<PAGE>
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

                 [x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2004

             [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                                  EXCHANGE ACT

        For the transition period from                  to
                                       ----------------    ----------------

                         Commission File Number 0-30831

CAPITAL GROWTH SYSTEMS, INC.
--------------------------------------------------------------------------------
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)

FLORIDA                                               65-0953505
---------------------------------                     --------------------------
(STATE OR OTHER JURISDICTION OF                       (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)                        IDENTIFICATION NO.)

1100 EAST WOODFIELD ROAD, SCHAUMBURG, ILLINOIS 60173
--------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

630-872-5800
--------------------------------------------------------------------------------
(ISSUER'S TELEPHONE NUMBER)

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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 [ ]

         The total number of shares outstanding of the issuer's common stock,
par value $.0001, as of the date of this report, is: 15,965,754.

         Transitional Small Business Disclosure Format:  Yes [ ]  No |X|



<PAGE>

                    NOTE REGARDING FORWARD-LOOKING STATEMENTS

         Except with respect to historical financial information, the discussion
contained in this report contains forward-looking statements that involve risk
and uncertainties. These statements may be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "should," or
"anticipates," or similar expressions, or by discussions of strategy. The
cautionary statements made in this report should be read as being applicable to
all related forward-looking statements wherever they appear in this report. Our
actual results could differ materially from those discussed in this report.
Factors that could cause our results to differ from those discussed in this
report include, but are not limited to, those discussed under the heading
"Factors Affecting Future Performance" in our report on Form 10-KSB for the
transition period ending December 31, 2003.








                                       2
<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS






                          CAPITAL GROWTH SYSTEMS, INC.
                      Successor to Nexvu Technologies, LLC

                    Interim Consolidated Financial Statements
                                   (Unaudited)

                                  June 30, 2004






                                       3
<PAGE>


CAPITAL GROWTH SYSTEMS, INC.
SUCCESSOR TO NEXVU TECHNOLOGIES, LLC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                        JUNE 30,          DECEMBER 31,
                                                                          2004                2003
                                                                     ------------         ------------
<S>                                                                  <C>                  <C>
ASSETS
CURRENT ASSETS
Cash                                                                 $  4,831,768         $    616,880
Accounts receivable                                                        11,835               61,270
Inventory                                                                     -                    -
Prepaid expenses                                                          101,776               51,837
                                                                     ------------         ------------
Total Current Assets                                                    4,945,379              729,987
                                                                     ------------         ------------
FIXED ASSETS - net of accumulated depreciation                            276,994              136,341
                                                                     ------------         ------------
OTHER ASSETS
Software licensing fee                                                    285,278              300,000
Security Deposits                                                           6,355                  -
                                                                     ------------         ------------
Total Other Assets                                                        291,633              300,000
                                                                     ------------         ------------
TOTAL ASSETS                                                         $  5,514,006         $  1,166,328
                                                                     ------------         ------------

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable                                                     $    124,206         $    120,567
Accrued expenses                                                            7,979               38,449
Deferred revenue                                                            4,728                  -
Deferred rent                                                               1,955                1,955
                                                                     ------------         ------------
Total Current Liabilities                                                 138,868              160,971
LONG-TERM LIABILITIES
Loans payable                                                                 -                735,000
                                                                     ------------         ------------
Total Liabilities                                                         138,868              895,971
                                                                     ------------         ------------
SHAREHOLDERS' EQUITY
Common Stock, $.0001 par value, 25,000,000 shares authorized;
  15,965,754 issued and outstanding at June 30, 2004                        1,597                  -
Additional paid-in capital                                             11,278,796                  -
Members interest                                                              -              4,034,907
Accumulated deficit                                                    (5,905,255)          (3,764,550)
                                                                     ------------         ------------
SHAREHOLDERS' EQUITY                                                    5,375,138              270,357
                                                                     ------------         ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                           $  5,514,006         $  1,166,328
                                                                     ------------         ------------
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.



