SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                   FORM 10-KSB

         ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
  X      OF 1934
-----
                   For the fiscal year ended December 31, 2004

                                       OR

         TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934
-----

                        COMMISSION FILE NUMBER: 001-32134

                           CIRCLE GROUP HOLDINGS, INC.
                 (Name of Small Business Issuer in its Charter)

                     ILLINOIS                              36-4197173
(State or Other Jurisdiction of Identification No.)     (I.R.S. Employer)

                 1011 CAMPUS DRIVE                       (847) 549-6002
             MUNDELEIN, ILLINOIS 60060           (Registrant's Telephone Number,
     (Address of Principal Executive Offices,         Including Area Code)
                including Zip Code)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                         Common Stock, $.00005 par value

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                      None

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 of 15(d) of the  Securities  Exchange  Act  during the past 12 months (or for
such shorter period that the registrant was required to file such reports),  and
(2) has been subject to such filing requirements for the past 90 days.

Yes  X     No
   -----     ------

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B, and no disclosure will 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-KSB or any  amendment to this form 10-KSB.
_____

The issuer's revenues for its most recent fiscal year were: $742,442.

The  aggregate  market  value  of  the  voting  stock  of  the  issuer  held  by
non-affiliates  of the issuer as of  December  31, 2004 was  $92,445,914.  These
aggregate market values are estimated solely for purposes of this report and are
based on the closing price for the issuer's  common stock,  $.00005 par value on
December 31, 2004, as reported on the American Stock  Exchange.  For the purpose
of this report,  it has been  assumed  that all  officers  and  directors of the
issuer,  as well as all stockholders  holding 10% or more of the issuer's stock,
are affiliates of the issuer.  The statements made herein shall not be construed
as an admission for determining the affiliate status of any person.

<PAGE>

The number of shares of the registrant's common stock outstanding as of December
31, 2004 was 44,396,469.

Transitional Small Business Disclosure Format:

Yes        No  X
   -----     ------

                                      -2-
<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

GENERAL

         We are a pioneer of emerging  technology  companies.  We provide  small
business  infrastructure,  funding and substantial intellectual capital to bring
important and timely  life-changing  technologies to the marketplace through all
phases of the commercialization process.

         Circle  Group  Holdings,  Inc.  was formed by Gregory J.  Halpern,  our
Chairman and Chief Executive Officer,  as an Illinois  corporation,  in May 1994
under the original name, Circle Group Entertainment Ltd. In 1997, we changed our
name to Circle Group Internet,  Inc., and in 2002, we changed our name to Circle
Group  Holdings,  Inc. We had no business  operations  except for  research  and
development  activities  between May 1994 and January 1997.  Since then, we have
participated  in several  public and private  offerings  and have  expanded  our
business.  In 2002,  we  reorganized  our business  units into three  reportable
segments: food product development,  security product development,  and e-tailor
and acquired FiberGel Technologies,  Inc. ("FiberGel"),  which owns an exclusive
license to Z-Trim, an all-natural, corn-based fat replacement.

         We have four  operating  subsidiaries:  Fiber-Gel  Technologies,  Inc.,
thebraveway.com,  Inc.,  operating  as The Brave Way Training  Systems,  On-Line
Bedding Corp.,  and Z-Amaize  Technologies,  Inc., and have exclusive  worldwide
licenses to the Nutrition  Analysis Tool website,  Mini-Raman Lidar System,  and
ThraxVac technology.

FIBERGEL TECHNOLOGIES, INC.

         We  acquired  FiberGel,  formerly  a  wholly-owned  subsidiary  of Utek
Corporation ("Utek"), on August 27, 2002. Under the terms of the acquisition, we
issued  2,800,000 shares of our common stock to Utek valued at $504,000 using an
average  market  price of $0.18 per share.  We also  issued a warrant to Utek to
purchase  500,000  shares of our common stock at an exercise  price of $0.36 per
share within 36 months of the date of acquisition.

         FiberGel Technologies is currently our primary focus. FiberGel owns the
exclusive,  worldwide  license for all fields of use to Z-Trim,  an all-natural,
corn-based fat replacement developed by the Agricultural Research Service of the
United States Department of Agriculture ("USDA"). Z-Trim can be used to decrease
fat and calories  and  increase  insoluble  healthy  fiber in foods.  The target
markets  for Z-Trim  include:  dairy  (cheeses,  dips,  spreads)  baked  goods &
confectionary (breads,  cookies,  candies,  cakes, pies), cereals,  pasta, snack
foods (chips,  crackers,  energy bars), meats (burgers, lunch meats, deli meats,
sausages,  hot dogs, fish dogs), beverages (energy drinks, shakes, beers, weight
loss drinks) and face and hand lotions.

         FiberGel  has been  responding  to  industry  inquiries  and  initiated
exclusive   partnership   discussions  with  major  domestic  and  international
companies  representing  several  food  applications.  As a result of new Z-Trim
product  developments  presented by the our  technology  team, led by Triveni P.
Shukla,  Ph.D., Vice President of Technology  Development,  we have been able to
expand the scope of our  marketing  partnership  programs  to  include  numerous
applications under the following major SIC classifications:

     o   311.200 Grains and oil seeds;

     o   311.300 Sugar and confectionary;

     o   311.400 Fruits and vegetables;

     o   311.500 Dairy products;

     o   311.600 Processed meat;

     o   311.700 Seafood;

     o   311.800 Bakeries and tortillas; and

     o   311.900 Others - flavors and seasonings.

These  expanded  product  lines  allow  FiberGel  to  take  its  commercial  fat
substitute technology to a much wider corporate community. FiberGel is providing
potential domestic and international  marketing partners with product samples of
Z-Trim and research  consultation  along with limited  exclusivity  within their
market specific segments.

         In addition to our existing patent  protection  rights, we have applied
for 22 new application  patents and 12 new process patents on our Z-Trim product
line. We also maintain a thorough  Trade Secret  portfolio on our  manufacturing
process.

         We have received  numerous  inquiries  since September 2002 relating to
the manufacture,  food processing,  distribution and sale of FiberGel's  primary
product  Z-Trim,  which we have the right to produce  pursuant  to an  exclusive
license  from the USDA.

                                      -3-
<PAGE>

FiberGel has entered into  non-disclosure  agreements,  sample  agreements,  and
discussions with many food industry companies to pursue potential  opportunities
for Z-Trim.  Since July 2003,  FiberGel has been shipping Z-Trim samples to many
of these companies.

        FiberGel  is  currently  making and  shipping  product  to  satisfy  its
customers' orders and product sample requests.  Swiss based  conglomerate  DKSH,
the company's  distributor under exclusive limited  territorial rights in Europe
and Asia. has been providing  potential customers with product samples and other
product  related  assistance for both Z-Trim and their newly  developed  non-GMO
(Genetically Modified Organisms) versions of Z-Trim.

         FiberGel has been shipping  Z-Trim product samples to many domestic and
international food companies and has provided them with technical literature and
assisted them with their product  formulations.  In addition,  FiberGel has been
selling  Z-Trim  powder and Z-Trim Gel  directly  to  consumers  for use in home
cooking and has expanded its product  offerings to include  gourmet  cookies and
salad dressing.  In 2005,  FiberGel will be adding additional products made with
Z-Trim.

         FiberGel completed its plan to expand its production  capability during
2004 by building its own  manufacturing  plant adjacent to our corporate offices
in Mundelein,  Illinois. The plant produces its Z-Trim and Z-Bind product lines.
FiberGel  conducted  a test  marketing  of its Z-Trim gel in a regional  grocery
chain with promising results. FiberGel aims to expand its retail sales of Z-Trim
in 2005.

NAT TOOLS FOR GOOD HEALTH

         We  acquired  the  worldwide  exclusive  license  to the NAT  Web,  the
Nutrition  Analysis  Tool ("NAT")  website  developed by the  Department of Food
Science and Human  Nutrition at the  University of Illinois.  The  University of
Illinois' NAT website is an  interactive,  web-based  system designed to empower
individuals  to select a  nutrient-rich  diet.  This fully  functional  nutrient
analysis program utilizes the USDA nutrient database, including over 6,000 foods
as well as  information  from food  companies.  NAT provides  information on the
relative  composition  of food and could aid consumers in their quest to achieve
or maintain good health via nutritious eating.

         Pioneered  and  developed by Dr.  James  Painter at the  University  of
Illinois in 1995, and a winner of several awards, the Nutritional Analysis Tools
and System  ("NATS") is based upon the behavioral  scientific  discoveries  that
keeping  track  daily of what we eat,  plus how many  calories  we burn  through
fitness  activities,  are among the most  critical  components  in achieving and
sustaining  long-term  successful weight loss and health management.  Using data
provided  by the USDA and most brand name food  companies,  NAT'S users can keep
track every day of the foods, calories, fats, proteins,  carbohydrates and other
nutrients they consume.  New members can join MYNATS for free and save all their
menus on the NATS database.  Non-members can use NATS 2.0 to save all their data
to their own  computers  for free offline  reference.  NATS users can  calculate
calories  burned during the day. The web site  provides  visitors the ability to
enter a certain  activity and the amount of calories they wish to burn, and then
calculates how long the given activity needs to be done. Visitors can also enter
how long they did an activity and the web site calculates how many calories they
burned or which  activities a person can do to burn a certain amount of calories
in a given length of time.

         The acquisition of the socially conscious NATS site is very significant
to us because it has the potential to provide us with a large consumer audience,
as it attracts as many as two million  visitors  per month from more than eighty
countries.  We are  increasing  awareness  about our Z-Trim  products  and their
benefits to consumers who visit the NATS website.  Visitors to the site can also
purchase Z-Trim products,  a podometer based diet program,  and Palm OS software
versions  of the NATS site that they can use when on the go. We are  planning to
expand the number of products  being  offered on the web site in 2005 to include
cooperative advertising and marketing of healthy, calorie and fat reduced Z-Trim
products launched by food industry partners.

Z-AMAIZE TECHNOLOGIES, INC.

         Z-Amaize Technologies,  Inc. ("Z-Amaize"),  another of our wholly owned
subsidiaries,  markets a new line of Z-Bind industrial adhesive products for the
plywood and polymer concrete manufacturing industries.

         Z-Bind is an adhesive  extending  component  that emerged from research
performed by the  FiberGel  product  development  group.  In their  research for
Z-Trim functional fat substitutes, the group identified a number of co-products,
which were derived from  corn-based raw materials.  It was discovered that every
pound of Z-Trim  that we  manufacture  produces 13 gallons of waste which can be
used  in  Z-bind.  Rather  than  discarding  this  waste,  we  are  focusing  on
opportunities for maximizing their value in the marketplace.

         The domestic  plywood  industry  uses 1.2 million  metric tons of resin
solids per year worth  approximately  $10 billion.  The softwood  plywood sector
uses 0.6 billion Kg of phenol  formaldehyde  resin solids and Canadian  usage is
0.4 billion Kg. Because of significant cost pressure from the U.S. Environmental
Protection  Agency ("EPA") emission  regulations  regarding  manufacture of such
adhesives,  Z-Bind  products  represent  an  affordable  alternative  to plywood
manufacturers  seeking superior and environmentally  friendlier  adhesives.  Our
goal is to develop  additional  profit  centers that provide a steady  stream of
income from our core Z-Trim manufacturing process.

                                      -4-
<PAGE>

         Z-Amaize is devoted to serving a  significant  industry with better and
more  affordable  adhesive  solutions.  Soft wood resin glues,  used in plywood,
chipboard  and  fiberboard,  are already  being  extended with soy bean protein,
casein,  starch, oil cakes, corn flour, corn gluten protein,  many seed gums and
wheat flour for softening, filling, viscosity control and EPA compliance. Z-Bind
has lignin from corn bran in addition to soluble  fiber glue.  It is  compatible
with lignin and tannin  modified  glues.  The potential resin solids market that
consumes adhesive extenders is approximately 352 million pounds.

         We have  successfully  tested  Z-Bind at Forintek and we are talking to
several large companies regarding the purchasing of our Z-Bind waste stream. New
uses for polymer  concrete are constantly  being  developed in the  construction
field  and  other  industries,   which  will  provide   additional  markets  and
applications for Z-Amaize Technologies to pursue for its Z-Bind product line.

MINI-RAMAN LIDAR

         We have also acquired the worldwide rights to all fields of use for the
Mini-Raman  Lidar  technology.  The  Mini-Raman  Lidar  system was  patented and
developed by the U.S. Department of Energy at Brookhaven National Laboratory. It
is a  short-range  tool to screen  unknown  biological,  chemical,  narcotic and
hazardous  substances  without  having to come in contact with them.  Commercial
development  of this tool will  give  first  responders  the  ability  to detect
substances  on surfaces as well as in bulk  quantity from a distance of three to
fifteen feet. The Mini-Raman Lidar is a standoff  technology that,  unlike other
typical  devices,  does not require  physical  collection of toxic  materials to
identify their composition.  Applications and opportunities for this product are
being  pursued by the company in the  defense,  law  enforcement,  and  Homeland
Security sectors.

THRAXVAC

         We also recently acquired the worldwide rights to all fields of use for
the ThraxVac  technology,  which  provides a way to capture  ambient  anthrax or
Clostridial endospores and simultaneously trigger activation of the spore, which
marks the beginning of the spores' loss of high  resistivity.  By using heat and
moisture to activate  the spore,  the dormancy is broken and the spore begins to
germinate thereby becoming  vulnerable to injury.  The stream of newly activated
spores are then exposed to alpha  particle  bombardment  via a polonium  source,
which damages the DNA containing protoplast causing spore death and an inability
to complete  germination and produce toxin. The collection  devices will be both
portable  and as part of an HVAC  system  using  a HEPA  filtering  system  with
polonium  210  inserts  to provide a  "continuous  killing  repository"  for the
collected spores.

         We entered into an agreement with Gassman Engineers,  Inc. and Meridian
Mechanical  Corporation to develop a commercial  version of its ThraxVac(TM) and
Lidar(TM)  technologies,  which were originally developed at the U.S. Department
of Energy's Brookhaven National Laboratory.

         We have  completed  the  phase  one  design  of our  Homeland  Security
technology, ThraxVac(TM), and produced a prototype model and promotional DVD for
interested buyers. The DVD will be used in our ThraxVac marketing activities.

BRAVE WAY TRAINING SYSTEMS

         The  Brave  Way   Training   Systems,   another  of  our  wholly  owned
subsidiaries,  is a security training and product company.  The Brave Way offers
proven,  highly  effective,  low-cost  self-defense  courses  and videos  with a
uniquely  targeted  curriculum  focusing  on  personal  safety and  self-defense
including rape prevention.  Courses are offered for police officers and security
personnel  through The Brave Way's state certified law enforcement  training for
students and  teachers,  individuals,  Airline  Personnel,  Hospital  personnel,
through  park  districts,  clubs,  churches and other  organizations  as well as
corporations. The Brave Way instructors have multiple backgrounds and experience
in martial arts, security, self-defense, and military.

ON-LINE BEDDING CORP.

         On-Line Bedding Corp. ("On-Line Bedding"),  another of our wholly-owned
subsidiaries,  founded in 1981, is a distributor of pillows,  blankets and other
bedding products to airlines,  hospitals,  government,  and other commercial and
institutional customers. On-Line Bedding subcontracts the production of pillows,
blankets  and  other  bedding  products  to  manufacturers.   On-Line  Bedding's
customers   include   hospitals,   nursing   homes,   hotels  and  motels,   and
transportation-based  companies  such as  airlines,  railroads  and motor  coach
companies.  On-Line Bedding purchases its raw materials from various  suppliers,
and contracts  production  of its airline  pillows and blankets with third party
manufacturers.  On-Line Bedding warehouses a limited  inventory,  and drop ships
its products from  manufacturers  or wholesale  suppliers in multiple  locations
throughout the United States to reduce freight costs for its customers.  On-Line
Bedding's  primary  accounts  include  AMTRAK,  as well as certain  domestic and
international  airlines.  In addition,  the United States Armed Forces regularly
purchases a specialty  pillow from  On-Line  Bedding  through the United  States
military's  electronic  invoice  system.  On-Line  Bedding is also an authorized
pillow and related product vendor for a hospital  purchasing group with over 500
members in eight states.

