UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report: September 14, 2004
(Date of earliest event reported)
CAPITAL GROWTH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Florida 0-30831 65-0953505
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
50 East Commerce Drive, Suite A
Schaumburg, Illinois 60173
(Address of Principal Executive Offices)
(630) 872-5800
Registrant's telephone number including area code)
1100 E. Woodfield Drive, Suite 100
Schaumburg, Illinois 60173
(Former name or former address, if changed since last report)
-------------------------
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Capital Growth Systems, Inc., a Florida corporation (the "Company") is
filing this Current Report on Form 8-K/A in order to amend its Current Report on
Form 8-K filed September 20, 2004 (SEC File No. 000-30831), and incorporated
herein by reference, to provide certain financial disclosures required by Item
9.01 with respect to Frontrunner Network Systems, Corp., a Delaware corporation
("Frontrunner") becoming a wholly owned subsidiary of the Company. Item 9.01 of
this Current Report on Form 8-K/A contains the supplemental financial
information. The Company also wishes to report a change in registrant's
certifying accountant under Item 4.01, a change in address under Item 8.01
(Other Events) and to disclose a letter to the shareholders of the Company under
8.01.
ITEM 4.01 CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
On November 10, 2004, the Company received written notification that
Russell & Atkins, PLC ("R&A") has withdrawn from serving as the Company's
independent auditors. No action was required or taken by the Company's Board of
Directors with respect to their withdrawal.
For the period including the prior two fiscal years and the interim period
ending as of the date of withdrawal of R&A (the "Reporting Period"), R&A's
reports did not contain an adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or accounting
principles. During the Reporting Period, there were no disagreements between the
Company and R&A on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope of procedure, which would have caused it
to make reference to the subject matter of the disagreement in connection with
its reports. The Company has provided R&A with a copy of this disclosure on
November 11, 2004. R&A has provided the Company and the Securities and Exchange
Commission with a letter, dated November 12, 2004, a copy of which is attached
hereto as Exhibit 16.1 and incorporated herein by reference, which states that
R&A agrees with the disclosures set forth herein.
On November 11, 2004, the Company engaged Russell Bedford Stefanou
Mirchandani LLP ("RBSM") to serve as its independent auditor.
Neither the Company nor anyone on its behalf has consulted RBSM regarding
(i) either: the application of accounting principles to a specific completed or
contemplated transaction, or the type of audit opinion that might be rendered on
the Company's financial statements; as such, no written or oral advice was
provided, and none was an important factor considered by the Company in reaching
a decision as to the accounting, auditing or financial reporting issues; or (ii)
any matter that was a subject of a disagreement or event with R&A (as there were
none).
The Company provided RBSM with a copy of this disclosure on November 11,
2004, providing RBSM with the opportunity to furnish the Company with a letter
addressed to the Securities and Exchange Commission containing any new
information, clarification of the Company's expression of its views, or the
respect in which RBSM does not agree with the statements contained herein. RBSM
agrees with the statements provided herein and therefore is not providing a
letter.
ITEM 8.01 OTHER EVENTS.
The Company has moved its principal offices to 50 East Commerce Drive,
Suite A, Schaumburg, Illinois 60173.
On November 12, 2004, the Company issued a letter to shareholders (the
"Shareholder Letter") discussing: (a) the acquisition and status of Frontrunner
Network Systems Corp.; (b) the status of the Company's public registration; (c)
the status of Nexvu and the decision to terminate a majority of the Nexvu sales
team; and (d) the Company's newly constituted Board of Directors and senior
management team. A copy of the Shareholder Letter is attached to this Current
Report on Form 8-K as Exhibit 99.1 and is incorporated herein by reference. The
description of the Shareholder Letter is not complete and is qualified in its
entirety by reference to the Shareholder Letter.
The information in this Item 8.01 on this Current Report on Form 8-K,
including the referred to exhibits attached hereto, is furnished solely pursuant
to Item 8.01 of this Report. Consequently, it is not deemed "filed" for purposes
of Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act"), or
otherwise subject to the liabilities of that section. It may only be
incorporated by reference in another filing under the Exchange Act or Securities
Act of 1933 if such subsequent filing specifically references this Report.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.
FRONTRUNNER NETWORK SYSTEMS CORP.
ANNUAL REPORT
MARCH 31, 2004 AND 2003
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FRONTRUNNER NETWORK SYSTEMS CORP.
ANNUAL REPORT
MARCH 31, 2004 AND 2003
Table of Contents
Page
No.
----
Independent Auditors' Report ........................................... 1
Statements of Financial Condition ...................................... 2-3
Statements of Operations ............................................... 4
Statements of Preferred Stock and Stockholders' Deficit ................ 5
Statements of Cash Flows ............................................... 6
Notes to Financial Statements .......................................... 7-15
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors
FRONTRUNNER NETWORK SYSTEMS CORP.
Schaumburg, Illinois
We have audited the accompanying statements of financial condition of
FRONTRUNNER NETWORK SYSTEMS CORP. as of March 31, 2004 and the related
statements of operations, preferred stock and stockholders' deficit, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The financial statements of
FRONTRUNNER NETWORK SYSTEMS CORP as of March 31, 2003 were audited by other
auditors, whose report dated May 23, 2003 expressed an unqualified opinion on
those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of FRONTRUNNER NETWORK SYSTEMS
CORP. as of March 31, 2004 and the results of its operations and its cash flows
for the year then ended, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 15 to the
financial statements, the Company's recurring losses from operations, working
capital deficiency, and stockholders' deficit raise substantial doubt about its
ability to continue as a going concern. Management's plans regarding those
matters are also described in Note 15. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Plante Moran, PLLC
- -------------------------------
Elgin, Illinois
May 21, 2004
September 15, 2004 for Note 17
FRONTRUNNER NETWORK SYSTEMS CORP.
STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 2004 AND 2003
ASSETS 2004 2003
------ ------------- ------------
CURRENT ASSETS
Cash $ 149,538 $ 37,583
Accounts receivable, net of allowance for doubtful
accounts of $129,110 and $302,580, respectively 1,130,414 1,501,445
Inventories (Note 3) 1,333,239 1,378,532
Other current assets 147,179 86,602
------------- ------------
TOTAL CURRENT ASSETS 2,760,370 3,004,162
PROPERTY AND EQUIPMENT, NET (NOTE 4) 1,039,214 1,259,171
------------- ------------
TOTAL ASSETS $ 3,799,584 $ 4,263,333
============= ============
See accompanying notes to financial statements
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2
FRONTRUNNER NETWORK SYSTEMS CORP.
STATEMENTS OF FINANCIAL CONDITION - CONTINUED
MARCH 31, 2004 AND 2003
LIABILITIES AND STOCKHOLDERS' DEFICIT 2004 2003
- ------------------------------------- ---- ----
CURRENT LIABILITIES
Current maturities of long-term debt
and debt due within one year (Note 5) $ 5,971,735 $ 9,524,275
Accounts payable 2,640,133 2,305,163
Accrued expenses 645,747 860,265
Warranty reserve 149,534 144,199
Deferred revenue 1,222,695 1,191,378
Advance billings 542,049 694,107
-------------- --------------
TOTAL CURRENT LIABILITIES 11,171,893 14,719,387
LONG-TERM LIABILITIES
Long-term debt (Note 5) 104,565 239,561
PREFERRED STOCK (NOTE 6)
Junior convertible preferred stock: $100 par value
Authorized 2,500 shares;
Issued and outstanding 2,000 shares 200,000 200,000
Series A junior convertible preferred stock: $100 par value
Authorized 7,000 shares;
Issued and outstanding 4,050 shares 4,050,000 4,050,000
Senior preferred stock: 8% cumulative; $100 par value
Authorized 16,000 shares;
Issued and outstanding 222 shares 22,200 22,200
Junior redeemable preferred stock: $1 par value
Authorized 1,000,000 shares;
Issued and outstanding 830,955 shares 830,955 830,955
-------------- --------------
TOTAL PREFERRED STOCK 5,103,155 5,103,155
STOCKHOLDERS' DEFICIT (NOTE 8)
Common stock: $.001 par value;
Authorized 170,000,000 shares;
Issued and outstanding 87,155,413 shares 87,155 87,155
Additional paid-in capital 38,538,671 38,538,671
Accumulated deficit (51,205,855) (54,424,596)
-------------- --------------
TOTAL STOCKHOLDERS' DEFICIT (12,580,029) (15,798,770)
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 3,799,584 $ 4,263,333
============== ==============
See accompanying notes to financial statements
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3
FRONTRUNNER NETWORK SYSTEMS CORP.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 2004 AND 2003
2004 2003
---- ----
NET SALES $ 12,330,571 $ 13,591,156
Cost of sales 5,991,340 6,662,654
------------- -------------
GROSS PROFIT 6,339,231 6,928,502
Selling, general and administrative expense 6,322,497 6,817,471
------------- -------------
INCOME FROM OPERATIONS 16,734 111,031
Other income (expense)
Miscellaneous income 6,668 -
Interest expense (342,464) (568,383)
Gain on sale of assets - 26,512
------------- -------------
Total other income (expense) (335,796) (541,871)
------------- -------------
LOSS BEFORE EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE (319,062) (430,840)
Extraordinary item - gain on forgiveness of debt (Note 14) 3,537,803 -
Cumulative effect of change in accounting principle (Note 10) - (6,381,918)
------------- -------------
NET INCOME (LOSS) $ 3,218,741 $ (6,812,758)
============= =============
EARNINGS PER SHARE:
Net Income (loss) before extraordinary item and cumulative
effect of accounting change $ (0.00) $ (0.01)
Extraordinary gain $ 0.04 $ -
Cumulative effect of change in accounting principle $ - $ (0.07)
------------- -------------
Net Income (loss) $ 0.04 $ (0.08)
============= =============
See accompanying notes to financial statements
4
FRONTRUNNER NETWORK SYSTEMS CORP.