                                       4
<PAGE>



CAPITAL GROWTH SYSTEMS, INC.
SUCCESSOR TO NEXVU TECHNOLOGIES, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>
                                     3 MONTHS ENDED JUNE 30,           6 MONTHS ENDED JUNE 30,
                                     2004             2003             2004             2003
                                 ------------     ------------     ------------     ------------
<S>                              <C>              <C>              <C>              <C>
REVENUE                          $    274,139     $        -       $    303,472     $        -
                                 ------------     ------------     ------------     ------------
COST OF GOODS SOLD                     64,887           49,413           93,364           68,091
                                 ------------     ------------     ------------     ------------
GROSS MARGIN                          209,252          (49,413)         210,108          (68,091)
OPERATING EXPENSES
Salaries and payroll taxes            917,667          438,548        1,592,249          748,697
Marketing and advertising               7,953              -             61,092              -
Occupancy                              29,190           32,309           58,819           70,044
Professional fees                     168,175           79,283          325,468          136,782
Depreciation and amortization          34,620           17,503           52,374           35,006
Telecommunications                     27,678            9,486           38,887           15,649
Travel and entertainment               91,423           12,230          140,057           22,494
General expenses                       59,842           11,421           98,976           21,437
                                 ------------     ------------     ------------     ------------
TOTAL EXPENSES                      1,336,548          600,780        2,367,922        1,050,109
                                 ------------     ------------     ------------     ------------
OPERATING INCOME                   (1,127,296)        (650,193)      (2,157,814)      (1,118,200)
INTEREST EXPENSE (INCOME)             (22,007)         116,041          (17,109)         120,276
                                 ------------     ------------     ------------     ------------
NET LOSS BEFORE INCOME TAXES       (1,105,289)        (766,234)      (2,140,705)      (1,238,476)
INCOME TAXES                              -                -                -                -
                                 ------------     ------------     ------------     ------------
NET LOSS                         $ (1,105,289)    $   (766,234)    $ (2,140,705)    $ (1,238,476)
                                 ------------     ------------     ------------     ------------
EARNINGS PER SHARE               $      (0.07)    $      (0.72)    $      (0.17)    $      (1.27)
                                 ------------     ------------     ------------     ------------
AVERAGE SHARES OUTSTANDING         15,960,112        1,071,602       12,755,921          972,124
                                 ------------     ------------     ------------     ------------
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.





                                       5
<PAGE>

CAPITAL GROWTH SYSTEMS, INC.
SUCCESSOR TO NEXVU TECHNOLOGIES, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                 6 MONTHS ENDED JUNE 30,
                                                                 2004                2003
                                                             -----------         -----------
<S>                                                          <C>                 <C>
CASH FLOW FROM OPERATING ACTIVITIES:
NET LOSS                                                     $(2,140,705)        $(1,238,476)
Adjustments to reconcile net loss to net cash
 used in operating activities
Depreciation and amortization                                     52,374              35,006
Changes in assets and liabilities
 Accounts receivable                                              49,435               9,590
 Inventory                                                           -                   -
 Prepaid expenses                                                (49,939)            (64,100)
 Accounts payable                                                  3,639             109,841
 Accrued expenses                                                (30,470)            (32,650)
 Deferred revenue                                                  4,728                 -
 Deferred rent                                                       -                   -
                                                             -----------         -----------
                                                                  29,767              57,687
                                                             -----------         -----------
Net Cash Used in Operating Activities                         (2,110,938)         (1,180,789)
                                                             -----------         -----------
CASH FLOW FROM INVESTING ACTIVITIES:
 Purchase of fixed assets                                       (166,694)            (13,638)
 (Increase) decrease in other assets                             (17,966)                404
                                                             -----------         -----------
Net Cash Used In  Investing Activities                          (184,660)            (13,234)
                                                             -----------         -----------
CASH FLOW FROM FINANCING ACTIVITIES:
 Loans payable - net                                            (735,000)         (1,101,854)
 Contributions by members - net of repayments                  7,245,486           2,301,621
                                                             -----------         -----------
Net Cash Provided By Financing Activities                      6,510,486           1,199,767
                                                             -----------         -----------
Increase in Cash                                               4,214,888               5,744
Cash and Cash Equivalents - Beginning of Period                  616,880                 -
                                                             -----------         -----------
Cash and Cash Equivalents - End of period                    $ 4,831,768         $     5,744
                                                             -----------         -----------
                                                                     -                   -
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest                                       $     7,004         $   120,226
                                                             -----------         -----------
Cash paid for income taxes                                   $       -           $       -
                                                             -----------         -----------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Contributions by members through conversions of loans        $   550,000         $ 1,101,854
                                                             -----------         -----------

</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.





                                       6
<PAGE>



CAPITAL GROWTH SYSTEMS, INC.
SUCCESSOR TO NEXVU TECHNOLOGIES, LLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                COMMON                                             ADDITIONAL
                                                SHARES           MEMBERS'     RETAINED     COMMON   PAID-IN      TOTAL
                                              OUTSTANDING     CONTRIBUTIONS    DEFICIT     STOCK    CAPITAL     EQUITY
                                              -----------     -------------  -----------   ------  ----------  ---------
<S>                                           <C>             <C>            <C>          <C>      <C>        <C>
Beginning Balance, February 28, 2002                    -                -           -         -           -           -

Net Loss - 2002                                                             (1,126,917)                       (1,126,917)
                                               ----------      -----------  -----------    -----  ----------  -----------