                                      -5-
<PAGE>

PRINCIPAL PRODUCTS AND SERVICES

         Z-Trim is currently  our  principal  product.  As more fully  described
above, we own through FiberGel the exclusive,  worldwide  license for all fields
of use to Z-Trim, an all-natural,  corn-based fat replacement developed by USDA.
Z-Trim can be used to decrease fat and calories and increase  insoluble  healthy
fiber in foods.

RESEARCH AND DEVELOPMENT ACTIVITIES

         We  estimate  that we spent  $250,000  and  $191,000  on  research  and
development activities for fiscal years 2004 and 2003, respectively.

EMPLOYEES AND LABOR RELATIONS

         As of December  31, 2004 we  employed  fourteen  persons on a full-time
basis and two persons on a part-time  basis.  While we believe  that the current
number  of  employees  is  sufficient  to carry  on our  business  as  currently
conducted,  we may need to hire additional  employees to meet future operational
requirements.  None of our employees are represented by a labor union and we are
not governed by any collective bargaining agreements.  We believe that relations
with our employees are good.

COMPETITION

         Although we compete with other food specialty firms providing  products
in the same  ingredient  category,  we believe that Z-Trim  represents a better,
more comprehensive fat replacement solution than those of other companies.

MARKETING

         Our fundamental  marketing  strategy is to focus on several core target
markets and methods of delivery based on the wide array of current  industry and
consumer  inquiries  and  feedback  that we continue to receive  from the dairy,
bakery, cereal, confectionary, processed meat, snack food, beverage, plywood and
polymer concrete industries.  We are also targeting the visitors of the NATS web
site to  provide  them  with  information  and  purchase  opportunities  for our
products.  In our e-tailer division we have no on-going  marketing  campaign and
all current business is generated from existing  relationships and word of mouth
referrals.

OPERATING SEGMENTS

         We operate three reportable segments, food product development, defense
product  development,  and  e-tailer.  FiberGel,  and Z-Amaize  make up the food
product development segment,  Mini-Raman Lidar Technology,  ThraxVac Technology,
and The Brave Way Training Systems Inc. make up the defense product  development
segment,  and  On-Line  Bedding  makes up the  e-tailer  segment.  Circle  Group
provides business-consulting services for our subsidiaries.

         Our  management  reviews the  operating  companies'  income to evaluate
segment performance and allocate resources.  Our operating companies' income for
the reportable  segments  excludes  income taxes and  amortization  of goodwill.
Provision  for income taxes is  centrally  managed at the  corporate  level and,
accordingly,  such items are not  presented  by segment  since they are excluded
from the measure of segment profitability  reviewed by our management.  Goodwill
and the  related  amortization  are  principally  attributable  to the  business
consulting segment.

         For financial data on these  reportable  segments,  you should refer to
the Consolidated Financial Statements and the notes thereto.

                                      -6-
<PAGE>

            CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

         This Annual Report on Form 10-KSB contains  forward-looking  statements
within the meaning of Section  27A of the  Securities  Act of 1933  ("Securities
Act"),  as amended,  and Section 21E of the Securities  Exchange Act of 1934, as
amended. The forward-looking statements are principally contained in the section
entitled  "Description of Business." These statements  involve known and unknown
risks,  uncertainties  and other  factors  that may cause  our  actual  results,
performance  or  achievements  to differ,  perhaps  materially,  from any future
results, performance or achievements expressed or implied by the forward-looking
statements.   Forward-looking  statements  include,  but  are  not  limited  to,
statements about:

     o   Our product development efforts;

     o   The commercialization of our products;

     o   Anticipated operating losses and capital expenditures;

     o   Our estimates regarding our needs for additional financing;

     o   Our estimates for future revenues and profitability; and

     o   Sources of revenues and anticipated revenues,  including  contributions
         from   corporate   collaborations,   license   agreements   and   other
         collaborative  efforts for the development and commercialization of our
         product  candidates,  and the continued viability and duration of those
         agreements and efforts.

In some cases,  you can  identify  forward-looking  statements  by terms such as
"may," "will,"  "should,"  "could,"  "would,"  "expect,"  "plan,"  "anticipate,"
"believe,"  "estimate,"  "project," "predict," "intend," "potential" and similar
expressions intended to identify  forward-looking  statements.  These statements
reflect  our  current  views  with  respect  to future  events  and are based on
assumptions and subject to risks and uncertainties.  Given these  uncertainties,
you should not place undue  reliance  on these  forward-looking  statements.  We
discuss many of these risks in greater detail in the foregoing section under the
heading  "Management  Risk  Factors."  Also,  these  forward-looking  statements
represent  our  estimates  and  assumptions  only as of the date of this  Annual
Report.

         You should read this Annual Report and the documents  that we reference
in this Annual Report with the understanding  that our actual future results may
be materially  different from what we expect.  We do not intend to update any of
these  statements or to publicly  announce the result of any revisions to any of
these  forward-looking   statements.  We  qualify  all  of  our  forward-looking
statements by these cautionary statements.

                                      -7-
<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTY.

         We occupy  approximately  44,000  square  feet of leased  space at 1011
Campus Drive,  Mundelein,  Illinois.  This space is leased for $26,500 per month
pursuant to  non-cancelable  operating  leases  that expire in 2007.  All of our
subsidiaries and divisions are operated out of this space.

ITEM 3.  LEGAL PROCEEDINGS.

         On February 20, 1997,  we registered  the domain name,  (justdoit.net),
and thereafter began using it as the our primary website and e-mail domain. Nike
subsequently  initiated  proceedings with the WIPO (World Intellectual  Property
Organization) in an effort to cause us to turn over the (justdoit.net) domain to
Nike. We won a favorable  decision from the WIPO. On October 7, 2002, Nike filed
a federal  lawsuit in the United  District  Court for the  Northern  District of
Illinois  against us in Nike,  Inc. v. Circle  Group  Internet,  Inc.,  alleging
violations of the ACPA (Anti-Cybersquatting Consumer Protection Act), the Lanham
Act and state unfair  competition laws. On May 21, 2004, the judge in the matter
granted Nike's motion for judgment as a matter of law. Damages have not yet been
awarded.  On August 31, 2004, Nike filed an amended complaint,  thus,  reopening
discovery proceedings, which are currently underway.

         In September  2003, a complaint  was filed by Mark Wachs  alleging that
the company breached a contract to pay him for his services. It is the company's
position that Mark Wachs breached his contract to provide publicity  services by
underperforming  substantially,  and we have filed affirmative  defenses to that
effect.  The  case  is  set  for  arbitration  in  April,  2005.  We  intend  to
aggressively defend this case.

         In August 2004,  a complaint  was filed in the United  States  District
Court for the  Southern  District of New York against us in Richard M. Wexler v.
Circle Group Holdings, Inc. The matter has been removed to federal court. In the
complaint, the plaintiff alleges that we breached a contract by failing to issue
freely trading and registered  common stock pursuant to plaintiff's  exercise of
certain  warrants.  We have filed a motion to dismiss  the case or  transfer  to
Illinois  on the grounds of lack of  personal  jurisdiction,  venue or forum non
conveniens. A ruling on the motion is expected in the second quarter of 2005.

         In September 2004, a second complaint  alleging similar claims to those
made in Richard M. Wexler v. Circle Group Holdings, Inc. was filed in the United
States District Court for the Northern  District of Illinois against the Company
in Willow Cove Investment Group, Inc. v. Circle Group Holdings,  Inc. We filed a
motion to  dismiss.  The  plaintiff  has decided not to respond to our motion to
dismiss  but rather  file an amended  complaint.  We are waiting for the amended
complaint to be filed and plan to respond accordingly.

         In March 2004,  a  complaint  was filed by a former  employee  alleging
damages  resulting  from our refusal to issue stock  pursuant to a stock  option
agreement.  Our position is that the request for issuance was  untimely.  We are
currently  in  discovery.  The  plaintiff  is seeking  monetary  damages for the
historical peak value of the stock after he attempted to exercise his option. We
are aggressively defending this case.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         No matters were  submitted to the vote of the  stockholders  during the
last quarter of fiscal year 2004.

                                      -8-
<PAGE>

                                     PART II

ITEM 5.  MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         The following table sets forth, for the periods indicated, the high and
low closing  prices for our common stock,  as quoted for trading on the American
Stock  Exchange  under the symbol  "CXN." Our common stock began  trading on the
American  Stock  Exchange on March 31, 2004. The last reported sale price of our
common stock on December 31, 2004 was $2.22 per share.

2003                                                    HIGH         LOW
----                                                    ----         ---
1st Quarter*                                            $0.51       $0.05
2nd Quarter*                                            $1.10       $0.48
3rd Quarter*                                            $3.55       $0.75
4th Quarter*                                            $2.75       $1.80

2004                                                    HIGH         LOW
----                                                    ----         ---
1st Quarter*                                            $8.92        $1.80
2nd Quarter                                             $6.69        $4.75
3rd Quarter                                             $5.18        $1.68
4th Quarter                                             $2.45        $0.64

2005                                                    HIGH         LOW
----                                                    ----         ---
1st Quarter (through March 28, 2005)                    $2.34        $0.66

--------------

*Our common stock was traded in the over-the-counter  market until the March 31,
2004.  As such,  the prices for the  quarters  prior to March 31, 2004 set forth
above  reflect  inter-dealer  prices,  without  retail  mark-up,   mark-down  or
commission, and may not represent actual transactions.

         As of March 28,  2004,  there  were  44,719,559  record  holders of the
common  stock.  We have never paid any  dividends on its common stock and do not
anticipate paying any dividends in the foreseeable future.

         Set forth below is information  regarding  securities sold by us in the
fourth quarter of 2004, which were not registered under the Securities Act.

             o   In October 31, 2004, we issued 3,022 shares of our common stock
                 in exchange for professional services.

             o   In November 19, 2004, we issued  1,000,000 shares of our common
                 stock in exchange for consulting services.

             o   In November 23, 2004,  we issued  155,840  shares of our common
                 stock in exchange for professional services.

             o   In November 21, 2004,  we issued  100,000  shares of our common
                 stock in exchange for professional services.

             o   In November  30,  2004,  we issued  3,599  shares of our common
                 stock in exchange for professional services.

             o   In December 10, 2004,  we issued  200,000  shares of our common
                 stock in exchange for consulting services.

             o   In December 27, 2004, we issued  2,250,000 shares of our common
                 stock in exchange for professional services.

             o   In December  31,  2004,  we issued  2,158  shares of our common
                 stock in exchange for professional services.

         No underwriters were involved in the foregoing sales of securities. The
securities  were issued in reliance  upon the  exemption  from the  registration
requirements  of the  Securities  Act,  as set forth in  Section  4(2) under the
Securities Act and Regulation D promulgated  thereunder  relating to sales by an
issuer not involving any public  offering,  to the extent an exemption from such
registration was required. =

                                      -9-
<PAGE>

                      EQUITY COMPENSATION PLAN INFORMATION

                            (AS OF DECEMBER 31, 2004)

<TABLE>
<CAPTION>
                                                                                                       NUMBER OF SHARES
                                                                                                      REMAINING AVAILABLE
                                                                             WEIGHTED-AVERAGE         FOR FUTURE ISSUANCE
                                                                             EXERCISE PRICE OF           UNDER EQUITY
                                                  NUMBER OF SHARES TO BE        OUTSTANDING          COMPENSATION PLANS
                                                 ISSUED UPON EXERCISE OF          OPTIONS,           (EXCLUDING SECURITIES
                                                   OUTSTANDING OPTIONS,         WARRANTS AND           REFLECTED IN 1ST
                 PLAN CATEGORY                     WARRANTS AND RIGHTS             RIGHTS                   COLUMN)
                 -------------                     -------------------             ------                   -------

<S>                                                      <C>                       <C>                    <C>
Equity compensation plans approved by                    7,496,750                 $1.15                  12,503,250
    security holders (1)
Equity compensation plans not approved by
    security holders (2)                                     --                      --                       --
Total.........................................           7,496,750                 $1.15                  12,503,250
</TABLE>

(1) These plans consist of the 2004 Stock Incentive Plan.

(2) We do not maintain any equity compensation plans that have not been approved
    by the stockholders

                                      -10-
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

         THE  FOLLOWING  DISCUSSION IS INTENDED TO ASSIST IN  UNDERSTANDING  THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CIRCLE GROUP HOLDINGS, INC. YOU
SHOULD READ THE FOLLOWING  DISCUSSION  ALONG WITH OUR FINANCIAL  STATEMENTS  AND
RELATED NOTES INCLUDED ELSEWHERE IN THIS FORM 10-KSB.  THE FOLLOWING  DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS, UNCERTAINTIES AND
ASSUMPTIONS. OUR ACTUAL RESULTS, PERFORMANCE AND ACHIEVEMENTS IN 2004 AND BEYOND
MAY DIFFER  MATERIALLY  FROM THOSE  EXPRESSED  IN, OR IMPLIED BY, THESE  FORWARD
LOOKING STATEMENTS.

OVERVIEW

         We are a pioneer of emerging  technology  companies.  We provide  small
business  infrastructure,  funding and substantial intellectual capital to bring
important and timely  life-changing  technologies to the marketplace through all
phases of the commercialization process.

         Circle Group Holdings,  Inc. was founded in May 1994 under the original
name,  Circle  Group  Entertainment  Ltd.  and changed its name to Circle  Group
Holdings,  Inc. in 2002. We had no business  operations  except for research and
development   activities  between  May  1994  and  January  1997.  In  2002,  we
reorganized  our business  units into three  reportable  segments:  food product
development,  security product development, and e-tailor, and acquired Fiber-Gel
Technologies,  Inc., which owns an exclusive  license to Z-Trim, an all-natural,
corn-based fat replacement.

         We have four  operating  subsidiaries:  Fiber-Gel  Technologies,  Inc.,
thebraveway.com,  Inc.,  operating  as The Brave Way Training  Systems,  On-Line
Bedding Corp.,  and Z-Amaize  Technologies,  Inc., and have exclusive  worldwide
licenses to the Nutrition  Analysis Tool website,  Mini-Raman Lidar System,  and
ThraxVac technology.

RECENT MATERIAL DEVELOPMENTS

         On August 25, 2004, we  commemorated  the opening of our new production
facility in Mundelein,  Illinois with an official  ribbon cutting  ceremony.  At
full  capacity,  this  eco-compliant  facility is capable of producing up to ten
million  pounds  annually of  Z-Trim(TM).  In  addition,  this  facility is also
capable of producing up to ten million gallons of Z-Bind(TM)  adhesive resin and
polymer extenders for use by the plywood, concrete and construction industries.

         In September 2004, we entered into an agreement with Gassman Engineers,
Inc. and Meridian Mechanical  Corporation to develop a commercial version of our
Lidar(TM) and ThraxVac(TM) technologies,  which were originally developed at the
U.S. Department of Energy's Brookhaven National Laboratory.

         On September  28, 2004,  Z-Amaize  Technologies  signed an agreement to
provide NOVOC Performance Resins with Z-Bind for use in its products.  NOVOC has
identified  a use for a neutral  pH version of Z-Bind in which they could use up
to several million pounds per year once fully commercialized,  and the agreement
also provides for the joint development of additional versions of Z-Bind.

         In September  2004,  Z-Amaize  Technologies,  entered into a three-year
agreement with Senticore, Inc. to supply Z-Bind.

         In November 2004,  our  exclusively  licensed NATS became  available on
Palm OS(R) software,  which powers the most powerful  hand-held and smart phones
and has approximately 25 million users.

         In December  2004, we launched a marketing  initiative to highlight the
potential biohazard threat protections afforded by our ThraxVac technology.  The
ThraxVac  video,  which  demonstrates  the  technology's  ability to collect and
eliminate anthrax and bacterial spores,  will be used to demonstrate  ThraxVac's
designed  attributes to the  Department of Defense and companies in the Homeland
Security industry interested in this preventive technology. The video was placed
on our  web  site  at  http://www.crgq.com/thraxvac/index.html  for  viewing  by
potential customers and interested parties.