STATEMENTS OF PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED MARCH 31, 2004 AND 2003
STOCKHOLDERS' DEFICIT
------------------------------------------------------------------------------------------
PREFERRED COMMON STOCK
STOCK ---------------------- ADDITIONAL ACCUMULATED
TOTALS SHARES AMOUNT PAID-IN CAPITAL DEFICIT TOTAL
------ ------ ------ --------------- ------- -----
BALANCE AT MARCH 31, 2002 $ 5,103,155 87,155,413 $ 87,155 $ 38,538,671 $ (47,611,838) $ (8,986,012)
Net loss - - - - (6,812,758) (6,812,758)
----------- ---------- --------- -------------- --------------- -------------
BALANCE AT MARCH 31, 2003 5,103,155 87,155,413 87,155 38,538,671 (54,424,596) (15,798,770)
Net income - - - - 3,218,741 3,218,741
----------- ---------- --------- -------------- --------------- -------------
BALANCE AT MARCH 31, 2004 $ 5,103,155 87,155,413 $ 87,155 $ 38,538,671 $ (51,205,855) $ (12,580,029)
=========== ========== ========= ============== =============== =============
See accompanying notes to financial statements
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5
FRONTRUNNER NETWORK SYSTEMS CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2004 AND 2003
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME (LOSS) $ 3,218,741 $ (6,812,758)
Adjustments to reconcile net income (loss) to
net cash flows from operating activities
Cumulative effect of a change in accounting principle - 6,381,918
Forgiveness of debt (3,537,803) -
Services provided in exchange for debt (27,368) -
Depreciation and amortization 322,976 436,318
Gain on sale of assets - (26,512)
Provision for doubtful accounts (173,470) (147,420)
(Increase) decrease in operating assets
Accounts receivable 544,501 626,294
Inventory 45,293 (376,874)
Other current assets (60,577) 28,341
Increase (decrease) in operating liabilities
Accounts payable 334,970 1,324,242
Accrued expenses (214,518) 86,449
Warranty reserve 5,335 (130,183)
Deferred revenue (199,010) (482,215)
Advance billings (152,058) 118,172
-------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 107,012 1,025,772
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (103,019) (327,972)
Proceeds from sale of assets - 26,512
-------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (103,019) (301,460)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (1,163,524) (1,356,431)
Principal borrowings on long-term debt 1,271,486 150,000
-------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 107,962 (1,206,431)
-------------- -------------
NET INCREASE (DECREASE) IN CASH 111,955 (482,119)
Cash, beginning of year 37,583 519,702
-------------- -------------
CASH, END OF YEAR $ 149,538 $ 37,583
============== =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 399,977 $ 566,113
============== =============
Long-term debt exchanged for liability to provide service $ 230,327 $ -
============== =============
See accompanying notes to financial statements
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6
FRONTRUNNER NETWORK SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
Note 1 - NATURE OF OPERATION
Frontrunner Network Systems Corp. (the "Company") is a single-source
provider of business communications equipment and multimedia integration
services for data, voice, video, and advanced applications. Most of the
Company's customers are located in the northeast United States.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies applied
by management in the preparation of the accompanying financial statements.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates. Particularly significant
estimates include the calculation of inventory reserves, revenue
recognition, and goodwill impairment.
Concentration of credit risk
Financial instruments that potentially subject the Company to credit
risk consist of cash and accounts receivable. The Company places its
cash with high quality financial institutions. Collateral is not
required for accounts receivable, however, the Company monitors its
exposure for credit losses and maintains allowances for anticipated
losses.
Allowance for doubtful accounts
The Company provides an allowance for uncollectible accounts based
upon prior experience and management's assessment of the
collectibility of existing specific accounts.
Inventories
Inventories consist of work in progress and raw materials and are
stated at the lower of cost or market. Cost is determined on a
first-in, first-out basis. Work in process consists of labor,
inventory, and overhead costs relating to ongoing customer projects.
Property, equipment, and depreciation
Property and equipment are stated at cost. Provision for
depreciation is made generally at rates designed to allocate the
cost of the property and equipment over their estimated useful lives
of 5 to 15 years. Depreciation is calculated using the straight-line
method. Expenditures for maintenance, repairs and minor renewals and
betterments are charged to expense as incurred. Replacements of
significant items and major renewals and betterments are
capitalized.
Revenue recognition
Contracts are primarily accounted for on the completed contract
method. The Company recognizes revenue and all related costs on
these contracts upon delivery and acceptance by the customer.
7
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FRONTRUNNER NETWORK SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Cash and cash equivalents
Cash and cash equivalents are comprised of demand deposits in
commercial banks.
Earnings per common share
Earnings per common share were computed by dividing net income
available to common stockholders by the weighted average number of
common shares outstanding during the year. For the year ended
December 31 2003 and 2004, diluted and basic earnings per share were
the same, as the effect of dilutive convertible stock outstanding
was not significant.
Warranty reserve
The financial statements include product warranty reserves of
$149,534 in 2004 and $144,199 in 2003. It is based on estimates of
future costs associated with fulfilling the warranty obligations.
The estimates are derived from historical cost experience. Because
of the inherent uncertainties in estimating costs, it is at least
reasonably possible that the estimates used will change within the
near term.
Stock-based compensation
The Company accounts for stock-based compensation in accordance with
Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation. As permitted by that
standard, the Company has elected to continue to follow recognition
provisions of Accounting Principles Board Opinion 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting
for employee stock-based compensation. No employee stock-based
compensation expense was recorded for fiscal 2004 and 2003.
Income taxes
Income taxes are provided on the earnings in the financial
statements. Deferred income taxes are provided to reflect the impact
of "temporary differences" between the amounts of assets and
liabilities for financial reporting purposes and such amounts as
measured by tax laws and regulations. The primary temporary
differences relate to depreciation, inventory reserves and the
timing of deductions for certain accrued expense liabilities. Tax
credits are recognized as a reduction to income taxes in the year
the credits are earned.
Note 3 - INVENTORIES
Inventories at March 31 consist of the following:
2004 2003
---- ----
Raw materials $ 918,340 $ 917,765
Work in process 414,899 460,767
------------ ------------
$ 1,333,239 $ 1,378,532
============ ============
The above amounts are net of the reserve of $1,009,729 and $915,712 at
March 31, 2004 and 2003, respectively. The reserve balance is estimated by
management based on previous experience and considers the Company's
on-hand inventory needs based on networks under maintenance service
agreements.
