================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB

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

        For the fiscal year ended December 31, 2002

                                       OR

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

                        COMMISSION FILE NUMBER: 000-27841

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

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

            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:

                                      None

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

         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 of 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes  X    No
    ---      ---

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this form 10-KSB. |_|

         The issuer's revenues for its most recent fiscal year were:  $564,185.

         The aggregate market value of the voting stock of the issuer held by
non-affiliates of the issuer as of March 31, 2003 was $5,117,566. 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 31, 2003 as reported on the Over-the-Counter Bulletin Board. 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 31, 2003 was 24,698,443.

         Transitional Small Business Disclosure Format: Yes   X     No
                                                            -----      ----

================================================================================

<PAGE>


                                     PART I

         The Issuer has elected to follow Form 10-KSB, Transitional Small
Business Disclosure Format, Disclosure Alternative 2.

ITEM 6.           DESCRIPTION OF BUSINESS.

GENERAL

         Circle Group Holdings, Inc. ("Circle Group", the "Company", "we", "us",
"our") was formed by Gregory J. Halpern, Chairman and Chief Executive Officer,
as an Illinois corporation in May 1994 under the original name Circle Group
Entertainment Ltd., and in 2002 changed its name to Circle Group Holdings, Inc.
In November of 2002, the Board of Directors determined that in order to sustain
the Company, the business of the Company should change to focus on a new
business opportunity in addition to Consulting CGI and On-Line Bedding Corp.,
two of the Company's wholly-owned subsidiaries and core lines of business.

         While the Company continues to operate both Consulting CGI and On-Line
Bedding Corp., it is the vision of the Board of Directors that the marketing and
promotion of the Company's wholly owned subsidiary, Fiber-Gel Technologies, Inc.
("Fiber-Gel"), will be the primary focus of the Company going forward. Fiber-Gel
owns the exclusive, worldwide license to Z-Trim, an all-natural,
carbohydrate-based fat replacement developed by the Agricultural Research
Service of the United States Department of Agriculture. Z-Trim can be used to
decrease fat and calories and increase insoluble fiber in foods. The target
markets for Z-Trim includes: dairy, bakery, cereal, confectionary, pasta, snack
foods, meats and beverages. In addition, the Company has begun to leverage its
contacts within the food industry to begin marketing efforts of Z-Trim. As part
of the transition to this new business model, the Company has sought to dispose
of certain corporate assets that do not enhance the restructured operations,
including, but not limited to, CGI Capital, Inc., its e-finance operating
segment and registered broker-dealer, and Veridisc, its software development
division.

         Circle Group's principal executive offices are located at 1011 Campus
Drive, Mundelein, Illinois 60060, its telephone number is (847) 549-6002 and its
website address is www.crgq.com. We had no business operations except for
research and development activities between May 1994 and January 1997. We have
reorganized our business units into three reportable segments: business
consulting, e-tailor and food product development, which are described in more
detail below. The accounting policies of Circle Group are further described in
the financial statements herein and the notes thereto.

         On July 22, 1999, our Board of Directors declared a 2-for-1 stock split
of the outstanding Common Stock. At the same time, our articles of incorporation
were amended to decrease the par value per share of the Common Stock to $.00005.
On November 16, 2000, our Board of Directors declared a 2-for-1 stock split of
the outstanding Common Stock. Any disclosure in this Form 10-KSB with respect to
shares of Common Stock reflects both of these stock splits.

PRINCIPAL SERVICES PROVIDED AND BUSINESS MODEL.

         Fiber-Gel Technologies. On August 27, 2002, the Company acquired
Fiber-Gel, which was previously a wholly-owned subsidiary of Utek Corporation
("Utek"). Under the terms of the


<PAGE>


acquisition, the Company issued 2,800,000 shares of its Common Stock to Utek
valued at $504,000 using an average market price of $0.18 per share. The average
market price was based on the average closing price for a range of trading days
around the announcement date of the acquisition (August 27, 2002). The Company
also issued a warrant to Utek to purchase 500,000 shares of the Common Stock at
an exercise price of $0.36 per share within 36 months of the date of
acquisition. The warrants were valued at $88,800 calculated using the
Black-Scholes option pricing model.

         The Company has received 96 inquiries since September 2002 relating to
the manufacture, food processing, distribution and sale of Fiber-Gel's primary
Z-Trim product, which Fiber-Gel has the right to produce pursuant to an
exclusive license from the USDA. Z-Trim has been recently tested by General
Mills as prepared in food formulations developed at the USDA's Agricultural
Research Service. The Company began sample production in April 2003 of Z-Trim
and has entered into mutual non-disclosure agreements and discussions with
Mitsubishi Australia, Manildra Mills, McDonalds' and Proctor & Gamble to pursue
potential opportunities for Z-Trim.

         Investment Banking Financial Services. CGI Capital, Inc., a Florida
corporation, is the investment-banking subsidiary of the Company that conducts
our eMentor Capital(R) program. CGI Capital is a fully licensed broker-dealer
and NASD member. CGI Capital's activities have focused on the Internet sector
and, more generally, on issuers who seek to market their stock offerings to
investors with a technology interest. On December 20, 2002, CGI Capital entered
into a stock sale agreement with Rothschild, Owen, Hayes & Partners, Inc. to
purchase 100% of the issued and outstanding common stock of CGI Capital, Inc.
for a cash price of $45,000. The Company expects to complete the sale by the end
of second quarter of 2003, subject to the NASD approval.

         Consulting CGI. Consulting CGI, Circle Group's business consulting
division, was developed as a result of our own growth experience. We believe
that most entrepreneurs are highly knowledgeable in specific areas of their
business, but require various consulting services in order to grow their
companies. Consulting CGI provides such services including: consulting to assist
client companies in managing their employees, refining their infrastructure,
developing an online identity, and supporting overall business efficiency.
Circle Group established Consulting CGI to meet this need. Consulting CGI has
provided services to fourteen client companies to date.

         Using formal and informal consulting services, our goal is to reproduce
and implement Circle Group's infrastructure model to strengthen the operations
infrastructure of our client companies. The scope of the business consulting
services provided by Consulting CGI is limited to operational consulting
services and does not include raising capital.

         The duties of this division may extend from assisting client companies
in writing an employee handbook to developing a marketing campaign targeting a
specific audience. The goal is to offer a full range of business consulting
services, so client companies can focus their resources and energies on growing
their business. These services include:

o        Corporate Communications and Internet Marketing Strategy Development
o        Technology Support and Strategic Networking


                                       2
<PAGE>

o        Strategy and Planning Consulting
o        Business Plan Development
o        Sales Training
o        Operations Consulting

         Consulting CGI has provided operational consulting services for all of
its client companies at varying levels. Some client companies only choose to use
Consulting CGI for very specific consulting needs where other client companies
opt for our entire scope of services. Consulting CGI constituted approximately
3% and 5% of our consolidated revenues for 2001 and 2002, respectively.

         E-Solutions By CGI Total Media, Inc. Circle Group's roots are in web
design, browser development, and Internet marketing software. As we grew to
offer more services, our web design division expanded and was incorporated as
CGI Total Media, Inc., an Illinois corporation and wholly owned subsidiary of
Circle Group. We believe that many companies provide web site design assistance,
but do not offer more complete services that will give a business an added
advantage. CGI Total Media offers a complete e-solutions package for small to
mid-size businesses.

         Most media-based companies focus on web development, video production,
sound creation, multimedia development or print design. CGI Total Media
differentiates itself by offering all of these services. This model allows CGI
Total Media to provide a complete and unified corporate image for its clients.
All forms of marketing media, from logos to multimedia presentations and
effective web sites, are integrated in a cohesive manner to create a brand
identity for our clients. We provide working solutions for the marketing needs
of our clients. These are "attention-getters" designed and produced to yield
positive results that promote our clients' products and services.

EMPLOYEES AND LABOR RELATIONS

         As of March 31, 2003, we employed seven persons full time. While the
Company believes that this staffing level will be sufficient to manage the
Company and carry on its business as currently conducted, we may need to
increase staffing 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.
All of our employees, including key management, have signed three-year
employment contracts.

COMPETITION

         Although we compete with other food specialty firms providing products
in the same ingredient category we believe that Fiber-Gel's primary product
represents a better, more comprehensive fat replacement solution than those of
other companies. In our eTailer and consulting divisions we face many other
better-established competitors.

MARKETING

         Our fundamental marketing strategy is to focus on several core target
markets based on the wide array of current industry inquiries we have already
received in the dairy, bakery, cereal, confectionary, processed meats, snack
foods, and beverages industries. In our eTailer and


                                       3
<PAGE>


consulting divisions we have no on-going marketing campaign and all current
business is generated from existing relationships and word of mouth referrals.

OPERATING SEGMENTS

         We have re-organized our business units into three reportable segments:
business consulting, (Consulting CGI), e-tailer (On-Line Bedding Corp.) and food
product development (Fiber-Gel Technologies, Inc.). We no longer report segment
information in the software development category. The business-consulting
segment develops distinctive web sites and provides business-consulting
services. The e-tailer segment is a distributor of pillows, blankets, and other
bedding products. The food product development segment owns the exclusive,
worldwide license to Z-Trim. Our other subsidiary, CGI Worldwide, Inc., does not
meet the quantitative thresholds of a reportable segment.

         The Company's 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 the Company's
management. Goodwill and the related amortization are principally attributable
to the business consulting segment.

CIRCLE GROUP'S SUBSIDIARIES

         The following is a brief description of our principal operating
subsidiary.

         On-Line Bedding Corp. In January 1999, we acquired 100% of the issued
and outstanding stock of On-Line Bedding Corp., Inc., valued at $1,000,000, from
Edward L. Halpern, one of our directors, and his wife in exchange for 800,000
shares of our Common Stock, which shares represent 4.03% of our outstanding
Common Stock. On-Line Bedding, an Illinois corporation founded in 1981, is a
distributor of pillows, blankets and other bedding products to airlines,
hospitals and other commercial and institutional customers, and reported annual
revenues of approximately $485,780 in 2002. On-Line Bedding subcontracts the
production of pillows, blankets and other bedding products to manufacturers.
Revenues from On-Line Bedding constituted approximately 87% and 96% of our
consolidated revenues in 2001 and 2002, respectively.

         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. It maintains several sources for its products and has
never experienced any difficulty in obtaining raw materials. It 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. On-Line Bedding is on an electronic invoice
system with the United States military for a specialty pillow, which is
regularly purchased by the U.S. armed forces. On-Line


                                       4
<PAGE>


Bedding is also an authorized pillow and related product vendor for a hospital
purchasing group of over 500 members in eight states.

         On-Line Bedding has historically marketed its products directly through
regular mailings of its catalog to existing customers, as well as hospitals,
nursing homes, airlines, and university housing directors. We anticipate
expanding our marketing efforts using traditional marketing methods, the
introduction of our e-commerce site and web-based marketing strategies. These
include strategic web site placement, keyword targeting, affiliate linking and
other online promotional strategies. Since the purchase of On-Line Bedding, we
have developed an e-commerce site to expand On-Line Bedding's current
operations. This web site, www.bedsandbeyond.com, offers single and multi-pack
quantities of pillows, blankets, mattress pads, quilts, mattresses and other
related products at factory direct prices.

         Presently, customers who use the online store can conduct targeted
searches through a catalog of over 500 products, browse among featured product
lines, participate in promotions, view informational videos, and access customer
support representatives by telephone, fax, and e-mail during regular business
hours.