         In December 2004, FiberGel  Technologies  produced a new version of its
Z-Trim zero calorie fat  replacement  and dietary fiber  supplement from non-GMO
grain. We expect that the non-GMO status will create  additional  interest among
leading food companies who offer products in this area.

                                      -11-
<PAGE>

RESULTS OF OPERATIONS

YEAR ENDING DECEMBER 31, 2004 COMPARED TO THE YEAR ENDING DECEMBER 31, 2003

REVENUES

         Revenues  decreased  10.4% for the year ended  December  31,  2004 from
$742,442  for the year  ended  December  31,  2003 to  $665,453,  as a result of
decrease in both product and service  revenues.  The decrease in product revenue
was primarily due to slower demand in e-tailer  customers,  partially  offset by
the  introduction  of the Z-Trim  products.  The decrease in service revenue was
primarily  due to slower  demand in  security  training  services  as well as in
business  consulting  service.  The following  table provides a breakdown of the
revenues for our divisions for the periods indicated:

                                           Year ended December 31,
                                            2004            2003
                                          --------        --------
           Products                       $634,456        $659,664
           Services                         30,997          82,778
                                          --------        --------
         Total Revenues                   $665,453        $742,442
                                          ========        ========

OPERATING EXPENSES

         Operating  expenses  consist of payroll and related  costs,  insurance,
occupancy  expenses,  professional fees, and general operating  expenses.  Total
operating  expenses increased to $5,176,628 for the year ended December 31, 2004
from  $2,863,349 for the year ended December 31, 2003. The increase in operating
expenses was primarily due to introduction and promotion of Z-trim products, and
the increase in investor and public relation, payroll and legal expenses.

OTHER INCOME

         Total other income for the year ended  December 31, 2004 was $1,002,413
up from $266,049 for the comparable period in fiscal 2004. Other income for year
ended December 31, 2004 included a settlement of $950,000 received from a former
attorney.  Other income for year ended  December  31, 2003  included a refund of
$48,750 by a consultant of which the service was expensed in 2002, and a gain on
sale of a trademark of $150,000.

NET LOSS

         We  reported  a net  loss  for the  year  ended  December  31,  2004 of
$4,185,315 or $0.11 per share, a 48% increase from the net loss of $2,827,821 or
$0.10  per  share  for the  year  ended  December  31,  2003.  This was due to a
combination of the building of the new FiberGel Technologies production facility
and product  development and introduction and promotion of Z-trim products,  and
an increase in investor and public relation, payroll and legal expenses.

YEAR ENDING DECEMBER 31, 2003 COMPARED TO THE YEAR ENDING DECEMBER 31, 2002

REVENUES

         Our total revenues in 2003 increased by $178,257,  or approximately 32%
from $564,185 in 2002 to $742,442 in 2003. Most of the increase was attributable
to an  increase  of  approximately  $172,000 in  E-tailer  sales.  The  E-tailer
division  consists  of 89% and 87% of our  total  revenues  in  2003  and  2002,
respectively.

                                      -12-
<PAGE>

         The  following  table  provides a  breakdown  of the  revenues  for our
divisions for the periods indicated:

                                           Year ended December 31,
                                            2003            2002
                                          --------        --------
           Products                       $659,664        $485,780
           Services                         82,778          73,405
                                          --------        --------
         Total Revenues                   $742,442        $559,185
                                          ========        ========

OPERATING EXPENSES

         Operating  expenses  consist of payroll and related  costs,  insurance,
occupancy  expenses,  professional fees, and general operating  expenses.  Total
operating expenses  increased by $892,649,  or approximately 45% from $1,970,700
in 2002 to  $2,863,349  in 2003.  Most of the increase was  primarily due to the
introduction and promotion of Z-trim products,  and investor and public relation
expenses.

IMPAIRMENT OF GOODWILL AND OTHER LONG-LIVED ASSETS

         In 2002,  we wrote off an impaired  goodwill of $542,800 in  connection
with the acquisition of Fiber-Gel  Technologies  and recognized an impairment of
long-lived  assets of $143,144  related to its  software  development  segments.
There was no impairment recorded in 2003.

OTHER INCOME

         Total other  income for the year ended  December  31, 2003 was $266,049
down from $293,397 for the  comparable  period in fiscal 2002.  Other income for
year ended  December 31, 2003  included a refund of $48,750 by a  consultant  of
which the service was  expensed  in 2002,  and a gain on sale of a trademark  of
$150,000.  Other  income for year ended  December  31,  2002  included  gains on
disposal of investments and long-lived assets of $246,784.

NET LOSS

         We reported a net loss of  $2,827,821  for the year ended  December 31,
2003, or $0.10 net loss per share or a 21%  improvement  from the  $3,587,684 or
$0.17 net loss per share for the year ended  December 31, 2002.  This was due to
improved expense reduction and additional other income on the sale of assets.

LIQUIDITY AND CAPITAL RESOURCES

YEAR ENDING DECEMBER 31, 2004 COMPARED TO THE YEAR ENDING DECEMBER 31, 2003

         At December  31,  2004,  we had cash and cash  equivalents  of $93,748,
compared  to  $1,383,718  at  December  31,  2003.  We  generated  approximately
$6,269,840 in additional operating capital through sale of our common stock in a
private  placement  offering and options and warrant  exercises  during the year
ended December 31, 2004.

         Net cash used by operating  activities decreased by 18.8% to $1,067,593
for the year ended  December  31, 2004 as compared  to  $1,314,478  for the year
ended  December 31, 2003. The decrease  resulted  primarily from our net loss of
$4,185,315,  partially  offset by  depreciation  and  amortization  of $232,532,
non-cash expenses of $1,294,197,  and an increase from the change in liabilities
over assets of approximately $1.59 million.

         Net cash used by investing activities was $6,465,265 for the year ended
December  31,  2004,  primarily  resulting  from the  additions  of property and
equipment for our Z-trim manufacturing  facility. Net cash provided by investing
activities  was  $143,603  for the  year  ended  December  31,  2003,  primarily
resulting  from  the  proceeds  of  $150,000  we  received  from  the  sale of a
trademark.

         Net cash provided by financing  activities  was $6,242,888 for the year
ended  December 31, 2004 compared to $2,432,134  for the year ended December 31,
2003,  primarily due to proceeds from sale of our stocks and from  exercising of
options and warrants approximately $6.2 million.

                                      -13-
<PAGE>

YEAR ENDING DECEMBER 31, 2003 COMPARED TO THE YEAR ENDING DECEMBER 31, 2002

         The principal  source of liquidity as of December 31, 2003 consisted of
$1,383,718 cash and cash equivalents, compared to $122,459 at December 31, 2002.
The primary  contributors to the increase were the net proceeds from sale of our
common  stock  and  stock  warrants  of  $2,467,000,  offset  by our net loss of
$2,827,821  minus non-cash  depreciation of $170,200,  and non-cash  expenses of
$1,632,800.

         Cash used by operating  activities  was  $1,314,478  for the year ended
December  31,  2003 as  compared  to net cash used by  operating  activities  of
$1,831,264  for the  year  ended  December  31,  2002.  Cash  used in  operating
activities in the year ended  December 31, 2003 resulted  primarily from our net
loss of  $2,827,821,  partially  offset  by  depreciation  and  amortization  of
$170,200,  non-cash  expenses  of  $1,632,800,  gain  on  sale  of  disposal  of
long-lived  assets of  $155,500,  and a decrease  from the change in assets over
liabilities of approximately $128,000. Cash used in operating activities for the
year ended December 31, 2002 resulted primarily from our net loss of $3,587,684,
partially offset by depreciation and amortization of $200,400, non-cash expenses
of $1,603,000,  gain on sale of securities  and  investment of $254,000,  and an
increase from the change in assets over liabilities of  approximately  $195,000.
Cash provided by investing  activities  was $143,603 for the year ended December
31, 2003, as compared to net cash  provided by investing  activities of $684,844
for the year ended December 31, 2002.  Cash provided by investing  activities in
the year ended  December  31,  2003  resulted  primarily  due to the net sale of
intangible assets of $150,000. Cash provided by investing activities in the year
ended  December 31, 2002 resulted  primarily due to the net sale of  investments
and  property  and  equipment  of  $713,300,  partially  offset  by  capitalized
long-lived assets of $34,500.

         Cash provided by financing activities was $2,432,134 for the year ended
December 31, 2003 as compared to net cash  provided by financing  activities  of
$639,371  for the year ended  December  31,  2002.  Cash  provided by  financing
activities  for the year ended  December 31, 2003 was  primarily due to proceeds
from issuance of common stock and warrants approximately  $2,466,700,  partially
offset  by  principal   payments  under  capital  lease  obligations  and  other
borrowings of $34,600.  Cash provided by financing activities for the year ended
December 31, 2002 was primarily due to proceeds from issuance of common stock of
$416,250 and proceeds from officers' loan of $232,600.

         To successfully grow the individual  segments of our business,  we must
improve our cash  position,  and the revenue  base of each  segment,  as well as
continue  to  succeed  in our  ability  to raise  additional  capital  through a
combination of public or private  equity  offerings or strategic  alliances.  We
also  depend  on  certain  important  employees,  and the  loss of any of  those
employees may harm the business and its prospects.

GOING CONCERN QUALIFICATION

         Our  independent  auditors  have included an  explanatory  paragraph in
their  report  on  the  December  31,  2004  consolidated  financial  statements
discussing issues which raise substantial doubt about our ability to continue as
a "going  concern."  The going  concern  qualification  is  attributable  to our
historical  operating  losses and the amount of capital which we project we need
to satisfy existing liabilities and achieve profitable operations.  As a result,
we have closed down our loss generating businesses, and continue to evaluate and
implement  cost  cutting  measures  at every  entity  level.  For the year ended
December  31,  2004,  we  continued  to  experience  a  negative  cash flow from
consolidated  operations,  and we project that we will need  certain  additional
capital to enable us to continue operations at its current level beyond the near
term. We believe we can raise additional funds though private  placements of our
common stock.

RISK FACTORS

         The  following  risks are  material  risks that we face.  If any of the
following  risks occur,  the business of the Company and its  operating  results
could be seriously harmed.

WE HAVE A HISTORY OF OPERATING LOSSES AND CANNOT GUARANTEE PROFITABLE OPERATIONS
IN THE FUTURE. ANY FAILURE ON OUR PART TO ACHIEVE  PROFITABILITY MAY CAUSE US TO
REDUCE OR EVENTUALLY CEASE OPERATIONS.

         We  reported  a net loss of  $4,185,315  for the twelve  months  ending
December  31, 2004 and a net loss of  $2,827,821  for the twelve  months  ending
December 31,  2003.  At December  31, 2004 and 2003,  respectively,  we reported
accumulated  deficits of $27,027,830  and  $22,910,055.  If we continue to incur
significant  losses our cash  reserves may be depleted  earlier  than  currently
anticipated,  and we may be required to limit our future  growth  objectives  to
levels corresponding with our then available cash reserves.

                                      -14-
<PAGE>

OUR SUCCESS IS DEPENDENT ON MARKET ACCEPTANCE OF OUR PRODUCT.

         We have not conducted, nor have others made available to us, results of
market  research  indicating  how much market demand exists for Z-Trim,  our fat
replacement  product.  We are  relying on the  current  concerns  over  obesity,
weight-health  issues,  and the rising cost of health  care to drive  demand for
Z-Trim in the marketplace. We cannot assure you that we will be able to gain the
market acceptance necessary to achieve profitability.

WE MAKE NO PROJECTIONS  REGARDING THE VIABILITY OF OUR FAT  REPLACEMENT  PRODUCT
AND WE CANNOT ASSURE YOU THAT WE WILL ACHIEVE THE RESULTS DESCRIBED.

         We make no  projection  with  respect to our future  income,  assets or
business.   No  expert  has  reviewed   our   business   plan  for  accuracy  or
reasonableness.  It is likely that our actual business and results of operations
will differ from those presented herein.

WE MAY NEED  ADDITIONAL  FUNDING AND SUCH FUNDING MAY NOT BE AVAILABLE.  IF SUCH
FUNDING IS AVAILABLE, IT MAY NOT BE OFFERED ON SATISFACTORY TERMS.

         We may require  additional  financing to fund ongoing operations if our
sales and revenue  growth are  insufficient  to meet our  operating  costs.  Our
inability  to obtain  necessary  capital or  financing  to fund these needs will
adversely affect our ability to fund operations and continue as a going concern.
Our inability to obtain necessary capital or financing to fund these needs could
adversely  affect our business,  results of operations and financial  condition.
Additional financing may not be available when needed or may not be available on
terms acceptable to us. If adequate funds are not available,  we may be required
to delay,  scale back or eliminate one or more of our business  segments,  which
may affect our overall business, results of operations and financial condition.

THE LOSS OF  SERVICE  OF KEY  MANAGEMENT  COULD  HAVE A  NEGATIVE  IMPACT ON OUR
PERFORMANCE.

         Our success depends to a significant degree upon the performance of our
founder and chief executive officer,  Gregory J. Halpern. The loss of service of
Mr. Halpern could have a material  adverse  effect on our operating  performance
and viability as a going concern.

OUR  MANAGEMENT  CURRENTLY  BENEFICIALLY  OWNS A  SIGNIFICANT  PERCENTAGE OF OUR
COMMON STOCK.

         Ownership of our common stock is concentrated in management. Gregory J.
Halpern,  our Chairman  and Chief  Executive  Officer,  owns 33.4% of our common
stock and all of the directors and officers  collectively own 45.9%.  Holders of
our common  stock can be  out-voted  by  management  in most  circumstances  and
thereby management can control the composition of our board of directors and our
policies.

WE MAY EXPAND OUR OPERATIONS BY MAKING  ACQUISITIONS WHICH COULD SUBJECT US TO A
NUMBER OF OPERATIONAL RISKS.

         In  order  to grow  our  business,  we may  expand  our  operations  by
acquiring other businesses in the future.  We cannot predict whether or when any
acquisitions  will occur.  Acquisitions  commonly  involve certain risks, and we
cannot  assure you that any acquired  business will be  successfully  integrated
into our operations or will perform as we expect. Any future  acquisitions could
involve certain other risks, including the assumption of additional liabilities,
potentially   dilutive   issuances  of  equity   securities   and  diversion  of
management's attention from other business concerns We may also enter into joint
venture  transactions.  Joint  ventures have the added risk that the other joint
venture  partners may have economic,  business or legal  interests or objectives
that are inconsistent with our interests and objectives.

OUR  INABILITY  TO SECURE AND PROTECT OUR  INTELLECTUAL  PROPERTY  MAY RESULT IN
COSTLY AND  TIME-CONSUMING  LITIGATION  AND COULD IMPEDE US FROM EVER  ATTAINING
MARKET SUCCESS.

         We hold  several  patents as well as  copyrights  and  trademarks  with
respect to our  products  and expect to  continue  to file  applications  in the
future as a means of protecting our intellectual  property. In addition, we seek
to protect our  proprietary  information  and know-how  through the use of trade
secrets,  confidentiality  agreements and other similar security measures.  With
respect to patents,  there can be no assurance that any  applications for patent
protection will be granted,  or, if granted,  will offer meaningful  protection.
Additionally,  there can be no  assurance  that  competitors  will not  develop,
patent or gain access to similar  know-how and technology,  or reverse  engineer
our  products,  or that any  confidentiality  agreements  upon  which we rely to
protect our trade secrets and other proprietary  information will be adequate to
protect our proprietary technology. The occurrence of any such events could have
a material adverse effect on our results of operations and financial condition.

                                      -15-
<PAGE>

OUR STOCK PRICE MAY DROP  UNEXPECTEDLY  DUE TO SHORT SELLING OF OUR COMMON STOCK
IN THE MARKET.