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8
FRONTRUNNER NETWORK SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
Note 4 - PROPERTY AND EQUIPMENT
Property and equipment at March 31 consists of the following:
2004 2003
---- ----
Furniture and fixtures $ 376,835 $ 376,833
Computer equipment 2,403,049 2,313,299
Leasehold improvements 100,950 90,650
Machinery and equipment 555,589 552,622
Vehicles 240,939 240,939
---------- ----------
3,677,362 3,574,343
Less accumulated depreciation and amortization 2,638,148 2,315,172
---------- ----------
$1,039,214 $1,259,171
========== ==========
Note 5 - LONG-TERM DEBT
Long-term debt as of March 31 consists of the following:
2004 2003
---- ----
Demand loan payable to bank, payable in monthly
principal payment of $50,000, plus interest (.50% plus the
prime rate; 4.5% at March 31, 2004) until the loan is paid in
full or demand is made by the bank. Secured by
substantially all corporate assets. $ 3,900,000 $ 4,750,000
At March 31, 2003, a subordinated note payable to ALC
Communications Corporation secured by substantially all
corporate assets. The Company was delinquent on
interest and principal payments. Under terms of a
settlement agreement in connection with a lawsuit filed
to accelerate payment, a portion of the note was forgiven
and a portion was refinanced (see Note 14). -- 4,500,000
Note payable to Global Crossing North America, due in
monthly installments of $16,667 through May 2006. The
note bears no stated interest (imputed interest at 8%) and
is subordinated to the outstanding bank debt. As of
March 31, 2004 the Company was in default under terms
of the note agreement. 504,502 --
Note payable to creditor, unsecured, payable in monthly
installments of $12,500, including interest at 8.25%,
through December 2005. 250,312 363,836
9
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FRONTRUNNER NETWORK SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
Note 5 - LONG-TERM DEBT - Continued
2004 2003
---- ----
Various promissory notes to creditor, unsecured, payable in
full on demand, including accrued interest at 10%. The notes
may be converted to participating preferred stock in
accordance with the terms of the convertible
promissory note. 215,000 50,000
Various promissory notes to creditor, unsecured, payable
in full between June 10, 2003 and October 1, 2003,
including interest at 7%. 776,486 100,000
Various promissory notes to creditor, unsecured, payable
in full between June 10, 2003 and October 1, 2003,
including interest at 7%. 430,000 --
------------ -----------
Total long-term debt 6,076,300 9,763,836
Less current portion 5,971,735 9,524,275
------------ -----------
Non-current portion - long-term debt $ 104,565 $ 239,561
============ ===========
The aggregate principal payments of long-term debt are as follows:
2004 $ 5,971,735
2005 104,565
------------
Total $ 6,076,300
============
The weighted average interest rate on debt due within one year included
above was 5.3% and 4.6% for 2004 and 2003, respectively.
Note 6 - CONVERTIBLE, REDEEMABLE PREFERRED STOCK
Senior Preferred Stock
The holders of the Senior Preferred Stock are entitled to receive, when
and if declared by the Board of Directors, quarterly dividends at the rate
per annum of $80 per share.
On November 1, 2006, the Company shall redeem all of the outstanding
shares of Senior Preferred Stock at a redemption price of $1,000 per
share, plus an amount equal to all accrued and unpaid dividends (whether
or not declared) on such shares up to the date of redemption. Prior to
November 1, 2006, the Company shall have the right to redeem any or all of
the outstanding shares of Senior Preferred Stock at a redemption price of
$1,000 per share plus an amount equal to all accrued and unpaid dividends
(whether or not declared) on such shares up to the date of redemption.
When any event of default, as defined in the Investment Agreement, has
occurred and shall be continuing, and unless the holders of at least a
majority of the shares of Senior Preferred Stock at the time outstanding
shall have waived such event of default in writing, the holders of a
majority of the shares of Senior Preferred Stock then outstanding may
require that all of the shares of Senior Preferred Stock held by the
holders requesting redemption be immediately redeemed by the Company at a
redemption price of $1,000 per share plus an amount equal to all accrued
and unpaid dividends (whether or not declared) on such shares.
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10
FRONTRUNNER NETWORK SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
Note 6 - CONVERTIBLE, REDEEMABLE PREFERRED STOCK - Continued
Junior Convertible Preferred and Series A Junior Preferred Stock
(collectively "Convertible Preferred Stock")
The holders of Convertible Preferred stock shall have no right to receive
dividends.
The Company shall have no right to redeem Convertible Preferred Stock.
When any event of default, as defined in the Investment Agreement, has
occurred and shall be continuing and unless the holders of at least a
majority of the shares of Convertible Preferred Stock at the time
outstanding shall have waived such event of default in writing, the
holders of a majority of the shares of Convertible Preferred Stock then
outstanding may require that all of the shares of Convertible Preferred
Stock held by the holders requesting redemption be immediately redeemed by
the Company at a redemption price of $1,000 per share.
The holder of any share or shares of Convertible Preferred Stock shall
have the right, at its option at any time, to convert any such shares of
Convertible Preferred Stock into such number of fully paid and
non-assessable shares of Common Stock as is determined by a predetermined
formula.
The Company has not finalized the terms of the Junior Redeemable Preferred
Stock agreement with the holders. Once finalized, the Company expects that
the Junior Redeemable Preferred Stock will include a redemption feature
for the holders of the Junior Redeemable Preferred Stock.
Note 7 - OPERATING LEASE
The Company leases buildings from several unrelated companies. The Company
also leases certain machinery and equipment from unrelated parties under
operating leases.
Total rent amounted to $391,869 for the year ended March 31, 2004.
At March 31, 2004, the future minimum lease payments under operating
leases were as follows:
2005 $ 316,302
2006 274,672
2007 145,980
2008 5,209
----------
$ 742,163
==========
Note 8 - EMPLOYEE STOCK OPTION PLAN
The Company has a restricted stock option plan for key officers,
employees, and board members. Options are granted at the discretion of the
Board of Directors and may be exercised for up to ten years from the date
of grant. Options granted vest at a rate of 20% per year for five years.
