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

     ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
                                     OF 1934

                   For the fiscal year ended December 31, 2005

                                       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 is not required to file reports  pursuant to Section 13
or 15(d) of the Exchange Act [ ]

Check  whether  the  issuer:  (1)  filed  all  reports  required  to be filed by
Section13 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
                                -----    ------
<PAGE>
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.

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

The issuer's revenues for its most recent fiscal year were: $514,608

The  aggregate  market  value  of  the  voting  stock  of  the  issuer  held  by
non-affiliates  of the  issuer  as of  March  23,  2006 was  $30,975,288.  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
March 23, 2006 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.

The number of shares of the  registrant's  common stock  outstanding as of March
23, 2006 was 51,896,388.

Transitional Small Business Disclosure Format:

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

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

GENERAL

     In 2005 we refined  our  direction  from a pioneer of  emerging  technology
companies  where  we  provided  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,   to  a  company  that  will  focus  its  resources  primarily  on  the
manufacture,  marketing and sale of Z-Trim,  our zero calorie fat substitute and
other Z-Trim related products. The company will continue exploring all available
options for its other non-Z-Trim technologies and related assets.

     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, agricultural-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.


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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 three year warrant to
Utek to purchase  500,000  shares of our common  stock at an  exercise  price of
$0.36 per share of which such warrants were fully exercised in 2004.

     Z-Trim  is  currently  our  primary  focus.  FiberGel  owns the  exclusive,
worldwide   license   for  all  fields  of  use  to  Z-Trim,   an   all-natural,
agricultural-based  fat  replacement  developed  by  the  Agricultural  Research
Service of the United States Department of Agriculture ("USDA").

     Z-Trim  is a natural  zero  calorie  fat-substitute  made from the hulls of
corn,  oats,  soy, rice,  barley that lowers 25% to 50% of calories from fats in
most foods without negatively affecting taste or texture. Z-Trim generally can't
be detected by consumers when formulated  correctly in dairy,  dressings,  dips,
sauces, baked goods, processed meats, snack foods, cookies, pies, cakes, icings,
brownies, bars, ice cream, milk shakes and many other foods. It improves texture
significantly;  makes meats juicier, baked goods moister, dips creamier.  Z-Trim
lets you to eat more of the  foods  you love  without  fear of  weight  gain and
allows you to lose weight  without  giving up the foods you love.  Z-Trim adopts
the flavor and mouth feel of most recipes and reduces  aftertaste in most foods.
It has been proven in studies that a majority of consumers  prefer  Z-Trim foods
over their full-fat counterparts.  Z-Trim can substantially reduce harmful Trans
and saturated  fats and adds healthy  insoluble and soluble  dietary fiber which
can be beneficial to heart patients and diabetics.  Z-Trim can improve digestion
without  any  negative  side  effects   sometimes   associated  with  other  fat
substitutes.   Z  Trim's  proprietary   process  turns  worthless   agricultural
bi-products  into  a  valuable  and  highly   functional  food  ingredient  with
significant  economic and health  advantages  over the fat it  replaces.  Z-Trim
provides a competitive  industry  advantage,  reduces  environmental  management
costs, and delivers a novel and substantial profit center to manufacturers.

     Z-Trim is protected by an extensive  intellectual  property  portfolio with
over four dozen  patents  issued and pending  throughout  the world,  as well as
myriad associated trade secrets and know how,  copyrighted works and trademarks.
Z-Trim has been  featured  on Fox News "Your World w/ Neil  Cavuto";  USA Today,
Chicago Tribune, as well as local affiliates of NBC, FOX and CBS.

     The  Company  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    311.800 Bakeries and tortillas; and

     The Company  currently  provides samples of Z-Trim worldwide for testing to
large,  medium and small food companies as well as  institutional  food services
along with technological support. There are 34 current customers using Z-Trim in

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products  being  sold on store  shelves  and in  restaurants  as well as several
potential short, medium and long-term customers currently  purchasing Z-Trim for
pilot testing of several different product applications.

     The  Company  has  received  numerous  inquiries  in the United  States and
internationally  relating  to the  manufacture,  food  processing,  distribution
licensing and sale of FiberGel's primary product Z-Trim, which we have the right
to produce pursuant to an exclusive license from the USDA.

     The  Company 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,
Asia,  Australia  and South  America has been  purchasing  Z-Trim and  providing
current and potential  customers with product  samples and other product related
assistance  for both  Z-Trim  and their  newly  developed  non-GMO  (Genetically
Modified  Organisms)  Oat versions of Z-Trim.  The raw  material  oats are being
acquired through a distributor from Quaker Oats.

     The Company 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,
brownies and salad dressing.

     The Company  completed the  refinement of its  proprietary  Z-Trim  process
during 2005 in its  manufacturing  plant  adjacent to its  corporate  offices in
Mundelein,  Illinois.  Now, in 2006,  the Company has  retained a renowned  Food
Formulation Team to work directly with  Manufacturers  and Institutions on their
formulations  that  require  lowering  fat.  The Company also hired a well known
Marketing company to develop awareness of the Z-Trim Brand.

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


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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 pedometer 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 2006 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 agricultural-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 manufacturing process.

     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


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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  resistively.  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.

ThraxVac(TM) and Lidar(TM)  technologies  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.


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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.


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, agricultural-based fat replacement developed by USDA.
Z-Trim can be used to decrease fat and calories and increase  insoluble  healthy
fiber in foods.


EMPLOYEES AND LABOR RELATIONS

     As of December 31, 2005 we employed  sixteen  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  two-pronged  marketing  strategy for Z-Trim and the Z-Trim line of products
includes the use of a variety of consumer media in pursuit of a brand  awareness
campaign targeted to the consumer, and a business-to-business  campaign focusing
on product education, sales, promotional and distribution strategies targeted to
the food manufacturing and dining industries.  Z-Trim product sales are targeted
to the manufacturers of dairy, bakery,  cereal,  confectionary,  processed meat,


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sauces, snack food, beverage,  consumer-packaged and frozen foods, delicatessen,
and private label foods, as well as to institutional food service,  restaurants,
catering, food solutions and "meal-makers" meal preparation outlets.

Our Z-Bind adhesive  extender is marketed via trade media to plywood and polymer
concrete  industries,  as well as to the dental  industry for adhesion of dental
fixtures

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.

     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.

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


            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.


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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.


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.

As disclosed in Note 8 to the financial statements,  the Company filed a lawsuit
against a group of shareholders  on May 11, 2005 in the U.S.  District Court for
the  Northern  District of Illinois  to collect  the unpaid  principal  balance,
default  interest  and  attorney  fees  for  a  Full  Recourse  Promissory  Note
receivable for stock issued. The Company is in the discovery process and a trial
date has not been set. The  defendants  in that case have sold all of the shares
they purchased but did not pay for.

In response,  on December 27, 2005 those  shareholders  and a related hedge fund
they own,  Pac Bay  Financial,  filed a lawsuit back against the Company and its
directors and officers.  That lawsuit, which is being heard by the same Judge as
in  the   Company's   Note  Default  case  listed   above,   alleges  that  oral
misrepresentations  were made to induce  purchases of stock over an  approximate
one and one-half year period. Plaintiffs seek $2 million in compensatory damages
and $5 million in punitive  damages.  The basis for these damages  claims is yet
unknown.  The Company believes that they have meritorious  defenses against this
action,  and will  continue  to  vigorously  defend  it. The claim  against  the
officers and  directors is covered by D&O  insurance to the extent that three of
the individual  officers and directors are covered.  The insurance coverage pays
for defense costs only and provides no indemnity coverage.

In March 2005 the  Company's  general  contractor  that built the  manufacturing
plant and installed the equipment  filed a mechanics  lien for unpaid  billings.
The claim of $250,000 represents the construction cost overruns in the build-out
of the facility.  The discovery process has commenced and no trial date has been


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set. A liability of $142,000 has been included in accounts  payable.  Management
believed that the amount of ultimate  liability with respect to such action will
not exceed such amount.

A  complaint  was filed in the United  States  District  Court for the  Northern
District of  Illinois  by a former  investor  relations  consultant  against the
Company.  The plaintiff alleges that the Company breached an investment  banking
contract  by  failing  to  issue  free  trading  and  fully   registered   stock
certificates  pursuant to plaintiff's  exercise of various stock  warrants.  The
Company has filed a motion to dismiss on the ground that free  trading and fully
registered  stock  certificates  were issued to the plaintiff in accordance with
the express terms of the  warrants.  The parties have agreed to go to mediation,
which was scheduled on April 3, 2006.

