UNITED
STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

Form
10-K

[X] ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

For the
fiscal year ended December 31, 2009

Commission
file number: 000-25958

CAPITAL
FINANCIAL HOLDINGS, INC.

(Exact
name of registrant as specified in its charter)

|North
      Dakota                                                   | 45-0404061                             
|-------------------------------------------------------------------- | ---------------------------------------
|(State
      or other jurisdiction of incorporation or organization) | (IRS
      Employer Identification No.)

1 Main
Street NorthMinot, North Dakota 58703(Address of principal
executive offices)

|Registrant's
      telephone number, including area code:         | (701)
      837-9600                
|----------------------------------------------------------------- | ------------------------------------
|                                                                  |                                     
|Securities
      registered pursuant to Section 12(b) of the Act: | None                                
|                                                                  |                                     
|Securities
      registered pursuant to Section 12(g) of the Act: | Common
      Stock; $.0001 par value



|Indicate
      by check mark if the registrant is a well-known seasoned issuer, as
      defined in Rule 405 of the Securities Act.                                                                                                                                                                                                                                         |   | Yes                     | X | No                         
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|Indicate
      by check mark if the registrant is not required to file reports pursuant
      to Section 13 or Section 15(d) of the Act.                                                                                                                                                                                                                                    |   | Yes                     | X | No                         
|                                                                                                                                                                                                                                                                                                                                                                            |   |                         |  
|                                                                                                                                                                                                                                                                                                                                                                            |   |                         |   |                            
|Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the
      preceding 12 months (or for such shorter period that the registrant was
      required to file such reports), and (2) has been subject to such filing
      requirements for the past 90 days. | X | Yes                     |   | No                         
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|Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the
      best of registrant's knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-K or any
      amendment to this Form 10-K.         |   |                         | X
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|Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting
      company. See definition of "large accelerated filer," "accelerated filer,"
      and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check
      one):                                 
|                                                                                                                                                                                                                                                                                                                                                                            |   |                         |  
|Large
      accelerated filer                                                                                                                                                                                                                                                                                                                                               |   | Accelerated
      filer |   | Non-accelerated
      filer
|                                                                                                                                                                                                                                                                                                                                                                            |   |                         |  
|                                                                                                                                                                                                                                                                                                                                                                            |   |                         |  
|Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Act)                                                                                                                                                                                                                                                          |   | Yes                     | X | No                         
|                                                                                                                                                                                                                                                                                                                                                                            |   |                        
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Aggregate
market value of voting and non-voting common equity held by non-affiliates of
the registrant as of February 26, 2010: $1,361,353.

On February
26, 2010, there were 14,455,943 shares of the issuer's common equity
outstanding.

DOCUMENTS
INCORPORATED BY REFERENCE:

Portions
of the Company's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on June 9, 2010, are incorporated by reference in
certain sections of Part III.

10-K

CAPITAL
FINANCIAL HOLDINGS, INC.

INDEX

|               |                                                                                                                          | Page#
|-------------- | ------------------------------------------------------------------------------------------------------------------------ | -----
|PART
      I   |                                                                                                                         
|               |                                                                                                                          |      
|Item
      1.  | Business                                                                                                                 | 4    
|Item
      1A. | Risk
      Factors                                                                                                       | 7    
|Item
      1B. | Unresolved
      Staff Comments                                                                                          | 7    
|Item
      2.  | Properties                                                                                                               | 7    
|Item
      3.  | Legal
      Proceedings                                                                                                  | 8    
|Item
      4.  | Submission
      of Matters to a Vote of Security Holders                                                                | 8    
|               |                                                                                                                          |      
|PART
      II  |                                                                                                                         
|               |                                                                                                                          |      
|Item
      5.  | Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities | 8    
|Item
      6.  | Selected
      Financial Data                                                                                            | 9    
|Item
      7.  | Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations                        | 9    
|Item
      7A. | Quantitative
      and Qualitative Disclosures About Market Risk                                                         | 14   
|Item
      8.  | Financial
      Statements and Supplementary Data                                                                        | 14   
|Item
      9.  | Changes
      In and Disagreements with Accountants on Accounting and Financial
      Disclosure                         | 14   
|Item
      9A. | Controls
      and Procedures                                                                                            | 14   
|Item
      9B. | Other
      Information                                                                                                  | 15   
|               |                                                                                                                          |      
|PART
      III |                                                                                                                         
|               |                                                                                                                          |      
|Item
      10. | Directors,
      Executive Officers and Corporate Governance                                                             | 15   
|Item
      11. | Executive
      Compensation                                                                                             | 15   
|Item
      12. | Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters               | 15   
|Item
      13. | Certain
      Relationships and Related Transactions, and Director Independence                                          | 15   
|Item
      14. | Principal
      Accounting Fees and Services                                                                             | 15   
|               |                                                                                                                          |      
|PART
      IV  |                                                                                                                         
|               |                                                                                                                          |      
|Item
      15. | Exhibits,
      Financial Statement Schedules                                                                            | 16   
|               |                                                                                                                          |      
|               | SIGNATURES                                                                                                               | 18   

Special
Note Regarding Forward Looking Statements

When used
herein, in future filings by the Company with the Securities and Exchange
Commission ("SEC"), in the Company's press releases, and in other
Company-authorized written or oral statements, the words and phrases "can be,"
"expects," "anticipates," "may affect," "may depend," "believes," "estimate," or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. The Company
cautions readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. Such statements are subject to
certain risks and uncertainties, including those set forth in this
"Forward-Looking Statements" section, which could cause actual results for
future periods to differ materially from those presently anticipated or
projected. The Company does not undertake and specifically disclaims any
obligation to update any forward-looking statement to reflect events or
circumstances after the date of such statements.

Until July
31, 2009 the Company derived substantially all of its revenues from two sources;
commission revenue earned in connection with sales of shares of mutual funds,
insurance products, and various other securities and fees relating to management
of, and provision of services to mutual funds. Following the disposition of the
Mutual Fund Services Segment, the Company has only one operating subsidiary,
Capital Financial Services, Inc. ("CFS" or the "broker-dealer subsidiary") a
FINRA member broker-dealer.

The Company
is a financial services holding company that, through its broker dealer
subsidiary, provides brokerage, investment advisory, insurance and related
services. The Company operates in a highly regulated and competitive industry
that is influenced by numerous external factors such as economic conditions,
marketplace liquidity and volatility, monetary policy, global and national
political events, regulatory developments, competition, and investor
preferences. The Company's revenues and net earnings may be either enhanced or
diminished from period to period by such external factors. The Company remains
focused on continuing to reduce redundant operating costs, upgrade operating
efficiency, recruit quality representatives and grow our revenue base. The
Company provides broker-dealer services in support of trading and investment by
its representatives' customers in corporate equity and debt securities, U.S.
Government securities, municipal securities, mutual funds, private placement
alternative investments, variable annuities and variable life insurance. The
Company also provides investment advisory services for its representatives'
customers. In the past, investment advisory services were performed by both
Capital Financial Services, Inc. on an individual client basis and Integrity
Money Management, Inc. on behalf of the mutual fund segment; services through
Integrity Money Management, Inc. have been discontinued as a result of the
disposition of the Mutual Funds Service Segment effective July 31, 2009.

A key
component of the broker-dealer subsidiaries' business strategy is to recruit
well-established, productive representatives who generate substantial revenues
from an array of investment products and services. Additionally, the
broker-dealer subsidiary assists its representatives in developing and expanding
their business by providing a variety of support services and a diversified
range of investment products for their clients.

The Company
is a financial services holding company that, through its broker-dealer
subsidiary, provides brokerage, investment advisory, insurance and related
services. The Company operates in a highly regulated and competitive industry
that is influenced by numerous external factors such as economic conditions,
marketplace liquidity and volatility, monetary policy, global and national
political events, regulatory developments, competition, and investor
preferences. Our revenues and net earnings may be either enhanced or diminished
from period to period by such external factors. The Company remains focused on
continuing to reduce redundant operating costs, upgrade operating efficiency,
recruit quality representatives and grow our revenue base.

Forward-looking
statements include, but are not limited to, statements about the Company's:

| |   |                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | Business
      strategies and investment policies,                                                                                                                                                  
| |   |                                                                                                                                                                                                     
| | • | Possible
      or assumed future results of operations and operating cash
flows,                                                                                                                    
| |   |                                                                                                                                                                                                     
| | • | Financing
      plans and the availability of short-term borrowing,                                                                                                                                 
| |   |                                                                                                                                                                                                     
| | • | Competitive
      position,                                                                                                                                                                         
| |   |                                                                                                                                                                                                     
| | • | Potential
      growth opportunities,                                                                                                                                                               
| |   |                                                                                                                                                                                                     
| | • | Recruitment
      and retention of the Company's key employees,                                                                                                                                     
| |   |                                                                                                                                                                                                     
| | • | Potential
      operating performance, achievements, productivity improvements, efficiency
      and cost reduction efforts,                                                                        
| |   |                                                                                                                                                                                                     
| | • | Likelihood
      of success and impact of litigation,                                                                                                                                               
| |   |                                                                                                                                                                                                     
| | • | Expected
      tax rates,                                                                                                                                                                           
| |   |                                                                                                                                                                                                     
| | • | Expectations
      with respect to the economy, securities markets, the market for merger and
      acquisition activity, the market for asset management activity, and other
      industry trends,
| |   |                                                                                                                                                                                                     
| | • | Competition,
      and                                                                                                                                                                              
| |   |                                                                                                                                                                                                     
| | • | Effect
      from the impact of future legislation and regulation on the
  Company.                                                                                                                 

The
following factors, among others, could cause actual results to differ materially
from forward-looking statements, and future results could differ materially from
historical performance:

| |   |                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------
| | • | General
      political and economic conditions which may be less favorable than
      expected;                     
| |   |                                                                                                                      
| | • | The
      effect of changes in interest rates, inflation rates, the stock markets,
      or other financial markets; 
| |   |                                                                                                                      
| | • | Unfavorable
      legislative, regulatory, or judicial developments;                                                 
| |   |                                                                                                                      
| | • | Adverse
      findings or rulings in arbitrations, litigation or regulatory
      proceedings;                       
| |   |                                                                                                                      
| | • | Incidence
      and severity of catastrophes, both natural and man-made;                                             
| |   |                                                                                                                      
| | • | Changes
      in accounting rules, policies, practices, and procedures which may
      adversely affect the business;
| |   |                                                                                                                      
| | • | Terrorist
      activities or other hostilities which may adversely affect the general
      economy.                

PART
I

Item 1.
Business

OVERVIEW

Capital
Financial Holdings, Inc. derives the majority of its revenues and net income
from retail sales of mutual funds, insurance products and various other
securities through Capital Financial Services, Inc. ("CFS"), the Company's
broker-dealer subsidiary.

The Company
has been engaged in the financial services business since 1987. The Company was
incorporated September 22, 1987, as a North Dakota corporation by Robert E.
Walstad, founder and Chairman Emeritus of the Company. The Company's principal
offices are located at 1 Main Street North, Minot, North Dakota 58703. As of
December 31, 2009, the Company had 20 full-time employees consisting of
officers, securities distribution, data processing, compliance, accounting, and
clerical support staff.

BUSINESS
DEVELOPMENT

On April
22, 2005, the Company acquired the management rights to the IPS Millennium Fund
and the IPS New Frontier Fund from IPS Advisory, Inc. ("IPS Advisory"), and
merged them into a new Integrity Fund called the Integrity Growth & Income
Fund. The two funds had combined assets of approximately $57 million at the time
of acquisition. The purchase agreement called for total consideration of
approximately 656,000 common shares of the Company. The Company provided IPS
Advisory with 250,000 common shares upon closing. The remaining consideration of
approximately 406,000 common shares, which was subject to adjustment based on
retention of assets in the fund, was to be issued as follows: 203,000 common
shares at the one-year anniversary of the closing date, and 203,000 common
shares at the two-year anniversary of the closing date. The shares are subject
to a put option, which will allow the holders of the shares to put them back to
the Company at a price equal to the market price of the Company's shares as of
the closing date, which was $.36 per share. The put option is exercisable with
respect to one-third of the shares per year starting on the third anniversary of
the closing date. The Company will also provide IPS Advisory with a stock option
incentive bonus based on growth in assets in the Fund based on the following
schedule: 150,000 options on the Company's common shares when assets of the Fund
reach $100 million and 150,000 options on the Company's common shares when the
assets of the Fund reach $200 million. The options will have a strike price of
$.65 per share and mature 10 years from the closing date. The securities issued
in connection with this transaction will be issued on a private placement basis.
In April of 2006, the one-year anniversary payment of 158,603 common shares was
made, which reflected the assets of the acquired funds at the one-year
anniversary. In April of 2007, the two-year anniversary payment of 138,797
common shares was made, which reflected the assets of the acquired funds at the
two-year anniversary. As of December of 2009, the liability relating to this
acquisition was valued at $49,967.

On March 7,
2007, the Company acquired certain assets of United Heritage Financial Services,
Inc. (UHFS), a wholly-owned subsidiary of United Heritage Financial Group, Inc.,
of Meridian, Idaho. UHFS had approximately 120 independent registered
representatives who became part of Capital Financial Services, Inc. (CFS), the
retail brokerage division of the Company. Pursuant to the agreement, in exchange
for receipt of the assets of UHFS set forth above, the Company agreed to issue
500,000 restricted CFH shares and pay a deferred earn out cash payment totaling
a maximum of $900,000, to be paid in 21 quarterly installments. On March 7,
2007, the Company issued 500,000 restricted common shares to United Heritage
Financial Group, Inc. As a result of this issuance of shares, $175,000 was
recorded by the Company as goodwill relating to the purchase of the assets. As
of December 31, 2009, the Company had made eleven quarterly installment payments
totaling $253,871. The liability relating to this acquisition is valued at
$425,190 as of December 31, 2009, and has also been recorded by the Company as
goodwill. As of December 31, 2009, the total goodwill recorded relating to this
acquisition was $952,889.

THE
COMPANY'S SUBSIDIARIES

The Company
derives most of its income from CFS. CFS provides order processing, regulatory
oversight, concession processing, and other related services to registered
securities representatives transacting securities business for their clients. As
a result, the Company is economically dependent on the representatives, and
others, for substantially all of its revenue and income. Revenues generated by
the broker-dealer's support of securities sales are derived primarily through a
sharing of sales concessions paid by the products being sold to clients.

Integrity
Money Management, Inc.

Effective
September 30, 2009, the Company closed the books of Integrity Money Management,
Inc.

Integrity
Funds Distributor, Inc.

Effective
July 31, 2009, the Company sold its ownership in Integrity Funds Distributor,
Inc.

Integrity
Fund Services, Inc.

Effective
July 31, 2009, the Company sold its ownership in Integrity Funds Services,
Inc.

Capital
Financial Services, Inc.