The Company has adopted the disclosures-only provision of SFAS No. 123,
Accounting for Stock-Based Compensation. Accordingly, no compensation cost
has been recognized for the restricted stock option plan as it relates to
employees. Had compensation cost for the Company's restricted stock option
plan been determined based on the fair value at the date of grant for
awards consistent with the provisions of SFAS No. 123, there would have
been no change to the Company's net income.
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11
FRONTRUNNER NETWORK SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
Note 8 - EMPLOYEE STOCK OPTION PLAN - Continued
The fair value of each grant is estimated on the date of grant using the
Black-Scholes option-pricing model using an assumed risk-free interest
rate of 4.79% and an expected life of ten years. As the Company is not
considered to be publicly traded for the purposes of applying SFAS No.
123, the Company did not include a volatility factor assumption in its
fair value model.
A summary of activity under the plan as of March 31 2004, 2003, and 2002
consisted of the following:
Weighted-
Outstanding Average
Options Exercise Price
----------- --------------
Outstanding shares under option, April 1, 2002 9,218,250 $ .04
Options cancelled (199,500) .18
----------
Outstanding shares under option, March 31, 2003 9,018,750 .04
Options cancelled (151,000) .18
----------
Outstanding shares under option, March 31, 2004 8,867,750 .03
==========
Options exercisable at March 31, 2004 7,094,200 .03
==========
The following table summarizes information concerning outstanding and
exercisable options at March 31, 2004:
Options Options
Outstanding Exercisable
- ------------------------------------------- ----------------------------------------------------
Weighted
Average
Remaining Weighted Weighted
Range of Number Contractual Average Average
Exercise Price Outstanding Life Exercise Price Number Exercise Price
- -------------- ----------- ----------- -------------- ------ --------------
$.001 - $.18 8,867,750 1.0 $ .03 7,094,200 $ .03
Note 9 - EMPLOYEE BENEFIT PLANS
The Company maintains a qualified 401(k) profit sharing plan to provide
retirement benefits to substantially all employees. The Plan provides for
contributions in such amounts as the Board of Directors may determine, but
not in excess of 15% of the eligible participants' compensation for the
year and are matched by 100% by the Company up to 3% of the employees'
pre-tax compensation. The Company's policy is to fund profit sharing costs
accrued. Company contributions to the Plan for the year ended March 31,
2004 and 2003 were approximately $136,037 and $152,853, respectively.
Note 10 - CUMULATIVE CHANGES IN ACCOUNTING PRINCIPLE
Effective April 1, 2002, the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets, and determined that the goodwill associated with
the acquisition of certain Company assets was fully impaired based on
expected future cash flows. The impairment loss of $6,381,918 to adjust
the carrying value of goodwill is included as a cumulative effect of
change in accounting principle in accordance with SFAS No. 142.
[PLANTE MORAN LOGO]
12
FRONTRUNNER NETWORK SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
Note 11 - INCOME TAXES
The deferred tax assets and liabilities consisted of the following
components as of March 31:
2004 2003
-------------- -------------
Long-term deferred tax assets (liabilities):
Accumulated amortization $ 1,243,710 $ 1,485,190
Accumulated depreciation (153,363) (125,309)
Inventory reserve 108,972 145,639
Net operating loss carryforward 14,328,921 15,400,671
-------------- -------------
15,528,240 16,906,192
Less valuation allowance (15,528,240) (16,906,192)
-------------- -------------
Net deferred tax assets (liabilities) $ -- $ --
============== =============
The current year change in the valuation allowance is $1,377,952. The net
operating losses begin to expire in 2015.
Note 12 - RELATED-PARTY TRANSACTIONS
Included in accounts receivable at March 31, 2003 is $11,735 from an
entity owned by a member of the board of directors of the Company for
sales of inventory and services. Sales to the entity were $60,046 for
2003. No transactions occurred during fiscal year 2004.
Included in accounts payable at March 31, 2003 is $6,450 due to an entity
owned by an officer of the Company for software support. Purchases from
the entity were $223,050 and $320,062, respectively, for the years ended
March 31 2004 and 2003.
Note 13 - CONCENTRATIONS
Customers
The Company has one major customer who accounted for 15% of sales for the
years ended March 31, 2004. The amount due from this customer was
approximately 31% of total accounts receivable as of March 31, 2004.
Note 14 - EXTRAORDINARY ITEM
The Company was named in a lawsuit initiated by Global Crossings, the
successor company to ALC Communications, in an attempt to accelerate
repayment of the $4,500,000 note payable, which was subordinated to the
bank and other debt. The Company had significant counter claims against
the creditor. The lawsuit resulted from the Company being delinquent on
interest payments under the terms of the note while it was negotiating
with the creditor's prior management. The lawsuit was settled in May 2003
and approved by the bankruptcy court on July 30, 2003. The significant
terms of the settlement included the following provisions. The $4,500,000
note payable plus accrued interest due to ALC Communications was forgiven.
In exchange, the Company agreed to pay $200,000 to Global Crossing, within
30 days of the approval of the settlement by the Bankruptcy Court and
$600,000 in 36 equal monthly installments with no interest charged on the
balance due. The
[PLANTE MORAN LOGO]
13
FRONTRUNNER NETWORK SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
Note 14 - EXTRAORDINARY ITEM - Continued
Company also agreed to provide up to $250,000 in approved equipment and
technical installation services to Global Crossing for up to three years
subsequent to the final order approving the settlement.
