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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2010



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
|- | -----------------------------------------------------------------------------

For the transition period from  to

Commission File Number 0-30831





CAPITAL GROWTH SYSTEMS, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Florida                                                        |  | 65-0953505                          
|(State of other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)

200 S. Wacker Drive Suite 1650,
Chicago, IL 60606

(Address of principal executive offices)

(312) 673-2400

(Registrants telephone number, including area code)





Indicate by
check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if, any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).     ̈  Yes     ̈  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈ |  | Accelerated filer         |  |  ̈
|                        |  |   | 
|Non-accelerated filer   |  |  ̈ |  | Smaller reporting company |  | x

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

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date:

As of November 5, 2010, the issuer had outstanding 168,233,180 shares of its $0.0001 par value common stock.









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Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)



|                              |  |                                                                                                                                                                      |    |          |    | 
|----------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -- | -------- | -- | 
|                              |  |                                                                                                                                                                      |    | Page No. |   
|PART I. FINANCIAL INFORMATION | 
|                              |  |                                                                                                                                                                     
|Item 1.                       |  | Financial Statements                                                                                                                                                 |    |          | 1  | 
|                              |  |                                                                                                                                                                     
|                              |  | Condensed Consolidated Balance Sheets as of September 30, 2010 [Unaudited] and December 31,
2009                                                                     |    |          | 2  | 
|                              |  |                                                                                                                                                                     
|                              |  | Condensed Consolidated Statements of Operations for the three and nine-month periods ended September 30,
 2010 and 2009 [Unaudited]                                  |    |          | 3  | 
|                              |  |                                                                                                                                                                     
|                              |  | Condensed Consolidated Statements of Shareholders Equity (Deficit) from January 1, 2010 to September 30,
 2010 and January 1, 2009 to December 31, 2009 [Unaudited] |    |          | 4  | 
|                              |  |                                                                                                                                                                     
|                              |  | Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2010 and 2009
[Unaudited]                                             |    |          | 5  | 
|                              |  |                                                                                                                                                                     
|                              |  | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                                                                     |    |          | 6  | 
|                              |  |                                                                                                                                                                     
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                                                                                |    |          | 34 | 
|                              |  |                                                                                                                                                                     
|Item 3.                       |  | Quantitative and Qualitative Disclosures about Market Risk                                                                                                           |    |          | 43 | 
|                              |  |                                                                                                                                                                     
|Item 4.                       |  | Controls and Procedures                                                                                                                                              |    |          | 43 | 
|                             
|PART II. OTHER INFORMATION    | 
|                              |  |                                                                                                                                                                     
|Item 1.                       |  | Legal Proceedings                                                                                                                                                    |    |          | 45 | 
|                              |  |                                                                                                                                                                     
|Item 1A.                      |  | Risk Factors                                                                                                                                                         |    |          | 46 | 
|                              |  |                                                                                                                                                                     
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                          |    |          | 47 | 
|                              |  |                                                                                                                                                                     
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                                                                      |    |          | 47 | 
|                              |  |                                                                                                                                                                     
|Item 4.                       |  | (Removed and Reserved)                                                                                                                                               |    |          | 47 | 
|                              |  |                                                                                                                                                                     
|Item 5.                       |  | Other Information                                                                                                                                                    |    |          | 47 | 
|                              |  |                                                                                                                                                                     
|Item 6.                       |  | Exhibits                                                                                                                                                             |    |          | 47 | 
|                              | 
|SIGNATURES AND CERTIFICATIONS |  |                                                                                                                                                                      | 48 |         



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PART I  FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS.
|------- | ---------------------

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are contained principally
in the sections entitled Business and Managements Discussion and Analysis and Plan of Operation. These statements involve known and unknown risks, uncertainties, and other factors, which may cause our actual results,
performance, or achievements to be materially different from any future results, performances, or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as may, should, could, would, expects, plans,
anticipates, believes, estimates, projects, predicts, 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 this
report in greater detail under Item 1A- Risk Factors. These forward-looking statements represent our estimates and assumptions only as of the date of this report and we do not assume any obligation to update any of these statements.



1



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CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value
and share data)

(Unaudited)



|                                                                                                                                                     |  |                   |          |   |                  |   |          |  
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | -------- | - | ---------------- | - | -------- | -
|                                                                                                                                                     |  | September 30,2010 |          |   | December 31,2009 |  
|ASSETS                                                                                                                                               |  |                   |          |   |                  |   |          |  
|CURRENT ASSETS                                                                                                                                       |  |                   |          |   |                  |   |          |  
|Cash and cash equivalents                                                                                                                            |  | $                 | 3,851    |   |                  | $ | 3,377    |  
|Accounts receivable, net                                                                                                                             |  |                   | 4,335    |   |                  |   | 9,739    |  
|Prepaid expenses and other current assets                                                                                                            |  |                   | 3,922    |   |                  |   | 907      |  
|                                                                                                                                                     |  |                   |          |   |                  |   |          |  
|                                                                                                                                                     |  |                  
|Total Current Assets                                                                                                                                 |  |                   | 12,108   |   |                  |   | 14,023   |  
|Property and equipment, net                                                                                                                          |  |                   | 791      |   |                  |   | 980      |  
|Intangible assets, net                                                                                                                               |  |                   | 14,696   |   |                  |   | 16,462   |  
|Goodwill                                                                                                                                             |  |                   | 1,480    |   |                  |   | 1,480    |  
|Other assets                                                                                                                                         |  |                   | 374      |   |                  |   | 1,434    |  
|                                                                                                                                                     |  |                   |          |   |                  |   |          |  
|TOTAL ASSETS                                                                                                                                         |  | $                 | 29,449   |   |                  | $ | 34,379   |  
|                                                                                                                                                     |  |                   |          |   |                  |   |          |  
|                                                                                                                                                     |  |                  
|LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)                                                                                                       |  |                   |          |   |                  |   |          |  
|CURRENT LIABILITIES                                                                                                                                  |  |                   |          |   |                  |   |          |  
|Debtor-in-possession term loan                                                                                                                       |  | $                 | 9,384    |   |                  | $ |         |  
|Debt                                                                                                                                                 |  |                   | 22       |   |                  |   | 16,107   |  
|Accounts payable                                                                                                                                     |  |                   | 2,277    |   |                  |   | 13,119   |  
|Accrued expenses                                                                                                                                     |  |                   | 5,126    |   |                  |   | 5,839    |  
|Deferred revenue                                                                                                                                     |  |                   | 3,531    |   |                  |   | 4,095    |  
|                                                                                                                                                     |  |                   |          |   |                  |   |          |  
|Total Current Liabilities                                                                                                                            |  |                   | 20,340   |   |                  |   | 39,160   |  
|Liabilities for warrants to purchase common stock                                                                                                    |  |                   |         |   |                  |   | 17,960   |  
|Embedded derivatives of convertible debt instruments                                                                                                 |  |                   |         |   |                  |   | 28,214   |  
|Deferred income taxes                                                                                                                                |  |                   | 67       |   |                  |   | 40       |  
|Deferred revenue, Long-term portion                                                                                                                  |  |                   |         |   |                  |   | 13       |  
|Liabilities Subject to Compromise                                                                                                                    |  |                   | 38,224   |   |                  |   |         |  
|                                                                                                                                                     |  |                   |          |   |                  |   |          |  
|Total Liabilities                                                                                                                                    |  |                   | 58,631   |   |                  |   | 85,387   |  
|                                                                                                                                                     |  |                   |          |   |                  |   |          |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                        |  |                   |          |   |                  |   |          |  
|SHAREHOLDERS EQUITY (DEFICIT)                                                                                                                       |  |                   |          |   |                  |   |          |  
|Preferred stock, $.0001 par value; 5,000,000 authorized, none issued or outstanding as of September 30, 2010 and
December 31, 2009                   |  |                   |          |   |                  |   |          |  
|Common stock, $.0001 par value; 350,000,000 authorized, 168,233,180 issued and outstanding at September 30, 2010 and
December 31, 2009, respectively |  |                   | 17       |   |                  |   | 17       |  
|Additional paid-in capital                                                                                                                           |  |                   | 106,188  |   |                  |   | 105,290  |  
|Accumulated deficit                                                                                                                                  |  |                   | (135,254 | ) |                  |   | (156,260 | )
|Accumulated other comprehensive income (loss)                                                                                                        |  |                   | (133     | ) |                  |   | (55      | )
|                                                                                                                                                     |  |                   |          |   |                  |   |          |  
|Total Shareholders Equity (Deficit)                                                                                                                 |  |                   | (29,182  | ) |                  |   | (51,008  | )
|                                                                                                                                                     |  |                   |          |   |                  |   |          |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)                                                                                                 |  | $                 | 29,449   |   |                  | $ | 34,379   |  
|                                                                                                                                                     |  |                   |          |   |                  |   |          |  

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



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CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except
share data)

(Unaudited)



|                                                                      |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|--------------------------------------------------------------------- |  | -------------------------------------- | ----------- | - | ------------------------------------- | - | ----------- | ---- |  | - | ----------- | - |  | - | ----------- | -
|                                                                      |  | Three-month periods endedSeptember 30, |             |   | Nine-month periods endedSeptember 30, |  
|                                                                      |  | 2010                                   |             |   | 2009                                  |   |             | 2010 |  |   | 2009        |  
|REVENUES                                                              |  | $                                      | 13,871      |   |                                       | $ | 16,457      |      |  | $ | 42,432      |   |  | $ | 48,578      |  
|COST OF REVENUES                                                      |  |                                        | 10,050      |   |                                       |   | 12,524      |      |  |   | 31,485      |   |  |   | 37,411      |  
|                                                                      |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|GROSS MARGIN                                                          |  |                                        | 3,821       |   |                                       |   | 3,933       |      |  |   | 10,947      |   |  |   | 11,167      |  
|                                                                      |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|OPERATING EXPENSES                                                    |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|Compensation                                                          |  |                                        | 2,258       |   |                                       |   | 2,747       |      |  |   | 8,194       |   |  |   | 9,459       |  
|Travel and entertainment                                              |  |                                        | 255         |   |                                       |   | 260         |      |  |   | 925         |   |  |   | 935         |  
|Occupancy                                                             |  |                                        | 411         |   |                                       |   | 413         |      |  |   | 1,181       |   |  |   | 1,230       |  
|Professional services                                                 |  |                                        | 942         |   |                                       |   | 1,658       |      |  |   | 3,672       |   |  |   | 5,001       |  
|Insurance                                                             |  |                                        | 117         |   |                                       |   | 79          |      |  |   | 216         |   |  |   | 240         |  
|Depreciation and amortization                                         |  |                                        | 680         |   |                                       |   | 1,139       |      |  |   | 2,044       |   |  |   | 3,415       |  
|Bad debt expense                                                      |  |                                        | 155         |   |                                       |   | 162         |      |  |   | 491         |   |  |   | 439         |  
|Other operating expenses                                              |  |                                        | 302         |   |                                       |   | 254         |      |  |   | 772         |   |  |   | 699         |  
|                                                                      |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|TOTAL OPERATING EXPENSES                                              |  |                                        | 5,120       |   |                                       |   | 6,712       |      |  |   | 17,495      |   |  |   | 21,418      |  
|                                                                      |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|OPERATING LOSS                                                        |  |                                        | (1,299      | ) |                                       |   | (2,779      | )    |  |   | (6,548      | ) |  |   | (10,251     | )
|Interest expense                                                      |  |                                        | (4,560      | ) |                                       |   | (4,322      | )    |  |   | (15,621     | ) |  |   | (10,511     | )
|Registration rights and failure to file recoveries                    |  |                                        |            |   |                                       |   | 1,395       |      |  |   |            |   |  |   |            |  
|Gain (loss) on warrants and derivatives                               |  |                                        | 26,055      |   |                                       |   | 7,565       |      |  |   | 46,173      |   |  |   | (12,262     | )
|Gain (loss) on extinguishment of debt and conversion of debt to stock |  |                                        | (273        | ) |                                       |   | 294         |      |  |   | (273        | ) |  |   | (68         | )
|Reorganization items                                                  |  |                                        | (2,672      | ) |                                       |   |            |      |  |   | (2,672      | ) |  |   |            |  
|Income tax (expense) benefit                                          |  |                                        | 9           |   |                                       |   | (100        | )    |  |   | (53         | ) |  |   | (100        | )
|                                                                      |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|                                                                      |  |                                        |             |  
|NET INCOME (LOSS)                                                     |  | $                                      | 17,260      |   |                                       | $ | 2,053       |      |  | $ | 21,006      |   |  | $ | (33,192     | )
|                                                                      |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|                                                                      |  |                                        |             |  
|INCOME (LOSS) PER SHARE OF COMMON STOCK  BASIC                       |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|Net income (loss) per share of common stock  basic                   |  | $                                      | 0.10        |   |                                       | $ | 0.01        |      |  | $ | 0.12        |   |  | $ | (0.20       | )
|                                                                      |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|                                                                      |  |                                        |             |  
|INCOME (LOSS) PER SHARE OF COMMON STOCK  DILUTED                     |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|Net income (loss) per share of common stock  diluted                 |  | $                                      | 0.07        |   |                                       | $ | 0.01        |      |  | $ | 0.08        |   |  | $ | (0.20       | )
|                                                                      |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|                                                                      |  |                                        |             |  
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING  BASIC                    |  |                                        | 168,233,180 |   |                                       |   | 165,492,875 |      |  |   | 168,233,180 |   |  |   | 162,807,688 |  
|                                                                      |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING  DILUTED                  |  |                                        | 458,040,141 |   |                                       |   | 191,838,929 |      |  |   | 458,040,141 |   |  |   | 162,807,688 |  
|                                                                      |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  

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



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CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)

(in thousands, except share data)

(Unaudited)



|                                                              |  |              |             |  |             |   |    |                          |  |   |                    |  |  |                                            |          |   |                                    |   |      |   |  |   |         |  
|------------------------------------------------------------- |  | ------------ | ----------- |  | ----------- | - | -- | ------------------------ |  | - | ------------------ |  |  | ------------------------------------------ | -------- | - | ---------------------------------- | - | ---- | - |  | - | ------- | -
|                                                              |  | CommonShares |             |  | CommonStock |   |    | AdditionalPaid-inCapital |  |   | AccumulatedDeficit |  |  | AccumulatedOtherComprehensiveIncome (Loss) |          |   | TotalShareholdersEquity (Deficit) |  
|Balance, January 1, 2009                                      |  |              | 154,281,018 |  |             | $ | 16 |                          |  | $ | 101,606            |  |  | $                                          | (103,426 | ) |                                    | $ | 7    |   |  | $ | (1,797  | )
|Conversion of debt to common stock                            |  |              | 13,952,162  |  |             |   | 1  |                          |  |   | 1,981              |  |  |                                            |         |   |                                    |   |     |   |  |   | 1,982   |  
|Stock-based compensation expense                              |  |              |            |  |             |   |   |                          |  |   | 1,703              |  |  |                                            |         |   |                                    |   |     |   |  |   | 1,703   |  
|Foreign currency translation adjustment                       |  |              |            |  |             |   |   |                          |  |   |                   |  |  |                                            |         |   |                                    |   | (62  | ) |  |   | (62     | )
|Net loss for 2009                                             |  |              |            |  |             |   |   |                          |  |   |                   |  |  |                                            | (52,834  | ) |                                    |   |     |   |  |   | (52,834 | )
|                                                              |  |              |             |  |             |   |    |                          |  |   |                    |  |  |                                            |          |   |                                    |   |      |   |  |   |         |  
|Balance, December 31, 2009                                    |  |              | 168,233,180 |  |             | $ | 17 |                          |  | $ | 105,290            |  |  | $                                          | (156,260 | ) |                                    | $ | (55  | ) |  | $ | (51,008 | )
|                                                              |  |              |             |  |             |   |    |                          |  |   |                    |  |  |                                            |          |   |                                    |   |      |   |  |   |         |  
|Balance, January 1, 2010                                      |  |              | 168,233,180 |  |             | $ | 17 |                          |  | $ | 105,290            |  |  | $                                          | (156,260 | ) |                                    | $ | (55  | ) |  | $ | (51,008 | )
|Stock-based compensation expense                              |  |              |            |  |             |   |   |                          |  |   | 898                |  |  |                                            |         |   |                                    |   |     |   |  |   | 898     |  
|Foreign currency translation adjustment                       |  |              |            |  |             |   |   |                          |  |   |                   |  |  |                                            |         |   |                                    |   | (78  | ) |  |   | (78     | )
|Net income for the nine-month period ended September 30, 2010 |  |              |            |  |             |   |   |                          |  |   |                   |  |  |                                            | 21,006   |   |                                    |   |     |   |  |   | 21,006  |  
|                                                              |  |              |             |  |             |   |    |                          |  |   |                    |  |  |                                            |          |   |                                    |   |      |   |  |   |         |  
|Balance, September 30, 2010                                   |  |              | 168,233,180 |  |             | $ | 17 |                          |  | $ | 106,188            |  |  | $                                          | (135,254 | ) |                                    | $ | (133 | ) |  | $ | (29,182 | )
|                                                              |  |              |             |  |             |   |    |                          |  |   |                    |  |  |                                            |          |   |                                    |   |      |   |  |   |         |  