Balance, December 31, 2002                              -                -  (1,126,917)        -           -  (1,126,917)

Net Loss, 2003                                                              (2,637,633)                       (2,637,633)
Members' Contribution - Cash                                     1,825,000                                     1,825,000
Members' Contribution - Loan Conversions                         2,209,907                                     2,209,907
                                               ----------      -----------  -----------    -----  ----------  -----------

Balance, December 31, 2003                              -        4,034,907  (3,764,550)        -           -     270,357

Net Loss - 6 months ended June 30, 2004                                     (2,140,705)                       (2,140,705)
Reflect reverse merger of CGSI                  1,170,000                                    117      19,678      19,795
Conversion of Members Contributions to
  Stock                                         8,558,500      (4,034,907)                   856   4,034,051           -
Conversion of Loans to Common Stock               577,500                                     58     549,942     550,000
Issuance of Additional Stock                       26,250                                      3      24,997      25,000
Private Offering of Additional Stock            5,633,504                                    563   6,650,128   6,650,691
                                               ----------      -----------  -----------    -----  ----------  -----------
                                                                                                                       -
 Balance, June 30, 2004                        15,965,754                -  (5,905,255)    1,597  11,278,796   5,375,138
                                               ----------      -----------  -----------    -----  ----------  -----------
</TABLE>



              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       7
<PAGE>

                          CAPITAL GROWTH SYSTEMS, INC.
                      SUCCESSOR TO NEXVU TECHNOLOGIES, LLC
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

         The accompanying unaudited condensed consolidated financial statements
include the accounts of Capital Growth Systems, Inc. ("CGSI") and Nexvu
Technologies, LLC ("Nexvu"). Except where necessary to distinguish the two
entities, both are referred to as the "Company." On January 28, 2004, CGSI
completed a merger under which it acquired 100% of the ownership of Nexvu, a
Delaware limited liability company. Simultaneously with the closing of the
merger, a closing was held under a private offering of CGSI's common stock in
which approximately 3.9 million shares of common stock were issued for
approximately $5.3 million of total gross consideration. The private offering
was completed in April 2004 and, including the approximately 3.9 million shares
of common stock issued simultaneously with the closing of the merger, resulted
in a total of 5,633,524 shares being issued for total gross consideration of
$7,605,230. Additionally, simultaneously with the merger, $550,000 of bridge
loans of Nexvu was converted to 577,500 shares of CGSI common stock as part of a
loan conversion agreement. As a result of this merger, the financial statements
of Nexvu became the financial statements of the surviving entity for accounting
purposes. CGSI's assets were recorded at fair value, with the net assets of
Nexvu reflected at historical costs. In addition, as CGSI was a public shell
company acquiring a privately-held company, no goodwill was reported. The
accumulated deficit of Nexvu survived the merger with the accumulated deficit of
CGSI eliminated. Accordingly, the Company's financial position as of June 30,
2004 and December 31, 2003, and the related results of operations for the
three-month and six-month periods ending June 30, 2004 and 2003 reflect the
historical financial statements of Nexvu, with CGSI's results consolidated from
the date of the merger.

         These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and the rules and regulations of the Securities
and Exchange Commission for interim financial statements. These financial
statements reflect all adjustments and accruals of a normal recurring nature,
which management considers necessary for a fair presentation of the Company's
financial position as of June 30, 2004 and December 31, 2003, and the Company's
results of operations for the three-months and six-months ended June 30, 2004
and 2003. The results for the interim periods presented are not necessarily
indicative of results to be expected for any future period. All intercompany
accounts have been eliminated in consolidation.

         These financial statements should be read in conjunction with the
audited financial statements and the notes thereto of both companies included in
CGSI's 2003 Annual Report on Form 10-KSB filed with the Securities Exchange
Commission for the year ended December 31, 2003.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

         The Company considers those short-term, highly liquid investments with
original maturities of three months or less as cash and cash equivalents.




                                       8
<PAGE>

INVENTORY

         Inventory, principally hardware boxes currently being configured for
sale, if any, is stated at the lower of cost or market. Cost is determined
primarily by actual cost or by the first-in, first-out method. Generally,
inventory is not purchased until an order for the product is placed.

PROPERTY AND EQUIPMENT

         The Company capitalizes property and equipment in excess of $500. All
property and equipment are stated at cost. The cost of ordinary maintenance and
repairs is charged to operations while renewals and replacements are
capitalized. Depreciation is computed over the estimated useful lives of the
assets generally as follows:
<TABLE>

<S>                                                           <C>
                  Computers, Equipment & Furniture            5 to 7 years

                  Computer Software                           3 years
</TABLE>


SOFTWARE LICENSING FEE

         The Company accounts for its software license in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 142, effective October
1, 2001. The Company also reviews its long-lived assets for impairments.
Impairment losses on long-lived assets are recognized when events or changes in
circumstances indicate that the undiscounted cash flows estimated to be
generated by such assets are less than their carrying value and, accordingly,
all or a portion of such carrying value may not be recoverable. Impairment
losses are then measured by comparing the fair value of assets to their carrying
amounts. The Company recognized no impairment loss at December 31, 2002 and 2003
or in the 1st two quarters of 2004.