The terms of the settlement as detailed above resulted in income from the
forgiveness of debt in the amount of $3,537,803. Due to the unusual and
infrequent occurrence of this transaction the income generated by this
settlement appears as an extraordinary item on the statements of
operations for the year ended March 31, 2004.
Note 15 - GOING CONCERN
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As of March
31, 2004, the Company had a working capital deficiency of $8,411,523 and a
stockholders' deficit of $12,580,029, due primarily to recurring losses.
These factors, among others, indicate that the Company may be unable to
continue as a going concern for a reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability of assets and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern. The
Company's ability to continue as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations, to
obtain additional financing, and ultimately, to attain successful
operations.
Management of the Company has completed several steps designed to return
the company to profitability and positive cash flow. These steps include a
reduction in workforce resulting in monthly SG&A expense savings of
$90,000, additional service contract revenue with monthly revenue value of
$70,000, forgiveness of debt in the current year of $3,537,803, and a
restructuring of its remaining bank debt to reduce amortization payments
by $40,000 per month.
Note 16 - NEW FASB INTERPRETATION TO BE ADOPTED IN THE FUTURE
In May 2003, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 150, Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity. The Standard focuses on mandatorily redeemable shares, forward
contracts to purchase an entity's own stock, and freestanding written
options that enable the investor to put shares of stock to the issuer.
Prior to this statement mandatorily redeemable shares were typically
presented in the balance sheet between liabilities and equity, commonly
referred to as the "mezzanine" section and many forward purchase contracts
and written put options were presented as equity, if they could be
net-share-settled by the issuer. The Standard will result in more
instruments being classified as liabilities, partially eliminate the
"mezzanine" section of the balance sheet, and require that, for a limited
number of non-public companies, the balance sheet present only assets and
liabilities (no equity). The Interpretation is generally effective for
mandatorily redeemable instruments of non-public entities for fiscal
periods beginning after December 15, 2003.
The Company is currently evaluating the effect that implementation of the
Interpretation will have on its financial position, results of operations,
and cash flows.
[PLANTE MORAN LOGO]
14
FRONTRUNNER NETWORK SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
Note 17 - SUBSEQUENT EVENT
Management states that the actions described in the note above have
improved operating margins significantly. Current performance is meeting
or exceeding budget targets negotiated with the Company's bank and major
creditors.
Subsequent to year end, on September 15, 2004, the Company's ownership and
management finalized a merger agreement whereby the Company has become a
wholly-owned subsidiary of a public company. This transaction has directly
resulted in further reduction of both $1,420,000 of existing debt and
$106,000 of accrued interest. The Company also received an immediate
infusion of $250,000 in additional working capital from the parent upon
completion of the merger. The merger provides the Company additional
backing from a strong corporate balance sheet that includes $3,500,000 in
cash, and expanded access to both public equity and debt markets. The
merger has also strengthened the Company with new technology and several
additions to its product suite, positioning the company as a viable
competitor in several rapidly growing Voice Over IP (VOIP) communication
market segments.
[PLANTE MORAN LOGO]
15
(b) Pro forma financial information.
CAPITAL GROWTH SYSTEMS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED, DECEMBER 31, 2003
(UNAUDITED)
NOTE 2 NOTE 3
CAPITAL FRONTRUNNER PRO FORMA
GROWTH NETWORK PRO FORMA CONSOLIDATED
SYSTEM, INC. SYSTEMS CORP. ADJUSTMENTS NOTES TOTAL
------------ ------------- ----------- ----- --------------
REVENUES $ 59,027 $ 12,330,571 $ 12,389,598
------------- ------------ ------------ ------- --------------
Cost of Sales 129,806 5,991,340 6,121,146
------------- ------------ --------------
GROSS PROFIT (70,779) 6,339,231 - 6,268,452
Selling, general and administrative expenses 2,420,345 6,322,497 8,742,842
------------- ------------ ------------ ------- --------------
OPERATING INCOME (LOSS) (2,491,124) 16,734 - (2,474,390)
Interest Expense, net 146,509 335,796 (2,995) Note 11 479,310
------------- ------------ ------------ ------- --------------
NET LOSS $ (2,637,633) $ (319,062) $ 2,995 $ (2,953,700)
============= ============ ============ ======= ==============
Weighted Average Shares Outstanding 931,500 1,000,000 Note 3 1,931,500
NET LOSS PER SHARE $ (2.83) $ (1.53)
SEE ACCOMPANYING NOTES TO COMBINED PRO FORMA FINANCIAL STATEMENTS.
CAPITAL GROWTH SYSTEMS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED, JUNE 30, 2004
(UNAUDITED)
NOTE 2 NOTE 3
CAPITAL FRONTRUNNER PRO FORMA
GROWTH NETWORK PRO FORMA CONSOLIDATED
SYSTEM, INC. SYSTEMS CORP. ADJUSTMENTS NOTES TOTAL
------------ ------------- ----------- ----- ------------
REVENUES $ 303,472 $ 5,509,127 $ 5,812,599
------------ ------------- ---------- ------- ------------
Cost of Sales 93,364 2,571,487 2,664,851
------------ ------------- ---------- ------- ------------
GROSS PROFIT 210,108 2,937,640 - 3,147,748
Selling, general and administrative expenses 2,367,922 2,931,748 5,299,670
------------ ------------- ---------- ------- ------------
OPERATING INCOME (LOSS) (2,157,814) 5,892 - (2,151,922)
Interest Expense (Income), net (17,109) 222,597 57,566 Note 11 263,054
------------ ------------- ---------- ------- ------------
NET LOSS $ (2,140,705) $ (216,705) $ (57,566) $ (2,414,976)
============ ============= ========== ======= ============
Weighted Average Shares Outstanding 12,755,921 1,000,000 Note 3 13,755,921
NET LOSS PER SHARE (BASIC AND FULLY DILUTED) $ (0.17) $ (0.18)
SEE ACCOMPANYING NOTES TO COMBINED PRO FORMA FINANCIAL STATEMENTS.