CONTROLS AND PROCEDURES

         The Company is subject to the Sarbanes-Oxley Act of 2002 (Pub. L. No.
107-204, 116 Stat. 745) and, in accordance therewith, is required to maintain
and review certain disclosure controls and procedures.

         Evaluation of Disclosure Controls and Procedures. The Company maintains
a system of disclosure controls and procedures that is designed to ensure that
information required to be disclosed by the Company in this Form 10-KSB, and in
other reports required to be filed under the Securities Exchange Act of 1934, is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms for such filings. Management of the Company, under the
direction of the Company's Chief Executive Officer and Chief Financial Officer,
reviewed and performed an evaluation of the effectiveness of the Company's
disclosure controls and procedures within 90 days prior to filing this annual
report (the "Evaluation Date"). Based on that review and evaluation, the Chief
Executive Officer and Chief Financial Officer, along with other key management
of the Company, have determined that the disclosure controls and procedures were
and are effective as designed to ensure that material information relating to
the Company and its consolidated subsidiaries would be made known to them on a
timely basis.

         Changes in Internal Controls. There were no significant changes in the
Company's internal controls or other factors that could significantly affect
these controls subsequent to the Evaluation Date.

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



                                       5
<PAGE>

OPERATIONS. We reported a net loss of $3,587,684 for the twelve months ending
December 31, 2002 and a net loss of $4,947,806 for the twelve months ending
December 31, 2001. At December 31, 2002 and 2001, respectively, we reported
accumulated deficits of $20,082,234 and $16,484,550. 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 FINANCIAL STATEMENTS CONTAIN AN EXPLANATORY PARAGRAPH INDICATING
THERE IS DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN. The
accompanying consolidated financial statements have been presented assuming that
Circle Group and its subsidiaries will continue as a going concern. We have
experienced declining revenues in our e-tailer segment; have not been able to
generate meaningful revenues from other business segments; and have not
generated funds from our investing activities, all of which have adversely
affected our current results of operations and liquidity. Management's plans in
regard to these matters are described in Note 2 to our consolidated financial
statements. The consolidated financial statements do not include any adjustments
to reflect the possible future effects on the classification of assets or the
amounts of classification of liabilities that might result from the outcome of
this uncertainty. These conditions raise substantial doubt about our ability to
continue as a going concern. There can be no assurance that we can be operated
profitability in the future.

         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 that 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 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.

         OUR COMMON STOCK IS SUBJECT TO THE SEC'S "PENNY STOCK" RULES WHICH MAY
MAKE IT MORE DIFFICULT TO SELL. The Securities and Exchange Commission (the
"SEC") rules require brokers to provide information to purchasers of securities
traded at less than $5.00 per share and not traded on a national securities
exchange or quoted on the Nasdaq Stock Market. These disclosure requirements may
have the effect of reducing trading activity in our Common Stock and making it
more difficult for investors to sell. The rules require a broker to deliver a
risk disclosure document that provides information about penny stocks and the
nature and level of risks in the penny stock market. The broker must also give
bid and offer quotations and broker and salesperson compensation information to
the customer orally or in writing before or with the confirmation. The SEC rules
also require a broker to make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction before completion of the transaction.



                                       6
<PAGE>

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

         THE SECURITIES THAT WE HOLD ARE ILLIQUID AND WE DO NOT HOLD ANY
COLLATERAL. We previously accepted restricted securities as payment for
services. We are not currently planning to continue to accept stock for services
in the future. To the extent that we have accepted restricted securities as
payment for our business consulting services, we have deferred revenue
recognition with respect to these securities. If such securities become
worthless, no revenue with respect to these services will be realized.
Eliminating the possibility of clients paying for our services with securities
may negatively impact our ability to attract clients that could not otherwise
pay for our services with cash. We cannot predict what effect, if any, the
future change in our fee structure for our business consulting services may have
on our ability to attract business consulting clients.

         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 IN EXCESS OF SIXTY PERCENT
OF OUR COMMON STOCK. Ownership of Circle Group is concentrated in management.
Gregory J. Halpern, our Chairman and Chief Executive Officer, holds 53.22% of
Circle Group and all of the directors and officers as a group hold 60.03%.
Holders of our Common Stock could be out-voted by management in most
circumstances and thereby management could control the composition of the board
of directors and the policies of Circle Group.



                                       7
<PAGE>



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

         This Annual Report on Form 10-KSB contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. 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:

         |X| Our product development efforts;


         |X| The commercialization of our products;


         |X| Anticipated operating losses and capital expenditures;


         |X| Our estimates regarding our needs for additional financing;


         |X| Our estimates for future revenues and profitability; and


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

         In some cases, you can identify forward-looking statements by terms
such as "may," "will," "should," "could," "would," "expect," "plan,"
"anticipate," "believe," "estimate," "project," "predict," "intend," "potential"
and similar expressions intended to identify forward-looking statements. These
statements reflect our current views with respect to future events and are based
on assumptions and subject to risks and uncertainties. Given these
uncertainties, you should not place undue reliance on these forward-looking
statements. We discuss many of these risks in greater detail in the foregoing
section under the heading "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 7.           DESCRIPTION OF PROPERTY.

         Circle Group is headquartered in approximately 22,000 square feet of
leased space at 1011 Campus Drive, Mundelein, Illinois. This space is leased for
$11,880 per month pursuant to non-cancelable operating leases that expire in
2004. All Company subsidiaries and divisions are operated out of this space.



                                       8
<PAGE>

ITEM 8.           DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES.

<TABLE>
<CAPTION>
                    NAME                                   POSITION                                 AGE
                    ----                                   --------                                 ---
             <S>                        <C>                                                          <C>
             Gregory J. Halpern         Chief Executive Officer and Chairman of the Board of         44
                                        Directors

             Michael J. Theriault       Chief Operating Officer                                      50
             Dana L. Dabney             Director, Secretary and Chief                                53
                                        Financial Officer

             Edward L. Halpern          Director                                                     73
             Steve H. Salgan, MD        Director                                                     50
             Stanford J. Levin          Director                                                     50
</TABLE>


         GREGORY J. HALPERN. Since starting Circle Group in 1994, Mr. Halpern
has served as its chairman and chief executive officer. From May 1994 until
March 1999, Mr. Halpern also served as Circle Group's president. Mr. Halpern has
over 20 years of experience in computer programming and pioneering emerging
technologies. In 1983, Mr. Halpern developed a computer-animated imaging
application to stimulate the immune system for treatment of chronic illness and
founded Health Imaging Corporation to distribute the application to the
healthcare delivery market. In 1984, he developed and patented a technique for
using electronic stimulation to stop pain and founded Pain Prevention, Inc. to
market the technology as an electronic anesthesia for the dental healthcare
community. Mr. Halpern has served as an officer and director of PPI Capital
since its inception in 1984. Mr. Halpern also served as an officer and director
of PPI Capital Group, Inc., a Utah corporation of which he was a principal
shareholder, from 1989 to May 1998. Gregory J. Halpern is the son of Edward L.
Halpern.

         MICHAEL J. THERIAULT. Mr. Theriault has served as our chief operating
officer since June 1999. His professional experience includes progressive
operations, programming, design, support, consulting, project management, and
department management experience in manufacturing, insurance, medical,
consulting, and mortgage banking industries on both mainframe and personal
computer equipment. From September 1989 until May 1999, Mr. Theriault was
employed by Recon Optical, Inc., for whom 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. Mr. Theriault received his BS in Computer Science and Business
Management from Northeastern Illinois University in 1978 and an MBA from Lake
Forest Graduate School of Management in 1987.

         DANA L. DABNEY. Mr. Dabney has been a member of the board of directors
of Circle Group 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 CFO. During the first two years of development of Circle Group,
Mr. Dabney was also employed as a mortgage broker. From 1994 until December
1997, Mr. Dabney was employed by State Financial Bank in Richmond, Illinois, and
from January 1998 until December 1998 he was employed by Mortgage Market
Corporation in Illinois.

         EDWARD L. HALPERN. Since March 1999, Mr. Halpern has been a director of
the Company and was our chief operating officer from January 1999 until March
1999. Mr. Halpern founded On-Line Bedding in 1981 and served as its president,
chief executive officer and sole


                                       9
<PAGE>

director until it was acquired by Circle Group in January 1999. Mr. Halpern has
continued his duties with On-Line Bedding since Circle Group acquired it. Mr.
Halpern is the father of Gregory J. Halpern.

         STEVE H. SALGAN, M.D. Dr. Salgan has been a director 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. Dr. Salgan received a B.S. in Psychology from
DePaul University in 1976, and a M.D. from the Abraham Lincoln School of
Medicine, University of Illinois in June 1982.

         STANFORD J. LEVIN. Mr. Levin has been a director 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. From June 1975 until May 1981, he was employed by Yale Corporation
of Hammond, a real estate management company, where his responsibilities
included commercial real estate management. Mr. Levin received a B.S. in
Education from Indiana University in 1975.

         The term of office of each director expires at each annual meeting of
shareholders and upon the election and qualification of his successor. There are
no arrangements with any director or officer regarding any election or
appointment to any office of Circle Group.

ITEM 9.           REMUNERATION OF DIRECTORS AND OFFICERS.

         The following table sets forth the aggregate remuneration of each of
the three highest paid persons who are officers or directors as a group of
Circle Group during the last fiscal year:

<TABLE>
<CAPTION>
                                                     CAPACITIES IN WHICH                      AGGREGATE
         NAME OF INDIVIDUAL                       REMUNERATION WAS RECEIVED                  REMUNERATION
         ------------------                       -------------------------                  ------------
         <S>                                <C>                                                <C>
         Edward L. Halpern                  Director, President, On-Line Bedding               $110,000
         Gregory J. Halpern                 Chief Executive Officer and Chairman               $ 81,000
         Michael J. Theriault               Chief Operating Officer                            $ 75,000
</TABLE>

         The above table includes all cash remuneration and is presented on an
accrual basis. Gregory J. Halpern had an employment agreement with Circle Group,
which expired on January 31, 2002 as discussed below. Mr. Theriault had an
employment agreement with Circle Group, which provided for an annual salary and
bonus. Directors do not receive any compensation for their attendance at Board
of Directors meetings. We are currently negotiating a new employment agreement
with several of our officers. We have entered into written employment agreements
with certain executive officers currently employed with us, the terms of which
are summarized below.


                                       10
<PAGE>

         President and Chief Executive Officer

         As noted above, Gregory J. Halpern had an employment agreement with us
dated January 1, 1999, as amended, which terminated on January 31, 2002. We are
currently negotiating a new agreement with Mr. Halpern. The terms of his
previous agreement are described below. In January 2001, Mr. Halpern's
employment agreement was amended to provide for an annual base salary of
$150,000 with eligibility to receive an annual bonus of up to $50,000. His bonus
was subject to his achievement of certain performance objectives. Mr. Halpern
was also entitled to cash incentive awards, approved by the Board of Directors,
based on a percentage of Circle Group's earnings as follows:

           2002 EARNINGS BEFORE                     EARNED INCENTIVE
        INTEREST AND TAXES ("EBIT")                (AS DEGREE OF EBIT)

              Below $500,000                                0
           $500,000 - 2,000,000                           2.5%
               $2,000,000 +                               5.0%

         Mr. Halpern has agreed to a non-compete and non-disclosure provision
that continues for a period of five years beyond the termination of his
employment agreement. In the event that Mr. Halpern is terminated by us without
cause or as a result of our breach of the employment agreement, he is not
entitled to any severance payments. In the event Mr. Halpern is terminated, he
is only entitled to receive his salary until the date of termination.

