise use additional cash in the future.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. SFAS No. 157 will apply whenever another standard requires (or permits) assets or liabilities to be measured at fair value. The standard does not expand the use of fair value to any new circumstances, and is effective beginning after December 31, 2007. We are currently evaluating the impact of adopting SFAS No. 157 on our financial position and results of operations.

On December 4, 2007, the FASB issued SFAS 141(R), Business Combinations (SFAS 141R). SFAS 141R replaces SFAS 141, Business Combinations and applies to all transactions or other events in which an entity obtains control of one or more businesses. SFAS 141R requires the acquiring entity in a business combination to recognize the acquisition-date fair value of all assets acquired and liabilities assumed including contingent consideration and those relating to minority interests. SFAS 141R also requires acquisition-related transaction expenses and restructuring costs to be expensed as incurred rather than capitalized as a component of the business combination. SFAS 141R is effective for fiscal years beginning after December 15, 2008 and may not be applied before that date. The provisions of SFAS 141R will impact the Company if it is party to a business combination after the pronouncement has been adopted.

On December 4, 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements (SFAS 160). SFAS 160 establishes accounting and reporting standards for the non-controlling interest (previously referred to as minority interests) in a subsidiary and for the deconsolidation of a subsidiary by requiring all non-controlling interests in subsidiaries be reported in the same way, as equity in the consolidated financial statements and eliminates the diversity in accounting for transactions between an entity and non-controlling interests by requiring they be treated as equity transactions. SFAS 160 is effective for fiscal years beginning after December 15, 2008 and may not be applied before that date. The Company does not currently expect the adoption of SFAS 160 to have a material effect on its consolidated results of operations and financial condition.

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. While there are a number of significant accounting policies affecting our consolidated financial statements, we believe the following critical accounting policies involve the most complex, difficult, and subjective estimates and judgments.

The Company generates revenue from selling and installing hardware, licensing its software, and the rendering of services. It also generates revenue from the provisioning and reselling of telecommunication circuits and from supporting and monitoring of its customers’ networks.

For revenue from product sales and services, the Company recognizes revenue in accordance with Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104), SAB 104 incorporates Emerging Issues Task Force 00-21 (EITF 00-21), Multiple Deliverable Revenue Arrangements. EITF 00-21 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services, and/or rights to use assets.

Both SOP 97-2 and SAB 104 require that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to the customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product or software has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required. The allocation of license and maintenance is based on the residual method of accounting as prescribed in SOP97-2. Under this method, the Company has established Vendor Specific Objective Evidence (VSOE) for the value of its post-contract support agreements at 20% of the license amount, which is based on the amount charged to its customer in the renewal year. Therefore, of the total amount received under the arrangement, the Company allocates 20% to maintenance and the remaining amount to software license under the residual method of accounting as prescribed in SOP 97-2.

The Company also earns sales revenue from providing its customers ongoing access to broadband data services and from the installation of those services. Ongoing services are billed in advance and the installation of those services is billed in arrears. The Company recognizes sales revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. Advance billings are recorded as deferred revenue in the month prior to delivery.

The Company defers maintenance and services revenue related to providing network monitoring and the ongoing access to broadband. This revenue is recognized ratably over the term of such contracts. The Company defers recognition of revenue on consulting and training billings until the related services are performed.

FAS No. 142, Goodwill and Other Intangible Assets (SFAS 142) requires goodwill to be tested for impairment on an annual basis and between annual tests in certain circumstances, and written down when impaired. Furthermore, SFAS No. 142 requires purchased intangible assets other than goodwill to be amortized over their useful lives unless these lives are determined to be indefinite. Intangible assets, consisting of software licenses, databases, developed technology, customer lists, and trade names, are amortized on a straight-line basis over periods ranging from three to eleven years, representing the remaining life of the assets.

Based on the impairment test performed at 2007, the Company determined no impairment of goodwill or intangibles should be recognized. There can be no assurance that future goodwill or impairment tests will not result in a charge to earnings.

In the first quarter of 2006, the Company adopted SFAS No. 123R, Share-Based Payment, (SFAS 123R), which revises SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123) and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). SFAS 123R requires that share-based payment transactions with employees be recognized in the financial statements based on their fair value and recognized as compensation expense over the vesting period. Prior to SFAS 123R, the Company disclosed the pro forma effects of SFAS 123 under the minimum value method. The Company adopted SFAS 123R effective January 1, 2006, prospectively for new equity awards issued subsequent to January 1, 2006. The adoption of SFAS 123R resulted in the recognition of stock-based compensation expense during ended December 31, 2007 of $13.8 million compared to $1.8 million in the prior year. No tax benefit has been recorded due to the full valuation allowance on deferred tax assets that the Company has recorded.

The Company accounts for equity instruments issued for services and goods to non-employees under SFAS 123; Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services (EITF 96-18); and Emerging Issues Task Force Issue No. 00-18, Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than Employees (EITF 00-18). Generally, the equity instruments issued for services and goods are for shares of the Company’s common stock or warrants to purchase shares of the Company’s. These shares or warrants generally are fully vested, non-forfeitable, and exercisable at the date of grant and require no future performance commitment by the recipient. The Company expenses the fair market value of these securities over the period in which the related services are received.

The Company has no off-balance sheet arrangements in place as of December 31, 2007 or 2006.

Optimization Solutions focus on identifying and implementing improved network efficiencies and reduced network costs for complex customer networks globally. The primary offering of the business unit is a network optimization consulting practice that follows a very structured process of customer and market data collection, data cleansing, data implementation, and data analysis by leveraging powerful tools and a proprietary pricing engine to yield a complete, automated network optimization analysis. Results provide both financial and physical network optimization recommendations. In order to help customers implement the identified savings and efficiencies, the Optimization Solutions business offers a suite of professional services and remote network management services. The Optimization Solutions business also offers telecommunications and systems integrator customers the ability to use automated pricing software to provide fast, accurate, automated price quotes for off-net access requirements globally.

For customers seeking to simplify the sourcing and management of their complex networks, the Company’s Connectivity Solutions business provides turn-key network solutions, from design and pricing through network provisioning, testing, and on-going management. By leveraging unique market knowledge and powerful tools that automate the entire telecom supply chain, the Company designs and delivers network solutions that combine the best underlying network assets at the optimal market price, overlaid with the Company’s world-class customer service and network management. The result is a single point of accountability to design, price, deliver, and manage the best network at the lowest cost – resulting in improved network efficiency and simplified operations.

Going to market as Global Capacity, the Company has integrated the core systems, processes, and personnel of the four operating subsidiaries and organized them into two business units: Optimization Solutions and Connectivity Solutions. These business units leverage the systems, processes and expertise of the Company to deliver a set of offerings comprising automated pricing software, telecom supply chain management workflow systems, network optimization consulting, professional services, remote network management services, and managed network connectivity solutions. Utilizing its depth of global telecom supply and pricing data in an automated fashion with powerful tools and expert analysis, the Company helps bring transparency to the fragmented and inefficient global telecom market – resulting in dramatically reduced cost and improved efficiency for the Company’s clients, while producing revenue and margin for the Company.

Currently, CGSI consists of four core operating entities that comprise the Company’s go-forward assets and offerings: 20/20 Technologies, Inc. (“20/20”), Magenta netLogic, Ltd. (“Magenta”), CentrePath, Inc. (“CentrePath”), and Global Capacity Group, Inc. (“GCG”). The Company has hibernated Nexvu Technologies, LLC (“Nexvu”), which has no ongoing operations but which holds intellectual property in the form of network performance management software.

Prior to 2004, CGSI was a publicly reporting shell corporation with no active business. In January 2004, the Company acquired, by way of subsidiary merger, Nexvu, a development-stage company in the network performance management business. The Company determined that the Nexvu product, though a valuable asset, is not core to the telecom logistics model it is pursuing. As a result, the Company shut down Nexvu’s operations (eliminating all operating expense associated with the business) while it evaluates alternatives for the core Nexvu intellectual property (IP), which management believes to have value in the market.

In September 2004, CGSI acquired 100% of Frontrunner Network Systems Corporation (“Frontrunner”) via a subsidiary merger. Frontrunner is known as an “interconnect” company, which installs and services customer-premise voice, data, and video networks. The Company determined that Frontrunner was not core to its telecom logistics model and, after exploring a number of options, agreed to sell the Frontrunner asset. Such sale was completed on February 19, 2008.

During 2006, the Company acquired 20/20, Magenta, CentrePath, and GCG. See the accompanying notes to the consolidated financial statements incorporated by reference herein.

CGSI and its management team adopted a strategy in 2007 by which it integrated the assets of its subsidiary companies to create a suite of capabilities which management believes has never before been available from a single source telecom logistics provider. These capabilities include:

The successful execution of this strategy provides customers a suite of solutions that individually or collectively will help them address the challenges they face in managing the complex market for global networks. Significant customer contracts in both lines of business in 2007 demonstrate the acceptance by the market of the Company’s telecom logistics model. For 2007, we provided services to a major customer that represented $2.8 million (16%) of total revenues. Similarly, in 2006, a different customer represented $0.2 million (10%) of total revenues.

CGSI’s goal is to become the leading global telecom logistics company providing optimization and connectivity solutions provider to systems integrators, telecommunications companies, and enterprise customers.

Management believes organizing the Company and its offerings between Optimization Solutions and Connectivity Solutions provides the greatest opportunity to deliver targeted solutions that maximize value to the customer while simultaneously maximizing revenue and margin opportunities for the Company. Customers may buy Optimization Solutions only, Connectivity Solutions only, or they may buy both. Management believes there are significant opportunities to leverage offerings from one line of business to drive demand for the solutions of the other line of business. Furthermore, the mix of offerings and their different characteristics (non-recurring and monthly recurring revenue streams) provides diversity of revenue and protects the Company from being overly dependant or exposed by a single offering or line of business.

Optimization Consulting uses a well-defined methodology to work with clients to collect, cleanse, implement, and analyze network data – including inventory, cost, and design data – in order to produce a network optimization report that identifies opportunities to improve the efficiency and reduce the cost of complex global networks. Recommendations include: financial grooming, where costs are reduced through identification of overcharges; contractual strategies, including moving services to new tariff structures and novating existing network contracts to more favorable vehicles; and physical grooming, where networks are moved to more favorable suppliers, re-homed to different points of presence, or aggregated to achieve better cost points. The Company then employs its logistics capabilities to help customers implement and realize the identified savings. The optimization process typically identifies savings of 2-5% for financial grooming and 15-40% for physical grooming. These savings can total many millions of dollars in large, complex network environments. The Company contracts for Optimization Consulting engagements on a contingent basis, where the Company is paid a non-recurring fee based upon a percentage of the savings achieved from the engagement.

Automated pricing software exploits the Company’s unique knowledgebase of telecom market pricing and supply data to provide telecommunications companies and systems integrators the ability to quickly and accurately obtain an automated price for access circuits globally. This automated pricing process replaces the largely manual process most companies continue to rely on and dramatically reduces the amount of time it takes to generate an accurate quote, while increasing the accuracy of the quote. This results in a competitive sales advantage for our customers, while also reducing their operating costs. Automated pricing software is sold as an annual software license.

Remote Management Services employ the Company’s highly-integrated operations support systems (“OSS”) and state of the art network operations enter (“NOC”) to deliver network monitoring and management of customer networks. This service can be delivered as a stand-alone service for networks not provided by us or it can be bundled as part of a complete network solution delivered via the Connectivity Solutions business unit. Remote Management Services are proactive, 7X24 monitoring and management services that leverage automated fault and performance management systems, integrated trouble ticketing and reporting systems, and world-class network engineering and operations expertise to provide a premium level of service for a customer’s most critical networks. Remote Management Services are contracted on a monthly recurring basis.

The Company also provides network design, engineering, implementation, and project management services under the heading of Professional Services. These services leverage the well-developed processes, repeatable methodologies, and deep expertise of the Company to deliver targeted engagements that help customers design, engineer, build, test, and turn-up complex networks. These engagements are delivered as non-recurring revenue on a statement of work (“SOW”) basis.

For customers wishing to simplify their procurement process for complex global networks, we will deploy our breadth of logistics expertise and solutions to deliver a turn-key network solution. Using the Company’s pricing systems we generate an automated, accurate price quote. We then manage that quote from initial pricing through ordering, procurement, provisioning, test and turn up, and operations hand-off, utilizing the Company’s proprietary Circuit Lifecycle Manager (“CLM”)system, which manages the entire circuit lifecycle. Networks are then monitored and managed by our 7X24 NOC. By leveraging automated systems across the entire telecom supply chain, the Company is able to accelerate the delivery of an optimal network solution.

The Company operates as an “asset light” service provider, taking advantage of the underlying network assets of other suppliers, while strategically deploying network infrastructure to insure maximum network efficiency and operational capability. This model enables the Company to avoid the requirement that many facilities-based providers have of pushing customers toward solutions that maximize use of their own network, regardless of the fit to the customer’s requirements. We utilize our logistics systems and capabilities to identify the best network solution based on the customer’s requirements, and then apply our model to deliver that network as a turn-key solution to the customer – regardless of who the underlying suppliers are. This model insures that the customer receives the best solution, in the shortest time, at the best price, while insuring the Company maintains margin by maximizing the efficiency of our pricing and logistics systems.

Significant progress in gaining customer acceptance of our offerings during 2007 and 2008 to date underlines management’s belief that our technology, systems, and logistics capabilities make the Company’s business offerings more efficient, faster, and less expensive for systems integrators, telecommunications companies, and enterprise customers to manage the telecom supply chain for their complex global networks. By purchasing our solutions to create market pricing transparency and improve the efficiency of the entire telecom supply chain, our customers are able to improve the responsiveness of sales, reduce operating expense, improve margins, and deliver better service.

The global market for access networks is estimated at over $100 billion annually and represents a significant percentage of the overall network cost that service providers and large systems integrators incur in delivering network solutions to their global customers. The global access market is served by over 900 primary suppliers, none of whom has a ubiquitous footprint. The market is further confused by varying business rules, customs, and regulations in different regions of the world. These factors, coupled with the rapid pace of technology change and advancement, result in an inefficient, fragmented market where cost structures are unnecessarily high – creating margin pressure on service providers and systems integrators. Because there is no market transparency relative to the supply and price of networks globally, most telecommunication companies and systems integrators have a lengthy, manual, inefficient process to design and price global networks. This results in extended sales cycles, high operating costs, and inefficient procurement of networks.

One of the fundamental challenges for corporations and other institutions with complex and/or geographically dispersed data communications networks is the number of service providers and pricing alternatives that must be pieced together in order to create an end-to-end data connectivity solution. Between any two locations there are a varying number of service alternatives and we do not believe there is one single information source, other than our systems, that enables a buyer to determine the most cost-effective and technically sound alternative. Large multinational corporations are increasingly seeking to work with fewer vendors and a single network provider that they can look to for provisioning end-to-end network solutions fits that design. Additionally, service providers, particularly in regions where facilities-based competition has been introduced, actively market their services with price as the primary differentiator and network reach being the primary limiting factor. This price-based competition has stressed already challenged gross margins and, as a result, service providers are actively seeking means to reduce the costs associated with network quotation management and off-network procurement deploying and managing private network-based solutions that provide seamless connections in support of the ever-increasing demand for business continuity, disaster recovery, regulatory compliance, and collaboration capabilities. These private networks can rival the connections of network service providers. Procuring these networks is achieved utilizing negotiated pricing through a few “trusted” providers or via an expensive and often deficient bidding solicitation process. Because telecommunications is not the primary line of business for these private network operators, but rather a facilitator to their end business goals, inefficiencies in the procurement process result in most companies paying more than they should for connectivity. In a competitive environment, such a drain on profitability can be significant.

This confusion is increased by global deregulation, physical fragmentation of the network layer – whether copper, fiber, coaxial cable, or wireless spectrums – and geographic fragmentation. Due to financial and operational constraints, no one company can provide a ubiquitous global network. Competing entities therefore buy and sell from each other to extend their network reach and meet customer demands, which frequently extend globally outside their networks. Commonly, this buying and selling is done with little efficiency or transparency on an individual transaction basis or under the auspices of a supply agreement (often called a Master Services Agreement) negotiated at arm’s-length between the principal parties. The absence of a global benchmarking source for regional, market-based pricing further impairs the ability to manage costs.

This market environment appears ideal for an information-driven logistics model focused on minimizing the confusion and inefficiency that plagues the telecom market. The Company believes that it has such a business model and operating capability, as well as a management team experienced in executing such an information-leveraged and technology-leveraged approach.

We have assembled a vast global knowledgebase of critical information with respect to tariffs, competitive pricing, physical locations of facilities, and carriers connected to such buildings and nearby points of presence. We also have combined this information with sophisticated software tools and algorithms to enable us to often obtain automated “best of breed” connectivity solutions in seconds, rather than weeks or months. This ability to automate the “supply chain” of connectivity provides the Company with a competitive advantage. This process also requires continuous refreshing, updating, and validation of data and is therefore a continually evolving process to stay current with changing information and new information. This requirement to constantly acquire and manage new and updated data sets, combined with the Company’s investment in systems, tools, and processes, provides the basis for the Company’s unique positioning as a telecom logistics company.

The Company believes that its investment in market intelligence and efficiency tools, combined with the robust processes and deep expertise of its staff, make it uniquely positioned to capitalize on this market opportunity with its unique, telecom logistics business model.

Target Markets. Optimization Solutions are targeted at global, national, and regional telecommunications carriers, systems integrators, and enterprise customers with large, complex global network requirements.

Sales Approach. We have an international sales team that uses a consultative approach to sell Optimization Solutions to a financial buyer highly placed within our target customers. We employ a combination of direct and channel sales to maximize market penetration and coverage and we offer limited scope “pilot” engagements to quickly demonstrate the value of the solution. We then use a high-touch, relationship-based approach to extend and expand our pilot engagements into more meaningful engagements that provide a steady stream of revenue and margin for the Company.

Target Markets. Connectivity Solutions are targeted at enterprise, system integrator, and telecommunications companies seeking a simplified, turn-key network connectivity solution.

Sales Approach. We have an international sales team that employs a combination of direct and channel sales to maximize market penetration and coverage. The sales team is tasked with identifying and closing new business, which is then transitioned to account managers to maintain the ongoing relationship, creating additional revenue and margin from the account. The sales teams work closely with the carrier management teams to insure the most robust, cost effective solutions are sold and delivered.

Management believes that the combination of capabilities and solutions the Company has integrated and organized into the Optimization Solutions business and the Connectivity Solutions business is unique in the marketplace. However, there are competitors in the market for some of the individual solutions that the Company brings to market.

Optimization Consulting: There are a number of consulting firms that purport to offer network optimization services. Most of these, however, are focused on a specific area of network optimization – typically overcharge analysis. This narrow focus misses the largest opportunity to identify and implement network savings available from financial and physical grooming. Furthermore, management is not aware of any company that owns or deploys a database of global supply and pricing data along with proprietary network optimization tools to deliver an automated network optimization solution.

Automated pricing software: Management is not aware of any company that has an automated pricing system that leverages a similar global base of supply and pricing data along with robust pricing algorithms. The primary competition we encounter are the legacy pricing systems and processes that are entrenched in existing suppliers.

Remote Management Services and Professional Services: There is a wide range of telecommunications carriers, hardware manufacturers, and services firms that offer NOC services and network implementation services. Management believes that the unusually high degree of

integration and automation used in the delivery of the Company’s NOC services is a competitive differentiator in the marketplace. Further, the tight integration of the network management systems with the Company’s unique pricing and provisioning systems and technologies make these solutions very valuable in the highly integrated service delivery model employed by Global Capacity.