CFS is a
full-service brokerage firm. CFS is registered with the SEC as an investment
advisor and broker-dealer and also with FINRA as a broker-dealer. CFS
specializes in providing investment products and services to independent
investment representatives, financial planners, and investment advisors and
currently supports over 324 investment representatives and investment
advisors.

DESCRIPTION
OF BUSINESS

Brokerage
Commissions

CFS's
primary source of revenue is commission revenue in connection with sales of
shares of mutual funds, insurance products, and various other securities. CFS
receives commission and Rule 12b-1 servicing revenue generated from the sale of
investment products originated by its registered representatives. CFS also
receives investment advisory revenue as a registered investment advisor. CFS
pays a portion of the revenue generated to its registered representatives and
retains the balance.

REGULATION

Virtually
all aspects of the Company's businesses are subject to various complex and
extensive federal and state laws and regulations. Regulated areas include, but
are not limited to, the effecting of securities transactions, the financial
condition of the Company's subsidiaries, record-keeping and reporting
procedures, relationships with clients, and experience and training requirements
for certain employees. The Company's subsidiary is registered with various
federal and state government agencies, including the SEC, as well as FINRA, a
self-regulatory industry organization, as described below.

CFS is a
registered broker-dealer, subject to extensive regulation and periodic
examinations by the SEC, FINRA, and state agencies in those states in which CFS
conducts business. As a broker-dealer, CFS is subject to the Net Capital Rule
promulgated by the SEC under the Exchange Act. This rule requires that a
broker-dealer must maintain certain minimum net capital and that its aggregate
indebtedness may not exceed specified limitations.

Federal and
state laws and regulations, and the rules of FINRA, grant broad powers to such
regulatory agencies and organizations. These include the power to limit,
restrict, or prevent the Company from carrying on its business if it fails to
comply with such laws, regulations and rules. Other possible sanctions that may
be imposed include the suspension of individual employees, restrictions on the
Company expanding its business or paying cash dividends, the revocation of the
investment advisor or broker dealer expulsions, censures, and/or fines.

Since 1993,
FINRA rules have limited the amount of aggregate sales charges which may be paid
in connection with the purchase and holding of investment company shares sold
through broker-dealers. Congress and the SEC presently are considering
amendments to Rule 12b-1 and other statutory provisions and rules that regulate
the distribution of mutual fund shares. The effect of the rule amendments and
other legislative or regulatory actions might be to limit the amount of fees
that could be paid pursuant to a fund's 12b-1 Plan in a situation where a fund
has no, or limited, new sales for a prolonged period of time, as well as the
imposition of other limits on the use of fund assets to pay for
distribution.

COMPETITION

The Company
derives substantially all of its revenues from commission revenue earned in
connection with sales of shares of mutual funds, insurance products and various
other securities, and also receives investment advisory revenue.

The Company
participates in retail brokerage, a highly competitive related sector of the
financial services industry. The Company competes directly with full-service
stock brokerage firms, insurance companies, banks, regional broker-dealers,
other independent broker-dealers, and other financial institutions, as well as
investment advisory firms. Each of these competitors offers to the public many
of the same investment products and services offered by the Company. Further,
other broker-dealers providing the same services heavily recruit the
representatives and advisors transacting business through the Company. This
competition forces the Company to maintain high levels of support services and
commission payouts for these representatives and advisors. These high levels of
services and payouts could have a materially adverse effect on the Company's
earnings.

RECENT
DEVELOPMENTS

On March
25, 2010 the Board of Directors approved pursuant to the Bylaws of the Company,
a reduction in the number of directors from five to four. In accordance with the
Bylaws of the Company when the number of directors is reduced, the current
directors continue to serve until the expiration of their terms and therefore
the number of directors will remain at five until the Annual Meeting of
Shareholders of the Company.

On March
25, 2010 Mr. Vance Castleman announced his retirement from the Board of
Directors effective upon the Annual Meeting of Shareholders of the Company. As a
result, Mr. Castleman will not be a director nominee at the Annual Meeting of
Shareholders.

In March of
2009 the Company entered into a Definitive Agreement (the "Agreement") with
Corridor Investors, LLC ("Buyer"), pursuant to which Buyer agreed to purchase
from Seller, and Seller agreed to sell to Buyer: (i) all of the issued and
outstanding shares of each of three subsidiaries of the Company, Integrity Fund
Services, Inc., a share transfer agency, Integrity Funds Distributor, Inc., a
FINRA member broker dealer and Integrity Mutual Funds, Inc. of Nevada, a
non-operating entity (the "Companies'); (ii) all of Seller's right, title and
interest in and to certain tangible assets and (iii) the sale of certain assets
of Integrity Money Management, Inc. related to its mutual fund advisory
business. The purpose of the Agreement was to facilitate a change in advisor as
well as to transfer, together with the operating subsidiaries, the combined
mutual fund service business of the Seller currently provided to The Integrity
Funds, Integrity Managed Portfolios, ND Tax-Free Fund, Inc., Montana Tax-Free
Fund, Inc. and Integrity Fund of Funds, Inc. ("the Funds"), which are investment
companies registered with the Securities and Exchange Commission ("SEC") under
the Investment Company Act of 1940. As per the Agreement, closing occurred, the
Buyer paid $1,525,480 (60 BPS of the aggregate net assets, totaling $254,246,596
as of July 30, 2009) to the Company and will pay three additional payments
consisting of 10 BPS of the aggregate net assets as of July 30, 2010, 2011, and
2012 over the next three years. With the closing and transfer of entities, the
Company is no longer involved in the mutual fund service business. The Company
continues to operate as a Broker-Dealer through its wholly owned subsidiary
Capital Financial Services, Inc. As a result of the transfer, post closing of
the transaction, Integrity Fund Services, Inc., Integrity Funds Distributor,
Inc. and Integrity Money Management, Inc., which constitute the mutual fund
division of the Company, will be reflected in the Company's future consolidated
financial statements as a discontinued operation.

The Company
tests goodwill for impairment annually during the second quarter of each fiscal
year. If an event occurs or circumstances change that would more likely than not
reduce fair value of a reporting unit below its carrying value, goodwill is
evaluated for impairment between annual tests. As a result of ongoing volatility
in the financial industry and a significant reduction in assets under management
in the Company's sponsored mutual funds at the time, the Company performed an
interim goodwill impairment test for the quarter ended December 31, 2008. On
February 24, 2009, the Company determined that it would incur a goodwill
impairment charge for the fourth quarter of the fiscal year ended December 31,
2008 of $5,312,606 in the Mutual Fund Services segment. This charge resulted
from an interim test for impairment under the FASB accounting and reporting
standards for goodwill and other intangible assets, prompted by a significant
reduction in assets under management and ongoing volatility in the financial
service industry during the fourth quarter of 2008. The Company was not required
to make any current or future cash expenditures as a result of the impairment.
The impairment charge was reflected in the Company's financial statements as of
and for the fourth quarter and fiscal year ended December 31, 2008.

On January
24, 2007, the Company announced the retirement of Robert E. Walstad, the
Company's founder, chief executive officer, and chairman of the board of
directors, effective February 1, 2007. In connection with Mr. Walstad's
retirement, the Company entered into a separation agreement with Mr. Walstad.
Under the terms of the separation agreement, subject to Mr. Walstad meeting his
obligations thereunder in all respects, Mr. Walstad is entitled to receive a
cash payment in the amount of $274,500, options to purchase 60,000 common
shares, and certain commission payments. The $274,500 separation payment was
expensed in February of 2007. Mr. Walstad has not been involved with management
or as a member of the board of directors of the Company since February 1, 2007.
With respect to the Definitive Agreement between the Company and Corridor
Investors, LLC, described above, Mr. Walstad is the Limited Liability Manager of
Corridor Investors, LLC and executed the described agreement on behalf of
Corridor Investors, LLC.

AVAILABILITY
OF SEC REPORTS

All SEC
reports may be viewed and copied at the SEC's Public Reference Room at 100 F
Street NE, Washington, DC 20549, on official business days during the hours of
10 a.m. to 3 p.m. local time. Information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The
Commission maintains an Internet site (http://www.sec.gov) that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the Commission.

All SEC
reports are also made available on the Company's website at
http://capitalfinancialholdings.com. These reports, including annual reports on
Form 10-K and 10-KSB, quarterly reports of Form 10-Q and 10-QSB, and current
reports on Form 8-K, are available on the same day they are filed with the
SEC.

Item 1A.
Risk Factors

Not
Applicable as a Smaller Reporting Company.

Item 1B.
Unresolved Staff Comments

None

Item 2.
Properties

The Company
operates the majority of its business out of its location at 1 Main Street
North, Minot, North Dakota, which the Company owns. As of December 31, 2009, the
building has a $307,902 mortgage.

Item 3.
Legal Proceedings

The Company
operates in a legal and regulatory environment that exposes it to potentially
significant litigation risks. As a result, the Company is involved in various
disputes and legal proceedings, including litigation, arbitration and regulatory
investigations, including a number of investigatory matters and legal
proceedings arising out of customer allegations related to past commissioned
sales of alternative investment products. In 2007 through the first quarter of
2009 a substantial amount (approximately 10% to 20%) of the Company's sales of
commissioned products were in private placements of alternative products, two of
which as of December 31, 2009 (Medical Capital Corporation and related issuer
entities and Provident Royalties, LLC. and related issuer entities) were placed
in receivership by action of the United States Securities and Exchange
Commission and issuers of certain other alternative products sold by the Company
are in Chapter 11 Bankruptcy or may have financial difficulties. Additionally,
difficult economic conditions in general and the stock market decline have
contributed to decline in broker-dealer subsidiary client portfolio values. As a
result of such alleged failings of alternative products and the uncertainty of
client recovery from the various product issuers, the Company is subject to
regulatory scrutiny and a number of recently instituted legal or arbitration
proceedings, including two recently instituted proceedings seeking certification
as class actions which name the Company as one of a number of defendants and
allege various securities or conduct violations, one with respect to private
placements of Medical Capital Corporation and related issuer entities and the
other with regard to private placements of Provident Royalties, LLC and related
issuer entities. The Company intends to vigorously contest the allegations of
the various proceedings and believes that there are multiple meritorious legal
and fact based defenses in these matters. Such cases are subject to many
uncertainties, and their outcome is often difficult to predict, including the
impact on operations or on the financial statements, particularly in the earlier
stages of a case. The Company makes provisions for cases brought against it
when, in the opinion of management after seeking legal advice, it is probable
that a liability exists, and the amount can be reasonably estimated. The current
proceedings are subject to uncertainties and as such, the Company is unable to
estimate the possible loss or a range of loss that may result.

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

No matters
were submitted to a vote of security holders during the fourth quarter ended
December 31, 2009.

PART
II

Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities

Information
about the Company's Common Stock

The
Company's Common Shares are traded on the OTC Bulletin Board under the symbol
CPFH. The Company's common shares began trading on the OTC Bulletin Board on
November 7, 1997. On May 31, 2002, the shareholders of the Company approved a
two for one (2:1) share split of the issued and outstanding common shares of the
Company, which took effect on July 1, 2002. On December 31, 2009, the closing
price of the Company's Common Shares on the OTC Bulletin Board was $.14 per
share. At February 26, 2010, there were approximately 750 shareholders of
record.

The
following table sets forth the high and low closing prices for the Company's
common stock. The quotations reflect inter-dealer prices, without retail
mark-up, mark-down, or commission, and may not represent actual
transactions.

2009
    2008Fiscal
      Year
    Fiscal
      YearQuarter
    High
    Low
    High
    LowFirst
      Quarter
    .280
    .150
    .690
    .400Second
      Quarter
    .240
    .140
    .480
    .270Third
      Quarter
    .230
    .150
    .350
    .270Fourth
      Quarter
    .240
    .120
    .500
    .150


The
Company has not paid a dividend with respect to its common stock, nor does the
Company anticipate paying dividends in the foreseeable future.

The
Company has issued the following securities in the past quarter without
registering the securities under the Securities Act:

None

Smaller
Reporting Company Repurchases of Equity Securities:

Period
    Total
      Number of Shares Purchased
    Average
      Price Per Share
    Total
      Number of Shares Purchased as Part of Publicly Announced Plans or
      Programs
    Approximate
      Dollar Value of Shares that May Yet Be Purchased Under the Plans or
      ProgramsOctober
      2009
    -
    -
    -
    $597,754November
      2009
    -
    -
    -
    $597,754December
      2009
    -
    -
    -
    $597,754Total
    -
    -
    -
    $597,754


Item 6.
Selected Financial Data

Not
Applicable as a Smaller Reporting Company.

Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations

The
following information is provided in connection with, and should be read in
conjunction with, the consolidated financial statements and notes included in
this Annual Report on Form 10-K.

GENERAL

Capital
Financial Holdings, Inc. derives the majority of its revenues and net income
from sales of mutual funds, insurance products, and various other securities
through Capital Financial Services, Inc. ("CFS"), the Company's broker-dealer
subsidiary.

RESULTS
OF OPERATIONS

The
following table sets forth, for the periods indicated, amounts included in the
Company's Consolidated Statements of Operations and the percentage change in
those amounts from period to period.