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



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CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESION)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except
share data)

(Unaudited)



|                                                        |  |                                         |        |   |      |   |        |  
|------------------------------------------------------- |  | --------------------------------------- | ------ | - | ---- | - | ------ | -
|                                                        |  | Nine-months periods 
endedSeptember 30, |       
|                                                        |  | 2010                                    |        |   | 2009 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                    |  |                                         |        |   |      |   |        |  
|Net cash provided by (used in) operating activities     |  | $                                       | 3,110  |   |      | $ | (7,721 | )
|Reorganization items                                    |  |                                         | (1,184 | ) |      |   |       |  
|                                                        |  |                                         |        |   |      |   |        |  
|                                                        |  |                                        
|NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES     |  |                                         | 1,926  |   |      |   | (7,721 | )
|                                                        |  |                                         |        |   |      |   |        |  
|                                                        |  |                                        
|CASH FLOWS FROM INVESTING ACTIVITIES                    |  |                                         |        |   |      |   |        |  
|Change in long-term deposits                            |  |                                         | 125    |   |      |   |       |  
|Purchase of property and equipment                      |  |                                         | (89    | ) |      |   | (170   | )
|                                                        |  |                                         |        |   |      |   |        |  
|                                                        |  |                                        
|NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES     |  |                                         | 36     |   |      |   | (170   | )
|                                                        |  |                                         |        |   |      |   |        |  
|                                                        |  |                                        
|CASH FLOWS FROM FINANCING ACTIVITIES                    |  |                                         |        |   |      |   |        |  
|Proceeds from debtor-in-possession term loan            |  |                                         | 9,250  |   |      |   |       |  
|Proceeds from the issuance of debt                      |  |                                         |       |   |      |   | 5,600  |  
|Repayment of long-term debt                             |  |                                         | (9,591 | ) |      |   | (25    | )
|Payment of financing costs                              |  |                                         | (1,069 | ) |      |   |       |  
|                                                        |  |                                         |        |   |      |   |        |  
|                                                        |  |                                        
|NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES     |  |                                         | (1,410 | ) |      |   | 5,575  |  
|                                                        |  |                                         |        |   |      |   |        |  
|                                                        |  |                                        
|Effect of exchange rate on cash and cash equivalents    |  |                                         | (78    | ) |      |   | (48    | )
|                                                        |  |                                         |        |   |      |   |        |  
|                                                        |  |                                        
|Change in cash and cash equivalents                     |  |                                         | 474    |   |      |   | (2,364 | )
|Cash and cash equivalents  beginning of period         |  |                                         | 3,377  |   |      |   | 4,598  |  
|                                                        |  |                                         |        |   |      |   |        |  
|                                                        |  |                                        
|Cash and cash equivalents  end of period               |  | $                                       | 3,851  |   |      | $ | 2,234  |  
|                                                        |  |                                         |        |   |      |   |        |  
|                                                        |  |                                        
|SUPPLEMENTAL CASH FLOW INFORMATION                      |  |                                         |        |   |      |   |        |  
|Cash paid for interest                                  |  | $                                       | 1,762  |   |      | $ | 1,053  |  
|Cash paid for income taxes                              |  |                                         | 107    |   |      |   |       |  
|                                                        |  |                                        
|NON-CASH INVESTING AND FINANCING ACTIVITIES             |  |                                         |        |   |      |   |        |  
|Conversion of debt to common stock                      |  |                                         |       |   |      |   | 2,931  |  
|Issuance of July debentures to satisfy debt obligations |  |                                         | 1,802  |   |      |   | 400    |  
|Conversion of accounts payable to VPP debentures        |  |                                         |       |   |      |   | 1,207  |  

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



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##### Table of Contents



CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements

September 30, 2010 (Unaudited)

NOTE 1. Organization and Basis of Presentation.

Description of
Business

Capital Growth Systems, Inc. (CGSI) and its subsidiaries (the Company) operate in one reportable
segment as a single source telecom logistics provider in North America and the European Union. The Company helps customers improve efficiency, reduce cost, and simplify operations of their complex global networks  with a particular focus on
access networks.

Basis of Presentation

The Companys unaudited consolidated financial statements as of and for the three and nine months ended September 30, 2010 and 2009, have been prepared in accordance with generally accepted
accounting principles for interim information and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not contain all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. However, in the opinion of the Companys management, all adjustments, consisting of normal, recurring adjustments, considered necessary for a fair statement have been included.
The results for the three and nine months ended September 30, 2010 are not necessarily indicative of the results to be expected for the year ending December 31, 2010. Refer to the Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2009 for the most recent disclosure of the Companys accounting policies.

The Companys condensed consolidated financial statements include the accounts of Capital Growth Systems, Inc.
(CGSI) and its wholly-owned operating subsidiaries: 20/20Technologies, Inc. (20/20), Magenta netLogic Ltd. (Magenta) which operates in the United Kingdom, Centre Path, Inc. (Centre Path), Global Capacity Group, Inc. (GCG), Global Capacity Direct, LLC (GCD) and Global Capacity Holdco,
LLC. Except where necessary to distinguish the entities, together they are referred to as the Company. Global Capacity Holdco, LLC was organized for the sole purpose of holding the FCC 214 licenses previously held by GCG and GCD.

All material intercompany transactions and balances have been eliminated in consolidation.

The foreign currency translation adjustments resulting from the consolidation of Magenta, the Companys United Kingdom subsidiary,
have not been significant.

Amounts, exclusive of shares and per share data, are shown in thousands of dollars unless
otherwise noted.

Bankruptcy Filing and Going Concern

The accompanying condensed consolidated statements have been prepared on a going concern basis, which contemplates the realization
of assets and the discharge of liabilities in the normal course of business for the foreseeable future. As of September 30, 2010, the Companys current liabilities and liabilities subject to compromise exceeded its current assets by $46.5
million. Included in the current liabilities and liabilities subject to compromise is $20.0 million of current maturities of long-term debt, net of $23.1 million of debt discount associated with the initial fair value of related warrants and
embedded derivatives and $17.3 million associated with OID and imputed interest. Cash on hand at September 30, 2010 was $3.9 million (not including $0.3 million restricted for outstanding letters of credit and tax escrow).

On July 23, 2010, the Company and its United States (U.S.) subsidiaries (the Debtors) filed voluntary
petitions for reorganization under Chapter 11 of the United States Bankruptcy Code (the Bankruptcy Code) in the United States Bankruptcy Court for the District of Delaware (the Bankruptcy Court). The Debtors Chapter 11
cases are being jointly-administered under Case No.10-12302 .The Debtors will continue to operate their business as debtors-in-possession under the supervision of the Bankruptcy Court and in accordance with the applicable provisions of
the Bankruptcy Code and orders of the Bankruptcy Court. The Companys subsidiary in the United Kingdom, Magenta, was not included in the filing and will continue their business without supervision from the Bankruptcy Court and will not be
subject to the requirements of the Bankruptcy Code.

The Company remains in possession of its assets and properties, and
continues to operate its businesses. The Company has obtained and the Bankruptcy Court has approved debtor-in possession financing which will provide up to $10.25 million, of which $9.25 million was funded on August 2, 2010 (DIP
Financing).

The financing will enable the Company to continue to operate its businesses in the ordinary course pending
a proposed reorganization of the Companys businesses. However, there can be no assurance that the Company will be successful in gaining approval of its plan for reorganization.

The Plan Support and Restructuring Agreement provides for among other things the right of the Junior Debenture Holders to credit bid for
the purchase of the Debtors assets all or some of the liens and pre-petition amounts due under the Debentures including accrued OID and Tranche B amounts under the DIP Facility plus accrued interest.



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##### Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





On August 2,
2010, $9.25 million was advanced to the Company by the Lenders under the terms of the DIP Financing. In addition to paying critical vendors and utility deposits, the funds were used on August 3, 2010 to pay $5.2 million to the Senior Lender
(Pivotal Global Capacity, LLC or Pivotal) which represents payment in full of the outstanding Senior Secured Loan. Pivotal closed, on May 3, 2010, on its purchase of all the rights and obligations of the previous Senior Lender (ACF
CGS, L.L.C.) with respect to the Term Loan and Security Agreement dated November 19, 2008, as amended, with no changes in terms and conditions. Pivotal was assigned the same rights and obligations of the previous holder and stepped into the
role as the new Senior Lender in the same capacity as ACF CGS, L.L.C.

As of August 31, 2010 and September 30, 2010,
the Company was in default on the DIP Loan Agreement. The DIP Loan Agreement provided for certain financial covenants to be maintained. Among those covenants was the requirement to maintain EBITDA (Earnings before Interest, Taxes, Depreciation and
Amortization), as defined in the DIP Loan Agreement, of at least $0.1 million for the month ended August 31, 2010 and $0.2 million for the two months ended September 30, 2010. The Company did not meet this financial covenant test for the
month of August and the two months ended September 30, 2010 and accordingly, was in default of the DIP Loan Agreement. The DIP Loan Agreement provides, in the event of an Event of Default, for a default interest rate at a rate per annum which
is 2% above the rate in effect immediately before the Event of Default. This rate will continue in effect during the continuance of an Event of Default. The Default Rate of Interest on both the Tranche A and Tranche B Loans is 14% per annum.

The Company is currently operating pursuant to Chapter 11 under the Bankruptcy Code and continuation of the Company as a
going concern is contingent upon, among other things, the Companys ability (i) to comply with the terms and conditions of the DIP Financing Agreement described in Note 7, Debtor-in-Possession Term Loan; (ii) to develop a plan of
reorganization and obtain confirmation under the Bankruptcy Code; (iii) to reduce unsustainable debt and other liabilities and simplify its complex and restrictive capital structure through the bankruptcy process; (iv) to return to
profitability; (v) to generate sufficient cash flow from operations; and (vi) to obtain financing sources to meet its future obligations. These matters create uncertainty relating to the Companys ability to continue as a
going-concern. The accompanying condensed consolidated financial statements do not reflect any adjustments relating to the recoverability and classification of assets or liabilities that might result from the outcome of these uncertainties. In
addition, any plan of reorganization could materially change amounts reported in the Companys condensed consolidated financial statements, which do not give effect to any adjustments of the carrying value of assets and liabilities.

Financial Reporting in Reorganization

Accounting Standards Codification (ASC) 852 Reorganizations (ASC 852),which is applicable to companies in Chapter 11, generally does not change the manner in which
financial statements are prepared. However, it does require that the financial statements for periods subsequent to the filing of the Chapter 11 petition distinguish between transactions and events that are directly associated with the
reorganization proceedings and the ongoing operations of the business as well as additional disclosures. Revenues, expenses, realized gains and losses, and provisions for losses that can be directly associated with the reorganization and
restructuring of the business must be reported separately as reorganization items in the statements of operations beginning in the quarter ending September 30, 2010. The balance sheet must distinguish pre-petition liabilities subject to
compromise from both those pre-petition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities that may be affected by a plan of reorganization must be reported at the amounts expected to be allowed, even if
they may be settled for lesser amounts. In addition, cash provided by reorganization items must be disclosed separately in the statements of cash flows. The Company adopted ASC 852 effective on July 23, 2010 and will segregate those items as
outlined above for all reporting periods subsequent to such date.

The Company cannot determine as of this date the manner of
accounting that the Company will apply upon emergence from Chapter 11, until a Plan of Reorganization has been approved and confirmed by the Bankruptcy Court. One method of accounting that may be applied upon emergence from Chapter 11 is fresh-start
accounting. Fresh-start accounting applies when the reorganization value of the assets of the emerging entity immediately before the date of confirmation is less than the total of all postpetition liabilities and allowed claims, and holders of
existing voting shares immediately before confirmation receive less than 50% of the voting shares of the emerging entity.

Accounts Receivable

Accounts receivable represent amounts owed from billings to customers and are recorded at gross amounts owed less an allowance for potentially uncollectible accounts. The Company provides an allowance for
potentially uncollectible accounts receivable based upon prior experience and managements assessment of the collectability of existing specific accounts. The total reserve for uncollectible accounts was $0.8 million and $1.0 million as of
September 30, 2010 and December 31, 2009, respectively. The Companys policy is to write-off accounts receivable balances once management has deemed them to be uncollectible.

Fair Value Measurements

The Company has adopted a single definition of fair value, a framework for measuring fair value, and expanded disclosures concerning fair value. In this valuation, the exchange price is the price in an
orderly transaction between market participants to sell an asset or transfer a liability at the measurement date and fair value is a market-based measurement and not an entity-specific measurement.



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##### Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





The Company
utilizes the following hierarchy in fair value measurements:



| |  |  | Level 1  Inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2  Inputs use other inputs that are observable, either directly or indirectly. These inputs include quoted prices for similar assets and
liabilities in active markets as well as other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3  Inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the
related asset or liability.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In instances where inputs used to measure fair value fall into different levels
in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Companys assessment of the significance of particular inputs to these fair
measurements requires judgment and considers factors specific to each asset or liability.

The Company has embedded
derivatives associated with its convertible debt instruments and warrants classified as liabilities which are measured at fair value on a recurring basis. The embedded derivatives and the warrants are measured at fair value using the Black-Scholes
valuation model with pricing inputs that are observable in the market or that can be derived principally from or corroborated by observable market data. In selecting the appropriate fair value technique the Company considers the nature of the
instrument, the market risks that it embodies, and the expected means of settlement.

Recurring Fair Value
Measurements: Liabilities measured at fair value on a recurring basis at September 30, 2010 and December 31, 2009 are as follows, in millions:



|                                 |  |                                                                  |   |  |                                           |   |      |                                        |  |  |                              |  |  |   |      | 
|-------------------------------- |  | ---------------------------------------------------------------- | - |  | ----------------------------------------- | - | ---- | -------------------------------------- |  |  | ---------------------------- |  |  | - | ---- | 
|                                 |  | Quoted Prices inActive Markets
forIdentical Liabilities(Level 1) |   |  | SignificantOtherObservableInputs(Level 2) |   |      | SignificantUnobservableInputs(Level 3) |  |  | Balance atSeptember 
30,2010 | 
|Derivative financial instruments |  |                                                                  |  |  |                                           | $ | 0.0  |                                        |  |  |                             |  |  | $ | 0.0  | 
|Warrant liability                |  |                                                                  |  |  |                                           |   | 0.0  |                                        |  |  |                             |  |  |   | 0.0  | 
|                                 |  |                                                                  |   | 
|                                 |  | Quoted Prices inActive Markets
forIdentical Liabilities(Level 1) |   |  | SignificantOtherObservableInputs(Level 2) |   |      | SignificantUnobservableInputs(Level 3) |  |  | Balance atDecember 
31,2009  | 
|Derivative financial instruments |  |                                                                  |  |  |                                           | $ | 28.2 |                                        |  |  |                             |  |  | $ | 28.2 | 
|Warrant liability                |  |                                                                  |  |  |                                           |   | 18.0 |                                        |  |  |                             |  |  |   | 18.0 | 

Fair Value of
Financial Instruments not measured at fair value on a recurring basis: The carrying amount of cash, accounts receivable, debt, and accounts payable are considered representative of their respective fair values because of the short-term nature of
these financial instruments. Long-term debt approximates fair value due to the interest rates on the promissory notes approximating current rates.