The marketplace for connectivity solutions is highly competitive, including facility-based carriers, Virtual Network Operators, and Systems Integrators. Despite this, the Company does provide services to carriers and Virtual Network Operators and at times will partner with our competition to provide a seamless solution for their end users.

Research and development includes the cost of developers and system engineers, outside contractors, and overhead costs while developing our products. These costs are not directly borne by customers, but rather are inherently built into the pricing of our products to our customers. The Company did not incur any significant research and development costs during 2007. Nevertheless, considerable progress was made in developing the Company Portal and Circuit Lifecycle Managers, key elements of our offerings moving forward.

The Company does not currently hold any patents related to its pricing portal and database and related proprietary software code and relies on trade secrets and copyright laws for its protection.

At April 14, 2008, we had a total of 70 employees who were employed in the following areas: product development, quality assurance, product marketing and management, and sales. This compares to a total of 150 at December 31, 2006. Pursuant to the hibernation of Nexvu in October 2007 and the sale of Frontrunner in February 2008, headcount was reduced by 60 employees. We depend on our ability to attract, retain, integrate, and motivate highly-qualified sales, technical, and management personnel – for whom competition is intense. We do not anticipate that this number will increase significantly in the near future unless further acquisitions occur. We believe all relations with our employees are satisfactory. Our employees are not covered by a collective bargaining agreement and are considered full-time.

In late 2007, the Company moved its headquarters to 500 West Madison Street, Suite 2060, Chicago, Illinois, 60661 from its former location at 125 South Wacker Drive, Suite 300 Chicago, Illinois 60606. The Company also rents facilities in the United Kingdom at Salford, Greater Manchester and in New York City, Houston, the suburbs of Boston (Waltham, Mass.), and Lisbon, Portugal. The leases for Frontrunner’s space in Rochester, New York and its various branch offices were assigned to the buyer as part of the recent disposition.

The lease in the Boston suburbs was obtained in connection with the acquisition of CentrePath and it was set to expire in August 2008, but with annual options to renew. At year-end, management concluded a renegotiation of the lease with the landlord that will reduce the space by approximately two-thirds throughout 2008. The annual rent at this location was $738,000, before the benefit of an existing sub-lease. Once all interim reductions are complete in 2008, the new annual rent will be $179,000 through September 2013.

We do not presently hold or intend to hold any investments or interests in real estate, investments in real estate mortgages, or securities of or interests in persons primarily engaged in real estate activities.

From time to time, Capital Growth may be named in claims arising in the ordinary course of business. Currently, no legal proceedings or claims are pending against or involving Capital Growth that could reasonably be expected to have a material adverse effect on its business and financial condition.

Below are the names and certain information regarding the Company’s executive officers, directors, and director nominees. Officers are elected annually by the Board of Directors.

Mr. Shutt is also a member of the Board of Directors. He has more than eighteen years of experience in information services and telecommunications industry – including being a co-founder, Director, and Chief Executive Officer of 20/20 Technologies, Inc. and a Director and the CEO of Magenta net Logic, Ltd., a global information services and consulting company focusing on the telecommunications industry and co-headquartered in the United States and the United Kingdom. Magenta was acquired by 20/20 in 2004 and 20/20 was acquired by Capital Growth Systems in September 2006. Mr. Shutt also co-founded and served as a Director, Chairman, Chief Executive Officer, and President at Universal Access, Inc. from October 1997 to November 2002. Under Mr. Shutt’s leadership, Universal Access increased revenues by over 17,000% and received numerous awards for its growth. In March 2000, Mr. Shutt led Universal Access through its IPO, which was underwritten by Goldman Sachs and had an initial market capitalization over $3 billion.

Mr. Shutt began his career with Sprint Communications from 1989 to 1992 and the global telecommunications company Cable and Wireless PLC from 1992 to 1994. Mr. Shutt then moved to Teleport Communications Group (TCG), where he was employed from 1994 to 1996. From late 1996 though 1997, Mr. Shutt operated a TCG master agency start-up organization named Arista Communication. Mr. Shutt serves as the Board of Director’s President for Volunteers of America Illinois, a not-for-profit organization. Mr. Shutt is a member of the Alumni Board at Wagner College and he serves on the advisory Board for the Business School at the University of New Haven. Mr. Shutt holds a B.A. and an M.B.A. from Wagner College in New York.

Mr. King is also a member of the Board of Directors. Mr. King previously was the co-founder, Director and President of 20/20 Technologies, Inc. and a Director and President Magenta net-Logic, Ltd., a global information services and consulting company focusing on the telecommunications industry and co-headquartered in the United States and the United Kingdom. Magenta was acquired by 20/20 in 2004 and 20/20 was acquired by Capital Growth Systems in September 2006. He has more than twenty years of experience in law, finance, and telecommunications, including serving as a Director, Chief Development Officer, and in several executive operating roles at Universal Access from 1997 to 2002. He began his career from 1984 to 1995 with the Wall Street law firm of Mudge Rose Guthrie Alexander & Ferdon and the global investment banking firm of Credit Suisse First Boston. He was a co-founder of an investment banking spin-off from CSFB, Cambridge Partners, LLC, in 1995 and operated his own corporate finance advisory firm from December 1996 until August 1999 when he joined Universal Access on a full-time basis. Mr. King’s board experience includes serving as a Section 16 Officer of a U.S. public company, as well as Director or Trustee of two public companies, five private companies, and two universities. Mr. King holds an A.B. (cum laude) from Colgate University and a J.D. from Fordham University School of Law.

Mr. Pollan brings a combination of large-company experience and an entrepreneurial background in Europe and the United States to the Company. He is an experienced operating executive and senior board member in both technology and non-technology enterprises. Working at General Electric, Mr. Pollan completed a multi-year General Electric management development program rotation focused on industrial automation businesses. He served at various GE Capital Corp subsidiaries as CEO, CTO, and VP of business development. He spent several years in Central Europe in the early 1990s, where he led the largest successful Central European industrial organizational and financial restructuring, and subsequently privatized the Szczecin Shipyard in Poland. His achievements became the subject of a 1995 Harvard Business Review article citing it as a model of post-communism management. Mr. Pollan was one of the four initial managing directors of Internet Capital Group, a leading, publicly held B2B holding company. While at ICGE, he was the founding chairman of ICG Commerce, a leading

online procurement services provider. On leaving Internet Capital Group at the end of 2000, Mr. Pollan served in key operating roles at Universal Access and Traffic.com, both publicly held companies that were part of the ICGE network. He set up cutting-edge systems for the delivery of information, critical in the value proposition of both companies. Mr. Pollan also was recruited to lead the turn around and be chairman of the board of Energy Solutions International, a world leader in pipeline management software for the oil and gas industry. Mr. Pollan is a graduate of the Harvard Business School with a MBA with distinction. Prior to Harvard, he graduated from the University of Pennsylvania’s Management and Technology Program (Wharton and Moore Schools), with the dual degrees of BS Electrical Engineering and BS Economics, with honors.

Mr. McDevitt is a certified public accountant with over 25 years experience in a variety of organizations and industries. Jim started his career at Coopers & Lybrand (now PricewaterhouseCoopers). As a manager for that firm, he delivered business assurance services to clients in the financial services sector, health care providers, manufacturers and distributors, and law firms, inter alia. He also served as an instructor for the firm’s professional development programs and trained hundreds of staff in introductory and advanced accounting and auditing topics. Mr. McDevitt went on to become the CFO of The Fairfield Group, a large broker-dealer in securities. Later he served as a Director for Mercy Health Systems with responsibility for its numerous non-acute care businesses (including some not-for-profits). Jim was recruited to become CFO for Shadow Broadcast Services where he revamped all systems and staffing and provided litigation support services during the prolonged dispute relating to the sale of the company. He then became the lead finance executive with Mobility Technologies, another broadcast media business – but with a technical component and government contracts. Most recently, Mr. McDevitt has been a Managing Director with Whitehawk Partners, delivering financial, systems, operational, and human resources consulting and outsource senior executive services to middle-market businesses.

Mr. Wiskowski has served as a director of ours since the completion of our merger with Nexvu. Mr. Wiskowski served as our co-chief executive officer from August 30, 2004 through the beginning of 2007. In 1994, Mr. Wiskowski was the co-founder of Madison Securities and early in 1999 was a co-founder of Advanced Equities, both NASD licensed broker-dealers focusing on emerging growth companies. During his tenure with these two companies, Mr. Wiskowski had significant responsibility for private and public placements, primarily of high technology companies. Mr. Wiskowski sold his interest to the other principals of Advanced Equities approximately five years ago. Since December 2002, Mr. Wiskowski has been engaged in the business of providing financial and advisory services to emerging growth companies through Grander, LLC and Momentum Capital, LLC, both privately held advisory and consulting firms. As the sole owner of Grander and co-founder of Momentum Capital, Mr. Wiskowski’s responsibilities are related to the location of potential clients, the negotiation of agreements with those clients, and the provision of advisory services related to the clients. Mr. Wiskowski also serves as an officer and director of Naero Dynamics, Inc. (formerly known as Health Partnership Inc.) and Mountains West Exploration, Inc.

Mr. Kenny has served as a director since August 2004. He is, and has been for over the last six years, an owner of and partner in Kenny Industries, a holding company for Kenny Construction Company, Seven K Construction, Northgate Investments, Casino Queen, and Clinton Industries. Mr. Kenny serves as president of Seven K Construction and Northgate Investments. In addition, Mr. Kenny recently served as CEO of K-2 Industrial, a $140 million service company, with over 1,000 corporate clients across the United States. In addition, he serves on the executive committee of Sports Publishing, a Champaign, IL publisher that produces and distributes 120 sports publications on an annual basis. Mr. Kenny also serves on the boards of Umbrella Entertainment, the largest production manager of air shows in the United States, Fifth Media, a technology company in Libertyville, IL, and Insight Productions, a designer and importer of custom products based in Naperville, IL. He serves on the business advisory board at Miami University in Oxford, OH, the board at Northern Illinois University School of Engineering and Technology, and Loyola Academy, the largest Jesuit High School in the United States. Mr. Kenny is a graduate of the Business School at Arizona State University.

Mr. Beamish has served as a Director since August 2004. He has been in sales and marketing for over nineteen years. Mr. Beamish began his career in the medical sales area, where he worked for Medline Industries for five years. He successfully managed and built a four-state territory to over $35 million in sales. In 1987, he left Medline Industries to co-found Premier Medical Industries Inc., which he and a partner built to a $32 million in sales business over a period of eight years. After Premier Medical, Mr. Beamish successfully formed, built, and sold five local businesses: Premier Sales Inc. (a linen and textile distributor), Premier Tax and Accounting LLC (an accounting and tax firm), Premier Construction LLC (a small construction firm), Premier Technologies (a computer distributor and Internet firm), and Premier Products LLC (a nursing home supply company). Today, Mr. Beamish owns and operates Premier Laundry Technologies LLC, the largest independently owned COG Healthcare Laundry in the Midwest. PLT has three plants and employs over 150 people.

All directors hold office until their successors have been elected and qualified or until their earlier resignation or removal. Directors are elected annually. None of the directors are involved in certain legal proceedings are covered under Item 401(d) of Regulation S-B. Officers serve at the discretion of our Board of Directors. Our board of directors has determined that Messrs. Beamish and Kenny are independent within the meaning of Rule 4200 of the NASDAQ Stock Market.

We have an audit committee and an audit committee charter. The audit committee is presently comprised of David Beamish, George King, Patrick Shutt, and Lee Wiskowski. The audit committee is responsible for selection and oversights of our independent auditors, reviewing with the independent auditors the scope and results of the audit engagement, establishing and monitoring our financial policies and control procedures, reviewing and monitoring the provision of non-audit services by our independent auditors, and reviewing all potential conflict of interest situations. We presently do not have a director who would qualify as an “audit committee financial expert” as defined in Item 401(e) of Regulation S-B. We continue to search for the appropriate independent director who would qualify as an “audit committee financial expert” and would hope to fill that position during the year.

The following table sets forth for each of the named executive officers and directors of the Company: the dollar value of base salary and bonus earned during the year ended December 31, 2007, the aggregate grant date fair value of stock and option awards granted during the year, computed in accordance with FAS 123(R), the dollar value of earnings for services pursuant to awards granted during the year under non-equity incentive plans, the change in pension value and non-qualified deferred compensation earnings during the year, all other compensation for the year, and the dollar value of total compensation for the year.

On June 29, 2006, pursuant to the terms of an Employee Option Agreement, as amended, the Company granted its former CEO an option to acquire 1,496,993 shares of common stock of the Company at a strike price equal to the closing price of the Company’s common stock as of that date ($.70 per share). On September 8, 2006, the Company amended this option agreement and increased the grant by 303,007 shares, also at an exercise price of $.70 per share. Additionally, in conjunction with the acquisition of 20/20, the Company’s Chief Executive Officer and the Company’s President were each granted options to acquire 1,500,000 shares of common stock of the Company at $.70 per share. In the first quarter of 2007, the Company granted options to acquire 500,000 and 300,000 shares of common stock to its Chief Operating Officer and its Chief Financial Officer at a price of $.98 and $.92, respectively. In December 2007, the Company granted 17,965,000 and 2,450,000 options to acquire common stock to four of its executives and five of its board members, respectively, at a price of $0.185. In accordance with the terms of each of these option agreements, 25% of such options vested upon execution of the Agreement and 25% vests on the yearly anniversary of the Agreement over the next three years. In accordance with the terms of the former CEO’s employment agreement, 1,350,000 shares immediately vested on his separation date of May 18, 2007. In total, 3,500,000 of stock options are vested under these agreements, as amended.

Under employment agreements with the four current most senior officers and one former senior executive of the Company, there are 26,300,000 options to acquire common stock of the Company at a price ranging between $.185 and $.98. Approximately 3,000,000 options were issued during 2006 and 23,300,000 were issued during 2007. All options are subject to vesting restrictions. These performance option agreements are designed to incent the attainment of certain revenue objectives and 3,300,000 will vest on the following basis: (i) upon each realization by the Company of an incremental $20 million of third-party service and/or maintenance revenue from new or existing customers, with gross margins in excess of 30%, pursuant to an agreement of one year or more, 50% of the options will vest; and (ii) the remaining options vest upon realization by the Company of a second $20 million of third-party service and/or maintenance revenue from new or existing customers, with gross margins in excess of 30%. Approximately 1,000,000 performance options shall vest upon the realization by the Company of achieving agreed targets. In accordance with the terms of the former CEO’s employment agreement, 1,066,000 shares immediately vested on his separation date of May 18, 2007. No other stock options have vested under these agreements.

The Company adopted a Long-Term Incentive Plan for key employees and other persons providing assets or services. The plan provides for the issuance of stock-based awards to key employees as part of their overall compensation. Under the plan, 7,505,000 shares of common stock, stock options, or other equity-based compensation units have been authorized to be issued. During 2007, 5,220,000 shares were issued at a strike price between $0.85 and $0.98. Of the 5,220,000 shares, 750,000 provided for immediate vesting, while all the remaining grants had vesting terms whereby 25% of such options vest upon execution of the Agreement and 25% shall vest on the yearly anniversary of the Agreement over the next three years. As of December 31, 2007, the Company has issued and outstanding 6,644,557 stock options under the plan, net of forfeitures.

Under the terms of the stock option agreements approved by the Board on March 5, 2007, 3,000,000 options were granted to certain employees to acquire common stock of the Company at a price of $0.92. All options are subject to vesting requirements. The vesting requirements are conditional upon these employees achieving specific key objectives as outlined in their respective performance option agreements. The vesting requirements include delivering new revenue, creating value within their organization, and/or achieving executive performance targets. As of December 31, 2007, none of the options has vested under these agreements.

On December 31, 2007, the Company adopted a long-term incentive plan (“Plan”) for providing stock options, stock awards and other equity-based compensation awards to its employees and other persons assisting the Company. Up to 5,000,000 shares of common stock are issuable under the Plan. As of December 31, 2007, no awards of common stock have been made under the Plan. Awards can have a term of up to ten years from the date of grant.

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our officers and directors and those persons who beneficially own more than 10% of the Company’s outstanding shares of common stock to file reports of securities ownership and changes in such ownership with the Securities and Exchange Commission. Officers, directors, and greater than 10% beneficial owners are also required by rules promulgated by the SEC to furnish us with copies of all Section 16(a) forms they file.

Based solely upon a review of the copies of such forms furnished to the Company, Forms 4 were filed late by our directors Shutt and Beamish and former director Stukel in 2008 with respect to acquisitions of securities in 2007 and a Form 3 was filed late by our chief operating officer, Pollan in connection with his initial holdings of the Company on becoming an officer of the Company, and Form 13G was filed late by David Lies (in 2008), an individual shareholder, with respect to his acquisition of in excess of 10% of the common stock of the Company. We believe that except as noted above, during the year ended December 31, 2007, all Section 16(a) filing requirements applicable to our officers, directors and greater than 10% beneficial owners were complied with.

Code of Ethics for Principal Executive Officers and Senior Financial Officers

The Board of Directors has adopted a Code of Ethics applicable to the Chief Executive Officer, the Vice President of Finance, as well as all of the senior financial officers. The Code of Ethics of the Company is available, free of charge, on request by writing to the Secretary of the Company.

The following table sets forth certain information, as of April 14, 2008 with respect to the beneficial ownership of the Company’s outstanding common stock by (i) any holder of more than five (5%) percent; (ii) each of the named executive officers, directors and director nominees; and (iii) our directors, director nominees and named executive officers as a group. Except as otherwise indicated, each of the stockholders listed below has sole voting and investment power over the shares beneficially owned.

Our common stock, par value $0.0001 per share, is traded on the OTC Bulletin Board under the symbol CGSY. At April 14, 2008, our common stock was held by approximately 550 holders of record. On April 15, 2008, the closing sale price of a share of our common stock was $0.55.

The high and low sale prices per share of our common stock from the four quarters during the year ended December 31, 2007 and the first quarter of 2008 were as follows (the quotations reflect inter-dealer price, without retail mark-up, mark-down or commission and may not represent actual transactions):

We have not paid any cash dividends since our inception, and our Board of Directors does not contemplate doing so in the near future. Any decisions as to future payment of dividends will depend on our earnings and financial position and such other factors, as our Board of Directors deems relevant.

The following is summary of our equity compensation plans as of December 31, 2007:

The shares of common stock being offered by the selling shareholders are those underlying the convertible Debentures previously issued to or assigned to the selling shareholders and those issuable to the selling shareholders upon exercise of Warrants. For additional information regarding the issuances of common stock and the Warrants, see “Recent Financing” below. We are registering the shares of common stock in order to permit the selling shareholders to offer the shares for resale from time to time. Except for the ownership of the shares of Debentures convertible into common stock and the warrants, and except as indicated, the selling shareholders have not had any material relationship with us within the past three years.

The table below lists the selling shareholders and other information regarding the beneficial ownership of the shares of common stock by each of the selling shareholders (assuming conversion of their Debenture). The second column lists the number of shares of common stock beneficially owned by each selling shareholder, based on its ownership of the shares of common stock and the Warrants, as of April 14, 2008, assuming conversion of the Debenture and exercise of the Warrants held by the selling stockholders on that date, without regard to any limitations on exercise.

The third column lists the shares of common stock being offered by this prospectus by the selling shareholder.