         We have experienced and may continue to experience  unexpected  decline
in our stock price due to  manipulation  of the market by individuals who profit
by short  selling our common  stock.  Short  selling  occurs when an  individual
borrows  shares from an investor  through a broker and then sells those borrowed
shares at the current market price.  The "short  seller"  profits when the stock
price falls because he or she can  repurchase the stock at a lower price and pay
back the person they  borrowed,  thereby  making a profit.  We cannot assure you
that  short  sellers  will not  continue  to drive the stock  price  down in the
future, causing decline in the value of your investment.

THE  FLUCTUATION IN OUR STOCK PRICE MAY RESULT IN A DECLINE IN THE VALUE OF YOUR
INVESTMENT.

         The price of our common stock may fluctuate widely, depending upon many
factors,  including the differences  between our actual  financial and operating
results and those  expected by  investors  and  analysts,  changes in  analysts'
recommendations  or  projections,  short  selling  of our  stock in the  market,
changes in general economic or market conditions and broad market  fluctuations.
Companies  that  experience  volatility in the market price of their  securities
often  are  subject  to  securities  class  action  litigation.   This  type  of
litigation,  if  instituted  against us, could result in  substantial  costs and
divert management's attention and resources away from our business.

ITEM 7.  FINANCIAL STATEMENTS

         See  consolidated  financial  statements  starting  on page F-1 and the
related footnotes thereto.

ITEM 8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

         None.

ITEM 8A. CONTROLS AND PROCEDURES.

         Our Chief Executive  Officer and Chief Financial Officer have concluded
that our  disclosure  controls  and  procedures  (as  defined  pursuant  to Rule
13a-15(e)  or 15d-15(e)  under the  Securities  Exchange Act of 1934),  based on
their  evaluation  of such  controls and  procedures as of the end of the period
covered by this report, are effective to ensure that information  required to be
disclosed  by us in the reports it files under the  Securities  Exchange  Act of
1934, as amended,  is recorded,  processed,  summarized and reported  within the
time  periods  specified in the rules and forms of the  Securities  and Exchange
Commission  and that such  information is accumulated  and  communicated  to our
management,  including its Chief Executive officer and Chief Financial  Officer,
as appropriate to allow timely decisions regarding required disclosure.

         There have been no  changes in our  internal  controls  over  financial
reporting  identified in connection with  management's  evaluation that occurred
during our last fiscal  quarter that has materially  affected,  or is reasonably
likely to materially affect, our internal control over financial reporting.

ITEM 8B. OTHER INFORMATION.

         We made the  following  sales of  securities  in the fourth  quarter of
2004,  which were not registered  under the Securities Act and were not reported
on Form 8-K:

             o   In December 27, 2004, we issued  2,250,000 shares of our common
                 stock in exchange for professional services; and

             o   In December  31,  2004,  we issued  2,158  shares of our common
                 stock in exchange for professional services.

                                      -16-
<PAGE>

                                    PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

<TABLE>
<CAPTION>
         AGE             NAME                                   POSITION
         ---             ----                                   --------

         <S>             <C>                                    <C>
         46              Gregory J. Halpern                     Chief Executive Officer and Chairman of the Board of
                                                                Directors

         52              Michael J. Theriault                   Chief Operating Officer

         54              Dana L. Dabney                         Director, Secretary and Chief Financial Officer

         75              Edward L. Halpern                      Director

         52              Steve H. Salgan                        Director

         52              Stanford J. Levin                      Director

         55              Alan G. Orlowsky                       Director
</TABLE>


         GREGORY J. HALPERN. Since founding Circle Group Holdings, Inc. in 1994,
Mr.  Halpern has served as its Chairman and Chief  Executive  Officer.  From May
1994 until March 1999, Mr. Halpern also served as our President. Mr. Halpern has
over 20 years of  experience in computer  programming  and  pioneering  emerging
technologies.  In  1983,  Mr.  Halpern  developed  a  computer-animated  imaging
application to stimulate the immune system for treatment of chronic  illness and
founded  Health  Imaging  Corporation  to  distribute  the  application  to  the
healthcare  delivery market.  In 1984, he developed and patented a technique for
using electronic  stimulation to stop pain and founded Pain Prevention,  Inc. to
market the  technology as an  electronic  anesthesia  for the dental  healthcare
community.  Mr.  Halpern  has served as an officer  and  director of PPI Capital
since its inception in 1984. Gregory J. Halpern is the son of Edward L. Halpern.

         MICHAEL J. THERIAULT.  Mr.  Theriault has served as our Chief Operating
Officer  since June  1999.  His  professional  experience  includes  progressive
operations,  programming,  design, support, consulting,  project management, and
department   management   experience  in  manufacturing,   insurance,   medical,
consulting,  and mortgage  banking  industries  on both  mainframe  and personal
computer  equipment.  From  September  1989 until May 1999,  Mr.  Theriault  was
employed  by Recon  Optical,  Inc.,  where he served as  Supervisor  of Business
Systems  from June 1997  until May 1999,  and  Senior  Systems  and  Programming
Specialist and Senior Project Leader of Manufacturing  from September 1989 until
June 1997.

         DANA L. DABNEY. Mr. Dabney has been a member of our board of directors,
and has held various  offices,  including  vice president of sales and marketing
and secretary,  since January 1997. Currently Mr. Dabney serves as the Company's
Chief Financial Officer.  From 1994 until December 1997, Mr. Dabney was employed
by State  Financial  Bank in  Richmond,  Illinois,  and from  January 1998 until
December 1998 he was employed by Mortgage Market Corporation in Illinois.

         EDWARD  L.  HALPERN.  Mr.  Halpern  has been a member  of our  board of
directors since March 1999 and was our Chief Operating Officer from January 1999
until March 1999. Mr. Halpern  founded On-Line Bedding in 1981 and served as its
President,  Chief  Executive  Officer and sole director  until we acquired it in
January 1999. Mr. Halpern has continued his duties with On-Line Bedding since we
acquired it. Edward L. Halpern is the father of Gregory J. Halpern.

         STEVE H.  SALGAN,  M.D.  Dr.  Salgan  has been  member  of our board of
directors since March 2000. Since January 1998, Dr. Salgan has been president of
Steven H. Salgan,  M.D., Ltd., a practice  specializing in primary care internal
medicine  and  general/family  medicine.  He has been a member  of the  American
Association of Professional  Ringside  Physicians since 1997 and a member of the
Internal  Medicine  Subcommittee  for Quality  Assurance of Saint Margaret Mercy
Hospital in Hammond, Indiana since 1996.

         STANFORD  J.  LEVIN.  Mr.  Levin  has  been a  member  of our  board of
directors  since March 2000.  Since 1988,  Mr. Levin has been the  proprietor of
Levin  Enterprises,  an auto brokerage company located in Indiana.  From January
1986 until June 1988, Mr. Levin was a public school teacher. From May 1981 until
May  1985,  he  was  employed  by  Hohman  Professional  Corp.,  a  real  estate
development  and management  company where his duties  included  commercial real
estate management and overseeing renovations.

         ALAN G.  ORLOWSKY,  J.D.,  C.P.A.  has  been a member  of our  board of
directors  since  January  2004.  Mr.  Orlowsky  has been the  president  of A.G
Orlowsky,  Ltd, a law firm specializing in tax,  financial,  and estate planning
services since 1980.  Alan worked for the I.R.S.  and Deloitte & Touche as a tax
professional  and  he  taught   Accounting,   Taxation,   and  Business  Law  at
Northeastern  Illinois  University  School of Business and Loyola  University of
Chicago School of Business.

                                      -17-
<PAGE>

         The term of office of each director  expires at each annual  meeting of
stockholders and upon the election and qualification of his successor. There are
no  arrangements  with any  director  or officer  regarding  their  election  or
appointment.  Other than the father-son  relationship  between Edward L. Halpern
and Gregory J. Halpern described above, there is no family relationship  between
any of our directors or executive officers.

AUDIT COMMITTEE

         The  Board  of  Directors  has an  Audit  Committee  composed  of three
directors, Steve H. Salgan, Stanford J. Levin and Alan G. Orlowsky, each whom is
considered  an  "independent  director"  under the rules of the  American  Stock
Exchange and the Securities and Exchange Commission.  The Board of Directors has
determined  that Alan G.  Orlowsky  qualifies as an "audit  committee  financial
expert"  under SEC rules.  The function of the Audit  Committee is to assist the
Board of Directors in  preserving  the  integrity of the  financial  information
published by the Company through the review of financial and accounting controls
and policies,  financial reporting systems,  alternative  accounting  principles
that could be applied  and the  quality  and  effectiveness  of the  independent
public accountants.

COMPENSATION OF DIRECTORS

Our  directors  currently  do not  receive,  and  have  not  received,  any cash
compensation  for serving on our board,  but are eligible to receive options and
restricted  shares and units of our common stock under our 2004 Stock  Incentive
Plan. In 2004, Mr. G. Halpern  received  425,000  options,  Mr. Dabney  received
225,000 options, Mr. E. Halpern received  125,000  options,  Mr. Salgan received
125,000 options,  Mr. Levin received  125,000 options and Mr. Orlowsky  received
125,000 options.

COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934

         Section 16(a) of the Securities Exchange Act of 1934, as amended,  (the
"Exchange Act") requires the Company's executive officers, directors and persons
who  beneficially  own  greater  than 10% of a  registered  class of our  equity
securities ("Reporting Persons") to file certain reports with the Securities and
Exchange  Commission  with respect to ownership  and changes in ownership of our
common stock and other equity securities  ("Section 16 Reports").  The Reporting
Persons are required by  regulation  to furnish us with copies of all Section 16
Reports they file.

         To our  knowledge,  based  solely  upon the review of the copies of the
Section 16 Reports  furnished to us,  Section  16(a) reports set forth below for
the following individuals were not timely filed:

         Gregory J. Halpern - one report  relating to the sale of 15,000 shares;
         seven  reports  relating  to sales of  84,000  shares  pursuant  to Mr.
         Halpern's Rule 10b5-1 insider trading plan;  three reports  relating to
         exercises  of  1,185,000  options;  and three  reports  relating to the
         acquisition of 25,000 options.

         Dana L. Dabney - one report relating to the sale of 10,000 shares;  six
         reports relating to the sales of 48,000 shares pursuant to Mr. Dabney's
         Rule  10b5-1  trading  plan;  one report  relating  to the  exercise of
         400,000 options; and two reports relating to the acquisition of 275,000
         options.

         Edward L. Halpern - two reports  relating to the acquisition of 100,000
         options.

         Stanford J. Levin - two reports  relating to the  acquisition of 50,000
         options.

         Steve H.  Salgan - one report  relating  to the  acquisition  of 25,000
         options.

         Michael  J.  Theriault  - one  report  relating  to the sale of  50,000
         shares; one report relating to the exercise of 80,000 options;  and one
         report relating to the acquisition of 250,000 options.

CODE OF ETHICS

         We have  adopted  a code of  ethics,  known as our Code of  Ethics  and
Business  Conduct,  that  applies to all  employees.  This code of ethics can be
found on our website at www.crgq.com. Stockholders may also obtain a copy of the
Code of Ethics and  Business  Conduct by  submitting  a request for such copy to
Circle Group Holdings, Inc., 1011 Campus Drive, Mundelein, Illinois 60060.

                                      -18-
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION.

         The following table  summarizes the  compensation  earned in the fiscal
years ended December 31, 2002, 2003 and 2004 by our chief executive  officer and
the other four most highly paid executive  officers whose total salary and bonus
awards  exceeded  $100,000 for the fiscal year ended  December 31, 2004. In this
document, we refer to these individuals as our "named executive officers."

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                                         LONG-TERM
                                                                                                        COMPENSATION
                                                                 ANNUAL COMPENSATION                       AWARDS
                                                            ----------------------------------- ------------------------------
                                                                                                    SHARES
                                                                                     OTHER        UNDERLYING     RESTRICTED
NAME AND PRINCIPAL POSITION                          YEAR     SALARY     BONUS    COMPENSATION      OPTIONS     STOCK AWARDS
-------------------------------------------------- -------- ---------- --------- -------------- ------------- ----------------
<S>                                                  <C>      <C>         <C>         <C>         <C>                <C>
Gregory J. Halpern..............................     2004     $86,200     $--         $--         1,230,000          --
  PRESIDENT AND CHIEF EXECUTIVE                      2003      27,000      --          --           180,000          --
  OFFICER                                            2002          --      --          --         1,675,000          --
</TABLE>

OPTION GRANTS

         The  following  table  contains  information  concerning  the  grant of
options to purchase  shares of our common  stock to each of the named  executive
officers during the fiscal year ended December 31, 2004. The percentage of total
options  granted  to  employees  set  forth  below is based on an  aggregate  of
5,806,750 shares subject to options granted in 2004.

                        OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                       INDIVIDUAL GRANTS
                              -----------------------------------------------------------------
                                                PERCENT OF
                                 NUMBER OF         TOTAL
                                 SECURITIES      OPTIONS
                                 UNDERLYING     GRANTED TO      EXERCISE OR
                                  OPTIONS        EMPLOYEES       BASE PRICE        EXPIRATION
NAME                              GRANTED         IN 2004         ($/SHARE)           DATE
----                          --------------- --------------- ------------------ --------------
<S>                               <C>               <C>             <C>            <C>
Gregory J. Halpern..........      400,000           10%             $2.00          01/02/2007
                                   25,000            1%             $4.61          03/01/2007
                                  805,000           19%             $0.75          11/17/2007
</TABLE>


      OPTIONS EXERCISED DURING 2004 AND OPTIONS VALUES AT DECEMBER 31, 2004

         The following table contains  information  regarding  options exercised
during 2004 and  unexercised  options held at December  31,  2004,  by the named
executive officers.

<TABLE>
<CAPTION>
                                                                                                          VALUE OF
                                                                                                         UNEXERCISED
                                                                                                        IN-THE-MONEY
                                                                            NUMBER OF UNEXERCISED        OPTIONS AT
                                                                                  OPTIONS AT          DECEMBER 31, 2004
                                                                              DECEMBER 31, 2004              ($)
                                                 SHARES                   ------------------------- ---------------------
                                               ACQUIRED ON       VALUE           EXERCISABLE/           EXERCISABLE/
NAME                                            EXERCISE       REALIZED         UNEXERCISABLE           UNEXERCISABLE
----                                         --------------- ------------ ------------------------- ---------------------
<S>                                              <C>            <C>               <C>                      <C>
Gregory J. Halpern.......................        895,000        254,750           1,550,000                935,627
</TABLE>

                                      -19-
<PAGE>

ITEM 11. SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT  AND
         RELATED STOCKHOLDER MATTERS.

         The following  table sets forth  information  regarding the  beneficial
ownership  of  our  common  stock  as  of  March  28,  2005,  by  the  following
individuals, entities or groups:

             o   each person or entity who we know  beneficially  owns more than
                 five percent of our outstanding common stock;

             o   each of the named executive officers;

             o   each director and nominee; and

             o   all directors and executive officers as a group.

         Beneficial  ownership is determined in accordance with the rules of the
Securities and Exchange  Commission and includes voting or investment power with
respect to the shares. In computing the number of shares beneficially owned by a
person and the  percentage  ownership  of that  person,  shares of common  stock
subject  to  options  and  warrants  held  by that  person  that  are  currently
exercisable or convertible or will become  exercisable or convertible  within 60
days  after  March 28,  2005 are  deemed  outstanding,  while the shares are not
deemed outstanding for purposes of computing  percentage  ownership of any other
person.  Except as  otherwise  indicated,  and subject to  applicable  community
property  laws,  the persons named in the table have sole voting and  investment
power with respect to all shares of common stock held by them.

         Applicable  percentage  ownership  in the  following  table is based on
44,719,559  shares of common  stock  outstanding  as of March 28,  2005.  Unless
otherwise indicated, the address for each stockholder listed in the table is c/o
Circle Group Holdings, Inc., 1011 Campus Drive, Mundelein, Illinois 60060.