         In connection with his employment and giving effect to a December 2000
two-for-one split of our Common Stock, in March 2000, Mr. Halpern was granted an
option to acquire 400,000 shares of our Common Stock at an exercise price of
$5.50 per share, which vested immediately and is exercisable for three years.
Additionally, in connection with the amendment dated January 2001 to Mr.
Halpern's employment agreement, Mr. Halpern is eligible to receive a number of
options that would maintain his existing majority ownership, in accordance with
the following EBIT milestones, none of which were achieved in fiscal year 2002:

<TABLE>
<CAPTION>
               EBIT               NUMBER OF OPTIONS        EBIT                NUMBER OF OPTIONS
         <S>                           <C>            <C>                          <C>
         Below $1 million                 0
         $1 - 1.99 million             100,000        $11 - 11.9 million           1,100,000
         $2 - 2.99 million             200,000        $12 - 12.99 million          1,200,000
         $3 - 3.99 million             300,000        $13 - 13.99 million          1,300,000
         $4 - 4.99 million             400,000        $14 - 14.99 million          1,400,000
         $5 - 5.99 million             500,000        $15 - 15.99 million          1,500,000
         $6 - 6.99 million             600,000        $16 - 16.99 million          1,600,000
         $7 - 7.99 million             700,000        $17 - 17.99 million          1,700,000
         $8 - 8.99 million             800,000        $18 - 18.99 million          1,800,000
         $9 - 9.99 million             900,000        $19 - 19.99 million          1,900,000
         $10 - 10.99 million          1,100,000       $20 million and over         2,000,000
</TABLE>


         All of the options will be granted at fair market value at the time of
grant, will vest immediately and will be exercisable for a period of five years.
The grant agreements under the Circle Group Internet Inc. Stock Option Plan
("Option Plan") provide that options awarded to


                                       11
<PAGE>

employees expire upon the termination of employment except for termination due
to death, disability or retirement. The compensation program is specifically
designed for the fiscal year 2001. At the beginning of each year thereafter, the
Board of Directors will review, and if necessary, revise the program as it deems
appropriate. The Board of Directors did not make any revisions to the program at
the beginning of fiscal year 2002.

         Chief Operating Officer

         We entered into an employment agreement dated June 1, 1999 with Michael
Theriault that terminated on May 31, 2002, pursuant to which he joined us as
Chief Operating Officer. We are currently negotiating a new agreement with Mr.
Theriault. Pursuant to his former employment agreement, Mr. Theriault was
entitled to receive a base salary of $68,000 per annum. In addition, Mr.
Theriault received a signing bonus of 20,000 shares of our Common Stock.

         Mr. Theriault received an option to acquire 40,000 shares of our Common
Stock at $5.00 per share in connection with his employment, which options vested
immediately upon granting and are exercisable for a five year period, subject to
his continued employment with us. The grant agreements under Option Plan provide
that options awarded to employees expire upon the termination of employment
except for termination due to death, disability or retirement.

         In the event Mr. Theriault is terminated for cause he is only entitled
to receive his salary until the date of termination. The employment agreement
does not provide for any severance payments upon termination of Mr. Theriault's
employment by Circle Group. Mr. Theriault has agreed to a non-competition and
non-solicitation provision that continues for a period of six months beyond
termination of his employment agreement.

         Vice President, Chief Financial Officer

         We entered into an employment agreement with Dana L. Dabney dated
January 2, 1999 pursuant to which Mr. Dabney became Vice President of Sales and
Marketing. The term of his employment was January 2, 1999 through January 2,
2002. We are negotiating a new agreement with Mr. Dabney. Pursuant to the
employment agreement, Mr. Dabney was entitled to receive an annual base salary
of $60,000. Giving effect to a December 2000 two-for-one split of our Common
Stock, on March 7, 2000, Mr. Dabney was granted an option to acquire 10,000
shares of our Common Stock at an exercise price of $5.00 per share, which vested
immediately and is exercisable for three years. Mr. Dabney assumed the position
of chief financial officer as of December 31, 2002.

         In addition, in connection with Mr. Dabney's employment with the
Company and giving effect to a December 2000 two-for-one split of our Common
Stock, Mr. Dabney's wife was granted (i) on March 7, 2000, an option to acquire
2,000 shares of our Common Stock at an exercise price of $5.00 per share, which
vested immediately and is exercisable for three years and (ii) on September 16,
2000, an option to acquire 2,000 shares of our Common Stock at an exercise price
of $5.00 per share, which vested immediately and is exercisable for three years.
In the event that Mr. Dabney's employment is terminated for any reason he is
entitled to receive his base salary only until the date of termination. The
employment agreement does not provide for any severance payments upon
termination of Mr. Dabney's employment by Circle Group. Mr. Dabney has agreed to
a non-competition and non-disclosure provision that continues for a period of
five years beyond termination of his employment agreement.



                                       12
<PAGE>

ITEM 10.          SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS.

         The following table sets forth information as to the record ownership
of our Common Stock by (i) the parties named in Item 9, (ii) all of the officers
and directors as a group and (iii) each person who owns more than 10% or more of
our Common Stock:

<TABLE>
<CAPTION>
  NAME OF OWNER                           ADDRESS OF OWNER                     AMOUNT OWNED       % OF CLASS

<S>                          <C>                                             <C>                     <C>
Gregory J. Halpern           1011 Campus Drive, Mundelein, Illinois 60060    12,614,000 shares       53.22%
Edward L. Halpern            1011 Campus Drive, Mundelein, Illinois 60060       400,000 shares         .02%
Michael J. Theriault         1011 Campus Drive, Mundelein, Illinois 60060        20,000 shares       0.001%
All of the officers and
directors as a group (6
persons)                     1011 Campus Drive, Mundelein, Illinois 60060    14,230,000 shares       60.03%
</TABLE>


         The following table sets forth the information as to options, warrants
and other rights to purchase Common Stock:

<TABLE>
<CAPTION>
                                       TITLE AND AMOUNT OF SECURITIES CALLED
  NAME OF HOLDER                        FOR BY OPTIONS, WARRANTS OR RIGHTS           EXERCISE PRICE PER SHARE
<S>                                                 <C>                           <C>
Gregory J. Halpern                                  1,105,000                     400,000 at $5.50 and 60,000 at
                                                                                    $1.25 and 645,000 at $0.30
Edward L.Halpern                                       95,000                                  $0.30
Michael J. Theriault                                  565,000                      380,000 at $5.00 and 185,000
                                                                                              at $0.30

All of the officers and
directors as a group (6 persons)                    2,353,000                         Range from $0.30 - $5.50
</TABLE>

ITEM 11. INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS.

         On August 2, 2002 and November 7, 2002, the Company borrowed $149,000
and $70,000, respectively, from Gregory J. Halpern, the Chairman of the Board of
Directors, and signed two promissory notes in favor of Gregory J. Halpern in
return. The notes are payable upon demand and provided for interest to be paid
monthly at the rate of 5% per annum. As of December 31, 2002, the principal
balance of the notes and related aggregate accrued interest outstanding was
$207,497.

         On October 31, 2002, the Company borrowed $25,000 from Edward L.
Halpern, a Director, and signed a demand promissory note in favor of Edward L.
Halpern in return. The note provided for interest to be paid monthly at the rate
of 5% per annum. As of December 31, 2002, the principal balance of the notes was
$25,000.

         On November 15, 2002, the Company entered a stock sale and loan
agreement with an officer. Pursuant to this agreement, the officer sold shares
of Common Stock valued at $7,100 and loaned 80% of the proceeds, or $5,680 to
the Company in exchange for a promissory note issued by the Company in favor of
the officer in the amount of $7,100 as required by the agreement. The note bears
interest at 6.75% per annum, and is due on demand.



                                       13
<PAGE>



                                     PART II

ITEM 1.     MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
            OTHER SHAREHOLDER MATTERS.

         The following table sets forth, for the periods indicated, the high and
low closing prices for our Common Stock, as quoted for trading on the
Over-the-Counter Bulletin Board under the symbol "CRGQ." Our Common Stock began
trading on the OTCBB in the second quarter of 2002. The last reported sale price
of our Common Stock on March 31, 2003, was $0.51 per share. As our Common Stock
is traded in the over-the-counter market, the prices set forth in the below
table reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions. As of December 31, 2002,
there were 477 record holders of the Common Stock.

                                                   High           Low
2002
----

2nd Quarter                                        0.75          0.30
3rd Quarter                                        0.75          0.10
4th Quarter                                        0.14          0.03

2003
----

1st Quarter (Through March 31, 2003)               0.63          0.05



         Circle Group has never paid any dividends on its Common Stock and does
not anticipate paying any dividends in the foreseeable future.

ITEM 2.           LEGAL PROCEEDINGS.

         The Company filed a lawsuit in the United States District Court for the
Southern District of Florida in August 2002, alleging a legal malpractice claim
against its prior legal counsel. The Company issued a demand in the amount of
$3.2 million and mediation is being staged. The defendant law firm recently
filed for protection with the Florida courts based on a state version of
bankruptcy.

         The Company filed a lawsuit in September 2002 in the United States
District Court for the Northern District of Illinois alleging a breach of
contract and fraud against a public relations firm. The allegations arose out of
an agreement under which the firm was to generate media coverage for the
Company. The Company further alleges that it paid the firm $538,000 pursuant to
the agreement. The firm filed a counter-claim alleging that it performed its
contractual duties and that the Company owes $537,837.77 under the contract.
Negotiations to settle the claim are ongoing and the likely outcome of this
lawsuit cannot be assessed.


                                       14
<PAGE>

         The Company also filed four lawsuits in January 2003, each in the
Circuit Court of the Nineteenth Judicial Circuit Lake County of Illinois,
alleging breach of contract and fraud against four investor relation
consultants. The allegations arouse out of agreements between the Company and
the consultants under which they were to provide fund raising, acquisition, and
stock promotion services for the Company. The Company alleges that the
consultants failed to uphold their obligations and misrepresented their
services, and the Company's stock value was injured in the market as a result.
The aggregate amount claimed by the Company in all four lawsuits totaled
$269,213. The likely outcome of these lawsuits cannot be assessed.

         In November 2000, Circle Group terminated the employment of Mr. Frank
Menon, our former president and filed a complaint in the Circuit Court for the
Nineteenth Judicial Circuit of Illinois against Mr. Menon alleging, among other
things: (1) misappropriation of trade secrets, (2) breach of fiduciary duty, (3)
defamation, (4) tortious interference with contract and prospective business
relations and (5) breach of employment contract. Mr. Menon filed a counterclaim
against Circle Group and Gregory J. Halpern, individually, alleging: (1)
violation of wage payment and collection act, (2) defamation, (3) breach of
contract, (4) breach of oral contract and (5) fraud. Mr. Menon also filed a
derivative action against Circle Group and Gregory J. Halpern on behalf of all
shareholders of the Company. Two counts in Mr. Menon's counterclaim, for
defamation and breach of oral contract, were dismissed with prejudice by the
court and the fraud and breach of contract claims were dismissed without
prejudice on August 16, 2001. The wage payment and collection act claim is still
pending. In addition, the court also dismissed Mr. Menon's motion to disqualify
Circle Group's counsel and awarded fees to Circle Group for Mr. Menon's failure
to provide proper verification of his motion. The Company intends to vigorously
defend against Mr. Menon's remaining claims.

         In our court filings, we have requested that the court permanently
prohibit Mr. Menon from disparaging our business and goods and services and have
requested such further injunctive relief as the court deems just and
appropriate. In addition, we are seeking monetary damages to be proven at trial,
punitive damages and reasonable attorneys' fees and costs. Mr. Menon is also
seeking monetary damages in the amount of $70,831 and such other relief as the
court shall deem proper.