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##### Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





Non-Recurring
Fair Value Measurements: Assets measured at fair value on a non-recurring basis at December 31, 2009 are as follows, in millions:



|                                |  |                                                              |   |  |                                           |  |   |                                        |  |   |                             |  |  |                                                      |      |  |  |   |       |  
|------------------------------- |  | ------------------------------------------------------------ | - |  | ----------------------------------------- |  | - | -------------------------------------- |  | - | --------------------------- |  |  | ---------------------------------------------------- | ---- |  |  | - | ----- | -
|                                |  | Quoted Prices InActive 
Markets forIdentical Assets(Level 1) |   |  | SignificantOtherObservableInputs(Level 2) |  |   | SignificantUnobservableInputs(Level 3) |  |   | Balance atDecember 
31,2009 |  |  | TotalGains (Losses)For the YearEndedDecember 31,2009 |     
|Long-lived assets  Intangibles |  |                                                              |  |  |                                           |  |  |                                        |  | $ | 16.5                        |  |  | $                                                    | 16.5 |  |  | $ | (5.9  | )
|Goodwill                        |  |                                                              |  |  |                                           |  |  |                                        |  |   | 1.5                         |  |  |                                                      | 1.5  |  |  |   | (12.5 | )

There were no assets or
liabilities measured at fair value on a non-recurring basis at September 30, 2010.

Intangible assets and goodwill are
tested annually, or more frequently, if a change in circumstances or the occurrence of events indicates that potential impairment exists. As a result of the Company continuing to incur operating losses and filing for Chapter 11 bankruptcy in July
2010, the Company evaluated its goodwill and other long-lived assets for impairment as of September 30, 2010. Based on the results of the impairment testing, no impairment was recorded on the Companys goodwill and other long-lived assets
as of September 30, 2010. The Company recorded an impairment charge during the fourth quarter of 2009, as detailed below.

In accordance with the provisions of the Impairment or Disposal of Long-Lived Assets Subsection of the FASBs Accounting Standards
Codification (ASC) Topic 360-10, intangible assets with a carrying amount of $22.4 million were written down to their fair value of $16.5 million, resulting in an impairment charge of $5.9 million, which was included in results of operations for the
fourth quarter of 2009.

Pursuant to the provisions of ASC Topic 350, Intangibles  Goodwill and Other, goodwill
with a carrying amount of $14.0 million was written down to its fair value of $1.5 million, resulting in an impairment charge of $12.5 million, which was included in results for the fourth quarter of 2009.

See the Intangible Assets and Goodwill note for a discussion of the valuation techniques and a description of the information used to
determine fair value in 2009.

Comprehensive Income (Loss)

Comprehensive income (loss) is as follows:



|                                        |  |                                        |        |   |                                       |   |       |      |  |   |        |   |  |   |         |  
|--------------------------------------- |  | -------------------------------------- | ------ | - | ------------------------------------- | - | ----- | ---- |  | - | ------ | - |  | - | ------- | -
|                                        |  | Three-month periods endedSeptember 30, |        |   | Nine-month periods endedSeptember 30, |  
|                                        |  | 2010                                   |        |   | 2009                                  |   |       | 2010 |  |   | 2009   |  
|Net income (loss), as reported          |  | $                                      | 17,260 |   |                                       | $ | 2,053 |      |  | $ | 21,006 |   |  | $ | (33,192 | )
|Foreign currency translation adjustment |  |                                        | (63    | ) |                                       |   | 2     |      |  |   | (78    | ) |  |   | (48     | )
|                                        |  |                                        |        |   |                                       |   |       |      |  |   |        |   |  |   |         |  
|                                        |  |                                        |        |  
|Comprehensive income (loss)             |  | $                                      | 17,197 |   |                                       | $ | 2,055 |      |  | $ | 20,928 |   |  | $ | (33,240 | )
|                                        |  |                                        |        |   |                                       |   |       |      |  |   |        |   |  |   |         |  

Use of Estimates

The preparation of financial statements 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

Due to the material activity in the allowance for doubtful accounts and bad debt expense, certain amounts previously reported have been reclassified to conform to the current period presentation.



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##### Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





NOTE 2- Reorganization under
Chapter 11

Reorganization under Chapter 11 of the Bankruptcy Code

On July 22, 2010, the Company entered into a Plan Support Agreement (PSA) with certain holders of its debentures. Upon
entering into the PSA, on July 23, 2010, the Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. The Debtors excluded from the bankruptcy filing, its wholly owned United Kingdom subsidiary, Magenta net Logic,
Ltd. The Debtors have operated their business as debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of Chapter 11 and orders of the Bankruptcy Court and will continue to
do so until they emerge from Chapter 11 bankruptcy proceedings, as described herein.

On July 27, 2010, the Bankruptcy
Court approved certain first-day motions in the Chapter 11 Cases, including without limitation, approval of an interim order authorizing the use by the Debtor of their cash collateral, orders authorizing the payment of suppliers, wages, salaries and
other benefits to employees and certain operating expenses, orders prohibiting utilities from altering, refusing or discontinuing services to Debtor, orders authorizing the continued use of the Companys existing cash management system, orders
authorizing payment of pre-petition sales, use, property and other taxes and orders authorizing debtors to continue to operate under and provide services pursuant to its Service Order with Excel Communications. On August 13, 2010, the
Bankruptcy Court approved on a final basis the Debtors first-day motion relating to these and certain other matters.

Plan of Reorganization

On August 11, 2010, the Debtors filed a Plan of Reorganization (the Plan) and related Disclosure Statement with the Bankruptcy Court. On September 22, 2010, the Bankruptcy Court
approved the adequacy of information contained in the Disclosure Statement and the Debtors subsequently commenced solicitation of the votes of its Lenders, Debenture Holders and other interest holders entitled to vote on the Plan.

Although the Bankruptcy Court approved the adequacy of information contained in the Disclosure Statement, the Debtors must obtain approval
of the Plan from those interest holders entitled to vote on the Plan, obtain the Bankruptcy Courts confirmation of the Plan, obtain an exit financing facility that repays the debtor-in-possession term loan in cash in full on the Plans
Effective Date and provides working capital to the new entity upon emergence from bankruptcy and perform certain administrative actions in conjunction with the emergence from Chapter 11. There can be no assurance that the Debtors will satisfy these
conditions, complete such required actions and emerge from Chapter 11 within the Debtors anticipated timeframe or at all.

Debtor-in-Possession Financing and Payoff of the Senior Term Loan

With the filing of voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code, the Company entered into
a Debtor in Possession Loan and Security Agreement (the DIP Loan Agreement) with Downtown CP-CGSY, LLC (the Tranche A Lender), the holders of certain debentures issued by the Company (the Pre-Petition Debenture
Lenders), and certain other investors that were approved by the Pre-Petition Debenture Lenders (collectively, the Tranche B Lenders and together with the Tranche A Lender, collectively, the Lenders). The DIP Loan
Agreement was effective as of July 30, 2010 and was approved on an interim basis on that date (the Interim Order). On August 13, 2010, the Bankruptcy Court approved on a final basis the DIP Loan Agreement.

The DIP Loan Agreement provides for an aggregate financing of up to $10.25 million to be provided through a $3 million Tranche A Loan and
a $7.25 million Tranche B Loan. See Note 7, Debtor-in-Possession Term Loan for the terms of the DIP Loan Agreement.



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##### Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





On August 2,
2010, $9.25 million was advanced by the Lenders to the Debtors under the terms of the DIP Financing. The remaining $1.0 million of the total financing will be funded by the Tranche B Lenders contingent upon entry of a final order by the Bankruptcy
Court approving the Loan and satisfaction by the Debtors of certain affirmative and negative covenants. The funds were used to pay, on August 3, 2010, $5.1 million in full settlement of the Senior Secured Loan due to Pivotal Global Capacity,
LLC (the Senior Lender); assurance deposits in the amount of $3.2 million to the Debtors carriers and the remaining $0.8 million for critical vendors and working capital.

The Loans bear interest at 12% per annum and require mandatory prepayments in the amount of 100% of the net sale proceeds from
non-ordinary course assets sales and 100% of insurance and condemnation proceeds, and tax refunds. The Debtors paid commitment fees of $.06 million and a $.02 million structuring fee to the Tranche A Lender. If the Tranche A Loan is extended beyond
the maturity date, an extension fee of 1% of the Tranche A Loan amount is due for up to two 60 day extensions. The Loans are secured by all the assets of the Debtors.



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##### Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





As of
August 31, 2010 and September 30, 2010, the Company was in Default on the DIP Loan Agreement. The DIP Loan Agreement provided for certain financial covenants to be maintained. Among those covenants was the requirement to maintain EBITDA
(Earnings before Interest, Taxes, Depreciation and Amortization), as defined in the DIP Loan Agreement, of at least $0.1 million for the month ended August 31, 2010 and $0.2 million for the two months ended September 30, 2010. The Company
did not meet this financial covenant test and accordingly, was in default of the DIP Loan Agreement as of August 31, 2010 and September 30, 2010. The DIP Loan Agreement provides, in the event of an Event of Default, for a default interest
rate at a rate per annum which is 2% above the rate in effect immediately before the Event of Default. This rate will continue in effect during the continuance of an Event of Default. The Default Rate of Interest on both Tranche A and Tranche B
Loans is 14% per annum.

Other Matters relating to Reorganization under Chapter 11 of the Bankruptcy Code

Bankruptcy Reporting Requirements

The Company has submitted monthly operating reports to the Bankruptcy Court during the Chapter 11 Cases. These monthly reports have been
prepared according to requirements of federal bankruptcy law. While the Company believes that these reports provide then-current information required under federal bankruptcy law, they are nonetheless unconsolidated, unaudited, prepared in a format
different from that used in the Companys consolidated financial statements filed under the securities laws and are only prepared for the combined Debtor entities. Accordingly, the Company believes that the substance and format of the materials
does not allow meaningful comparison with its regular publicly disclosed consolidated financial statements. Moreover, the materials filed with the Bankruptcy Court have not been prepared for the purpose of providing a basis for an investment
decision relating to the Companys securities or for comparison with other financial information filed with the Securities and Exchange Commission.



12



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##### Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





Liabilities
Subject to Compromise

As described above, certain claims against the Debtors in existence prior to the Chapter 11
Cases (pre-petition liabilities) may be subject to compromise or other treatment under the Plan (see Other Matters relating to Reorganization under Chapter 11 of the Bankruptcy Code) and are reflected as liabilities subject
to compromise in the accompanying condensed consolidated balance sheet. A summary of liabilities subject to compromise as of September 30, 2010 is shown below:



|                                        |  |                   |        | 
|--------------------------------------- |  | ----------------- | ------ | 
|                                        |  | September 30,2010 |       
|Liabilities Subject to Compromise       |  |                   |        | 
|Accounts payable                        |  | $                 | 14,017 | 
|Accrued liabilities                     |  |                   | 4,204  | 
|Debt subject to compromise:             |  |                   |        | 
|July Debentures                         |  |                   | 8,733  | 
|Amended March Debentures                |  |                   | 4,918  | 
|November Debentures                     |  |                   | 2,404  | 
|VPP Debentures                          |  |                   | 1,006  | 
|Seller Debentures                       |  |                   | 2,942  | 
|                                        |  |                   |        | 
|Total liabilities subject to compromise |  | $                 | 38,224 | 
|                                        |  |                   |        | 

Reorganization Items

Reorganization items include expenses, gains and losses directly related to the Debtors reorganization proceedings. For the three and nine months ended September 30, 2010, the Company incurred
$2.7 million of reorganization items. The reorganization items include attorney and financial advisor fees for the Company, debenture holders and unsecured creditors, and United States Trustee fees.



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##### Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





Condensed
Combined Debtor-in-Possession Financial Information

The financial statements shown below represent the condensed
combined statements of the Debtors only and are prepared on the same basis as the accompanying condensed consolidated financial statements. The Companys non-Debtor subsidiary, Magenta, is reflected as non-consolidated subsidiary in these
financial statements. Accordingly, the net assets of the non-Debtor subsidiary is reflected as Accumulated losses of unconsolidated non-Debtor subsidiary in excess of investment in the balance sheet shown below, and the net loss of the
non-Debtor subsidiary is reflected as Equity in net loss of non-Debtor subsidiary in the statement of operations shown below. Intercompany transactions between the Debtors have been eliminated. Intercompany balances between the Debtors
and non-Debtor subsidiary are reflected as Amounts due from non-Debtor subsidiary, net in the balance sheet shown below.

CONDENSED COMBINED DEBTOR-IN-POSSESSION

BALANCE SHEET

(Non-filed entities, principally non-US subsidiary excluded from Debtor group; unaudited)



|                                                                                   |  |                   |         |  
|---------------------------------------------------------------------------------- |  | ----------------- | ------- | -
|                                                                                   |  | September 30,2010 |        
|ASSETS                                                                             |  |                   |         |  
|CURRENT ASSETS                                                                     |  |                   |         |  
|Cash and cash equivalents                                                          |  | $                 | 3,825   |  
|Accounts receivable, net                                                           |  |                   | 4,266   |  
|Prepaid expenses and other current assets                                          |  |                   | 3,891   |  
|                                                                                   |  |                   |         |  
|Total Current Assets                                                               |  |                   | 11,982  |  
|Property and equipment, net                                                        |  |                   | 791     |  
|Amounts due from non-Debtor subsidiary, net                                        |  |                   | 3,000   |  
|Intangible assets, net                                                             |  |                   | 14,695  |  
|Goodwill                                                                           |  |                   | 1,480   |  
|Other assets                                                                       |  |                   | 375     |  
|                                                                                   |  |                   |         |  
|TOTAL ASSETS                                                                       |  | $                 | 32,323  |  
|                                                                                   |  |                   |         |  
|LIABILITIES AND DEFICIT                                                            |  |                   |         |  
|CURRENT LIABILITIES                                                                |  |                   |         |  
|Debtor-in-possession term loan                                                     |  | $                 | 9,384   |  
|Accounts payable                                                                   |  |                   | 2,213   |  
|Accrued expenses                                                                   |  |                   | 5,056   |  
|Deferred Revenue                                                                   |  |                   | 3,517   |  
|                                                                                   |  |                   |         |  
|Total Current Liabilities                                                          |  |                   | 20,170  |  
|                                                                                   |  |                   |         |  
|Accumulated losses of unconsolidated non-Debtor subsidiary in excess of investment |  |                   | 10,361  |  
|Deferred Income Taxes                                                              |  |                   | 67      |  
|Liabilities Subject to Compromise                                                  |  |                   | 38,224  |  
|Deficit Attributable to Debtors                                                    |  |                   | (36,499 | )
|                                                                                   |  |                   |         |  
|TOTAL LIABILITIES AND DEFICIT                                                      |  | $                 | 32,323  |  
|                                                                                   |  |                   |         |  



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##### Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





CONDENSED
COMBINED DEBTOR-IN-POSSESSION

STATEMENTS OF OPERATIONS

(Non-filed entities, principally non-US subsidiary excluded from Debtor group; unaudited)



|                                                               |  |                                    |         |   |                                   |   |         |  
|-------------------------------------------------------------- |  | ---------------------------------- | ------- | - | --------------------------------- | - | ------- | -
|                                                               |  | Three monthsendedSeptember 30,2010 |         |   | Nine monthsendedSeptember 30,2010 |  
|Revenues                                                       |  | $                                  | 13,816  |   |                                   | $ | 42,195  |  
|Cost of revenues                                               |  |                                    | 10,050  |   |                                   |   | 31,485  |  
|                                                               |  |                                    |         |   |                                   |   |         |  
|Gross margin                                                   |  |                                    | 3,766   |   |                                   |   | 10,710  |  
|Operating expenses                                             |  |                                    | 4,894   |   |                                   |   | 16,365  |  
|                                                               |  |                                    |         |   |                                   |   |         |  
|Operating (loss)                                               |  |                                    | (1,128  | ) |                                   |   | (5,655  | )
|Interest expense                                               |  |                                    | 4,560   |   |                                   |   | 15,619  |  
|Gain on warrants and derivatives                               |  |                                    | (26,055 | ) |                                   |   | (46,173 | )
|Loss on extinguishment of debt and conversion of debt to stock |  |                                    | 273     |   |                                   |   | 273     |  
|Equity in net loss of non-Debtor subsidiary                    |  |                                    | 171     |   |                                   |   | 895     |  
|Write off of non-Debtor receivable                             |  |                                    | 221     |   |                                   |   | 924     |  
|Reorganization items                                           |  |                                    | 2,672   |   |                                   |   | 2,672   |  
|Income tax (benefit) expense                                   |  |                                    | (9      | ) |                                   |   | 53      |  
|                                                               |  |                                    |         |   |                                   |   |         |  
|                                                               |  |                                   
|Net income (loss) attributable to Debtors                      |  | $                                  | 17,039  |   |                                   | $ | 20,082  |  
|                                                               |  |                                    |         |   |                                   |   |         |  



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##### Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





CONDENSED
COMBINED DEBTOR-IN-POSSESSION

STATEMENTS OF CASH FLOWS

(Non-filed entities, principally non-US subsidiary excluded from Debtor group; unaudited)



|                                                     |  |                                   |        |  
|---------------------------------------------------- |  | --------------------------------- | ------ | -
|                                                     |  | Nine monthsendedSeptember 30,2010 |       
|Cash Flows from Operating Activities                 |  |                                   |        |  
|Net cash provided by operating activities            |  | $                                 | 3,185  |  
|Reorganization Items                                 |  |                                   | (1,184 | )
|                                                     |  |                                   |        |  
|Net Cash Provided by Operating Activities            |  |                                   | 2,001  |  
|                                                     |  |                                   |        |  
|Cash Flows from Investing Activities                 |  |                                   |        |  
|Purchase of property and equipment                   |  |                                   | (89    | )
|Change in long-term deposit and other assets         |  |                                   | 125    |  
|                                                     |  |                                   |        |  
|Net Cash Provided by Investing Activities            |  |                                   | 36     |  
|                                                     |  |                                   |        |  
|Cash Flows from Financing Activities                 |  |                                   |        |  
|Proceeds from debtor-in-possession term loan         |  |                                   | 9,250  |  
|Repayment of long-term debt                          |  |                                   | (9,585 | )
|Payment for deferred financing cost                  |  |                                   | (1,069 | )
|                                                     |  |                                   |        |  
|Cash Flows (Used In) Financing Activities            |  |                                   | (1,404 | )
|                                                     |  |                                   |        |  
|Effect of exchange rate on cash and cash equivalents |  |                                   | (78    | )
|                                                     |  |                                   |        |  
|Increase in cash and cash equivalents                |  |                                   | 555    |  
|Cash and cash equivalents-beginning of period        |  |                                   | 3,270  |  
|                                                     |  |                                   |        |  
|Cash and cash equivalents-end of period              |  | $                                 | 3,825  |  
|                                                     |  |                                   |        |  



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##### Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





NOTE 3. Recent Accounting
Pronouncements.