REVENUE RECOGNITION

         The Company generates revenue from licensing its software, selling
hardware to run its software, and the provision of services. The Company
recognizes revenue in accordance with Generally Accepted Accounting Principles,
as set forth in Statement of Position ("SOP") 97-2, Software Revenue
Recognition, and SOP 98-9, Modification of SOP 97-2, Software Revenue
Recognition with respect to Certain Transactions, the Securities Exchange
Commission Staff Accounting Bulletin No. 104, Revenue Recognition, and other
related pronouncements. In accordance with these statements, the Company
recognizes revenue upon meeting each of the following criteria:

         o    Existence of persuasive evidence of an arrangement, generally
              consisting of a purchase order, license agreement or other
              contract.

         o    Delivery of the product and authorization keys, delivery is
              generally considered to have occurred when the customer is
              provided with the Company's software and hardware and the
              authorization keys needed to activate the software.

         o    Fee is fixed and determinable, which is considered to be the case
              when the fee is not subject to subsequent refund or adjustments.

         o    Collection is probable.

         The Company defers maintenance revenue and recognizes it ratably over
the maintenance term. The Company defers consulting and training billings and
recognizes them as those services are performed.




                                       9
<PAGE>

INCOME TAXES

         The Company accounts for income taxes under SFAS No. 109, which
requires the asset and liability approach to accounting for income taxes. Under
this method, deferred assets and liabilities are measured based on differences
between financial reporting and tax bases of assets and liabilities measured
using enacted tax rates and laws that are expected to be in effect when
differences are expected to reverse.

NET EARNINGS (LOSS) PER SHARE

         Basic and diluted net loss per share information is presented under the
requirements of SFAS No. 128, Earnings per Share. Basic net loss per share is
computed by dividing the net loss by the weighted-average number of shares of
common stock outstanding for the period, less shares subject to repurchase.
Diluted net loss per share reflects potential dilution of securities by adding
other common stock equivalents, including stock options, shares subject to
repurchase, warrants and convertible preferred stock, in the weighted-average
number of common shares outstanding for a period, if dilutive. All potentially
dilutive securities, including stock options and warrants, have been excluded
from this computation, as their effect is anti-dilutive.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         The carrying amount of cash, accounts receivable, prepaid expenses and
accounts payable are considered representative of their respective fair values
because of the short-term nature of these financial instruments.

USE OF ESTIMATES

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosures 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 these
estimates.

RECLASSIFICATIONS

         Certain amounts previously reported have been reclassified to conform
to the current period presentation.

NOTE 3 -- DEVELOPMENTAL STAGE ENTERPRISE

         The Company was a developmental stage company through the first quarter
of 2004 engaged in the development and sale of application performance
management software to large and mid-sized companies for use in connection with
their computer network systems. Through March 31, 2004, though planned principal
operations had commenced, no significant revenues from sale of the Company's
software had occurred. During the 2nd quarter, the company began experiencing
more substantial revenues and is now no longer considered a developmental stage
enterprise.

NOTE 4 - SOFTWARE LICENSE AGREEMENT

         On August 31, 2003, the Company entered into a software licensing
agreement with a third party to acquire a non-exclusive license for the
worldwide rights to market and distribute the proprietary software. The term of
the agreement is for five years with provision for annual renewals thereafter.
The


                                       10
<PAGE>

cost of the software licensing fee was $300,000 with annual upgrade and
maintenance charges of $30,000. The software and licensing fees are being
amortized on a straight-line basis over a 36 month period. Commencement of the
amortization began during the 2nd quarter of 2004 with $25,000 of amortization
included in the results of operation.

          The agreement also calls for minimum annual royalty payments totaling
$500,000 over the first five year period following customer shipment, payable
quarterly as follows:

<TABLE>

<S>                                <C>
                  2004              $  50,000
                  2005                 75,000
                  2006                100,000
                  2007                125,000
                  2008                150,000
</TABLE>


         If in any year the calculation of the royalty fee is greater than the
minimum, this excess will reduce the final amount due in the fifth year.