         In September 2000, we assisted with a private placement for Maxcess,
Inc. in which we raised approximately $3,000,000. In May 2001, we filed a
complaint in the Circuit Court for the Nineteenth Judicial Circuit of Illinois
against Maxcess and certain of its principals for unpaid compensation due to us
in connection with the private placement. We received an answer to our complaint
and we are currently in discovery. We are asking to be compensated approximately
$180,000 for unpaid commissions and approximately 265,000 options to purchase
common stock of Maxcess.

         It is management's opinion that these legal proceedings will not have a
material adverse affect on the financial position of the Company.




                                       15
<PAGE>

ITEM 3.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.

         On November 6, 2002, the Company dismissed its certifying accounting
firm McGladrey & Pullen, LLP, as recommended by the audit committee of the
Company's Board of Directors. The accountants' report on the financial
statements for the Company's fiscal years ended December 31, 2001 and 2000
expressed an unqualified opinion on those financial statements. During such
fiscal years and the subsequent interim periods prior to November 6, 2002, there
were no disagreements with the former accounting firm on any matter of
accounting principles or practices, financial disclosure or auditing scope of
procedure, which disagreements, if not resolved to McGladrey & Pullen's
satisfaction, would have caused McGladrey & Pullen to make reference to the
subject matter of the disagreements in connection with McGladrey & Pullen's
reports. The Company engaged Spector & Wong, LLP as of such date.

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

         On December 27, 2002, the Company held its annual meeting at its
executive offices (1) to consider and vote upon a proposal to amend the
Company's Articles of Incorporation to change its name to "Circle Group Holdings
Inc." and to authorize a class of blank check preferred stock, (2) to elect a
Board of Directors to serve for the ensuing year and until their successors are
elected and qualify, and (3) to consider and vote upon the 2002 Stock Incentive
Plan. All of the matters submitted for shareholder approval, including the full
slate of nominees were approved at the meeting. The vote tally is as follows:

                                             For         Against     Abstain
                                             ---         -------     -------
         Amend Articles of Incorporation  17,687,324     174,378        0

         Director Nominees:
                Gregory J. Halpern        17,768,024      93,678        0
                Edward L. Halpern         17,768,024      93,678        0
                Dana L. Dabney            17,702,024     159,678        0
                Stanford J. Levin         17,772,024      89,678        0
                Steven S. Salgan, M.D.    17,772,024      89,678        0

         Stock Option Plan                17,604,524     257,178

ITEM 5.           COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

         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 the Company's
equity securities to file certain reports ("Section 16 Reports") with the
Securities and Exchange Commission with respect to ownership and changes in
ownership of the Common Stock and other equity securities of the Company. These
reporting persons are required by regulation to furnish the Company with copies
of all Section 16 Reports they file. The Company is reviewing the compliance of
its reporting person with their Section 16 Reports.



                                       16
<PAGE>

ITEM 6.           REPORTS ON FORM 8-K.

         The Company filed Current Reports on Form 8-K in connection with the
dismissal of its certifying accounting firm on December 17 and November 12,
2002, and in connection with its acquisition of Fiber-Gel on November 12 and
September 11, 2002.




                                       17
<PAGE>



                                    PART F/S

         The following financial statements of the Company are included herein:

         AUDITED ANNUAL FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
         2002 AND 2001

         Independent Auditors' Reports

         Consolidated Balance Sheets

         Consolidated Statements of Operations

         Consolidated Statements of Stockholders' Equity

         Consolidated Statements of Cash Flows

         Notes to Consolidated Financial Statements


                                      F-1


<PAGE>


                          INDEPENDENT AUDITOR'S REPORT
                          ----------------------------

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

         We have audited the accompanying consolidated balance sheet of Circle
Group Holdings, Inc. (F/k/a Circle Group Internet, Inc.) and subsidiaries as of
December 31, 2002, and the related consolidated statements of operations,
changes in stockholders' deficit, and cash flows for the year 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 audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial positions
of Circle Group Holdings, Inc. and its subsidiaries as of December 31, 2002, and
the consolidated results of its operations and its cash flows for the year ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States.

         The accompanying consolidated financial statements have been prepared
assuming that Circle Group Holdings, Inc. and subsidiaries will continue as a
going concern. As more fully described in Note 2, the Company has experienced
declining revenues in its e-tailer segment; has not been able to generate
meaningful revenues from its other business segments; and has not generated
funds from its investing activities, which has adversely affected the Company's
current results of operations and liquidity. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

/s/Spector & Wong, LLP
Pasadena, California
April 8, 2003


                                      F-2


<PAGE>


McGladrey & Pullen
Certified Public Accountants


                         INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
Circle Group Holdings, Inc. and Subsidiaries
Mundelein, Illinois

We have audited the accompanying consolidated balance sheet of Circle Group
Holdings, Inc. (formally known as Circle Group Internet Inc.) and Subsidiaries
as of December 31, 2001 and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the 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, 2001 and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been presented assuming
that Circle Group Holdings, Inc. and Subsidiaries will continue as a going
concern. As more fully described in Note 2, the Company has experienced
declining revenues in its e-tailor segment; has not been able to generate
meaningful revenues from its other business segments; and has not generated
funds from its investing activities, which has adversely affected the Company's
current results of operations and liquidity. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
of classification of liabilities that may result from the outcome of this
uncertainty.

                                                     /s/ McGladrey & Pullen, LLP


Chicago, Illinois
February 28, 2002


McGladrey & Pullen, LLP is an independent member firm of
RSM International, an affiliation of independent accounting
and consulting firms.


                                       F-3


<PAGE>


CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A CIRCLE GROUP INTERNET, INC.)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>


ASSETS                                                       2002         2001
---------------------------------------------------------------------------------
<S>                                                       <C>          <C>
Current Assets
  Cash and cash equivalents                               $  122,459   $  629,508
  Accounts receivable                                         32,828       75,053
  Prepaid expenses and other assets                            6,321       18,708
  Employee loans and advances                                  6,245       19,723
  Inventories                                                 23,924       46,576
                                                          -----------------------

           TOTAL CURRENT ASSETS                              191,777      789,568
                                                          -----------------------

Property and equipment, net of accumulated
    depreciation 2002 $681,719; 2001 $700,777                862,824    1,066,968
                                                          -----------------------

Other Assets
  Investments                                                     --      191,220
  Notes receivable, net of allowance for loan loss
    2001 $718,000                                                 --      132,000
  Deposits                                                    11,090       13,618
  Software development, net of accumulated amortization
    2001 $5,175                                                   --       63,821
                                                          -----------------------
                                                              11,090      400,659
                                                          -----------------------

                                                          $1,065,691   $2,257,195
                                                          =======================

</TABLE>

See notes to consolidated financial statements

                                       F-4

<PAGE>


CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A CIRCLE GROUP INTERNET, INC.)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

LIABILITIES AND STOCKHOLDERS' EQUITY                                 2002            2001
--------------------------------------------------------------------------------------------
<S>                                                             <C>             <C>
Current Liabilities
  Accounts payable and other liabilities                        $    399,251    $    283,272
  Officers' loan, due on demand                                      232,600              --
  Capital lease obligations, current portion                          21,893              --
                                                                ----------------------------
                                                                     653,744         283,272
Long-Term Liabilities,
  Capital lease obligations, net of current portion                   99,480              --
                                                                ----------------------------

          TOTAL LIABILITIES                                          753,224         283,272
                                                                ----------------------------

Stockholders' Equity
  Common stock, $.00005 par value; 50,000,000 shares
   authorized; issued and outstanding 2002 23,711,043 shares;
   2001 19,862,447 shares                                              1,186             993
  Additional paid-in capital                                      20,404,784      18,478,749
  Accumulated deficit                                            (20,082,234)    (16,494,550)
  Treasury stock, at cost                                            (11,269)        (11,269)
                                                                ----------------------------
                                                                     312,467       1,973,923
                                                                ----------------------------

                                                                $  1,065,691    $  2,257,195
                                                                ============================

</TABLE>


See notes to confolidated financial statements

                                       F-5
<PAGE>


CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A CIRCLE GROUP INTERNET, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR YEARS ENDED DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                      2002              2001
---------------------------------------------------------------------------------------------
<S>                                                              <C>             <C>
Revenues:
  Products                                                       $    488,758    $    489,201
  Services                                                             75,427          20,911
                                                                 ----------------------------
                                                                      564,185         510,112
                                                                 ----------------------------

Cost of revenues:
  Products                                                            380,383         344,694
  Services                                                          1,408,239         970,404
                                                                 ----------------------------
                                                                    1,788,622       1,315,098
                                                                 ----------------------------

Operating expenses:
  Selling, general and administrative                               2,113,844       3,304,129
  Impairment of goodwill                                              542,800              --
  Impairment loss on investment in associated companies                    --       1,308,780
                                                                 ----------------------------
                                                                    2,656,644       4,612,909
                                                                 ----------------------------

            Operating (loss)                                       (3,881,081)     (5,417,895)
                                                                 ----------------------------

Other income (expenses):
  Other income (expense), net                                          33,830          73,496
  Recovery of bad debt                                                     --         200,000
  Gain on sales of securities                                          19,325              --
  Gain on sales of impaired investment in associated companies        235,022              --
  Interest income                                                      24,270         196,593
  Interest expense                                                    (19,050)             --
                                                                 ----------------------------
                                                                      293,397         470,089
                                                                 ----------------------------

            Net (loss)                                           $ (3,587,684)   $ (4,947,806)
                                                                 ============================

Loss per Share - Basic and Diluted                               $      (0.17)   $      (0.25)
                                                                 ============================

Weighted Average Number of Shares                                  21,640,464      19,850,186


</TABLE>

See notes to consolidated financial statements



                                       F-6
<PAGE>


CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A CIRCLE GROUP INTERNET, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR YEARS ENDED DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>

                                                                              Additional
                                                   Common Stock                 Paid-in     Accumulated     Treasury
                                                 Shares         Amount          Capital       Deficit         Stock        Total
                                               ------------------------------------------------------------------------------------
<S>                                            <C>           <C>             <C>            <C>             <C>          <C>

Balance at December 31, 2000                   19,817,936    $        991    $ 18,248,696   $(11,546,744)   $ (11,269)   $6,691,674

  Stock issued for employee compensation           20,000               0         100,000              0            0       100,000
  Stock issued for services                        25,511               2         127,553              0            0       127,555
  Stock issued in private placement                 1,000               0           2,500              0            0         2,500
  Retirement of stock                              (2,000)              0               0              0            0             0
  Net loss                                                                                    (4,947,806)                (4,947,806)
                                               ------------------------------------------------------------------------------------

Balance at December 31, 2001                   19,862,447             993      18,478,749    (16,494,550)     (11,269)    1,973,923

  Stock issued for services                       882,096              44         917,134              0            0       917,178
  Stock issued for acquisition of subsidiary    2,800,000             140         503,860              0            0       504,000
  Stock issued in private placement               166,500               9         416,241              0            0       416,250
  Warrants issued for acquistion of subsidiary          0               0          88,800              0            0        88,800
  Net loss                                                                                    (3,587,684)                (3,587,684)
                                               ------------------------------------------------------------------------------------


Balance at December 31, 2002                   23,711,043    $      1,186    $ 20,404,784   $(20,082,234)   $ (11,269)   $  312,467
                                               ====================================================================================