A complaint  alleging a similar claim against the Company was transferred in the
United States District Court for the Northern  District of Illinois in 2005. The
parties  have also agreed to go to  mediation,  which was  scheduled on April 3,
2006.

The Company is also a 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.


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 2005.

                                     PART II

ITEM 5.  MARKET  FOR  COMMON  EQUITY,  RELATED  STOCKHOLDER  MATTERS  AND  SMALL
BUSINESS ISSER PURCHASES OF EQUITY SECURITIES.

     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, 2005 was $1.18 per share.

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                                             $2.02        $0.68
2nd Quarter                                             $1.49        $0.35
3rd Quarter                                             $1.41        $0.86
4th Quarter                                             $1.56        $0.73


                                       10
<PAGE>
2006                                                     HIGH         LOW
------                                                   ----         ---
1st Quarter (through March 29, 2006)                    $1.23        $0.78
---------------


*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 29, 2005,  there were 386 record  holders of the common  stock.
This number does not include  shareholders  whose shares are held in  securities
position  listings.  We have never paid any dividends on its common stock and do
not anticipate paying any dividends in the foreseeable future.


                      EQUITY COMPENSATION PLAN INFORMATION
                            (AS OF DECEMBER 31, 2005)


                       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)
-------------        ----------------------              -----------------------

Equity compensation plans approved by security holders (1)         7,496,750

$1.15                      12,503,250



Equity compensation plans not approved by security holders (2)

--                            --                                     --
Total.........................................
7,496,750                    $1.15                                12,503,250

(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.


                                       11
<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 2006 AND BEYOND
MAY DIFFER  MATERIALLY  FROM THOSE  EXPRESSED  IN, OR IMPLIED BY, THESE  FORWARD
LOOKING STATEMENTS.

OVERVIEW

     In 2005 we refined  our  direction  from a pioneer of  emerging  technology
companies  where  we  provided  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,   to  a  company  that  will  focus  its  resources  primarily  on  the
manufacture,  marketing and sale of Z-Trim,  our zero calorie fat substitute and
other Z-Trim related products. The company will continue exploring all available
options for its other non-Z-Trim technologies and related assets.

     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,
agricultural-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 March 24 through 30, 2006,  the Company  entered into private  placement
subscription  agreements  pursuant to which it sold  unregistered  shares of our
common  stock,  par value  $0.00005  per share  ("Common  Stock"),  and warrants
exercisable for Common Stock.  The Company sold  approximately  205 units in the
private placement, with each unit consisting of 40,323 shares of Common Stock In
the aggregate the Company sold 8,279,594 shares of Common Stock, and Warrants to
purchase an additional  161,292 shares of Common Stock.  Gross proceeds from the
sale total  $5,133,298.  The Company  also entered  into a  registration  rights
agreement  in  connection  with the private  placement  pursuant to which it has
agreed  to file with the  Securities  and  Exchange  Commission  a  registration
statement  covering the resale of the Common  Stock and Common Stock  underlying
the Warrants.


                                       12
<PAGE>
     On March 27, 2006, Edward L. Halpern, age 76, announced his retirement from
our Board of Directors.

     On March 22, 2006, our Board of Directors  promoted  Steve Cohen,  formerly
Vice President of Corporate Development, to President, an office previously held
by Greg Halpern.  Greg Halpern  continues to hold the office of Chief  Executive
Officer.

     On November 23, 2005,  we entered  into an  Agreement  with George  Foreman
Enterprises,  Inc.  to form a new limited  liability  company for the purpose of
promoting the Company's zero calorie fat replacement food ingredient, Z-Trim(R).

     The Agreement contemplates that if the Company's sales of Z-Trim(R) produce
revenues  of $30 million or gross  profits of $10 million in any one year,  GFME
shall  receive a cash bonus of  $100,000;  if the  Company's  sales of Z-Trim(R)
produce revenues of $50 million or gross profits of $15 million in any one year,
GFME shall receive a cash bonus of $200,000; if the Company's sales of Z-Trim(R)
produce revenues of $70 million or gross profits of $20 million in any one year,
GFME shall receive a cash bonus of $300,000; if the Company's sales of Z-Trim(R)
produce revenues of $90 million or gross profits of $25 million in any one year,
GFME  shall  receive a cash bonus of  $400,000;  and if the  Company's  sales of
Z-Trim(R)  produce  revenues of $110 million or gross  profits of $30 million in
any one year, GFME shall receive a cash bonus of $500,000.

     GFME could earn the right under the  Agreement  to convert its  interest in
Newco to up to 50% of the  then-outstanding  common  stock of the  Company  upon
achieving  many  defined  milestones   including  launching  a  national  public
relations  campaign,  and George  Foreman's  promotion of Z-Trim(R) via national
media.  The  formation of the Joint  Venture is subject to GFME's  determination
after meeting with food  manufacturers  of the likelihood of securing  contracts
utilizing  Z-Trim(R)  in  conjunction  with  George  Foreman  in future  product
campaigns.  GFME has 60 days from the date of the  Agreement  to  exercise  this
right.  Furthermore,   the  Company  is  required  by  American  Stock  Exchange
regulations to obtain  shareholder  approval prior to issuing 20% or more of the
Company's common stock contemplated by the Joint Venture.

     The parties are  negotiating  to enter into more  definitive  documentation
containing  more  detailed  terms  of the  Joint  Venture  consistent  with  the
Agreement. On March 16, 2006, the Company and GFME agreed to extend negotiations
until April 28,  2006.  The  Agreement  may be  terminated  by either party upon
breach by the other party.

     In February  2006,  Circle  Group  announced  that their Board of Directors
approved a change of the company name from Circle Group Holdings, Inc. to Z-Trim
Holdings.  This change is subject to shareholder  approval in 2006.  Immediately
following  shareholder  approval the trading  symbol will be changed from CXN to
ZTM,  the cusip  number will be changed and new  certificates  will be issued to
replace all existing  shares.  In keeping with their  efforts to grow the Z-Trim
business,  the company  will focus its  resources  on Z-Trim and Z-Trim  related
products,  while  exploring  all  available  options  for its  other  non-Z-Trim
technologies and related assets.

                                       13
<PAGE>
     In 2006,  the  Board  of  Directors  approved  to wind  down  two  inactive
subsidiaries,  CGI Capital, Inc. and Veridisc Corporation,  both of which had no
assets or liabilities as of December 31, 2005.

     On December 19, 2005  FiberGel  Technologies,  a subsidiary of Circle Group
Holdings announced that they received a purchase order for 2500 pounds of Z-Trim
for immediate  delivery.  The order had come after several  months of successful
testing by a South American meat company.  The order was made through FiberGel's
international partner, DKSH.

     In November  2005,  Circle  Group Filed a Form-8K  for an  agreement  dated
November  23, 2005  between  Circle  Group  Holdings,  Inc.  and George  Foreman
Enterprises, Inc.


RESULTS OF OPERATIONS

YEAR ENDING DECEMBER 31, 2005 COMPARED TO THE YEAR ENDING DECEMBER 31, 2004

Revenues

Revenues  decreased 22.6% for the year ended December 31, 2005 from $665,453 for
the year ended  December 31, 2004 to  $514,608,  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,  as a result of the budget cuts in the
airline and train industries.  The decrease in service revenue was primarily due
to phasing out of our business consulting service.  The following table provides
a breakdown of the revenues for our divisions for the periods indicated:


                                                  Year ended December 31,
                                                  2005             2004
                                                ---------        ---------
           Products                             $ 510,947        $ 634,456
           Services                                 3,661           30,997
                                                ---------        ---------
        Total Revenues                          $ 514,608        $ 665,453
                                                =========        =========

Operating expenses

Operating  expenses consist of payroll and related costs,  insurance,  occupancy
expenses,  professional  fees, and general operating  expenses.  Total operating
expenses  decreased by $201,697 or 4% to $4,974,931  for the year ended December
31, 2005 from  $5,176,628  for the year ended December 31, 2004. The decrease in
operating expenses was primarily due to the decrease in legal expense, partially
offset by the introduction and promotion of Z-trim products, and the increase in
investor and public relation and payroll expenses.

Other income

Total  other  income  for the year  ended  December  31,  2005 was a deficit  of
$935,218,  compared to  $1,002,413  for the year ended  December 31,  2004.  The
decrease in other income was  primarily  due to a provision of an  uncollectible


                                       14
<PAGE>
note receivable of $965,000 and the decrease in rental income.  Other income for
the year ended December 31, 2004 included a settlement of $950,000 received from
a former attorney.