<TABLE>
<CAPTION>

                                                                                  PERCENTAGE OF
                                                             NUMBER OF SHARES         SHARES
                            NAME OF                            BENEFICIALLY        BENEFICIALLY
                       BENEFICIAL OWNER                            OWNED              OWNED
                       ----------------                            -----              -----

<S>                                                             <C>                    <C>
FIVE PERCENT STOCKHOLDERS:
Paradigm Circle L.P. (1)                                         3,183,734              7.1%
Paradigm Group II LLC(2)                                         3,183,734              7.1%
Paradigm Circle Millennium Fund, L.P. (3)                        3,183,734              7.1%

DIRECTORS AND NAMED EXECUTIVE OFFICERS:
Gregory J. Halpern(4)                                           14,928,100             33.4%
Dana L. Dabney( 5)                                               2,257,000              5.0%
Michael J. Theriault(6)                                            999,000             2.23%
Edward L. Halpern(7)                                             1,245,000             2.78%
Stanford J. Levin(8)                                               273,300                 *
Steve H. Salgan(9)                                                 646,915              1.4%
Alan G. Orlowsky(10)                                               192,750                 *

Total of all Directors and Executive Officers                   20,542,065             45.9%
</TABLE>

---------------------

* Less than 1%.

(1) Includes (i) 465,407 shares and 722,857 warrants  convertible within 60 days
of March 28, 2005 held  directly,  (ii)  119,120  shares held by its  affiliate,
Paradigm  Group  II  LLC,  and  (iii)  1,126,350  shares  and  750,000  warrants
convertible  within 60 days of March 28,  2005 held by its  affiliate,  Paradigm
Circle Millennium Fund, L.P.

(2) Includes (i) 119,120 shares held  directly,  (ii) 465,407 shares and 722,857
warrants  convertible  within 60 days of March 28,  2005 held by its  affiliate,
Paradigm  Circle  L.P.,  and  (iii)  1,126,350   shares  and  750,000   warrants
convertible  within 60 days of March 28,  2005 held by its  affiliate,  Paradigm
Circle Millennium Fund, L.P.

(3) Includes (i) 1,126,350  shares and 750,000  warrants  convertible  within 60
days of March 28, 2005 held directly, (ii) 119,120 shares held by its affiliate,
Paradigm Group II LLC, and (iii) 465,407 shares and 722,857 warrants convertible
within 60 days of March 28, 2005 held by its affiliate, Paradigm Circle L.P.

(4) Includes 1,550,000 options exercisable within 60 days of March 28, 2005.

                                      -20-
<PAGE>

(5) Includes 1,155,000 options exercisable within 60 days of March 28, 2005.

(6) Includes 965,000 options exercisable within 60 days of March 28, 2005.

(7) Includes 445,000 options exercisable within 60 days of March 28, 2005.

(8) Includes 145,000 options exercisable within 60 days of March 28, 2005.

(9) Includes 370,000 options exercisable within 60 days of March 28, 2005.

(10) Includes 170,000 options exercisable within 60 days of March 28, 2005.

                                      -21-
<PAGE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         On August 2, 2002 and November 7, 2002, the Company  borrowed  $149,000
and $70,000, respectively, from Gregory J. Halpern, the Chairman of the Board of
Directors,  and signed two  promissory  notes in favor of Gregory J.  Halpern in
return.  The notes are payable  upon demand and provided for interest to be paid
monthly at the rate of 5% per annum.

ITEM 13.  EXHIBIT LIST AND REPORTS ON FORM 8-K.

EXHIBIT NO.             DESCRIPTION

3.1         Articles  of   Incorporation   of  Circle   Group   Holdings,   Inc.
            [Incorporated  by  reference  to Exhibit 2.1 to Circle  Group's Form
            10-SB, as amended, filed on August 21, 2000]

3.2         Bylaws of Circle Group Holdings,  Inc. [Incorporated by reference to
            Exhibit  2.2 to Circle  Group's  Form 10-SB,  as  amended,  filed on
            August 21, 2000]

3.3         Amendment to Articles of  Incorporation  of Circle  Group  Holdings,
            Inc.  filed on June 25, 2004  [Incorporated  by reference to Exhibit
            3.3 to Circle Group's Form 10-QSB filed on August 16, 2004]

4.1         Specimen  Certificate for common stock [Incorporated by reference to
            Exhibit  3.1 to Circle  Group's  Form 10-SB,  as  amended,  filed on
            August 21, 2000]

10.1        Gregory J. Halpern Employment  Agreement,  dated January 2, 1999 and
            Addendum [Incorporated by reference to Exhibit 6.1 to Circle Group's
            Form 10-SB, as amended, filed on August 21, 2000]

10.2        Michael  Theriault   Employment   Agreement,   dated  June  1,  1999
            [Incorporated  by  reference  to Exhibit 6.3 to Circle  Group's Form
            10-SB, as amended, filed on August 21, 2000]

10.3        Dana   Dabney   Employment   Agreement,   dated   January   2,  1999
            [Incorporated  by  reference  to Exhibit 6.4 to Circle  Group's Form
            10-SB, as amended, filed on August 21, 2000]

10.5        Circle Group Holdings, Inc. 2004 Equity Incentive Plan [Incorporated
            by  reference  to Exhibit  10.5 to Circle  Group's Form S-3 filed on
            June 25, 2004]

10.6        Industrial Lease Agreement  between CLO Enterprises and Circle Group
            Holdings,  Inc.,  dated May 20, 1999  [Incorporated  by reference to
            Exhibit  6.6 to Circle  Group's  Form 10-SB,  as  amended,  filed on
            August 21, 2000]

10.7        Industrial Lease Agreement  between CLO Enterprises and Circle Group
            Holdings,  Inc.,  dated June 18, 1999  [Incorporated by reference to
            Exhibit  6.7 to Circle  Group's  Form 10-SB,  as  amended,  filed on
            August 21, 2000]

10.8        Stock  Purchase  Agreement,  dated December 20, 2002, by and between
            CGI  Capital   and   Rothschild   Owens   Hayes  &  Partners,   Inc.
            [Incorporated  by  reference  to Exhibit 6.8 to Circle  Group's Form
            10-KSB filed on April 14, 2003]

10.9        Promissory Note, Dated November 30, 2002,  delivered by Circle Group
            Holdings,  Inc.  in favor  of  Edward  L.  Halpern  Incorporated  by
            reference  to Exhibit 6.11 to Circle  Group's  10-KSB filed on April
            14, 2003]

10.10       Asset  Purchase  Agreement,  dated August 27,  2002,  by and between
            Circle Group Holdings,  Inc. and Utek  Corporation  [Incorporated by
            reference to Circle Group's Form 8-K filed on September 11, 2002]

10.11       Consulting Agreement by and between Circle Group Holdings,  Inc. and
            Stavros N. Papageorgiou dated November 19, 2004.

23.1*       Consent of Spector & Wong LLP

31.1*       Statement Under Oath of Principal  Executive  Officer of the Company
            Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

                                      -22-
<PAGE>

31.2*       Statement Under Oath of Principal  Financial  Officer of the Company
            Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

32.1*       Statement Under Oath of Principal  Executive  Officer of the Company
            Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

32.2*       Statement Under Oath of Principal  Financial  Officer of the Company
            Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

---------------------

*Filed herewith

         The Company filed the following Current Reports on Form 8-K:

             o   Current  report dated October 14, 2004,  pursuant to Item 8.01,
                 Other Events; and

             o   Current report dated November 19, 2004,  pursuant to Item 8.01,
                 Other Events.

                                      -23-
<PAGE>

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

         The  following is a summary of the fees billed to us by Spector & Wong,
LLP for  professional  services  rendered for the fiscal year ended December 31,
2004 and December 31, 2003, respectively:

              FEE CATEGORY                2004              2003
         -------------------------- ----------------- -----------------

         -------------------------- ----------------- -----------------
         Audit Fees(1)                   $35,000           $25,000
         -------------------------- ----------------- -----------------
         Audit-Related Fees(2)           $51,800           $21,500
         -------------------------- ----------------- -----------------
         Tax Fees(3)                        --              $2,500
         -------------------------- ----------------- -----------------
         All Other Fees(4)                  --                --
         -------------------------- ----------------- -----------------
         Total Fees                      $86,800           $49,000
         -------------------------- ----------------- -----------------

--------------------

(1)      Audit Fees consist of fees billed for  professional  services  rendered
         for the  audit  of our  financial  statements  and for  reviews  of the
         interim financial  statements included in our quarterly reports on Form
         10-QSB.

(2)      Audit-Related  Fees  consist of fees billed for  professional  services
         rendered for  audit-related  services,  including  consultation  on SEC
         filings  and the  issuance  of  consents  and  consultations  on  other
         financial accounting and reporting related matters.

(3)      Tax Fees consists of fees billed for professional  services relating to
         tax compliance and other tax advice.

(4)      All Other Fees consist of fees billed for all other services.

PRE-APPROVAL POLICY

         Our Audit  Committee  Charter  provides that the Audit  Committee shall
pre-approve  all  auditing  services,   internal  control-related  services  and
permitted  non-audit services  (including the terms thereof) to be performed for
us by  our  independent  auditor,  subject  to  the de  minimis  exceptions  for
non-audit services described in Section  10A(i)(1)(B) of the Securities Exchange
Act of 1934,  as  amended,  which are  approved  by the  Committee  prior to the
completion of the service. The Committee may also form and delegate authority to
sub-committees consisting of one or more members when appropriate, including the
authority to grant  pre-approvals  of audit and  permitted  non-audit  services,
provided that decisions of such  subcommittee  to grant  pre-approvals  shall be
presented to the full  Committee at its next  scheduled  meeting.  In accordance
with the pre-approval policy, the Audit Committee has approved certain specified
audit and  non-audit  services  to be  provided  by Spector & Wong LLP for up to
twelve (12) months from the date of the pre-approval. Any additional services to
be provided by our independent auditors following such pre-approval requires the
additional pre-approval of the Audit Committee.

                                      -24-
<PAGE>

                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized as of March 31, 2005.

                                CIRCLE GROUP HOLDINGS, INC.

                                By: /s/ Gregory J. Halpern
                                --------------------------

                                Gregory J. Halpern
                                Chairman of the Board, President
                                and Chief Executive 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 as of
March 31, 2005.

/S/GREGORY J. HALPERN
---------------------
Gregory J. Halpern
Director, President and Chief Executive Officer
(principal executive officer)

/S/ DANA L. DABNEY
------------------
Dana L. Dabney
Director, Chief Financial Officer and
Vice President (principal financial
or accounting officer)

/S/ STEVE H. SALGAN
-------------------
Steve H. Salgan
Director

/S/ EDWARD L. HALPERN
---------------------
Edward L. Halpern
Director

/S/ STANFORD J. LEVIN
---------------------
Stanford J. Levin
Director

/S/ ALAN G. ORLOWSKY
--------------------
Alan G. Orlowsky
Director

                                      -25-
<PAGE>

                                INDEX OF EXHIBITS

EXHIBIT NO.                 DESCRIPTION

3.1         Articles  of   Incorporation   of  Circle   Group   Holdings,   Inc.
            [Incorporated  by  reference  to Exhibit 2.1 to Circle  Group's Form
            10-SB, as amended, filed on August 21, 2000]

3.2         Bylaws of Circle Group Holdings,  Inc. [Incorporated by reference to
            Exhibit  2.2 to Circle  Group's  Form 10-SB,  as  amended,  filed on
            August 21, 2000]

3.3         Amendment to Articles of  Incorporation  of Circle  Group  Holdings,
            Inc.  filed on June 25, 2004  [Incorporated  by reference to Exhibit
            3.3 to Circle Group's Form 10-QSB filed on August 16, 2004]

4.1         Specimen  Certificate for common stock [Incorporated by reference to
            Exhibit  3.1 to Circle  Group's  Form 10-SB,  as  amended,  filed on
            August 21, 2000]

10.1        Gregory J. Halpern Employment  Agreement,  dated January 2, 1999 and
            Addendum [Incorporated by reference to Exhibit 6.1 to Circle Group's
            Form 10-SB, as amended, filed on August 21, 2000]

10.2        Michael  Theriault   Employment   Agreement,   dated  June  1,  1999
            [Incorporated  by  reference  to Exhibit 6.3 to Circle  Group's Form
            10-SB, as amended, filed on August 21, 2000]

10.3        Dana   Dabney   Employment   Agreement,   dated   January   2,  1999
            [Incorporated  by  reference  to Exhibit 6.4 to Circle  Group's Form
            10-SB, as amended, filed on August 21, 2000]

10.5        Circle Group Holdings, Inc. 2004 Equity Incentive Plan [Incorporated
            by  reference  to Exhibit  10.5 to Circle  Group's Form S-3 filed on
            June 25, 2004]

10.6        Industrial Lease Agreement  between CLO Enterprises and Circle Group
            Holdings,  Inc.,  dated May 20, 1999  [Incorporated  by reference to
            Exhibit  6.6 to Circle  Group's  Form 10-SB,  as  amended,  filed on
            August 21, 2000]

10.7        Industrial Lease Agreement  between CLO Enterprises and Circle Group
            Holdings,  Inc.,  dated June 18, 1999  [Incorporated by reference to
            Exhibit  6.7 to Circle  Group's  Form 10-SB,  as  amended,  filed on
            August 21, 2000]

10.8        Stock  Purchase  Agreement,  dated December 20, 2002, by and between
            CGI  Capital   and   Rothschild   Owens   Hayes  &  Partners,   Inc.
            [Incorporated  by  reference  to Exhibit 6.8 to Circle  Group's Form
            10-KSB filed on April 14, 2003]

10.9        Promissory Note, Dated November 30, 2002,  delivered by Circle Group
            Holdings,  Inc.  in favor  of  Edward  L.  Halpern  Incorporated  by
            reference  to Exhibit 6.11 to Circle  Group's  10-KSB filed on April
            14, 2003]

10.10       Asset  Purchase  Agreement,  dated August 27,  2002,  by and between
            Circle Group Holdings,  Inc. and Utek  Corporation  [Incorporated by
            reference to Circle Group's Form 8-K filed on September 11, 2002]

10.11       Consulting Agreement by and between Circle Group Holdings,  Inc. and
            Stavros N. Papageorgiou dated November 19, 2004.

23.1*       Consent of Spector & Wong LLP

31.1*       Statement Under Oath of Principal  Executive Officer of Circle Group
            Holdings, Inc. Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2*       Statement Under Oath of Principal  Financial Officer of Circle Group
            Holdings, Inc. Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

32.1*       Statement Under Oath of Principal  Executive Officer of Circle Group
            Holdings, Inc. Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

32.2*       Statement Under Oath of Principal  Financial Officer of Circle Group
            Holdings, Inc. Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

---------------------

*Filed herewith

                                      -26-
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                             PAGE
                                                                                                             ----

<S>                                                                                                           <C>
Report of Independent Auditors.........................................................................       F-2

Consolidated Balance Sheets............................................................................       F-3

Consolidated Statements of Operations..................................................................       F-4

Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive Income (Loss)..............       F-5

Consolidated Statements of Cash Flows..................................................................       F-6

Notes to Consolidated Financial Statements.............................................................       F-7
</TABLE>

                                      F-1
<PAGE>


HAROLD Y. SPECTOR, CPA          SPECTOR & WONG, LLP         80 SOUTH LAKE AVENUE
CAROL S. WONG, CPA         Certified Public Accountants               SUITE  723
                                 1- (888) 584-5577            PASADENA, CA 91101
                                 FAX (626) 584-6447





             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of Circle Group Holdings, Inc.

We have audited the  accompanying  consolidated  balance  sheets of Circle Group
Holdings,  Inc.  and  subsidiaries  as of December  31,  2004 and 2003,  and the
related consolidated statements of income,  stockholders' equity, and cash flows
for the years  then  ended.  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 the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position  of Circle  Group
Holdings,  Inc.  and  subsidiaries  as of December  31,  2004 and 2003,  and the
results of their  operations  and their cash flows for the years then ended,  in
conformity with accounting principles generally accepted in the United States of
America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the
consolidated  financial  statements,  the Company's operating losses and working
capital  deficiency raise  substantial  doubt about its ability to continue as a
going concern.  Management's plans regarding those matters are also described in
Note 3. The  consolidated  financial  statements do not include any  adjustments
that might result from the outcome of this uncertainty.