Variance
      2009 to 2008
    Variance
      2008 to 20072009
    
    2008
    
    2007OPERATING
      REVENUESFee
      income
    $
    1,062,492
    $
    1,551,245
    $
    2,127,388
    (32)%
    (27)%Commission
      income
    
    16,313,213
    
    25,869,214
    
    29,198,732
    (37)%
    (11)%Other
      income
    
    527,069
    
    975,877
    
    541,470
    (46)%
    80%Total
      revenue
    $
    17,902,774
    $
    28,396,336
    $
    31,867,590
    (37)%
    (11)%OPERATING
      EXPENSESCompensation
      and benefits
    $
    1,786,179
    $
    2,089,297
    $
    3,261,695
    (15)%
    (36)%Commission
      expense
    
    15,223,613
    
    24,390,850
    
    28,190,323
    (38)%
    (13)%General
      and administrative expenses
    
    1,008,149
    
    1,125,767
    
    1,389,196
    (10)%
    (19)%Sub-advisory
      expenses
    
    28,341
    
    -
    
    -
    100%
    -Depreciation
      and amortization
    
    100,369
    
    115,487
    
    223,624
    (13)%
    (48)%Total
      operating expenses
    $
    18,146,651
    $
    27,721,401
    $
    33,064,838
    (35)%
    (16)%OPERATING
      INCOME (LOSS)
    $
    (243,877)
    $
    674,935
    $
    (1,197,248)
    (136)%
    (156)%OTHER
      EXPENSESLoss on
      investment
    
    (31,876)
    
    -
    
    -
    100%
    -Interest
      expense
    
    (212,552)
    
    (302,369)
    
    (331,687)
    (30)%
    (8.8)%Net other
      income expenses
    $
    (244,428)
    $
    (302,369)
    $
    (331,687)
    (19)%
    (8.8)%INCOME
      (LOSS) OF CONTINUING OPERATIONS BEFORE INCOME TAX BENEFIT
    (EXPENSE)
    $
    (488,305)
    $
    372,566
    $
    (1,528,935)
    (231)%
    124%INCOME
      TAX BENEFIT (EXPENSE)
    
    191,416
    
    (146,046)
    
    599,343
    231%
    (124)%NET
      INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS
    $
    (296,889)
    $
    226,520
    $
    (929,592)
    (231)%
    124%DISCONTINUED
      OPERATIONSIncome
      from operations of discontinued operations (net of tax)
    $
    (125,211)
    $
    1,576,389
    $
    1,512,805
    (107)%
    4%Goodwill
      impairment expense
    
    -
    
    (5,312,606)
    
    -
    (100)%
    100%Gain on
      disposal of discontinued operations
    
    228,402
    
    -
    
    -
    100%
    -Net
      discontinued operations
    $
    103,191
    $
    (3,736,217)
    $
    1,512,805
    103%
    (347)%NET
      INCOME (LOSS)
    $
    (193,698)
    $
    (3,509,697)
    $
    583,213
    94%
    (702)%NET
      INCOME (LOSS) OF CONTINUING OPERATIONS PER COMMON SHARE:
    
    (.02)
    
    .01
    
    (.07)NET
      INCOME (LOSS) PER COMMON SHARE:
    
    (.02)
    
    (.25)
    
    .03


Year
Ended December 31, 2009, compared with Year Ended December 31, 2008:

Operating
Revenues—Total operating revenues for 2009 were $17,902,774, a decrease of
37% from $28,396,337 in 2008. The decrease resulted primarily from decreased
commission and fee income relating to CFS, the Company's broker-dealer
division.

Fee
Income—Fee income for 2009 was $1,062,492, a 32% decrease from
$1,551,245 in 2008. The decrease was due to a reduction in fees received by CFS
due to a reduction in assets under management in CFS' registered investment
advisor.

The Company
earns investment advisory fees in connection with CFS' registered investment
advisor. The Company pays the registered representatives a portion of this fee
income as commission expense and retains the balance. These fees constituted 6%
of the Company's consolidated revenues in 2009.

Commission
Income—Commission income includes CFS. The Company pays the registered
representatives a percentage of this income as commission expense and retains
the balance. Commission income for 2009 was $16,313,213, a 37% decrease from
$25,869,214 in 2008. The decrease was due primarily to a decrease in commissions
received by CFS due to market conditions. Future market conditions will continue
to impact commission levels. Commission revenues constituted 91% of the
Company's consolidated revenues in 2009.

Other
Income—Other income for 2009 was $527,069, a 46% decrease from $975,877
in 2008. Other income is comprised primarily of due diligence and marketing
allowances received by CFS. Other income constituted 3% of the Company's
consolidated revenues in 2009.

Operating
Expenses—Total operating expenses for 2009 were $18,146,651 a 35%
decrease from $27,721,401 in 2008. The decrease resulted from the net decreases
in the expense categories described in the paragraphs below.

Compensation
and Benefits—Compensation and benefits expense for 2009 was $1,786,179,
a 15% decrease from $2,089,297 in 2008. The decrease resulted primarily from a
reduction in incentive overrides paid to certain employees for the recruitment
of new registered representatives in CFS, as well as a reduction in the number
of employees over the past twelve months.

Commission
Expense—Commission expense for 2009 was $15,223,613, a 38% decrease from
$24,390,850 in 2008. The decrease corresponds with the decreases in fee and
commission income.

Goodwill
Impairment Expense—Goodwill impairment expense for 2009 was $0, a 100%
decrease from $5,312,606 in 2008. The Company tests goodwill for impairment
annually during the second quarter of each fiscal year. If an event occurs or
circumstances change that would more likely than not reduce fair value of a
reporting unit below its carrying value, goodwill is evaluated for impairment
between annual tests. As a result of ongoing volatility in the financial
industry and a significant reduction in assets under management in the Company's
sponsored mutual funds, the Company performed an interim goodwill impairment
test for the quarter ended December 31, 2008. On February 24, 2009, the Company
determined that it would incur a goodwill impairment charge for the fourth
quarter of the fiscal year ended December 31, 2008 of $5,312,606 in the Mutual
Fund Services segment. This charge resulted from an interim test for impairment
under Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets," prompted by a significant reduction in assets under
management and ongoing volatility in the financial service industry during the
fourth quarter of 2008. The Company was not required to make any current or
future cash expenditures as a result of the impairment. The impairment charge
was reflected in the Company's financial statements as of and for the fourth
quarter and fiscal year ended December 31, 2008.

General
and Administrative Expenses—Total general and administrative expenses
for 2009 were $1,008,149, a decrease of 10% from $1,125,767 in 2008. The
decrease was due primarily to a reduction in the distributions being paid to
outside wholesalers during the time that Capital Financial Holdings, Inc. owned
the mutual fund division.

Sub-advisory
Expenses—Sub-advisory expenses for 2009 were $28,341, a 100% increase
from $0 in 2008. As a result of the IPS acquisition, see Note 5, Capital
Financial Holdings, Inc. is obligated to pay 30 bps of the Integrity Growth and
Income Fund's Assets Under Management, as of the last day of each month. These,
along with additional sub-advisory expenses, were previously paid by Integrity
Money Management, until the sale of the Mutual Fund Division was finalized.

Depreciation
and Amortization—Depreciation and amortization for 2009 was $100,369, a
13% decrease from $115,487 in 2008. The decrease was due to the disposal of
assets associated with the mutual fund division sale.

Interest
Expense—Interest expense was $212,552 for 2009, a 30% decrease from
$302,369 in 2008. The decrease was due primarily to a reduction in outstanding
debt due to redemptions of the company's subordinated corporate notes processed
on June 23rd and July 31st, totaling $500,000, and also the company's decision
to call the remaining notes, totaling $1,500,000, processed on September 30,
2009.

Year
Ended December 31, 2008, compared with Year Ended December 31, 2007:

Operating
Revenues—Total operating revenues for 2008 were $28,396,336, a decrease of
11% from $31,867,590 in 2007. The decrease resulted from a decrease in
commission and fee income received by CFS.

Fee
Income—Fee income for 2008 was $1,551,245, a 27% decrease from
$2,127,388 in 2007. The decrease was due to a reduction in fee income received
by CFS, as a result of lower values of client assets under management.

The Company
earns investment advisory fees in connection with CFS' registered investment
advisor. The Company pays the registered representatives a portion of this fee
income as commission expense and retains the balance. These fees constituted 6%
of the Company's consolidated revenues in 2008.

Commission
Income—Commission income includes CFS commissions. The Company pays the
registered representatives a percentage of this income as commission expense and
retains the balance. Commission income for 2008 was $25,869,214, an 11% decrease
from $29,198,732 in 2007. The decreases were due primarily to a decrease in
commissions received by CFS due to market conditions, and reduced sales of
alternative investment products. Future market conditions will continue to
impact commission levels. Commission revenues constituted 91% of the Company's
consolidated revenues in 2008.

Other
Income—Other income for 2008 was $975,877, an 80% increase from $541,470
in 2007. Other income is comprised primarily of due diligence and marketing
allowances received by CFS. Other income constituted 3% of the Company's
consolidated revenues in 2008.

Operating
Expenses—Total operating expenses for 2008 were $27,721,401, a 16% decrease
from $33,064,838 in 2007. The decrease resulted primarily from decreased
commission expense, which corresponds to decreases in fee and commission
income.

Compensation
and Benefits—Compensation and benefits expense for 2008 was $2,089,297,
a 36% decrease from $3,261,695 in 2007. The decrease results primarily from
decreased incentive overrides paid to certain employees for the recruitment of
new registered representatives in CFS, and a decrease in the number of employees
during the twelve month period.

On January
24, 2007, the Company announced the retirement of Robert E. Walstad, the
Company's founder, chief executive officer and chairman of the board of
directors, effective February 1, 2007. In connection with Mr. Walstad's
retirement, the Company entered into a separation agreement with Mr. Walstad.
Under the terms of the separation agreement, subject to Mr. Walstad meeting his
obligations thereunder in all respects, Mr. Walstad is entitled to receive a
cash payment in the amount of $274,500, options to purchase 60,000 common
shares, and certain commission payments. The $274,500 separation payment was
expensed in February of 2007.

Commission
Expense—Commission expense for 2008 was $24,390,850, a 13% decrease from
$28,190,323 in 2007. The decrease corresponds with the decreases in fee and
commission income.

General
and Administrative Expenses—Total general and administrative expenses
for 2008 were $1,125,767, a decrease of 19% from $1,389,196 in 2007. The
decrease is due primarily to a decrease in promotion expenses, license fees and
dues paid out by the Company.

Depreciation
and Amortization—Depreciation and amortization for 2008 was $115,487, a
48% decrease from $223,624 in 2007. The primary reason for the change was a
decrease in amortization of computer software costs.

Interest
Expense—Interest expense was $302,369 for 2008, a 9% decrease from
$331,687 in 2007.

FINANCIAL
CONDITION

On December
31, 2009, the Company's assets aggregated $9,500,728, a decrease of 24% from
$12,532,431 in 2008, due to increases in income taxes receivable and long-term
assets, offset by decreases in cash and cash equivalents, accounts receivable,
goodwill, prepaids, net property and equipment, and other assets. Stockholders
equity was $6,494,044 on December 31, 2009, compared to $6,708,250 on December
31, 2008.

On December
31, 2008, the Company's assets aggregated $12,532,431, a decrease of 30.8% from
$18,114,830 in 2007, due to increases in income taxes receivable, prepaids, net
property and equipment, and deferred tax assets, offset by decreases in cash and
cash equivalents, accounts receivable, deferred sales commissions, goodwill, and
other assets. Stockholders equity was $6,708,250 on December 31, 2008, compared
to $10,213,625 on December 31, 2007.

Cash used
by operating activities was $162,907 for the year ended December 31, 2009, as
compared to net cash provided by operating activities of $739,023 for the year
ended December 31, 2008 and net cash provided by operating activities of
$1,568,087 for the year ended December 31, 2007.

Net cash
provided by investing activities was $1,424,096 for the year ended December 31,
2009, as compared to net cash used by investing activities of $131,326 for the
year ended December 31, 2008 and net cash used by investing activities of
$265,356 for the year ended December 31, 2007. During the twelve months ended
December 31, 2009, the cash provided by investing activities were the proceeds
from the mutual fund division sale, minus office and computer equipment
purchased during this time frame.

Net cash
used by financing activities was $2,132,559 for the year ended December 31,
2009, as compared to net cash used by financing activities of $910,839 for the
year ended December 31, 2008, and net cash used by financing activities of
$10,733 for the year ended December 31, 2007. During the year ended December 31,
2009, the Company paid out $91,500 in preferred stock dividends, repaid $26,294
of bank debt, paid $63,450 relating to the acquisition of certain assets of
United Heritage Financial Services in 2007, and paid out $2,000,000 for the
redemption and call of the subordinate corporate notes.

LIQUIDITY
AND CAPITAL RESOURCES

On December
31, 2009, the Company held $1,968,738 in cash and cash equivalents, as compared
to $2,840,108 on December 31, 2008, and $3,143,250 on December 31, 2007. Liquid
assets, which consist of cash and cash equivalents, totaled $1,968,738 at
December 31, 2009, as compared to $2,840,108 on December 31, 2008, and
$3,143,250 on December 31, 2007. The Company is required to maintain certain
levels of cash and liquid securities in its broker-dealer subsidiary to meet
regulatory net capital requirements.

The Company
currently has no lines of credit available.

The Company
has historically relied upon sales of its equity securities and debt
instruments, as well as bank loans, for liquidity and growth. Management
believes that the Company's existing liquid assets, along with cash flow from
operations, will provide the Company with sufficient resources to meet its
ordinary operating expenses during the next twelve months. Significant,
unforeseen or extraordinary expenses may require the Company to seek alternative
financing sources, including common or preferred share issuance or additional
debt financing.

In addition
to the liabilities coming due in the next twelve months, management expects that
the principal needs for cash may be to acquire additional financial services
firms, broker recruitment, asset acquisition opportunities for the Company's new
oil and gas operations subsidiary, repurchase shares of the Company's common
stock, and service debt. Management also expects to realize increases in
expenses associated with regulatory compliance with Section 404 of the
Sarbanes-Oxley Act of 2002, including increased legal, audit, staff, and
consultant expenses as well as increased compliance and legal costs with respect
to its broker dealer subsidiary related to regulatory and litigation
matters.

Item 7A.
Quantitative and Qualitative Disclosures About Market Risk

Not
Applicable as a Smaller Reporting Company.

Item 8.
Financial Statements and Supplementary Data

The
financial statements required by this item, the accompanying notes thereto, and
the reports of independent registered public accounting firm are included as
part of this Form 10-K immediately following the signatures page, beginning on
page F-1.

Item 9.
Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure

None.

Item 9A.
Controls and Procedures

The
Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the design and operation of
the Company's disclosure controls and procedures (as defined in Rule 13a-14(c)
and Rule 15c-14(c) under the Exchange Act) as of the end of the period covered
by this report, pursuant to Rule 13a-15(b) of the Exchange Act. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that the Company's disclosure controls and procedures are effective as
of December 31, 2009, and that information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is recorded,
processed and summarized, and reported within the time periods specified by the
SEC's rules and forms.

Disclosure
controls and procedures are the controls and other procedures that are designed
to ensure that information required to be disclosed in the reports that the
Company files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed in
the reports that the Company files or submits under the Exchange Act is
accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.

There were
no significant changes in the Company's internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies or material weaknesses.

MANAGEMENT'S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management
of Capital Financial Holdings, Inc. (together with its consolidated subsidiary,
the "Company"), is responsible for establishing and maintaining adequate
internal control over financial reporting. The Company's internal control over
financial reporting is a process designed under the supervision of the Company's
principal executive and principal financial officers to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of the Company's financial statements for external reporting purposes in
accordance with United States generally accepted accounting principles.

As of
December 31, 2009, management conducted an assessment of the effectiveness of
the Company's internal control over financial reporting, based on the framework
established in Internal Control—Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Based on this
assessment, management has determined that the Company's internal control over
financial reporting as of December 31, 2009, is effective.

The
Company's internal control over financial reporting includes policies and
procedures that pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect transactions and acquisitions and
dispositions of assets; provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with United States generally accepted accounting principles, and that
receipts and expenditures are being made only in accordance with authorizations
of management and the directors of the Company; and provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or
disposition of Company assets that could have a material effect on the Company's
financial statements.

This annual
report does not include an attestation report of the Company's registered public
accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management's report
in this annual report.

Item 9B.
Other Information

None.