Net loss

The Company  reported a net loss of $6,025,585  for the year ended  December 31,
2005 or $0.13 per share, a 46% increase from the net loss of $4,117,775 or $0.11
per share for year ended December 31, 2004. This was due to a combination of the
decrease in revenues,  the introduction  and promotion of Z-trim  products,  the
increase  in  investor  and public  relation  expenses,  and a  provision  of an
uncollectible note receivable.



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.


                                       15
<PAGE>
Net loss

The  Company  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.


LIQUIDITY AND CAPITAL RESOURCES

YEAR ENDING DECEMBER 31, 2005 COMPARED TO THE YEAR ENDING DECEMBER 31, 2004

At December 31, 2005, we had cash and cash  equivalents of $24,999,  compared to
$93,748 at December 31, 2004. The Company has generated approximately $3,803,567
in additional  operating  capital  through equity  transactions  during the year
ended December 31, 2005.

Net cash used by operating  activities  increased by 243% to $3,662,280  for the
year ended  December  31,  2005 as  compared  to  $1,067,593  for the year ended
December  31,  2004.  The  increase  resulted  primarily  from  our net  loss of
$6,025,585,  adjusted for non-cash items including depreciation and amortization
of  $657,081,  provision  for loan loss of $965,000,  and  non-cash  services of
$1,401,233,  and for the decrease from the change in liabilities  over assets of
approximately of $587,021.

Net cash used by investing  activities  was $181,186 for the year ended December
31, 2005, as compared to net cash used by investing activities of $6,465,265 for
the year ended  December 31, 2004.  The decrease was due to lesser  additions of
property and equipment for our manufacturing plant in current year.

Net cash  provided by financing  activities  was  $3,774,717  for the year ended
December 31, 2005,  as compared to  $6,242,888  for the year ended  December 31,
2004. Net cash provided by financing  activities for the year ended December 31,
2005 was primarily  from the proceeds  received from notes  receivable for stock
subscriptions  of  $2,350,000  and from sale of our  stocks  and  exercising  of
options and warrants of  $1,453,567.  Net cash provided by financing  activities
for the year ended  December 31, 2004 was primarily  from sale of our stocks and
from exercising of options and warrants of $6,269,840.

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.  The Company  has  generated  approximately
$6,269,840 in additional operating capital through sale of its 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 $1,592,393.


                                       16
<PAGE>
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 $6,269,840.

To successfully  grow the individual  segments of our business,  we must improve
our cash flow and the  revenue  base of each  segment,  as well as  continue  to
succeed in our ability to build strategic industry alliances.  We also depend on
certain important employees, and the loss of any of those employees may harm the
business and its prospects.

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 $6,025,585 for the twelve months ending  December
31, 2005 and a net loss of $4,117,775 for the twelve months ending  December 31,
2004.  At December  31,  2005 and 2004,  respectively,  we reported  accumulated
deficits of $33,053,415  and  $27,027,830.  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.

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.


                                       17
<PAGE>
     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 30.7% of our common
stock and all of the directors and officers collectively own 44.43%.  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,


                                       18
<PAGE>
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.


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.


                                       19
<PAGE>

     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.


                                    PART III

ITEM 9.  DIRECTORS,   EXECUTIVE   OFFICERS,   PROMOTERS  AND   CONTROL  PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE ACT.


         AGE             NAME                                   POSITION
         ---             ----                                   --------

         47      Gregory J. Halpern                   Chief Executive Officer
                                                      and Chairman of the
                                                      Board of Directors

         50      Steve Cohen                          President


         53      Michael J. Theriault                 Chief Operating Officer

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

         76      Edward L. Halpern                    Director

         53      Steve H. Salgan                      Director

         53      Stanford J. Levin                    Director

         56      Alan G. Orlowsky                     Director



     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


                                       20
<PAGE>
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.

     STEVE COHEN. Mr. Cohen has been employed by Circle Group since 2002 when he
was  hired as its  director  of  investor  relations.  He was  promoted  to Vice
President of Corporate  Development in 2003.  Prior to joining Circle Group, Mr.
Cohen had 25 years'  experience  at the  Chicago  Mercantile  Exchange  where he
worked in various  trading pit and back office  positions.  Mr.  Cohen  attended
college at the University of Illinois and Oakton Community College.

     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.

     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


                                       21
<PAGE>
University  School of  Business  and  Loyola  University  of  Chicago  School of
Business.

     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.  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 2005, Mr. G. Halpern received  1,000,000  options,  Mr. Dabney received
852,000 options,  Mr. E. Halpern  received 200,000 options,  Mr. Salgan received
200,000 options,  Mr. Levin received  200,000 options and Mr. Orlowsky  received
225,000 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.

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.


ITEM 10. EXECUTIVE COMPENSATION.

     The following table summarizes the compensation  earned in the fiscal years
ended December 31, 2003,  2004 and 2005 by our chief  executive  officer and the
other four most  highly paid  executive  officers  whose total  salary and bonus

                                       22
<PAGE>
awards  exceeded  $100,000 for the fiscal year ended  December 31, 2005. In this
document, we refer to these individuals as our "named executive officers."
<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE
                                                                                            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                        2005   $119,711     $ --         $--              1,000,000           $--
President and Chief Executive Officer     2004    $86,200     $ --         $--              1,230,000           $--
                                          2003    $27,000     $ --         $--                180,000           $--
</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, 2005. The percentage of total options
granted to  employees  set forth  below is based on an  aggregate  of  7,627,000
shares subject to options granted in 2005.

                        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 2005         ($/SHARE)           DATE
-----      --------------- --------------- ------------------ --------------    --------------
<S>                               <C>               <C>             <C>            <C>
Gregory J. Halpern
                                  500,000           6.5%           $0.55          05/15/2008
                                  500,000           6.5%           $1.10          10/24/2008
</TABLE>

      OPTIONS EXERCISED DURING 2005 AND OPTIONS VALUES AT DECEMBER 31, 2005


<PAGE>

     The following table contains information regarding options exercised during
2005 and  unexercised  options held at December 31, 2005, by the named executive
officers.

<TABLE>
<CAPTION>
                                                                                  VALUE OF
                                                                                  UNEXERCISED
                                                 NUMBER OF UNEXERCISED            IN-THE-MONEY
                                                 OPTIONS AT                       OPTIONS AT
                                                 DECEMBER 31,2005                 DECEMBER 31,2005
                      SHARES
                      AQUIRED ON     VALUE       EXERCISABLE/                     EXERCISABLE/
NAME                  EXERCISE       REALIZED    UNEXERCISABLE                    UNEXERCISABLE
<S>                   <C>            <C>                       <C>                  <C>
Gregory J. Halpern    301,818        195,999                   2,048,182            1,251,000

</TABLE>


IN-THE-MONEY


                                       23
<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
51,896,388  shares of common  stock  outstanding  as of March 29,  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>
DIRECTORS AND NAMED EXECUTIVE OFFICERS:
Gregory J. Halpern(1)                                           15,946,282             30.7%
Dana L. Dabney( 2)                                               2,593,000             4.99%
Michael J. Theriault(3)                                          1,374,000             2.64%
Edward L. Halpern(4)                                             1,395,000             2.69%
Stanford J. Levin(5)                                               453,300                 *
Steve H. Salgan(6)                                                 826,915              1.2%
Alan G. Orlowsky(7)                                                470,900                 *
Steve Cohen(8)                                                     995,000              1.4%
Total of all Directors and Executive Officers                   24,054,397            45.83%
</TABLE>
----------------------

* Less than 1%.


(1) Includes 2,048,182 options exercisable within 60 days of March 28, 2005.

(2) Includes   935,000 options exercisable within 60 days of March 28, 2005.

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

(4) Includes   500,000 options exercisable within 60 days of March 28, 2005.

(5) Includes   325,000 options exercisable within 60 days of March 28, 2005.

(6) Includes   525,000 options exercisable within 60 days of March 28, 2005.


                                       24
<PAGE>
(7) Includes   420,000 options exercisable within 60 days of March 28, 2005.

(8) Includes   995,000 options exercisable within 60 days of March 28, 2005.


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 Chief Executive Officer, 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]

4.2       Form of Subscription  Agreement  [Incorporated  by reference to Circle
          Group's Form 8-K filed on March 30, 2006]

4.3       Form of Warrant to Purchase Common Stock [Incorporated by reference to
          Circle Group's Form 8-K filed on March 30, 2006]

4.4       Form of Registration  Rights  Agreement  [Incorporated by reference to
          Circle Group's Form 8-K filed on March 30, 2006]

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]


                                       25
<PAGE>
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 a 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 a 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.