Recently Adopted Accounting Pronouncements

In December 2009, the FASB issued ASU No. 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities, which amends ASC 810, Consolidation to address the elimination of the concept of a qualifying special purpose entity. The standard also replaces the quantitative-based risks and rewards calculation for determining which
enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity and the obligation to absorb losses of the
entity or the right to receive benefits from the entity. This standard also requires continuous reassessments of whether an enterprise is the primary beneficiary of a VIE whereas previous accounting guidance required reconsideration of whether an
enterprise was the primary beneficiary of a VIE only when specific events had occurred. The standard provides more timely and useful information about an enterprises involvement with a variable interest entity and will be effective as of the
beginning of interim and annual reporting periods that begin after November 15, 2009. The Company adopted the standard on January 1, 2010.

In January 2010, the FASB issued ASU No. 2010-6, Improving Disclosures About Fair Value Measurements, which provides amendments to ASC 820 Fair Value Measurements and Disclosures,
including requiring reporting entities to make more robust disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair
value measurements including information on purchases, sales, issuances, and settlements on a gross basis and (4) the transfers between Levels 1, 2, and 3. The standard is effective for annual reporting periods beginning after December 15,
2009, except for Level 3 reconciliation disclosures, which are effective for annual periods beginning after December 15, 2010. The Company adopted the standard for Levels 1 and 2 on January 1, 2010, and does not expect the adoption of the
standard for Level 3, on January 1, 2011, to have a material impact on its consolidated financial statements.

The FASB
updated ASC Topic 810, Consolidations, and ASC Topic 860, Transfers and Servicing, which significantly changed the accounting for transfers of financial assets and the criteria for determining whether to consolidate a variable interest
entity (VIE). The update to ASC Topic 860 eliminates the qualifying special purpose entity (QSPE) concept, establishes conditions for reporting a transfer of a portion of a financial asset as a sale, clarifies the financial asset de-recognition
criteria, revises how interests retained by the transferor in a sale of financial assets initially are measured, and removes the guaranteed mortgage securitization re-characterization provisions. The update to ASC Topic 810 requires reporting
entities to evaluate former QSPEs for consolidation, changes the approach to determining a VIEs primary beneficiary from a mainly quantitative assessment to an exclusively qualitative assessment designed to identify a controlling financial
interest, and increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a VIE. The Company adopted the provisions of these staff positions effective January 1, 2010.

The adoption of the pronouncements above did not have a material effect on the Companys financial position or results of
operations.

New Accounting Pronouncements Not Yet Effective

In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements, (amendments to ASC Topic 605, Revenue
Recognition) (ASU 2009-13) and ASU 2009-14, Certain Arrangements that Include Software Elements, (amendments to ASC Topic 985, Software) (ASU 2009-14). ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated
selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated using the relative selling price method. ASU 2009-14
removes tangible products from the scope of software revenue guidance and provides guidance on determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance.
ASU 2009-13 and ASU 2009-14 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted.



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##### Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





The Company is
currently evaluating the impact of the adoption of these ASUs on its consolidated results of operations of financial condition. The Company will implement the standard effective January 1, 2011.

In April 2010, the FASB issued ASU 2010-13, Topic 718, CompensationStock Compensation, which addressed the classification of
an employee share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. ASU 2010-13 specifies that a share-based payment awarded that contains a condition that is not a
market, performance, or service condition is required to be classified as a liability unless it otherwise qualifies as equity. The amendment is effective for fiscal years, and interim periods beginning on or after December 15, 2010. The Company
is currently evaluating the impact of the adoption of this ASU on its consolidated results of operations of financial condition. The Company will implement the standard effective January 1, 2011.

NOTE 4. Property and Equipment.

Property and equipment consists of the following:



|                           |  |                   |        |   |                  |   |        |  
|-------------------------- |  | ----------------- | ------ | - | ---------------- | - | ------ | -
|                           |  | September 30,2010 |        |   | December 31,2009 |  
|Furniture and fixtures     |  | $                 | 343    |   |                  | $ | 343    |  
|Computer equipment         |  |                   | 979    |   |                  |   | 972    |  
|Leasehold improvements     |  |                   | 817    |   |                  |   | 813    |  
|Machinery and equipment    |  |                   | 1,670  |   |                  |   | 1,630  |  
|                           |  |                   |        |   |                  |   |        |  
|                           |  |                  
|                           |  |                   | 3,809  |   |                  |   | 3,758  |  
|Accumulated depreciation   |  |                   | (3,018 | ) |                  |   | (2,778 | )
|                           |  |                   |        |   |                  |   |        |  
|                           |  |                  
|Net property and equipment |  | $                 | 791    |   |                  | $ | 980    |  
|                           |  |                   |        |   |                  |   |        |  

Depreciation of property and equipment was $ 0.1 million and $0.2 million for the three-months ended
September 30, 2010 and September 30, 2009, and $0.3 million and $0.6 million for the nine-month periods ended September 30, 2010 and September 30, 2009, respectively.

NOTE 5. Intangible Assets and Goodwill.

Intangible assets were acquired in
business combinations. The assets have no significant residual values. All intangible assets are subject to amortization. Gross carrying amounts, accumulated amortization, and amortization for the periods ending September 30, 2010 and
December 31, 2009 for each major intangible asset class are as follows:



|                     |  |                              |  |                     |        |  |                         |   |        |     |  |   |        | 
|-------------------- |  | ---------------------------- |  | ------------------- | ------ |  | ----------------------- | - | ------ | --- |  | - | ------ | 
|                     |  |                              |  | September 30, 2010  |       
|                     |  | AmortizationPeriod in 
Years |  | GrossCarryingAmount |        |  | AccumulatedAmortization |   |        | Net | 
|Developed technology |  | 15                           |  | $                   | 8,546  |  |                         | $ | (4,360 | )   |  | $ | 4,186  | 
|Customer base        |  | 15                           |  |                     | 14,256 |  |                         |   | (3,746 | )   |  |   | 10,510 | 
|                     |  |                              |  |                     |        |  |                         |   |        |     |  |   |        | 
|                     |  |                              |  |                    
|Total                |  | 13.2 weighted average years  |  | $                   | 22,802 |  |                         |   | (8,106 | )   |  | $ | 14,696 | 
|                     |  |                              |  |                     |        |  |                         |   |        |     |  |   |        | 



|                       |  |                             |  |                   |        |  |                         |   |        |                  |  |   |                  |   |  |   |        | 
|---------------------- |  | --------------------------- |  | ----------------- | ------ |  | ----------------------- | - | ------ | ---------------- |  | - | ---------------- | - |  | - | ------ | 
|                       |  |                             |  | December 31, 2009 |       
|                       |  | AmortizationPeriod in Years |  | GrossAmount       |        |  | AccumulatedAmortization |   |        | ImpairmentLosses |  |   | NetCarryingValue |  
|Developed technology   |  | 5 to 15                     |  | $                 | 12,215 |  |                         | $ | (3,581 | )                |  | $ | (3,669           | ) |  | $ | 4,965  | 
|Customer relationships |  | 6 to 15                     |  |                   | 16,510 |  |                         |   | (2,759 | )                |  |   | (2,254           | ) |  |   | 11,497 | 
|                       |  |                             |  |                   |        |  |                         |   |        |                  |  |   |                  |   |  |   |        | 
|                       |  |                             |  |                   |       
|Total                  |  | 13.9 weighted average years |  | $                 | 28,725 |  |                         | $ | (6,340 | )                |  | $ | (5,923           | ) |  | $ | 16,462 | 
|                       |  |                             |  |                   |        |  |                         |   |        |                  |  |   |                  |   |  |   |        | 

Amortization expense related to the intangible assets was $0.6 million and $0.9 million for the three-months
ended September 30, 2010 and 2009, and $1.8 million and $2.8 million for the nine-month periods ended September 30, 2010 and 2009, respectively.



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##### Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





Estimated
amortization expense for intangible assets is as follows for the years ending December 31:



|                           |  |   |        | 
|-------------------------- |  | - | ------ | 
|Remaining 3 months of 2010 |  | $ | 589    | 
|2011                       |  |   | 2,141  | 
|2012                       |  |   | 1,953  | 
|2013                       |  |   | 1,767  | 
|2014                       |  |   | 1,571  | 
|2015                       |  |   | 1,392  | 
|Thereafter                 |  |   | 5,283  | 
|                           |  |   |        | 
|                           | 
|Total                      |  | $ | 14,696 | 
|                           |  |   |        | 

As a result of the Company continuing to incur operating losses and the filing for Chapter 11 bankruptcy in
July 2010, the Company evaluated its specifically identifiable intangible assets for impairment as of September 30, 2010.

Based on the results of the impairment testing, the future expected undiscounted cash flows to be generated from the Companys
intangible assets exceeded its carrying value, therefore, no impairment was recorded as of September 30, 2010.

Goodwill

Management determined that the Company had only one reporting unit for the purposes of goodwill impairment testing in 2009. The results of the annual impairment test indicated that there was a $12.5
million impairment of goodwill recorded in the fourth quarter of 2009.

The value at acquisition and current carrying value of
goodwill for the acquired companies are as follows:



|      |  |                    |        |  |                             |   |         |                  |  |   |                    |  |  |                             |        |  |                  |   |         |   |  |   |       | 
|----- |  | ------------------ | ------ |  | --------------------------- | - | ------- | ---------------- |  | - | ------------------ |  |  | --------------------------- | ------ |  | ---------------- | - | ------- | - |  | - | ----- | 
|      |  | September 30, 2010 |        |  | December 31, 2009           |  
|      |  | ValueatAcquisition |        |  | AccumulatedImpairmentLosses |   |         | NetCarryingValue |  |   | ValueatAcquisition |  |  | AccumulatedImpairmentLosses |        |  | NetCarryingValue |  
|Total |  | $                  | 13,993 |  |                             | $ | (12,513 | )                |  | $ | 1,480              |  |  | $                           | 13,993 |  |                  | $ | (12,513 | ) |  | $ | 1,480 | 
|      |  |                    |        |  |                             |   |         |                  |  |   |                    |  |  |                             |        |  |                  |   |         |   |  |   |       | 

In 2009, the fair value of goodwill was determined using a discounted cash flow model from projections of
the future operations of the business utilizing forecasts of operations, financial position, and cash flows provided by Management. The resultant fair value of the Companys reporting unit was less than its carrying value at December 31,
2009, requiring step two of the goodwill impairment test to be performed.

As a result of the step two analysis,
the Company assigned the fair value to the assets and liabilities and determined that the calculated implied fair value of goodwill was approximately $1.5 million, resulting in a $12.5 million impairment charge to write-down the carrying value of
goodwill to the implied fair value.

Due to the impairment triggers noted above, the Company conducted an interim goodwill
impairment test as of September 30, 2010. The fair value of the Companys reporting unit, determined using a discounted cash flow model, was greater than its carrying value at September 30, 2010. Further, the Company has received a
number of competitive bids from third parties during the bankruptcy process which are in excess of the current carrying value of the Companys assets and accordingly no impairment of goodwill was recorded as of September 30, 2010.

Determining the fair value of a reporting unit is a matter of judgment and often involves the use of significant estimates
and assumptions. The use of different assumptions could increase or decrease an impairment charge. An erosion of future business could create additional impairment in goodwill or other long-lived assets and require a significant charge in future
periods.



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##### Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





NOTE 6. Accrued Expenses.

Accrued expenses consist of the following:



|                               |  |                                                   |       |  |                                |   |       |                  |  |   |       | 
|------------------------------ |  | ------------------------------------------------- | ----- |  | ------------------------------ | - | ----- | ---------------- |  | - | ----- | 
|                               |  | September 30,2010Pre-petitionSubject toCompromise |       |  | September 30,2010Post-petition |   |       | December 31,2009 | 
|Accrued carrier disputes       |  | $                                                 | 627   |  |                                | $ |      |                  |  | $ | 1,661 | 
|Compensation and payroll taxes |  |                                                   | 905   |  |                                |   | 866   |                  |  |   | 1,067 | 
|Interest expense               |  |                                                   |      |  |                                |   | 55    |                  |  |   | 620   | 
|Excise and sales taxes         |  |                                                   |      |  |                                |   | 1,833 |                  |  |   | 858   | 
|Reorganization items           |  |                                                   |      |  |                                |   | 1,489 |                  |  |   |      | 
|Professional services          |  |                                                   |      |  |                                |   | 265   |                  |  |   | 997   | 
|Other expenses                 |  |                                                   | 2,672 |  |                                |   | 618   |                  |  |   | 636   | 
|                               |  |                                                   |       |  |                                |   |       |                  |  |   |       | 
|                               |  |                                                   |      
|Total accrued expenses         |  | $                                                 | 4,204 |  |                                | $ | 5,126 |                  |  | $ | 5,839 | 
|                               |  |                                                   |       |  |                                |   |       |                  |  |   |       | 

The accrued expenses pre-petition as of September 30, 2010 are included in Liabilities Subject to
Compromise. See Note 2 Reorganization under Chapter 11.

As a result of the Debtors filing voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code on July 23, 2010, the Company determined that it was most likely that the Company was not going to be able to pay in full the principal balances of the Debenture Debt and
accordingly, suspended the accrual of interest on this Debt. The amount of interest that would have been accrued had the Company not suspended the accrual would have amounted to $0.2 million as of September 30, 2010.

NOTE 7. Debtor-in-Possession Term Loan.



|                               |  |                   |       |  |                  |   |   | 
|------------------------------ |  | ----------------- | ----- |  | ---------------- | - | - | 
|                               |  | September 30,2010 |       |  | December 31,2009 |  
|Tranche A                      |  | $                 | 3,000 |  |                  | $ |  | 
|Tranche B                      |  |                   | 6,384 |  |                  |   |  | 
|                               |  |                   |       |  |                  |   |   | 
|                               |  |                  
|Debtor-in-possession term loan |  | $                 | 9,384 |  |                  | $ |  | 
|                               |  |                   |       |  |                  |   |   | 

With the filing of voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code, the Company entered into a Debtor in Possession Loan and Security Agreement (the DIP Loan Agreement) with Downtown CP-CGSY, LLC (the Tranche A Lender), the holders of certain debentures issued by the Company (the
Pre-Petition Debenture Lenders), and certain other investors that were approved by the Pre-Petition Debenture Lenders (collectively, the Tranche B Lenders and together with the Tranche A Lender, collectively, the
Lenders). The DIP Loan Agreement was effective as of July 30, 2010 and was approved on an interim basis on that date (the Interim Order), pending a final hearing on the matter.