PART
III

Item 10.
Directors, Executive Officers and Corporate Governance

The
information required by this Item will be contained in our definitive Proxy
Statement for our 2010 Annual Meeting of Shareholders and such information is
incorporated herein by reference.

Item 11.
Executive Compensation

The
information required by this Item will be contained in our definitive Proxy
Statement for our 2010 Annual Meeting of Shareholders and such information is
incorporated herein by reference.

Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters

The
information required by this Item will be contained in our definitive Proxy
Statement for our 2010 Annual Meeting of Shareholders and such information is
incorporated herein by reference.

Item 13.
Certain Relationships and Related Transactions, and Director
Independence

The
information required by this Item will be contained in our definitive Proxy
Statement for our 2010 Annual Meeting of Shareholders and such information is
incorporated herein by reference.

Item 14.
Principal Accounting Fees and Services

The
information required by this Item will be contained in our definitive Proxy
Statement for our 2010 Annual Meeting of Shareholders and such information is
incorporated herein by reference.

PART
IV

Item 15.
Exhibits

| | The
      following exhibits are filed herewith or incorporated herein by reference
      as set forth below:
| | -------------------------------------------------------------------------------------------------------------
| |                                                                                                              
| | 3.1                                                                                                          
| |                                                                                                              
| | 3.2                                                                                                          
| |                                                                                                              
| | 4.1                                                                                                          
| |                                                                                                              
| | 4.2                                                                                                          
| |                                                                                                              
| | 4.3                                                                                                          
| |                                                                                                              
| | 4.4                                                                                                          
| |                                                                                                              
| | 4.5                                                                                                          
| |                                                                                                              
| | 4.6                                                                                                          
| |                                                                                                              
| | 10.7b                                                                                                        
| |                                                                                                              
| | 10.7c                                                                                                        
| |                                                                                                              
| | 10.8a                                                                                                        
| |                                                                                                              
| | 10.8c                                                                                                        
| |                                                                                                              
| | 10.8d                                                                                                        
| |                                                                                                              
| | 14.1                                                                                                         
| |                                                                                                              
| | 21.1                                                                                                         
| |                                                                                                              
| | 31.1                                                                                                         
| |                                                                                                              
| | 31.2                                                                                                         
| |                                                                                                              
| | 32.1                                                                                                         
| |                                                                                                              
| | 32.2                                                                                                         

* Indicates
Management Contract or Compensatory Plan.

SIGNATURES

In
accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

|                           | CAPITAL
      FINANCIAL HOLDINGS, INC.                              
|-------------------------- | --------------------------------------------------------------------
|                           |                                                                     
|                           |                                                                     
|Date:
      March 22, 2010 | By /s/
      Bradley P. Wells                                       
|                           | Bradley
      P. Wells                                              
|                           | Chief
      Executive Officer, Chief Financial Officer and President
|                           | (Principal
      Executive & Financial Officer)                     

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

|Date:
      March 22, 2010 | By /s/
      Bradley P. Wells                                       
|-------------------------- | --------------------------------------------------------------------
|                           | Bradley
      P. Wells                                              
|                           | Chief
      Executive Officer, Chief Financial Officer and President
|                           | (Principal
      Executive & Financial Officer)                     



|Date:
      March 22, 2010 | By /s/
      Jeffrey A. Cummer  
|-------------------------- | --------------------------------
|                           | Jeffrey
      A. Cummer         
|                           | Chairman                        
|                           |                                 
|Date:
      March 22, 2010 | By /s/
      Vance A. Castleman 
|                           | Vance A.
      Castleman        
|                           | Director                        
|                           |                                 
|Date:
      March 22, 2010 | By /s/
      Myron D. Thompson  
|                           | Myron D.
      Thompson         
|                           | Director                        
|                           |                                 
|Date:
      March 22, 2010 | By /s/
      Gregory G. Philipps
|                           | Gregory
      G. Philipps       
|                           | Director                        
|                           |                                 
|Date:
      March 22, 2010 | By /s/
      Vaune M. Cripe     
|                           | Vaune M.
      Cripe            
|                           | Director                        

CAPITAL
FINANCIAL HOLDINGS, INC., AND SUBSIDIARY

MINOT, NORTH
DAKOTA

CONSOLIDATED
FINANCIAL STATEMENTS

AS OF

DECEMBER 31,
2009, 2008 AND 2007

AND

REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

CAPITAL
FINANCIAL HOLDINGS, INC., AND SUBSIDIARYTABLE OF CONTENTS

|                                                               | Pages          
|-------------------------------------------------------------- | ---------------
|                                                               |                
|REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  | F-1            
|                                                               |                
|                                                               |                
|CONSOLIDATED
      FINANCIAL STATEMENTS                        |                
|                                                               |                
|Consolidated
      Balance Sheets                              | F-2 -
      F-3
|                                                               |                
|Consolidated
      Statements of Operations                    | F-4            
|                                                               |                
|Consolidated
      Statements of Stockholders' Equity          | F-6            
|                                                               |                
|Consolidated
      Statements of Cash Flows                    | F-7—
      F-8 
|                                                               |                
|Notes
      to Consolidated Financial Statements               | F-9—
      F-24
|                                                               |                
|ADDITIONAL
      INFORMATION                                   |                
|                                                               |                
|Report
      of Independent Registered Public Accounting Firm  | F-25           
|                                                               |                
|Selected
      Financial Data                                  | F-26           
|                                                               |                
|Quarterly
      Results of Consolidated Operations (Unaudited) | F-27           

REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the
Stockholders and Directors ofCapital Financial Holdings, Inc. and
SubsidiaryMinot, North Dakota

We have
audited the accompanying consolidated balance sheets of Capital Financial
Holdings, Inc. and Subsidiary as of December 31, 2009 and 2008 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 2009, 2008 and 2007. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We
conducted our audits in accordance with 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
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated 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 consolidated financial position of Capital
Financial Holdings, Inc. and Subsidiary as of December 31, 2009 and 2008, and
the results of their consolidated operations and their consolidated cash flows
for the years ended December 31, 2009, 2008 and 2007 in conformity with
accounting principles generally accepted in the United States of America.

BRADY, MARTZ
& ASSOCIATES, P.C.Minot, North Dakota USA

March 19,
2010

CAPITAL
FINANCIAL HOLDINGS, INC., AND SUBSIDIARYCONSOLIDATED BALANCE
SHEETSDECEMBER 31, 2009 AND 2008

ASSETS

|                                        | 2009                                                                                            | 2008     
|--------------------------------------- | ----------------------------------------------------------------------------------------------- | ---------
|                                        |                                                                                                 |          
|CURRENT
      ASSETS                    |                                                                                                 |          
|                                        | Cash
      and cash equivalents                                                                 | $        
|                                        | Accounts receivable (net of allowance for doubtful
      accounts of $24,000 for 2009 and 2008) |          
|                                        | Income
      taxes receivable                                                                   |          
|                                        | Deferred
      tax asset—current                                                                |          
|                                        | Current
      portion of long-term receivable                                                   |          
|                                        | Prepaids                                                                                        |          
|                                        |                                                                                                 |          
|                                        | Total
      current assets                                                                      | $        
|                                        |                                                                                                 |          
|                                        |                                                                                                 |          
|LONG-TERM
      ASSETS                  |                                                                                                 |          
|LT
      receivable-MF Division Sale    | $                                                                                               | 762,740  
|Less:
      current portion shown above |                                                                                                 | (254,247)
|                                        |                                                                                                 |          
|Total
      long-term assets            | $                                                                                               | 508,493  
|                                        |                                                                                                 |          
|PROPERTY
      AND EQUIPMENT            | $                                                                                               | 1,711,245
|                                        | Less
      accumulated depreciation                                                             |          
|                                        |                                                                                                 |          
|                                        | Net
      property and equipment                                                                | $        
|                                        |                                                                                                 |          
|OTHER
      ASSETS                      |                                                                                                 |          
|                                        | Goodwill                                                                                        | $        
|                                        | Deferred
      tax asset—non-current                                                            |          
|                                        | Other assets (net of accumulated amortization                                                   |          
|                                        | of $209,422 for 2009 and $194,355 for
  2008)                                                  
|                                        |                                                                                                 |          
|                                        | Total other assets                                                                              | $        
|                                        |                                                                                                 |          
|TOTAL
      ASSETS                      | $                                                                                               | 9,500,728
|                                        |                                                                                                 |          

SEE NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED
BALANCE SHEETS (CONTINUED)

LIABILITIES
AND STOCKHOLDERS' EQUITY

|                                                 | 2009                                                                          | 2008     
|------------------------------------------------ | ----------------------------------------------------------------------------- | ---------
|CURRENT
      LIABILITIES                        |                                                                               |          
|                                                 | Service
      fees payable                                                    | $        
|                                                 | Accounts
      payable                                                        |          
|                                                 | Commissions
      payable                                                     |          
|                                                 | Other
      current liabilities                                               |          
|                                                 | Current
      portion of long-term debt                                       |          
|                                                 |                                                                               |          
|                                                 | Total
      current liabilities                                               | $        
|                                                 |                                                                               |          
|LONG-TERM
      LIABILITIES                      |                                                                               |          
|                                                 | Note
      payable                                                            | $        
|                                                 | Subordinate
      corporate notes                                             |          
|                                                 | Convertible
      promissory note                                             |          
|                                                 | Other
      long-term liabilities                                             |          
|                                                 | Less
      current portion of long-term debt                                  |          
|                                                 |                                                                               |          
|                                                 | Total
      long-term liabilities                                             | $        
|                                                 |                                                                               |          
|TOTAL
      LIABILITIES                          | $                                                                             | 3,006,684
|                                                 |                                                                               |          
|STOCKHOLDERS'
      EQUITY                       |                                                                               |          
|                                                 | Series A Preferred stock—5,000,000 shares authorized,
      $.0001 par value; | $        
|                                                 | 3,050,000
      and 3,050,000 shares issued and outstanding, respectively    
|                                                 | Additional
      paid in capital—series A preferred stock                     |          
|                                                 | Common
      stock—1,000,000,000 shares authorized, $.0001 par value;         |          
|                                                 | 14,455,943
      and 14,455,943 shares issued and outstanding, respectively  
|                                                 | Additional paid in capital—common stock                                       |          
|                                                 | Receivable
      - unearned ESOP shares                                       |          
|                                                 | Accumulated
      deficit                                                     |          
|                                                 |                                                                               |          
|TOTAL
      STOCKHOLDERS' EQUITY                 | $                                                                             | 6,494,044
|                                                 |                                                                               |          
|TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY | $                                                                             | 9,500,728
|                                                 |                                                                               |          

SEE NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS

CAPITAL
FINANCIAL HOLDINGS, INC., AND SUBSIDIARYCONSOLIDATED STATEMENTS OF
OPERATIONSFOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007

|                                                                                             | 2009                                      | 2008      | 2007      
|-------------------------------------------------------------------------------------------- | ----------------------------------------- | --------- | ----------
|OPERATING
      REVENUES                                                                     |                                           |           |           
|                                                                                             | Fee
      income                          | $         | 1,062,492 
|                                                                                             | Commission
      income                   |           | 16,313,213
|                                                                                             | Other
      income                        |           | 527,069   
|                                                                                             | Total
      revenue                       | $         | 17,902,774
|                                                                                             |                                           |           |           
|OPERATING
      EXPENSES                                                                     |                                           |           |           
|                                                                                             | Compensation
      and benefits           | $         | 1,786,179 
|                                                                                             | Commission
      expense                  |           | 15,223,613
|                                                                                             | General
      and administrative expenses |           | 1,008,149 
|                                                                                             | Sub-advisory
      expenses               |           | 28,341    
|                                                                                             | Depreciation and amortization             |           | 100,369   
|                                                                                             | Total
      operating expenses            | $         | 18,146,651
|                                                                                             |                                           |           |           
|OPERATING
      INCOME (LOSS)                                                                | $                                         | (243,877) | $         
|                                                                                             |                                           |           |           
|OTHER
      EXPENSES                                                                         |                                           |           |           
|                                                                                             | Loss on
      investment                  | $         | (31,876)  
|                                                                                             | Interest
      expense                    |           | (212,552) 
|                                                                                             | Net
      other expenses                  | $         | (244,428) 
|                                                                                             |                                           |           |           
|INCOME
      (LOSS) OF CONTINUING OPERATIONS BEFORE INCOME TAX
      BENEFIT
      (EXPENSE) | $                                         | (488,305) | $         
|                                                                                             |                                           |           |           
|INCOME
      TAX BENEFIT (EXPENSE)                                                           |                                           | 191,416   |           
|                                                                                             |                                           |           |           
|NET
      INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS                                       | $                                         | (296,889) | $         
|                                                                                             |                                           |           |           
|DISCONTINUED
      OPERATIONS                                                                |                                           |           |           
|Income
      from operation of discontinued mutual
      fund
      segment (net of tax)     | $                                         | (125,211) | $         
|Goodwill
      impairment expense                                                            |                                           | -         |           
|Gain
      on disposal of mutual fund segment                                                |                                           | 228,402   |           
|Total
      discontinued operations (net of tax)                                             | $                                         | 103,191   | $         
|                                                                                             |                                           |           |           
|NET
      INCOME (LOSS)                                                                      | $                                         | (193,698) | $         
|                                                                                             |                                           |           |           



|NET
      INCOME (LOSS) OF CONTINUING OPERATIONS PER COMMON SHARE:                                |         |            |            |            |            |           
|------------------------------------------------------------------------------------------------- | ------- | ---------- | ---------- | ---------- | ---------- | ----------
|                                                                                                  | Basic   | $          | (.02)      | $          | .01        | $         
|                                                                                                  | Diluted | $          | (.02)      | $          | .01        | $         
|SHARES
      USED IN COMPUTING NET INCOME (LOSS) OF CONTINUING OPERATIONS PER COMMON
      SHARE: |         |            |            |            |            |           
|Basic                                                                                             |         | 14,541,585 |            | 14,519,372 |            | 14,359,162
|Diluted                                                                                           |         | 14,541,585 |            | 17,587,107 |            | 14,359,162
|NET
      INCOME (LOSS) PER COMMON SHARE:                                                         |         |            |            |            |            |           
|Basic                                                                                             | $       | (.02)      | $          | (.25)      | $          | .03       
|Diluted                                                                                           | $       | (.02)      | $          | (.25)      | $          | .03       
|SHARES
      USED IN COMPUTINGNET INCOME (LOSS) PER COMMON SHARE:                                 |         |            |            |            |            |           
|                                                                                                  | Basic   |            | 14,541,585 |            | 14,519,372 |           
|                                                                                                  | Diluted |            | 14,541,585 |            | 14,519,372 |           
|                                                                                                  |         |            |            |            |            |           