CAPITAL GROWTH SYSTEMS, INC.
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 2004
(UNAUDITED)
NOTE 2 NOTE 3
CAPITAL FRONTRUNNER PRO FORMA
GROWTH NETWORK PRO FORMA COMBINED
SYSTEM, INC. SYSTEMS CORP. ADJUSTMENTS NOTES BALANCE
------------ ------------- ----------- ----- -----------
ASSETS
CURRENT ASSETS
Cash $ 4,831,768 $ 202,122 - $ 5,033,890
Accounts receivable 11,835 1,478,562 1,490,397
Inventories, net - 1,267,546 1,267,546
Other current assets 101,776 130,304 232,080
----------- ------------ ---------- ------- ------------
Total Current Assets 4,945,379 3,078,534 8,023,913
FIXED ASSETS, NET 276,994 986,711 1,263,705
OTHER ASSETS
Software License Fees 291,633 291,633
Goodwill 0 7,195,354 Note 4 7,195,354
----------- ------------ ---------- ------- ------------
TOTAL ASSETS $ 5,514,006 $ 4,065,245 $ 7,195,354 $ 16,774,605
=========== ============ ============= ======= ============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt - 5,743,671 (1,106,640) Note 5 4,637,031
Accounts payable $ 124,206 $ 2,796,983 (1,815,635) Note 6 1,105,554
Accrued expenses 7,979 $ 705,960 (141,970) Note 7 571,969
Deferred Revenues 4,728 $ 1,591,678 1,596,406
Advance billings - $ 404,596 404,596
Other current liabilities 1,955 126,602 128,557
----------- ------------ ---------- ------- ------------
Total Current Liabilities 138,868 11,369,490 (3,064,245) 8,444,113
LONG TERM LIABILITIES
Long term notes - 104,565 1,500,789 Note 8 1,605,354
Preferred Stock - 5,103,155 (5,103,155) Note 9 -
----------- ------------ ---------- ------- ------------
TOTAL LIABILITIES 138,868 16,577,210 (6,666,611) 10,049,467
----------- ------------ ---------- ------------
STOCKHOLDERS' EQUITY
COMMON STOCK 1,597 87,155 (87,055) Note 10 1,697
ADDITIONAL PAID IN CAPITAL 11,278,796 38,538,671 (37,188,771) Note 10 12,628,696
RETAINED DEFICIT (5,905,255) (51,137,791) 51,137,791 Note 10 (5,905,255)
----------- ------------ ---------- ------------
STOCKHOLDERS' EQUITY 5,375,138 (12,511,965) 13,861,965 6,725,138
----------- ------------ ---------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,514,006 $ 4,065,245 7,195,354 $ 16,774,605
=========== ============ ============= ============
SEE ACCOMPANYING NOTES TO COMBINED PRO FORMA FINANCIAL STATEMENTS.
CAPITAL GROWTH SYSTEMS, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited pro forma combined balance sheet as of June 30, 2004
and unaudited combined statements of operations for the twelve and six month
periods ended December 31, 2003 and June 30, 2004, respectively, give effect to
the acquisition of Frontrunner Network Systems Corp. (Frontrunner) by Capital
Growth Systems, Inc. (CGSI) on September 15, 2004.
The unaudited pro forma combined financial statements of CGSI included herein
have been prepared by management in accordance with the accounting principles
generally accepted in the United States of America. They have been prepared from
information derived from the December 31, 2003 (audited) and June 30, 2004
(unaudited) financial statements of CGSI and the March 31, 2004 (audited) and
the June 30 (unaudited) financial statements of Frontrunner, together with other
information available to the entities. The CGSI financial statements reflect the
effects of the reverse merger between CGSI and Nexvu Technologies, LLC (Nexvu),
which occurred on January 28, 2004. This transaction resulted in the financial
statements of Nexvu being the surviving company for financial statement
purposes. Accordingly, the historical financial statements of Nexvu are utilized
for the CGSI financial statements prior to the merger. In the opinion of
management of CGSI, these unaudited pro forma consolidated financial statements
include all adjustments necessary for the fair presentation of the merger
between CGSI and Frontrunner as described below.
The unaudited pro forma combined financial statements should be read in
conjunction with the historical financial statements and notes thereto of CGSI
and Nexvu, as filed with the Securities and Exchange Commission in their annual
report on form 10KSB, as amended, and second quarter 10QSB and the financial
statements of Frontrunner, included elsewhere in this 8-K. The CGSI unaudited
pro forma combined balance sheet gives effect to the merger of Frontrunner as if
it had occurred on June 30, 2004. The unaudited pro forma combined statements of
operations for the twelve months and six months ended December 31, 2003 and June
30, 2004, respectively, give effect to the merger as if it had occurred at the
start of the fiscal periods beginning on January 1, 2003 and January 1, 2004.
The audited financial statements of Frontrunner are for the twelve month periods
ending March 31. For purposes of the pro forma statement of operations, these
financial statements were utilized in the combined pro forma financial
statements for the twelve months ended December 31, 2003. The unaudited results
of operation for Frontrunner for the six month period ended June 30, 2004 were
derived from the calendar six month period ended June 30, 2004. Accordingly, the
results of Frontrunner's calendar first quarter ended March 31, 2004 are
included in the twelve month and six month period statement of operations. These
unaudited pro forma combined financial statements are not necessarily indicative
of the financial position or results of operations,
which would have resulted if the combination and related transactions had
actually occurred on those dates.