The DIP Loan Agreement provides for an aggregate financing of up to $10.25 million to be provided through a $3 million Tranche A Loan and
a $7.25 million Tranche B Loan.

The Terms of the DIP Financing are as follows:



| | a) | DIP Facility/Availability: upon entry of the Interim Order, an initial advance of: (i) $9.25 million (consisting of a $3 million Tranche A Loan and $6.25
million Tranche B Loan), (ii) such additional amount as may be agreed to by Downtown Capital in writing, or (iii) such other sum as is approved by the Bankruptcy Court on an interim basis. Upon entry of a Final Order, up to $10.25 million
outstanding at any time. As of September 30, 2010, $3.0 million was outstanding under the Tranche A Loan and $6.4 million was outstanding under the Tranche B Loan. For the three and nine month periods ended September 30, 2010, interest expense
on the DIP Term Loan was $0.2 million.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | Purpose: Principally short-term working capital, utility deposits, critical vendor payments, payment of pre-petition secured indebtedness of Secured Lien Lender.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



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CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





| | c) | Financial Terms: Interest on Tranche A Loan will be payable at the end of each month in arrears at 12% per annum. Interest on the Tranche B Loan, including
PIK interest added to the principal amount of the Tranche B Loans, shall accrue at 12% payment in kind which shall accrue and be added to the principal monthly, but be paid in full upon the earlier of the Effective Date of a plan of reorganization,
upon an Event of Default or the Maturity Date. As of September 30, 2010, the balance outstanding for the Tranche B Loan was $6.4 million which included $0.1 million of PIK interest which has been added to the principal balance.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d) | Maturity: The Borrowers shall repay any outstanding advances and loans under the DIP Financing on the earliest of: (i)(a) the occurrence of an Event of Default
and (b) the Effective Date of a Plan of Reorganization; provided that subject to the Lenders written consent the Borrowers may extend such date by up to two periods of sixty days each; (ii) the date of the acceleration of any
outstanding extensions of credit under the DIP Financing; (iii) entry of an order reversing in any respect either of the DIP Financing Orders (unless waived in writing by DIP Lenders); (iv) the conversion of any of the Chapter 11 Cases to
a case under Chapter 7 of the Bankruptcy Code; (v) the appointment of a trustee or an examiner with special powers; and (vi) the dismissal of any of the Chapter 11 Cases.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e) | Fees:The Tranche A Lender has received a Structuring fee of $.02 million and a Commitment Fee of $.06 million. In addition, the Tranche A Lender shall receive
an Extension Fee of 1% for each of the two sixty day extensions of the Maturity Date, which extensions must be consented to by the DIP Lenders in writing.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | f) | Mandatory Prepayment: (i) 100% of the net sale proceeds from non-ordinary course assets sales; (ii) 100% of insurance and condemnation proceeds and tax
refunds, in each case received by the Borrowers or any of the Guarantors.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | g) | Financial Covenants:
| | -- | --------------------



| | a) | EBITDA of at Least:
| | -- | -------------------



|                                            |  |   |              | 
|------------------------------------------- |  | - | ------------ | 
|1-      Month Ended August 31, 2010         |  | $ | 0.1 million  | 
|2-      Two Months Ended September 30, 2010 |  | $ | 0.2 million  | 
|3-      Three Months Ended October 31, 2010 |  | $ | 0.3 million  | 
|4-      Four Months Ended November 30, 2010 |  | $ | 0.45 million | 



| | b) | Monthly Recurring Circuit Revenue of at least $3.65 million for the months ended August 31, 2010, September 30, 2010, October 31, 2010 and
November 30, 2010.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) | Monthly Recurring Circuit Margin Percentages of 19.5% each for August, September, October and November, 2010 and Cumulative Recurring Circuit Margin Percentage of
19.5 % for August and 20.0% for September, October and November 2010.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d) | Shall not have on a consolidated basis outstanding Accounts Payable of more than $4.1 million as at August 31, September 30, October 31 and
November 30, 2010.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

On August 2, 2010, $9.25 million was advanced by the Lenders to the Debtors under
the terms of the DIP Financing. The remaining $1.0 million of the total financing will be funded by the Tranche B Lenders contingent upon entry of a final order by the Bankruptcy Court approving the Loan and satisfaction by the Debtors of certain
affirmative and negative covenants. The funds were used to pay, on August 3, 2010, $5.2 million in full settlement of the Senior Secured Loan due to Pivotal Global Capacity, LLC (the Senior Lender); assurance deposits in the amount
of $3.2 million to the Debtors carriers and the remaining $0.8 million for critical vendors and working capital.

The
Loans bear interest at 12% per annum and require mandatory prepayments in the amount of 100% of the net sale proceeds from non-ordinary course assets sales and 100% of insurance and condemnation proceeds, and tax refunds. The Debtors paid
commitment fees of $.06 million and a $.02 million structuring fee to the Tranche A Lender. If the Tranche A Loan is extended beyond the maturity date, an extension fee of 1% of the Tranche A Loan amount is due for up to two 60 day extensions. The
Loans are secured by all the assets of the Debtors.

As of August 31, 2010 and September 30, 2010, the Company was
in default on the DIP Loan Agreement. The DIP Loan Agreement provided for certain financial covenants to be maintained. Among those covenants was the requirement to maintain EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization), as
defined in the DIP Loan Agreement, of at least $0.1



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CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)



million for the month ended August 31, 2010 and $0.2 million for the two months ended September 30, 2010. The Company did not meet this financial covenant test and accordingly, was in
default of the DIP Loan Agreement as of August 31, 2010 and continued through September 30, 2010. The DIP Loan Agreement provides, in the event of an Event of Default, for a default interest rate at a rate per annum which is 2% above the
rate in effect immediately before the Event of Default. This rate will continue in effect during the continuance of an Event of Default. The Default Rate of Interest on both Tranche A and Tranche B Loans is 14% per annum.

NOTE 8. Debt.

Debt
consists of the following:



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                       |        |  |                                |   |    |                  |  |   |        | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ |  | ------------------------------ | - | -- | ---------------- |  | - | ------ | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | September 30,2010Subject
toCompromise |        |  | September 30,2010Post-petition |   |    | December 31,2009 | 
|Term loan, interest at the higher of prime or 5%, plus a margin of 14% (5% paid-in-kind PIK), due November 2010, debt
discount at issuance of $2.2 million, outstanding principal balance of $8.5 million. On August 3, 2010 the outstanding principal balance plus accrued interest was paid in full. The remaining unamortized debt discount of $0.3 million was written
off as part of loss on extinguishment of debt. At December 31, 2009, the outstanding principal balance was $8.5 million, plus PIK of $0.8 million, net of unamortized debt discount of $1.0 million |  | $                                     |       |  |                                | $ |   |                  |  | $ | 8,314  | 
|July Debentures (1), $10.5 million, issued in July 2009 and August 2009, Original Issue Discount (OID) and Debt Discount at
issuance of $4.5 million and $5.2 million, respectively, interest at the higher of prime or 5%, plus a margin of 14% (5% PIK), and due May 2011. At September 30, 2010, the net balance outstanding was subject to compromise. At December 31,
2009, the outstanding principal balance was $10.5 million plus $0.1 million PIK, net of unamortized OID and debt discount of $3.6 million and $4.1 million, respectively                              |  |                                       | 8,733  |  |                                |   |   |                  |  |   | 2,931  | 
|Amended March Debentures (1), OID and debt discount at issuance of $12.4 million and $18.4 million, respectively, due March 2015,
outstanding principal balance of $30.8 million at issue. At September 30, 2010, the net balance outstanding was subject to compromise. At December 31, 2009, the outstanding principal balance was $26.9 million, net of unamortized OID and
debt discount of $11.0 million and $14.1 million, respectively.                                                                                                                                   |  |                                       | 4,918  |  |                                |   |   |                  |  |   | 1,764  | 
|November Debentures (1), OID and debt discount at issuance of $5.9 million and $9.0 million, respectively, due November 2015,
outstanding principal balance of $14.9 million at issue. At September 30, 2010, the net balance outstanding was subject to compromise. At December 31, 2009, the outstanding principal balance was $14.9 million, net of unamortized OID and
debt discount of $5.6 million and $8.5 million, respectively.                                                                                                                                         |  |                                       | 2,404  |  |                                |   |   |                  |  |   | 840    | 
|VPP Debentures (1), outstanding principal balance of $2.0 million issued in July 2009, OID and debt discount at issuance of $0.8
million and $1.2 million, respectively, and due November 2011. As at September 30, 2010 the net balance outstanding was subject to compromise. As of December 31, 2009, the outstanding principal balance was $2.0 million, net of unamortized
OID and debt discount of $0.6 million and $1.0 million, respectively.                                                                                                                            |  |                                       | 1,006  |  |                                |   |   |                  |  |   | 380    | 
|Seller Debenture (1), $4.0 million non-interest bearing, debt discount for imputed interest and conversion feature at issuance of
$1.5 million and $2.0 million, respectively, due May 2011 and renewable monthly thereafter. At September 30, 2010, the net balance outstanding was subject to compromise. At December 31, 2009, the outstanding principal balance was $4.0
million, net of unamortized debt discount of $2.1 million.                                                                                                                                          |  |                                       | 2,942  |  |                                |   |   |                  |  |   | 1,851  | 
|Unsecured loans from certain employees of Magenta, interest at 8.43%, due upon demand                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                       |       |  |                                |   | 22 |                  |  |   | 27     | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                       |        |  |                                |   |    |                  |  |   |        | 
|Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                       | 20,003 |  |                                |   | 22 |                  |  |   | 16,107 | 
|Less: current maturities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                       | 20,003 |  |                                |   | 22 |                  |  |   | 16,107 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                       |        |  |                                |   |    |                  |  |   |        | 
|Long-term portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | $                                     |       |  |                                | $ |   |                  |  | $ |       | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                       |        |  |                                |   |    |                  |  |   |        | 



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##### Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





All long-term
debts are presented as current obligations as a result of the Company being in default on certain reporting and administrative covenants. The long-term debt commitments including the maturity value of original issue discount securities are $60.5
million as of September 30, 2010 and $67.7 million as of December 31, 2009. This amount does not include minimum interest due on the term note per the default clause of the agreement. As part of the Companys formal reorganization,
the Company is currently negotiating alternatives to restructure its debt instruments.

The reporting and administrative
covenants established under the term note and the other debt instruments issued in November 2008 were created assuming an ongoing relationship with a significant customer. As that relationship, effectively, ended in 2009, the Company received a
number of default notices and entered into a number of amendments to the loan agreements and forbearance agreements. On May 3, 2010, Pivotal Global Capacity, LLC, an affiliate of the Pivotal Group of Companies, successfully closed on its
purchase of rights and obligations of the Senior Lender (ACF CGS, L.L.C.) with respect to the Term Loan and Security Agreement dated November 19, 2008, as amended, with no changes in terms and conditions. During the three months ended
September 30, 2010, the Company paid Pivotal fees of $0.8 million including $0.7 million for due diligence fees for a future investment of $3 million by Pivotal. The company expensed the due diligence fees as the $3 million investment was not
made. Additionally, Capstone Investments was paid a fee of $0.2 million for their advice with respect to this transaction.

The July Debentures, Amended March Debentures, November Debentures, VPP Debentures and Seller Debentures are all subject to compromise
and full recovery by the debenture holders has been impaired as a result of the Debtors filing voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code. The outstanding balances as of September 30, 2010 are
listed under Liabilities Subject to Compromise in Note 2 Reorganization under Chapter 11. Because of the uncertainty that the principal balances of the Debentures may not be paid in full, the Company has suspended the accrual
of interest on the debentures as of the date of the filing of the voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code on July 23, 2010. The amount of interest that would have been accrued had the Company
not suspended interest accruals on the Debentures amounted to $0.2 million as of September 30, 2010.

Term Loan:
The Term Loan Agreement provided for a senior secured term loan (Term Loan) of $8.5 million effective November 19, 2008. The Company, each of its subsidiaries and GCD (Borrowers) granted to ACF CGS, L.L.C. (Senior Lender or Agent) a security
interest in substantially all of their assets and a collateral pledge of all of the common stock or limited liability company interests of its wholly-owned subsidiaries.

During the period ended September 30, 2010, $3.7 million received from a customer was used to reduce the Term Loan outstanding balance.

On May 3, 2010, Pivotal Global Capacity, LLC, an affiliate of the Pivotal Group of companies engaged in the private equity business
(Pivotal), closed on its purchase of all rights and obligations of the Senior Lender (ACG CGS, L.L.C., as agent for itself and any other named lenders) with respect to the Term Loan and Security Agreement dated November 19, 2008, as
amended between ACF CGS, L.L.C. on the one hand and the Company and all of its active 100% owned subsidiaries on the other hand. As part of the Loan Agreement assignment, Pivotal, ACF CGS, L.L.C. and the Company and its subsidiaries entered into a
Resignation, Appointment and Amendment Agreement whereby Pivotal was substituted as the Agent and sole lender under the Loan Agreement with no changes in terms and conditions. The Company agreed to reimburse Pivotal for its third party
expenses incurred in connection with the transactions leading to the assignment of the loan from ACF CGS, L.L.C. Pivotal has been assigned the same rights and obligations of the previous holder and has stepped into the role as the new Senior Lender
in the same capacity as ACF CGS, L.L.C. Interest on the Term Loan is payable monthly at the higher of prime or 5% plus a margin of 14%, with 5% of that rate paid-in-kind. Paid-in-kind interest compounds monthly and is added to the outstanding
principal balance of the Term Loan. The Company incurred debt issuance costs of $1.8 million in connection with the Term Loan Agreement, which included a Term Loan origination fee of 2.5%, financial advisory services, legal fees and other costs. The
Term Loan matures November 2010.

On August 3, 2010, the Debtors paid Pivotal $5.1 million representing the outstanding
principal balance plus accrued interest from the proceeds of the DIP Financing. The Debtors paid $0.1 million in fees.



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##### Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





July
Debentures: Effective July 31, and August 24, 2009, the Company issued two tranches that totaled $10.5 million of principal amount of OID senior secured convertible debentures (July Debentures), representing the funding of $6.0 million
of subscription amount (inclusive of $0.4 million of subscriptions credited to the holders of the March and November Debentures for entering into a waiver and amendment agreement which, among other things, consented to the issuance of the July
Debentures, and inclusive of $0.1 million against liabilities of the Company to Aequitas Capital Management, Inc.) and $4.5 million of OID added to principal, coupled with warrants to purchase up to 18.8 million shares of common stock, all
exercisable or convertible at $0.24 per share (the July Warrants and coupled with the July Debentures are collectively referred to as the Units). The transaction resulted in proceeds to the Company of $5.6 million, before $0.5 million of financing
fees. The July Debentures are secured by a security interest in the assets of the Company and its subsidiaries, and Aequitas Capital Management, Inc. was appointed collateral agent for the July Debenture holders.

At issuance, the July Debentures are convertible into 43.8 million shares of common stock at $0.24 per share, based on the aggregate
maturity value, at any time at the option of the holders, but not before the Companys Authorized Share Increase. In addition, the Company issued to the purchasers of the July Debentures warrants to purchase an aggregate of 18.8 million
shares of its common stock at an exercise price of $0.24 per share. The warrants are exercisable at any time prior to their expiration date, but not before the Authorized Share Increase and expire five years after the date of such share increase.
The Company determined that the conversion feature of the July Debentures was an embedded derivative. As a result of a shortfall in the collection of certain designated receivables or contract amounts by August 31, 2009, the July Units purchase
agreement required a reduction in the conversion price of the July Debentures and the exercise price of the warrants from $.24 per share to $.15 per share with respect to all July Debentures held by persons that funded a portion of the shortfall
with respect to subsequently issued Debentures (August Debentures), and all of the July Debenture holders did fund their ratable shares of the shortfall.