SEE NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS

CAPITAL
FINANCIAL HOLDINGS, INC., AND SUBSIDIARYCONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITYFOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007

|                                                                        | Amounts |             | Shares |            
|----------------------------------------------------------------------- | ------- | ----------- | ------ | -----------
|                                                                        |         | 2009        |        | 2008       
|Preferred
      stock andadditional paid-in capital                     |         |             |        |            
|Balance,
      beginning of year                                        | $       | 1,525,000   | $      | 1,525,000  
|Preferred
      stock issued                                            |         | -           |        | -          
|Balance,
      end of year                                              | $       | 1,525,000   | $      | 1,525,000  
|                                                                        |         |             |        |            
|Common
      stock andadditional paid-in capital                        |         |             |        |            
|                                                                        |         |             |        |            
|Balance,
      beginning of year                                        | $       | 10,375,474  | $      | 10,286,346 
|Common
      stock issued                                               |         | 57,097      |        | 90,000     
|Stock
      option valuation                                            |         | -           |        | -          
|Purchase
      of common stock                                          |         | (34,791)    |        | (872)      
|Balance,
      end of year                                              | $       | 10,397,780  |        | 10,375,474 
|                                                                        |         |             |        |            
|Accumulated
      deficit                                               |         |             |        |            
|Balance,
      beginning of year                                        | $       | (5,143,539) |        | (1,542,342)
|Net
      income (loss)                                                 |         | (193,698)   |        | (3,509,697)
|Preferred
      dividends                                               |         | (91,500)    |        | (91,500)   
|Balance,
      end of year                                              | $       | (5,428,737) |        | (5,143,539)
|                                                                        |         |             |        |            
|ESOP
      activity                                                     |         |             |        |            
|Balance,
      beginning of year                                        | $       | (48,685)    |        | (55,379)   
|Repayments
      from ESOP                                              |         | 48,685      |        | 6,694      
|Balance,
      end of year                                              | $       | -           |        | (48,685)   
|                                                                        |         |             |        |            
|Accumulated other
      comprehensive
      income                      |         |             |        |            
|                                                                        |         |             |        |            
|Balance,
      beginning of year                                        | $       | -           |        | -          
|Change
      in unrealized gain (loss) on available-for-sale securities |         | -           |        | -          
|Balance,
      end of year                                              | $       | -           |        | -          
|                                                                        |         |             |        |            
|Total
      stockholders' equity                                        | $       | 6,494,044   |        | 6,708,250  
|                                                                        |         |             |        |            

SEE NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS

CAPITAL
FINANCIAL HOLDINGS, INC., AND SUBSIDIARY

CONSOLIDATED
STATEMENTS OF CASH FLOWS

FOR THE
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007

|                                                                                                            | 2009                                                                | 2008      | 2007     
|----------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | --------- | ---------
|CASH
      FLOWS FROM OPERATING ACTIVITIES                                                                  |                                                                     |           |          
|                                                                                                            |                                                                     |           |          
|Net
      income (loss)                                                                                     | $                                                                   | (193,698) | $        
|Adjustments
      to reconcile net income (loss) to net cash provided (used) by operating
      activities: |                                                                     |           |          
|                                                                                                            |                                                                     |           |          
|                                                                                                            | Depreciation                                                        |           | 85,302   
|                                                                                                            | Amortization                                                        |           | 15,067   
|                                                                                                            | Goodwill
      impairment expense                                   |           | -        
|                                                                                                            | Loss
      on investment                                            |           | 31,876   
|                                                                                                            | Sales
      commissions amortized                                   |           | -        
|                                                                                                            | Compensation
      expense - options                                |           | -        
|                                                                                                            | Gain
      on allocation of ESOP shares                             |           | (34,791) 
|                                                                                                            | Gain
      on disposal of discontinued operations                   |           | (228,402)
|                                                                                                            | Loss
      on disposal of assets                                    |           | 67,860   
|                                                                                                            | Gain
      on sale of available-for-sale securities                 |           | -        
|Effects
      on operating cash flows due to changes in:                                                    |                                                                     |           |          
|                                                                                                            | Accounts
      receivable                                           |           | 316,543  
|                                                                                                            | Income
      taxes receivable                                       |           | (145,321)
|                                                                                                            | Prepaids                                                            |           | 46,975   
|                                                                                                            | Deferred
      sales commissions capitalized, net of CDSC collected |           | -        
|                                                                                                            | Deferred
      tax asset                                            |           | 405,541  
|                                                                                                            | Other
      assets                                                  |           | 31,657   
|                                                                                                            | Service
      fees payable                                          |           | (55,154) 
|                                                                                                            | Accounts
      payable                                              |           | (211,618)
|                                                                                                            | Income
      taxes payable                                          |           | -        
|                                                                                                            | Other
      liabilities                                             |           | (294,744)
|                                                                                                            |                                                                     |           |          
|Net
      cash provided (used) by operating activities                                                      | $                                                                   | (162,907) | $        
|                                                                                                            |                                                                     |           |          
|CASH
      FLOWS FROM INVESTING ACTIVITIES                                                                  |                                                                     |           |          
|                                                                                                            |                                                                     |           |          
|Purchase
      of investment                                                                                | $                                                                   | (76,876)  | $        
|Purchase
      of property and equipment                                                                    |                                                                     | (24,508)  |          
|Proceeds
      from sale of property and equipment                                                          |                                                                     | -         |          
|Purchase
      of available-for-sale securities                                                             |                                                                     | -         |          
|Proceeds
      from sale of available-for-sale securities                                                   |                                                                     | -         |          
|Proceeds
      on sale of mutual fund division                                                              |                                                                     | 1,525,480 |          
|Purchase
      of goodwill                                                                                  |                                                                     | -         |          
|                                                                                                            |                                                                     |           |          
|Net
      cash provided (used) by investing activities                                                      | $                                                                   | 1,424,096 | $        
|                                                                                                            |                                                                     |           |          
|                                                                                                            |                                                                     |           |          

SEE NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)

|                                                                          | 2009                                                                    | 2008        | 2007     
|------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ----------- | ---------
|CASH
      FLOWS FROM FINANCING ACTIVITIES                                |                                                                         |             |          
|                                                                          |                                                                         |             |          
|Issuance
      of common stock                                            | $                                                                       | -           | $        
|Short-term
      borrowing                                                |                                                                         | -           |          
|Repayments
      from ESOP                                                |                                                                         | 48,685      |          
|Redemption
      of common stock                                          |                                                                         | -           |          
|Reduction
      of long-term liability                                    |                                                                         | (63,450)    |          
|Reduction
      of short-term borrowing                                   |                                                                         | -           |          
|Dividends
      paid                                                      |                                                                         | (91,500)    |          
|Reduction
      of notes payable                                          |                                                                         | (26,294)    |          
|Redemption
      of commercial notes                                      |                                                                         | -           |          
|Reduction
      of subordinate corporate notes                            |                                                                         | (2,000,000) |          
|                                                                          |                                                                         |             |          
|Net
      cash used by financing activities                               | $                                                                       | (2,132,559) | $        
|                                                                          |                                                                         |             |          
|NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                | $                                                                       | (871,370)   | $        
|CASH AND
      CASH EQUIVALENTS
      AT
      BEGINNING OF YEAR          |                                                                         | 2,840,108   |          
|CASH
      AND CASH EQUIVALENTS
      AT
      END OF YEAR                | $                                                                       | 1,968,738   | $        
|                                                                          |                                                                         |             |          
|SUPPLEMENTARY DISCLOSURE OF
      CASH FLOW INFORMATION                   |                                                                         |             |          
|Cash
      paid during the year for:                                      |                                                                         |             |          
|                                                                          | Interest                                                                | $           | 382,135  
|                                                                          | Income
      taxes                                                      | $           | 276,768  
|SUPPLEMENTAL SCHEDULE OF
      NONCASH INVESTING AND FINANCING ACTIVITIES |                                                                         |             |          
|                                                                          |                                                                         |             |          
|                                                                          | Change
      in unrealized gain (loss) on available-for-sale securities | $           | -        
|                                                                          | Increase
      in long-term receivable                                  | $           | 762,740  
|                                                                          | Increase
      (decrease) in goodwill                                   | $           | (109,140)
|                                                                          | Increase
      (decrease) in other long-term liabilities                | $           | (166,237)
|                                                                          | Increase
      in common stock                                          | $           | 57,097   
|                                                                          | Compensation
      expense—options                                      | $           | -        
|                                                                          | Preferred
      stock dividends declared                                | $           | 22,875   
|                                                                          | Goodwill
      impairment expense                                       | $           | -        
|                                                                          |                                                                         |             |          

SEE NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS

CAPITAL
FINANCIAL HOLDINGS, INC., AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL
STATEMENTSDECEMBER 31, 2009, 2008 AND 2007

NOTE
1—NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

The nature of operations
and significant accounting policies of Capital Financial Holdings, Inc.,
(formerly known as Integrity Mutual Funds, Inc.) and it's Subsidiary are
presented to assist in understanding the Company's consolidated financial
statements.

Nature of
operations—Capital Financial Holdings, Inc., and its Subsidiary (the
"Company") was established in September 1987 as a North Dakota corporation. The
Company derives its revenue from investment advisory fees as well as commissions
earned from sales of mutual funds, insurance products, and various other
securities through it's Subsidiary Capital Financial Services, Inc.
Headquartered in Minot, North Dakota, the Company is marketing its services
throughout the United States.

Principles of
consolidation—The consolidated financial statements include the accounts of
Capital Financial Holdings, Inc., and its wholly owned subsidiary, Capital
Financial Services, Inc. ("CFS"). All significant inter-company transactions and
balances have been eliminated in the accompanying consolidated financial
statements.

Concentrations—Capital
Financial Holdings, Inc. derives the majority of its revenues and net income
from sales of mutual funds, insurance products, and various other securities
through CFS, the Company's broker-dealer subsidiary. The company's revenues are
largely dependent on the sales activity of registered representatives operating
as independent contractors. Accordingly, fluctuations in financial markets and
the composition of assets under management impact revenues and results of
operations.

Use of
estimates—The preparation of consolidated 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 disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Revenue
recognition—Commission income and the related clearing expenses are recorded
on a trade-date basis as securities transactions occur.

Stock-based
compensation—In December of 2005, the Company adopted the Financial
Accounting Standards Board ("FASB") accounting and reporting standards for
share-based payment which requires the measurement and recognition of
compensation expense for all share-based payment awards made to employees and
directors, including employee stock options, based on estimated fair values.

Cash and cash
equivalents—The Company's policy is to record all liquid investments with
original maturities of three months or less as cash equivalents. Liquid
investments with maturities greater than three months are recorded as
investments.

Accounts
receivable—The Company's receivables consist primarily of concessions
related to registered representative activity. Management evaluates the need for
an allowance for doubtful accounts by identifying troubled accounts and using
historical experience. Accounts receivable are written off when management deems
them uncollectible. Recoveries of accounts receivable previously written off are
recorded when received. The Company does not charge interest on its
receivables.

Goodwill—The
Company accounts for goodwill under the FASB accounting and reporting standards
for goodwill and other intangible assets, which requires that goodwill and
indefinite-lived other intangible assets deemed to have an indefinite useful
life be assessed annually for impairment using fair value measurement
techniques.

Property and
equipment—Property and equipment is stated at cost less accumulated
depreciation computed on straight-line and accelerated methods over estimated
useful lives as follows:

Equipment
    5-7
      yearsBuilding
    40
      years


Other assets—Other
assets include debt issue costs and other miscellaneous assets. Debt issue costs
are amortized over the life of the corresponding debt.

Advertising—Costs
of advertising and promotion are expensed as incurred. Advertising and promotion
costs aggregated $27,903 in 2009, $116,303 in 2008 and $79,043 in 2007.

Earnings per common
share—Basic earnings per common share was computed using the weighted
average number of shares outstanding of 14,541,585 in 2009, in 14,519,372 2008
and 14,359,162 in 2007. Diluted earnings per common share is computed using the
weighted average number of shares outstanding adjusted for share equivalents
arising from unexercised stock warrants, stock options, and written put options.
The weighted average shares outstanding used in computing diluted earnings per
common share were 14,541,585 in 2009, in 14,519,372 2008 and 18,384,834 in
2007.

Income taxes—The
Company files a consolidated income tax return with its wholly owned subsidiary.
The amount of deferred tax benefit or expense is recognized as of the date of
the consolidated financial statements, utilizing currently enacted tax laws and
rates. Deferred tax benefits or expenses are recognized in the financial
statements for the changes in deferred tax assets between years. The Company's
policy is to evaluate the likelihood that its uncertain tax positions will
prevail upon examination based on the extent to which those positions have
substantial support within the Internal Revenue Code and Regulations, Revenue
Rulings, court decisions, and other evidence. It is the opinion of management
that the Company has no significant uncertain tax positions that would be
subject to change upon examination. The federal income tax returns of the
Company are subject to examination by the IRS, generally for three years after
they were filed.

Reclassification—Certain
amounts from 2007 and 2008 have been reclassified to conform to the 2009
presentation. These reclassifications had no effect on the Company's net
income.

Recent Accounting
Developments—In July 2009, the FASB launched the FASB Accounting Standards
Codification (the Codification) as the single source of Generally Accepted
Accounting Principals ("GAAP"). While the Codification did not change GAAP, it
introduced a new structure to the accounting literature and changed references
to accounting standards and other authoritative accounting guidance. The
Codification was effective for the firm for the third quarter of fiscal 2009 and
did not have an effect on the Company's financial condition, results of
operations or cash flows.

In December 2007, the FASB
issued amended accounting principles related to business combinations, which
changed the accounting for transaction costs, certain contingent assets and
liabilities, and other balances in a business combination. In addition, in
partial acquisitions, when control is obtained, the amended principles require
that the acquiring company measure and record all of the target's assets and
liabilities, including goodwill, at fair value as if the entire target company
had been acquired. These amended accounting principles applied to the Company's
business combinations beginning in the first quarter of fiscal 2009. Adoption
did not affect the Company's financial condition, results of operations or cash
flows, but may have an effect on accounting for future business
combinations.

In December 2007, the FASB
issued amended accounting principles related to noncontrolling interests in
consolidated financial statements, which require that ownership interests in
consolidated subsidiaries held by parties other than the parent (i.e.,
noncontrolling interests) be accounted for and presented as equity, rather than
as a liability or mezzanine equity. These amended accounting principles were
effective for the Company's beginning in the first quarter of fiscal 2009.
Adoption did not have a material effect on the Company's financial condition,
results of operations or cash flows.

In June 2008, the FASB
issued amended accounting principles related to determining whether an
instrument (or embedded feature) is indexed to an entity's own stock. These
amended accounting principles provide guidance about whether an instrument (such
as the Company's outstanding common stock warrants) should be classified as
equity and not subsequently recorded at fair value. The Company adopted these
amended accounting principles in the first quarter of fiscal 2009. Adoption did
not affect the Company's financial condition, results of operations or cash
flows.