NOTE 5 -- STOCK OPTIONS

         In December 2003, we adopted the 2003 Long-Term Incentive Plan for key
employees and other persons providing assets or services to us. The plan
provides for the issuance of stock-based awards to key employees as part of
their overall compensation. We consider our option program a core component of
our operating productivity and all of our current employees are participants in
the plan. A total of 2,285,000 restricted shares of common stock, stock options
or other equity-based compensation can be issued under the plan. Presently, we
have issued 1,691,500 restricted shares under the plan.

         We account for stock-based compensation for our employee stock plans
using the intrinsic value method as prescribed by Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees. Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS No. 148, Accounting for Stock-Based
Compensation, requires disclosure of pro forma earnings as if we had adopted the
SFAS No. 123 fair value method since our inception. The fair value of
stock-based awards to employees is calculated utilizing the minimum value model,
as our shares are not publicly traded.

         The weighted-average fair value of stock-based compensation to our
employees is based on the single option value approach. Forfeitures are
recognized as they occur, and it is assumed that no dividends will be declared.
The weighted average fair value calculations are based on the following
assumptions

<TABLE>
<CAPTION>

                                        Three months      Six months
                                       Ended March 31,   Ended March 31,
                                       ---------------   ---------------
                                        2004    2003      2004    2003
                                        ----    ----      ----    ----
<S>                                    <C>     <C>       <C>     <C>
Estimated life (in years)               3.0     N/A       3.0     N/A
Risk-free interest rate                 2.5%    N/A       2.5%    N/A
</TABLE>


         For pro-forma purposes, the estimated fair value of stock-based
compensation awards to employees is amortized using the straight-line method
over the vesting period of the options. Our pro-forma results are as follows:





                                       11
<PAGE>

<TABLE>
<CAPTION>
                                                        Three Months                              Six Months
                                                        Ended June 30,                         Ended June 30,
                                                      2004             2003              2004             2003
                                           ---------------   --------------        ---------------    -------------
<S>                                          <C>                <C>                <C>                <C>
Reported net loss                            $(1,105,289)       $  (766,234)       $(2,140,705)       $  (1,238,476)
Employee stock-based compensation                 (7,115)               N/A             (7,115)                 N/A
Pro forma net loss                            (1,112,404)          (766,234)        (2,147,820)          (1,238,476)

Net loss per share, basic and diluted:
  As reported                                $     (0.07)       $     (0.72)       $     (0.17)       $       (1.27)
  Pro forma                                  $     (0.07)       $     (0.72)       $     (0.17)       $       (1.27)
</TABLE>

NOTE 6 - NOTES PAYABLE

         As of December 31, 2003, Nexvu had $735,000 of Notes Payable, of which
$625,000 was to its members and convertible to equity and $110,000 was a secured
note payable to a bank. Subsequent to the merger with CGSI, the Note Payable to
the bank was repaid, as was $75,000 of the Notes Payable to a member of the LLC.
The remaining $550,000 of Notes Payable was converted to 577,500 shares of
common stock of CGSI during the first quarter of 2004.

NOTE 7 - PROPERTY AND EQUIPMENT

         Property and equipment at June 30, 2004 and December 31, 2003 consists
of the following:

<TABLE>
<CAPTION>
                                                               June 30,         Dec. 31,
                                                                 2004               2003
                                                              ---------         -----------

<S>                                                           <C>               <C>
                  Furniture and fixtures                      $  89,375         $ 89,375
                  Software                                       25,902           19,408
                  Computer and office equipment                 311,111          150,356
                                                              ---------         --------
                                                                426,388          259,139
                  Less: Accumulated depreciation               (149,394)        (122,798)
                                                              ---------         --------

                                                              $ 276,994         $136,341
                                                              =========         ========
</TABLE>


NOTE 8 - RELATED PARTIES

         On December 1, 2003, the Company entered into an agreement for business
and financial advisory services to be provided by an entity controlled by one of
the Company's directors. Fees for these services totaled $761,000 and were all
paid in 2004. As these fees were related to the raise of capital described in
Note 1 above, they are reflected as a reduction in Paid-in-Capital in the
Shareholders' Equity.

         In addition, on March 31, 2004, the Company issued warrants to purchase
250,000 shares of common stock to two Board members in connection with advisory
service agreements with each of these individuals. All warrants have an exercise
price of $1.35 per share and are exercisable on or before March 31, 2007.




                                       12
<PAGE>

NOTE 9 - INDEMNIFICATIONS AND CONTINGENCIES

         As permitted under Florida law, the Company has agreements indemnifying
its executive officers and directors for certain events and occurrences while
the officer or director is, or was, serving at the Company's request in such
capacity. The maximum potential amount of future payments the Company could be
required to make under these indemnification agreements is not estimable. The
Company is in the process of securing an insurance policy for this coverage,
which is designed to enable the Company to recover a portion of any future
amounts that may be paid. No liabilities have been recorded for these
indemnification agreements as of June 30, 2004 or December 31, 2003.