/s/Spector & Wong, LLP
Pasadena, California
March 25, 2005

                                      F-2
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ASSETS                                                                        2004            2003
------------------------------------------------------------------------------------------------------
<S>                                                                       <C>             <C>
Current Assets
  Cash and cash equivalents                                               $    93,748     $ 1,383,718
  Accounts receivable, net of allowance for doubtful
     accounts 2004 $0; 2003 $6,096                                             86,465          69,157
  Prepaid expenses                                                            100,548          16,332
  Inventories                                                                 115,742          18,049
                                                                          ----------------------------
           TOTAL CURRENT ASSETS                                               396,503       1,487,256
                                                                          ----------------------------

Property and equipment, net                                                 6,986,553         718,087
                                                                          ----------------------------
Other Assets
  Deposits                                                                     11,103          11,090
  Intangible assets, net                                                      563,250         597,583
                                                                          ----------------------------
           Total other assets                                                 574,353         608,673
                                                                          ----------------------------

           TOTAL ASSETS                                                   $ 7,957,409     $ 2,814,016
                                                                          ============================
</TABLE>


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                      F-3
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY                                         2004             2003
-------------------------------------------------------------------------------------------------------
<S>                                                                      <C>               <C>
Current Liabilities
  Accounts payable                                                       $  1,595,715      $    98,831
  Accrued expenses and other liabilities                                      507,684          212,947
  Note payable to related parties                                              25,000           25,000
  Current portion of capital lease obligations                                 30,790           26,667
                                                                         ------------------------------
                                                                            2,159,189          363,445
Long-Term Liabilities,
  Capital lease obligations                                                    43,128           74,202
                                                                         ------------------------------

          TOTAL LIABILITIES                                                 2,202,317          437,647
                                                                         ------------------------------

Minority deficit                                                              (78,866)         (11,326)

Stockholders' Equity
  Common stock, $.00005 par value; 200,000,000 shares
   authorized; issued and outstanding 2004 44,396,469 shares;
   2003 30,872,252 shares                                                       2,220            1,544
  Common stock to be issued                                                        22               79
  Additional paid-in capital                                               38,185,404       25,753,263
  Unamortized expenses                                                     (1,849,589)        (445,867)
  Notes receivable for issuance of stock                                   (3,465,000)              --
  Accumulated deficit                                                     (27,027,830)     (22,910,055)
  Treasury stock, at cost                                                     (11,269)         (11,269)
                                                                         ------------------------------
          TOTAL STOCKHOLDERS' EQUITY                                        5,833,958        2,387,695
                                                                         ------------------------------
    TOTAL LIABILITIES AND STOCKHOLDERS'
      EQUITY                                                             $  7,957,409     $  2,814,016
                                                                         ==============================
</TABLE>


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                      F-4
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------

For the years ended December 31,                      2004             2003
--------------------------------------------------------------------------------
Revenues:
  Products                                        $   634,456      $    659,664
  Services                                             30,997            82,778
--------------------------------------------------------------------------------
    TOTAL REVENUES                                    665,453           742,442
--------------------------------------------------------------------------------
Cost of revenues:
  Products                                            589,196           529,860
  Services                                             87,357           443,103
--------------------------------------------------------------------------------
    Total cost of revenues                            676,553           972,963
--------------------------------------------------------------------------------
Operating expenses:
  Selling, general and administrative               5,142,295         2,840,932
  Amortization of intangible assets                    34,333            22,417
--------------------------------------------------------------------------------
    Total operating expenses                        5,176,628         2,863,349
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
            OPERATING LOSS                         (5,187,728)       (3,093,870)
--------------------------------------------------------------------------------

Other income (expenses):
  Rental and other income                              62,765           151,370
  Interest income                                       6,200             5,002
  Gain on disposal of long-lived assets                    --           155,554
  Settlment gain                                      953,000                --
  Interest expense                                    (19,552)          (45,877)
--------------------------------------------------------------------------------
    Total other income                              1,002,413           266,049
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
            NET LOSS                              $(4,185,315)     $ (2,827,821)
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
NET LOSS PER SHARE - BASIC AND DILUTED            $     (0.11)     $      (0.10)
--------------------------------------------------------------------------------

Weighted Average Number of Shares                  38,347,768        26,981,440


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                      F-5
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                 Common
                                                Stock and                     Note
                                  Shares of     Additional                 Receivable
                                    Common       Paid-in     Unamortized   issued for     Accumulated     Treasury
                                    Stock        Capital       Expenses       Stock         Deficit         Stock        Total
----------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>          <C>           <C>           <C>            <C>             <C>         <C>
Balance at December 31, 2002      23,711,043   $20,405,970   $        --   $        --    $(20,082,234)   $(11,269)   $   312,467
  Stock issued for services          934,046     1,407,552      (333,750)                            0           0      1,073,802
  Stock issued for acquisition
    of license rights              1,208,333       620,000             0                             0           0        620,000
  Stock issued for cash            1,260,000       250,000             0                             0           0        250,000
  Stock subscription               2,742,857       978,250             0                             0           0        978,250
  Exercise of stock warrants
    and options                    1,119,573       331,987             0                             0           0        331,987
  Retirement of common stock        (103,600)      (58,750)            0                             0           0        (58,750)
  Equity adjustments related
    to subsidiary equity
    transactions                           0     1,100,000             0                             0           0      1,100,000
  Warrants issued for services             0       719,877      (112,117)                            0           0        607,760
  Net loss                                 0             0             0                    (2,827,821)          0     (2,827,821)
                                 -------------------------------------------------------------------------------------------------
Balance at December 31, 2003      30,872,252   $25,754,886   $  (445,867)  $        --    $(22,910,055)   $(11,269)   $ 2,387,695
  Stock issued for services        2,846,074     2,647,920    (2,033,500)                                                 614,420
  Stock issued for cash            3,916,813     7,276,175                  (3,215,000)                                 4,061,175
  Stock subscription               1,730,000                                                                                   --
  Exercise of stock warrants
    and options                    5,031,330     2,458,665                    (250,000)                                 2,208,665
  Warrants issued for services                      50,000       (50,000)
  Amortization of services                                       679,778                                                  679,778
  Minority loss                                                                                 67,540                     67,540
  Net loss                                                                                  (4,185,315)                (4,185,315)
                                 -------------------------------------------------------------------------------------------------

Balance at December 31, 2004      44,396,469   $38,187,646   $(1,849,589)  $(3,465,000)   $(27,027,830)   $(11,269)   $ 5,833,958
                                 =================================================================================================
</TABLE>


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                      F-6
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,                                                   2004                 2003
-----------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                  <C>
Cash Flow From Operating Activities:
  Net loss                                                                     $ (4,185,315)        $ (2,827,821)
  Adjustments to reconcile net loss to net cash used in operations:
   Minority deficit                                                                      --              (11,326)
   Depreciation and amortization                                                    232,532              170,201
   (Gain) on disposal of long-lived assets                                           (1,400)            (155,554)
   Write-off of employee advances and loans                                               0                5,148
   Stocks and warrants issued for services                                          614,420            1,632,812
   Amortization of noncash expenses                                                 679,777                    0
   (Increase) decrease in: Accounts receivable                                      (17,307)             (36,329)
     Prepaid expenses and other assets                                              (84,216)             (10,010)
     Inventories                                                                    (97,693)               5,875
     Deposits                                                                           (13)                   0
   Increase (decrease) in:
     Accounts payable and other liabilities                                       1,791,622              (87,474)
-----------------------------------------------------------------------------------------------------------------
           CASH FLOWS USED IN OPERATING ACTIVITIES                               (1,067,593)          (1,314,478)
-----------------------------------------------------------------------------------------------------------------

Cash Flow From Investing Activities:
  Employee loans and advances                                                            --               (8,904)
  Purchase of property and equipment                                             (6,466,665)              (3,868)
  Proceeds from disposition of property and equipment                                 1,400                6,375
  Proceeds from sale of intangible assets                                                 0              150,000
-----------------------------------------------------------------------------------------------------------------
           CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES                 (6,465,265)             143,603
-----------------------------------------------------------------------------------------------------------------

Cash Flow From Financing Activities:
  Net proceeds from sales of stock                                                4,061,175              250,000
  Net proceeds from stock subscription                                                    0              978,250
  Net proceeds from subsidiary stock offering                                             0            1,100,000
  Exercise of warrants and options                                                2,208,665              138,487
  Repayments to officers                                                                  0              (14,100)
  Repayments on capital lease obligations                                           (26,952)             (20,503)
-----------------------------------------------------------------------------------------------------------------
           CASH FLOWS PROVIDED BY FINANCING ACTIVITIES                            6,242,888            2,432,134
-----------------------------------------------------------------------------------------------------------------

           NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                  (1,289,970)           1,261,259

Cash and cash equivalents, at beginning of year                                   1,383,718              122,459
-----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, AT END OF YEAR                                      $     93,748         $  1,383,718
-----------------------------------------------------------------------------------------------------------------

Supplemental Disclosures of Cash Flow Information:
      Interest paid                                                            $     17,218         $     43,640
Supplemental Schedules of Noncash Investing and Financing Activities:
  Note recievable incurred for issuance of stock                               $  3,465,000         $          0
  Common stocks and warrants issued to acquire license rights                  $          0         $    620,000
  Retirement of common stock to reduce employee loan                           $          0         $     10,000
  Stock option exercised to retire note payable to related party               $          0         $    193,500
</TABLE>


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                      F-7
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1 - NATURE OF BUSINESS

Circle Group Holdings,  Inc. (the "Company") is a pioneer of emerging technology
companies.  The Company  provides  small  business  infrastructure,  funding and
substantial  intellectual  capital to bring  important and timely  life-changing
technologies  to the  marketplace  through  all phases of the  commercialization
process.

The Company has  participated  in several  public and private  offerings and has
expanded its business. In 2002, the Company acquired FiberGel Technologies, Inc.
("FiberGel"),  which  owns an  exclusive  license  to  Z-Trim,  an  all-natural,
corn-based  fat  replacement.  The Company  reorganized  its business units into
three  reportable   segments:   food  product   development,   security  product
development, and e-tailer.

The Company operates through its FiberGel, Mini-Raman Lidar Technology, ThraxVac
Technology,  The Brave Way Training  Systems,  Inc,  On-Line Bedding Corp.,  and
Z-Amaize Technologies, Inc. divisions.

On March 31, 2004,  the Company's  common stock was approved to be traded on the
American Stock Exchange under the symbol, CXN.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The  accompanying  consolidated  financial  statements  have  been  prepared  in
accordance with accounting principles generally accepted in the United States of
America (GAAP).

USE OF ESTIMATES:  The preparation of the  accompanying  consolidated  financial
statements in conformity  with GAAP  requires  management to make  estimates and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

REVENUE  RECOGNITION:  The Company  generally  recognizes  product  revenue when
persuasive evidence of an arrangement exists,  delivery has occurred, the fee is
fixed or determinable,  and  collectibility is probable.  In instances where the
final  acceptance  of the  product  is  specified  by the  customer,  revenue is
deferred  until  all  acceptance  criteria  have been met.  No  provisions  were
established for estimated  product returns and allowances based on the Company's
historical experience.

ALLOWANCE FOR DOUBTFUL ACCOUNTS: Management of the Company makes judgments as to
its ability to collect  outstanding  receivables and provide  allowances for the
portion of receivables  when collection  becomes  doubtful.  Provisions are made
based upon a specific review of all significant  outstanding invoices. For those
invoices not specifically reviewed,  provisions are provided at differing rates,
based  upon  the  age of  the  receivable.  In  determining  these  percentages,
management  analyzes its historical  collection  experience and current economic
trends.  If the historical  data the Company uses to calculate the allowance for
doubtful  accounts  does not reflect the future  ability to collect  outstanding
receivables,  additional  provisions for doubtful accounts may be needed and the
future results of operations could be materially affected.

                                      F-8
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CASH AND CASH  EQUIVALENTS:  For purposes of the  statement  of cash flows,  the
Company considers all highly liquid  investments with a maturity of three months
or less to be cash equivalents.

FAIR VALUE OF FINANCIAL  INSTRUMENTS:  All financial  instruments are carried at
amounts that approximate estimated fair value.

CONCENTRATIONS:  Cash and cash equivalents are maintained with several financial
institutions.  Deposits  held with  banks may  exceed  the  amount of  insurance
provided on such deposits. Generally, these deposits may be redeemed upon demand
and therefore bear minimal risk.

INVENTORIES:  Inventories consist of raw materials, finished goods and packaging
and displays and are stated at the lower of cost or market,  using the first-in,
first-out method.

PROPERTY AND EQUIPMENT:  Property and equipment are stated at cost.  Maintenance
and repair costs are expensed as incurred.  Depreciation  is  calculated  on the
accelerated  and  straight-line  methods over the estimated  useful lives of the
assets.  Estimated  useful lives of five to ten years are used for machinery and
equipment,  office  equipment and furniture,  and automobile.  Estimated  useful
lives of up to five years are used for computer  equipment and related software.
Depreciation and  amortization of leasehold  improvements are computed using the
term of the lease.

INTANGIBLE  ASSETS:  Intangible  assets are carried at the  purchased  cost less
accumulated  amortization.  Amortization  is computed over the estimated  useful
lives of the respective assets, generally from five to twenty years.

IMPAIRMENT  OF LONG-LIVED  ASSETS:  Long-lived  assets and certain  identifiable
intangible  assets  to be held and used are  reviewed  for  impairment  whenever
events or changes in  circumstance  indicate  that the  carrying  amount of such
assets may not be recoverable.  Determination of  recoverability  is based on an
estimate of  undiscounted  future cash flows resulting from the use of the asset
and its eventual  disposition.  Measurement of an impairment loss for long-lived
assets and certain  identifiable  intangible  assets that management  expects to
hold and use is based on the fair  value of the  asset.  Long-lived  assets  and
certain  identifiable  intangible  assets to be disposed of are  reported at the
lower of carrying amount or fair value costs to sell.

INCOME  (LOSS) PER COMMON  SHARE Basic net income  (loss) per share  includes no
dilution  and is computed  by dividing  net income  (loss)  available  to common
stockholders by the weighted average number of common stock  outstanding for the
period.  Diluted  earnings  per share is computed by dividing  net income by the
weighted  average number of shares  outstanding  and, when,  diluted,  potential
shares from  options and  warrants to purchase  common  stock using the treasury
stock  method.  Diluted net loss per common share does not differ from basic net
loss per common share since potential  shares of common stock are  anti-dilutive
for all periods presented.

                                      F-9
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INCOME TAXES:  The Company and its subsidiaries are included in the consolidated
federal  income  tax  return  filed by the  Parent.  Federal  income  taxes  are
calculated as if the companies filed on a separate return basis,  and the amount
of current tax expense or benefit  calculated is either  remitted to or received
from the Parent.  The amount of current and deferred taxes payable or refundable
is recognized as of the date of the financial  statements,  utilizing  currently
enacted tax laws and rates.  Deferred tax expenses or benefits are recognized in
the financial  statements for the changes in deferred tax  liabilities or assets
between years.

ADVERTISING COSTS: The Company expenses all advertising costs as incurred.

MINORITY DEFICIT: Minority deficit represents other stockholders'  proportionate
share (loss) in the equity of FiberGel  Technologies,  Inc. At December 31, 2004
and 2003, the Company owned all issued and outstanding common stock amounting to
94.5% of the voting rights.

STOCK-BASED COMPENSATION: SFAS No. 148. "Accounting for Stock-Based Compensation
- Transition and Disclosure, an Amendment of FASB Statement No. 123," amends the
disclosure   requirements   of  SFAS  No.  123,   "Accounting   for  Stock-Based
Compensation," to require more prominent  disclosures in both annual and interim
financial statements regarding the method of accounting for stock-based employee
compensation and the effect of the method used on reported results.