In April 2009, the FASB
issued amended accounting principles related to recognition and presentation of
other-than-temporary impairments. These amended principles prescribe that only
the portion of an other-than-temporary impairment on a debt security related to
credit loss is recognized in current period earnings, with the remainder
recognized in other comprehensive income, if the holder does not intend to sell
the security and it is more likely than not that the holder will not be required
to sell the security prior to recovery. Previously, the entire
other-than-temporary impairment was recognized in current period earnings. The
Company adopted these amended accounting principles in the second quarter of
fiscal 2009. Adoption did not have a material effect on the Company's financial
condition, results of operations or cash flows.

In January 2010, the FASB
issued ASU No. 2010-06, "Fair Value Measurements and Disclosures (Topic
820)—Improving Disclosures about Fair Value Measurements." ASU No. 2010-06
provides amended disclosure requirements related to fair value measurements. ASU
No. 2010-06 is effective for financial statements issued for reporting periods
beginning after December 15, 2009 for certain disclosures and for reporting
periods beginning after December 15, 2010 for other disclosures. Since these
amended principles require only additional disclosures concerning fair value
measurements, adoption will not affect the Company's financial condition,
results of operations or cash flows.

NOTE
2—CASH AND CASH EQUIVALENTS

Cash and cash equivalents
at December 31, 2009 and 2008 consist of the following:

Current
      Maturity
    Current
      Interest RateAmount2009
    2008Cash
      in checking
    Demand
    -
    $
    852,483
    $
    2,830,231Cash
      in savings
    Demand
    0.50%
    
    1,116,255
    
    9,877$
    1,968,738
    $
    2,840,108


NOTE
3—PROPERTY AND EQUIPMENT

Property and equipment at
December 31, 2009 and 2008, consists of the following:

2009
    2008Office
      furniture and equipment
    $
    301,631
    $
    892,919Building
      and land
    
    1,409,614
    
    1,409,456$
    1,711,245
    $
    2,302,375Accumulated
      depreciation and amortization
    
    (536,395)
    
    (998,871)$
    1,174,850
    $
    1,303,504


Depreciation expense
totaled $85,302, $98,667 and $90,050 in 2009, 2008 and 2007, respectively.

NOTE
4—BUSINESS ACQUISITIONS

Purchase
Combinations—

On April 22, 2005, the
Company acquired the management rights to the IPS Millennium Fund and the IPS
New Frontier Fund from IPS Advisory, Inc. ("IPS Advisory"), and merged them into
a new Integrity Fund called the Integrity Growth & Income Fund. The two
funds had combined assets of approximately $57 million at the time of
acquisition. The purchase agreement called for total consideration of
approximately 656,000 common shares of the Company. The Company provided IPS
Advisory with 250,000 common shares upon closing. The remaining consideration of
approximately 406,000 common shares, which was subject to adjustment based on
retention of assets in the fund, was to be issued as follows: 203,000 common
shares at the one-year anniversary of the closing date, and 203,000 common
shares at the two-year anniversary of the closing date. The shares are subject
to a put option, which will allow the holders of the shares to put them back to
the Company at a price equal to the market price of the Company's shares as of
the closing date, which was $.36 per share. The put option is exercisable with
respect to one-third of the shares per year starting on the third anniversary of
the closing date. The Company will also provide IPS Advisory with a stock option
incentive bonus based on growth in assets in the Fund based on the following
schedule: 150,000 options on the Company's common shares when assets of the Fund
reach $100 million and 150,000 options on the Company's common shares when the
assets of the Fund reach $200 million. The options will have a strike price of
$.65 per share and mature 10 years from the closing date. The securities issued
in connection with this transaction will be issued on a private placement basis.
In April of 2006, the one-year anniversary payment of 158,603 common shares was
made, which reflected the assets of the acquired funds at the one-year
anniversary. In April of 2007, the two-year anniversary payment of 138,797
common shares was made, which reflected the assets of the acquired funds at the
two-year anniversary. As of December of 2009, the liability relating to this
acquisition was valued at $49,967.

On March 7, 2007, the
Company acquired certain assets of United Heritage Financial Services, Inc.
(UHFS), a wholly-owned subsidiary of United Heritage Financial Group, Inc., of
Meridian, Idaho. UHFS had approximately 120 independent registered
representatives who became part of Capital Financial Services, Inc. (CFS), the
retail brokerage division of the Company. Pursuant to the agreement, in exchange
for receipt of the assets of UHFS set forth above, the Company agreed to issue
500,000 restricted IMFD shares and pay a deferred earn out cash payment totaling
a maximum of $900,000, to be paid in 21 quarterly installments. On March 7,
2007, the Company issued 500,000 restricted common shares to United Heritage
Financial Group, Inc. As a result of this issuance of shares, $175,000 was
recorded by the Company as goodwill relating to the purchase of the assets. As
of December 31, 2009, the Company had made eleven quarterly installment payments
totaling $253,871. The liability relating to this acquisition is valued at
$425,190 as of December 31, 2009, and has also been recorded by the Company as
goodwill. As of December 31, 2009, the total goodwill recorded relating to this
acquisition was $952,889.

NOTE
5—LONG-TERM DEBT

Long-term
debt at December 31, 2009 and 2008 was as follows:

Current
      PortionRate
    2009
    2008Long-term
      debt:First
      Western Bank
    6.50%
    
    30,085
    
    307,902
    
    334,196Subordinate
      corporate notes
    9.25%
    
    -
    
    -
    
    2,000,000Convertible
      promissory note
    6.50%
    
    -
    
    950,000
    
    950,000Future
      payments on acquisitions
    
    
    248,032
    
    475,157
    
    704,844Totals
    
    $
    278,117
    $
    1,733,059
    $
    3,989,040


Summaries
of the terms of the current long-term debt agreements follow:

First Western
Bank—In June of 1999, the Company converted its outstanding balance of
$500,000 borrowed on its bank line-of-credit to long-term debt. The debt was
refinanced in September of 2009 and currently carries an interest rate of 6.50%,
with monthly payments of $4,105. On October 1, 2014, the remaining balance will
be due in full.

Subordinate Commercial
Notes—The Company approved a $1 million intra-state subordinate commercial
note offering limiting the sale in North Dakota, to North Dakota residents only.
The subordinate commercial notes did not represent ownership in the Company. The
subordinate commercial notes carried an interest rate of 9% per annum, payable
semi-annually. On June 30, 2008, the subordinate commercial notes matured and
the liability was paid in full.

Subordinate Corporate
Notes—The Company approved a $2 million intra-state subordinate corporate
note offering limiting the sale in North Dakota, to North Dakota residents only.
The subordinate corporate notes did not represent ownership in the Company. On
June 23, 2009 and July 30, 2009 redemptions were processed, totaling $200,000
and $300,000 respectively. On September 30, 2009 the Company elected pursuant to
the terms of its Corporate Note obligations to call and prepay its remaining
$1,500,000 Corporate Note obligation. This amount consists of all of outstanding
Corporate Notes originally due January 1, 2011. By prepaying the Corporate Notes
from available cash, the current asset position of the Company was reduced by
$1,591,613 and the Corporate Note liability of the same amount was eliminated.
There was no prepayment charge or other cost to the Company associated with the
prepayment.

Convertible Promissory
Note—In October of 2006, the Company issued a $950,000 convertible
promissory note to PawnMart, Inc., in a private placement. The unsecured note
carries an interest rate of 6.5% per annum, payable semi-annually, and matures
on October 15, 2016. The holder of the note has the right, at any time after
October 15, 2009, to convert the note in whole or in part, into $0.0001 par
value common shares of the Company. The conversion price shall be equal to $0.50
per share. The entire principal amount of this note shall be automatically
converted into common shares at the conversion price on October 15, 2016.

The
aggregate amount of required future payments on the above long-term debt at
December 31, 2009, is as follows:

Year
      ending December 31,2010
    $
    297,2922011
    
    229,2602012
    
    96,3852013
    
    49,260Thereafter
    
    1,060,862Total due
    $
    1,733,059


NOTE
6—INCOME TAXES

The provision for income
taxes is based on earnings before income taxes reported for financial statement
purposes and consisted of the following:

2009
    2008
    2007Current
      income tax benefit (expense):Federal
    $
    -
    $
    (329,803)
    $
    (207,400)State
    
    (13,096)
    
    (86,812)
    
    (26,352)Total
      current tax benefit (expense)
    $
    (13,096)
    $
    (416,615)
    $
    (233,752)Deferred
      tax benefit (expense):Federal
    $
    181,198
    $
    239,724
    $
    738,122State
    
    23,314
    
    30,845
    
    94,973Total
      deferred tax benefit (expense)
    $
    204,512
    $
    270,569
    $
    833,095Total
      provision for income taxbenefit
      (expense)
    $
    191,416
    $
    (146,046)
    $
    599,343


Deferred taxes arise because
of different tax treatment between financial statement accounting and tax
accounting, known as "temporary differences." The Company records the tax effect
of these temporary differences as "deferred tax assets" (generally items that
can be used as a tax deduction or credit in future periods) and "deferred tax
liabilities" (generally items for which the Company has received a tax deduction
and has not yet been recorded in the consolidated statement of operations).

Deferred tax assets
(liabilities) were comprised of the following:

2009
    2008
    2007Deferred
      tax asset:Net
      operating and capital loss carry forwards
    $
    52,139
    $
    20,767
    $
    37,892Goodwill
      impairment adjustment
    
    -
    
    995,920
    
    -Stock
      option compensation
    
    583,374
    
    583,374
    
    583,374Total
      deferred tax assets
    $
    635,513
    $
    1,600,061
    $
    621,266Deferred tax liabilities:Accumulated
      depreciation
    $
    37,502
    $
    74,545
    $
    62,624Accumulated
      amortization
    
    78,224
    
    540,371
    
    413,923Total
      deferred tax liabilities
    $
    115,726
    $
    614,916
    $
    476,547Net
      deferred tax asset
    $
    519,787
    $
    985,145
    $
    144,719




Net
      deferred tax asset—current
    $
    45,032
    $
    -
    $
    -Net
      deferred tax asset—non-current
    $
    474,755
    $
    985,145
    $
    144,719Net
      deferred tax asset
    $
    519,787
    $
    985,145
    $
    144,719


A reconciliation of the
difference between the expected income tax benefit (expense) computed at the
U.S. statutory income tax rate of 35% and the Company's income tax expense is
shown in the following table:

2009
    2008
    2007Federal
      tax benefit (expense) at statutory rates
    $
    (105,000)
    (35%)
    $
    1,360,000
    35%
    $
    (356,000)
    (35%)State tax
      benefit (expense), net of federal tax effect
    
    (15,000)
    (5%)
    
    194,000
    5%
    
    (51,000)
    (5%)Tax
      impact of goodwill impairment expense
    
    -
    -
    
    (1,086,621)
    (28%)
    
    -
    -Net tax
      impact of discontinued operations
    
    311,416
    104%
    
    (522,816)
    (14%)
    
    1,034,045
    101%Other
    
    -
    -
    
    (90,609)
    (2%)
    
    (27,702)
    (3%)Actual tax benefit (expense)
    $
    191,416
    64%
    $
    (146,046)
    (4%)
    $
    599,343
    58%


Included in "other" are
amounts separately allocated to stockholders' equity to recognize the related
tax effect of the change in net unrealized gain or loss on securities available
for sale, ESOP plan activity, and effects of stock-based employee compensation
and other adjustments for the years ended December 31, 2009, 2008 and 2007.

NOTE
7—STOCK WARRANTS, STOCK SPLITS, AND STOCK OPTIONS

The Company has authorized
2,100,000 perpetual warrants to certain organizers, directors, officers,
employees and shareholders of the Company. All of these warrants were issued
between 1987 and 1990 and were accounted for in accordance with the provisions
of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees. No compensation expense was recorded for these warrants as
the exercise price exceeded the market price of the stock at the date of issue.
The Company plans to continue to apply APB Opinion No. 25 in accounting for
these warrants. These warrants, at the date of issue, allowed for the purchase
of shares of stock at $2.00 per share. The exercise prices of these warrants
were adjusted to reflect stock splits of 2 for 1 in 2002, and 11 for 10 in 1990
and 1989. 2,000 warrants (adjusted for the 2 for 1 stock split in 2002) were
exercised in 1997, leaving an outstanding balance of 2,098,000 warrants as of
December 31, 2009.

In addition to the
warrants discussed above, the Company has also issued warrants to purchase
600,000 common shares in March of 2004 at an exercise price of $.60 per share.
These options are considered to be fully vested and have a contractual
expiration date of September 1, 2010. 100,000 warrants were exercised in 2007,
leaving an outstanding balance of 500,000 warrants as of December 31, 2009.

The Company has entered
into employment agreements with two key employees of the Company. Upon execution
of these employment agreements, a one-time granting of stock options took
effect. These options are fully vested and have a perpetual life. Each
employment contract stated the strike price for which options were granted. In
addition, the contracts granted options when the employees reach specified
performance goals. The employment contracts contain severance packages, buyout
clauses, or other forms of commitments. None of these commitments require
payment of more than one year's salary.

The Company has also
issued options to directors as well as various other employees. The options
granted to employees were granted in connection with reaching certain
performance goals. These options are considered to be fully vested and have a
contractual life of ten years.

As part of the acquisition
of Capital Financial Services, Inc., 500,000 options were granted in January of
2002 at a strike price of $.50. These options are fully vested and expire ten
years from the acquisition date.

The Company plans to issue
additional common shares if any of its outstanding options are exercised. There
have been no options exercised to date.