The estimated fair value of the warrants and embedded derivative as of the issuance date of the July Debentures, adjusted for the probability of the timing of the Authorized Share Increase, was $2.0
million and $3.2 million, respectively, and was recorded as debt discount and an increase to liabilities for warrants to purchase common stock and embedded derivative liability, respectively. The Company determined the fair value of the warrants and
embedded derivative using the Black-Scholes pricing model with these average assumptions: common stock fair value of $0.16 per share, expected volatility of 152.4% for warrants and 154.5% for embedded derivatives, risk-free interest rate of 2.6% for
warrants and 1.0% for embedded derivatives, expected term of 5.3 years for warrants and 1.8 years for embedded derivatives and no dividends

In addition to the OID amount, the Cash Subscription Amount of the July Debentures bears interest in an amount equal to the Cash Subscription Amount Interest, comprised of the sum of:
(i) the prime rate of interest as announced in the Wall Street Journal (subject to a floor of 5%); plus (ii) 14% per annum (the Applicable Margin). Basic Interest (comprised of the prime rate component plus 9% of the total 14% of the
Applicable Margin) is payable monthly in arrears (twenty days following the end of each month), with the remaining 5% to be paid at the option of the Company in either cash or as paid-in-kind (PIK) Interest, whereby such amount can be accrued and
added to principal (in which event an additional OID factor of 75% of such amount is also added to principal of the July Debenture).



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CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





As required by
the debenture agreement, the amount due at maturity was increased by $1.4 million during the period ended March 31, 2010, representing unpaid monthly interest of $0.5 million and additional OID amounts due on the unpaid monthly interest and the
unpaid quarterly redemption payment due of $0.9 million. During the three months ended June 30, 2010, the Company had not made the required redemption payment in the month following the quarter ended March 31, 2010. During the quarter
ended September 30, 2010 no interest was paid and the company suspended the accrual of interest.

Amended March
Debentures: Pursuant to the November 20, 2008 Waiver Agreement, the holders of $16 million of original principal amount of March Debentures exchanged their March Debentures due March, 2013 for $28.0 million of Amended March Debentures,
convertible into common stock at $0.24 per share (the Tranche 1 Amended March Debentures). The principal amount of the Tranche 1 Amended March Debentures is comprised of the $16 million original principal amount of the March Debentures plus the sum
of the following: (i) the remainder of the interest that would have accrued under the March Debentures, or $6.0 million; (ii) 25% of the original principal amount of the March Debentures, or $4.0 million; (iii) liquidated damages
related to the Companys failure to timely complete the registration of its common stock, as discussed below, equal to 12% of the original principal amount, or $1.9 million; and (iv) interest on the liquidated damages at 16% per
annum, or $0.1 million (collectively, the Tranche 1 Add-on Amount).

The remaining March Debentures were held by two
affiliated holders, who held a total of $3.0 million of original principal amount. The two affiliated holders subsequently reduced their original principal amount to an aggregate outstanding balance of $2.5 million through conversions of their
principal to common stock. Pursuant to the November 20, 2008 Waiver Agreement, the Company exchanged their March Debentures for $2.9 million of Amended March Debentures (the Tranche 2 Amended March Debentures), which mirror the terms of the
Tranche 1 Amended March Debentures.

The principal amount of the Tranche 2 Amended March Debentures is comprised of the $2.5
million outstanding balance of the March Debentures plus the sum of the following: (i) liquidated damages related to the Companys failure to timely complete the registration of its common stock, as discussed below, equal to 12% of the
original principal amount, or $0.4 million and (ii) legal fees incurred by the two affiliated holders in negotiation and documentation of the revised transactions (collectively, the Tranche 2 Add-on Amount). In addition, at the Financial
Closing, the Company made a one-time payment to the two affiliated holders in the aggregate of $0.9 million, which was the sum of the interest accrued on the March Debentures up to the amendment date and the remainder of the interest that would have
accrued under their March Debentures. At June 30, 2010 and December 31, 2009, the balances owed to these holders were not material.

The Amended March Debentures are due March 2015. The warrants originally issued with the March Debentures, discussed below, remain outstanding and the March 2013 expiration date of the warrants was
unchanged. The Amended March Debentures are OID securities and do not call for the payment of interest over their term. The Company is required to make quarterly redemption payments of the Add-on Amounts beginning July 1, 2009 through the
maturity date, at which time the remaining principal balance will also be due. The November 20, 2008 Senior Lender Intercreditor Agreement contains certain conditions to the cash payment of the quarterly redemption amounts. To the extent the
Company fails to satisfy those conditions, the Amended March Debenture holders, at their election, can accept either payment of such amount with shares of common stock, provided the Company has completed the Authorized Share Increase and met certain
other conditions as defined by the March Amended Debentures, or, alternatively, accrue the unpaid portion with interest until maturity.



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##### Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





In July 2009, in
conjunction with the issuance of the July Debentures, Amended March Debenture holders were allowed the right to exercise up to the lesser of their Amended March Debenture balance or five times the subscription price of the July Debentures purchased
by them, at $0.15 per share and the quarterly redemption payments due July 1, 2009 through April, 2012 were deferred until Maturity date, March 11, 2015.

The holders of the Amended March Debentures retain the right at any time to convert up to an aggregate of $14.4 million of the face amount into common stock of the Company at $0.24 per share or up to
60.0 million shares on an as converted basis and convert up to an aggregate of $3.2 million of the face amount into common stock of the Company at $0.15 per share or up to 21.0 million shares on an as converted basis. There were no debt
conversions during the nine-month period ended September 30, 2010. During the year ended December 31, 2009, holders converted $2.9 million of the Amended March Debentures into 13.9 million shares of common stock

November Debentures: On November 20, 2008, pursuant to the November Securities Purchase Agreement (SPA), the Company
completed the private placement of $9.0 million of November Debentures with a maturity value of $14.9 million and due November 2015. The Company incurred $2.0 million of debt issuance costs in connection with the SPA. The November Debentures are OID
securities and do not call for the payment of interest over their term. In connection with the issuance of the November Debentures, the Company recorded original issue discount of $5.9 million based upon the difference between the principal amount
due at maturity of $14.9 million and the subscription amount of $9.0 million. The Company is required to make quarterly redemption payments beginning July 1, 2009 through the maturity date, at which time the remaining principal balance will
also be due. The Senior Lender Intercreditor Agreement contains certain conditions to the cash payment of the quarterly redemption amounts. To the extent the Company fails to satisfy those conditions, the November Debenture holders, at their
election, can accept either payment of such amount with shares of common stock, provided the Company has completed the Authorized Share Increase and met certain other conditions as defined by the November Debentures, or, alternatively, accrue the
unpaid portion until maturity.

The November Debentures are convertible into common stock at $0.24 per share, or
62.0 million shares based on the aggregate maturity value, at any time at the option of the holders, but not before the Companys Authorized Share Increase. In addition, the Company issued to the purchasers of the November Debentures
warrants to purchase an aggregate of 28.2 million shares of its common stock at an exercise price of $0.24 per share. The warrants are exercisable at any time prior to their expiration date, but not before the Authorized Share Increase and
expire five years after the date of authorized share increase. The Company determined that the conversion feature of the November Debentures was an embedded derivative. The estimated fair value of the warrants and embedded derivative as of the
issuance date of the November Debentures, adjusted for the probability of the timing of the Authorized Share Increase, was $4.2 million and $9.6 million, respectively, and was recorded as additional debt discount and an increase to liabilities for
warrants to purchase common stock and embedded derivative liability, respectively.

The aggregate initial fair value of the
warrants and embedded derivative of $13.8 million exceeded the $9.0 million original principal amount of the November Debentures by $4.8 million, which was recognized immediately as interest expense. The Company determined the fair value of the
warrants and embedded derivative using the Black-Scholes pricing model with the following average assumptions: common stock fair value of $0.22 per share, expected volatility of 141.6%, risk-free interest rate of 1.0%, expected term of 7.0 years and
no dividends.



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CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





VPP
Debentures: The Company established a vendor payment plan (VPP) designed to reduce past due obligations to certain of its vendors over time. In conjunction with the Second Amendment to the Loan Agreement, the Company issued $1.2 million
subscription value, equal to the amount of vendor obligations, with a 65% OID factor as Vendor Payment Plan Debentures, due November 2011. Participants in the VPP Debentures included Shefsky and Froelich, Ltd. ($0.6 million), Capstone Investments
($0.4 million), and Aequitas Capital Management, Inc., ($0.2 million) at subscription. The VPP Security Agreement is substantially a similar form of security agreement (the VPP Security Agreement) as applicable to the July Security Agreement, with
Aequitas Capital Management, Inc. to serve as the Collateral Agent.

At issuance, the VPP Debentures are convertible into
common stock at $0.24 per share, or 8.3 million shares based on the aggregate maturity value, at any time at the option of the holders, but not before the Companys Authorized Share Increase. In addition, the Company issued to the VPP
Debenture holders warrants to purchase an aggregate of 3.8 million shares of its common stock at an exercise price of $0.24 per share. The warrants are exercisable at any time prior to their expiration date, but not before the Authorized Share
Increase and expire five years after the date of such share increase.

The Company determined that the conversion feature of
the VPP Debentures was an embedded derivative. The estimated fair value of the warrants and embedded derivative as of the issuance date of the VPP Debentures, adjusted for the probability of the timing of the Authorized Share Increase, was $0.4
million and $0.7 million, respectively, and was recorded as debt discount and an increase to liabilities for warrants to purchase common stock and embedded derivative liability, respectively. The Company determined the fair value of the warrants and
embedded derivative using the Black-Scholes pricing model with these average assumptions: common stock fair value of $0.17 per share, expected volatility of 152.5% for warrants and 145.8% for embedded derivatives, risk-free interest rate of 2.6% for
warrants and 1.3% for embedded derivatives, expected term of 5.3 years for warrants and 2.3 years for embedded derivatives and no dividends.

Seller Debenture: The $4.0 million unsecured Seller Debenture, due May 2011, was issued as partial consideration in the November 2008 GCD acquisition. The Debenture is non-interest bearing so the
Company discounted the note at a 19% imputed interest rate resulting in an initial carrying value of $2.5 million. Management determined the 19% rate was applicable based on the interest rate at which the Company obtained other financing at the date
of Closing. The Seller Debenture is subject to the terms of the Senior Lender Intercreditor Agreement and the Junior Lender Intercreditor Agreement.

The Seller Debenture is convertible into shares of the Companys common stock at a conversion rate of $0.24 per share, or 12.5 million shares. The Seller Debentures are convertible at any time
at the option of the Seller, but not before the Companys Authorized Share Increase. The Company determined that the conversion feature of the Seller Debenture was an embedded derivative. The estimated fair value of the embedded derivative as
of the issuance date of the Seller Debenture, adjusted for the probability of the timing of the Authorized Share Increase, of $2.0 million was recorded as debt discount and an increase to embedded derivative liability. The Company determined the
fair value of the embedded derivative using the Black-Scholes pricing model with the following assumptions: common stock fair value of $0.22 per share, expected volatility of 141.6%, risk-free interest rate of 1.0%, expected term of 2.5 years and no
dividends.

NOTE 9. Liability for Embedded Derivatives and Warrants.

Embedded Derivatives

The conversion features of the debt are considered embedded derivatives requiring bifurcation from the debt host and are included on the balance sheet as a liability (embedded derivatives of convertible
debt) at fair value. The embedded derivative is revalued at each balance sheet date and marked to fair value with the corresponding adjustment recognized as gain or loss on warrants and derivatives in the statements of operations.

As of September 30, 2010 and December 31, 2009, the fair value of the derivatives embedded in the convertible debt
was $0.0 million and $28.2 million, respectively. The weighted average assumptions used to value the embedded derivative liability at September 30, 2010 were: exercise price of $.20, life of 3.4 years, volatility 0.0%, and risk free interest
rate of 0.9%. As a result of the Companys Chapter 11 filing and subsequent decline in stock price to $0.01 per share as of September 30, 2010, no future volatility was assumed as there is currently no expectation that the Companys stock
price will increase from the $0.01 per share price. At December 31, 2009, the weighted average assumptions used were: exercise price of $0.20, life of 4.1 years, volatility 155.3%, and risk free interest rate of 2.2%.

Warrants

The Companys outstanding warrants also meet the definition of a liability based on the assessment above. The warrants are classified as a liability in the balance sheet (see liabilities for
warrants to purchase common stock) at fair value. The warrant liability is revalued at each balance sheet date and marked to fair value with the corresponding adjustment recognized as gain or loss on



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##### Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)



warrants and derivatives in the statements of operations. As of September 30, 2010 and December 31, 2009, the fair value of the warrants was $0.0 million and $18.0 million,
respectively. The weighted average assumptions used to value the warrant liability at September 30, 2010 were: exercise price of $0.23, life of 3.6 years, volatility 0.0%, and risk free interest rate of 0.83%. As a result of the Companys
Chapter 11 filing and subsequent decline in stock price to $0.01 per share as of September 30, 2010, no future volatility was assumed as there is no expectation that the Companys stock price will increase from the $0.01 per share price. At
December 31, 2009, the weighted average assumptions used were: exercise price of $0.23, life of 4.4 years, volatility 149.8%, and risk free interest rate of 2.3%.

At September 30, 2010 and December 31, 2009, respectively, the Company had 181.3 million warrants outstanding to purchase its common stock. These warrants were issued in connection with
debt and equity offerings and in lieu of cash payments for services provided and became exercisable when issued. The warrants expire two to five years from date of issuance.

The table below summarizes the warrant expiration dates as of September 30, 2010:



|                           |  |                                 |         |  |                          |             |                                |  |       | 
|-------------------------- |  | ------------------------------- | ------- |  | ------------------------ | ----------- | ------------------------------ |  | ----- | 
|Expiration Date            |  | Numberof Warrants(in thousands) |         |  | Range of Exercise Prices |             | Weighted AverageExercise
Price | 
|2010                       |  |                                 | 675     |  |                          | $0.27-$0.35 |                                |  | 0.306 | 
|2011                       |  |                                 | 7,846   |  |                          | $0.25-$0.70 |                                |  | 0.416 | 
|2012                       |  |                                 | 13,000  |  |                          | $0.15-$0.25 |                                |  | 0.198 | 
|2013                       |  |                                 | 60,452  |  |                          | $0.24       |                                |  | 0.240 | 
|2014                       |  |                                 |        |  |                          | -           |                                |  |      | 
|2015                       |  |                                 | 99,335  |  |                          | $0.15-$0.24 |                                |  | 0.209 | 
|                           |  |                                 |         |  |                          |             |                                |  |       | 
|                           |  |                                 |        
|Total warrants outstanding |  |                                 | 181,308 |  |                          |             |                                |  | 0.228 | 
|                           |  |                                 |         |  |                          |             |                                |  |       | 

All outstanding warrants expire no later than June 30, 2015.

Warrant activity from December 31, 2009 through September 30, 2010 is as follows:



|                                  |  |                                 |         |  |                                |   |       |                                                    |  |  |                                |  |  |   |   | 
|--------------------------------- |  | ------------------------------- | ------- |  | ------------------------------ | - | ----- | -------------------------------------------------- |  |  | ------------------------------ |  |  | - | - | 
|                                  |  | Numberof Warrants(in thousands) |         |  | Weighted AverageExercise
Price |   |       | Weighted AverageRemaining 
ContractualLife (Years) |  |  | AggregateIntrinsicValue ($000) | 
|Outstanding at December 31, 2009  |  |                                 | 181,308 |  |                                | $ | 0.228 |                                                    |  |  |                                |  |  |   |   | 
|                                  |  |                                 |         |  |                                |   |       |                                                    |  |  |                                |  |  |   |   | 
|                                  |  |                                 |         | 
|Outstanding at September 30, 2010 |  |                                 | 181,308 |  |                                |   | 0.228 |                                                    |  |  | 3.6                            |  |  | $ |  | 
|                                  |  |                                 |         |  |                                |   |       |                                                    |  |  |                                |  |  |   |   | 

There was no warrant activity during the nine-month period ended September 30, 2010.

NOTE 10. Share-Based Compensation.

Long-Term Incentive Plans

The Company has adopted various long-term
incentive plans. Shares under all plans generally vest 25% upon issuance and 25% on the grant anniversary date until fully vested for service grants. Performance options granted under the plans vest as objectives outlined are achieved. Vesting
requirements include new revenue goals, creating value within the organization, and/or achieving performance targets. When performance objectives are not attained that portion of the award is cancelled.

Executive Stock Option Agreements

From time to time, the Company provides for the issuance of share-based compensation in conjunction with employment agreements or special arrangements with certain of its executives and directors. As of
September 30, 2010, the Company has authorized up to 65.2 million shares to be issued under these arrangements.