10.12     Letter  Agreement  between  Circle  Group  Holdings,  Inc.  and George
          Foreman  Enterprises,  Inc. dated November 23, 2005  [Incorporated  by
          reference to Circle Group's Form 8-K filed on November 29, 2005]

14*       Code of Ethics

21*       Subsidiaries

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

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

                                       26
<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, 2005
and December 31, 2004, respectively:

              FEE CATEGORY                2005              2004
         -------------------------- ----------------- -----------------

         -------------------------- ----------------- -----------------
         Audit Fees(1)                   $37,000           $35,000
         -------------------------- ----------------- -----------------
         Audit-Related Fees(2)           $45,500           $51,800
         -------------------------- ----------------- -----------------
         Tax Fees(3)                        --              --
         -------------------------- ----------------- -----------------
         All Other Fees(4)                  --                --
         -------------------------- ----------------- -----------------
         Total Fees                      $82,500           $86,800
         -------------------------- ----------------- -----------------

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

(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.


                                       27
<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, 2006.

                                CIRCLE GROUP HOLDINGS, INC.

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

                                Gregory J. Halpern
                                Chairman of the Board, 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, 2006.


/S/GREGORY J. HALPERN
----------------------
Gregory J. Halpern
Director 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


                                       28
<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]

4.2       Form of Subscription  Agreement  [Incorporated  by reference to Circle
          Group's Form 8-K filed on March 30, 2006]

4.3       Form of Warrant to Purchase Common Stock [Incorporated by reference to
          Circle Group's Form 8-K filed on March 30, 2006]

4.4       Form of Registration  Rights  Agreement  [Incorporated by reference to
          Circle Group's Form 8-K filed on March 30, 2006]

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]


                                       29
<PAGE>

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.

10.12     Letter  Agreement  between  Circle  Group  Holdings,  Inc.  and George
          Foreman  Enterprises,  Inc. dated November 23, 2005  [Incorporated  by
          reference to Circle Group's Form 8-K filed on November 29, 2005]

14*       Code of Ethics

21*       Subsidiaries

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

                                       30
<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,  2005 and 2004,  and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for 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
consolidated financial statements are free of material misstatement. The company
is not  required  to  have,  nor were we  engaged  to  perform,  an audit of its
internal control over financial reporting.  Our audit included  consideration of
internal  control  over  financial  reporting  as a basis  for  designing  audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the  effectiveness  of the company's  internal  control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  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,  2005 and 2004,  and the
results  of its  operations  and its cash  flows  for the  years  then  ended in
conformity with accounting principles generally accepted in the United States of
America.


/s/ Spector & Wong, LLP
Pasadena, California
March 30, 2006


                                      F-2
<PAGE>
<TABLE>
<CAPTION>
CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

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

As of December 31
ASSETS                                                                           2005                 2004
--------------------------------------------------------------------------------------------------------------
Current Assets
<S>                                                                             <C>                    <C>
  Cash and cash equivalents                                               $       24,999         $     93,748
  Accounts receivable                                                             60,446               86,465
  Inventory                                                                       98,787              115,742
  Prepaid expenses and others                                                     85,670              100,548
                                                                          ------------------------------------
           Total current assets                                                  269,902              396,503
                                                                          ------------------------------------

Property and equipment, net                                                    6,512,126            6,986,553
                                                                          ------------------------------------

Other Assets
  Intangible assets, net                                                         528,917              563,250
  Deposits                                                                        11,103               11,103
                                                                          ------------------------------------
           Total other assets                                                    540,020              574,353
                                                                          ------------------------------------

           TOTAL ASSETS                                                   $    7,322,048         $  7,957,409
                                                                          ====================================
</TABLE>

See notes to consolidated financial statements


                                      F-3
<PAGE>
<TABLE>
<CAPTION>
CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

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

LIABILITIES AND STOCKHOLDERS' EQUITY                                            2005                2004
-------------------------------------------------------------------------------------------------------------
Current Liabilities
<S>                                                                             <C>                  <C>
  Accounts payable                                                       $      892,596       $    1,595,715
  Accrued expenses and other liabilities                                        346,483              507,684
  Capital lease obligations                                                      30,994               30,790
  Note payable to related parties                                                     -               25,000
                                                                        -------------------------------------
                                                                              1,270,073            2,159,189
Long-Term Liabilities,
  Capital lease obligations                                                      14,074               43,128
                                                                        -------------------------------------

          Total liabilities                                                   1,284,147            2,202,317
                                                                        -------------------------------------

Minority deficit                                                                      -              (78,866)

Stockholders' Equity
  Common stock, $.00005 par value; 200,000,000 shares
   authorized; issued and outstanding 2005 50,016,782 shares;
   2004 44,396,469 shares                                                         2,503                2,220
  Common stock to be issued                                                          22                   22
  Additional paid-in capital                                                 39,542,378           38,185,404
  Unamortized expenses                                                         (257,318)          (1,849,589)
  Notes receivable for issuance of stock                                       (185,000)          (3,465,000)
  Accumulated deficit                                                       (33,053,415)         (27,027,830)
  Treasury stock, at cost                                                       (11,269)             (11,269)
                                                                        -------------------------------------
          Total stockholders' equity                                          6,037,901            5,833,958
                                                                        -------------------------------------

    TOTAL LIABILITIES AND STOCKHOLDERS'
      EQUITY                                                            $     7,322,048       $    7,957,409
                                                                        =====================================
</TABLE>

See notes to consolidated financial statements


                                      F-4
<PAGE>
<TABLE>
<CAPTION>
CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

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


For the years ended December 31,                                                    2005                  2004
-----------------------------------------------------------------------------------------------------------------
Revenues:
<S>                                                                               <C>                    <C>
  Products                                                                   $     510,947          $    634,456
  Services                                                                           3,661                30,997
-----------------------------------------------------------------------------------------------------------------
    Total revenues                                                                 514,608               665,453
-----------------------------------------------------------------------------------------------------------------

Cost of revenues:
  Products                                                                         679,425               589,196
  Services                                                                          23,607                87,357
-----------------------------------------------------------------------------------------------------------------
    Total cost of revenues                                                         703,032               676,553
-----------------------------------------------------------------------------------------------------------------

Operating expenses:
  Selling, general and administrative                                            4,940,598             5,142,295
  Amortization of intangible assets                                                 34,333                34,333
-----------------------------------------------------------------------------------------------------------------
    Total operating expenses                                                     4,974,931             5,176,628
-----------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------
            Operating loss                                                      (5,163,355)           (5,187,728)
-----------------------------------------------------------------------------------------------------------------

Other income (expenses):
  Rental and other income                                                           45,355                62,765
  Interest income                                                                    4,425                 6,200
  Provision for loan loss                                                         (965,000)                    -
  Settlment gain                                                                         -               953,000
  Interest expense                                                                 (19,998)              (19,552)
-----------------------------------------------------------------------------------------------------------------
    Total other income (expenses)                                                 (935,218)            1,002,413
-----------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------
            Net loss before minority interest                                $  (6,098,573)         $ (4,185,315)
-----------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------
            Minority interest in subsidiaries' loss                                 72,988                67,540
-----------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------
            Net loss                                                         $  (6,025,585)         $ (4,117,775)
-----------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------
Net Loss per Share - Basic and Diluted                                       $       (0.13)         $      (0.11)
-----------------------------------------------------------------------------------------------------------------

Weighted Average Number of Shares                                               46,653,242            38,347,768

</TABLE>

See notes to consolidated financial statements


                                      F-5
<PAGE>
<TABLE>
<CAPTION>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------
                                                    Common
                                                   Stock and                       Notes
                                     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, 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
  Net loss                                                                                      (4,117,775)          -   (4,117,775)
                                 ---------------------------------------------------------------------------------------------------
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

  Stock issued for services             730,737       612,077      (484,840)                                                127,237
  Stock issued for cash               1,187,500       525,000                                                               525,000
  Stock issued for equipment            149,265       186,582                                                               186,582
  Exercise of stock warrants and
   options                            2,452,811     1,146,427                     (35,000)                                1,111,427
  Warrants issued for services                         51,200       (51,200)                                                      -
  Proceeds from notes receivable                                                2,350,000                                 2,350,000
  Reserve for uncollectible notes
   receivable                                                                     965,000                                   965,000
  Exchange of stock to eliminate
   minority interest                  1,100,000      (151,854)                                                             (151,854)
  Amortization of services                         (1,012,175)    2,128,311                                               1,116,136
  Net loss                                                                                      (6,025,585)              (6,025,585)
                                 ---------------------------------------------------------------------------------------------------