The Company accounts for equity-based instruments issued or granted to employees
using  the  intrinsic   method  of  accounting  in  accordance  with  Accounting
Principles  Board  (APB)  Opinion  No.  25,  "Accounting  for  Stock  Issued  to
Employees"  ("APB 25").  Under the intrinsic value method,  because the exercise
price of the Company's  employee  stock  options  equals the market price of the
underlying stock on the date of grant, no compensation  expense is recognized in
the Company's Consolidated Statements of Operations.

The  Company  is  required  under  SFAS 123 to  disclose  pro forma  information
regarding option grants to its employees based on specified valuation techniques
that produce  estimated  compensation  charges.  The pro forma information is as
follows:

<TABLE>
<CAPTION>
        For years ended December 31,                                2004             2003
        -------------------------------------------------------------------------------------
        <S>                                                    <C>              <C>
        Net loss - as reported                                 $ (4,185,315)    $ (2,827,821)
        Pro forma compensation expense                            2,970,634          171,063
                                                               -------------    -------------
        Pro forma net loss                                     $ (7,155,949)    $ (2,998,884)
                                                               =============    =============
        Basic and diluted net loss per share:
          As reported                                          $      (0.11)    $      (0.10)
                                                               =============    =============
          Pro forma                                            $      (0.19)    $      (0.11)
                                                               =============    =============
</TABLE>

                                      F-10
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The  value of each  option  grant is  estimated  on the date of grant  using the
Black-Scholes  option pricing  model,  which was developed for use in estimating
the value of traded  options  that have no  vesting  restrictions  and are fully
transferable.  Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the estimate, in management's
opinion,  the existing valuation models do not provide a reliable measure of the
fair value of the Company's employee stock options. (For additional  information
regarding this pro forma information,  see Note 13 to the Consolidated Financial
Statements.)

The Company  accounts for stock issued to  non-employees  in accordance with the
provisions of SFAS No. 123 and the EITF Issue No. 00-18,  "Accounting for Equity
Instruments  That Are  Issued  to Other  Than  Employees  for  Acquiring,  or in
Conjunction  with Selling,  Goods or Services."  SFAS No. 123 states that equity
instruments  that are issued in  exchange  for the  receipt of goods or services
should be measured at the fair value of the  consideration  received or the fair
value of the equity instruments issued,  whichever is more reliably  measurable.
Under the guidance in Issue 00-18, the measurement date occurs as of the earlier
of (a) the date at which a  performance  commitment  is  reached or (b) absent a
performance commitment,  the date at which the performance necessary to earn the
equity instruments is complete (that is, the vesting date).

NEW ACCOUNTING  STANDARDS:  In December 2004, the Financial Accounting Standards
Board (FASB) issued Statement of Financial  Accounting Standards (SFAS) No. 153.
This statement addresses the measurement of exchanges of nonmonetary assets. The
guidance in APB Opinion No. 29,  "Accounting for Nonmonetary  Transactions,"  is
based on the principle that  exchanges of nonmonetary  assets should be measured
based on the fair value of the assets  exchanged.  The guidance in that opinion;
however,  included certain  exceptions to that principle.  This statement amends
Opinion 29 to  eliminate  the  exception  for  nonmonetary  exchanges of similar
productive  assets and  replaces it with a general  exception  for  exchanges of
nonmonetary  assets  that  do not  have  commercial  substance.  A  nonmonetrary
exchange  has  commercial  substance  if the future cash flows of the entity are
expected to change significantly as a result of the exchange.  This statement is
effective for financial  statements  for fiscal years  beginning  after June 15,
2005. Earlier  application is permitted for nonmonetary asset exchanges incurred
during  fiscal  years  beginning  after the date of this  statement  is  issued.
Management  believes the adoption of this  statement  will have no impact on the
consolidated financial statements of the Company.

In December  2004, the FASB issued SFAS No. 152, which amends FASB statement No.
66, "Accounting for Sales of Real Estate," to reference the financial accounting
and  reporting  guidance  for  real  estate  time-sharing  transactions  that is
provided in AICPA Statement of Position (SOP) 04-2,  "Accounting for Real Estate
Time-Sharing  Transactions."  This  statement also amends FASB Statement No. 67,
"Accounting for Costs and Initial Rental Operations of Real Estate Projects," to
state that the guidance for (a) incidental  operations and (b) costs incurred to
sell  real  estate   projects  does  not  apply  to  real  estate   time-sharing
transactions.  The accounting  for those  operations and costs is subject to the
guidance in SOP 04-2.  This statement is effective for financial  statements for
fiscal years beginning after June 15, 2005.  Management believes the adoption of
this statement will have no impact on the consolidated  financial  statements of
the Company.

                                      F-11
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In December 2004, the FASB issued a revision to SFAS No. 123R,  "Accounting  for
Stock  Based  Compensations."  This  statement  supercedes  APB  Opinion No. 25,
"Accounting  for Stock  Issued to  Employees,"  and its  related  implementation
guidance.   This  statement   establishes   standards  for  the  accounting  for
transactions  in which an entity  exchanges its equity  instruments for goods or
services.  It also addresses  transactions in which an entity incurs liabilities
in  exchange  for  goods or  services  that are  based on the fair  value of the
entity's  equity  instruments  or that may be settled by the  issuance  of those
equity   instruments.   This  statement  focuses  primarily  on  accounting  for
transactions in which an entity obtains employee services in share-based payment
transactions.  This statement does not change the accounting  guidance for share
based payment  transactions  with parties other than employees  provided in SFAS
No. 123.  This  statement  does not address the  accounting  for employee  share
ownership  plans,  which  are  subject  to AICPA  Statement  of  Position  93-6,
"Employers'  Accounting for Employee Stock Ownership Plans." The Company has not
yet  determined the impact to its  consolidated  financial  statements  from the
adoption of this statement.


In November 2004, the FASB issued SFAS No. 151, "INVENTORY COSTS -- AN AMENDMENT
OF ARB NO. 43,  CHAPTER 4." This  statement  amends the  guidance in ARB No. 43,
Chapter 4, "Inventory  Pricing," to clarify the accounting for abnormal  amounts
of  idle  facility  expense,   freight,  handling  costs,  and  wasted  material
(spoilage).  Paragraph  5 of ARB 43,  Chapter 4,  previously  stated that ". . .
under  some  circumstances,  items  such as  idle  facility  expense,  excessive
spoilage,  double freight, and rehandling costs may be so abnormal as to require
treatment as current period charges.  . . ." This statement  requires that those
items be recognized as  current-period  charges  regardless of whether they meet
the  criterion of "so  abnormal."  In addition,  this  statement  requires  that
allocation of fixed production  overheads to the costs of conversion be based on
the normal  capacity of the production  facilities.  This statement is effective
for inventory  costs incurred during fiscal years beginning after June 15, 2005.
Management  does not believe the adoption of this  consolidated  statement  will
have any immediate material impact on the Company.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with Characteristics of Both Liabilities and Equity." This Statement
requires that certain  instruments that were previously  classified as equity on
the Company's  statement of financial position now be classified as liabilities.
The Statement is effective for  financial  instruments  entered into or modified
after May 31, 2003,  and  otherwise  is effective at the  beginning of the first
interim  period  beginning  after June 15, 2003.  The Company  currently  has no
instruments  impacted  by the  adoption  of this  statement  and  therefore  the
adoption  did  not  have  an  effect  on the  Company's  consolidated  financial
position, results of operations or cash flows.

In April  2003,  the  FASB  issued  Statement  of SFAS No.  149,  "Amendment  of
Statement  133 on  Derivative  Instruments  and  Hedging  Activities,"  which is
generally  effective for contracts  entered into or modified after June 30, 2003
and for  hedging  relationships  designated  after June 30,  2003.  SFAS No. 149
clarifies  under what  circumstances  a contract with an initial net  investment
meets the characteristic of a derivative as discussed in SFAS No. 133, clarifies
when a derivative  contains a financing  component,  amends the definition of an
"underlying" to conform it to the language used in FASB  Interpretation  No. 45,
"Guarantor  Accounting and Disclosure  Requirements  for  Guarantees,  Including
Indirect Guarantees of Indebtedness of Others" and amends certain other existing
pronouncements.  The Company does not have any derivative financial instruments.
The Company does not anticipate that the adoption of SFAS

                                      F-12
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

No. 149 will have an impact on its consolidated  balance sheets or statements of
operations and cash flows.

In  January  2003,  the FASB  issued  Interpretation  No. 46,  Consolidation  of
Variable Interest  Entities,  an interpretation of Accounting  Research Bulletin
No. 51.  Interpretation 46 establishes  accounting guidance for consolidation of
variable  interest  entities  that  function  to support the  activities  of the
primary beneficiary.  Interpretation 46 applies to any business enterprise, both
public and private, that has a controlling interest, contractual relationship or
other  business  relationship  with a  variable  interest  entity.  The  Company
currently has no contractual  relationship or other business relationship with a
variable  interest  entity and  therefore the adoption did not have an effect on
its consolidated  financial position or results of operations.  However,  if the
Company enters into any such arrangement with a variable  interest entity in the
future,  its  consolidated  financial  position or results of operations  may be
adversely impacted.

PRINCIPLE OF CONSOLIDATION AND PRESENTATION

The  accompanying  consolidated  financial  statements  include the  accounts of
Circle  Group  Holdings  Inc.  and its  subsidiaries  after  elimination  of all
intercompany accounts and transactions.  Certain prior period balances have been
reclassified to conform to the current period presentation.

NOTE 3 - GOING CONCERN

The Company's  consolidated  financial  statements have been prepared on a going
concern basis,  which  contemplates the realization of assets and the settlement
of liabilities  and  commitments  in the normal course of business.  In the near
term, the Company expects  operating costs to continue to exceed funds generated
from operations. As a result, the Company expects to continue to incur operating
losses and may not have enough  money to grow its  business  in the future.  The
Company can give no assurance that it will achieve  profitability  or be capable
of sustaining profitable operations.  As a result, operations in the near future
are expected to continue to use working capital.

To successfully grow the individual  segments of the business,  the Company must
decrease its cash burn rate,  improve its cash  position and the revenue base of
each segment,  and succeed in its ability to raise additional  capital through a
combination  of  primarily  public or  private  equity  offerings  or  strategic
alliances. The Company also depends on certain important employees, and the loss
of any of those employees may harm the Company's business.

The Company has  generated  approximately  $6,269,840  in  additional  operating
capital  during 2004 through  sales of its common  stock in a private  placement
offering and in exercising of options and warrants.

                                      F-13
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 4 - INVENTORIES

                              December 31,  December 31,
                                  2004          2003
                              ------------  ------------
Raw Materials                  $   61,677    $   11,173
Work-in-process                        --            --
Packaging                          17,216         1,339
Finished Goods                     21,380         5,537
Display                            15,470            --
                              ------------  ------------
  Total inventory              $  115,742    $   18,049
                              ============  ============


NOTE 5 - PROPERTY AND EQUIPMENT

                                                            December 31,
                                                        2004            2003
                                                   --------------   -----------
Production, engineering and other equipment        $   4,463,501    $  147,016
Leasehold improvements                                 2,634,128       580,530
Office equipment and furniture                           594,711       515,515
Computer equipment and related software                  310,011       298,222
                                                   --------------   -----------
                                                       8,002,351     1,541,283
Accumulated depreciation                              (1,015,798)     (823,196)
                                                   --------------   -----------
  Total property and equipment                     $   6,986,553    $  718,087
                                                   ==============   ===========


Depreciation  expense was $198,199 and  $147,784for the years ended December 31,
2004 and 2003, respectively.

NOTE 6 - INTANGIBLE ASSETS

During the fiscal year 2004, no significant  identified  intangible  assets were
acquired and no identified intangible assets were impaired.  The following table
present details of the Company's purchased intangible assets:

                                     Gross
                                    Carrying    Accumulated
                                     Amount     Amortization      Net
-------------------------------- -------------- ------------ --------------
License Rights to
 Developed Technology               $ 420,000    $ (36,750)     $ 383,250
 Website                              200,000      (20,000)       180,000
                                 -------------- ------------ --------------
  Total intangibles                 $ 620,000    $ (56,750)     $ 563,250
                                 ============== ============ ==============


Amortization of intangibles was $34,333 and $22,417 for the years ended December
31, 2004 and 2003, respectively.

                                      F-14
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 6 - INTANGIBLE ASSETS (CONTINUED)

Based on the carrying  amount of the  intangibles  as of December 31, 2004,  and
assuming  no  impairment  of  the  underlying   assets,   the  estimated  future
amortization is as follows:

            Years ended
            December 31,
         ------------------
                2005           $ 34,333
                2006             34,333
                2007             34,333
                2008             34,333
             Thereafter         425,918
                              ----------
         Total amortization    $563,250
                              ==========


SALE OF FAIR PLAY MARK

On March 28, 2003, Veridisc Corporation ("Veridisc"),  a wholly-owned subsidiary
of the  Company,  entered  into an  agreement  to sell its Fair  Play mark to an
undisclosed  purchaser for a cash price of $150,000.  Veridisc  currently owns a
pending U.S. application for the mark FP FAIRPLAY PARTNER POWERED BY VERIDISC in
connection with its digital rights management product. The Company completed the
sale on April 4, 2003 and recognized a gain of $150,000.

NOTE 7 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

<TABLE>
<CAPTION>
                                                                2004          2003
                                                            -----------   -----------
<S>                                                          <C>           <C>
Accrued Payroll and Taxes                                    $   7,077     $   8,102
Accrued Legal and Professional Fees                             76,645       109,896
Leasehold Improvements                                         412,021          --
Other accrued expenses                                          11,941        94,949
                                                            -----------   -----------
  Total accrued expenses and other current liabilities       $ 507,684     $ 212,947
                                                            ===========   ===========
</TABLE>


NOTE 8 - CAPITAL LEASE OBLIGATIONS

In August 2002, the Company sold certain  property and equipment to an unrelated
party for  $121,500  and leased the  equipment  back from the party  under three
lease  agreements that were classified as capital leases in accordance with SFAS
13,  "Accounting  for  Leases."  These assets are being  depreciated  over their
estimated useful economic lives and are included in the depreciation expense for
the years ended December 31, 2004 and 2003.

                                      F-15
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 8 - CAPITAL LEASE OBLIGATIONS (CONTINUED)

The following table presents the future minimum lease payments under the capital
leases  together  with the  present  value of the minimum  lease  payments as of
December 31, 2004:

             Year Ending December 31,
             ------------------------
             2005                                          $ 39,147
             2006                                            34,841
             2007                                            17,023
                                                          ----------
             Total minimum lease payments                    91,011
             Lease amount representing interest              17,093
                                                          ----------
             Present value of minimum lease payments         73,918
             Less: current portion                           30,790
                                                          ----------
             Non-current portion                           $ 43,128
                                                          ==========


The leases bear interest rate ranging from 17.29% to 20.88%.

NOTE 9 - STOCKHOLDERS' EQUITY/SUBSEQUENT EVENT

PRIVATE PLACEMENT OFFERING

In March  2004,  the  Company  conducted  a  self-underwritten  offering  of the
Company's  common  stocks up to $5 million.  The stock was sold for $100,000 per
unit.  Each unit consists of 22,222 shares of common stock and 22,222  warrants.
The  warrants are  exercisable  at $6.00 per share and expire in three (3) years
after  purchase of the  above-described  unit.  Through  December 31, 2004,  the
Company sold  1,126,813  shares,  and received net proceeds of $3,161,175  and a
note receivable of $2.04 million,  of which, a $400,000 payment was received and
included in the said above net  proceeds by December  31,  2004.  The note bears
zero  interest  and is due on  December  31,  2004.  This  note  is in  default;
management  elected  a payment  plan to avoid  litigation.  Subsequent  payments
received on the note totaled $675,000 through March 3, 2005.

The Company also sold 2,750,000 shares at $0.90 per share and received  $900,000
in cash and a note  receivable of $1.575  million at December 31, 2004. The note
was paid in full in January 2005.