                                       13
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         THE FOLLOWING DISCUSSION OF THE RESULTS OF OUR OPERATIONS AND FINANCIAL
CONDITION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL
STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.

OVERVIEW

         As of December 31, 2003, we were a development stage company that had
conducted virtually no business operations, other than efforts to effect a
business combination. On January 28, 2004, we completed a merger under which
Nexvu Technologies, LLC, which we will refer to in this report as "Nexvu",
became a subsidiary of ours. As a result of the merger, the owners of Nexvu
became the majority owners of our company, which resulted in the transaction's
being deemed a reverse acquisition for accounting purposes. Under this
treatment, Nexvu became the surviving company for financial statement purposes.
Our net assets were recorded at fair value, with the net assets of Nexvu
reflected at historical costs. In addition, as we were a public shell company
acquiring a privately-held company, no goodwill was reported. Our financial
statements after the merger reflect the historical financial statements of
Nexvu, the operating company. Our accumulated deficit prior to the merger was
eliminated as of the merger and only the accumulated deficit of Nexvu is
reflected in our consolidated balance sheet.

         During the second quarter, we started experiencing more revenues and we
therefore are no longer a developmental stage company. However, the revenues are
not nearly sufficient to eliminate our operating losses. As of June 30, 2004, we
had approximately $4.8 million of working capital and $4.8 million in cash and
cash equivalents. We believe that our working capital levels are sufficient to
fund our operations for the next twelve months. Until sufficient revenues are
generated, our primary uses of working capital during this period will be for:

         o    Administrative expenses, especially salaries of officers and other
              employees currently employed by us, as well as rental expense for
              our two locations;

         o    Further developing our application performance management
              software;

         o    Sales and marketing expenses; and

         o    Expenses of professionals, including attorneys, accountants and
              consultants.

         We presently have 20 full time employees. We do not anticipate that
this number will increase in the near future. In addition, there are no current
plans to significantly increase our capital spending on software or equipment.

RESULTS OF OPERATIONS

         Revenues for the three and six month periods ended June 30, 2004 were
heavily derived from one customer. During the second quarter, we entered into a
contract with this customer with a total value of $250,000, of which $175,000
was for product and $75,000 was for services related to our product. All of
these services were performed during the second quarter. The product was also
delivered and accepted by the customer during the second quarter. Through June
30, 2004, we had revenues from three customers in 2004 compared to revenues from
one customer in late 2003.




                                       14
<PAGE>

         We have continued to focus our efforts on selling the product to a new
customer base. However, we are also refocusing our efforts to increase our
revenues from the provision of services. We anticipate that these services will
include consulting services, which would involve our monitoring and analysis of
customers' IT infrastructure.

         Our gross margin relates to the cost of the appliances included in the
product sales, amortization of software licensing fees related to the
development of our product, sales commissions and incidental expenses billable
to customers. Total amortization of the software licensing fees were $25,000 for
the three and six month periods ended June 30, 2004. No amortization of the
licensing fees occurred during 2003.

         The majority of our operating expenses consist of compensation expenses
and professional fees. During the quarter, we had 28 full-time employees working
in the areas of development and engineering, sales, professional services,
marketing and management. During July we took steps to reduce our overall number
of employees by nearly 30%. Annual savings from this reduction are estimated to
be over $1.2 million due to decreased compensation, travel and other incidental
expenses. We currently have 20 full time employees. The professional fees are
primarily related to legal fees related to acquisitions and securities work
related to filings with the Securities and Exchange Commission. Our travel and
entertainment expenses relate primarily to cost associated with our sales force.
The significant increase in these expenses in the three and six months ended
June 30, 2004 as compared with the comparable periods in 2003 is due to the fact
that we were still in the developmental stage of the business in 2003 and are
now fully staffed with a sales force to market our product. We currently have
two offices. Our corporate offices represent approximately 70% of our occupancy
costs. Our software development and engineering group is housed in one location
in Champaign, IL, with annualized occupancy costs of approximately $40,000. The
general expenses are primarily related to insurance, purchases of software
licenses expensed in the current periods, computer supplies and other
office-related expenses. The increase in these expenses in the three and six
months ended June 30, 2004 as compared to the comparable periods in 2003, is due
to our now being in an operational stage compared to a developmental stage last
year.

         The current quarter and year to date results reflect interest income on
the investment of the cash raised during the private placement of our stock,
which occurred primarily during the 1st quarter of 2004. With the approximate
$7.5 million of gross cash raised from this stock offering, all debt was removed
from our balance sheet. Total debt at reduction during 2004 was $735,000. The
2003 results include interest expense from debt related to former members of
Nexvu.