Balance at December 31, 2005         50,016,782 $  39,544,903  $   (257,318)  $  (185,000)   $ (33,053,415)  $ (11,269) $ 6,037,901
                                 ===================================================================================================
</TABLE>

See notes to consolidated financial statements


                                      F-6
<PAGE>
<TABLE>
<CAPTION>
CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

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

For the years ended December 31,                                                 2005                2004
----------------------------------------------------------------------------------------------------------------
Cash Flow From Operating Activities:
<S>                                                                                <C>                <C>
  Net loss                                                                     $ (6,025,585)      $  (4,117,775)
  Adjustments to reconcile net loss to net cash used in operations:
   Minority deficit                                                                 (72,988)            (67,540)
   Depreciation and amortization                                                    657,081             232,532
   Gain on disposal of long-lived assets                                                  -              (1,400)
   Issuance of common stock and warrants for services                               285,097             614,420
   Amortization of noncash expenses                                               1,116,136             679,777
   Provision for loan loss                                                          965,000                   -
   (Increase) decrease in:
     Accounts receivable                                                             26,019             (17,307)
     Inventory                                                                       16,955             (97,693)
     Prepaid expenses and other assets                                               14,878             (84,216)
     Deposits                                                                             -                 (13)
   Increase (decrease) in:
     Accounts payable and other liabilities                                        (644,873)          1,791,622
----------------------------------------------------------------------------------------------------------------
           Cash flows used in operating activities                               (3,662,280)         (1,067,593)
----------------------------------------------------------------------------------------------------------------

Cash Flow From Investing Activities:
  Purchase of property and equipment                                               (181,186)         (6,466,665)
  Proceeds from disposition of property and equipment                                     -               1,400
----------------------------------------------------------------------------------------------------------------
           Cash flows used in investing activities                                 (181,186)         (6,465,265)
----------------------------------------------------------------------------------------------------------------

Cash Flow From Financing Activities:
  Net proceeds from sales of stock                                                  525,000           4,061,175
  Net proceeds from notes receivable                                              2,350,000                   -
  Exercise of options and warrants                                                  928,567           2,208,665
  Payments on capital lease obligations                                             (28,850)            (26,952)
----------------------------------------------------------------------------------------------------------------
           Cash flows provided by financing activities                            3,774,717           6,242,888
----------------------------------------------------------------------------------------------------------------

           Net decrease in cash and cash equivalents                                (68,749)         (1,289,970)

Cash and cash equivalents, at beginning of year                                      93,748           1,383,718
----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, at end of year                                      $     24,999       $      93,748
----------------------------------------------------------------------------------------------------------------

Supplemental Disclosures of Cash Flow Information:
    Interest paid                                                              $     16,463       $      17,218
Supplemental Schedules of Noncash Investing and Financing Activities:
  Stock subscriptions and notes recievable incurred for issuance of stock      $     35,000       $   3,465,000
  Issuance of common stock for liabilities incurred for equipment purchases    $    186,582       $           -
  Issuance of credit memos for liabilities incurred for equipment purchase     $     32,865       $           -
  Issuance of common stock to retire note payable to related party             $     25,000       $           -
  Shares to be retired for unamortized expenses                                $  1,012,175       $           -
  Exchange of common stock to eliminate minority interest                      $   (151,854)      $           -

</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

In 2005, Circle Group Holdings,  Inc. (the "Company") refined its direction from
a pioneer of emerging  technology  companies  where it provided  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,  to a  company  that will  focus its  resources
primarily on the manufacture, marketing and sale of Z-Trim, its zero calorie fat
substitute  and  other  Z-Trim  related  products.  The  company  will  continue
exploring  all  available  options  for its other  non-Z-Trim  technologies  and
related assets.

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,
agriculture-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.  As of December 31,
2005 and 2004,  no allowance  for doubtful  accounts was provided as  management
believes that all accounts as of those dates are fully collectible.


                                      F-8
<PAGE>
CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

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

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.

Inventory:  Inventory 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
--------------------------------------------------------------------------------

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.  ("FiberGel").  At
December 31, 2004,  the Company  owned all issued and  outstanding  common stock
amounting  to 94.5% of the voting  rights.  There was no minority  deficit as of
December 31, 2005 since the Company acquired the remaining  interest in FiberGel
on October 1, 2005 (see Note 9 to the consolidated statements).

Stock-based  compensation:  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:

For years ended December 31,                    2005                  2004
--------------------------------------------------------------------------------
Net loss - as reported                      $  (6,025,585)       $   (4,185,315)
Pro forma compensation expense                  2,597,883             2,970,634
                                            -------------------  ---------------
Pro forma net loss                          $  (8,623,468)       $   (7,155,949)
                                            ===================  ===============

Basic and diluted net loss per share:
  As reported                               $      (0.13)        $        (0.11)
                                            ===================  ===============
  Pro forma                                 $      (0.18)        $        (0.19)
                                            ===================  ===============


                                      F-10
<PAGE>
CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

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

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 9 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 June 2005, the Financial Accounting Standards Board
(FASB)  issued  Statement  of  Financial  Accounting  Standard  (SFAS) No.  154,
"Accounting Changes and Errors Corrections, a replacement of APB Opinion No. 20,
Accounting  Changes,  and FASB Statement No. 3, Reporting  Accounting Changes in
Interim  Financial  Statement."  SFAS  154  changes  the  requirements  for  the
accounting  for and reporting of a change in accounting  principle.  Previously,
most voluntary changes in accounting  principles were required recognition via a
cumulative  effective  adjustment within net income of the period of the change.
SFAS  154  requires  retrospective   application  to  prior  periods'  financial
statements,  unless it is impracticable to determine either the  period-specific
effects  or the  cumulative  effect of the  change.  SFAS 154 is  effective  for
accounting  changes and  corrections  of errors made in fiscal  years  beginning
after December 14, 2005;  however,  the Statement does not change the transition
provisions  of any  existing  accounting  pronouncements.  The Company  does not
believe  this  pronouncement  will have a  material  impact in its  consolidated
financial position, results of operations or cash flows.

In December  2004,  the FASB issued 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 nonmonetary  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
--------------------------------------------------------------------------------

In December 2004, the FASB issued Statement No. 123 (revised 2004), "Share-Based
Payment"  ("SFAS  123(R)"),  which requires the  measurement  and recognition of
compensation  expense for all stock-based  compensation  payments and supersedes
the Company's current  accounting under APB 25. SFAS 123(R) is effective for the
first interim or annual reporting period that begins after December 15, 2005 for
small business  issuers.  In March 2005, the Securities and Exchange  Commission
issued Staff Accounting Bulletin No. 107 ("SAB 107") relating to the adoption of
SFAS 123(R).

The  Company  plans to use the  modified  prospective  method to adopt  this new
standard  and will  continue  to  evaluate  the  impact  of SFAS  123(R)  on its
operating results and financial condition.  The pro forma information  presented
above and in Note 10 presents the estimated compensation charges under SFAS 123,
"Accounting  for  Stock-Based  Compensation."  The  Company's  assessment of the
estimated  compensation charges is affected by the Company's stock price as well
as assumptions  regarding a number of complex and  subjective  variables and the
related  tax  impact.  These  variables  include,  but are not  limited  to, the
Company's stock price  volatility and employee stock option exercise  behaviors.
The Company will recognize the compensation  cost for stock-based  awards issued
after January 1, 2006 on a straight-line basis over the requisite service period
for the entire award.

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.

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.


                                      F-12
<PAGE>
CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

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

NOTE 3 - INVENTORY

At December 31, inventory consisted of the following:

                                     2005             2004
                              ----------------  ----------------
Raw materials                 $        47,211   $        61,677
Work-in-process                         3,574                 -
Packaging                              27,616            17,215
Finished goods                         12,733            21,380
Display                                 7,653            15,470
                              ----------------  ----------------

  Total inventory             $        98,787   $       115,742
                              ================  ================


NOTE 4 - PROPERTY AND EQUIPMENT, NET

At December 31, property and equipment, net consisted of the following:


                                                      2005             2004
                                                 --------------   -------------
Production, engineering and other equipment      $    4,505,656   $   4,463,501
Leasehold improvements                                2,629,400       2,634,128
Office equipment and furniture                          599,132         594,711
Computer equipment and related software                 319,468         310,010
Construction in process - equipment                      97,015               -
                                                 --------------   -------------
                                                      8,150,671       8,002,350
Accumulated depreciation                             (1,638,545)     (1,015,797)
                                                 --------------   -------------
  Total property and equipment, net              $    6,512,126   $   6,986,553
                                                 ==============   =============

Depreciation  expense was $622,748 and $198,199 for the years ended December 31,
2005 and 2004, respectively.