NOTE 2 - CAPITAL GROWTH SYSTEMS, INC.
Capital Growth Systems, Inc. is the holding company for its wholly owned limited
liability corporation, Nexvu Technologies, LLC (Nexvu). As of the date of this
merger, Nexvu represented essentially all of the operations of CGSI. Nexvu is
engaged in the development and sale of application performance management
software to large and mid-sized companies for use in connection with their
computer network systems. They have been existence since 2002 and have only
recently begun selling their product. As of the date of the merger, Nexvu had 15
full time employees.
NOTE 3 - ACQUISITION OF FRONTRUNNER
On September 15, 2004, CGSI acquired all of the common stock and certain of the
Preferred Stock of Frontrunner. Frontrunner is a converged network systems
provider with its core business in the design, installation, service and
monitoring of customer-premise voice/data/video networks. They currently employ
approximately 85 people serving over 1,000 customers. In addition to their core
business, Frontrunner has begun providing professional services in the area of
contact center design and installation, remote network monitoring and
management, as well as network security.
In consideration of the merger, CGSI will issue 1,000,000 shares of common stock
to certain creditors of Frontrunner in exchange for the cancellation of
indebtedness to Frontrunner by those creditors of $2,252,423. Some of this
cancellation of indebtedness was completed prior to the merger, with the
remaining amount still in discussions. The cancellation of the indebtedness will
be in the form of $1,421,486 of term debt along with $830,937 of debt which had
been earmarked to be converted to Preferred Stock without terms being finalized.
Additionally, CGSI paid $1.00 for each share of 228.184 shares of nonvoting
Eight Percent (8%) Senior Preferred Stock, par value $100.00 per share for a
total of $228.18. The remaining existing debt will remain outstanding. In
addition to the Senior Preferred Stock, there were 2,000 shares of Junior
Convertible Preferred Stock, par value of $100.00 per share and 4,050 shares of
Series A Convertible Preferred Stock, par value of $100.00 per share as well as
87,155,413 shares of common stock. All of these shares, along with all
outstanding stock warrants and options were extinguished and cancelled without
consideration thereof as of the merger date.
In addition to the extinguishment of debt and the cancellation of equity
securities and rights, there were other items that would have impacted the
combined financial statements. As part of the merger agreement, Frontrunner is
in the process of converting some long outstanding Accounts Payable balances
into interest bearing notes. The balances on these accounts were $1,815,635 as
of June 30, 2004, of which $314,486 would be payable within one year and the
remaining balance of $1,500,789 payable in excess of one year. The current
portion of this reclassification is recorded as an increase to current
maturities of long-term debt with the long-term portion classified as long-term
notes. Additionally, interest on this conversion was imputed for the statement
of operations for the twelve and six month periods ending December 31, 2003 and
June 30, 2004 respectively. Total imputed interest on these notes was $109,428
and $48,866 for the twelve and six month periods ended December 31, 2003 and
June 30, 2004 respectively.
NOTE 4 - GOODWILL
The goodwill represents fair market value of the 1 million shares of CGSI common
stock issued at an assumed price of $1.35 per share plus the difference between
the fair market value of the assets acquired less the liabilities assumed of
$5,845,354. The most recent private placement of our common stock was made at
$1.35 per share, which is assumed to constitute its fair market value.
NOTE 5 - CURRENT MATURITIES OF LONG-TERM DEBT
Represents the $1,421,486 of notes payable extinguished as part of the merger
agreement reflected as a reduction in current maturities of long-term debt,
partially offset by the $314,846 of Accounts Payable reflected in the current
maturities of long-term debt, both explained more fully in Note 3.
NOTE 6 - ACCOUNTS PAYABLE
This represents the reclassification of Accounts Payable into interest-bearing
debt, as explained in Note 3.
NOTE 7 - ACCRUED EXPENSES
Represents the accrued interest on the $1,421,486 of notes payable extinguished
as part of the merger, as explained in Note 3.
NOTE 8 - LONG-TERM NOTES
Represents the long-term portion of the Accounts Payable reclassified into
interest-bearing debt, as explained in Note 3.
NOTE 9 - PREFERRED STOCK
Represents the Senior Preferred Stock and junior redeemable preferred stock in
the amount of $22,200 and $830,955 respectively which was converted into common
stock of CGSI, as well as the Junior Convertible preferred stock and Series A
junior convertible preferred stock of $200,000 and $4,050,000, which was
extinguished as part of the merger.
NOTE 10 - STOCKHOLDERS' EQUITY
This reflects the elimination of Frontrunners' equity in the transaction.
NOTE 11 - INTEREST EXPENSE
This reflects the interest on the Notes Payable that was extinguished as part of
the merger agreement in the amount of $106,432 and $106,433 for the twelve month
and six month periods ended December 31, 2003 and June 30, 2004 respectively,
partially offset by imputed interest on the Accounts Payable converted to debt
in the amount of $109,428 and $48,866 for the twelve month and six month periods
ended December 31, 2003 and June 30, 2004 respectively,
(c) Exhibits.
16.1 - Letter from Russell & Atkins PLC, dated November 12, 2004.
99.1 - Shareholder Letter dated November 12, 2004.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: November 12, 2004
CAPITAL GROWTH SYSTEMS, INC.
By: /s/ D. Skip Behm
---------------------------------
Its: D. Skip Behm, CFO
932731_1
EXHIBIT INDEX
Exhibit Number Description
16.1 Letter from Russell & Atkins PLC, dated November 12, 2004.
99.1 Shareholder Letter dated November 12, 2004.