In accordance with the terms of the registration rights agreement with the holders of the Debentures (convertible into shares of common stock) and the Warrants, this prospectus generally covers the resale of at least the sum of (i) the number of shares of common stock issuable on conversion of the Debentures and (ii) 100% of the shares of common stock issuable upon exercise of the related Warrants, determined as if the outstanding Debentures were converted into shares of common stock in full and the outstanding Warrants were exercised, as applicable, in full, as of the trading day immediately preceding the date this registration statement was initially filed with the SEC. The fourth column assumes the sale of all of the shares offered by the selling shareholders pursuant to this prospectus.

Under the terms of the Warrants, a selling shareholder may not exercise the Warrants, to the extent such exercise would cause such selling shareholder, together with its affiliates, to beneficially own a number of shares of common stock which would exceed 4.99% of our then outstanding shares of common stock following such exercise, excluding for purposes of such determination shares of common stock issuable upon exercise of the Warrants which have not been exercised. The number of shares in the second column does not reflect this limitation. The selling shareholders may sell all, some or none of their shares in this offering. See “Plan of Distribution.”

On March 11, 2008, Capital Growth Systems, Inc. (the “Company”) entered into and closed a securities purchase agreement pursuant to which it completed a private placement of $19 million of securities (“Purchase Agreement”) with a number of investors (such purchasers and their respective assigns being the “Purchasers”). The securities are comprised of (i) variable rate senior secured convertible debentures (“Debentures”) in an aggregate principal amount of $19 million, convertible into common stock of the Company (“common stock”) at $0.50 per share (the “Conversion Price”; representing 38 million shares of common stock on an as-converted basis, subject to possible adjustment as discussed below); and (ii) one Warrant per Debenture, providing a right to purchase 50% of the number of shares of common stock purchasable with the original principal amount of the Debentures, at a price of $0.73 per share (subject to possible adjustment as discussed below) having a term ending five years from the closing date. The closing of the transactions contemplated by the Purchase Agreement was subject to the receipt by the Company’s then current secured senior lender of all amounts due and owing to it under its credit agreement with the Company.

The Company applied approximately $8.9 million of the proceeds from the sale of the Debentures to pay off outstanding indebtedness, and approximately $1.7 million of the proceeds to pay advisory fees to Capstone Investments and Aequitas Capital Management, Inc. The remaining proceeds were retained for working capital purposes (including payment of other obligations). The Company issued to Capstone a warrant to purchase 2,660,000 shares of common stock. Such warrant contains substantially similar terms and conditions (including exercise price and expiration date) to the Warrants issued to the Purchasers and described herein, but does not carry registration rights.

The Company has affirmative obligations under the Purchase Agreement to: (i) timely file all required reports under the Securities Act of 1934; (ii) promptly deliver the shares of common stock purchased by the Purchasers pursuant to conversion of their Debentures or exercise of the Warrants and is subject to liquidated damages of $10 per $1,000 of securities (with the value computed based on a volume weighted average pricing or “VWAP” formula) for each day that it is late with respect to effecting such deliveries, increasing to $20 per $1,000 of securities should it fail to make such delivery commencing five trading days after failing to meet this obligation; (iii) indemnify the Purchasers against enumerated liabilities in the event of actions taken against them in certain instances; (iv) reservation at all times of a sufficient amount of common stock to enable it to meet its obligations under the Purchase Agreement (to cover the maximum amount of shares purchasable under the Debentures and Warrants, and dividing that sum by 0.75); and (v) provide a right of first refusal to the Purchasers to participate in up to 30% of any subsequent financings by the Company other than with respect to certain enumerated exempt financings.

The Purchase Agreement contains a number of negative covenants for so long as the Debentures remain outstanding, which include a prohibition against: (i) claiming that any Purchaser is an “Acquiring Person” under any shareholder rights plan; (ii) providing material nonpublic information to the Purchasers or their counsel, absent execution by the applicable Purchaser(s) of a confidentiality agreement regarding such information; (iii) using the proceeds to satisfy any Company debt (other than that debt specifically set forth in the Purchase Agreement), redeem any common stock or settle any outstanding litigation; (iv) issuing any common stock or common stock equivalent at an effective price per share of less than the initial conversion price of the Debentures; (v) until the declaration of effectiveness of the required registration statement, issuing any common stock at any price, except with respect to certain exempt issuances; (vi) entering into certain enumerated variable rate transactions where the pricing of the equity securities of the Company is subject to a variable formula; (vii) uneven treatment with respect to the Purchasers; and (viii) effectuating a reverse or forward split of the common stock without the written consent of the Purchasers holding a majority in principal amount outstanding of the Debentures except in the case of a “permitted” reverse split, which would be a reverse split effected on or before April 30, 2009 simultaneous with or immediately prior to approval for listing of the Company’s common stock on the New York Stock Exchange, Nasdaq Capital Market, Nasdaq Global Market or Nasdaq Select Global Market.

Debentures. The Debentures mature five years from the closing date. Each Debenture contains a 5% coupon for the first two years and a 10% coupon for the last three years. The coupon shall be paid quarterly in arrears and may, at the Company’s option, be paid in cash or in shares of common stock valued at the lesser of (a) the Conversion Price, or (b) 90% of the lesser of (X) the average VWAP of the common stock of the Company for the twenty consecutive trading days ending on the trading day that is immediately prior to the date of the interest payment, or (Y) the average of the VWAP for the twenty consecutive trading days ending on the trading day that is immediately prior to the date the shares of common stock are issued and delivered; provided that the payment in kind option shall not apply to the extent the Company needs to exclude the shares underlying the payment in kind option to ensure that it has reserved a sufficient number of shares to covert the exercise of common stock underlying the Debentures and Warrants. The Company agreed that until such point in time as it has sufficient authorized but unissued common stock underlying the payment in kind interest component underlying the Debentures (in addition to the shares underlying the Debentures and the Warrants), it will not effect the payment in kind option with respect to the payment of interest on the Debentures. A late fee of 16% per annum is payable with respect to any late payments.

During the first year, the Company will have the right to call up to 25% of the Debentures outstanding at 105% of their stated value (plus all interest that would have accrued on the prepaid amount were the Debentures held to maturity). After the first year, the Company may call up to 100% of the Debentures upon tender of the full amount owing with respect to the Debentures (plus all interest that would have accrued on the prepaid amount were the Debentures held to maturity), if: (i) the “Equity Conditions” are met; and (ii) the VWAP of the Company’s common stock for the twenty consecutive trading days immediately preceding the delivery of notice of prepayment exceeds 200% of the Conversion Price. The “Equity Conditions” include, among other things: (i) the requirement that the shares of common stock underlying the Warrants are either registered or eligible for resale without volume limitation under Rule 144; (ii) the Company has honored all prior redemption requests;

(iii) there are sufficient reserved shares underlying the Debentures and Warrants; (iv) the common stock is trading on the OTC Bulletin Board or NASDAQ and will be doing so for the foreseeable future; (v) there is no event of default in place (or which could occur with the passage of time) with respect to the Purchase Agreement or any of the associated documents; (vi) the holder would not hold over the Exercise Limit (as defined below) of the Company’s outstanding common stock; and (vii) the daily trading volume of the Company’s common stock was 300,000 or more shares (split adjusted) for the twenty trading day measurement period. On the 210^th day anniversary of the closing, the Conversion Price on all Debentures still outstanding shall be reset to the 90% of the VWAP for the five trading days immediately prior to the 210^th day following the closing date (but only if such amount is less than the then-current Conversion Price).

The Debentures are convertible from time to time at the option of their holders at the “Conversion Price.” The “Conversion Price” is $0.50 per share, subject to adjustment to account for: (i) forward and reverse splits and other extraordinary transactions; and (ii) a full ratchet clause which effectively lowers the purchase price to the lowest price at which there is any subsequent placement of the Company’s common stock (or securities exchangeable into or convertible into or exercisable into common stock) placed at a price below the Conversion Price then in effect (with the exception of certain detailed “Exempt Issuances,” which include issuances pursuant to any existing options or warrants to acquire common stock currently in place). A similar Conversion Price adjustment applies to the extent of the value of any rights offerings made by the Company entitling stockholders to subscribe for securities at a price below the Conversion Price for the Debentures. In addition, the Debentures have protective provisions that effectively call for the issuance of additional securities to the holders as if they were shareholders in connection with any subsequent distributions of cash or securities to the holders of the common stock. The Company has an affirmative obligation to notify the Debenture holders of events that cause an adjustment in the conversion price for the Debentures. There is a limitation of conversions of Debenture principal or interest resulting in a holder owning greater than 4.99% of the Company’s common stock subject to an increase, with the prior consent of the holder, to 9.99% (the “Exercise Limit”). As noted above with respect to share transfers, there is a liquidated damages obligation of the Company of $10 per trading day per $1,000 of common stock (increasing to $20 per trading day per $1,000 of common stock) after three trading days, to the extent that the Company fails to timely provide to the Purchasers the stock certificates to which they are entitled upon conversion of Debenture indebtedness to common stock.

The Debentures contain a “Buy-In” liability to the Company should it fail to timely deliver certificates following a conversion notice, which effectively holds the Company liable for the loss the holder would incur in the event it sold any of the shares relating to a conversion notice and then was forced to buy the underlying shares to effect the trade due to the Company’s failure to timely deliver the certificate.

The Debentures also provide that in the event of a “Fundamental Transaction,” then the Debenture holders shall be entitled to receive the same kind and amount of securities, cash, or property that it would have received if the holder converted the Debenture immediately prior to the Fundamental Transaction. “Fundamental Transactions” include: (i) mergers or consolidations of the Company with or into another entity; (ii) sale by the Company of all or substantially all of its assets; (iii) certain tender offers or exchange offers whereby the Company’s stockholders can exchange their shares for other securities, cash or property; and (iv) certain reclassifications of the Company’s common stock or compulsory share exchanges effectively converting the Company’s securities into those of another entity.

The Debentures contain certain negative covenants (which can be waived by the holders of 67% or more of the outstanding Debentures) and which negative covenants include: (i) the incurrence of any addition indebtedness (other than indebtedness outstanding on the purchase date of the Debentures and up to $250,000 of purchase money financing in connection with asset acquisitions); (ii) the incurrence of any liens other than liens resulting from permitted indebtedness, liens for taxes or other governmental charges not yet due, or being contested in good faith, and liens imposed by law which were incurred in the ordinary course of business; (iii) amendments to the Company’s charter or bylaws in a manner that would adversely impact the Debenture holders; (iv) repurchases of stock of the Company with the exception of certain limited repurchases of stock owned by former employees; and (v) payment of cash dividends or other distributions with respect to the Company’s securities.

The Debentures provide that the holders can accelerate the indebtedness evidenced by the Debentures in the event of the occurrence of an “Event of Default” and failure to cure within the applicable cure period (not to exceed five trading days for monetary defaults, seven trading days following delivery of notice of non-monetary defaults, or ten trading days following the date of a default where the Company knew of the default) if any; “Events of Default” include the breach by the Company of any of the obligations of the Company pursuant to the Debentures or any of the other transaction documents (i.e., the Purchase Agreement or the associated agreements in connection therewith) or any other material agreement to which the Company (or any subsidiary) is a party, any representation or warranty being untrue or incorrect at the time made in any material respect; certain insolvency events with respect to the Company or material subsidiaries, or defaults with respect to any mortgage, credit agreement or other facility which involves an obligation in excess of $150,000, cessation of listing of the Company’s common stock for five consecutive trading days, a “Change of Control” transaction (including changes of beneficial ownership of the Company in excess of 40%; mergers or consolidations where the shareholders of the Company immediately prior to the transaction hold less than 60% of the aggregate voting power of the Company or successor after the transaction; sales of substantially all of the assets of the Company to a purchaser of which the shareholders of the Company prior to the transaction own less than 60% of the voting power of the acquiring entity; or a replacement over a three-year period of over half of the members of the Company’s board of directors where the replacement directors were not approved by a majority of the current directors or directors that were duly approved by such persons), failure to meet the public reporting requirements of the Company under Rule 144 with respect to the “Registrable Securities” covered by the Registration Rights Agreement, the effectiveness of the registration statement that has been declared effective lapses and the holders of the registrable securities thereunder are unable to resell the securities registrable thereunder for thirty consecutive trading days or forty five total trading days during any one year period (subject to certain qualifications), failure to timely deliver stock certificates, loss of eligibility of the common stock for trading on its

trading market; the Company shall agree to sell all or substantially all of its assets or be party to a Fundamental Transaction or a Change in Control Transaction; and the entering against the Company of any monetary judgment for more than $50,000 which remains unvacated, unbonded, or unstayed for a period of forty-five days.

Warrants. The Purchase Agreement called for the issuance of Warrants comprising the right to purchase up to 50% of the shares issuable per the Debentures (19 million shares of common stock in the aggregate for all of the Warrants) at an exercise price of $0.73 per share (subject to adjustment as discussed below). The Warrants expire five years from the closing date. The Warrants may be exercised for cash or on a cashless basis.

Exercise of the Warrants is for cash only, provided however, if by six-month anniversary following their date of issuance an effective registration statement is not in place for the underlying shares, then the holders shall have a right to exercise the Warrants on a cashless basis. Upon exercise of a Warrant, the Company has an obligation to promptly deliver the underlying shares and is subject to a liquidated damages clauses comparable to those applicable to the Debentures, for: (i) failure to timely deliver the certificates for the purchased common stock as a result of exercise of the Warrants; or (ii) losses incurred by the Warrant holder as a result of having to effect a Buy-In of common stock to cover any sale of the shares corresponding to the Warrant exercise, where the Company failed to timely delivery to the holder the shares of Common Stock related to the Warrant exercise.

The $0.73 per share exercise price for the Warrants is subject to adjustment for stock splits and other extraordinary corporate events. In addition, the Warrants contain a full ratchet adjustment mechanism for the applicable purchase price comparable to the full ratchet adjustment mechanism applicable to the exercise price for the conversion of Debenture indebtedness into equity of the Company, as well as a conversion modification to account for distributions of cash, securities or other property to stockholders of the Company. The Company has an affirmative obligation to notify the Warrant holders of adjustments to the exercise price of the Warrants.

As with the Debentures, there is a limitation on the amount of common stock issuable to a Warrant holder to 4.99% of the outstanding common stock of the Company, subject to an increase with the written consent of the holder to 9.99%. In addition, the Warrants call for similar rights in the event of Fundamental Transactions.

Registration Rights Agreement. The Company has entered into a “Registration Rights Agreement,” pursuant to which it is obligated to file this registration statement to register all or the maximum amount permitted by the SEC (collectively the “Maximum Amount”) of the common stock of the Company underlying the Debentures and Warrants (subject to the obligation to file one or more subsequent registration statements as necessary to register the remaining unregistered shares until all of the underlying securities are eligible for resale under Rule 144 without volume limitation), which contains certain liquidated damages if not timely filed. The Company has agreed that it shall file to register all of the shares of common stock underlying the Debentures and Warrants (“Registrable Securities”) promptly following the closing of the offering pursuant to the Purchase Agreement (i.e. March 11, 2008), subject to cutback of the amount to be registered if required by the SEC pursuant to Rule 415 (subject to the obligation in such event to subsequently register the unregistered securities by September 30, 2008). It is obligated to: (i) file the registration statement pursuant to the Securities Act of 1933 on the earlier of the fifteenth calendar day following the date if files its annual report on Form 10 or May 1, 2008; (ii) cause this registration statement to be declared effective no later than sixty days following the filing date (or ninety days following the filing date if the registration statement undergoes a “full review” by the Securities and Exchange Commission; (iii) telephonically request the declaration of effectiveness of this registration statement at 5:00 p.m. New York time on a trading day; (iv) immediately notify the holders of the declaration of effectiveness of this registration statement on the same day that it confirms such effectiveness with the SEC; (v) file a prospectus with the SEC, as required by Rule 424 within one day of the declaration of effectiveness; (vi) following the declaration of effectiveness of this registration statement, the Company is obligated to maintain the continuous effectiveness of this Registration Statement (except for a period equal to thirty calendar days in the event of negotiation of a merger or other extraordinary transaction that would render the disclosures in the prospectus inaccurate, or sixty calendar days during any twelve month period); this obligation to maintain effectiveness is to continue until the earlier of the sale of all of the Registrable Securities or the eligibility for resale of all of the Registrable Securities under Rule 144. Failure to meet any of the foregoing obligations constitutes an “Event,” which subjects the Company to liquidated damages of 2% for each month in which it occurs and on each monthly anniversary thereof, of a liquidated damages obligation equal to 2% of the original principal amount of the Debenture of the holder, subject to an aggregate cap of 12% of the original principal amount of the Debenture, payable in cash unless otherwise agreeable to the Company and the Debenture holder (and interest accrues on unpaid liquidated damages at 18% per annum).

The Company has an obligation during the registration process to provide to each Debenture holder no less than five trading days prior to the filing of each registration statement and no less than one trading day prior to the filing of any related prospectus or amendment or supplement thereto, with a copy of the proposed filing, and shall have an obligation to address any reasonable objections provided by holders of a majority of the Registrable Securities. The Company has an obligation to provide questionnaires to the holders relative to the information to be included in the registration statement regarding them, to be timely completed by the holders.

The Company has an obligation to: (i) file the necessary post effective amendments to this registration statement and prospectus to be used by the holders of the Registrable Securities, to keep the registration statement continuously effective until all the Registrable Securities are eligible for resale pursuant to Rule 144; (ii) file all required supplements; (iii) respond promptly to comments received from the Commission and provide copies of all applicable correspondence to the holders of the Registrable Securities; and (iv) comply in all material respects with the requirements of the Securities Act of 1933 for the legal methods of disposition by the holders of the Registrable Securities.

There is an obligation to file a new registration statement at such point in time as the amount of Registrable Securities exceeds the amount of securities then registered. There are obligations to notify the holders of Registrable Securities of the occurrence of numerous events which in certain events will include the need to suspend trading on the occurrence of certain events, including: (i) (A) when a prospectus or prospectus supplement is proposed to be filed; (B) when the SEC advises that a review will be effected or when comments are received; and (C) on the effectiveness of a registration statement or post effective amendment thereto; (ii) of any request by the SEC or other applicable government authority for amendments or supplements to the foregoing; (iii) the issuance of stop orders or similar proceedings; (iv) the receipt of notifications of suspension of permission for sale of securities; (v) the occurrence of an event or the passage of time where action must be taken to amend the registration statement to ensure that it does not misstate any material facts or omit to state any material facts; and (vi) the occurrence of material events regarding the Company under certain circumstances which the Company believes may not be in the Company’s best interest to continue the availability of the registration statement, provided that such information must be maintained on a confidential basis until publicly disclosed.

The Registration Rights Agreement contains detailed delivery requirements to the holders of the Registrable Securities as well as the obligation to meet applicable NASD and state blue sky requirements. The Company is obligated to cover all of the costs of registration of the Registrable Securities and to provide detailed indemnification to the holders of the Registrable Securities for loss, liability and legal expenses associated with the same.

Security Agreement. The Company and all of its subsidiaries (each, a “Debtor”) entered into a Security Agreement in the United States (and in the UK with respect to the assets of Magenta) pursuant to which they granted to the Purchasers a security interest in all of the assets of the Debtors (the “Collateral”), including a pledge by the Company of all of the capital stock of each of its subsidiaries. The Purchasers appointed one of the Purchasers to act as their Agent under the Security Agreement. Pursuant to the Security Agreement (i) no Debtor may sell any Collateral except in the ordinary course of business; (ii) each Debtor shall preserve its Collateral and maintain sufficient insurance with respect thereto; (iii) no Debtor will change its name, type of organization or jurisdiction of organization; and (iv) there are numerous reporting obligations should any of the Collateral be moved or should the Company or any of its subsidiaries change its central office or name. Upon an Event of Default, the Agent may exercise all rights available to any of the Purchasers, including taking possession of the Collateral and to operate the business of each Debtor.