LIQUIDITY AND CAPITAL RESOURCES

         We have historically met our liquidity needs through loans from
individuals and through equity contributions. As of June 30, 2004, we held $4.8
million of cash and cash equivalents with no debt liabilities. The cash was
generated from the private placement of our common stock primarily during the
first quarter of 2004. Total gross proceeds from this offering were $7.6 million
with net proceeds after advisory, legal and accounting fees bringing the net
total to $6.6 million. Additionally, $185,000 of the capital raised was utilized
to pay down long term debt, with the remaining debt of $550,000 from December
31, 2003 converted into shares of our common stock subsequent to the merger.

         During the six months ended June 30, 2004, we utilized $2.1 million
cash from operating activities. This use of cash was primarily the result of our
net loss of $2.1 million realized during the first six months of 2004.
Substantially all receivable from prior billings have been collected and
accounts payables have been paid under contractual terms.




                                       15
<PAGE>

         We have spent approximately $167,000 on fixed assets during 2004. These
expenditures were primarily for computer equipment utilized in testing our
Application Performance Management product and other computer-related equipment.
We do not expect to require significant capital expenditures in the near future.

         We have future contractual obligations for leases of our offices and
for minimum future royalty payments related to a software licensing agreement
with a third party. This software is being utilized as a component of our own
proprietary software. The following table summarizes our future contractual
obligations as of June 30, 2004.

<TABLE>
<CAPTION>
                                                                        Minimum
                                                       Office           Royalty
                                                       Leases           Payments
                                                       ------           --------
<S>                                                  <C>               <C>
        2004                                          $   38,130        $   25,000
        2005                                          $   78,220        $   75,000
        2006                                                            $  100,000
        2007                                                            $  125,000
        2008                                                            $  150,000
        ----                                          ----------        ----------

        Total contractual obligations                 $  116,350        $  475,000
                                                      ----------        ----------
</TABLE>


         At the present time we believe that our current cash and cash
equivalent balances will be sufficient to satisfy our anticipated cash needs for
working capital for at least the next 12 months.

         From time to time, we may evaluate potential acquisitions of
businesses, products or technologies. A portion of our cash may be used to
acquire or invest in complementary businesses or products or to obtain the right
to use third party technologies. In addition, in making such acquisitions or
investments, we may assume obligations or liabilities that may require us to
make payments or otherwise use additional cash in the future.

CRITICAL ACCOUNTING POLICES

         We generate revenue from licensing our software, selling hardware to
run our software, and the provision of services. We recognize revenue in
accordance with Generally Accepted Accounting Principles, as set forth in
Statement of Position ("SOP") 97-2, Software Revenue Recognition, and SOP 98-9,
Modification of SOP 97-2, Software Revenue Recognition with respect to Certain
Transactions, the Securities Exchange Commission Staff Accounting Bulletin No.
104, Revenue Recognition, and other related pronouncements. In accordance with
these statements, we recognize revenue upon meeting each of the following
criteria:

         o    Existence of persuasive evidence of an arrangement, generally
              consisting of a purchase order, license agreement or other
              contract.

         o    Delivery of the product and authorization keys, delivery is
              generally considered to have occurred when the customer is
              provided with our software and hardware and the authorization keys
              needed to activate the software.

         o    Fee is fixed and determinable, which is considered to be the case
              when the fee is not subject to subsequent refund or adjustments.


                                       16
<PAGE>

         o    Collection is probable.

         We defer maintenance revenue and recognize it ratably over the
maintenance term. We defer consulting and training revenues and recognize them
as those services are performed.

MERGER WITH FRONTRUNNER NETWORK SYSTEMS, CORP.

         On August 9, 2004, we executed an Agreement and Plan of Merger to
purchase Frontrunner Network Systems, Corp., a Delaware corporation
("Frontrunner"). The merger has been approved by our board of directors, the
board of directors of Frontrunner, and a majority of Frontrunner's shareholders.
We intend to file the certificate of merger relating to the merger with the
Secretary of State of the State of Delaware on or about September 13, 2004, at
which time the merger will become effective, subject to satisfaction by
Frontrunner of all of the conditions precedent to the closing of the merger.
These conditions include, but are not limited to:

              o   the execution of a creditors' waiver agreement by several
                  creditors of Frontrunner;

              o   our entering into an employment agreement with James Cuppini,
                  an executive of Frontrunner;

              o   entry by Frontrunner into certain payment agreements calling
                  for amortization of outstanding past due obligations to
                  Frontrunner plus a market rate of interest with some of its
                  other creditors; and

              o   Frontrunner's obtaining from Harris Trust and Savings Bank a
                  consent to the merger and a commitment that it will extend and
                  maintain a loan to Frontrunner with a principal amount of not
                  less than the principal balance outstanding as of the date of
                  the merger agreement.