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##### Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





Activity under the
stock option plans and board approved stock grants with time based vesting for the nine-months ended September 30, 2010 is as follows:



|                                  |  |                       |        |   |                              |   |       |                                                 |  |  |                         |  |  |   |   | 
|--------------------------------- |  | --------------------- | ------ | - | ---------------------------- | - | ----- | ----------------------------------------------- |  |  | ----------------------- |  |  | - | - | 
|                                  |  | Shares(in 
thousands) |        |   | WeightedAverageExercisePrice |   |       | WeightedAverageRemainingContractualLife (Years) |  |  | AggregateIntrinsicValue | 
|Outstanding at December 31, 2009  |  |                       | 23,366 |   |                              | $ | 0.565 |                                                 |  |  |                         |  |  |   |   | 
|Granted                           |  |                       | 400    |   |                              |   | 0.240 |                                                 |  |  |                         |  |  |   |   | 
|Exercised                         |  |                       |       |   |                              |   |      |                                                 |  |  |                         |  |  |   |   | 
|Forfeited/cancelled               |  |                       | (283   | ) |                              |   | 0.660 |                                                 |  |  |                         |  |  |   |   | 
|                                  |  |                       |        |   |                              |   |       |                                                 |  |  |                         |  |  |   |   | 
|                                  |  |                       |        |  
|Outstanding at September 30, 2010 |  |                       | 23,483 |   |                              | $ | 0.558 |                                                 |  |  | 5.9                     |  |  | $ |  | 
|                                  |  |                       |        |   |                              |   |       |                                                 |  |  |                         |  |  |   |   | 
|                                  |  |                       |        |  
|Exercisable at September 30, 2010 |  |                       | 21,448 |   |                              | $ | 0.567 |                                                 |  |  | 5.9                     |  |  | $ |  | 
|                                  |  |                       |        |   |                              |   |       |                                                 |  |  |                         |  |  |   |   | 

Time based awards generally vest 25% upon issuance and 25% on the successive three anniversary dates of the
award. The Company estimates the fair value of stock option grants using the Black-Scholes pricing model with the assumptions detailed below. The weighted average grant-date fair value of options with time based vesting granted during the nine-month
periods ended September 30, 2010 and 2009 was $0.10 and $0.124, respectively. For the nine-month periods ended September 30, 2010 and 2009, respectively, the Company recognized compensation expense for stock option awards totaling $0.6
million and $ 1.5 million, respectively. In the three-month period ended September 30, 2010 and 2009, compensation expense was $0.1 million and $0.6 million, respectively. At September 30, 2010, unamortized compensation associated
with time-based options totaled $0.6 million with a remaining weighted average amortization period of 0.6 years.

Activity
under the stock option plans and board approved stock grants with performance-based vesting for the nine-months ended September 30, 2010 is as follows:



|                                  |  |                       |        |  |                              |   |       |                                                 |  |  |                         |  |  |   |   | 
|--------------------------------- |  | --------------------- | ------ |  | ---------------------------- | - | ----- | ----------------------------------------------- |  |  | ----------------------- |  |  | - | - | 
|                                  |  | Shares(in 
thousands) |        |  | WeightedAverageExercisePrice |   |       | WeightedAverageRemainingContractualLife (Years) |  |  | AggregateIntrinsicValue | 
|Outstanding at December 31, 2009  |  |                       | 14,367 |  |                              | $ | 0.488 |                                                 |  |  |                         |  |  |   |   | 
|Granted                           |  |                       |       |  |                              |   |      |                                                 |  |  |                         |  |  |   |   | 
|Exercised                         |  |                       |       |  |                              |   |      |                                                 |  |  |                         |  |  |   |   | 
|Forfeited/cancelled               |  |                       |       |  |                              |   |      |                                                 |  |  |                         |  |  |   |   | 
|                                  |  |                       |        |  |                              |   |       |                                                 |  |  |                         |  |  |   |   | 
|                                  |  |                       |        | 
|Outstanding at September 30, 2010 |  |                       | 14,367 |  |                              |   | 0.488 |                                                 |  |  | 4.0                     |  |  | $ |  | 
|                                  |  |                       |        |  |                              |   |       |                                                 |  |  |                         |  |  |   |   | 
|                                  |  |                       |        | 
|Exercisable at September 30, 2010 |  |                       | 1,333  |  |                              | $ | 0.57  |                                                 |  |  | 5.0                     |  |  | $ |  | 
|                                  |  |                       |        |  |                              |   |       |                                                 |  |  |                         |  |  |   |   | 

Performance based awards generally vest 33% to 50% upon attaining targeted revenue growth, gross profit
margins and continued employment with the Company. The Company estimates the fair value of stock option grants using the Black-Scholes pricing model. There were no performance options issued during the nine-month period ended September 30,
2010. For the nine-month periods ended September 30, 2010 and 2009, respectively, the Company recognized compensation expense for performance-based stock option awards totaling $0.2 million and $0.1 million, respectively. For the three-month
period ended September 30, 2010, the Company did not recognize any compensation expense for performance- based stock option awards and no shares were cancelled. During the three-months ended September 30, 2009, compensation expense was
reduced by $0.1 million as performance criteria was not attained and 0.9 million shares were cancelled. At September 30, 2010, unamortized compensation associated with performance-based options totaled $4.9 million with a remaining
weighted average amortization period of 1.2 years.



29



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##### Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





The assumptions
used to calculate the fair value of stock option grants issued are as follows:



|                                         |  |                                            |       |  
|---------------------------------------- |  | ------------------------------------------ | ----- | -
|                                         |  | Nine-month period 
endedSeptember 30, 2010 |      
|Expected volatility                      |  |                                            | 148.6 | %
|Weighted-average expected volatility     |  |                                            | 148.6 | %
|Expected term (in years)                 |  |                                            | 6.1   |  
|Weighted-average risk-free interest rate |  |                                            | 2.77  | %
|Expected dividends                       |  |                                            |      |  

Expected volatility
is based on the Companys trading history over a three-year period. Weighted average volatility uses the volatility on the grant date and the number of options granted throughout the year. The expected term is the time Management estimates
options will be outstanding. The weighted average risk free interest rate is taken from the US Treasury rate of similar lived instruments on the date of the option grant.

The Company does not anticipate issuing dividends for the foreseeable future. A forfeiture rate of 5.0% is currently being used.

No options were exercised during the nine-month period ended September 30, 2010. No tax benefit has been recorded related to stock-based compensation expense.

NOTE 11. Shareholders Equity (Deficit).

The Companys authorized common stock entitles holders to one vote for each share held of record. As of September 30, 2010, the Company has authorized 350 million shares of the $.0001 par
value common stock. During the three and nine-month periods ended September 30, 2010, the Company did not issue any shares of common stock.

During 2009, the Company issued 14.0 million shares of common stock upon the conversion of $2.9 million of outstanding debt.

From time to time, in lieu of, or in addition to cash, the Company issues shares of its common stock as a contract incentive or as payment for non-employee services. The amount recorded for such shares
issued is based on the closing price of the Companys common stock on the effective date of the stock issuance or the agreement and is included with professional services on the Companys consolidated statements of operations.

The Company has previously entered into non-employee service agreements and as a contract incentive agreed to issue common stock of
2.3 million and 2.0 million shares, respectively. The shares were earned as of the effective date of the agreements and, except for a breach of contract, are non-forfeitable. Under the 2009 and 2008 contract incentive, although earned,
shares are not issuable until the Authorized Share Increase expected in 2010. No additional non-employee service agreements requiring share issuance were entered into during the three and nine-month periods ended September 30, 2010.

NOTE 12. Income Taxes.

The Company did not identify any uncertain tax positions as of September 30, 2010 and December 31, 2009. The Company recognizes
potential accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and
reflected as a reduction of the overall income tax provision. The Company recorded no interest and penalties during the nine-month period ended September 30, 2010 and the year ended December 31, 2009 nor had any accrued interest or
penalties as of these dates. The Company is no longer subject to U.S. Federal tax examinations by tax authorities for tax years before 2006. The Company is open to state tax audits until the applicable statutes of limitations expire.

The current tax expense for the three and nine months ended September 30, 2010 relates to state income taxes imposed primarily to
GCD as a result of its profitability from a separate company tax perspective. The deferred tax expense relates to book and income tax basis difference in goodwill created in the GCD acquisition. For the three months ended September 30, 2010, the
Company recognized an income tax benefit of $0.009 million and recognized income tax expense of $0.05 million for the nine months ended September 30, 2010. There was a $0.1 million tax provision recorded for the three and nine months ended
September 30, 2009. The tax provision includes state income taxes but is primarily related to deferred tax expense arising from the book and income tax basis difference in goodwill from the GCD acquisition which occurred in November 2008.

Deferred tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company has Federal net operating loss (NOL) carry forwards of $68.5 million in the United States (U.S.) and foreign (U.K.) NOL carry forwards
of $10.0 million at



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##### Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)



September 30, 2010 and December 31, 2009. The Federal NOL and credit carry forwards have been reduced to reflect approximate annual limitations under Internal Revenue Code Sections 382
and 383 as a result of the various subsidiary stock acquisitions in prior years. It is likely subsequent equity changes have since occurred to further limit the utilization of these NOLs and credit carry forwards.

Realization of the NOL carry forwards, tax credits, and other deferred tax temporary differences is contingent on future taxable
earnings. The deferred tax asset was reviewed for expected utilization using a more likely than not approach by assessing the available positive and negative evidence surrounding its recoverability.

The Company has recorded a full valuation allowance against the net deferred tax assets (whether acquired or otherwise generated) due to
the uncertainty of future taxable income, which is necessary to realize the benefits of the deferred tax assets.

NOTE 13. Income (Loss)
per Share.

Basic net income (loss) per share is computed by dividing the net income (loss) applicable to common
shareholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net income (loss) per share reflects potential dilution of all applicable common stock equivalents. Such common stock equivalents would include
shares issuable pursuant to common stock options and warrants using the treasury stock method and shares issuable pursuant to convertible debt and preferred stock using the if-converted method to the extent such inclusion would be dilutive. Because
the Companys warrants are accounted for as liabilities, the treasury stock method is supplemented by adjusting net income (loss) applicable to common shareholders to an amount that excludes any gains or losses related to the warrants otherwise
reflected in net income (loss). Similarly, the if-converted method for convertible securities includes a similar adjustment to net income (loss) applicable to common shareholders. Because the Company has several potentially dilutive securities
outstanding, its earning (loss) per share computations include appropriate consideration of the sequencing of potentially dilutive assumptions.



|                                                                        |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|----------------------------------------------------------------------- |  | -------------------------------------- | ----------- | - | ------------------------------------- | - | ----------- | ---- |  | - | ----------- | - |  | - | ----------- | -
|                                                                        |  | Three-month periods endedSeptember 30, |             |   | Nine-month periods endedSeptember 30, |  
|                                                                        |  | 2010                                   |             |   | 2009                                  |   |             | 2010 |  |   | 2009        |  
|Diluted EPS Computation                                                 |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|                                                                        |  |                                        |             |  
|Net Income (Loss)                                                       |  | $                                      | 17,260      |   |                                       | $ | 2,053       |      |  | $ | 21,006      |   |  | $ | (33,192     | )
|                                                                        |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|Add back:                                                               |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|Unamortized debt discount and deferred financing costs                  |  |                                        | 25,751      |   |                                       |   |            |      |  |   | 30,398      |   |  |   |            |  
|Interest on convertible debentures                                      |  |                                        | 3,836       |   |                                       |   | 336         |      |  |   | 11,440      |   |  |   |            |  
|Gain on embedded derivatives  convertible debt instruments             |  |                                        | (15,381     | ) |                                       |   | (2,133      | )    |  |   | (28,214     | ) |  |   |            |  
|                                                                        |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|Total add-backs                                                         |  |                                        | 14,206      |   |                                       |   | (1,797      | )    |  |   | 13,624      |   |  |   |            |  
|                                                                        |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|                                                                        |  |                                        |             |  
|Net income (loss), adjusted                                             |  | $                                      | 31,466      |   |                                       | $ | 256         |      |  | $ | 34,630      |   |  | $ | (33,192     | )
|                                                                        |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|                                                                        |  |                                        |             |  
|Net income (loss) applicable to common shareholders  Diluted           |  | $                                      | 31,466      |   |                                       | $ | 256         |      |  | $ | 34,630      |   |  | $ | (33,192     | )
|                                                                        |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|Weighted average common shares outstanding  Basic                      |  |                                        | 168,233,180 |   |                                       |   | 165,492,875 |      |  |   | 168,233,180 |   |  |   | 162,807,688 |  
|Dilutive effect of common stock equivalents  convertible debentures    |  |                                        | 289,806,961 |   |                                       |   | 26,346,054  |      |  |   | 289,806,961 |   |  |   |            |  
|                                                                        |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|Weighted average common shares outstanding and common stock equivalents |  |                                        | 458,040,141 |   |                                       |   | 191,838,929 |      |  |   | 458,040,141 |   |  |   | 162,807,688 |  
|                                                                        |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|Earnings per share:                                                     |  |                                        |             |   |                                       |   |             |      |  |   |             |   |  |   |             |  
|Basic                                                                   |  | $                                      | 0.10        |   |                                       | $ | 0.01        |      |  | $ | 0.12        |   |  | $ | (0.20       | )
|Diluted                                                                 |  | $                                      | 0.07        |   |                                       | $ | 0.01        |      |  | $ | 0.08        |   |  | $ | (0.20       | )

The diluted earnings per
share calculation includes the add-back of interest expense, unamortized debt discount and deferred financing costs and derivative/warrant gain, or (loss) on convertible debentures.

Potentially dilutive shares, which were excluded in computing diluted loss per share, as their inclusion would have had an anti-dilutive
effect on the net income (loss) per share, are as follows:



|                       |  |                                         |             |  |                                        |  |             |      |  |  |             |  |  |  |             | 
|---------------------- |  | --------------------------------------- | ----------- |  | -------------------------------------- |  | ----------- | ---- |  |  | ----------- |  |  |  | ----------- | 
|                       |  | Three-month periods 
endedSeptember 30, |             |  | Nine-month periods 
endedSeptember 30, | 
|                       |  | 2010                                    |             |  | 2009                                   |  |             | 2010 |  |  | 2009        | 
|Stock options          |  |                                         | 37,991,199  |  |                                        |  | 62,623,702  |      |  |  | 37,991,199  |  |  |  | 62,623,702  | 
|Warrants               |  |                                         | 181,308,076 |  |                                        |  | 190,285,389 |      |  |  | 181,308,076 |  |  |  | 190,285,389 | 
|Convertible debentures |  |                                         |            |  |                                        |  | 189,603,585 |      |  |  |            |  |  |  | 242,103,585 | 
|                       |  |                                         |             |  |                                        |  |             |      |  |  |             |  |  |  |             | 
|                       |  |                                         |             | 
|                       |  |                                         | 219,299,275 |  |                                        |  | 442,512,676 |      |  |  | 219,299,275 |  |  |  | 495,012,676 | 
|                       |  |                                         |             |  |                                        |  |             |      |  |  |             |  |  |  |             | 

NOTE 14. Commitments and Contingencies.

Operating and Capital Leases: The Company has entered into or assumed certain non-cancelable operating and capital lease agreements related to office and warehouse space, equipment, and vehicles.
Total rent expense under operating leases, net of sublease income, was $0.2 million and $0.4 million for the three months ended September 30, 2010 and 2009, respectively and $0.7 million and $0.8 million for the nine-month periods ended
September 30, 2010 and 2009, respectively.

Future contractual obligations are as follows for the years ending
December 31:



|                           |  |                 |       | 
|-------------------------- |  | --------------- | ----- | 
|                           |  | OperatingLeases |      
|Remaining 3 months of 2010 |  | $               | 251   | 
|2011                       |  |                 | 999   | 
|2012                       |  |                 | 507   | 
|2013                       |  |                 | 179   | 
|Thereafter                 |  |                 |      | 
|                           |  |                 |       | 
|                           | 
|Total                      |  | $               | 1,936 | 
|                           |  |                 |       | 



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##### Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





Subsequent to the
filing of voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, the Bankruptcy Court granted the Debtors Motions for the rejection of two office leases which on a combined basis amounted to $0.07 million of
future rent. Accordingly, these future rent payments are not included in the future contractual obligations schedule stated above.