Subsidiary Guarantee. Each of the active subsidiaries of the Company entered into a guarantee with the Purchasers whereby it guaranteed the full amount of obligations of the Company with respect to the Debentures.

On January 19, 2007, Messrs. Geras, Hudson, and Shutt, all Board members of the Company, and in the case of Mr. Hudson and Mr. Shutt, were also senior officers, were repaid principal and interest amounts owed totaling $283,933, $106,722, and $54,307, respectively, in connection with financing of the acquisition of 20/20.

Mr. Tom Hudson, who was on the Company’s Board of Directors and was Chief Executive Officer of the Company, had a $150,000 unsecured note payable by 20/20, bearing interest at a rate of 8%. This debt was assumed as part of the acquisition of 20/20 and was subsequently repaid with accrued interest totaling $15,682 in 2007.

On January 19, 2007, in connection with the funding of the acquisition of CentrePath and GCG, Mr. Hudson converted $1.0 million of the notes payable. Mr. Hudson was repaid $0.5 million on this date and elected to place the remaining $0.5 million into the Company’s junior secured facility, described in the accompanying notes to the financial statements contained in the Company’s Form 10-KSB for the year ended December 31, 2007. Mr. Geras, the former Chairman of the Board of Directors of the Company, was repaid the entire principal and interest of his loans to the Company in connection with the CentrePath acquisition, totaling $1.9 million upon the completion of our initial equity funding on January 19, 2007.

Effective May 1, 2007, Darin McAreavey was promoted to be the Company’s Chief Financial and Accounting Officer from his prior position as Senior Vice President-Finance. Mr. McAreavey’s employment agreement provided for: (i) a one-year term, with automatic renewals if not terminated; (ii) an initial base salary equal to $175,000 per annum during the term of the agreement; (iii) an annual cash bonus as determined by our Board of Directors, based on a target of 100% of base compensation if all incentives are achieved, with a minimum bonus of $25,000 for the first year of employment; (iv) a non-solicitation covenant during the term of the employment agreement and for a period of one year thereafter; (v) the granting to Mr. McAreavey of ten-year options to purchase 300,000 shares of common stock at the ten-day trailing average of our common stock immediately prior to the grant ($0.92), with 25% percent of such options vesting immediately and on each one year anniversary of the employment date, subject to full vesting in the event of a change in control; (vi) the granting to Mr. McAreavey of ten year performance options to purchase up to 300,000 shares of common stock priced in the same manner as the other stock option, which vest upon the Company and which immediately vest and are exercisable for an additional one year’s period following a change in control. Mr. McAreavey resigned effective August 31, 2007.

On December 28, 2007, we amended the employment agreements of each of Patrick Shutt (CEO), George King (President), and Robert Pollan (COO) and entered into an employment agreement with Jim McDevitt (CFO). The employment agreement amendments each call for base salary effective January 1, 2008 of $250,000, in addition to cash bonuses. Mr. McDevitt’s new employment agreement calls for a base salary of $200,000 per year, with the employment term for a two-year period commencing with January 1, 2008.

All of the above agreements allow for bonuses in 2008 and thereafter of up to 100% of base compensation, to be based on targets determined by our Board or its Compensation Committee. Each employee is provided the option to have future bonuses awarded either in cash or in options to purchase common stock that would have an exercise price discounted to its fair market value and be in an amount equal to the cash bonus that would be waived. Such options, if any, would be exercisable in the calendar year following the year of grant of the options, subject to acceleration in the event of a change in control. Future annual contingent bonuses will be based upon performance metrics established by the Company from time to time. In addition to the bonus provisions, each of the employees had been previously awarded fixed options and incentive based options.

All of the above agreements contain a covenant not to compete during the term of employment and for one year thereafter in the areas of our business. The employment agreement for Mr. McDevitt is substantially similar to the employment agreements, as amended, for each of Messrs. Shutt, King and Pollan, provided that it does not call for any bonuses with respect to 2007 and does not include any of the performance-based or time-based options that were awarded on the inception of employment to them. It provides that Mr. McDevitt would be entitled to one year’s severance in the event of termination of employment by him with “good reason” or by us “without cause.” In the event of a change in control, the agreement provides that if termination of employment is within six (6) months following such a change in control and if Mr. McDevitt would otherwise have the right to terminate his employment for good cause, then he would be entitled to additional severance compensation.

In 2007, Mr. Lee Wiskowski and Mr. Douglas Stukel each received cash payments totaling $319,000 in connection with all the transactions completed by the Company in 2006 and 2007. In addition, Messrs. Wiskowski and Stukel were each issued warrants to purchase 374.53110 shares of Series AA preferred stock (representing in the aggregate 832,117 shares of common stock on an as-converted basis) , with one half at an exercise price of $1,000 per share ($0.45 per share on an as-converted to common stock basis) expiring on December 31, 2008 and the other half at an exercise price of $1,444.44 per share ($0.65 per share on an as-converted to common stock basis) expiring on December 31, 2009. In addition, as part of securing the various short terms notes, the Company issued warrants to purchase 33.75034 shares of Series AA preferred stock (75,000 shares of common stock on an as-converted basis) each to both Mr. Lee Wiskowski and Mr. Douglas Stukel. The stock warrants have an exercise price of $1,000 per Series AA preferred share ($0.45 per share of common stock on an as-converted basis) expiring on December 31, 2009.

Our authorized capital consists of 350,000,000 shares of common stock, $.0001 par value per share, of which 147,005,456 shares were issued and outstanding as of April 14, 2008. The following description is a summary and is qualified in its entirety by our Certificate of Incorporation and By-laws as currently in effect.

Each holder of common stock is entitled to receive ratable dividends, if any, as may be declared by the Board of Directors out of funds legally available for the payment of dividends. As of the date of this prospectus, we have not paid any dividends on our common stock, and none are contemplated in the foreseeable future. We anticipate that all earnings that may be generated from our operations will be used to finance our growth.

Holders of common stock are entitled to one vote for each share held of record. There are no cumulative voting rights in the election of directors. Thus, the holders of more than 50% of the outstanding shares of common stock can elect all of our directors if they choose to do so.

The holders of our common stock have no preemptive, subscription, conversion or redemption rights. Upon our liquidation, dissolution or winding-up, the holders of our common stock are entitled to receive our assets pro rata.

The Transfer Agent and Registrar for the Company’s Common Stock is Continental Stock Transfer & Trust Company.

Each Selling Stockholder (the “Selling Stockholders”) of the common stock and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on the OTCBB or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling shares:

The Selling Stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), if available, rather than under this prospectus.

Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA NASD Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with NASD IM-2440.

In connection with the sale of the common stock or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The Selling Stockholders may also sell shares of the common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The Selling Stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the Common Stock. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).

The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the shares. The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

Because Selling Stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the Selling Stockholders.

We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the Selling Stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On January 3, 2006, CGSI engaged Plante & Moran, PLLC as the Registrant’s independent accountants to report on the Company’s consolidated balance sheet as of December 31, 2005 and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended. The decision to appoint Plante & Moran, PLLC was approved by the Company’s Board of Directors on January 3, 2006.

During the Company’s two most recent fiscal years and any subsequent interim period prior to the engagement of Plante & Moran, PLLC, neither the Company nor anyone on the Company’s behalf consulted with Plante & Moran, PLLC regarding either (i) the application of accounting principles to a specified transaction, either contemplated or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, or (ii) any matter that was either the subject of a “disagreement” or a “reportable event.”

The validity of the common stock has been passed upon by Sichenzia Ross Friedman Ference LLP, New York, New York.

The consolidated balance sheets of Capital Growth and its subsidiaries as of December 31, 2007 and 2006 and the related consolidated statements of operations, shareholders’ equity, and cash flows for the years then ended, included in this prospectus, have been audited by Plante & Moran, PLLC, an independent registered public accounting firm, as stated in their report appearing herein, and have been included in reliance upon the authority of such firm as experts in accounting and auditing.

We filed with the SEC a registration statement on Form S-1 under the Securities Act for the common stock to be sold in this offering. This prospectus does not contain all of the information in the registration statement and the exhibits and schedules that were filed with the registration statement. For further information with respect to the common stock and us, we refer you to the registration statement and the exhibits and schedules that were filed with the registration statement. Statements made in this prospectus regarding the contents of any contract, agreement or other document that is filed as an exhibit to the registration statement are not necessarily complete, and we refer you to the full text of the contract or other document filed as an exhibit to the registration statement. A copy of the registration statement and the exhibits and schedules that were filed with the registration statement may be inspected without charge at the public reference facilities maintained by the SEC, 100 F Street, Washington, DC 20549. Copies of all or any part of the registration statement may be obtained from the SEC upon payment of the prescribed fee. Information regarding the operation of the public reference rooms may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the site is http://www.sec.gov.

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

Under the Florida Business Corporation Act and our Articles of Incorporation, as amended, our directors will have no personal liability to us or our shareholders for monetary damages incurred as the result of the breach or alleged breach by a director of his “duty of care.” This provision does not apply to the directors’ (i) acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (iii) approval of any transaction from which a director derives an improper personal benefit, (iv) acts or omissions that show a reckless disregard for the director’s duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director’s duties, of a risk of serious injury to the corporation or its shareholders, (v) acts or omissions that constituted an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the corporation or its shareholders, or (vi) approval of an unlawful dividend, distribution, stock repurchase or redemption. This provision would generally absolve directors of personal liability for negligence in the performance of duties, including gross negligence.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

We have audited the accompanying consolidated balance sheets of Capital Growth Systems, Inc. and Subsidiaries (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of operations, statement of shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Capital Growth Systems, Inc. and Subsidiaries as of December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 15 of the consolidated financial statements, the Company’s recurring losses, negative cash flows from operations and its net working capital deficiency raise substantial doubt about its ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 15. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

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

The accompanying consolidated financial statements include the accounts of Capital Growth Systems, Inc. (“CGSI”) and its wholly-owned subsidiaries, 20/20 Technologies, Inc. (“20/20”), Magenta netLogic Ltd. (“Magenta”), CentrePath, Inc. (“CentrePath”), and Global Capacity Group, Inc. (“GCG”). Except where necessary to distinguish the entities, together they are referred to as the “Company.” All intercompany accounts have been eliminated in consolidation.

Prior to 2004, Capital Growth Systems, Inc. (“CGSI”) was a publicly reporting shell corporation with no active business. In January 2004, the Company acquired, by way of subsidiary merger, Nexvu Technologies, LLC (“Nexvu”), a development-stage company in the network performance management business. During 2007, the Company hibernated Nexvu’s operations (eliminating all operating expense associated with the business) while it evaluated alternatives for the core Nexvu intellectual property (IP), which management believes to have value in the market.

In September 2004, CGSI acquired Frontrunner Network Systems (“Frontrunner”) via a subsidiary merger. Frontrunner is known as an “interconnect” company, which installs and services customer-premise voice, data, and video networks. In 2007, the Company agreed to sell Frontrunner. The sale was completed on February 19, 2008 and is discussed in the “Subsequent Events” note.

During the first quarter of 2007, the Company determined both Nexvu and Frontrunner were not core to its telecom logistics model and met the definition of discontinued operations as prescribed in Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for Impairment or Disposal of Long-Lived Assets (SFAS 144) the financial results of these two entities are presented as discontinued operations. See the “Discontinued Operations” note for further discussion.

On September 8, 2006, the Company entered into an Agreement and Plan of Merger with 20/20 and its wholly-owned UK subsidiary, Magenta. Pursuant to the terms of the Agreement, the Company agreed to acquire all of the capital stock of 20/20 in exchange for certain cash, stock consideration, and the assumption of certain indebtedness. The Company and 20/20 effected the transaction through a reverse triangular merger whereby a subsidiary established for the purpose of merger was merged with 20/20 and 20/20 was the surviving corporation.

The aggregate consideration paid to 20/20 in connection with the merger was $8.7 million, comprised of debt refinanced in the amount of $3.5 million and stock valued at $5.2 million. The stock consideration consisted of 3,899,315 shares of the Company’s common stock, par value of $0.0001 (“common stock”) and 2,516.10 shares of the Company’s Series B preferred stock, par value $.0001 (the “Series B Preferred Stock”, and collectively with the shares of common stock, the “Transaction Shares”). The value of the Transaction Shares was based on the average closing price of the Company’s common stock for the ten trading days immediately preceding the Closing Date and was equal to $0.68 per share. The Series B Preferred Stock, by its terms, converted into an additional 3,700,147 shares of common stock upon June 25, 2007, common shareholder approval of increasing the number of authorized shares of common stock from 25,000,000 to 350,000,000. All of the Transaction Shares have been released to the former shareholders of 20/20.

On November 22, 2006, the Company entered into an Agreement and Plan of Merger with CentrePath, Inc. pursuant to which CentrePath merged with and into a subsidiary of the Company established for that purpose. The merger consideration paid to the CentrePath stockholders was a cash amount equal to $6.8 million, subject to a post-closing net working capital adjustment. On November 30, 2006, the Company consummated the acquisition. Pursuant to the Agreement, an additional payment of $0.75 million related to the post-closing net working capital adjustment was established, bringing the total amount of the merger consideration to $7.5 million. The additional payment due was recorded in accrued expenses at December 31, 2006 and paid in 2007.

As part of this Merger, the Company borrowed $7.9 million in November 2006 with $6.8 million of the proceeds used toward the purchase of CentrePath and the balance of the proceeds used for working capital. The financing was secured by the stock and assets of CentrePath. The principal and accrued interest with respect to these loans was either paid off or rolled into the purchase of Units pursuant to the Units offering on January 19, 2007 as discussed in the “Shareholders’ Equity” note. In connection with the funding of this loan, the Company issued warrants to purchase 2,261.27261 shares of Series AA preferred stock (representing 3,925,000 shares of common stock, on an as-converted basis), exercisable on or before December 31, 2009, at $1,000 per share ($0.45 per share, on an as-converted to common stock basis). Due to the June 2007 amendment to the Company’s Articles of Incorporation to increase its authorized common stock, the warrants issued in connection with the loans became exercisable to purchase common stock.

Effective December 12, 2006, the Company consummated the acquisition of GCG. The aggregate cash consideration paid at closing was $5.3 million. GCG’s former stockholders were entitled to additional contingent consideration after the second and third anniversary dates of the merger if certain revenue and profitability thresholds were reached by GCG after the merger. The parties agreed to various revenue and gross margin combinations that could have resulted in additional consideration between $1.5 million and $3.0 million on each of the second and third anniversary dates. The Company required the former shareholders to be employed by GCG in order to receive any such additional consideration payments. The agreed upon revenue thresholds ranged between $9.0 million and $13.4 million and the gross profit thresholds ranged between 27.5% and 30% of revenue. Any additional consideration to be paid on the second anniversary date was to have been paid in cash. Contingent consideration on the third anniversary date may have been paid in cash or CGSI common stock at the Company’s discretion. Ultimately, on October 31, 2007, separation agreements were reached with the former owners and all claims to potential earn-out payments were released in exchange for a lump sum payment of $350,000. This amount was paid in 2007 and is included as compensation expense.

The Company authorized a tranche of up to $5.5 million of 60-day bridge notes pursuant to a Global Bridge Note Purchase Agreement dated as of December 11, 2006, by and among the Company and various lenders party thereto, to provide the cash necessary to fund the purchase of Global Capacity Group, Inc. plus an additional amount of up to $200,000 for general working capital purposes. Each bridge note bore interest at 8% per annum and was secured by a collateral pledge of the stock of GCG as well as a junior security interest in the assets of the Company. In addition, for each $1.0 million of bridge notes funded, the lenders received a detachable warrant to purchase up to 225.00225 shares of Series AA Convertible Preferred Stock, which by its terms was convertible into 500,000 shares of common stock upon the authorization of the underlying common stock. The warrants were exercisable on or before December 31, 2009 at an as-converted to common stock purchase price of $0.45 per share. The Series AA Convertible Preferred Stock provided for the automatic conversion to common stock once the Articles of Incorporation for the Company were amended to authorize the issuance of not less than 200,000,000 shares of common stock. The Articles were amended in June 2007. On December 11, 2006, $4.7 million of bridge notes were issued. The balance of the merger consideration was provided by available cash from the Company. In the first quarter of 2007, $2.9 million of the principal and accrued interest related to the bridge notes was extended and became part of the Company’s new junior secured facility and the remaining balance of $1.8 million was repaid. See the “Debt” note for further discussion. There was no further obligation related to the bridge notes outstanding as of December 31, 2007.

The Company determined the fair value of the assets acquired and liabilities assumed, including identifying the value of intangible assets that existed at the dates of the acquisitions. Under the purchase method of accounting, the total consideration as shown in the table below is allocated to tangible and intangible assets and liabilities based on their fair values as of the date of completion of the acquisitions. The consideration was allocated as follows:

The Company valued the identifiable intangible assets acquired using an appraisal. The identifiable intangible assets, estimated useful lives, and expected annual amortizations are as follows:

The following unaudited pro forma condensed consolidated results of operations have been prepared as if the acquisitions of 20/20 (including Magenta), CentrePath, and GCG had occurred as of January 1, 2006:

The unaudited pro forma condensed consolidated results of operations are not necessarily indicative of results that would have occurred had the acquisitions occurred as of January 1, 2006, nor are they necessarily indicative of the results that may occur in the future.

The Company considers those short-term, highly-liquid investments with original maturities of three months or less as cash and cash equivalents. As of December 31, 2007, the Company had $0.2 million of restricted cash for outstanding letters of credit.

The carrying amount of cash, accounts receivable, prepaid expenses, current maturities of long-term debt and accounts payable are considered representative of their respective fair values because of the short-term nature of these financial instruments. Long-term debt approximates fair value due to the interest rates on the promissory notes approximating current rates.

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents. The Company places its cash and temporary cash investments with credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit.

Accounts receivable represent amounts owed from billings to customers and are recorded at gross amounts owed less an allowance for uncollectible accounts. The Company provides an allowance for uncollectible accounts receivable based upon prior experience and management’s assessment of the collectability of existing specific accounts. Total reserve for uncollectible accounts was $99,000 and $64,000 as of December 31, 2007 and 2006, respectively. The Company’s policy is to write-off accounts receivable balances once management has deemed them to be uncollectible.

Property and equipment are stated at cost less accumulated depreciation. Provision for depreciation is made generally at rates designed to allocate the cost of the property and equipment over their estimated useful lives of three to fifteen years. Depreciation is calculated using the straight-line method. The cost of ordinary maintenance and repairs is charged to operations while renewals and replacements are capitalized.

Goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination. Goodwill is tested for impairment annually and will be tested for impairment between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. There have been no current events or circumstances that would indicate an impairment of goodwill exists and there were no changes in the carrying amount of goodwill for the year ended December 31, 2007 in the continuing operations.

The value at acquisition and current carrying cost for each acquired company are as follows:

Intangible assets are assets acquired from an independent party. The assets have no significant residual values. There are no intangible assets that are not subject to amortization. The acquired intangible assets are tested for impairment whenever events or circumstances indicate that a carrying amount of an asset or asset group may not be recoverable. The Company has determined that no impairments existed as of December 31, 2007. An impairment loss is recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows used in determining the fair value of the asset. The amount of the impairment loss to be recorded represents the excess of the asset’s carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis.