In December of 2005, the
Company adopted the FASB accounting and standards for fair value recognition
provisions for stock-based employee compensation. Total compensation costs and
deferred tax benefits recognized for stock-based compensation awards were as
follows:

2009
    
    2008
    
    2007Compensation
      costs
    $
    -
    $
    -
    $
    77,700Less:
      deferred tax benefit
    
    -
    
    -
    
    30,440Compensation
      costs, net of taxes
    $
    -
    $
    -
    $
    47,260


The fair value of each option
was estimated on the date of the grant using the Black-Scholes option-pricing
model. The expected life of options granted range from 5 years to 10 years. The
following are the weighted average assumptions for each year:

2009
    2008
    2007Risk-free
      interest rate
    -
    -
    4.59%Expected
      dividend yield
    -
    -
    0%Expected
      stock price volatility
    -
    -
    80%Expected
      life of options
    -
    -
    6
      years


Option activity for the last
three years was as follows:

Number
      of Options
    Weighted
      Average Exercise Price per Share
    Weighted
      Average Grant Date Fair Value
    Aggregate
      Intrinsic ValueOutstanding
      on January 1, 2007
    5,758,113
    $
    .53
    $
    .27
    $
    608,000Granted
    130,000
    
    .86
    
    .60Exercised
    -
    
    -
    
    -Canceled
    -
    
    -
    
    -Outstanding
      on December 31, 2007
    5,888,113
    $
    .54
    $
    .28
    $
    1,081,950Granted
    -
    
    -
    
    -Exercised
    -
    
    -
    
    -Canceled
    -
    
    -
    
    -Outstanding
      on December 31, 2008
    5,888,113
    $
    .54
    $
    .28
    $
    -Granted
    -
    
    -
    
    -Exercised
    -
    
    -
    
    -Canceled
    -
    
    -
    
    -Outstanding
      on December 31, 2009
    5,888,113
    $
    .54
    $
    .28
    $
    -


Exercisable options at the end
of 2009, 2008, and 2007 were 5,888,113, respectively. The following table
summarizes information concerning options outstanding and exercisable as of
December 31, 2009:

Range
      of Exercise Prices
    Number
      Outstanding
    Weighted
      Average Remaining Contractual Life (Years)
    Weighted
      Average Exercise Price
    Number
      Exercisable
    Weighted
      Average Exercise Price$ .00 to $ .49
    1,380,000
    Perpetual
    $
    .42
    1,380,000
    $
    .42$ .50 to $ .99
    3,935,000
    6*
    $
    .52
    3,935,000
    $
    .52$1.00 to $1.50
    573,113
    6*
    $
    1.01
    573,113
    $
    1.01$ .00 to $ 1.50
    5,888,113
    6*
    $
    .54
    5,888,113
    $
    .54


*Excludes options with
a perpetual life

NOTE
8—EMPLOYEE BENEFIT PLANS

The Company sponsors a
401(K) plan for all its employees. Effective January 1, 2005, the Company
implemented a match of up to 4% of employee deferrals. Plan expenses paid for by
the Company were $10,639, $11,807, and $10,070 for the years ended December 31,
2009, 2008, and 2007, respectively. The matching contributions paid by the
Company were $77,820, $105,669 and $110,194 for the years ended December 31,
2009, 2008 and 2007, respectively.

The Company established an
employee stock ownership plan ("ESOP") effective January 1, 1999. Pursuant to
the ESOP, each year the Company will determine the amount to contribute to the
plan. Contributions are made at the discretion of the Board of Directors. To be
eligible to participate in the plan, an employee must have completed one year of
service and have attained age 21.

During 2001, the ESOP
purchased 208,000 shares of the Company's common stock, at a weighted average
price of $.48 per share. The purchase was funded with a loan of $100,000 from
the Company, which is collateralized by the unallocated Company shares owned by
the ESOP. As of December 31, 2009 this loan has been paid in full and all shares
purchased by this loan have been allocated to employees.

Total ESOP contribution
expense recognized was $18,231, $8,813 and $11,800 for the years ended December
31, 2009, 2008, and 2007, respectively.

NOTE
9—NET CAPITAL REQUIREMENTS

The Company's
broker-dealer subsidiary Capital Financial Services, Inc. is a member firm of
the Financial Industry Regulatory Authority (FINRA) and is registered with the
Securities and Exchange Commission (SEC) as a broker-dealer. Under the Uniform
Net Capital Rule (Rule 15c3-1 under the Securities Exchange Act of 1934), the
subsidiary is required to maintain a minimum net capital and a ratio of
aggregate indebtedness to net capital, as defined, of not more than 15 to 1. At
December 31, 2009, this subsidiary had net capital of $479,353; a minimum net
capital requirement of $89,772; excess net capital of $389,581 and a ratio of
aggregate indebtedness to net capital of 2.81 to 1. This subsidiary is exempt
from the reserve requirements of Rule 15c3-3.

NOTE
10—COMMITMENTS AND CONTINGENCIES

The Company entered into a
three-year lease for office space in Huntington, New York on June 1, 2004. The
monthly lease payments were $1,500 for the first two years, and $1,545 for the
third year. The lease expired on May 31, 2007, and the Company no longer leases
office space in Huntington, New York. Total rent expense was $0, $0, and $6,180
for the years ended December 31, 2009, 2008, and 2007, respectively.

The Company has various
leases for office equipment that expire over the next several years through
2012. The total rent expense for these leases was $42,700, $44,000, and $34,000
for December 31, 2009, 2008 and 2007 respectively.

The following is a
schedule by years of future minimum rental payments on operating leases as of
December 31, 2009.

Years
      ending December 31,2010
    $
    23,4962011
    
    22,5572012
    
    1,3302013
    
    -Total
      minimum future rental payments
    $
    47,383


NOTE
11—GOODWILL

The changes in the
carrying amount of goodwill for the years ended December 31, 2009, 2008, and
2007, are as follows:

Capital
      Financial Holdings, Inc.
    Broker-Dealer
      Services
    TotalBalance as of January 1, 2007
    $
    7,314,049
    $
    2,478,752
    $
    9,792,801Goodwill acquired during the period
    
    -
    
    1,156,320
    
    1,156,320Goodwill acquisition price adjustment during the period
      (see Note 4)
    
    (1,443)
    
    (35,130)
    
    (36,573)Impairment losses
    
    -
    
    -
    
    -Balance as of December 31, 2007
    $
    7,312,606
    $
    3,599,942
    $
    10,912,548Goodwill acquired during the period
    
    -
    
    -
    
    -Goodwill acquisition price adjustment during the period
      (see Note 4)
    
    -
    
    (59,161)
    
    (59,161)Impairment losses
    
    (5,312,606)
    
    -
    
    (5,312,606)Balance as of December 31, 2008
    $
    2,000,000
    $
    3,540,781
    $
    5,540,781Goodwill
      acquired during the period
    
    -
    
    -
    
    -Goodwill
      acquisition price adjustment during the period (see Note 4)
    
    -
    
    (109,140)
    
    (109,140)Reduction
      in Goodwill as a result of mutual fund segment sale
    
    (2,000,000)
    
    -
    
    (2,000,000)Balance
      as of December 31, 2009
    $
    -
    $
    3,431,641
    $
    3,431,641


The Company tests goodwill for
impairment annually during the second quarter of each fiscal year. If an event
occurs or circumstances change that would more likely than not reduce the fair
value of a reporting unit below its carrying value, goodwill will be evaluated
for impairment between annual tests.

In December of 2008, as a
result of ongoing volatility in the financial industry and a significant
reduction in assets under management in the Company's sponsored mutual funds,
the Company determined it was necessary to perform an interim goodwill
impairment test. At that time the Company recorded a non-cash goodwill
impairment loss of $5,312,606 in the Mutual Fund Services segment. The fair
value of that reporting unit was estimated by using an independent third-party
appraisal.

NOTE
12—FAIR VALUE DISCLOSURES

FASB ASC 820 defines fair
value, establishes a framework for measuring fair value, and establishes a fair
value hierarchy which prioritizes the inputs to valuation techniques. Fair value
is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date. A fair value measurement assumes that the transaction to sell
the asset or transfer the liability occurs in the principal market for the asset
or liability or, in the absence of a principal market, the most advantageous
market. Valuation techniques that are consistent with the market, income or cost
approach, as specified by FASB ASC 820, are used to measure fair value.

The fair value hierarchy
prioritizes the inputs to valuation techniques used to measure fair value in
three broad levels:

| |   |                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | Level
      1 inputs are quoted prices (unadjusted) in active markets for identical
      assets or liabilities the Company has the ability to access.                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                     
| | • | Level
      2 inputs are inputs (other than quoted prices included within level 1)
      that are observable for the asset or liability, either directly or
      indirectly.                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                     
| | • | Level
      3 are unobservable inputs for the asset or liability and rely on
      management's own assumptions about the assumptions that market
      participants would use in pricing the asset or liability. (The
      unobservable inputs should be developed based on the best information
      available in the circumstances and may include the Company's own
    data.)

The application of valuation
techniques applied to similar assets and liabilities has been consistently
applied. The following is a description of the valuation methodologies used for
instruments measured at fair value:

Certain assets and
liabilities are measured at fair value on a nonrecurring basis; that is, the
instruments are not measured at fair value on an ongoing basis but are subject
to fair value adjustments in certain circumstances (for example, when there is
evidence of impairment). The following table presents the assets and liabilities
carried on the balance sheet by caption and by level within the codification
hierarchy (as described above) as of December 31, 2008, for which a nonrecurring
change in fair value has been recorded during the year ended December 31,
2008.

Carrying
      Value at December 31, 2008
    Year
      ended December 31, 2008Total
    Level
      1
    Level
      2
    Level
      3
    Total
      LossesGoodwill
    $
    2,000,000
    $
    -
    $
    -
    $
    2,000,000
    $
    5,312,606


Losses of $5,312,606 represent
an impairment charge related to the goodwill of the Mutual Fund Services
segment. The fair value of the goodwill was estimated by utilizing an
independent third-party appraisal (See Note 11—Goodwill).

On February 12, 2009, CFS
entered into a settlement agreement with a client, which resulted in CFS
purchasing the client's investment in the Omega 2007 Drilling Program 1, LP.
This limited partnership carries a "presentment" feature which will allow CFS to
sell the investment to the General Managing Partner of the limited partnership;
and this feature will become available three years from the date of the first
income distribution, which was December of 2007. The fair market value of this
$76,876 investment is estimated to be $45,000; however this amount could
fluctuate with the prices of oil and natural gas. CFS will continue to carry the
investment on its books at the $45,000 value until the "presentment" feature can
be utilized.

Carrying
      Value at December 31, 2009
    Year
      ended December 31, 2009Total
    Level
      1
    Level
      2
    Level
      3
    Total
      LossesOther
      Investment
    $
    76,876
    $
    -
    $
    -
    $
    45,000
    $
    31,876


The loss of $31,876 represents
the original purchase price of the investment minus its current fair market
value.

Reconciliation
      of Level 3 Balances:Balance
      1-1-09
    $
    2,000,000Sale of
      goodwill as part of the sale of the mutual fund segment
    
    (2,000,000)Purchase
      of other investment
    
    76,876Impairment
      loss on other investment
    
    (31,876)Balance
      12-31-09
    $
    45,000


NOTE
13—EARNINGS PER SHARE

Basic earnings per share
are computed by dividing earnings available to common stockholders by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share reflect per share amounts that would have resulted if
dilutive potential common stock had been converted to common stock. The
following reconciles amounts reported in the financial statements:

For the
      Year Ended December 31, 2009Income
      (Numerator)
    Shares
      (Denominator)
    
    Per
      Share AmountLoss from
      continuing operations
    $
    (296,889)Less:
      preferred stock dividends
    
    (91,500)Loss
      available to common stockholders—Basic earnings per
    share
    
    (388,389)
    14,541,585
    
    (.02)Effect of
      dilutive securities:Options
      and warrants
    
    -
    -Loss
      available to common stockholders—Diluted earnings per
    share
    $
    (388,389)
    14,541,585
    
    (.02)


For the
      Year Ended December 31, 2008Income
      (Numerator)
    Shares
      (Denominator)
    
    Per
      Share AmountIncome
      from continuing operations
    $
    226,520Less:
      preferred stock dividends
    
    (91,500)Income
      available to common stockholders—Basic earnings per share
    
    135,020
    14,519,372
    $
    .01Effect of
      dilutive securities:Options
      and warrants
    
    -
    17,735Preferred
      stock dividends
    
    91,500
    3,050,000Income
      available to common stockholders—Diluted earnings per share
    $
    226,520
    17,587,107
    $
    .01


For the
      Year Ended December 31, 2007Income
      (Numerator)
    Shares
      (Denominator)
    
    Per
      Share AmountLoss from
      continuing operations
    $
    (929,592)Less:
      preferred stock dividends
    
    (91,500)Loss
      available to common stockholders— Basic earnings per share
    
    (1,021,092)
    14,359,162
    $
    (.07)Effect of
      dilutive securities:Options
      and warrants
    
    -
    -Convertible
      promissory note
    
    -
    -Loss
      available to common stockholders— Diluted earnings per share
    $
    (1,021,092)
    14,359,162
    $
    (.07)


Options and warrants to
purchase 8,486,113 common shares at exercise prices between $0.35 and $1.43 were
outstanding at December 31, 2009, but were not included in the computation of
earnings per share for the year ended December 31, 2009. The options and
warrants were not included in the calculation because their exercise prices were
greater than the average market price of the common shares during the
period.

In December of 2003, the
Company issued 3,050,000 Series A preferred shares for total proceeds of
$1,525,000. The holders of the Series A preferred shares are entitled to receive
cumulative dividends at a rate of 6% per year, payable quarterly. These
dividends are in preference and priority to any payment of any dividend on the
Company's common shares. The holders of the Series A preferred shares are also
entitled to a liquidation preference of $.50 per share. The Series A preferred
shares are convertible to the Company's common shares at the rate of one share
of common shares for one share of Series A preferred shares at any time after
issuance. At any time after five years from issuance, the Company has the right
to redeem any or all of the Series A preferred shares after a sixty day notice
upon payment of the liquidation preference of $.50 per share to the holders, for
a total of $1,525,000.

The Series A preferred
shares were not included in the computation of diluted earnings per share for
the year ended December 31, 2009, because their effect was anti-dilutive.

Additionally, the Company
had outstanding at September 30, 2009, a $950,000 convertible promissory note.
The unsecured note carries an interest rate of 6.5% per year, payable
semi-annually, and matures on October 15, 2016. The holder of the note has the
right, at any time after October 15, 2009, to convert the note in whole or in
part, into common shares of the Company at a conversion price of $0.50 per
share. The entire principal amount of this note shall be automatically converted
into common shares at the conversion price on October 15, 2016.

The convertible promissory note
was not included in the computation of diluted earnings per share for the year
ended December 31, 2009, because the conversion price was greater than the
average market price of the common shares during those periods.

NOTE
14—COMPREHENSIVE INCOME (LOSS)

Comprehensive income
(loss) is reported on the accompanying consolidated statement of shareholders'
equity as a component of retained earnings (accumulated deficit) and consists of
net income (loss) and other gains and losses affecting shareholders' equity
that, under accounting principles generally accepted in the United States of
America, are excluded from net income (loss). For the Company, such items
consist primarily of unrealized gains and losses on available-for-sale equity
investments.

The following summary sets
forth the components of other comprehensive income (loss), net of tax,
accumulated in shareholders' equity:

For the
      Year Ended December 31, 2009Net Loss
    $
    (193,698)Other
      Comprehensive Income (Loss), net of tax:Unrealized
      gain (loss) on securities
    
    -Total Comprehensive Loss
    $
    (193,698)




For the
      Year Ended December 31, 2008Net Loss
    $
    (3,509,697)Other
      Comprehensive Income (Loss), net of tax:Unrealized
      gain (loss) on securities
    
    -Total Comprehensive Loss
    $
    (3,509,697)




For the
      Year Ended December 31, 2007Net Income
    $
    583,213Other
      Comprehensive Income (Loss), net of tax:
    
    -Unrealized
      gain on securities
    
    10Total Comprehensive Income
    $
    583,223


NOTE
15—RISKS AND UNCERTAINTIES

The Company has a concentration
of credit risk for cash deposits at various financial institutions. These
deposits may at times exceed amounts covered by insurance provided by the U.S.
Federal Deposit Insurance Corporation (FDIC). The maximum loss that could have
resulted from the risk was insignificant as of December 31, 2009.