</TABLE>

See notes to consolidated financial statements

                                       F-7

<PAGE>


CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A CIRCLE GROUP INTERNET, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR YEARS ENDED DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                    2002                2001
----------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                   <C>

Cash Flow From Operating Activities:
  Net (loss)                                                                   $(3,587,684)          $(4,947,806)
  Adjustments to reconcile net (loss) to net cash
   (used in) operations:
   Depreciation and amortization                                                   200,438               267,603
   (Gain) loss on disposal of investments                                         (254,347)                2,559
   Impairment of investments                                                             0             1,308,780
   Write-off of goodwill                                                           542,800                27,336
   Write-off of long-lived assets                                                  143,144                     0
   Recovery of bad debt                                                                  0              (200,000)
   Loss on disposal of property and equipment                                        7,563                     0
   Provision for loan losses                                                             0               618,000
   Write-off of employee advances and loans                                          3,873                     0
   Stock issued for employee compensation                                                0               100,000
   Stock issued for services                                                       917,178               127,555
   (Increase) decrease in:
     Accounts receivable                                                            42,225                (1,023)
     Prepaid expenses and other assets                                              12,387                92,554
     Inventories                                                                    22,652                (7,909)
     Deposits                                                                        2,528                17,323
   Increase (decrease) in:
     Accounts payable and other liabilities                                        115,979              (281,735)
                                                                               ---------------------------------
           CASH FLOWS (USED IN) OPERATING ACTIVITIES                            (1,831,264)           (2,876,763)
                                                                               ---------------------------------

Cash Flow From Investing Activities:
  Employee loans and advances                                                        9,605                26,526
  Purchase of property and equipment                                                (3,555)             (256,290)
  Proceeds from disposition of property and equipment                              135,725                    --
  Capitalized software development costs                                           (34,498)              (68,996)
  Repayments received from notes receivable                                             --               200,000
  Proceeds from sales of  investments                                              577,567                33,441
                                                                               ---------------------------------
           CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES                   684,844               (65,319)
                                                                               ---------------------------------

Cash Flow From Financing Activities:
  Net proceeds from sales of stock                                                 416,250                 2,500
  Proceeds from notes payable to officers                                          232,600                    --
  (Repayments) on capital lease obligations                                         (9,479)                   --
                                                                               ---------------------------------
           CASH FLOWS PROVIDED BY FINANCING ACTIVITIES                             639,371                 2,500
                                                                               ---------------------------------

           NET (DECREASE) IN CASH AND CASH EQUIVALENTS                            (507,049)           (2,939,582)

Cash and cash equivalents, at beginning of year                                    629,508             3,569,090
                                                                               ---------------------------------

CASH AND CASH EQUIVALENTS, AT END OF YEAR                                      $   122,459           $   629,508
                                                                               =================================

Supplemental Disclosures of Cash Flow Information:
  Cash payments (receipts) for:
      Interest                                                                 $    16,741           $         0
      Income Taxes                                                                      --               (84,179)

Supplemental Schedules of Noncash Investing and Financing Activities:
  Capital lease obligations incurred for property and equipment                $   130,852           $        --
  Conversion of note receivable into investment                                    132,000                    --
  Issuance of stock and warrants to acquire subsidiary                             592,800                    --
  Write-off of investments and deferred revenue                                         --             1,043,758

</TABLE>


See notes to consolidated financial statements


                                       F-8

<PAGE>


CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A CIRCLE GROUP INTERNET, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1.  NATURE OF BUSINESS AND CRITICAL ACCOUNTING POLICIES

Nature of business: Circle Group Internet, Inc. and subsidiaries (the "Company")
is an Internet company with e-finance, business consulting, e-tailer, software
development, health products and self-defense training divisions. On December
27, 2002, the Company changed its name to Circle Group Holdings, Inc.

Principles of consolidation and presentation: The accompanying consolidated
financial statements include the accounts of Circle Group Holdings, Inc. (F/k/a
Circle Group Internet, Inc, the "Parent") and its subsidiaries, On-Line Bedding
Corporation, PPI Capital Corp., CGI Capital, Inc., CGI Total Media, CGI
Worldwide, Inc., Veridisc Corporation, Fiber-Gel Technologies, Inc., and
TheBraveway.com, Inc., after elimination of all inter-company accounts and
transactions.

Use of estimates: The preparation of the accompanying consolidated financial
statements in conformity accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the 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.

Revenue from web design services is recognized when the services are completed,
providing that the collectibility is reasonably assured. Non-marketable equity
securities received in lieu of cash for business consulting services are
recorded in the deferred revenue account at estimated value when received.
Revenue from these service contracts are recognized over the life of the
contract when it has been determined that there are no uncertainties regarding
the realizability of converting these equity securities to cash. This generally
occurs after the client has completed a public offering or is acquired by a
publicly traded company. Cash revenues received in advance from business
consulting contracts are deferred and recognized over the life of the contract.

Notes receivable: Notes receivable are stated at unpaid principal balances, less
the allowance for loan losses and net of deferred loan origination fees.
Interest on notes is recognized over the term of the loan using the interest
method. The accrual of interest on notes is discontinued when, in the opinion of
management, there is an indication that the borrower may be unable to meet
payments as they become due.

Loan Origination Fees are capitalized and recognized as an adjustment to the
yield on the related loan using the straight-line method over the loan term.

Allowance for loan losses: A loan is considered impaired when, based on current
information and events, it is probable that the Company will be unable to
collect the scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. Factors considered by management in
determining impairment include payment status, collateral value, and the
probability of collecting scheduled principal and interest payments when due.
Loans that experience insignificant payment delays and payment shortfalls
generally are not classified as impaired. Management determines the significance

                                       F-9

<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A CIRCLE GROUP INTERNET, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1. NATURE OF BUSINESS AND CRITICAL ACCOUNTING POLICIES (CONTINUED)

of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrower's
prior payment record, and the amount of the shortfall in relation to the
principal and interest owed. Impairment is measured on a loan-by-loan basis by
either the present value of expected future cash flows discounted at the loan's
effective interest rate, the loan's obtainable market price, or the fair value
of the collateral if the loan is collateral dependent.

Valuation - Investments: The Company occasionally accepts common stock for its
business consulting services. At the date stock is received, the Company values
the stock as follows:

     a)   Common stock accepted as payment in a transaction from an associated
          company where there has been no prior public offering, but whose
          shares have been offered and sold in a significant private placement
          within the last 90 days, is initially valued based upon the last sale
          price of shares in the private placement.

     b)   Common stock accepted as payment in a transaction from an associated
          company where there has been no public or significant private
          placement offering, is initially valued after considering the
          following criteria: market multiples analysis; acquisition multiples
          analysis; calculation of market capitalization based on the
          contemplated private placement sale price; realization of business
          plan objectives and management team expertise and ability to execute
          the business plan.

Other non-marketable equity investments are initially recorded at estimated
value. Associated companies not accounted for under either the consolidation or
the equity method of accounting are accounted for under the cost method of
accounting. Under this method, the Company's share of the earnings and losses of
these companies is not included in the Company's consolidated statements of
operations.

The Company records its ownership interest in equity securities of its
associated companies accounted for under the cost method at cost unless the
securities have readily determinable fair values based on quoted market prices,
in which case these interests would be accounted for in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."

Impairment valuation: On a continuous basis, but no less frequently than at the
end of each quarterly reporting period, the Company evaluates the carrying value
for financial statement purposes of its interests in each of its associated
companies for impairment. These evaluations of impairment are based on
achievement of business plan objectives and milestones of each associated
company, the fair value of each ownership interest relative to its carrying
value, the financial condition and prospects of the associated company, and
other relevant factors. The business plan objectives and milestones that are
considered include, among others, those related to financial performance, such
as achievement of planned financial results and completion of capital raising
activities. For financial statement purposes, the fair value of the Company's
ownership interests in privately held associated companies is generally
determined based on the prices paid by third parties for ownership interests in
the associated companies, to the extent third party ownership interests exist,
or based on the achievement of business plan objectives and the milestones
described above.



                                      F-10
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A CIRCLE GROUP INTERNET, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1. NATURE OF BUSINESS AND CRITICAL ACCOUNTING POLICIES (CONTINUED)

Available-for-Sale Securities: Securities available for sale are carried at fair
value with unrealized gains and losses reported in other comprehensive income.
Realized gains and losses on securities available for sale are included in other
income (expense) and, when applicable, are reported as a reclassification
adjustment, net of tax, in other comprehensive income. Gains and losses on the
sale of available for sale securities are determined using the
specific-identification method.

Declines in the fair value of individual available for sale securities below
their cost that are other than temporary would result in write-downs of the
individual securities to their fair value. The related write-downs would be
included in earnings as realized losses.

Goodwill: The cost in excess of net assets acquired is capitalized as goodwill
and is amortized on a straight-line basis over a fifteen-year period. Goodwill
is reviewed for possible impairment when events or changed circumstances may
affect the underlying basis of the net assets. Such reviews include an analysis
of current results and consideration of projected operating cash flows. During
the years ended December 31, 2002 and 2001, the Company recognized an impairment
of the goodwill of $542,800 and $27,336, respectively.

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. During the year ended
December 31, 2002, the Company recognized an impairment of the long-lived assets
of $143,144 related to its software development and health product segments.

Stock-based Compensation The Company accounts for equity-based instruments
issued or granted to employees using the intrinsic method as prescribed under
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees." SFAS No. 123, "Accounting for Stock-Based Compensation," as
amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure," defines a fair value method of accounting for issuance of stock
options and other equity instruments. Under the fair value method, compensation
cost is measured at the grant date based on the fair value of the award and is
recognized over the service period, which is usually the vesting period.
Pursuant to SFAS No. 123, companies are encouraged, but not required, to adopt
the fair value method of accounting for employee stock-based transactions.
Companies are also permitted to continue to account for such transactions under
APB No. 25, but are required to disclose in a note to the financial statements
pro forma results of operations as if the Company had applied the fair value of
accounting.

         The Company accounts for employee stock-based compensation under the
intrinsic value method of APB No. 25. SFAS No. 123, as amended by SFAS No. 148,
establishes disclosure requirements using a fair value based method of
accounting for stock-based employee compensation plans. The Company's pro forma
results of operations and loss per share information using a fair value based
method of accounting for years ended December 31, 2002 and 2001 is as follows:


                                      F-11
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A CIRCLE GROUP INTERNET, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 1. NATURE OF BUSINESS AND CRITICAL ACCOUNTING POLICIES (CONTINUED)

                                                  2002                 2001
                                             ---------------------------------
        Net loss - as reported               $ (3,587,684)        $ (4,947,806)
        Pro forma compensation expense          1,502,564            3,007,610
                                             ---------------------------------
        Pro forma net loss                   $ (5,090,248)        $ (7,955,416)
                                             =================================

        Basic and diluted net loss per share:
          As reported                        $      (0.17)        $      (0.25)
          Pro forma                          $      (0.24)        $      (0.40)


         The Company accounts for stock issued to non-employees in accordance
with the provisions of SFAS No. 123 and the Emerging Issues Task Force (EITF)
Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services." 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
96-18, 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).

Other Significant Accounting Policies

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.

Accounts Receivable Management of the Company considers accounts receivable to
be fully collectible; accordingly, no allowance for doubtful accounts is
required. If amounts become un-collectible, they will be charged to operations
when that determination is made. Bad debt expense for years ended December 31,
2002 and 2001 was $1,111 and $0, respectively.

Inventories: Inventories consist of finished goods 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 seven 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
shorter of the remaining lease terms or five years.