Gross carrying amounts, accumulated amortization, and estimated amortization period for each major intangible asset class are as follows:

Amortization expense for the years ended December 31, 2007 and 2006 related to the intangible assets was $1.2 million and $0.2 million, respectively.

Estimated amortization expense for the intangible assets is as follows for the years ending December 31:

The Company assesses the recoverability of long-lived assets in accordance with SFAS 144. The impairment of long-lived assets held for sale is measured at the lower of book value or fair value less cost to sell. The recoverability of long-lived assets held and used is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. Additionally, SFAS 144 expands the scope of discontinued operations to include all components of an entity with operations that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction.

The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important, which could trigger an impairment review, include the following:

There were no impairment charges recognized related to the long-lived assets of the continuing operations for the years ended December 31, 2007 and 2006.

The Company generates revenue from selling and installing hardware, licensing its software, and the provision of services.

For revenue from product sales and services, the Company recognizes revenue in accordance with Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104), which incorporates Emerging Issues Task Force Issue No. 00-21, Multiple-Deliverable Revenue Arrangements (EITF 00-21). EITF 00-21 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services, and/or rights to use assets. Revenue from the sale of software is recognized in accordance with AICPA Statement of Position 97-2, Software Revenue Recognition (SOP 97-2), as amended by AICPA Statement of Position 98-9, Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions (SOP 98-9).

The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required. The allocation of license and maintenance is based on the residual method of accounting as prescribed in SOP 97-2. Under this method, the Company has established Vendor Specific Objective Evidence (VSOE) for the value of its post-contract support agreements at 20% of the license amount, which is based on the amount charged to its customer in the renewal year. Therefore, of the total amount received under the arrangement, the Company allocates 20% to maintenance and the remaining amount to software license under the “residual method” of accounting as prescribed in SOP 97-2.

The Company defers maintenance and services revenue related to providing network monitoring and access to broadband. This revenue is recognized ratably over the term of such contracts. The Company defers recognition of revenue on consulting and training billings until the related services are performed.

In the first quarter of 2006, the Company adopted SFAS No. 123R, Share-Based Payments (SFAS 123R), which revises SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123) and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). SFAS 123R requires that share-based payment transactions with employees be recognized in the financial statements based on their fair value and recognized as compensation expense over the vesting period. Prior to SFAS 123R, the Company disclosed the pro forma effects of SFAS 123 under the minimum value method. The Company adopted SFAS 123R effective January 1, 2006, prospectively for new equity awards issued subsequent to January 1, 2006. The adoption of SFAS 123R resulted in the recognition of stock-based compensation expense for the years ended December 31, 2007 and 2006 of $13.8 million and $1.8 million, respectively. No tax benefit has been recorded due to the full valuation allowance on deferred tax assets that the Company has recorded.

warrants to purchase shares. These shares or warrants generally are fully vested, non-forfeitable, and exercisable at the date of grant and require no future performance commitment by the recipient. The Company expenses the fair market value of these securities over the period in which the related services are received.

The Company adopted the provisions of FASB Interpretation No 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (FIN 48), on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes (SFAS 109), and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on recognition, classification, interest, and penalties, accounting in interim periods, disclosure, and transition.

The Company and its subsidiaries, file income tax returns in the U.S. federal jurisdiction, and various state as well as local and foreign jurisdictions. Based on its evaluation, the Company has concluded that there are no significant unrecognized tax benefits. The Company’s evaluation was performed for the tax years ended December 31, 2003, 2004, 2005, and 2006, the tax years that remain subject to examination by major tax jurisdictions as of December 31, 2007. The Company does not believe there will be any material changes in its unrecognized tax positions over the next twelve months.

The Company may from time to time be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to its financial results. In accordance with FIN 48, paragraph 19, the Company has decided to classify interest and penalties as a component of income tax expense.

SFAS No. 130, Reporting Comprehensive Income (SFAS 130), establishes standards for reporting and displaying of comprehensive income, its components, and accumulated balances. Comprehensive income (loss) is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. The following is the Company’s comprehensive loss for the years ended December 31, 2007 and 2006:

Basic and diluted net loss per share information is presented under the requirements of SFAS No. 128, Earnings per Share (SFAS 128). Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period, less shares subject to repurchase. Diluted net loss per share reflects potential dilution of securities by adding other potential common shares, including stock options and warrants, to the weighted-average number of common shares outstanding for a period, if dilutive. All potentially dilutive securities, including stock options and warrants, have been excluded from this computation, as their effect is anti-dilutive. As of December 31, 2007, there were 60,708,027 stock options and 67,107,343 stock warrants outstanding that potentially could be converted into common shares. The Company also has outstanding a junior secured facility which contains a conversion feature into shares of common stock. Based on the Company’s ten-day trailing average of its closing market price, these notes had the potential to convert into 16,767,904 of additional common shares as of December 31, 2007. On June 25, 2007, the Company’s shareholders approved an increase in the number of authorized common shares from 25,000,000 to 350,000,000, resulting in the conversion of all series of preferred stock into common stock. At that date, the Company had a total of 2,516.10 and 20,634.53 shares of Series B and Series AA Convertible preferred stock that converted into 3,700,147 and 45,852,567 shares of common stock, respectively. Also outstanding were warrants to purchase 2,020.756 Series A preferred stock, which were convertible into 2,245,262 shares of common stock upon exercise.

As of December 31, 2006, there were 9,324,527 stock options and 15,600,641 stock warrants outstanding that could be converted into potential common shares. There were 2,516.10 shares of Series B Convertible preferred stock that could potentially be converted into 3,700,147 shares of common stock that are outstanding at December 31, 2006.

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS 131) establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. SFAS 131 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate, discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and assess performance. The information disclosed herein materially represents all of the financial information related to the Company’s principal operating segments. During the first quarter of 2007, the Company completed the process of identifying which of the entities’ operations were core to its overall Telecom Logistics Integrator business model. As a result, the Company determined that all operations were core to this business model, with the exception of Nexvu and Frontrunner and therefore made a decision to divest from these businesses. See the “Discontinued Operations” note for further discussion. The Company’s management team views the remaining combined operations of 20/20, Magenta, CentrePath, GCG, and CGSI as one operating segment, for which it prepares discrete financial statement information and is the basis for making decisions on how to allocate resources and assess performance.

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurement (SFAS 157), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 will apply whenever another standard requires (or permits) assets or liabilities to be measured at fair value. The standard does not expand the use of fair value to any new circumstances and is effective beginning after December 31, 2007. The Company is currently evaluating the impact of adopting SFAS 157 on its financial position and results of operations.

On December 4, 2007, the FASB issued SFAS 141(R), Business Combinations (SFAS 141R). SFAS 141R replaces SFAS 141, Business Combinations and applies to all transactions or other events in which an entity obtains control of one or more businesses. SFAS 141R requires the acquiring entity in a business combination to recognize the acquisition-date fair value of all assets acquired and liabilities assumed including contingent consideration and those relating to minority interests. SFAS 141R also requires acquisition-related transaction expenses and restructuring costs to be expensed as incurred, rather than capitalized as a component of the business combination. SFAS 141R is effective for fiscal years beginning after December 15, 2008 and may not be applied before that date. The provisions of SFAS 141R will impact the Company if it is party to a business combination after the pronouncement has been adopted.

On December 4, 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements (SFAS 160). SFAS 160 amends Accounting Research Bulletin No. 51, Consolidated Financial Statements (ARB 51) to establish accounting and reporting standards for the non-controlling interest (previously referred to as minority interests) in a subsidiary and for the deconsolidation of a subsidiary by requiring all non-controlling interests in subsidiaries be reported in the same way, (i.e., as equity in the consolidated financial statements) and eliminates the diversity in accounting for transactions between an entity and non-controlling interests by requiring they be treated as equity transactions. SFAS 160 is effective for fiscal years beginning after December 15, 2008 and may not be applied before that date. The Company does not currently expect the adoption of SFAS 160 to have a material effect on its consolidated results of operations and financial condition.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures 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 these estimates.

Certain amounts previously reported have been reclassified to conform to the current period presentation.

During the first quarter of 2007, the Company determined the operations of Frontrunner and Nexvu were not core to the Company’s overall Telecom Logistics Integrator strategy and therefore made the decision to dispose of these two entities. Since early 2007, the Company has been actively marketing the two companies and was in final negotiations for the sale of Nexvu at December 31, 2007. See the “Subsequent Events” note for further discussion. Development activity at Nexvu was ended effective September 30, 2007 and shut down costs of $160,000 were accrued at that date to cover any residual costs,

including severance and liquidation of fixed assets. In accordance with SFAS 144, the Company has classified both of these entities as discontinued operations for the financial statements presented herein. Revenues for the years ended December 31, 2007 and 2006 were $9.3 million and $13.3 million, respectively. The loss from discontinued operations for the years ended December 31, 2007 and 2006 were $5.0 million and $2.7 million, respectively.

In 2006, the Company determined the carrying value of Frontrunner’s goodwill exceeded its fair value by $1.4 million and therefore recognized a charge of this amount in 2006. In connection with tentative offers for Frontrunner, the Company reassessed the carrying amount of that unit’s goodwill and wrote-off the balance of $2.6 million during 2007.

On February 19, 2008, the Company entered into an Asset Purchase Agreement with an unaffiliated party (“Buyer”) pursuant to which Frontrunner sold substantially all of its assets to the Buyer. The purchase price for the assets was $850,000 and the Buyer assumed Frontrunner’s indebtedness to a material supplier that had a remaining principal amount of $590,000. Approximately $140,000 of the cash purchase price was placed in escrow to be disbursed based on the collections of certain accounts receivable of Frontrunner that were purchased by the Buyer. The Company used the cash proceeds (net of the escrow amount) to pay down amounts outstanding under the Senior Secured Credit Agreement. In connection with the sale of assets, the Company agreed to not compete with the Buyer for a period of five years. Based on final sale negotiations, the Company recorded an additional gain on sale of $1.0 million during the first quarter of 2008.

In 2002, Nexvu entered into a software licensing agreement with a third party under which the Company acquired a non-exclusive license for the worldwide rights to market and distribute the third party’s proprietary software. The Company was required to make annual minimum royalty payments over a five-year period that totaled $500,000. During 2007, the Company and the third party agreed that, in connection with the close of operations of Nexvu and the removal of the third party’s software from the Nexvu product, that the agreement would be terminated in exchange for a payment of $25,000, which was made.

Depreciation of property and equipment was $2,301,885 and $194,221 for the years ended December 31, 2007 and 2006, respectively.

Senior Secured Facility. On January 19, 2007, the Company closed the initial funding of $7.0 million of borrowings on an 18-month $12 million Senior Secured Facility issued to the Company by Hilco Financial, LLC (“Senior Lender”). The

Credit Agreement for the facility names the Company and its remaining active subsidiaries as co-borrowers. The Credit Agreement provides for a term loan of $6.5 million plus up to $5.5 million of borrowing availability based upon an advance rate of 85% against eligible accounts receivable. It requires the payment of interest on a monthly basis at the greater of 15% per annum or prime plus 7% and has a $250,000 prepayment penalty until the last thirty days of the facility. There is a $3,000 per month collateral management fee, a 0.5% per month unused line fee, and an obligation to reimburse the lender for costs incurred by it in connection with the original issuance and ongoing administration of the facility. Further, the Company agreed to pay the Senior Lender a fee of 5% of the maximum amount of the facility, with one half funded on the closing date and the second half due six months following the closing. The Company also paid a fee of $250,000 to a placement agent in connection with the facility. As of December 31, 2007, the Company’s borrowing capacity was $0.5 million.

The Senior Secured Facility is secured by a blanket lien on all of the Company’s assets and all of the assets of the Company’s subsidiaries. Additionally, the Company pledged all of the capital stock or limited liability company interests of each of the Company’s subsidiaries as additional collateral. The Credit Agreement prohibits junior encumbrances on the Company’s assets with the exception of the junior secured facility (discussed herein) and certain permitted purchase money security interests. The Credit Agreement contains numerous affirmative and negative covenants customary for facilities of this nature. The Company had agreed to EBITDA covenants (earnings before interest taxes, depreciation and amortization and before non-cash stock compensation and warrant expense) as follows (at least 75% of the amount must be achieved on a cumulative basis: Q1 2007 ($2.4) million; Q2 2007 ($2.6) million; Q3 2007 ($600,000); and Q4 2007 $3.1 million. The Company also agreed to a covenant capping capital expenditures at $500,000 for 2007. The Senior Lender agreed to waive the Company’s non-compliance related to the EBITDA covenant during 2007.

In connection with the Senior Secured Facility, on January 19, 2007, the Company issued to the Senior Lender two warrants to purchase an aggregate of 1,125.0 shares of Series AA preferred stock (2,500,000 shares of common stock, on an as-converted basis). Warrants with respect to one half of the shares were exercisable on or before December 31, 2008 at an exercise price equal to $0.45 per share of common stock, on an as-converted basis, and warrants with respect to the one half of the shares were exercisable on or before December 31, 2009 at an exercise price equal to $0.65 per share of common stock on an as-converted basis. In connection with the October 31, 2007 Waiver and Amendment to the Agreement, a new five-year warrant to purchase up to 3,500,000 shares of common stock at $0.15 was issued and the previously issued warrants were cancelled. The new warrant provides for, among other things, cashless exercise, anti-dilution, and registration rights. The Senior Lender subsequently agreed to waive the requirements that the shares underlying its warrant be registered.

During the first quarter of 2008, this debt was paid in full. See the “Subsequent Events” note for further discussion.

Junior Secured Facility. On January 19, 2007, the Company entered into an agreement with a number of individuals and entities for the establishment of a junior secured facility that permits the funding of up to $10.0 million of original principal amount of advances. At the closing, $5.9 million was provided pursuant to the facility. During the year, another $1.4 million was funded, bringing the aggregate principal amount of the facility to $7.3 million. All but $1.4 million of the funding of the facility was provided by the exchange of existing bridge loans for the issuance of new notes with respect to the facility (valued dollar for dollar against outstanding principal plus accrued interest of the bridge loans; including a bridge loan of $0.5 million plus accrued interest funded to the Company by its then chief executive officer). The facility has a two-year term accruing simple interest at 12% per annum, with all principal and interest due on maturity. The junior secured facility is secured by a junior lien on the Company’s assets and the assets of its subsidiaries, which is expressly contractually subordinated to the Senior Secured Facility and any refinancing of that facility.

The original principal amount of each note issued pursuant to the junior secured facility was convertible at the holder’s option into Series AA preferred stock (or following its conversion to common stock, then the conversion feature relates to common stock) at a price per share equal to a 20% discount to the trailing ten-day average for the Company’s common stock as of the day immediately preceding the date of conversion, (subject to adjustment to account for stock splits and certain other extraordinary corporate circumstances). In connection with the funding of the junior secured facility, each lender under that facility was issued a warrant to purchase up to 67.5 shares of Series AA preferred stock for each $100,000 advanced, which represents 150,000 shares of common stock, on an as-converted basis, exercisable at $0.45 per share and expiring December 31, 2009. The loan agreement establishing the facility was amended effective June 15, 2007 to: (i) eliminate the ceiling (originally applicable to the facility based on a floor of $0.65 and a ceiling of $1.25 per share) and floor for the conversion of loan amounts to equity in the Company; (ii) permit the cashless exercise of warrants under the facility in lieu of an obligation to register the shares of capital stock underlying the warrants; and (iii) provide that with respect to advances under the facility after June 5, 2007, the warrant coverage was increased to 90.0009 shares of Series AA preferred stock (200,000 shares of common stock, on an as-converted basis, at an effective price of $0.45 per share) for each $100,000 of principal amount advanced; those lenders funding the facility on or before January 22, 2007 received a warrant to purchase up to 67.500675 shares of Series AA preferred stock for each $100,000 of monies advanced (150,000 shares of common stock, on an as-converted basis, at an effective price of $0.45 per share) for each $100,000 of principal amount advanced. All

of the warrants under the facility expire December 31, 2009. The Company has issued warrants to purchase an aggregate of 15,432,658 shares of its common stock. The warrants issued as part of the junior secured facility are subject to similar extension and registration rights as those granted to the purchasers in the Units offering described in the “Shareholders’ Equity” note.

In August 2007, the Company established a short-term bridge facility authorizing the issuance of up to $1,000,000 of Units comprised of short-term promissory notes bearing interest at 12% per annum and maturing September 30, 2007, coupled with a warrant to purchase up to 125,000 shares of common stock for each $100,000 of notes funded. Each warrant is exercisable at $0.55 per share and expires December 31, 2010. At that time, two of the Company’s Directors purchased Units for a total of $150,000. In addition, two officers of the Company each purchased $50,000 of the Units and two investors purchased a total of $100,000 of Units. Collectively, the purchases of these Units resulted in the issuance of short-term notes in the principal amount of $350,000, plus warrants to purchase an aggregate of up to 437,500 shares of common stock. The purchasers of these units agreed to extend the maturity date until completion of the contemplated financing. The short-term bridge facility is unsecured. During the first quarter of 2008, each note was converted to common stock or paid in full. See the “Subsequent Events” note.

The Company had previously entered into a series of bridge loans as summarized herein, all of which were either paid off, extended, or converted under the terms of the Unit offering described in “Shareholders’ Equity” note. Such bridge loans included the following (all of the warrants issued in connection with these loans have registration rights comparable to those with respect to the Units offering):

20/20 Bridge Loan. The Company had borrowed $6.0 million simultaneous with or shortly following its purchase of 20/20, which loans had been secured by a blanket lien on the assets of 20/20. The principal and accrued interest with respect to these loans was either paid off or rolled into the purchase of Units per the Units offering on January 19, 2007. The holders of these notes were issued warrants to purchase Series A preferred stock which are convertible into common stock at the rate of 37,500 shares for each $100,000 of funds advanced (2,245,263 shares of common stock, on an as-converted basis), exercisable on or before December 31, 2011 at $1,000 per share ($0.45 per share, on an as-converted to common stock basis), subject to a call in favor of the Company in the event that the closing price of the Company’s stock exceeds $4.00 per share for thirty consecutive days following the effectiveness of a registration statement registering the common stock underlying the warrants.

CentrePath Bridge Loan. The Company had borrowed $7.9 million in original principal amount in November 2006 with $6.8 million of the proceeds used toward the purchase of CentrePath, and the balance of the proceeds used for working capital. The loans were secured by the stock and assets of CentrePath. The principal and accrued interest with respect to these loans was either paid off or rolled into the purchase of Units per the Units offering on January 19, 2007. In connection with the funding of this loan, the Company issued warrants to purchase 2,261.27 shares of Series AA preferred stock (representing 5,024,994 shares of common stock, on an as-converted basis), exercisable on or before December 31, 2009, at $1,000 per share ($0.45 per share, on an as-converted to common stock basis).

GCG Bridge Loan. The Company had borrowed $4.7 million in original principal amount in December 2006, which proceeds were (together with an additional $500,000 provided from working capital) used toward the purchase of GCG. The principal and accrued interest with respect to these loans was secured by the stock of GCG. The principal and accrued interest with respect to these loans was either paid off or rolled into the purchase of Units per the Units offering on January 19, 2007. In connection with the funding of this loan, the Company issued warrants to purchase 1,057.5105 shares of Series AA preferred stock (representing 2,350,000 shares of common stock, on an as-converted basis), exercisable on or before December 31, 2009, at $1,000 per share ($0.45 per share, on an as-converted to common stock basis).