NOTE 5 - INTANGIBLE ASSETS

During the fiscal year 2005, 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  $    (57,750)  $    362,250
 website                                   200,000       (33,333)       166,667
                                     -------------  ------------   ------------

  Total intangibles                  $     620,000  $    (91,083)  $    528,917
                                     =============  ============   ============

Amortization  of  intangibles  was $34,333 for the years ended December 31, 2005
and 2004.


                                      F-13
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

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

Based on the carrying  amount of the  intangibles  as of December 31, 2005,  and
assuming  no  impairment  of  the  underlying   assets,   the  estimated  future
amortization is as follows:

                         Years ended
                         December 31,
                      ------------------------------------
                             2006           $      34,333
                             2007                  34,333
                             2008                  34,333
                             2009                  34,333
                          Thereafter              391,585
                                            --------------
                      Total amortization    $     528,917
                                            ==============

NOTE 6 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

At December 31, accrued  expenses and other current  liabilities  consist of the
following:

                                                    2005              2004
                                              ----------------  ----------------
Accrued payroll and taxes                     $       110,322   $         7,077
Accrued legal and professional fees                   190,357            76,645
Leasehold improvements                                      -           412,021
Other accrued expenses                                 45,804            11,941
                                              ----------------  ----------------
  Total accrued expenses and other
   current liabilities                        $       346,483   $       507,684
                                              ================  ================

NOTE 7 - 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, 2005 and 2004.


                                      F-14
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

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

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, 2005:

   Year Ending December 31,
   2006                                                        $     36,171
   2007                                                              14,895
                                                               -------------
   Total minimum lease payments                                      51,066
   Lease amount representing interest                                 5,998
                                                               -------------
   Present value of minimum lease payments                           45,068
   Less: current portion                                             30,994
                                                               -------------
   Non-current portion                                         $     14,074
                                                               =============

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

NOTE 8 - STOCKHOLDERS' EQUITY

Private Placement Offering

In  June  2005,  the  Company  conducted  a  self-underwritten  offering  of the
Company's  common stock up to $1.6  million.  The stock was sold for $12,500 per
unit.  Each unit consists of 31,250 shares of common stock and 31,250  warrants.
The  warrants are  exercisable  at $1.00 per share and expire in three (3) years
after purchase of the above-described unit. As of December 31, 2005, the Company
sold and  issued  1,187,500  shares  received  $525,000  in  proceeds  under the
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 under the
offering.

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.

Exercising of stock warrants and options

During 2005,  there were  2,302,811  stock warrants and options  exercised.  The
Company received total proceeds of $996,427,  of which, $35,000 will be received
in 2006. The Company applied $127,960 of proceeds due from employees  exercising
options during 2005 against the employees' net pay and a note payable to related
party.  A balance  of the  proceeds  in the  amount of  $54,900  will be applied
against the employees' net pay in 2006 (see Note 13).

During 2004,  there were  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.


                                      F-15
<PAGE>
CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

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

Elimination of Minority Deficit in FiberGel

Between September 1, 2003 and September 30, 2005, the FiberGel  subsidiary had a
minority  deficit.  The minority deficit was eliminated  through an exchange for
1,100,000 shares of the Company's common stock on December 1, 2005.

Prior to  September  1,  2003,  FiberGel  had been  the  Company's  wholly-owned
subsidiary.  In  September  2003,  the  Company  conducted  a private  placement
offering of  FiberGel's  common stock and sold  1,100,000  shares of  FiberGel's
common stock for $1,100,000.  As a result, the Company's ownership percentage of
FiberGel's  common stock declined to  approximately  94.5%. 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.

On October 1, 2005,  the Board of Directors  approved to eliminate  the minority
deficit through an exchange of the FiberGel minority  shareholder interest for a
similar  interest in the  Company.  The  elimination  of the  minority  interest
through  the   issuance  of   Company's   common   stocks  was   recorded  as  a
recapitalization  adjustment  since no gain or loss was recorded  initially when
the FiberGel's  stocks were sold in 2003.  Accordingly,  the  elimination of the
$151,854 minority deficit balance was recorded,  offset by an increase in common
stock of $55 and a decrease  in  additional  paid-in-capital  of  $151,909.

The consolidated  financial statements for periods prior to October 1, 2005, the
approval date of the exchange,  reflected a minority  deficit  adjustment of the
losses of  FiberGel  attributable  to the  minority  ownership.  For the  period
January  1,  2005  through   September  30,  2005  the  Company   reported  loss
attributable to minority  interest of $72,988 in the  consolidated  statement of
operations.  For 2004,  the  Company  reported  loss  attributable  to  minority
interest of $67,540 in the  consolidated  statement of operations and a minority
deficit balance of $78,866 in the consolidated balance sheet.

Notes receivable for issued stock

In 2004, Nurieel Akhamzadeh agreed to purchase the Company's common stock in the
form of a Full  Recourse  Promissory  Note for  $2,040,000,  of which the sum of
$1,075,000  was  received.  The Note  bears  zero  interest  and is in  default.
Litigation is pending in the U. S. District  Court in 05 C 3921 against  Nurieel
Akhamzadeh and Farhad Zaghi, who acted as an intermediary and facilitator of the
transaction, for the collection of principal balance due of $965,000 and default
interest and attorney's fees arising as described above and several other causes
of action seeking legal remedies in the suit. In default,  the Note provides the
Company with a right to recover 10% per annum  interest  from  Defendant (or the
highest rate permitted by law) and all reasonable expenses including  attorney's
fees incurred by the holder in connection therewith, whether or not such suit is
prosecuted to judgment.  During the second quarter of 2005, the Company provided
an allowance for the remaining balance.


                                      F-16
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

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

The Company also has a note  receivable  of $250,000  for warrants  exercised in
2004.  The note  carries an interest  rate of 5% per annum and is pledged by the
stock.  Principal and interest are due on June 30, 2006. A principal  payment of
$100,000 was received in 2005.

Rescinded Stock for Services

During  December 2004, the Company  issued  2,250,000  shares of common stock in
exchange for professional services. The services were to be preformed during the
period of November 22, 2004 through  November 22, 2006. On August 24, 2005,  the
Company  rescinded the agreement due to the lack of  performance by the parties.
The stock certificates are effectively restricted by the stock clearing service.
The balance of the  unamortized  services  recorded  for the stock at August 24,
2005 of $1,012,175 was charged against additional paid-in capital.

Increase Authorized Shares

On June 16,  2004,  the Board of  Directors  and the  Shareholders  amended  the
Company's article of incorporation to increase authorized shares to 200,000,000.

NOTE 9 - 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, 2005 and 2004 are as follows:


                                                        2005            2004
                                                     ---------------------------
  Weighted average fair value per option granted     $     0.61      $     0.95
  Risk-free interest rate                                 2.59%           1.37%
  Expected dividend yield                                 0.00%           0.00%
  Expected lives                                           3.00            3.00
  Expected volatility                                   161.71%         119.80%


A summary of the status of stock  options  issued by the  Company as of December
31, 2005 and 2004 is presented in the following table.
<TABLE>
<CAPTION>
                                                            2005                             2004
                                              ---------------------------------------------------------------
                                                                Weghted                           Weghted
                                                  Number        Average            Number         Average
                                                    of          Exercise             of          Exercise
                                                  Shares         Price             Shares          Price
                                              ---------------------------------------------------------------
<S>                                               <C>           <C>              <C>            <C>
Outstanding at beginning of year                  7,496,750     $   1.15         1,901,000      $    0.13
Granted                                           8,677,000         0.78         7,651,750           1.16
Exercised                                        (2,230,811)        0.43        (2,056,000)          0.24
Expired and Cancelled                            (1,050,000)        1.06                 -              -
                                              --------------                ---------------
Outstanding at end of year                       12,892,939     $   1.03         7,496,750      $    1.15
                                              ==============                ===============

Exercisable at end of year                       12,892,939     $   1.03         7,496,750      $    1.15
                                              ==============                ===============

</TABLE>


                                      F-17
<PAGE>
CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

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

The  following  table sets forth  additional  information  about  stock  options
outstanding at December 31, 2005:

<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        10,502,939            2.4 years           $ 0.77         10,502,939
   $1.51-$3.00         2,240,000            1.2 years           $ 2.02          2,240,000
   $3.01-$5.00           150,000            1.2 years           $ 4.61            150,000
                    -------------------------------------------------------------------------
                      12,892,939            2.2 years           $ 1.03         12,892,939
</TABLE>

As of December  31,  2005 and 2004,  the Company  has  warrants  outstanding  to
purchase  4,259,476  and  10,188,253  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 October 2008.