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.



                                      F-12
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A CIRCLE GROUP INTERNET, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair value of financial instruments: All financial instruments are carried at
amounts that approximate estimated fair value.

Software development costs: The Company capitalizes software development costs
incurred subsequent to the internal release of products for acceptance testing
pursuant to SFAS No. 86, "Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketed." Upon the general release of the product to
customers, development costs for that product are amortized over periods not
exceeding three years, based on the estimated economic life of the product.

Web Site development costs: The Company accounts for costs incurred for web site
development under Emerging Issues Task Force (EITF) 00-2, "Accounting for Web
Site Development Costs. Generally," all costs incurred in the planning and
operational phases are expensed as incurred. For costs incurred in other phases,
such as application and infrastructure development, graphics development and
content development, the Company applies SOP 98-1 in determining whether to
capitalize or expense these costs.

Income (Loss) Per Common Share Basic earnings 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 and from
convertible securities on an as-if-converted basis. 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. Shares
excluded from diluted loss per share totaled 4,560,000 and 2,738,720 for years
ended December 31, 2002 and 2001, respectively.

New Accounting Standards: On December 31, 2002, the FASB issued SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure." SFAS No.
148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition to SFAS No. 123's fair value method of
accounting for stock-based employee compensation. SFAS No. 148 also amends the
disclosure provisions of SFAS No. 123 and APB Opinion No. 28, "Interim Financial
Reporting," to require disclosure in the summary of significant accounting
policies of the effects of an entity's accounting policy with respect to
stock-based employee compensation on reported net income and earnings per share
in annual and interim financial statements. While SFAS No. 148 does not amend
SFAS No. 123 to require companies to account for employee stock options using
the fair value method, the disclosure provisions of SFAS No. 148 are applicable
to all companies with stock-based employee compensation, regardless of whether
they account for that compensation using the fair value method of SFAS No. 123
or the intrinsic value method of APB Opinion 25.

In June 2002, FASB issued Statement No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." The standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. Previous
accounting guidance provided by EITF Issue No. 94-3, "Liability Recognition for
Certain employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring) is replaced by this
Statement. Statement 146 is to be applied prospectively to exit or


                                      F-13
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A CIRCLE GROUP INTERNET, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

disposal activities initiated after December 31, 2002. Management does not
anticipate that the adoption of this Statement will have a significant effect on
the Company's financial statements.

In April 2002, FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This
Statement updates, clarifies and simplifies existing accounting pronouncements.
The provisions of this Statement related to the rescission of Statement No. 4
are to be applied for fiscal years beginning after May 15, 2002. Any gain or
loss on extinguishment of debt that was classified as an extraordinary item in
prior periods presented that does not meet the criteria in Opinion No. 30 for
classification as an extraordinary item should be reclassified. Provisions of
the Statement related to the amendment of Statement No. 13 should be applied for
transactions occurring after May 15, 2002, and all other provisions should be
applied for financial statements issued on or after May 15, 2002. Management
does not anticipate that the adoption of this Statement will have a significant
effect on the Company's financial statements.

NOTE 2. CONTINUING OPERATIONS

The Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of business. The Company
incurred a loss of $3,587,684 for the year ended December 31, 2002, and as of
that date, had an accumulated deficit of $20,082,234. As of December 31, 2002,
the Company's current liabilities exceeded its current assets by $461,967, and
had stockholders' equity of $312,467. In the near term, the Company expects
operating costs to continue to exceed funds generated from operations. As a
result, the Company expects to continue to incur operating losses and may not
have enough money to grow its business in the future. The Company can give no
assurance that it will achieve profitability or be capable of sustaining
profitable operations. As a result, operations in the near future are expected
to continue to use working capital.

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

The Company's plans to generate additional operating capital to implement its
business strategy include:

     o    Improve sales from its e-tailer segment through the resumption of
          product orders from the Company's major customers in the air and rail
          transportation industry, as well as new contract awards from its
          existing customer base of universities and hospitals.
     o    Improvements in the private equity market that will allow the Company
          to resume its capital raising efforts on behalf of current and new
          early stage development clients seeking equity capital through its
          e-finance segment. The e-finance segment generates revenue in the form
          of commission payments based on the amount of capital raised from its
          efforts.
     o    Its business-consulting segment has contracts pending, and continues
          to submit bid proposals to perform due diligence and other consulting
          services on an ongoing basis for local venture capital firms and
          consulting groups. In addition, this segment continues to derive
          revenue from its media and web development division.


                                      F-14
<PAGE>
CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A CIRCLE GROUP INTERNET, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 2. CONTINUING OPERATIONS (CONTINUED)

     o    A plan to reduce operating expenses in the near term through a series
          of aggressive cost-cutting measures, as well as a gradual reduction in
          head count which would incrementally reduce the Company's payroll
          burden and other employee related expenses. In October 2002, the
          Company reduced its workforce from 29 to 7 employees, an 85% reduction
          from September 30, 2002.
     o    The Company intends to sell CGI Capital, Inc., its wholly owned
          e-finance subsidiary (see Note 15).
     o    The Company has various investments in companies that currently do not
          have an established trading market. The Company is looking to explore
          options with each of these companies to realize value from those
          investments.

Should additional capital be needed to fund future operations or investments and
acquisition activity, the Company may seek to raise additional capital through
the sale of certain subsidiaries, through public or private offerings of the
Company's or its subsidiaries' stock. There can be no assurance, however, that
the Company will be able to raise additional capital on terms that are favorable
to the Company. As a result, the Company may need to curtail certain other of
its operations or, ultimately, cease operations.

The Company has generated approximately $416,250 in additional operating capital
through sales of its common stock and $577,567 through sales of its impaired
investments during 2002.

NOTE 3. ACQUISITION

On August 27, 2002, the Company acquired Fiber-Gel Technologies, Inc.
("Fiber-Gel"), a wholly owned subsidiary of Utek Corporation ("Utek"). Fiber-Gel
owns the exclusive, worldwide licensee to Z-Trim-an all natural,
carbohydrate-based fat replacement developed by the United States Department of
Agriculture's (USDA) Agricultural Research Service. Under the terms of the
acquisition, the Company issued 2,800,000 shares of the Company's common stock
valued at $504,000 using an average market price of $0.18 per share. The average
market price was based on the average closing price for a range of trading days
around the announcement date of the acquisition (August 27, 2002). The Company
also issued a warrant to Utek to purchase 500,000 shares of the Company's common
stock at an exercise price of $0.36 per share within 36 months of the date of
acquisition. The warrants were valued at $88,800 calculated using the
Black-Scholes option-pricing model.

The total purchase cost of the acquisition is summarized as follows:

             Value of common stock issued            $ 504,000
             Value of warrant issued                    88,800
                                                     ---------
             Total purchase price                    $ 592,800
                                                     =========


                                      F-15
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A CIRCLE GROUP INTERNET, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 3. ACQUISITIONS (CONTINUED)

The purchase price allocation is as follows:

          Licensing agreement                               $  50,000
          Goodwill                                            542,800
                                                            ---------
           Total purchase price                             $ 592,800
                                                            =========

The acquisition was accounted for as a purchase transaction in accordance with
SFAS 141, and accordingly the assets acquired were recorded at their estimated
fair value at the date of the acquisition. No tangible assets were acquired and
no liabilities were assumed from the acquisition. The results of operations of
Fiber-Gel have been included in the Company's financial statements subsequent to
the date of acquisition. Pro forma results of operations have not been presented
because the effect of the acquisition was not material.

Fiber-Gel entered into a license agreement with the USDA for the development and
commercialization of Z-Trim in the United States and Canada. Upon execution of
the agreement, Fiber-Gel paid the USDA a license execution fee of $50,000, which
is capitalized as an intangible asset. Because the Fiber-Gel acquisitions have
not met the performance targets established at the time of acquisition, and
because market conditions used as a basis of estimating terminal values continue
to remain depressed, the Company performed an impairment assessment of its
goodwill and identifiable intangible assets recorded in connection with the
acquisitions. As a result, management recorded an impairment charge during the
year ended December 31, 2002 in the amount of $592,800. The Company assessed the
recoverability of goodwill and the license agreement using estimated
undiscounted cash flows. Those cash flows include an estimated terminal value
based on hypothetical sales of an acquisition at the end of the related goodwill
and license agreement amortization period. As of December 31, 2002, the
remaining balance of goodwill and license agreement was $0.

NOTE 4.  INVESTMENTS

Stock Received for Services

As of December 31, 2002 and 2001, the carrying value of investments in stock
received for services was $0. No revenue was recognized in either year. In 2001,
the Company reduced deferred revenue by $1,043,758 to recognize losses on
investments that management determined to be other than temporary. In 2002, the
Company sold two of the investments back to the clients and recognized a gain of
$130,224.

<TABLE>
<CAPTION>


                                                 December 31, 2002               December 31, 2001
                                              --------------------------------------------------------
                                               Carrying       Cost             Carrying        Cost
                                                Value         Basis             Value          Basis
                                              --------------------------------------------------------
        <S>                                   <C>        <C>                   <C>         <C>
        Stocks received for services          $   0      $ 2,723,538           $   0       $ 5,283,578

</TABLE>



                                      F-16
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A CIRCLE GROUP INTERNET, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 4. INVESTMENTS (CONTINUED)

As of December 31, 2002 and 2001, other investments at estimated fair values
consist of the following:

<TABLE>
<CAPTION>


                                                        December 31, 2002               December 31, 2001
                                                      ---------------------------------------------------------
                                                       Carrying       Cost            Carrying         Cost
                                                         Value        Basis             Value          Basis
                                                      ---------------------------------------------------------
                <S>                                   <C>          <C>               <C>            <C>
                Available-for-Sale Securities(A)      $    --      $        --       $ 191,220      $   500,000
                Equity Securities(B and C)                 --        1,000,000              --        3,113,036
                                                      ---------------------------------------------------------

                                                      $    --      $ 1,000,000       $ 191,220      $ 3,613,036
                                                      =========================================================

</TABLE>


(A)  In 2001, the Company converted its investments of unregistered Series A 8%
     Cumulative Convertible Preferred Stock investment into 90,198 common shares
     of Startech Environmental Corp. The stock has been registered in a 1933 Act
     registration statement. The common stock trades on the NASDAQ Small Cap
     trading system under the symbol "STHK." The Company classifies this
     investment as "Available for Sale"; however, management determined the
     decline in market value of $308,780 was other than temporary and the loss
     was recognized during the year ended December 31, 2001. The Company sold
     all shares in Startech for $210,545 during 2002 and realized a gain of
     $19,325.

(B)  On May 16, 2000, the Company purchased 333,333 shares of an associated
     non-public telecommunications company in a private placement. There is no
     market for its shares. The company previously valued the holding at its
     cost of $1,000,000. During 2001, the associated company ceased operations.
     At September 30, 2001 the Company reduced the value of this holding to $0,
     to recognize a loss on investment that management determined to be other
     than temporary.

(C)  The Company converted an associated company's note receivable and unpaid
     interest of $2,113,096 into 528,274 shares of the associated company's
     stock. As of December 31, 2001, the Company reduced the value of this
     holding to $0 and recognized a loss on investment that management
     determined to be other than temporary. In 2002, the Company sold all the
     shares back to the associated company for total proceeds of $186,798,
     resulting in a realized gain of $186,798.