Mandatory Notes. The Company issued an aggregate of $3.7 million of Mandatory Notes through January 19, 2007, which by their terms were automatically converted to Units on the initial closing of the Units offering. In addition, for every $100,000 of notes purchased, each note holder was issued a warrant that was exercisable at $0.45 and expires December 31, 2009 for 50.0005 shares of Series AA preferred stock, representing 111,111 shares of common stock (on an as-converted basis) and a warrant that is exercisable at $0.65 and expires December 31, 2009 for 50.0005 shares of Series AA Preferred Stock, representing 111,111 shares of common stock (on an as-converted basis). The Company also issued the note holders a warrant for 4.50005 shares of Series AA Preferred Stock, representing 10,000 shares of common stock (on an as-converted basis) exercisable at $0.45 and expiring on December 31, 2011, with a callable right by the Company. From January 22, 2007 through April 10, 2007, an aggregate of $4.4 million of additional Mandatory Notes were issued which were converted into Units of Series AA preferred stock and warrants on the terms as described above.

During 2007, the Company failed to meet certain covenants required under various borrowing agreements. The Company sought and obtained waivers from its lenders, as necessary. No acceleration of the indebtedness evidenced by these notes had been declared as of December 31, 2007 by any of its creditors.

The weighted-average interest rate on the debt listed above excluding the affect of the amortization of the fair value of the related warrants is 12.8% and 10.8% as of December 31, 2007 and 2006, respectively.

The aggregate scheduled principal re-payments of long-term debt for the next five years are as follows:

The Company has issued warrants to purchase shares of its common stock to various entities and individuals as summarized on the following table:

These stock warrants are exercisable and have a weighted average of 2.9 years. Certain of the warrants were originally issued as Series A preferred stock warrants and Series AA preferred stock warrants. These warrants have been converted to warrants to acquire common stock of the Company, effective as of June 2007 with the amendment to the Company’s Articles of Incorporation to authorize 350,000,000 shares of common stock. Amortization of the fair value of the warrants recognized as interest expense was $3.1 million for 2007. For 2006, $3.2 million of warrant expense was recognized, of which $2.8 million was reported as interest expense and $0.4 million was reported as professional fees.

the Company granted options to acquire 500,000 and 300,000 shares of common stock to its Chief Operating Officer and its Chief Financial Officer at a price of $.98 and $.92, respectively. In December 2007, the Company granted 17,965,000 and 2,450,000 options to acquire common stock to four of its executives and five of its board members, respectively, at a price of $0.185. In accordance with the terms of each of these option agreements, 25% of such options vested upon execution of the Agreement and 25% vests on the yearly anniversary of the Agreement over the next three years. In accordance with the terms of the former CEO’s employment agreement, 1,350,000 shares immediately vested on his separation date of May 18, 2007. In total, 3,500,000 of stock options are vested under these agreements, as amended.

Under employment agreements with the four current officers and one former senior executive of the Company, there are 26,300,000 options to acquire common stock of the Company at a price ranging between $.185 and $.98. Approximately 3,000,000 options were issued during 2006 and 23,300,000 were issued during 2007. All options are subject to vesting restrictions. These performance option agreements are designed to incent the attainment of certain revenue objectives and 3,300,000 will vest on the following basis: (i) upon each realization by the Company of an incremental $20 million of third-party service and/or maintenance revenue from new or existing customers, with gross margins in excess of 30%, pursuant to an agreement of one year or more, 50% of the options will vest; and (ii) the remaining options vest upon realization by the Company of a second $20 million of third-party service and/or maintenance revenue from new or existing customers, with gross margins in excess of 30%. Approximately 1,000,000 performance options shall vest upon the realization by the Company of achieving agreed targets. In accordance with the terms of the former CEO’s employment agreement, 1,066,000 shares immediately vested on his separation date of May 18, 2007. No other stock options have vested under these agreements.

The following table summarizes the activity under the stock option plan and other stock grants for the years ended December 31, 2007 and December 31, 2006:

The aggregate intrinsic value for options vested and outstanding as of December 31, 2007 totaled $3.9 million and the weighted average remaining contractual life of those options was 8.66 years.

As of December 31, 2007, $17.8 million of compensation expense remained to be recognized on the stock options above, which includes $15.7 million related to options under Performance Agreements. The expense will be recognized over three years. The Company has not recognized any deferred income tax benefit related to stock-based compensation.

The weighted average fair value per stock option issued during the year ended December 31, 2007 was $0.80.

The following table summarizes the non-vested stock options as of December 31, 2007:

A summary of stock-based compensation expense recognized in connection with the issuance of stock options for the years ended December 31, 2007 and 2006 is as follows:

All stock awards granted by the Company have an exercise price based on either the ten-day trailing average closing price or the closing market value on date of grant of the underlying common stock.

The fair value of each award is estimated on the date of the grant using the Black-Scholes option-pricing model, assuming no expected dividends and the following assumptions:

The determination of the fair value of all awards is based on the above assumptions.

On January 19, 2007, the Company closed on an equity funding of $15.9 million toward the issuance of Units comprised of 15,869.4 shares of Series AA preferred stock (convertible into common stock at $0.45 per Share) and warrants to purchase an additional 15,869.4 shares of Series AA preferred stock. Each Unit was priced at $1,000 comprised of: (i) one share of Series AA preferred stock; (ii) one warrant to purchase one half share of Series AA preferred stock at $1,000 per share expiring December 31, 2008 (Two-Year Warrant); and (ii) one warrant to purchase one half share of Series AA preferred stock at $1,444.43 per share, expiring December 31, 2009 (Three-Year Warrant). Between January 20, 2007 and April 9, 2007, the Company closed on equity funding of an additional $5.0 million, representing an additional 5,044.4 shares of Series AA preferred stock (constituting 11,209,626 shares of common stock, on an as-converted basis) and warrants to purchase an additional like amount of Series AA preferred stock, with one-half or 2,522.2 Series AA preferred shares (5,604,827 shares of common stock, as converted) exercisable at $1,000 per share on or before December 31, 2008 ($0.45 per share, on an as-converted to common stock basis); and the other one-half or 2,522.2 Series AA preferred shares (5,604,799 shares of common stock, as converted) exercisable at $1,000 per share (or $0.65 per share, on an as-converted to common stock basis). This financing brought aggregate issued Series AA preferred stock to 20,634.53 shares representing 46,474,845 shares of common stock, on an as-converted basis, which conversion was effective in June 2007 upon the filing of articles of amendment to the Company’s Articles of Incorporation.

On an as-converted basis, the Two-Year Warrants issued as part of the Units are exercisable to purchase an aggregate of 23,237,501 shares of common stock exercisable at $0.45 per share and the Three-Year Warrants are exercisable to purchase an aggregate of 23,237,344 shares of common stock exercisable at $0.65 per share.

The placement agent and designees in connection with the Units financing received warrants to purchase 997.70 shares of Series AA preferred stock (2,217,095 shares of common stock, on an as-converted basis), with one half of the warrants expiring December 31, 2008 and exercisable at $0.45 per share (on an as-converted to common stock basis) and one half expiring December 31, 2009 and exercisable at $0.65 per share (on an as-converted to common stock basis) in connection with the initial equity closing on January 19, 2007. The placement agent and its designees were awarded from January 20, 2007 to April 9, 2007 warrants to purchase an additional 65.000 shares of Series AA preferred stock (144,443 shares of common stock on an as-converted basis), with one half of the warrants expiring December 31, 2008 and exercisable at $0.45 per share (on an as-converted to common stock basis) and one half expiring December 31, 2009 and exercisable at $0.65 per share (on an as-converted to common stock basis).

The Company also entered into a Registration Rights Agreement with the Units purchasers which obligates the Company to file a registration statement to register the shares of common stock underlying the Units within 90 days following the termination of the Units offering and to cause the registration statement to be declared effective no later than 180 days following the date of termination of the offering. There is a penalty of 1% of the purchase price of the Units per month for each month that the Company is late in the initial filing or the declaration of effectiveness of the registration statement, subject to a cap of 12% in the aggregate of the original Units’ purchase price, and with the penalty to be payable in

common stock issuable based upon the ten-days’ average trading value of the Company’s shares of common stock for the applicable period. The Two-Year Warrants and Three-Year Warrants are exercisable only by payment of cash; however, in the event of delays in the registration of the shares of common stock underlying the Warrants, the Warrants require the Company to modify the terms of the warrants to either: (i) extend the outside date for the warrants to a year following the date of declaration of effectiveness of a registration statement with respect to the shares underlying the warrants or (ii) modify the exercise rights under the warrants to be cashless. As of December 31, 2007, the Company had not filed a registration statement and therefore was obligated to issue 4,784,623 shares of common stock representing a non-cash registration rights penalty of $2.5 million. Holders of the affected shares include certain members of the Company’s Board of Directors.

In connection with the Senior Secured Facility, on January 19, 2007, the Company issued to its Senior Lender two warrants to purchase an aggregate of 1,125.0 shares of Series AA preferred stock (2,500,000 shares of common stock, on an as-converted basis). Warrants with respect to one half of the shares were exercisable on or before December 31, 2008 at an exercise price equal to $0.45 per share of common stock, on an as-converted basis, and warrants with respect to the one half of the shares were exercisable on or before December 31, 2009 at an exercise price equal to $0.65 per share of common stock on an as-converted basis. In connection with the October 31, 2007 Waiver and Amendment to the Agreement, a new five-year warrant to purchase up to 3.5 million shares of common stock at $0.15 was issued and the previously issued warrants above were cancelled. The new warrant provides for, among other things, cashless exercise, anti-dilution, and registration rights.

The original principal amount of each note issued pursuant to the junior secured facility is convertible at the holder’s option into common stock at a price per share equal to a 20% discount to the average ten-day trailing average for the Company’s common stock as of the day immediately preceding the date of conversion (subject to adjustment to account for stock splits and certain other extraordinary corporate circumstances). The loan agreement establishing the facility was amended effective June 15, 2007 to: (i) eliminate the ceiling and floor for the conversion of loan amount (which had originally been at $0.65 per share floor and $1.25 per share ceiling) to equity in the Company; (ii) permit the cashless exercise of warrants under the facility in lieu of an obligation to register the shares of capital stock underlying the warrants; and (iii) provide that with respect to advances under the facility after June 5, 2007, the warrant coverage was increased to 200,000 shares of common stock at an effective price of $0.45 per share for each $100,000 of principal amount advanced; those lenders funding the facility on or before January 22, 2007 received a warrant to purchase up to 67.500675 shares of Series AA preferred stock for each $100,000 of monies advanced (150,000 shares of common stock, on an as-converted basis, at an effective price of $0.45 per share) for each $100,000 of principal amount advanced. All of the warrants under the facility expire December 31, 2009. As of December 31, 2007, the Company has issued an aggregate of 15,432,658 shares of common stock warrants in connection with the junior secured facility. Shares of common stock are issuable in connection with the warrants so issued. The warrants issued as part of the junior secured facility are subject to similar extension and registration rights as those granted to the purchasers in the Units offering described above.

The Company engaged a number of consultants and agreed to compensate them for financial consulting services, with a total of 1,002 warrants issued as of March 22, 2007. The warrants were exercisable at $1,000 per share of Series AA preferred stock (convertible into 2,222.2 shares of common stock) with one-half set at $0.45 per share and the other half set at $0.65 per share. On an as-converted basis, they represent 2,226,703 shares of common stock.

In connection with financing services performed in the second quarter of 2007, the Company has agreed to compensate two current Directors of the Company $17,000 each plus warrants to purchase 20,555 shares of common stock, with one half at an exercise price of $0.45 per share expiring on December 31, 2008 and the other half at an exercise price of $0.65 per share expiring on December 31, 2009.

Pursuant to the guidance in paragraph 5 of Emerging Issues Task Force Issue No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments (EITF 00-27), the Company allocated the proceeds from the Series AA financing between the Series AA preferred stock and the warrants based upon their estimated fair value as of the closing date. The Company calculated the intrinsic value of the beneficial conversion feature embedded in the Series AA preferred stock and warrants. As the amount of the beneficial conversion feature exceeded the value allocated to the Series AA preferred stock and warrants, the amount of the beneficial conversion feature to be recorded is limited to the proceeds allocated to the Series Preferred Stock and warrants. The beneficial conversion values related to the Series AA preferred shareholders and warrants of $11.2 million and $9.1 million, respectively, were recognized as an additional discount on the Series AA preferred stock which amounts were accreted and treated as a deemed dividend to the holder of the Series AA preferred stock with the Common Shareholders successfully authorizing the increase of common stock from 25 million to 350 million on the Company’s shareholder meeting held on June 25, 2007. In addition, the Company determined the junior secured facility contained a beneficial conversion feature related to the holders’ ability to purchase the Company’s common stock at a 20% discount to the ten-day trailing average of the closing price. The intrinsic value of the conversion option exceeded the fair value of the

proceeds allocated to the debt, thus limiting the beneficial conversion feature total to $4.4 million. This amount was recorded as a reduction to notes payable and an increase to additional paid-in capital and was accreted through interest expense during 2007.

During 2006, the Company had a $100,000 unsecured note payable to Momentum Capital, LLC, whose principals were Board members and senior executives of the Company in 2006. One of these senior executives provided an additional $30,000 demand note to the Company on June 14, 2006. The Company issued a total of 40,700 stock warrants to these individuals during 2006 at an exercise price of $.70 per share in conjunction with these loans. The notes payable was repaid as of December 31, 2006.

Additionally, a Board member who was a former senior executive provided numerous short-term bridge notes during 2006. Each of these notes was repaid. The Company issued 150,000 warrants to this individual during 2006 at an exercise price of $.50 per share in conjunction with these loans.

As part of a short-term bridge financing with the Company during 2006, the Company issued a total of 25,700 stock warrants to a Board member. These stock warrants have an exercise price of $.70 per share and expire on December 31, 2011. The short term bridge financing had been repaid in 2006.

Two current members and one former member of the Company’s Board of Directors had lent a total of $418,000, plus accrued interest, to the Company as part of the short-term secured financing completed by the Company during 2006. These balances were transferred from secured debt of 20/20 at the time of acquisition to secured short-term note payables of the Company. The loans bore interest at a rate of 18% and matured on January 6, 2007. Additionally, as part of the secured loan agreement, these individuals were issued stock warrants to ultimately purchase 156,611 shares of common stock at an exercise price of $0.50 per share. These warrants expire on August 24, 2009. Additionally, the Company’s former chairman of the Board of Directors had a total of $468,000 of principal secured debt with 20/20 prior to the acquisition. As part of the acquisition of 20/20, a portion of this secured debt was paid to him including $231,000 of principal and $29,000 of accrued interest. On January 19, 2007, the two current and one former member of the Company’s Board of Directors were all repaid the principal and interest amounts owed totaling $445,000.

As part of the acquisition of 20/20, two members of the Board had preferred stock of 20/20 converted into the equivalent of 2,087,556 shares of the Company’s common stock.

One Board member, who also served as Chief Executive Officer, had a $150,000 unsecured note payable with 20/20, bearing interest at a rate of 8%. This debt was assumed as part of the acquisition of 20/20.

In connection with the acquisition of 20/20, the former Chairman of the Board was issued warrants to purchase 89.9487 shares of Series A preferred stock (representing 99,942 shares of common stock on an as-converted basis) exercisable at $1,000 per share ($0.90 per share on an as-converted to common stock basis) in conjunction with inducements to convert portions of the 20/20 secured debt into secured debt of the Company. These warrants expire on August 24, 2011.

In connection with the acquisition of CentrePath and Global Capacity, the Company issued two short-term bridge notes bearing interest at a rate of 8%. Of this amount, the Company’s then Chief Executive Officer and its now former Chairman of the Board lent $2.0 million each and in turn received stock warrants to purchase 1,123.00112 Series AA preferred shares (2,000,000 common shares, on an as-converted basis) and 464.62965 Series AA preferred stock (1,032,500 common shares, on an as-converted basis), respectively. The Company’s then Chief Executive Officer received an additional warrant to purchase 450.0045 AA preferred shares (1,000,000 common shares, on an as-converted basis) for putting $1.0 million at risk in connection with the completion of the acquisition of CentrePath at a time when the remaining financing for the acquisition of CentrePath had not been committed. The Company’s then Chief Executive Officer was not paid any cash compensation related to his investment in the Company. The above-mentioned stock warrants have an exercise price of $1,000 per Series AA preferred shares ($0.45 per share of common stock, on an as-converted basis) expiring on December 31, 2009. In addition, the former Chairman of the Board of Directors was also paid $280,000 for providing personal guarantees and pledging his own collateral to secure bridge loans in the amount of $3.7 million.

During 2006, the Board issued a total of 2,330,000 of stock warrants at an exercise price of $.70 per share to board members and several members of the senior management in conjunction with past services to the Company. These warrants all have a five-year life and expire on September 14, 2011.

During 2006, two of the Company’s Board members, who also served as executive officers were each paid annual salaries of $87,500. The Board of Directors also agreed to pay each of these individuals $50,000 upon their termination. In addition, they each had earned total cash compensation of $211,500 during 2006 in connection with the arrangement of the bridge note financing and associated transactions.

During 2006, two of the Company’s Board members, who also served as executive officers were issued warrants to purchase 33.75034 shares of Series AA preferred stock (75,000 shares of common stock on an as-converted basis) each to both of these individuals as part of securing the various short terms notes. The stock warrants have an exercise price of $1,000 per Series AA preferred share ($0.45 per share of common stock on an as-converted basis) expiring on December 31, 2009.

In connection with the financing services performed for the second quarter of 2007, the Company has agreed to compensate two current Board members each a sum of $17,000 plus warrants to purchase 20,555 shares of common stock, with one half at an exercise price of $0.45 per share expiring on December 31, 2008 and the other half at an exercise price of $0.65 per share expiring on December 31, 2009. In connection with financing services performed in the third quarter of 2007, the Company has agreed to compensate the same Directors $8,500 each.

In August 2007, the Company established a short-term bridge facility authorizing the issuance of up to $1,000,000 of Units comprised of short-term promissory notes bearing interest at 12% per annum and maturing September 30, 2007, coupled with a warrant to purchase up to 125,000 shares of common stock for each $100,000 of notes funded; the warrant is exercisable at $0.55 per share and expires December 31, 2010. During the month, two of the Company’s Directors purchased Units for a total of $150,000. In addition, two officers of the Company each purchased $50,000 of the Units and two investors purchased a total of $100,000 of Units. Collectively, the purchases of these Units resulted in the issuance of short-term notes in the principal amount of $350,000 in the aggregate, and warrants to purchase an aggregate of up to 437,500 shares of common stock. The purchasers of these units agreed to extend the maturity date until the next financing was completed. The short-term bridge facility is unsecured.

In September 2007, the Company entered into an advisory agreement with Aequitas Capital Management, Inc., (Aequitas), an investor. In connection with this advisory agreement, Aequitas was issued a warrant to purchase 3,000,000 shares of common stock at $0.15 per share. In October 2007, Aequitas exercised 2,030,890 of its warrants related to previous financing. On December 19, 2007, two affiliates of Aequitas funded $2.0 million under the junior secured facility and were issued warrants to purchase 4,000,000 shares of common stock at $0.45 per share. In addition, an affiliate of Aequitas purchased $0.6 million shares of common stock issued by the Company at $0.15 per share. In connection with the funding, Aequitas was paid a transaction fee of $0.1 million. In addition, the Company paid Aequitas $0.3 million for advisory services related to the Company’s equity offering and warrant exercise program, inter alia. During the first quarter of 2008, pursuant to the completed private placement of $19.0 million of securities, the Company paid Aequitas an advisory fee of $0.4 million.