NOTE 10 - INCOME TAXES

The  deferred net tax assets  consist of the  following at December 31, 2005 and
2004:

                                                          2005          2004
                                                      --------------------------
Tax Benefit on net operating loss carryforward        $ 9,877,167   $ 8,497,963
Temporary differene in depreciation and amortization     (790,575)     (614,823)
Temporary differene in goodwill                                 -       197,717
Tax credits and carryforwards                             230,536             -
Less: valulation allowance                             (9,317,128)   (8,080,857)
                                                      --------------------------
  Net deferred tax assets                             $         -   $         -
                                                      ==========================

At December 31, 2005, net federal and state  operating  losses of  approximately
$26.5 million and $11.8 million,  respectively,  are available for carry-forward
against  future years'  taxable  income and expire  through 2025.  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 11 - 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-18
<PAGE>
CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

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

NOTE 12 - NET LOSS PER SHARE

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

                                                            Year Ended
                                                           December 31,
                                                        2005            2004
-------------------------------------------------  --------------  -------------
Numerator:
-------------------------------------------------  --------------  -------------
  Net loss                                         $  (6,025,585)  $ (4,185,315)
-------------------------------------------------  --------------  -------------
Denominator:
-------------------------------------------------  --------------  -------------
  Weighted average number of shares outstanding       46,653,242     38,347,768
-------------------------------------------------  --------------  -------------

-------------------------------------------------  --------------  -------------
Net loss per share-basic and diluted               $      (0.13)   $      (0.11)
-------------------------------------------------  --------------  -------------



As the Company  incurred  net losses for the years ended  December  31, 2005 and
2004,  the  effect of  dilutive  securities  totaling  2,084,072  and  6,286,827
equivalent  shares,  respectively,  has been  excluded from the  calculation  of
diluted loss per share because their effect was anti-dilutive.

NOTE 13 - RELATED PARTY TRANSACTIONS

In June 2005, a related party exercised 83,333 stock options at $0.30 per share.
The total  proceed of $25,000 was applied  against the note  payable owed to the
related party. The note carries interest at 5% per annum, and is due on demand.

In June 2005, the Chief Executive Officer exercised 148,333 of his stock options
at $.30 per share, or an aggregate of $44,500.  The Company  received $20,000 in
cash and applied $15,500 against the officer's net pay. The remaining balance of
$9,000 will be applied against his net pay in 2006.

In December 2005, the Chief  Financial  Officer  exercised  102,000 of his stock
options at $.45 per share,  or an  aggregate of $45,900.  The  proceeds  will be
applied against the officer's 2006 net pay.

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.

NOTE 14 - WITHDRAWAL FROM REGISTRATION AS A BROKER-DEALER

On January 27, 2004, CGI Capital,  Inc. filed an application of withdrawal  from
registration as a broker or dealer. The registration withdrawal became effective
on the 60th day after the filing pursuant to the SEC regulations.


                                      F-19
<PAGE>
CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

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

NOTE 15 - BUILDING LEASE

In March 2004,  the Company  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
            -----------------------------              ----------------
                         2006                          $       240,000
                         2007                                   60,000
                                                       ----------------
                                                       $       300,000
                                                       ================


NOTE 16 - JOINT VENTURE AGREEMENT

On November 23, 2005, the Company  entered into a binding Letter  Agreement (the
"Agreement")  with George Foreman  Enterprises,  Inc. ("GFME") pursuant to which
both  parties  would form a new  limited  liability  company  ("Newco")  for the
purpose of promoting the Company's zero calorie fat replacement food ingredient,
Z-Trim(R) (the "Joint  Venture").  Under the terms of the  Agreement,  GFME will
contribute to Newco  $150,000 cash and certain  rights to George  Foreman's name
and likeness in exchange for a 50.1% membership  interest,  and the Company will
contribute to Newco  $150,000 cash and up to 5 million shares of common stock in
exchange  for a 49.9%  membership  interest.  GFME will also be  entitled to two
seats on the Company's  board of directors and the Company has agreed not to use
any  spokesperson  for  Z-Trim(R)  other than  George  Foreman or the  Company's
current spokespersons without GFME's consent.

During the term of the Agreement,  if the Company's  sales of Z-Trim(R)  produce
revenues  of $30 million or gross  profits of $10 million in any one year,  GFME
shall  receive a cash bonus of  $100,000;  if the  Company's  sales of Z-Trim(R)
produce revenues of $50 million or gross profits of $15 million in any one year,
GFME shall receive a cash bonus of $200,000; if the Company's sales of Z-Trim(R)
produce revenues of $70 million or gross profits of $20 million in any one year,
GFME shall receive a cash bonus of $300,000; if the Company's sales of Z-Trim(R)
produce revenues of $90 million or gross profits of $25 million in any one year,
GFME  shall  receive a cash bonus of  $400,000;  and if the  Company's  sales of
Z-Trim(R)  produce  revenues of $110 million or gross  profits of $30 million in
any one year, GFME shall receive a cash bonus of $500,000.

GFME could earn the right under the  Agreement  to convert its interest in Newco
to up to 50% of the  then-outstanding  common stock and other equity (if any) of
the Company upon achieving  defined  milestones  including  launching a national
public  relations  campaign,  and George  Foreman's  promotion of Z-Trim(R)  via
national media. If achieved, the Company would be obligated to register with the
Securities  Exchange  Commission  and list with the American  Stock Exchange any
shares  of common  stock of the  Company  into  which  GFME  could  convert  its
conversion  rights assuming Mr. Foreman achieved the pre-defined  milestones the
agreement contemplates.


                                      F-20
<PAGE>
CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

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

NOTE 16 - JOINT VENTURE AGREEMENT

The  formation  of the Joint  Venture is subject to GFME's  determination  after
meeting  with  food  manufacturers  of  the  likelihood  of  securing  contracts
utilizing  Z-Trim(R)  in  conjunction  with  George  Foreman  in future  product
campaigns.  GFME has 60 days from the date of the  Agreement  to  exercise  this
right.  Furthermore,   the  Company  is  required  by  American  Stock  Exchange
regulations to obtain  shareholder  approval prior to issuing 20% or more of the
Company's common stock contemplated by the Joint Venture.

In connection with forming Newco, the parties are negotiating to enter into more
definitive  documentation  containing  more detailed  terms of the Joint Venture
consistent with the Agreement. On March 16, 2006, the Company and GFME agreed to
extend  negotiations  until April 28, 2006.  The  Agreement may be terminated by
either party upon breach by the other party.

NOTE 17 - LEGAL PROCEEDINGS

As disclosed in Note 8 to the financial statements,  the Company filed a lawsuit
against a group of  shareholders  on May 11, 2005 in the U.S.  District Court to
collect the unpaid principal  balance,  default interest and attorney fees for a
Full Recourse Promissory Note receivable for stock issued. The Company is in the
discovery process and a trial date has not been set. The defendants in that case
have sold all of the shares they purchased but did not pay for.

In response,  on December 27, 2005 those  shareholders  and a related hedge fund
they own,  Pac Bay  Financial,  filed a lawsuit back against the Company and its
directors and officers.  That lawsuit, which is being heard by the same Judge as
in  the   Company's   Note  Default  case  listed   above,   alleges  that  oral
misrepresentations  were made to induce  purchases of stock over an  approximate
one and one-half year period. Plaintiffs seek $2 million in compensatory damages
and $5 million in punitive  damages.  The basis for these damages  claims is yet
unknown.  The Company believes that they have meritorious  defenses against this
action,  and will  continue  to  vigorously  defend  it. The claim  against  the
officers and  directors is covered by D&O  insurance to the extent that three of
the individual  officers and directors are covered.  The insurance coverage pays
for defense costs only and provides no indemnity coverage.

In March 2005 the  Company's  general  contractor  that built the  manufacturing
plant and installed the equipment  filed a mechanics  lien for unpaid  billings.
The claim of $250,000 represents the construction cost overruns in the build-out
of the facility.  The discovery process has commenced and no trial date has been
set. A liability of $142,000 has been included in accounts  payable.  Management
believed that the amount of ultimate  liability with respect to such action will
not exceed such amount.