NOTE 5.  NOTES RECEIVABLE

As of December 31, 2002 and 2001, the Company had notes receivable consisting of
the following:

                                                      2002              2001
                                                    ---------------------------
                Notes Receivable                    $     --        $  850,000
                Less: Allowance for Loan Losses           --          (718,000)
                                                    ---------------------------
                Notes Receivable, net                     --           132,000
                Less: Current Portion                     --                --
                                                    ---------------------------
                Notes Receivable, noncurrent        $     --        $  132,000
                                                    ===========================


                                      F-17
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A CIRCLE GROUP INTERNET, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 5. NOTES RECEIVABLE (CONTINUED)

The Company had a note receivable in the amount of $750,000 that was due on
August 9, 2005. The note bore interest at 8% per annum and was payable quarterly
in arrears. In February 2002, the Company converted the note into 375,000 shares
of the borrower's common stock and received 206,250 warrants to purchase common
stock of the borrower. In December 2002, the Company sold all the shares back to
the borrower for $50,000, resulting in a realized loss of $82,000. An allowance
for loan loss of $618,000 was previously reserved for the note.

The Company had a note receivable in the amount of $100,000 from an associated
company. The note was previously fully reserved for losses. The interest has
been paid in cash current through November 30, 2001. In December 2002, the
Company entered into a settlement agreement with the associated company. The
associated company agreed to pay $10,000 to buy back all shares of its common
stock the Company received for services. In return the company forgave the note.

The following is an analysis of the allowance for losses for the years ended
December 31, 2002 and 2001:

                                                    2002         2001
                                                 ----------------------
               Beginning Balance                 $ 718,000    $ 300,000
               Provision charged to operations           0      618,000
               Recoveries                               --     (200,000)
               Charge-offs                        (718,000)           0
                                                 ----------------------
               Ending Balance                    $      --    $ 718,000
                                                 ======================


NOTE 6.  PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows for the years ended December
31, 2002 and 2001:

                                                      2002          2001
                                                 --------------------------
               Machinery and equipment           $   154,144    $   182,445
               Computer equipment and software       294,354        406,427
               Office equipment and furniture        515,515        598,343
               Leasehold Improvements                580,530        580,530
                                                 --------------------------
                                                   1,544,543      1,767,745
               Less: accumulated depreciation       (681,719)      (700,777)
                                                 --------------------------
                                                 $   862,824    $ 1,066,968
                                                 ==========================

NOTE 7.  SALE AND LEASEBACK

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." The capitalized cost and accumulated depreciation
of the leased back property and equipment at December 31, 2002 was $130,853 and
$13,085, respectively.



                                      F-18
<PAGE>

NOTE 7. SALES AND LEASEBACK (CONTINUED)

The following table presents the future minimum lease payments under the capital
leases together with the present value of the minimum lease payments as of
December 31, 2002:

            Year Ending December 31,

            2003                                          $ 42,270
            2004                                            42,270
            2005                                            42,270
            2006                                            35,296
            Thereafter                                      12,869
                                                          --------
            Total minimum lease payments                   174,975
            Lease amount representing interest              53,602
                                                          --------
            Present value of minimum lease payments        121,373
            Less: current portion                           21,893
                                                          --------
            Non-current portion                           $ 99,480
                                                          ========


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

The Company incurred a loss of $16,413 from the disposition:

            Selling price                                            $ 121,500

            Cost of equipment                          342,171

            Accumulated depreciation                  (204,258)
                                                     ---------
            Book value of equipment                                    137,913
                                                                     ---------

            Loss on disposition of equipment                         $ (16,413)
                                                                     =========

The Company accounts for the disposition in accordance with SFAS 28, "Accounting
for Sales with Leasebacks", and accordingly, the loss on the sale was recognized
in the period of the sale and leaseback.

NOTE 8.  NOTES PAYABLE TO RELATED PARTIES

On November 15, 2002, the Company entered a stock sale agreement and issued a
promissory note of $7,100 to an officer. The agreement provided that the Company
directed its transfer agent to remove the restrictive legend and allow the sale
of up to 200,000 shares of the Company's common stock under the Securities Act
of 1933 (the "Act") in reliance upon the exemption there from contained in
Section 4(1) of the Act and Rule 144 promulgated by the SEC there under, owned
by the officer. The Company will borrow, and the officer will loan 80% of any
and all proceeds from the sale of the stock to the Company. As of December 31,
2002, the officer sold all his 200,000 shares at a fair market value of $0.0355
per share, and advanced 80% of the total proceeds of $7,100, or $5,680 to the
Company. The note bears interest at 6.75% per annum, and is due on demand.



                                      F-19
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A CIRCLE GROUP INTERNET, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 8. NOTES PAYABLE TO RELATED PARTIES (CONTINUED)

The Company also granted the officer non-statutory stock options to purchase
400,000 shares of common stock of the Company at an exercise price of $0.035 per
share. The options expire on November 15, 2007.

As of December 31, 2002, notes payable to related parties consist of following:

              a.)Payable to a related party, interest accrued at
                 5%, due on demand. Unsecured.                        $ 200,500
              b.)Payable to a related party, interest accrued at
                 5%, due on demand. Unsecured.                           25,000
              c.)Payable to a related party, interest accrued at
                 6.75%, due on demand. Unsecured.                         7,100
                                                                      ---------
                                                                      $ 232,600
                                                                      =========

NOTE 9.  INCOME TAXES

The deferred net tax assets consist of the following at December 31, 2002 and
2001:


<TABLE>
<CAPTION>

                                                                       2002                 2001
                                                                   ----------------------------------
        <S>                                                        <C>                   <C>
        Tax Benefit on federal operating loss carry-forward        $  5,333,813          $  4,113,283
        Less: valuation allowance                                    (5,333,813)           (4,113,283)
                                                                   ----------------------------------
        Net deferred tax assets                                    $          0          $          0
                                                                   ==================================

</TABLE>

At December 31, 2002, net federal operating losses of approximately $15.7
million are available for carry-forward against future years' taxable income and
expire through 2022. 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 10. STOCK OPTIONS AND WARRANTS

The Company established a Stock Option Plan (the Plan) effective January 2, 1999
that provides for the issuance of qualified options to all employees and
non-qualified options to consultants and other service providers. During 2000,
the Company amended the Plan and reserved 4,000,000 shares of common stock for
issuance under the amended Plan. During the twelve months ended December 31,
2002 and 2001, the Company granted 3,030,000 and 0 options, respectively. As of
those dates, there were 4,048,000 and 1,818,000 outstanding options,
respectively. The range of exercise prices is from $0.035 to $5.50. The options
may be exercised no later than three years from the date of issuance. The
weighted average fair value of options granted by the Company as of December 31,
2002 was $0.16. No options were granted in 2001. None of these options have been
exercised to date.

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, 2002 are as follows:



                                      F-20
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A CIRCLE GROUP INTERNET, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 10. STOCK OPTIONS AND WARRANTS (CONTINUED)

              Weighted average fair value per option granted      $  0.16
              Risk-free interest rate                                1.75%
              Expected dividend yield                                0.00%
              Expected lives                                         3.00
              Expected volatility                                  279.00%

A summary of the status of stock options issued by the Company as of December
31, 2002 and 2001 is presented in the following table.

<TABLE>
<CAPTION>

                                                          2002                            2001
                                                    --------------------------------------------------------
                                                                   Weighted                         Weighted
                                                     Number         Average            Number        Average
                                                       of          Exercise             of          Exercise
                                                     Shares          Price             Shares         Price
                                                    --------------------------------------------------------
<S>                                                 <C>            <C>               <C>             <C>

Outstanding at beginning of Year                    1,818,000      $  4.94           2,020,000       $ 4.73
Granted                                             3,030,000         0.22                 --            --

Expired and Cancelled                                (800,000)        4.63            (202,000)        4.94
                                                    ---------                        ---------
Outstanding at end of Year                          4,048,000         1.47           1,818,000         4.94
                                                    =========                        =========

Exercisable at end of Year                          4,048,000         1.47           1,818,000         4.94
                                                    =========                        =========

</TABLE>

The following table sets forth additional information about stock options
outstanding at December 31, 2002:

<TABLE>
<CAPTION>

                                                    Weighted
              Range of                              Remaining           Average
              Exercise           Options           Contractual          Exercise          Options
               Prices          Outstanding             Life              Price          Exercisable
              -------------------------------------------------------------------------------------------
              <S>                <C>               <C>                <C>              <C>
              $0.01-$1.50        3,030,000         2.4 years          $  0.22          3,030,000
              $1.51-$5.00          618,000         0.3 years             5.00            618,000
              $5.01-$5.50          400,000         0.2 years             5.50            400,000
                                 ---------                                             ---------
                                 4,048,000         1.9 years             1.47          4,048,000
                                 =========                                             =========

</TABLE>

The Company has warrants outstanding to purchase 512,000 shares of the Company's
common stock at prices ranging from $0.36 to $5.00 per share. These warrants
expire at various dates through August 2005.



                                      F-21
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A CIRCLE GROUP INTERNET, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 11. NET LOSS PER SHARE

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

                                                          2002          2001
                                                     --------------------------
              Numerator:
                Net loss                             $ (3,587,684)  $(4,947,806)
              Denominator:
                Weighted average of common shares      21,640,464    19,850,186

              Basic and diluted net loss per share   $      (0.17)  $     (0.25)
                                                     ============   ===========

NOTE 12. SEGMENT REPORTING

The Company has organized its business units into four reportable segments:
e-finance, business consulting, e-tailer and software development. The e-finance
segment is a broker-dealer that offers and sells securities in private
placements. The business-consulting segment develops distinctive websites and
provides business-consulting services. The e-tailer segment is a manufacturer
and distributor of pillows, blankets, and other bedding products. The software
development subsidiary produces and markets a patent-pending digital rights
management (DRM) system that guides consumers to register and authorize access
to multimedia content and commercial software via the Internet when utilizing
the material on their computers. The corporate operations consist of formal and
informal operational consulting services provided to client companies and
support services provided to the operating segments. The Company also has
subsidiaries, which do not meet the quantitative thresholds for reportable
segments. These include:

The Brave Way Inc. provides Personal Security, Self-defense and rape prevention
training for individuals and organizations through hands-on training classes and
through the sale of their self-defense videos.

Fiber Gel Technologies Inc. holds the worldwide rights to distribute, market and
license Z-Trim, an all-natural, carbohydrate-based fat replacement which can be
used in meats, breads, cheese, sauces, dips, dressings, spreads, fries, deserts,
shakes, & ice cream and other products.

The Company's management reviews the operating companies' income to evaluate
segment performance and allocate resources. Operating companies' income for the
reportable segments excludes income taxes, minority interest and amortization of
goodwill. Provision for income taxes is centrally managed at the corporate level
and, accordingly, such items are not presented by segment since they are
excluded from the measure of segment profitability reviewed by the Company's
management. Goodwill and the related amortization are principally attributable
to the business-consulting segment. The segments' accounting policies are the
same as those described in the summary of significant accounting policies.