In November 2007, the Company entered into an advisory agreement with Capstone Investments Inc., (“Capstone”), an investor. In connection with this advisory agreement, Capstone was issued warrants to purchase 2,500,000 shares of common stock at $0.50 per share. During the first quarter of 2008, pursuant to the completed private placement of $19.0 million of securities, the Company paid Capstone an advisory fee of $1.3 million and issued warrants to purchase 2,660,000 shares of common stock at $0.73 per share, exercisable for five years.

Effective November 30, 2007, the Company entered into a final severance and release agreement with its former CEO. This agreement includes a mutual release that provides for the abandonment of all unpaid severance with respect to the former CEO’s employment agreement in consideration for the issuance of 2,000,000 shares of common stock on January 15, 2008. In addition, warrants to purchase 1,000,000 shares of the Company’s common stock that had been issued as part of the former CEO’s investment in the Company’s Units offering that was consummated on January 19, 2007 were extinguished. Also, warrants to purchase 1,500,000 shares of the Company’s common stock issued as part of the CentrePath loan were exchanged for substantially identical warrants except that 1,000,000 of the 1,500,000 shares purchasable under the new warrants will have cashless exercise rights.

During the fourth quarter of 2007, two of the Company’s Board members received a total of 673,568 shares of the Company common stock upon conversion of the principal and accrued interest owed to them with respect to the junior secured facility.

As part of the 2006 acquisition of CentrePath, the Company acquired federal net operating loss (NOL) carryforwards of $145.9 million and other related deferred tax assets and liabilities established upon acquisition. The Company estimates a maximum of $6.7 million of the acquired NOL will ever be available to be utilized due to Section 382 limitations. This estimated NOL reduction has been reflected in deferred tax assets. Federal general business credits of $0.7 million were also acquired in the CentrePath acquisition. However, due to Section 382 and 383 limitations, these credits will not be available to be utilized and have been eliminated from the 2007 deferred tax asset components enumerated below.

As part of the 2006 acquisition of 20/20, the Company acquired federal net operating loss (NOL) carryforwards of $7.4 million and other related deferred tax assets and liabilities established upon acquisition. There were no acquired federal net operating loss (NOL) carryforwards acquired in connection with GCG, as the entity was an S-Corporation prior to the acquisition in late 2006.

The amounts allocated to goodwill and purchased intangibles with respect to each of the acquisitions are not deductible for tax purposes.

The Company has recorded a full valuation allowance against the net deferred tax assets (whether acquired or otherwise generated) due to the uncertainty of future taxable income, which is necessary to realize the benefits of the deferred tax assets. The acquired NOLs begin to expire in the year 2020 and are subject to annual utilization limits under Internal Revenue Codes Section 382 due to prior ownership changes.

The Company will continue to assess and evaluate strategies that will enable the deferred tax asset, or portions thereof, to be utilized and will reduce the valuation allowance appropriately at such time when it is determined that the more likely than not criteria is satisfied. Reversal of the valuation allowance for those acquired deferred tax assets will be first be applied to reduce to zero any goodwill and other non-current intangibles related to the acquisitions, prior to reducing income tax expense.

Due to estimated tax losses in 2007 on a consolidated as well as separate company basis, there is no income tax provision. The Company’s current provision for 2006 related to state tax associated with certain discontinued operations that were profitable on a separate company basis. No deferred taxes are recognized as their benefit is 100% provided for as an increase in the valuation allowance.

Deferred tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company has Federal net operating loss (NOL) carryforwards of $54.1 million in the United States (U.S.) and foreign (U.K.) NOL carryforwards of $5.8 million at December 31, 2007. The federal NOL carryforwards have been reduced to reflect approximate annual limitations under Internal Revenue Code Sections 382 and 383. Subsequent equity changes could further limit the utilization of these NOLs and credit carryforwards. A formal analysis of Internal Revenue Code Section 382 impact on NOL utilization, as well as UK NOL utilization rules, will be required when the Company begins to utilize the NOLs. If not used, the federal the NOLs begin to expire in 2011.

The carryover of the Company’s general business tax credits acquired in the CentrePath acquisition were eliminated from the 2007 deferred tax assets as their utilization is unavailable due to the annual limitations under Internal Revenue Code Sections 382 and 383.

Realization of the NOL carryforwards, tax credits, and other deferred tax temporary differences is contingent on future taxable earnings. The deferred tax asset was reviewed for expected utilization using “a more likely than not” approach by assessing the available positive and negative evidence surrounding its recoverability. The Company has concluded that a full valuation allowance against the deferred tax assets is appropriate given the Company’s past losses and uncertainty of future taxable income.

Effective January 1, 2007, the Company adopted FIN 48, which prescribes a recognition threshold and measurement attribute for recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The adoption of FIN 48 did not have a material impact on the financial statements. Additionally, the adoption of FIN 48 had no impact on retained earnings or the gross liability for uncertain tax positions as the Company had no uncertain tax positions as of December 31, 2007 and 2006.

The Company did not have any material unrecognized tax benefits as of the date of the adoption. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision. The Company recorded no interest and penalties during the year ended December 31, 2007 and had no accrued interest and penalties as of December 31, 2007. The Company is no longer subject to U.S. federal tax examinations by tax authorities for tax years before 2003. The Company is open to state tax audits until the applicable statutes of limitations expire.

Operating and Capital Leases: The Company has entered into or assumed certain non-cancelable operating and capital lease agreements related to office and warehouse space, equipment, and vehicles. Total rent expense under operating leases, net of sublease income, was $1,288,983 and $133,703 for the years ended December 31, 2007 and 2006, respectively. Total payments, including interest, made under capital leases for the years ended December 31, 2007 and 2006 were $58,397 and $3,586, respectively.

Minimum remaining rental commitments under operating leases (net of subleases) and capital lease arrangements are as follows as of December 31, 2007:

A major customer represented $2.8 million (16%) of total 2007 revenues and $0.1 million (7%) of total accounts receivable at December 31, 2007. Another major customer represented $0.2 million (10%) of total 2006 revenues and $0.9 million (5%) of total accounts receivable at December 31, 2006.

Operating segments are identified as components of an enterprise about which separate, discrete financial information is available for evaluation by the chief operating decision makers in deciding how to allocate resources and assess performance. During the first quarter of 2007, the Company completed the process of identifying which of the entities’ operations were core to its overall Telecom Logistics Integrator business model. The Company determined that all operations were core to this business model, with the exception of Nexvu and Frontrunner and therefore made a decision to divest from these business activities. See the “Discontinued Operations” note for further discussion. The Company’s management team views the remaining combined operations of 20/20, Magenta, CentrePath, GCG, and CGSI. as one operating segment, for which it prepares discrete financial statement information and is the basis for making decisions on how to allocate resources and assess performance.

Revenues generated outside the United States during 2007 and 2006 totaled $0.9 million and $0.3 million, respectively. All of the Company’s international revenue was generated in Europe. As of December 31, 2007 and 2006, the Company’s identifiable assets outside the United States totaled $0.04 million and $0.2 million, respectively. All of the Company’s international identifiable assets were located in the United Kingdom.

As of December 31, 2007, the Company’s current liabilities exceeded its current assets by $7.9 million. Included in the current liabilities is $5.2 million of current maturities of long-term debt, net of $0.9 million associated with the fair value of related warrants. This debt reflects indebtedness to its senior secured lender and the unconverted balance of its subordinated debt. Cash on hand at December 31, 2007 was $0.6 million (not including $0.2 million restricted for outstanding letters of credit) and the Company’s borrowing capacity under the asset-based loan agreement with its senior lender totaled $0.5 million. The Company has incurred net losses from continuing operations of $45.5 million and $8.9 million for the years ended December 31, 2007 and 2006, respectively, with results for 2007 including $32.1 million in non-cash expenses relating to the accounting treatment for stock, warrants, and options. Additionally, cash used in operating activities from continuing operations was $9.7 million and $3.9 million for the years ended December 31, 2007 and 2006, respectively. The Company’s net working capital deficiency, recurring losses and negative cash flows from operations raise substantial doubt about its ability to continue as a going concern.

Notwithstanding the above, the Company continues to find support amongst its shareholders’ and other investors, as evidenced by the $19 million financing completed in the first quarter of 2008. This capital was used to pay off essentially all of the Company’s outstanding debt. The balance of the funds will be used for operations and to support the Company’s successful new business development efforts.

Sale of Frontrunner. On February 19, 2008, the Company entered into an Asset Purchase Agreement with an unaffiliated party (“Buyer”) for the sale of substantially all of Frontrunner’s assets. The purchase price for the assets was $850,000 and the Buyer assumed Frontrunner’s indebtedness to a material supplier that had a remaining principal amount of $590,000. The Company retained certain non-trade liabilities of Frontrunner and is subject to other terms and conditions.

Securities Purchase Agreement. On March 11, 2008, the Company completed a private placement of $19 million of securities (“Purchase Agreement”) with a number of investors (“Purchasers”). The securities comprise (i) variable rate senior secured convertible debentures (“Debentures”) in an aggregate principal amount of $19 million, convertible into common stock of the Company at $0.50 per share (the “Conversion Price”; representing 38 million shares of common stock on an as-converted basis; and (ii) one warrant per Debenture, providing a right to purchase 50% of the number of shares of common stock purchasable with the original principal amount of the Debentures, at a price of $0.73 per share having a term ending five years from the closing date.

Proceeds pursuant to the Agreement, net of $1.7 million of advisory fees paid to Capstone Investments and Aequitas Capital Management, were used to extinguish the Senior Secured debt as well as all remaining subordinated debt that had not been converted to equity prior to the execution of the Purchase Agreement. These outstanding balances were $6.6 million and $2.0 million, respectively, at the closing date. The remaining proceeds were retained for working capital purposes. In addition to the cash paid fees, the Company issued to Capstone a warrant to purchase 2,660,000 shares of common stock. Such warrant contains substantially similar terms and conditions (including exercise price and expiration date) to the Warrants issued to the Purchasers and described below, but does not carry registration rights.

During the first year, the Company will have the right to call up to 25% of the Debentures outstanding at 105% of their stated value (plus all interest that would have accrued on the prepaid amount were the Debentures held to maturity). In the second year, the Company may call up to 100% of the Debentures upon tender of the full amount owing with respect to the Debentures (plus all interest that would have accrued on the prepaid amount were the Debentures held to maturity), provided the Company is in compliance with all of its obligations under the Debentures. The Debentures are subject to a number of other restrictions, conditions, sanctions, and negative covenants. The Debentures are convertible from time to time at the option of their holders at the “Conversion Price.” The “Conversion Price” is $0.50 per share, subject to certain adjustments.

The Company has entered into a “Registration Rights Agreement,” pursuant to which it is obligated to file a registration statement to register all or the maximum amount permitted by the SEC (collectively the “Maximum Amount”) of the common stock of the Company underlying the Debentures and Warrants (subject to the obligation to file one or more subsequent registration statements as necessary to register the remaining unregistered shares until all of the underlying securities are eligible for resale under Rule 144 without volume limitation), which contains certain liquidated damages if not timely filed. The Company has agreed that it shall file to register all of the shares of common stock underlying the Debentures and Warrants (“Registrable Securities”) promptly following the closing of the offering pursuant to the Purchase Agreement (“Closing Date”), subject to cutback of the amount to be registered if required by the SEC pursuant to Rule 415 (subject to the obligation in such event to subsequently register the unregistered securities by September 30, 2008). It is obligated to, among other things, file a registration statement pursuant to the Securities Act of 1933 on the earlier of the fifteenth calendar day following the date if files its annual report on Form 10-KSB or May 1, 2008 and cause the registration statement to be declared effective no later than sixty days following the filing date (or ninety days following the filing date if the registration statement undergoes a “full review” by the Securities and Exchange Commission). Failure to meet any of these obligations constitutes an “Event,” which subjects the Company to liquidated damages of 2% for each month in which it occurs and on each monthly anniversary thereof, of a liquidated damages obligation equal to 2% of the original principal amount of the Debenture of the holder, subject to an aggregate cap of 12% of the original principal amount of the Debenture, payable in cash unless otherwise agreeable to the Company and the Debenture holder (and interest accrues on unpaid liquidated damages at 18% per annum).

The Company and all of its subsidiaries (each, a “Debtor”) entered into a Security Agreement pursuant to which they granted to the Purchasers a security interest in all of the assets of the Debtors (the “Collateral”), including a pledge by the Company of all of the capital stock of each of its subsidiaries. Upon an Event of Default, the Agent may exercise all rights available to any of the Purchasers, including to take possession of the Collateral and to operate the business of each Debtor.

The following table sets forth an estimate of the costs and expenses payable by Registrant in connection with the offering described in this registration statement. All of the amounts shown are estimates except the Securities and Exchange Commission registration fee:

Under the a Florida Business Corporation Act and our Articles of Incorporation, as amended, our directors will have no personal liability to us or our stockholders for monetary damages incurred as the result of the breach or alleged breach by a director of his “duty of care”. This provision does not apply to the directors’ (i) acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (iii) approval of any transaction from which a director derives an improper personal benefit, (iv) acts or omissions that show a reckless disregard for the director’s duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director’s duties, of a risk of serious injury to the corporation or its shareholders, (v) acts or omissions that constituted an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the corporation or its shareholders, or (vi) approval of an unlawful dividend, distribution, stock repurchase or redemption. This provision would generally absolve directors of personal liability for negligence in the performance of duties, including gross negligence.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

All unregistered securities issued during 2007 and the first fiscal quarter of 2008 have been disclosed in our previous 10-QSB or 8-K filings.

(1) File, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to:

(i) Include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the “Securities Act”);

(ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of the securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) under the Securities Act if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

(iii) Include any additional or changed material information on the plan of distribution.

(2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering.

(3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A , shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Chicago, Illinois, on this April 29, 2008.


CAPITAL GROWTH SYSTEMS, INC.

By:		/s/ Patrick C. Shutt
		Patrick C. Shutt, Chief Executive Officer

		/s/ Jim McDevitt
		Jim McDevitt, Chief Financial and Accounting Officer

In accordance with the Exchange Act, this Registration Statement has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:



Title of Each Class of Securities to be Registered	Amount To Be Registered	Proposed Maximum Offering Price Per Share (1)	Proposed Maximum Aggregate Offering Price	Amount of Registration Fee
Common Stock, par value $0.0001 (2)	38,000,000	$0.53	$20,140,000.00	$791.50
Common Stock, par value $0.0001 (3)	19,000,000	$0.53	$10,070,000.00	$395.75

Total	57,000,000		$30,210,000.00	$1,187.25


Common stock outstanding before the offering		147,005,456

Common stock offered by selling stockholders		Up to 57,000,000 shares, including 38,000,000 shares issuable upon conversion of the Debentures and 19,000,000 shares issuable upon exercise of Warrants.

		The maximum number of shares to be issued to the selling stockholders, 57,000,000, represents 38.77% of our current outstanding stock.

Common stock to be outstanding after the offering		Up to 204,005,456 shares.

Use of proceeds		We will not receive any proceeds from the sale of the common stock, except to the extent of proceeds, if any, from cash exercises of the Warrants. See “Use of Proceeds” for a complete description.

Risk Factors		The purchase of our common stock involves a high degree of risk. You should carefully review and consider “Risk Factors” beginning on page 4.


	Year Ended
	December 31, 2007		December 31, 2006
Compensation	$	21,370,425	$	3,770,237
Professional services		6,595,209		1,153,177
Depreciation and amortization		3,497,262		406,442
All other operating expenses		4,201,245		743,034

Total operating expenses	$	35,664,141	$	6,072,890


	Twelve months ended
	December 31, 2006		December 31, 2005
Compensation	$	8,366,826	$	5,446,071
Travel and entertainment		373,657		248,279
Occupancy		653,486		490,099
Professional services		1,418,281		639,965
Insurance		318,342		319,533
Depreciation and amortization		1,199,828		852,000
Goodwill impairment charge		1,400,000		—
Other operating expenses		1,193,258		1,023,619

Total operating expenses	$	14,923,678	$	9,019,566


	Operating Leases		Debt Obligations
2008	$	594,893	$	6,090,588
2009		375,298		9,539,274
2010		345,527		23,836
2011		245,171		23,836
2012		134,109		23,836
Thereafter		—		42,856

Total contractual obligations	$	1,694,998	$	15,744,226


		Page
Prospectus Summary		1

Risk Factors		4

Forward Looking Statements		7

Use of Proceeds		7

Management’s Discussion and Analysis or Plan of Operation		8

Description of Business		14

Description of Property		19

Legal Proceedings		19

Directors and Executive Officers		20

Executive Compensation		23

Security Ownership of Certain Beneficial Owners and Management		26

Market for Common Equity and Related Stockholder Matters		27

Selling Stockholders		28

Recent Financing		30

Certain Relationships and Related Transactions		34

Description of Securities		35

Plan of Distribution		36

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		38

Legal Matters		38

Experts		38

Where You Can Find More Information		39

Disclosure of Commission Position on Indemnification for Securities Act Liabilities		39

Financial Statements


Name	Age	Position
Patrick C. Shutt	40	Chief Executive Officer and Director
George A. King	48	President and Director
Robert A. Pollan	47	Chief Operating Officer
Jim McDevitt	49	Chief Financial Officer
Lee Wiskowski	41	Director
Philip B. Kenny	53	Director
David A. Beamish	43	Director


Name and Principal Position	Salary		Bonus		Stock Awards		Option Awards(1)		Non-Equity Incentive Plan Compensation	Nonqualified Deferred Compensation Earnings	All Other Compensation	Total
Patrick Shutt Chief Executive Officer (2)	$	200,000	$	25,000			$	3,253,990	—	—	—	$	3,478,990

Tom Hudson Chief Executive Officer through 05/17/07	$	320,000	$	20,000	(5	)	$	986,248	—	—	—	$	1,326,248

Robert Pollan Chief Operating Officer (2) from 02/05/07	$	183,000	$	25,000			$	3,224,773	—	—	—	$	3,432,773

George King President (4)	$	200,000	$	20,000			$	3,253,990	—	—	—	$	3,473,990


Name and Principal Position	Fees Earned or Paid in Cash		Stock Awards	Option Awards (1)		Non-Equity Incentive Plan Compensation	Nonqualified Deferred Compensation Earnings	All Other Compensation		Total
Robert Geras, Chairman to 10/02/07		—	—	$	69,919	—	—		—	$	69,919

Doug Stukel, Director to 03/26/08 (2)	$	7,292	—	$	466,124	—	—	$	405,600	$	879,016

Lee Wiskowski, Director	$	7,292	—	$	466,124	—	—	$	35,485	$	508,901

Philip Kenny, Director		—	—	$	69,919	—	—		—		69,919

David Beamish, Director (3)		—	—	$	69,919	—	—		—		69,919


Name of Beneficial Owner	Amount and Nature of Common Stock Beneficially Owned		Percentage of Common Stock Beneficially Owned (1)
David J. Lies	29,989,601	(3)	19.0	%

David Beamish (2)	1,171,839	(4)	*

George King (2)	3,884,865	(5)	2.6	%

Philip B. Kenny (2)	487,500	(6)	*

Patrick C. Shutt (2)	2,902,954	(7)	2.0	%

Lee Wiskowski (2)	2,688,424	(8)	1.8	%

Jim McDevitt (2)	238,333	(9)	*

Robert Pollan (2)	2,229,166	(10)	1.5	%

Aequitas Managed Entities (2)	20,425,850	(11)	13.7	%

All officers and directors as a group (6 persons)	13,603,081		8.6	%


Year ending December 31, 2008	High		Low
First Quarter	$	0.78	$	0.49

Year ended December 31, 2007	High		Low
First Quarter	$	1.21	$	0.62
Second Quarter	$	0.90	$	0.46
Third Quarter	$	0.95	$	0.25
Fourth Quarter	$	0.70	$	0.20


Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights	Weighted Average Exercise Price of Outstanding Options, Warrants, and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
Equity Compensation Plans Approved by Security Holders	—		—	—

Equity Compensation Plans Not Approved by Security Holders	60,708,027	$	0.29	860,443

Total	60,708,027	$	0.29	860,443


Selling Shareholder	Shares Beneficially Owned Prior to Offering*	Shares to be Sold in Offering	Shares Beneficially Owned After Offering	Percentage Ownership After Offering
Enable Growth Partners LP (1)	18,000,000	18,000,000	0--	0
Enable Opportunity Partners LP (2)	2,250,000	2,250,000	0--	0
Pierce Diversified Strategy Master Fund LLC, Ena (3)	750,000	750,000	0--	0
Midsummer Investment Ltd. (4)	15,000,000	15,000,000	0--	0
Hudson Bay Fund LP (5)	3,420,000	3,420,000	0--	0
Hudson Bay Overseas Fund LP(6)	5,580,000	5,580,000	0--	0
Black River Small Capitalization Fund Ltd. (7)	12,000,000	12,000,000	0--	0
Total	57,000,000	57,000,000	0	0


Capital Growth Systems, Inc. Consolidated Financial Statements		Page
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of December 31, 2007 and 2006		F-3
Consolidated Statements of Operations for the years ended December 31, 2007 and 2006		F-4
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2007 and 2006		F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2007 and 2006		F-8
Notes to Consolidated Financial Statements		F-10


	December 31, 2007			December 31, 2006
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	859,410		$	1,203,819
Accounts receivable, net		1,781,944			1,592,110
Prepaid expenses and other current assets		1,645,797			516,592
Current assets of discontinued operations		2,386,392			2,429,677

Total Current Assets		6,673,543			5,742,198
Property and equipment, net		1,418,432			3,915,820
Intangible assets, net		8,307,802			9,493,179
Goodwill		12,513,090			12,513,090
Other assets		477,597			38,508
Long-term assets of discontinued operations		1,031,490			5,677,953

TOTAL ASSETS	$	30,421,954		$	37,380,748

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt	$	5,182,023		$	21,243,010
Accounts payable		2,750,186			1,429,882
Accrued expenses		3,231,261			3,352,806
Deferred revenue, current portion		536,599			608,461
Current liabilities of discontinued operations		2,827,272			7,378,404

Total Current Liabilities		14,527,341			34,012,563
Long-term portion of debt		6,365,985			777,260
Deferred revenue, net of current portion		76,270			112,222
Long-term liabilities of discontinued operations		727,276			570,587

Total Liabilities		21,696,872			35,472,632

SHAREHOLDERS’ EQUITY
Preferred stock, $.0001 par value; none authorized, issued or outstanding as of December 31, 2007 and 5,000,000 authorized, 2,516.10 Series B Convertible issued and outstanding as of December 31, 2006		—			—
Common stock, $.0001 par value; 350,000,000 authorized, 123,752,039 issued and outstanding at December 31, 2007 and 25,000,000 authorized, 21,015,069 issued and outstanding at December 31, 2006		12,374			2,101
Additional paid-in capital		81,849,171			24,519,495
Foreign currency translation adjustment		(89,533	)		(48,904	)
Accumulated deficit		(73,046,930	)		(22,564,576	)

Total Shareholders’ Equity		8,725,082			1,908,116

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	30,421,954		$	37,380,748


	Year ended December 31,
	2007			2006
REVENUE	$	17,228,050		$	1,557,251
COST OF GOODS SOLD		12,175,462			804,667

GROSS MARGIN		5,052,588			752,584

OPERATING EXPENSES
Compensation		21,370,425			3,770,237
Travel and entertainment		1,369,711			216,730
Occupancy		1,776,331			133,703
Professional services		6,595,209			1,153,177
Insurance		316,766			130,224
Depreciation and amortization		3,497,262			406,442
Other operating expenses		738,437			262,377

TOTAL OPERATING EXPENSES		35,664,141			6,072,890

OPERATING LOSS		(30,611,553	)		(5,320,306	)
Loss on disposal of assets		500,914			—
Registration rights penalty		2,531,428			—
Interest		11,877,806			3,524,991

Loss from continuing operations		(45,521,701	)		(8,845,297	)
Loss from discontinued operations, net of tax		(4,960,653	)		(2,734,964	)

Net loss		(50,482,354	)		(11,580,261	)
Deemed dividend warrants and beneficial conversion features issued to preferred shareholders		(20,424,432	)		—

Net loss applicable to common shareholders	$	(70,906,786	)	$	(11,580,261	)

Loss from continuing operations	$	(0.84	)	$	(0.48	)
Loss from discontinued operations		(0.06	)		(0.15	)
Net loss applicable to common shareholders	$	(0.90	)	$	(0.63	)
Average shares outstanding		79,016,885			18,316,358


	Common Shares	Series B Preferred Shares	Common Stock		Additional Paid-in Capital		Accumulated Deficit			Foreign Currency Translation Adjustment			Total Equity			Comprehensive Loss
Balance, January 1, 2006	17,015,754	—	$	1,701	$	12,831,414	$	(10,984,315	)	$	—		$	1,848,800		$	—
Stock issued for 20/20 acquisition	3,899,315	2,516		390		5,167,244		—			—			5,167,634			—
Stock-based compensation expense	—	—		—		1,297,769		—			—			1,297,769			—
Stock issued for consulting services	100,000	—		10		134,990		—			—			135,000			—
Warrants issued to employees	—	—		—		502,591		—			—			502,591			—
Warrants issued to consultants	—	—		—		388,366		—			—			388,366			—
Warrants issued with debt financing	—	—		—		4,197,121		—			—			4,197,121			—
Foreign currency translation adjustment	—	—		—		—		—			(48,904	)		(48,904	)		(48,904	)
Net loss for 2006	—	—		—		—		(11,580,261	)					(11,580,261	)		(11,580,261	)

Balance, December 31, 2006	21,015,069	2,516	$	2,101	$	24,519,495	$	(22,564,576	)	$	(48,904	)	$	1,908,116		$	(11,629,165	)


	Common Shares	Series AA Preferred Shares		Series B Preferred Shares		Common Stock		Preferred Stock			Additional Paid-in Capital			Accumulated Deficit			Foreign Currency Translation Adjustment			Total Equity			Comprehensive Loss
Balance, January 1, 2007	21,015,069	—		2,516		$	2,101	$	—		$	24,519,495		$	(22,564,576	)	$	(48,904	)	$	1,908,116		—
Issuance of Series AA preferred stock warrants												9,182,990									9,182,990		—
Beneficial conversion of Series AA preferred stock												11,241,442									11,241,442		—
Deemed dividend related to the conversion of Series AA preferred stock to common stock												(20,424,432	)								(20,424,432	)	—
Issuance of Series AA preferred stock		20,635							2			17,930,608									17,930,610		—
Conversion of preferred stock to common stock	49,552,714	(20,635	)	(2,516	)		4,955		(2	)		(4,953	)								—		—
Beneficial conversion feature related to junior secured facility												3,010,451									3,010,451		—
Stock warrants issued with debt financing												8,453,916									8,453,916		—
Stock and warrants issued for services	5,000,000						500					5,202,455									5,202,955		—


	20/20			CentrePath			GCG
Cash	$	—		$	7,500,000		$	5,300,000
Debt refinanced		3,559,416			—			—
Stock issued		5,167,634			—			—
Professional fees		250,000			150,000			150,000

Total consideration	$	8,977,050		$	7,650,000		$	5,450,000

Assets and liabilities acquired/assumed
Cash	$	49,856		$	2,488,328		$	—
Accounts receivable, net		66,115			889,608			415,481
Prepaid expenses and other assets		18,815			263,120			52,451
Property and equipment, net		9,904			3,910,000			192,002
Accounts payable		(639,589	)		(282,012	)		(364,575	)
Accrued expenses and other current liabilities		(357,783	)		(2,438,583	)		(303,917	)
Cash overdraft		—			—			(26,879	)
Deferred revenue		(258,254	)		(415,009	)		—
Capital lease obligations		—			(59,272	)		(28,370	)
Notes payable		(3,247,479	)		—			(75,398	)
Net assets acquired (liabilities assumed)		(4,358,415	)		4,356,180			(139,205	)
Identifiable intangible assets		4,525,400			1,540,000			3,640,000


20/20	Fair Value		Useful Life	Annual Amortization
Developed technology	$	3,755,400	11 years	$	341,400
Trade name		50,000	3 years		16,667
Customer base		720,000	8 years		90,000

	$	4,525,400		$	448,067


CentrePath	Fair Value		Useful Life	Annual Amortization
Developed technology	$	970,000	9 years	$	107,778
Trade name		90,000	3 years		30,000
Customer base		480,000	6 years		80,000

	$	1,540,000		$	217,778


GCG	Fair Value		Useful Life	Annual Amortization
Developed technology	$	1,070,000	5 years	$	214,000
Trade name		210,000	3 years		70,000
Retail customer base		2,210,000	10 years		221,000
Wholesale customer base		150,000	6 years		25,000

	$	3,640,000		$	530,000


	December 31, 2006
Net revenue	$	17,734,556
Net loss	$	(18,929,876	)
Net loss per share:
Basic and diluted	$	(0.85	)
Weighted average shares outstanding:
Basic and diluted		22,215,673


	Gross Carrying Cost		Acquired Value
	December 31,
	2007		2006
Acquisition of 20/20	$	8,810,065	$	8,810,065
Acquisition of CentrePath		1,753,820		1,753,820
Acquisition of GCG		1,949,205		1,949,205

End of the year	$	12,513,090	$	12,513,090


		As of December 31, 2007
	Amortization Period in Years	Gross Carrying Amount		Accumulated Amortization			Net
Developed technology	5 to 11	$	5,805,400	$	(809,788	)	$	4,995,612
Trade names	3		350,000		(129,246	)		220,754
Customer base	6 to 10		3,560,000		(468,564	)		3,091,436

Total	8.52 weighted average years	$	9,715,400	$	(1,407,598	)	$	8,307,802


		As of December 31, 2006
		Gross Carrying Amount		Accumulated Amortization			Net
Developed technology		$	5,795,400	$	(141,220	)	$	5,654,180
Trade names			350,000		(13,890	)		336,110
Customer base			3,560,000		(57,111	)		3,502,889

Total		$	9,705,400	$	(212,221	)	$	9,493,179


2008	$	1,195,844
2009		1,183,265
2010		1,079,178
2011		1,065,349
2012		856,895
Thereafter		2,927,271

	$	8,307,802


	Years Ended December 31,
	2007			2006
Net loss, as reported	$	(50,482,354	)	$	(11,580,261	)
Foreign currency translation adjustment		(40,629	)		(48,904	)

Comprehensive loss	$	(50,522,983	)	$	(11,629,165	)


	2007			2006
Furniture and fixtures	$	341,429		$	755,770
Computer equipment		834,712			866,388
Leasehold improvements		111,263			1,236,250
Machinery and equipment		1,472,167			1,251,634

		2,759,571			4,110,042
Accumulated depreciation		(1,341,139	)		(194,222	)

Net property and equipment	$	1,418,432		$	3,915,820


	2007		2006
Accrued compensation and payroll taxes	$	453,252	$	760,875
Accrued interest expense		884,114		824,703
Accrued software royalties		100,000		—
Accrued sales taxes		277,139		276,954
Accrued professional services		441,090		265,379
Other accrued expenses		1,075,666		1,224,895

Total accrued expenses	$	3,231,261	$	3,352,806


	December 31, 2007		December 31, 2006
Senior secured line of credit, with an outstanding balance of $5,454,057 at December 31, 2007, bearing interest at 15%, secured by all of the assets of the Company and subsidiaries, due July 2008. The debt instrument also provided for the issuance of stock warrants allowing the holder to purchase 2,500,000 shares of common stock (or equivalent) of the Company at an exercise price between $.45 and $.65 per share. During the year, the original warrant was replaced by a new warrant to purchase 3,500,000 shares at $0.15 per share. Using the Black-Scholes Model, the Company estimated the fair value of the warrants to be $2,021,928 and allocated that amount of the proceeds to the warrants resulting in a discount on the debt. As of December 31, 2007, the balance of the debt was reported net of $908,565, which represents the unamortized value of the warrants.	$	4,545,492	—

Junior secured facility, with a face amount of $9,313,438, bearing simple interest at 12%, due January 2009. The debt instrument provides for the issuance of stock warrants allowing the holder to purchase 15,432,658 shares of common stock of the Company at an exercise price of $.45. At December 31, 2007, 11,277,529 of those warrants were still outstanding. The Company issued additional stock warrants as part of securing these notes, which allow the purchase of 267,788 shares of common stock of the Company at an exercise price between $.45 and $.65 per share. Using the Black-Scholes Model, the Company estimated the fair value of the warrants to be $6,977,826 and allocated that amount of the proceeds to the warrants resulting in a discount on the debt. In addition, the junior secured facility contains a conversion feature that was deemed beneficial to the holders, which resulted in an additional discount totaling $4,134,387, which was expensed during 2007. As of December 31, 2007, the balance of the debt due was reported net of $3,287,653, which represents the unamortized value of the warrants. A $1 million increase in the junior secured facility was approved during 2007 and $350,000 was borrowed thereunder. This short-term bridge facility, with an outstanding balance of $202,000 at December 31, 2007, comprised of short-term promissory notes bearing interest at 12% per annum and maturing September 30, 2007, which was subsequently extended, coupled with a warrant to purchase up to 125,000 shares of common stock for each $100,000 of notes funded; the warrant is exercisable at $0.55 per share and expires December 31, 2010. Using the Black-Scholes model, the Company estimated the fair value of the warrants to be $129,437 and expensed the amount to interest as the notes were initially due September 30, 2007. The facility was funded in August 2007 and warrants to purchase an aggregate of up to 437,500 shares were issued, of which 375,000 were still outstanding at December 31, 2007. The short-term bridge facility is unsecured.		6,227,785	—

Secured short-term notes payable to various parties, with a face amount of $5,987,367 bearing interest at 18%, secured by all of the assets of 20/20 and Nexvu, due January 2007. The debt instrument also provided for the issuance of stock warrants allowing the holders to purchase 4,787,137 shares of common stock (or equivalent) of the Company at an exercise price between $.45 and $.70 per share. Using the Black-Scholes Model, the Company estimated the fair value of the warrants to be $1,554,219 and allocated that amount of the proceeds to the warrants resulting in a discount on the notes payable. As of December 31, 2006, the balance of the debt due was reported net of a $64,758 discount.		—	5,922,609

Secured short-term notes payable to various parties, with a face amount of $7,950,000 bearing interest at 8%, secured by all of the assets of CentrePath, due January 2007. The debt instrument also provided for the issuance of stock warrants allowing the holder to purchase 4,925,000 shares of common stock (or equivalent) of the Company at an exercise price of $.45 per share. Using the Black-Scholes Model, the Company estimated the fair value of the warrants to be $1,349,181 and allocated that amount of the proceeds to the warrants resulting in a discount on the notes payable. As of December 31, 2006, the balance of the debt due was reported net of a $652,104 discount.		—	7,197,896


Secured short-term notes payable to various parties, with a face amount of $4,700,000 bearing interest at 8%, secured by all of the assets of GCG, due January 2007. The debt instrument also provided for the issuance of stock warrants allowing the holder to purchase 2,350,000 shares of common stock (or equivalent) of the Company at an exercise price of $.45 per share. Using the Black-Scholes Model, the Company estimated the fair value of the warrants to be $810,077 and allocated that amount of the proceeds to the warrants resulting in a discount on the notes payable. As of December 31, 2006, the balance of the debt due was reported net of a $540,051 discount.		—		4,159,949

Mandatory convertible promissory notes to various parties, with a face amount of $1,275,000 bearing interest at 8% per annum and mandatorily convertible into the securities issued by the Company on the terms of the offering completed on January 19, 2007. The debt instrument also provided for the issuance of stock warrants allowing the holder to purchase 255,000 shares of common stock (or equivalent) of the Company at an exercise price of $.45 per share. Using the Black-Scholes Model, the Company estimated the fair value of the warrants to be $149,887 and allocated that amount of the proceeds to the warrants resulting in a discount on the notes payable. As of December 31, 2006, the balance of the debt due was reported net of a $131,151 discount.		—		1,143,849

Promissory notes bearing interest at the rate of 6.75%, secured by vehicles. The obligation to make payments on these notes and the related vehicles were transferred to certain former employees of GCG effective October 31, 2007.		—		75,398

Promissory note evidencing the advanced funding of certain of the Company’s accounts receivable, which has, in lieu of interest, a right to participate in the proceeds the Company receives with respect to the underlying contract.		—		406,187

Unsecured note payable to various creditors of 20/20, bearing interest rates between 8% and 16%.		—		1,610,000

Unsecured notes payable to creditors with an interest rate of 8%, principal payments commencing in January 2007, maturing December 2008.		601,268		1,257,992

Unsecured loans from employees of Magenta, bearing interest at 8.43%, due upon demand		138,200		164,865

Capital lease obligations		35,263		81,525

Total		11,548,008		22,020,270
Less: current maturities		5,182,023		21,243,010

Long-term portion	$	6,365,985	$	777,260


Price	Number of Warrants	Expiration Date
0.45	13,509,020	2008
0.45	14,449,323	2009
0.65	8,441,774	2009
0.35	300,000	2010
0.55	375,000	2010
0.45	3,043,283	2011
0.70	3,022,890	2011
0.15	6,500,000	2012
0.45	5,945,724	2012
0.50	2,500,000	2012
0.65	9,020,329	2012

	67,107,343


Options Outstanding:	Number of Shares		Exercise Price per Share		Weighted Average Exercise Price Per Share
January 1, 2006	1,524,527		$	0.95 - 1.35	$	1.34
Granted	7,800,000			0.70		0.70

January 1, 2007	9,324,527			0.70 - 1.35		0.81
Granted	52,813,000			0.185-0.85		0.31
Terminated	(1,429,500	)		—		(0.93	)

December 31, 2007	60,708,027			0.185 - 1.35		0.29

Vested shares as of December 31, 2007	31,630,327			0.185 - 0.85		0.23

Exercisable shares as of December 31, 2006	11,215,327			0.185		0.31


	Options Outstanding		Weighted- Average Grant-Date Fair Value
Balance, January 1, 2007	7,082,997		$	0.52
Grants	52,813,000			0.31
Vested during 2007	(29,388,797	)		(0.23	)
Expirations	(1,429,500	)		(0.93	)

Balance, December 31, 2007	29,077,700			0.36


	2007 Grants		2006 Grants
Expected volatility factors	90-143	%	100	%
Approximate risk free interest rates	3.85-4.5	%	3.85	%
Expected lives	5 Years		5 Years
Forfeiture rate	5	%	0	%


	Operating		Capital
For the year ending December 31,
2008	$	594,893	$	38,415
2009		375,298		—
2010		345,527		—
2011		245,171		—


Securities and Exchange Commission Registration Fee	$	1,187.25
Accounting Fees and Expenses	$	10,000.00
Legal Fees and Expenses	$	65,000.00

Total		76,187.25