A  complaint  was filed in the United  States  District  Court for the  Northern
District  of  Illinois  by a former  investor  relation  consultant  against the
Company.  The plaintiff alleges that the Company breached an investment  banking
contract  by  failing  to  issue  free  trading  and  fully   registered   stock
certificates  pursuant to plaintiff's  exercise of various stock  warrants.  The
Company has filed a motion to dismiss on the ground that free  trading and fully
registered  stock  certificates  were issued to the plaintiff in accordance with
the express  terms of the  warrants.  The parties have agreed to go to mediation
which was scheduled on April 3, 2006.

A complaint  alleging  similar claim against the Company was  transferred in the
United States District Court for the Northern  District of Illinois in 2005. The
parties  have also agreed to go to  mediation  which was  scheduled  on April 3,
2006.


                                      F-21
<PAGE>
CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

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

The Company is also a 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, 2005.

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.

NOTE 19 - MAJOR CUSTOMERS

The Company's  principal clients are wholesale  companies.  One client accounted
for approximately 34% of the Food Product  Development segment revenues in 2005.
Another client accounted for  approximately 66% of the E-tailer segment revenues
in  for  the  years  ended  December  31,  2005.  Management  does  not  believe
significant credit risk exists at December 31, 2005.

NOTE 20 - 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.


                                      F-22
<PAGE>
CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

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

During the third  quarter of 2005,  the  Company  changed the  structure  of its
internally  organization to include three principal operating segments: (i) Food
Product Development, (ii) Security Training and Products and (iii) E-tailer. The
food  product  development  segment  owns the  exclusive,  worldwide  license to
Z-Trim(TM).  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 Company
no longer reports segment information in its business consulting  services.  The
Company also has other subsidiaries that do not meet the quantitative thresholds
of a reportable segment.

The Company reviews the operating  segments' income to evaluate  performance and
to 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.

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


                                                     Year ended December 31,
                                                     2005             2004
----------------------------------------------   -------------   ---------------
Net Revenue:
  Food Product Development                       $     43,339    $       61,286
  Security Training and Products                        3,232             2,970
  E-tailer                                            467,608           573,170
                                                 -------------   ---------------
Net Revenue by  Reportable Segment               $    514,179    $      637,426
All Other Operating Revenue                               429            28,027
----------------------------------------------   -------------   ---------------
  Consolidated Net Revenue                       $    514,608    $      665,453
----------------------------------------------   -------------   ---------------
Operating Income (Loss):
  Food Product Development                       $ (1,887,254)   $   (1,227,997)
  Security Training and Products                        2,422             2,606
  E-tailer                                            (65,536)              746
                                                 -------------   ---------------
Operating Loss by  Reportable Segment            $ (1,950,368)   $   (1,224,645)
All Other Operating Loss                           (3,212,987)       (3,963,083)
----------------------------------------------   -------------   ---------------
  Consolidated Operating Loss                    $ (5,163,355)   $   (5,187,728)
----------------------------------------------   -------------   ---------------
Net Income (Loss) Before Minority Interest:
  Food Product Development                       $ (1,889,286)   $   (1,227,997)
  Security Training and Products                        2,422             2,606
  E-tailer                                            (65,030)              876
                                                 -------------   ---------------
Net Loss by  Reportable Segment                  $ (1,951,894)   $   (1,224,515)
All Other Net Loss                                 (4,146,679)       (2,960,800)
----------------------------------------------   -------------   ---------------
Consolidated Net Loss Before Minority Interest   $ (6,098,573)   $   (4,185,315)
----------------------------------------------   -------------   ---------------


                                      F-23
<PAGE>
CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

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


                                                     At December 31,
Total Assets:                                    2005             2004
----------------------------------------------------------------------------
Food Product Development                    $    6,090,962    $   6,523,174
Security Training and Products                         135           12,367
E-tailer                                            75,407          140,811
                                            ---------------   --------------
                                                 6,166,504        6,676,352
All other segments                               1,155,544        1,281,057
----------------------------------------------------------------------------
Consolidated assets                         $    7,322,048    $   7,957,409
----------------------------------------------------------------------------

NOTE 21 - SUBSEQUENT EVENTS

2006 Financing

On March 24 through  30,  2006,  the  Company  entered  into  private  placement
subscription  agreements  pursuant to which it sold  unregistered  shares of our
common  stock,  par value  $0.00005  per share  ("Common  Stock"),  and warrants
exercisable for Common Stock.  The Company sold  approximately  205 units in the
private  placement,  with each unit consisting of 40,323 shares of Common Stock.
In addition,  investors who invested at least $500,000 in the private  placement
received  a  five-year  warrant  with an  exercise  price of $1.00  per share to
purchase a number of shares of Common Stock equal to 10% of the number of shares
of Common Stock  purchased (the  "Warrants").  In the aggregate the Company sold
8,279,594 shares of Common Stock, and Warrants to purchase an additional 161,292
shares of Common  Stock.  Gross  proceeds  from the sale total  $5,133,298.  The
Company also entered into a registration rights agreement in connection with the
private  placement  pursuant to which it has agreed to file with the  Securities
and Exchange  Commission  a  registration  statement  covering the resale of the
Common Stock and Common Stock underlying the Warrants.

National  Securities  Corporation  ("National  Securities")  served  as the lead
placement agent in connection with the private  placement.  National  Securities
will  receive  cash fees in the  aggregate  of $513,330 and warrants to purchase
827,960  shares of Common  Stock on terms which are  identical  to the  Warrants
included in the units except that the exercise price is $0.68 per share and they
contain an assignment provision.  In addition, the placement agent's warrant has
registration  rights  that are the same as those  afforded to  investors  in the
private placement.

The Company determined that all of the securities sold and issued in the private
placement  were exempt from  registration  under the  Securities Act of 1933, as
amended (the "Act") pursuant  Section 4(2) of the Act and Rule 506 of Regulation
D  promulgated  under the Act.  The  Company  based  this  determination  on the
non-public manner in which it offered the securities and on the  representations
of the persons  purchasing such securities,  which included,  in pertinent part,
that such persons were "accredited  investors" within the meaning of Rule 501 of
Regulation D  promulgated  under the Act,  and that such persons were  acquiring
such  securities for investment  purposes for their own respective  accounts and
not as nominees or agents,  and not with a view to resale or  distribution,  and
that each such persons  understood  such securities may not be sold or otherwise
disposed  of  without  registration  under  the Act or an  applicable  exemption
therefrom.


                                      F-24
<PAGE>
CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES

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

In January  2006,  the  Company  conducted a  self-underwritten  offering of the
Company's  common stock up to $1.24 million.  The stock was sold for $31,000 per
unit.  Each unit consists of 50,000 shares of common stock and 50,000  warrants.
The  warrants are  exercisable  at $1.00 per share and expire in three (3) years
after  purchase of the  above-described  unit. As of March 25, 2006, the Company
sold and issued  803,226  shares and  received  $498,000 in  proceeds  under the
offering.

On February  23, 2006,  the Company  issued  135,555  shares of common stock for
options  exercised to a related  party.  The Company  received total proceeds of
$61,000,

Dissolving subsidiaries

In 2006, the Board of Directors approved to wind down two inactive subsidiaries,
CGI  Capital,  Inc.  and  Veridisc  Corporation,  both of which  had no asset or
liabilities as of December 31, 2005.

Change Name

On February 6, 2006, the Board of Directors has approved a change of the company
name from Circle Group Holdings, Inc. to Z-Trim Holdings. This change is subject
to shareholder approval.

Departure Of Director; Appointment Of Principal Officer

On March 27, 2006, Edward L. Halpern,  age 76, announced his retirement from the
Board of Directors.

Also, at its meeting on March 22, 2006,  the Board of Directors  promoted  Steve
Cohen, formerly Vice President of Corporate Development, to President, an office
previously  held by Greg Halpern.  Greg Halpern  continues to hold the office of
Chief Executive  Officer.  Mr. Cohen,  age 50, has been employed by Circle Group
since  2002 when he was hired as the  director  of  investor  relations.  He was
promoted to Vice President of Corporate  Development  in 2003.  Prior to joining
Circle  Group,  Mr.  Cohen had 25 years'  experience  at the Chicago  Mercantile
Exchange where he worked in various trading pit and back office  positions.  Mr.
Cohen  attended  college at the  University  of  Illinois  and Oakton  Community
College.

                                      F-25