In April  2003,  the  Company  conducted  a  self-underwritten  offering  of the
Company's common stock up to $4,000,000.  The stock was sold for $0.25 per share
with a minimum purchase of 100,000 shares or $25,000 per unit.  Through December
31, 2003, the Company sold and issued  560,000  shares and received  $140,000 in
proceeds  under the  offering.  The Company also sold  700,000  shares of common
stock for $110,000 in cash.

                                      F-16
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 9 - STOCKHOLDERS' EQUITY/SUBSEQUENT EVENT (CONTINUED)

STOCK SUBSCRIPTIONS

In 2003, the Company entered into two stock subscription agreements to conduct a
self-underwritten  offering  of the  Company's  common  stocks  with  detachable
warrants up to $1.45 million.  The number of shares  issuable to the holder will
equal the amount paid by the holder divided by the lesser of $0.25 or 50% of the
closing  price on the day of  closing,  but in no event  less  than  $0.20.  One
warrant will be issued to purchaser for every share purchased.  Warrants will be
exercisable  at a price equal to $1.50 and will expire on February 28, 2005. The
Company  agreed to pay the  underwriters a 9%  compensation  of the total amount
raised,  plus a flat  non-accountable  expense allowance to cover legal,  escrow
fees and  miscellaneous  costs not to exceed $7,500.  Through December 31, 2003,
the Company had  received net  proceeds of  $979,220,  net of offering  costs of
$96,750 from the underwriters and had issued 2,172,857 shares of common stocks.

RETIREMENT OF COMMON STOCK

During 2003, the Company  retired  103,600 shares of common stock and recognized
other income of $48,750 from the retirement. 18,600 shares were retired from its
former employees due to employment termination;  65,000 shares were retired from
a  consultant  due to service not  performed  and 20,000  shares were retired to
reduce an employee loan of $10,000.

EXERCISING OF STOCK WARRANTS AND OPTIONS

During 2004,  there are  5,021,330  stock  warrants and options  exercised.  The
Company  received  $2,208,664  in cash and a note  receivable  of $250,000  upon
exercising.  The note carries an interest rate of 5% per annum and is pledged by
the stocks. Principal and interest are due on June 30, 2006.

During 2003,  there were  1,119,573  stock warrants and options  exercised.  The
Company received total proceeds of $331,987.

SUBSIDIARY STOCK TRANSACTIONS

On July 23, 2003,  the Board of Directors  approved the  redemption of all 1,000
shares of  FiberGel,  which was  acquired  in 2002,  and the  issuance of twenty
million  (20,000,000)  shares of common  stock of  FiberGel  with a par value of
$0.00005  per share.  The Board of  Directors  also  approved  to  increase  the
authorized common stock to fifty million (50,000,000) shares.

The Company conducted a private placement  offering of Fiber-Gel's  common stock
to raise $5,000,000. The stock was sold for $1 per share with a minimum purchase
of 50,000  shares for $50,000 per unit.  One warrant to purchase  the  Company's
common  stock at an exercise  price of $2 per share will be issued to  purchaser
for every Fiber-Gel's share purchased.

                                      F-17
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 9 - STOCKHOLDERS' EQUITY/SUBSEQUENT EVENT (CONTINUED)

The Company complies with the requirement of SEC Staff  Accounting  Bulletin No.
51,  "Accounting  for Sales of Stock by a  Subsidiary,"  which requires that the
difference  between the carrying  amount of parent's  investment in a subsidiary
and the underlying net book value of the subsidiary  after the issuance of stock
by the  subsidiary  be  reflected  as either a gain or loss in the  statement of
operations  or  reflected as an equity  transaction.  The Company has elected to
record gains or losses  resulting from the sale of subsidiary's  stock as equity
transactions.

As of December 31, 2003,  the Company had sold  1,100,000  shares of Fiber-Gel's
common stock and recorded an additional  credit to  stockholders'  equity in the
amount of $1,100,000.

INCREASE AUTHORIZED SHARES

On June 16, 2004, the Board of Directors amended its article of incorporation to
increase authorized shares to 200,000,000.

NOTE 10 - STOCK OPTIONS AND WARRANTS

The fair  value of each  option  was  estimated  on the date of grant  using the
Black-Scholes  option-pricing  model.  Weighted-average  assumptions for options
granted for the year ended December 31, 2004 and 2003 are as follows:

                                                              2004       2003
                                                           ---------------------
         Weighted average fair value per option granted     $   0.95    $  0.05
         Risk-free interest rate                               1.37%      1.17%
         Expected dividend yield                               0.00%      0.00%
         Expected lives                                        3.00       3.00
         Expected volatility                                 119.80%     73.30%


A summary of the status of stock  options  issued by the  Company as of December
31, 2004 and 2003 is presented in the following table.

<TABLE>
<CAPTION>
                                                       2004                         2003
                                              -----------------------------------------------------
                                                             Weghted                      Weghted
                                                Number       Average        Number        Average
                                                  of         Exercise         of          Exercise
                                                Shares        Price         Shares         Price
                                              -----------------------------------------------------
<S>                                           <C>             <C>         <C>              <C>
Outstanding at beginning of Year               1,901,000      $  0.13      4,048,000       $  1.47
Granted                                        7,651,750         1.16        474,000          0.05
Exercised                                     (2,056,000)        0.24       (858,433)         0.27
Expired and Cancelled                                 --                  (1,762,567)         3.13
                                              -----------                 -----------
Outstanding at end of Year                     7,496,750      $  1.15      1,901,000       $  0.13
                                              ===========                 ===========

Exercisable at end of Year                     7,496,750      $  1.15      1,901,000       $  0.13
                                              ===========                 ===========
</TABLE>

                                      F-18
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 10 - STOCK OPTIONS AND WARRANTS (CONTINUED)

The  following  table sets forth  additional  information  about  stock  options
outstanding at December 31, 2004:

<TABLE>
<CAPTION>
                                                    Weighted
                                                     Average            Weighted
              Range of                              Remaining           Average
              Exercise           Options           Contractual          Exercise          Options
               Prices          Outstanding             Life              Price          Exercisable
           -------------------------------------------------------------------------------------------
            <S>                 <C>                 <C>                  <C>             <C>
            $0.01-$1.50         5,116,750           2.2 years            $  0.68         5,116,750
            $1.51-$3.00         2,230,000           2.1 years            $  1.99         2,230,000
            $3.01-$5.00           150,000           2.2 years            $  4.61           150,000
                             --------------------------------------------------------------------
                                7,496,750           2.1 years            $  1.15         7,496,750
</TABLE>

As of December  31,  2004 and 2003,  the Company  has  warrants  outstanding  to
purchase  10,188,253  and  6,340,000  shares  of  the  Company's  common  stock,
respectively,  at prices  ranging from $0.05 to $6.00 per share.  These warrants
expire at various dates through December 2007.

NOTE 11 - INCOME TAXES

The  deferred net tax assets  consist of the  following at December 31, 2004 and
2003:

<TABLE>
<CAPTION>
                                                               2004              2003
                                                          -------------------------------
<S>                                                        <C>               <C>
Tax Benefit on net operating loss carryforward             $ 8,497,963       $ 6,722,333
Temporary differene in depreciation and amortization          (614,823)           20,476
Temporary differene in goodwill                                197,717           213,547
Less: valulation allowance                                  (8,080,857)       (6,956,356)
                                                          -------------------------------
  Net deferred tax assets                                  $        --       $        --
                                                          ===============================
</TABLE>

At December  31,  2004,  net federal  operating  losses of  approximately  $23.7
million are available for carry-forward against future years' taxable income and
expire through 2024. The Company's  ability to utilize its federal net operating
loss  carryforwards is uncertain and thus a valuation  reserve has been provided
against the Company's net deferred tax assets.

NOTE 12 - SETTLEMENT GAIN

On July 26, 2004,  the Company  entered into an agreement in principle to settle
the lawsuit it filed against its former law firm in August 2001. Pursuant to the
terms of the  agreement,  the parties  have agreed to release  each other of all
claims in exchange  for a payment of $950,000  to the  Company.  The Company has
received the settlement in full.

                                      F-19
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 13 - NET LOSS PER SHARE

The following table sets forth the computation of basic and diluted net loss per
share:

<TABLE>
<CAPTION>
                                                                Year Ended
                                                               December 31,
                                                          2004             2003
---------------------------------------------------- ---------------  --------------
<S>                                                   <C>              <C>
Numerator:
---------------------------------------------------- ---------------  --------------
  Net loss                                            $ (4,185,315)    $ (2,827,821)
---------------------------------------------------- ---------------  --------------
Denominator:
---------------------------------------------------- ---------------  --------------
  Weighted average number of shares outstanding         38,347,768       26,981,440
---------------------------------------------------- ---------------  --------------
---------------------------------------------------- ---------------  --------------
Net loss per share-basic and diluted                  $      (0.11)    $      (0.10)
---------------------------------------------------- ---------------  --------------
</TABLE>


As the Company  incurred  net losses for the years ended  December  31, 2004 and
2003,  the  effect of  dilutive  securities  totaling  6,286,827  and  4,125,223
equivalent  shares,  respectively,  has been  excluded from the  calculation  of
diluted loss per share because their effect was anti-dilutive.

NOTE 14 - RELATED PARTY TRANSACTIONS

In February 2004,  the Chairman of the Board of Directors  exercised his 720,000
stock options at $0.05 per share, or aggregate of $36,000.  The Company received
$8,000 in cash and the  balance  of $28,000  was  charged  as  payments  for his
service rendered.

As of  December  31, 2004 and 2003,  the  Company had a note  payable of $25,000
payable to a related party.  The note carries  interest at 5% per annum,  and is
due on demand.

In August 2003,  the Chairman of the Board of  Directors  exercised  his 645,000
stock  options at $0.30 per share.  The total  proceed of  $193,500  was debited
against the note payable and accrued interest owed to the Chairman.

NOTE 15 - WITHDRAWAL FROM REGISTRATION AS A BROKER-DEALER

On January 27, 2004, the Company's wholly owned subsidiary,  CGI Capital,  Inc.,
filed an application of withdrawal from registration as a broker or dealer.  The
application is subject to SEC approval.

                                      F-20
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 16 - BUILDING LEASE

In March 2004, the Company has leased the remaining  22,000 square feet of space
located  adjacent to its executive  offices in Mundelein,  Illinois as part of a
planned  expansion of its  Z-Trim(TM)  production  capacity.  The revised  lease
requires  monthly rental  payments of $20,000 and expires in March 2007.  Taxes,
insurance and maintenance are billed when due.

The future minimum annual rental payments under the new lease are as follows:

                      Year ended December 31,            Amount
                     -------------------------        -----------
                               2005                    $ 240,000
                               2006                      240,000
                               2007                       60,000
                                                      -----------
                                                       $ 540,000
                                                      ===========

NOTE 17 - LEGAL PROCEEDINGS

The Company is currently party to various legal  proceedings and claims,  either
asserted or unasserted,  which arise in the ordinary  course of business.  While
the outcome of these matters cannot be predicted with  certainty,  management do
not  believe  that  the  outcome  of any of  these  claims  or any of the  above
mentioned  legal  matters will have a material  adverse  effect on the Company's
consolidated financial position, results of operations, or cash flows.

NOTE 18 - GUARANTEES

The Company  from time to time  enters  into  certain  types of  contracts  that
contingently  require  the  Company to  indemnify  parties  against  third party
claims. These contracts primarily relate to: (i) divestiture  agreements,  under
which the Company may provide  customary  indemnifications  to purchasers of the
Company's businesses or assets; (ii) certain real estate leases, under which the
Company may be required to indemnify property owners for environmental and other
liabilities,  and other claims  arising from the Company's use of the applicable
premises;  and (iii) certain agreements with the Company's  officers,  directors
and employees, under which the Company may be required to indemnify such persons
for liabilities arising out of their employment relationship.

The terms of such  obligations  vary.  Generally,  a maximum  obligation  is not
explicitly  stated.  Because the obligated  amounts of these types of agreements
often are not explicitly  stated,  the overall maximum amount of the obligations
cannot be reasonably estimated. Historically, the Company has not been obligated
to make significant payments for these obligations, and no liabilities have been
recorded for these obligations on its consolidated  balance sheet as of December
31, 2004.

In general,  the Company offers a one-year  warranty for most of the products it
sold. To date, the Company has not incurred any material costs  associated  with
these warranties.

                                      F-21
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 19 - SEGMENT INFORMATION

The Company  evaluates its reporting  segments in accordance  with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The Chief
Executive  Officer has been identified as the Chief Operating  Decision Maker as
defined by SFAS No. 131. The Chief Executive Officer allocates resources to each
segment based on their business prospects,  competitive  factors,  net sales and
operating results.

The Company  currently  reported four  principal  operating  segments:  (i) Food
Product Development,  (ii) Security Training and Products,  (iii) E-tailer,  and
(iv)  Business  Consulting.  The  food  product  development  segment  owns  the
exclusive,  worldwide  license to Z-Trim.  The  Security  training  offers  cost
effective  self-defense  training courses and products with a uniquely  targeted
curriculum.  The e-tailer  segment is a distributor  of pillows,  blankets,  and
other bedding products. The business-consulting segment develops distinctive web
sites and provides  business-consulting  services for the Company's wholly owned
subsidiaries. The Company no longer reports segment information in the e-finance
and software development division.  The Company also has other subsidiaries that
do not meet the quantitative thresholds of a reportable segment.

The  Company  reviews  the  operating  companies'  income  to  evaluate  segment
performance  and  allocate  resources.   Operating  companies'  income  for  the
reportable segments excludes income taxes, minority interest and amortization of
goodwill. Provision for income taxes is centrally managed at the corporate level
and,  accordingly,  such  items are not  presented  by  segment.  The  segments'
accounting  policies  are  the  same  as  those  described  in  the  summary  of
significant accounting policies.

Intersegment transactions: Intersegment transactions are recorded at cost.

                                      F-22
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 19 - SEGMENT INFORMATION (CONTINUED)

Summarized  financial  information of the Company's results by operating segment
is as follows:

                                             Year ended December 31,
                                               2004            2003
---------------------------------------   ------------------------------
Net Revenue:
  Food Product Development                 $     61,286    $         --
  Security Training and Products                  2,970          19,280
  E-tailer                                      573,170         657,783
  Business Consulting                            28,027          65,379
---------------------------------------   ------------------------------
  Total Net Revenue                             665,453         742,442
---------------------------------------   ------------------------------
Operating Income (Loss):
  Food Product Development                   (1,227,997)       (303,946)
  Security Training and Products                  2,606          10,094
  E-tailer                                          746         (25,316)
  Business Consulting                        (3,949,671)     (2,760,995)
                                          ------------------------------
Operating (loss) by reportable segments      (5,174,316)     (3,080,163)
All other operating (loss)                      (13,412)        (13,708)
---------------------------------------   ------------------------------
Consolidated operating (loss)                (5,187,728)     (3,093,871)
---------------------------------------   ------------------------------
Net Income(Loss) before tax:
  Food Product Development                   (1,227,997)       (303,946)
  Security Training and Products                  2,606          10,094
  E-tailer                                          876         (23,986)
  Business Consulting                        (2,947,388)     (2,496,279)
                                          ------------------------------
Net (loss) by  reportable segments           (4,171,903)     (2,814,117)
All other net (loss)                            (13,412)        (13,704)
---------------------------------------   ------------------------------
Consolidated net loss before Tax           $ (4,185,315)   $ (2,827,821)
---------------------------------------   ------------------------------


                                                          At December 31,
         Total Assets:                                2004               2003
         ----------------------------------------------------------------------
         Food Product Development                 $  6,523,174     $    11,000
         Security Training and Products                 12,367           9,903
         E-tailer                                      140,811         161,157
         Business Consulting                         1,281,057       2,601,245
                                                 ------------------------------
                                                     7,957,409       2,783,305
         All other segments                                 --          30,711
         ----------------------------------------------------------------------
         Consolidated assets                      $  7,957,409     $ 2,814,016
         ----------------------------------------------------------------------

                                      F-23