A. Reportable Segment Data at December 31, 2002 and 2001, was as follows:


                                      F-22
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A CIRCLE GROUP INTERNET, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                                                  2002          2001
                                             --------------------------
Sales to External Customers
  E-finance                                  $     5,000    $       360
  Business-to-Business                            70,427         20,551
  E-tailer                                       485,780        489,201
  Software Development                                 0              0
                                             --------------------------
   TOTAL SALES TO EXTERNAL CUSTOMERS         $   561,207    $   510,112
                                             ==========================
Intersegment Revenues
  E-finance                                  $         0    $         0
  Business-to-Business                                 0              0
  E-tailer                                             0              0
  Software Development                                 0              0
                                             --------------------------
   TOTAL INTERSEGMENT REVENUES               $         0    $         0
                                             ==========================
Interest Revenue
  E-finance                                       18,796        173,494
  Business-to-Business                             4,025         10,488
  E-tailer                                         1,449         12,611
  Software Development                                 0              0
                                             --------------------------
   TOTAL INTEREST REVENUE                    $    24,270    $   196,593
                                             ==========================
Interest Expense
  E-finance                                  $         0    $         0
  Business-to-Business                           (19,050)             0
  E-tailer                                             0              0
  Software Development                                 0              0
                                             --------------------------
   TOTAL INTEREST EXPENSE                    $   (19,050)   $         0
                                             ==========================
Depreciation and Amortization
  E-finance                                  $    (9,867)   $    (9,867)
  Business-to-Business                          (181,502)      (249,453)
  E-tailer                                           (36)           (36)
  Software Development                            (8,689)        (6,639)
                                             --------------------------
   TOTAL DEPRECIATION AND AMORTIZATION       $  (200,094)   $  (265,995)
                                             ==========================
Net Profit (Loss)
  E-finance                                  $   109,884    $(1,245,490)
  Business-to-Business                        (2,939,839)    (3,512,354)
  E-tailer                                       (32,154)       101,013
  Software Development                          (102,006)      (262,031)
                                             --------------------------
   NET (LOSS)                                $(2,964,115)   $(4,918,862)
                                             ==========================
Total Assets
  E-finance                                  $   300,808    $   190,924
  Business-to-Business                         1,596,064      2,277,452
  E-tailer                                       153,432        469,902
  Software Development                            12,592         79,927
                                             --------------------------
   TOTAL ASSETS                              $ 2,062,896    $ 3,018,205
                                             ==========================
Expenditures for Segment Assets
  E-finance                                  $         0    $         0
  Business-to-Business                             3,555        236,799
  E-tailer                                             0          1,921
  Software Development                            34,498         86,566
                                             --------------------------
   TOTAL EXPENDITURES FOR SEGMENTS' ASSETS   $    38,053    $   325,286
                                             ==========================




                                      F-23
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A CIRCLE GROUP INTERNET, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 11. SEGMENT REPORTING (CONTINUED)

B. Reconciliation of Segment Information

                                                       2002             2001
                                                   ----------------------------
Revenues
--------
  Total revenues for reportable segments           $   561,207      $   510,112
  Other Revenue                                          2,978                0
  Elimination of intersegment revenues                       0                0
                                                   ----------------------------
        CONSOLIDATED TOTAL                         $   564,185      $   510,112
                                                   ============================

Net Loss
--------
  Total reportable segments' net loss              $(2,964,115)     $(4,918,862)
  Other segments                                       (80,769)              --
  Unallocated amounts:
     Amortization of goodwill                               --           (1,608)
     Impairment of goodwill                           (542,800)         (27,336)
                                                   ----------------------------
        NET LOSS                                   $(3,587,684)     $(4,947,806)
                                                   ============================

Assets
------
  Total assets for reportable assets               $ 2,062,896      $ 3,018,205
  Other assets                                           1,922               --
  Elimination on consolidation                        (999,127)        (761,010)
                                                   ----------------------------
        CONSOLIDATED ASSETS                        $ 1,065,691      $ 2,257,195
                                                   ============================



NOTE 13. NET CAPITAL REQUIREMENTS

CGI Capital, Inc. is subject to the SEC Uniform Net Capital Rule (SEC Rule
15c3-1) that requires the maintenance of minimum net capital and requires that
the ratio of aggregate indebtedness to net capital, both as defined, shall not
exceed 15 to 1. Rule 15c3-1 also provides that equity capital may not be
withdrawn or cash dividends paid if the resulting net capital ratio would exceed
10 to 1. CGI Capital, Inc. was in compliance with such requirements at December
31, 2002 and 2001.

NOTE 14. COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company leases its office facilities for $11,880 per month under a
noncancelable-operating lease that expires in 2004. Taxes, insurance and
maintenance are billed when due. Rent expense for the years ended December 31,
2002 and 2001, was $142,560 and $142,910, respectively.

As of December 31, 2002, the minimum commitments under these leases are as
follows:

                           December 31,                        Amount
                           ------------                       ---------
                               2003                           $ 142,560
                               2004                              95,040
                                                              ---------
                                                              $ 237,600
                                                              =========


                                      F-24
<PAGE>

CIRCLE GROUP HOLDINGS, INC. AND SUBSIDIARIES
(F/K/A CIRCLE GROUP INTERNET, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 14. COMMITMENT AND CONTINGENCIES (CONTINUED)

Legal Proceedings

The Company filed a lawsuit in the United States District Court for the Southern
District of Florida alleging a legal malpractice claim against its prior legal
counsel. The Company issued a demand in the amount of $3.2 million and mediation
is being scheduled. The defendant law firm recently filed for protection with
the Florida courts based on the states equivalent of bankruptcy.

The Company is also subject to legal proceedings, claims, and litigation arising
in the ordinary course of business. While the outcome of these matters is
currently not determinable, management does not expect that the ultimate costs
to resolve these matters will have a material adverse effect on the Company's
consolidated financial position, results of operations, or cash flows.

NOTE 15. SUBSEQUENT EVENTS

Sales of CGI Capital, Inc.
--------------------------

On December 20, 2002, the Company entered into an agreement to sell all of the
outstanding shares of the common stock of its wholly owned subsidiary, CGI
Capital, Inc. to Rothschild, Owen, Hayes & Partners, Inc. (the "Purchaser") for
a cash price of $45,000. The Company had sold 20% ownership and received $15,000
in February 2003. The Company expects to complete the sale by the end of second
quarter, subject to the NASD approval.

Fair Play Letter Agreement
--------------------------

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

Promissory Note
---------------

On March 6, 2003, an investment banking firm issued a short-term promissory note
of $150,000 to the Company. The note pays interest of 4% to the Company and
matures on May 31, 2003.




                                      F-25

<PAGE>



                                    PART III

ITEM 1.           INDEX TO EXHIBITS.

<TABLE>
<CAPTION>
   EXHIBIT NO.                                                 DESCRIPTION
   -----------                                                 -----------
       <S>          <C>
       2.1          Articles of Incorporation of Circle Group Holdings, Inc. [Incorporated by reference to
                    Exhibit 2.1 to Circle Group's Form 10-SB (SEC File No. 000-27841)]
       2.2          Bylaws of Circle Group Holdings, Inc. [Incorporated by reference to Exhibit 2.2 to Circle
                    Group's Form 10-SB (SEC File No. 000-27841)]
       3.1          Specimen Certificate for Common Stock [Incorporated by reference to Exhibit 3.1 to Circle
                    Group's Form 10-SB (SEC File No. 000-27841)]
       6.1          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 (SEC File No. 000-27841)]
       6.2          Arthur Tanner Employment Agreement, dated June 1, 1999 [Incorporated by reference to Exhibit 6.2
                    to Circle Group's Form 10-SB (SEC File No. 000-27841)]
       6.3          Michael Theriault Employment Agreement, dated June 1, 1999 [Incorporated by reference to
                    Exhibit 6.3 to Circle Group's Form 10-SB (SEC File No. 000-27841)]
       6.4          Dana Dabney Employment Agreement, dated January 2, 1999 [Incorporated by reference to
                    Exhibit 6.4 to Circle Group's Form 10-SB (SEC File No. 000-27841)]
       6.5          Circle Group Internet Inc. 1999 Stock Option Plan [Incorporated by reference to Exhibit 6.5 to
                    Circle Group's Form 10-SB (SEC File No. 000-27841)]
       6.6          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 (SEC File
                    No. 000-27841)]
       6.7          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 (SEC File
                    No. 000-27841)]
       6.8          Stock Purchase Agreement, dated December 20, 2002, by and between CGI Capital and Rothschild
                    Owens Hayes & Partners, Inc.*

       6.9          Promissory Note, dated August 2, 2002, delivered by Circle Group Holdings, Inc. in favor of
                    Gregory J. Halpern*
       6.10         Promissory Note, dated November 7, 2002, delivered by Circle Group Holdings, Inc. in favor of
                    Gregory J. Halpern*
       6.11         Promissory Note, Dated November 30, 2002, delivered by Circle Group Holdings, Inc. in favor of
                    Edward L. Halpern*
       6.12         Stock Sale Agreement and Promissory Note, dated November 15, 2002, by and between Circle Group
                    Holdings, Inc. and Dana Dabney*
       6.13         Asset Purchase Agreement, dated August 27, 2002, by and between Circle Group Holdings, Inc. and
                    Utek Corporation [Incorporated by reference to Circle Group's Current Report on Form 8-K filed
                    on September 11, 2002]
       10.1         Consent of Spector and Wong, LLP*
       10.2         Consent of McGladrey & Pullen LLP*
       12.1         Statement Under Oath of Principal Executive Officer of the Company Pursuant to Section 906 of
                    Sarbanes-Oxley Act of 2002*
       12.2         Statement Under Oath of Principal Financial Officer of the Company Pursuant to Section 906 of
                    Sarbanes-Oxley Act of 2002*
</TABLE>

-----------------
* Filed herewith.


                                       18
<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.


Dated: April 10, 2003                CIRCLE GROUP HOLDINGS, INC.

                                     By:  /s/ GREGORY J. HALPERN
                                     ----------------------------
                                     Name: Gregory J. Halpern
                                     Title: Chairman of the Board, President and
                                            Chief Executive Officer

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

<TABLE>
<CAPTION>
                         SIGNATURES                                DATE
                         ----------                                ----
<S>                                                           <C>
 /s/ GREGORY J. HALPERN                                       April 10, 2003
------------------------
Gregory J. Halpern
Director, President and Chief Executive Officer
(principal executive officer)

 /s/ DANA L. DABNEY                                           April 10, 2003
-------------------
Dana L. Dabney Director, Chief Financial
Officer and Vice President (principal financial
or accounting officer)

 /s/ STEVE H. SALGAN, M.D,                                    April 10, 2003
---------------------------
Steve H. Salgan, M.D.
Director

 /s/ EDWARD L. HALPERN                                        April 10, 2003
-----------------------
Edward L. Halpern
Director

 /s/ STANFORD J. LEVIN                                        April 10, 2003
-----------------------
Stanford J. Levin
Director
</TABLE>


                                       19
<PAGE>

                  Certification of Principal Executive Officer
            Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
             and Securities and Exchange Commission Release 34-46427

I, Gregory J. Halpern, the principal executive officer of Circle Group Holdings,
Inc., certify that:

1. I have reviewed this annual report on Form 10-KSB of Circle Group Holdings,
Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

         (a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

         (b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

         (c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons fulfilling the equivalent function):

         (a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

         (b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Dated:  April 10, 2003                      /s/ GREGORY J. HALPERN
                                            ------------------------------------
                                            Gregory J. Halpern
                                            Chairman of the Board, President and
                                            Chief Executive Officer
                                            (Principal Executive Officer)



<PAGE>

                  Certification of Principal Financial Officer
            Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
             and Securities and Exchange Commission Release 34-46427

I, Dana L. Dabney, the principal financial officer of Circle Group Holdings,
Inc., certify that:

1. I have reviewed this annual report on Form 10-KSB of Circle Group Holdings,
Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

         (a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

         (b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

         (c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons fulfilling the equivalent function):

         (a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

         (b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect the internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Dated:  April 10, 2003                          /s/ DANA L. DABNEY
                                                -----------------------------
                                                Dana L. Dabney
                                                Chief Financial Officer
                                                (Principal Financial Officer)