NOTE
16—RELATED PARTY TRANSACTIONS

Mr. Jeffrey A. Cummer was
elected a director of Capital Financial Holdings, Inc. on June 1, 2006. Mr.
Cummer is president and senior portfolio manager of SMH Capital Advisors, Inc.
During 2007 and 2008, Capital Financial Holdings, Inc. paid monthly sub-advisory
fees to SMH Capital Advisors, Inc. for advisory services provided to some of the
Funds. On March 4, 2008, SMH Capital Advisors was notified that the Board of
Trustees of The Integrity Funds had approved the termination of the sub-advisory
agreements between Integrity Money Management, Inc., and SMH Capital Advisors.
Sub-advisory payments made to SMH Capital Advisors, Inc. totaled $0 in 2009,
$246,248 in 2008 and $699,230 in 2007.

In May of 2006,
Xponential, Inc. issued a tender offer to purchase up to 3,000,000 shares of
Capital Financial Holdings, Inc. common shares at a purchase price of $0.40 per
share. At the close of the tender offer, Xponential, Inc. had obtained 1,323,642
shares, representing approximately 9.76% of the outstanding Capital Financial
Holdings Inc. common shares. Mr. Cummer is Chief Executive Officer and Chairman
of the Board of Xponential, Inc.

In October of 2006,
Capital Financial Holdings Inc. issued a $950,000 convertible promissory note to
PawnMart, Inc., in a private placement. The unsecured note carries an interest
rate of 6.5% per annum, payable semi-annually, and matures on October 15, 2016.
The holder of the note has the right, at any time after October 15, 2009, to
convert the note in whole or in part, into $0.0001 par value common shares of
the Company. The conversion price shall be equal to $0.50 per share. The entire
principal amount of this note shall be automatically converted into common
shares at the conversion price on October 15, 2016. PawnMart, Inc. is a wholly
owned subsidiary of Xponential, Inc. Mr. Cummer is Chairman of the Board and
Executive Vice President of PawnMart, Inc. Interest payments made to PawnMart,
Inc. relating to this note totaled $61,750 in 2009 and 2008, and $62,436 in
2007, respectively.

Mr. Steven D. Lysne was
elected a director of Capital Financial Holdings, Inc. on May 27, 2005. On
February 11, 2008, Steven D. Lysne announced his resignation from the Board of
Directors effective upon the Annual Meeting of Shareholders of the Company. Mr.
Lysne is CEO and general manager of SRT Communications, Inc. Capital Financial
Holdings, Inc. pays SRT Communications, Inc. for telephone and internet
services. Payments made to SRT Communications, Inc. totaled $63,702 in 2009,
$79,563 in 2008, and $65,817 in 2007.

On January 24, 2007, the
Company announced the retirement of Robert E. Walstad, the Company's founder,
chief executive officer, and chairman of the board of directors, effective
February 1, 2007. In connection with Mr. Walstad's retirement, the Company
entered into a separation agreement with Mr. Walstad. Under the terms of the
separation agreement, subject to Mr. Walstad meeting his obligations thereunder
in all respects, Mr. Walstad is entitled to receive a cash payment in the amount
of $274,500, options to purchase 60,000 common shares, and certain commission
payments. The $274,500 separation payment was expensed in February of 2007. Mr.
Walstad has not been involved with management or as a member of the board of
directors of the Company since February 1, 2007. With respect to the Definitive
Agreement between the Company and Corridor Investors, LLC, described in Note
17—Discontinued Operations, below, Mr. Walstad is the Limited Liability Manager of
Corridor Investors, LLC and executed the described agreement on behalf of
Corridor Investors, LLC.

NOTE
17—DISCONTINUED OPERATIONS

On March 6, 2009, Capital
Financial Holdings, Inc. (the "Company") entered into a Definitive Agreement
(the "Agreement") with Corridor Investors, LLC ("Buyer"), pursuant to which
Buyer agreed to purchase from Seller, and Seller agreed to sell to Buyer: (i)
all of the issued and outstanding shares of each of three subsidiaries of the
Company, Integrity Fund Services, Inc., a share transfer agency, Integrity Funds
Distributor, Inc., a FINRA member broker dealer and Integrity Mutual Funds, Inc.
of Nevada, a non-operating entity (the "Companies'); (ii) all of Seller's right,
title and interest in and to certain tangible assets and (iii) the sale of
certain assets of Integrity Money Management, Inc. related to its mutual fund
advisory business. The purpose of the Agreement was to facilitate a change in
advisor as well as to transfer, together with the operating subsidiaries, the
combined mutual fund service business of the Seller currently provided to The
Integrity Funds, Integrity Managed Portfolios, ND Tax-Free Fund, Inc., Montana
Tax-Free Fund, Inc. and Integrity Fund of Funds, Inc. ("the Funds"), which are
investment companies registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940. As of July 31, 2009, the
required Fund shareholder approval from the various Funds had been received to
consummate the change in advisor along with the transfer of the mutual fund
service to the Buyer. As per the Agreement, at closing on July 31, 2009, the
Buyer paid $1,525,480 (60 BPS of the aggregate net assets, totaling $254,246,597
as of July 30, 2009) to the Company and will pay three additional payments
consisting of 10 BPS of the aggregate net assets as of July 30, 2010, 2011, and
2012 over the next three years. With the closing and transfer of entities, the
Company is no longer involved in the mutual fund service business. The Company
continues to operate as a Broker-Dealer through its wholly owned subsidiary
Capital Financial Services, Inc. As a result of the transfer, post closing of
the transaction, Integrity Fund Services, Inc., Integrity Funds Distributor,
Inc. and Integrity Money Management, Inc., which constitutes the mutual fund
division of the Company, will be reflected in the Company's future consolidated
financial statements as a discontinued operation.

The results of the mutual
fund segment are reported in the Company's Consolidated Statements of Operations
separately as discontinued operations. In accordance with GAAP, the Consolidated
Balance Sheets have not been restated.

Summarized financial
information for discontinued operations is as follows:

Mutual
      Fund SegmentDecember
      31, 2009
    
    December
      31, 2008
    
    December
      31, 2007Revenues
    $
    2,058,425
    $
    4,152,890
    $
    6,974,641Income
      from operation of discontinued mutual fund segment
    
    560,864
    
    1,053,573
    
    2,546,850Goodwill
      impairment expense
    
    -
    
    (5,312,606)
    
    -Gain on
      disposal of discontinued operations
    
    228,402
    
    -
    
    -Discontinued
      operations before taxes
    
    789,266
    
    (4,259,033)
    
    2,546,850Tax
      benefit (expense) of discontinued operations
    
    (686,075)
    
    522,816
    
    (1,034,045)Total
      gain (loss) on discontinued operations, net of tax
    $
    103,191
    $
    (3,736,217)
    $
    (1,512,805)


NOTE
18—LITIGATION

The Company operates in a legal
and regulatory environment that exposes it to potentially significant litigation
risks. As a result, the Company is involved in various disputes and legal
proceedings, including litigation, arbitration and regulatory investigations,
including a number of investigatory matters and legal proceedings arising out of
customer allegations related to past commissioned sales of alternative
investment products. In 2007 through the first quarter of 2009 a substantial
amount (approximately 10% to 20%) of the Company's sales of commissioned
products were in private placements of alternative products, two of which as of
December 31, 2009 (Medical Capital Corporation and related issuer entities and
Provident Royalties, LLC. and related issuer entities) were placed in
receivership by action of the United States Securities and Exchange Commission
and issuers of certain other alternative products sold by the Company are in
Chapter 11 Bankruptcy or may have financial difficulties. Additionally,
difficult economic conditions in general and the stock market decline have
contributed to decline in broker-dealer subsidiary client portfolio values. As a
result of such alleged failings of alternative products and the uncertainty of
client recovery from the various product issuers, the Company is subject to
regulatory scrutiny and a number of recently instituted legal or arbitration
proceedings, including two recently instituted proceedings seeking certification
as class actions which name the Company as one of a number of defendants and
allege various securities or conduct violations, one with respect to private
placements of Medical Capital Corporation and related issuer entities and the
other with regard to private placements of Provident Royalties, LLC and related
issuer entities. The Company intends to vigorously contest the allegations of
the various proceedings and believes that there are multiple meritorious legal
and fact based defenses in these matters. Such cases are subject to many
uncertainties, and their outcome is often difficult to predict, including the
impact on operations or on the financial statements, particularly in the earlier
stages of a case. The Company makes provisions for cases brought against it
when, in the opinion of management after seeking legal advice, it is probable
that a liability exists, and the amount can be reasonably estimated. The current
proceedings are subject to uncertainties and as such, the Company is unable to
estimate the possible loss or a range of loss that may result.

NOTE
19—SUBSEQUENT EVENTS

On February 22, 2010, the
Board of Directors of Capital Financial Holdings, Inc. authorized the formation
of a new wholly owned subsidiary, Capital Energy Resources, Inc. Capital Energy
Resources, Inc. will be located in Minot, North Dakota, operate as an oil and
gas operating company and seek opportunities in petroleum and natural gas
exploration and production.

Other than the item mentioned
above, no significant events have occurred subsequent to the Company's year end.
Subsequent events have been evaluated through March 18, 2010, which is the date
these financial statements were issued.

ADDITIONAL
INFORMATION

REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMON ADDITIONAL
INFORMATION

To the
Stockholders and DirectorsCapital Financial Holdings, Inc. and
SubsidiaryMinot, North Dakota

Our report
on our audit of the basic consolidated financial statements of Capital Financial
Holdings, Inc. and Subsidiary for the years ended December 31, 2009, 2008 and
2007, appears on page F-1. Those audits were made for the purpose of forming an
opinion on such consolidated financial statements taken as a whole. The
information on page F-26, related to the 2009, 2008 and 2007 consolidated
financial statements, is presented for purposes of additional analysis and is
not a required part of the basic consolidated financial statements. Such
information has been subjected to the auditing procedures applied in the audits
of the basic consolidated financial statements, and, in our opinion, the
information is fairly stated in all material respects in relation to the basic
consolidated financial statements for the years ended December 31, 2009, 2008
and 2007, taken as a whole.

We also
have previously audited, in accordance with standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Capital Financial Holdings, Inc. and Subsidiary as of December 31, 2007, 2006
and 2005, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the two years in the periods ended December
31, 2006 and 2005, none of which is presented herein, and we expressed
unqualified opinions on those consolidated financial statements. In our opinion,
the information on page F-26 relating to the 2007 balance sheet, and the 2006
and 2005 consolidated financial statements is fairly stated in all material
respects in relation to the basic consolidated financial statements from which
it has been derived.

BRADY, MARTZ
& ASSOCIATES, P.C.Minot, North Dakota USA

March 19,
2010

CAPITAL
FINANCIAL HOLDINGS, INC., AND SUBSIDIARYSELECTED FINANCIAL DATA *FOR
THE YEARS ENDED DECEMBER 31, AS INDICATED

|                                        |      |            |      |             |     
|--------------------------------------- | ---- | ---------- | ---- | ----------- | ----
|                                        | 2009 | 2008       | 2007 | 2006        | 2005
|Operating
      revenue                 | $    | 17,902,774 | $    | 32,549,226  | $   
|                                        |      |            |      |             |     
|Operating
      income (loss)           | $    | (243,877)  | $    | (3,584,098) | $   
|                                        |      |            |      |             |     
|Income
      tax benefit (expense)      | $    | (274,759)  | $    | 376,770     | $   
|                                        |      |            |      |             |     
|Basic
      earnings (loss) per share   | $    | (.02)      | $    | (.25)       | $   
|                                        |      |            |      |             |     
|Diluted
      earnings (loss) per share | $    | (.02)      | $    | (.25)       | $   
|                                        |      |            |      |             |     
|Total
      assets                      | $    | 9,500,728  | $    | 12,532,431  | $   
|                                        |      |            |      |             |     
|Long-term
      obligations             | $    | 1,733,059  | $    | 3,989,040   | $   
|                                        |      |            |      |             |     
|Shareholders'
      equity              | $    | 6,494,044  | $    | 6,708,250   | $   
|                                        |      |            |      |             |     
|Dividends
      paid                    | $    | 0          | $    | 0           | $   
|                                        |      |            |      |             |     

*Excludes
discontinued operations of the mutual fund division.

CAPITAL
FINANCIAL HOLDINGS, INC., AND SUBSIDIARYQUARTERLY RESULTS OF
CONSOLIDATED OPERATIONS (UNAUDITED) *

|                                   | Quarter
      Ended               
|---------------------------------- | ----------------------------------
|                                   | 3-31-09                           
|Revenues                           | $                                 
|Operating
      income (loss)      |                                   
|Other
      income (expense)       |                                   
|Income
      tax benefit (expense) |                                   
|Net
      income (loss)            |                                   
|                                   |                                   
|Per Share                          |                                   
|                                   | Operating
      income (loss)     
|                                   | Other
      income (expense)      
|                                   | Income
      tax benefit (expense)
|                                   |                                   



|                                   | Quarter
      Ended               
|---------------------------------- | ----------------------------------
|                                   | 3-31-08                           
|Revenues                           | $                                 
|Operating
      income (loss)      |                                   
|Other
      income (expense)       |                                   
|Income
      tax benefit (expense) |                                   
|Net
      income (loss)            |                                   
|                                   |                                   
|Per Share                          |                                   
|                                   | Operating
      income (loss)     
|                                   | Other
      income (expense)      
|                                   | Income
      tax benefit (expense)
|                                   |                                   



|                                   | Quarter
      Ended               
|---------------------------------- | ----------------------------------
|                                   | 3-31-07                           
|Revenues                           | $                                 
|Operating
      income (loss)      |                                   
|Other
      income (expense)       |                                   
|Income
      tax benefit (expense) |                                   
|Net
      income (loss)            |                                   
|                                   |                                   
|Per
      Share, Basic             |                                   
|                                   | Operating
      income (loss)     
|                                   | Other
      income (expense)      
|                                   | Income
      tax benefit (expense)
|Per
      Share, Diluted           |                                   
|                                   | Operating
      income (loss)     
|                                   | Other
      income (expense)      
|                                   | Income
      tax benefit (expense)
|                                   |                                   

(1) For
calculating per share amounts, basic and diluted common share are not materially
different.

The above
financial information is unaudited. In the opinion of management, all
adjustments (which are of a normal recurring nature) have been included for a
fair presentation.

*Excludes
discontinued operations of the mutual fund division.