         In consideration for Frontrunner shares, we will pay $222.18 in total
in exchange for all of Frontrunner's Senior Preferred Stock. All of the shares
of Frontrunner's Junior Preferred Stock, Convertible Preferred Stock and common
stock, and all outstanding unexpired and unexercised options and warrants to
acquire Frontrunner common stock will be cancelled without consideration. The
Senior Preferred Stock is entitled to a liquidation preference of $1,000 per
share and accordingly, all other shares of Frontrunner's stock are subordinate
to this preference.

         Each share of Senior Preferred Stock outstanding immediately prior to
the effective time of the merger will be cancelled and extinguished and
converted automatically into the right to receive $1.00 per share. Each share of
Frontrunner's Junior Preferred Stock, Convertible Preferred Stock and common
stock and any outstanding options, warrants, convertible notes, or other
convertible securities or other rights to acquire shares of Frontrunner will be
extinguished and cancelled without conversion or exercise, and those holders
shall not be entitled to any payment of any kind. Each share of stock owned by
Frontrunner or any direct or indirect wholly-owned subsidiary of Frontrunner
immediately prior to the effective time of merger will be cancelled and
extinguished without any conversion thereof.

         As primary consideration to be given by us in connection with the
merger agreement, but not as part of the merger consideration, and for the
benefit of Frontrunner, prior to the effective time of the merger, we shall
issue up to 1,000,000 shares of our common stock to certain creditors of
Frontrunner in exchange for the cancellation of indebtedness to Frontrunner by
those creditors in the approximate amount of $2,252,433, excluding accrued
unpaid interest and other claims. The most recent private


                                       17
<PAGE>

placement of our common stock was made at $1.35 per share, which is assumed to
constitute its fair market value.

ITEM 3.  CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURE

         Our Chief Executive Officer and Chief Financial Officer have evaluated
our disclosure controls and procedures as of the six months ended June 30, 2004,
and has concluded that, as of June 30, 2004, these controls and procedures have
been effectively designed to ensure that information required to be disclosed in
reports that we file with or submit to the United States Securities and Exchange
Commission is recorded, processed, summarized and reported within the time
periods specified in the Commission's rules and forms and is accumulated and
communicated to management as appropriate to allow timely decisions regarding
this disclosure.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

         No changes in our internal control over financial reporting have come
to management's attention during our last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting. Review and evaluation of disclosure controls and
procedures is an ongoing process that we will continue to refine as we perform
quarterly evaluations.

PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         None.

ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES

         Between December 2003 and April 2004, we raised a total of $7,605,230
in an offering of 5,633,504 shares of our common stock. This offering was made
in reliance upon the exemption from registration available under Section 4(2) of
the Securities Act and on Rule 506 of Regulation D. All investors in the
offering were "accredited," as that term is defined in Regulation D. No general
solicitation or advertising was used in connection with the offering.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None.

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

         We held our annual meeting on June 30, 2004. A majority of our shares,
voting in person or by proxy, is necessary to constitute a quorum, and a quorum
was not present at the meeting. As permitted by our by-laws, however, the vote
of those shareholders present, in person or represented by proxy, was held
solely on the issue of whether to adjourn the meeting. The resolution to adjourn
the meeting was approved with a vote of 4,103,548 shares in favor, 0 shares
against, and 0 shares outstanding, and the meeting was therefore adjourned. We
have not yet determined the date upon which the meeting will be continued.




                                       18
<PAGE>

ITEM 5.  OTHER INFORMATION

         None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

   Exhibit Number             Description of Document

         31.1     Certification of CEO Pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.

         31.2     Certification of CFO Pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.

         32       Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b)      Reports on Form 8-K

         On May 3, 2004, we filed a Form 8-K under which we reported, under Item
4, a change in our certifying accountant.

         On May 5, 2004, we filed an amended Form 8-K under which we provided,
under Item 7, historical financial statements of Nexvu Technologies, LLC, and
pro forma financial statements in connection with the merger between us and
Nexvu Technologies, LLC that occurred on January 28, 2004.

         On May 13, 2004, we filed an amended Form 8-K relating to the change in
our certifying accountant originally reported in the Form 8-K filed on May 3,
2004.




                                       19
<PAGE>

                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
has duly caused this report to be signed by the undersigned, thereunto duly
authorized.

                                     CAPITAL GROWTH SYSTEMS, INC.


                                     BY: /s/ Scott Allen
                                         ---------------------------------------
                                         Scott Allen, Chief Executive Officer
                                         and Chief Financial Officer

Dated:  August 23, 2004




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