On February 1, 2010, the Company entered into a Separation and Transition Services Agreement with the former Chief Financial Officer (CFO) and committed to issue a warrant to purchase
5.0 million shares of the Companys common stock at $0.24 per share. Under the Separation and Transition Services Agreement, the Company is prohibited from issuing the warrant until receiving the consent of the Subordinated Debenture
holders or after all Subordinated Debentures have been satisfied by conversion to common stock or full payment has been made. Because the Company cannot determine if, and when, consent of the Subordinated Debenture holders will be obtained or the
Subordinated Debenture balances will be satisfied, uncertainty exists concerning the warrant issuance date and term. As a result, no value has been assigned to this transaction in the financial statements.

Simultaneous with the execution of the Separation and Transition Services Agreement entered into by the Company with the former CFO, the
Company entered into a Consulting Agreement (Agreement) with him. The Agreement provides for a total of $0.4 million to be paid to the former CFO in twenty-four equal semi-monthly installments. The Agreement commences on
February 15, 2010 and will terminate on January 31, 2011 unless both parties agree to extend the Agreement beyond the termination date. As of September 30, 2010 the Company has paid $0.3 million to the former CFO in accordance with
the terms of the Separation and Services Agreement. Further, the Company as of September 30, 2010 has paid $0.1 million to the former CFO under the Consulting Agreement. As of September 30, 2010, the balance due under the Separation and
Service Agreement was $0.2 million.

The Company is also involved in various legal actions arising in the ordinary course of
business and matters related to the Companys bankruptcy filing which are under review of the bankruptcy court. In the opinion of management, the ultimate disposition of those matters will not have a material adverse effect on our consolidated
financial position or the results of operations.

NOTE 15. Related Parties.

Certain of the Companys significant shareholders, directors and executive officers perform financing and other services for the
Company and have made loans to the Company or otherwise participated in financing transactions.

Aequitas Capital Management,
Inc., together with its affiliates owned 13.4 million shares or approximately 8% of the Companys outstanding common stock and held warrants to purchase 25.0 million shares of the Companys common stock as of September 30,
2010. At September 30, 2010, the Company was indebted to Aequitas for debentures issued for a subscription amount of $5.7 million which at maturity have a face amount of $9.8 million. The Company also owed Aequitas $0.3 million of accounts
payable at September 30, 2010.

During the nine-month period ended September 30, 2010, Aequitas was issued
additional July Debentures with a face amount of $0.7 million as a result of the Company not making scheduled interest and OID payments on the July Debentures and Aequitas funding of the cash subscription amount for such additional July
Debentures. Also during the nine months ended September 30, 2010 and September 30, 2009, in connection with advisory services provided, the Company incurred fees of $0.09 million and $0.03 million, and made cash payments of $0.06 million
and $0.02 million, respectively.

In 2009, the Company designated Aequitas as Collateral Agent to administer the July
Securities Purchase Agreement. Aequitas was entitled to a Collateral Agent Fee of $0.3 million. As of September 30, 2010, $0.2 million of the Collateral Agent Fee remains unpaid. The Company also incurred $0.05 million to Aequitas for expenses
incurred in connection with the July Securities Purchase Agreement.

Also during 2009, the Company issued a VPP Debenture to
Aequitas, as part of the July Securities Purchase Agreement, with a cash subscription amount of $0.2 million in exchange for an equal amount of trade accounts payable owed to Aequitas. The terms of the VPP Debenture include quarterly OID payments
beginning October 1, 2009, with the balance due November 30, 2011. The Company did not make the OID payments due October 1, 2009 and January 1, 2010, as it was not permitted at that time under the provisions of the Senior Lender
intercreditor agreement.

During the nine months ended September 30, 2010, a significant shareholder was issued
additional July Debentures with a face amount of $0.1 million as a result of the Company not making scheduled interest and OID payments on the July Debentures.

NOTE 16. Business Concentration.

During the nine-month period ended
September 30, 2010 and 2009, a major customer represented $12.1 million (29 %) of total revenues and $7.0 million (14 %) of total revenues, respectively.

At September 30, 2010 and December 31, 2009, a major customer represented $1.2 million (29%) and $1.0 million (11%) of accounts receivable, respectively. A different major customer
represented $0.7 million (17%) and $1.1 million (11%) of accounts receivable at September 30, 2010 and December 31, 2009. At December 30, 2009, a third customer represented $3.7 million (38%) of accounts receivable.



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##### Table of Contents

CAPITAL GROWTH SYSTEMS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Interim Condensed Consolidated Financial Statements(Continued)

September 30, 2010 (Unaudited)





NOTE 17. Geographic and Other
Information.

Revenues generated outside the United States for the three- month periods ended September 30, 2010 and
2009 totaled $0.4 million and $0.3 million, respectively, and for nine-month periods ended September 30, 2010 and 2009 totaled $1.1 million and $0.8 million, respectively. Substantially all of the Companys international revenue was
generated in the European Union, Canada and Central America. As of September 30, 2010 and December 31, 2009, the Companys international identifiable assets outside the United States totaled approximately $0.1 million and $0.4
million, respectively. All of the Companys international identifiable assets were located in the United Kingdom.

The Companys management team views the operations of
20/20, Magenta, CentrePath, GCG, CGSI, and GCD as a
single operating segment, for which it prepares discrete financial statement information and is the basis for making decisions on how to allocate resources and assess performance. All of the Companys products and services are part of an
integrated suite of offerings within telecom logistics solutions. Customer offerings are grouped into two categories: Optimization Solutions and Connectivity Solutions. Customers may buy one or both of these product offerings.

NOTE 18. Subsequent Events.

On October 5, 2010, the Company filed notice with the Bankruptcy Court revising the bid procedures that govern the October 14, 2010 auction that was held to sell the assets of the Company. The
revised bid procedures provide for an open auction with no stalking horse bid. The exclusivity period for making a stalking horse bid lapsed.

The Debtors entered into debtor-in-possession financing with a Tranche A Lender that funded $3.0 million of secured financing and a consortium of Tranche B Lenders (comprised of prior secured lenders to
the Debtors) who advanced $6.25 million in the aggregate to the Debtors. An affiliate of the Tranche B Lenders, Global Acquisition Newco Corp. (GAC), was formed for the purpose of making a stalking horse bid to purchase the assets of the
Debtors. With the lapsing of the exclusive period for making the stalking horse bid, GAC requested that the Debtors extend the dates for the critical steps toward the sale of the Debtors assets. In response to this request, the Debtors agreed
to modify the Bidding Procedures to extend the dates for the following events associated with the upcoming auction of the Debtors assets.



|                 |  |                                                                               
|---------------- |  | ------------------------------------------------------------------------------
|Date             |  | Event                                                                         
|                 | 
|October 18, 2010 |  | Outside date for submission of bids to become qualified bidders               
|                 | 
|October 21, 2010 |  | Auction for assets at offices of Shefsky & Froelich Ltd. In Chicago, Il.      
|                 | 
|October 28, 2010 |  | Hearing for approval of auction bidders at Bankruptcy Court in Wilmington, De.
|                 | 
|November 2, 2010 |  | Confirmation hearing at Bankruptcy Court in Wilmington, De.                   

On October 21, 2010, the Debtors commenced the auction for the sale of the Debtors assets. The bidding process was commenced but not concluded. The auction was reconvened in New York City at
the offices of Olshan Grundman Frome Rosenzweig & Wolosky LLP on Monday, October 25, 2010 and concluded on that date.

On November 2, 2010, the Bankruptcy Court deferred the selection of a winning bid until November 19, 2010.



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|------- | --------------------------------------------------------------------------------------

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the
accompanying consolidated financial statements and related notes thereto.

Overview

Capital Growth Systems, Inc., doing business as Global Capacity (CGSI, we, our, us, or the
Company), is a publicly traded corporation that delivers telecom information and logistics solutions to a global client set consisting of systems integrators, telecommunications companies, and enterprise customers. These solutions enable
clients to address the inefficiencies inherent in access networks globally. The global market for access networks, estimated at over $200 billion annually, is highly inefficient, plagued by market fragmentation, regionalized rules and regulations,
and lack of transparency related to pricing and supply. This creates an environment where clients pay unnecessarily inflated prices due to inefficient procurement practices and margin stacking. The market is characterized by a large number of
suppliers that offer piece parts of a customers end-to-end network requirement that must be effectively combined with assets from other providers to deliver a complete network solution. This dynamic creates challenges for customers seeking to
procure network connectivity globally. Lack of transparency relative to the supply and pricing of network assets creates inefficient procurement practices, and lack of expertise to effectively provision and manage these integrated services creates
complex and costly operating environments.

Going to market as Global Capacity, the Company has integrated the core systems,
processes, and personnel of its five operating subsidiaries and organized them into two lines of business: Optimization Solutions and Connectivity Solutions. These businesses leverage the core intellectual property, systems, processes and expertise
of the Company to deliver a set of offerings comprising tariff quotation management software, custom pricing software, network optimization consulting, engineering services, remote management services, One Marketplace network services,
network novation services, and off-net extension services. Utilizing its depth of global telecom supply and pricing data in an automated fashion with powerful tools and expert analysis, the Company helps bring transparency to the fragmented and
inefficient global telecom market  resulting in dramatically reduced cost and improved efficiency for the Companys clients, while producing revenue and margin for the Company.

To service its clients, CGSI has operating offices in several U.S. locations (Chicago, IL, Waltham, MA, New York, NY, Glastonbury, CT,
and Houston, TX). It also has a presence in the European Union (Manchester, UK, and Lisbon, Portugal).

The Company is (and
has been since its 2006 reorganization) investing its time, team resources, and capital in the development of its intellectual property and the scaling of its systems in order to meet the growing demand among its clients for its services. At the
same time, expenses are managed closely and lower-cost outsource opportunities are given case-by-case consideration.

On
July 23, 2010, the Company and its United States (U.S.) subsidiaries (the Debtors) filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code (the Bankruptcy Code) in
the United States Bankruptcy Court for the District of Delaware (the Bankruptcy Court). The Debtors will continue to operate their business as debtors-in-possession under the supervision of the Bankruptcy Court and in
accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Companys subsidiary in the United Kingdom was not included in the filing and will continue their business without supervision from the
Bankruptcy Court and will not be subject to the requirements of the Bankruptcy Code. See Note 2, Reorganization under Chapter 11.

Optimization Solutions provides clients license access to Global Capacitys automated quotation management platform, CLM, enabling them to automatically generate accurate quotes
for access circuits based on tariffs appropriate for the particular service. CLM acts as an electronic trading platform, allowing customers to match their demand against a global catalog of pricing and supply data, creating a level of market
transparency not available elsewhere. CLM may also be customized using a customers specific infrastructure and contract data, creating an automated mechanism to generate customer pricing, reducing back office cost and accelerating
sales. Optimization Solutions clients may also leverage the CLM platform, along with proprietary network optimization tools, to deliver network optimization consulting services, in which the Company assesses existing inventories
of access networks, identifying opportunities to reduce cost through both financial and physical network grooming. Realized savings are typically between 10-40% of current spend. Optimization Solutions clients also leverage Global
Capacitys engineering and remote network management services on a professional services basis, selectively deploying these services against specific opportunities to implement and manage private network solutions that increase
efficiency and reduce cost.

Connectivity Solutions clients utilize Global Capacitys logistics expertise to
implement access network solutions that improve efficiency and reduce cost. One Marketplace, the Companys physical network trading platform, aggregates network capacity from multiple suppliers at strategically deployed
pooling points, using Global Capacity switching equipment to efficiently deploy capacity against market demand. One Marketplace reduces network costs for clients, while delivering gross margin more similar to facilities-based providers
than to resellers. Global Capacitys Network Novation practice offers outsourced access network operations, including pricing, procurement, and provisioning and network management. These solutions deliver lower access network costs by
aggregating customer demand, while also reducing client SG&A associated with managing access network operations. Off-net extension services enable Global Capacity to identify, price, procure, provision and support competitive off-net
access services for large clients, providing access to a broad universe of providers with transparency and efficiency.



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Services

Management believes organizing the Company and its offerings between Optimization Solutions and Connectivity Solutions
provide the greatest opportunity to deliver targeted solutions that maximize value to the customer while simultaneously maximizing revenue and margin opportunities for the Company. Customers may buy Optimization Solutions only, Connectivity
Solutions only, or they may buy both. Management believes there are significant opportunities to leverage offerings from one line of business to drive demand for the solutions of the other line of business. Furthermore, the mix of offerings and
their different characteristics (non-recurring and monthly recurring revenue streams) provide diversity of revenue and protect the Company from being overly dependent or exposed by a single offering or line of business.

Optimization Solutions

The Optimization Business provides five offerings:

Automated quotation
management software (an annual software license) enables customers to use Global Capacitys CLM system to match customer demand against a global catalog of telecom supply and pricing data to generate an accurate, tariff-based quote for
the selected services and locations. This automated process replaces the largely manual process most companies continue to rely on and dramatically reduces the amount of time it takes to generate an accurate quote, while increasing the accuracy of
the quote. This serves as a baseline for the customer to obtain a competitive market price, which CLM supports through workflow management functionality. This results in a competitive sales advantage for our customers, while also reducing their
operating costs.

Customized access network pricing software (an annual software license) uses the CLM automated
quotation management system as a baseline capability, but customizes the system to include customer specific information such as customer points of presence, negotiated / contracted rates, interconnect points, and business rules. This customization
enables the customer to quickly and accurately generate an automated price, using the customers contracts, infrastructure, and business rules, dramatically improving the speed and responsiveness to customer pricing requests. This capability
reduces the cost of generating a customer price quote, automating the generation of customized pricing at a fraction of the cost of generating the same price manually.

Network optimization consulting uses the CLM pricing functionality, coupled with powerful optimization algorithms, in a well-defined methodology to work with clients to collect, cleanse,
implement, and analyze network data  including inventory, cost, and design data  in order to produce a network optimization report that identifies opportunities to improve the efficiency and reduce the cost of complex global networks.
Recommendations include: financial grooming, where costs are reduced through identification of overcharges; contractual strategies, including moving services to new tariff structures and novating existing network contracts to more favorable
vehicles; and physical grooming, where networks are moved to more favorable suppliers, re-homed to different points of presence, or aggregated to achieve better cost points. The Company then employs its logistics capabilities to help customers
implement and realize the identified savings. The optimization process typically identifies savings of 2-5% for financial grooming and 15-40% for physical grooming. These savings can total many millions of dollars in large, complex network
environments. The Company contracts for Optimization Consulting engagements on a base service fee plus contingent fee basis, where the Company is paid a non-recurring fee based upon a percentage of the savings achieved from the engagement.

Engineering services help customers implement optimized network infrastructure through a suite of services that
include the design, engineering, build out, testing and turn-up of complex networks. These services leverage well-developed processes, repeatable methodologies, and deep expertise of the Company to deliver targeted engagements. The Company has built
or augmented hundreds of customer networks. These engagements are delivered as non-recurring revenue on a statement of work (SOW) basis.

Remote management services employ the Companys highly-integrated Operations Support Systems (OSS) and state of the art Network Operations Center (NOC) to deliver network monitoring and
management of customer networks. This service can be delivered as a stand-alone service for networks not provided by us or it can be bundled as part of a complete network solution delivered via the Connectivity Solutions business unit. Remote
Management Services are proactive, 7X24 monitoring and management services that leverage automated fault and performance management systems, integrated trouble ticketing and reporting systems, and world-class network engineering and operations
expertise to provide a premium level of service for a customers most critical networks. Remote Management Services are contracted on a monthly recurring basis.

Connectivity Solutions

The Connectivity Solutions Business provides three
offerings:

One Marketplace, the Companys physical network trading platform, aggregates
network capacity from multiple suppliers at strategically deployed pooling points, using Global Capacity switching equipment to efficiently deploy capacity against market demand. One Marketplace reduces network costs for clients, while
delivering gross margin more similar to facilities-based providers than to resellers.



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The Company is
continuously expanding One Marketplace by installing additional aggregation points, and creating interconnections with suppliers (national, regional, and local) to expand the reach and increase the capacity of the platform. Increased
client demand, as evidenced by its 160% growth experienced during 2009, enables continued profitable expansion of the platform.

Network Novation practice offers outsourced access network operations, including pricing, procurement, provisioning and
network management. These solutions deliver lower access network costs by aggregating customer demand, while also reducing client SG&A associated with managing access network operations solutions. Global Capacitys Network Novation practice
has developed proven processes to seamlessly assume the management of existing network contracts, freeing the client to focus on their core business, while reducing the overall cost of their access network.

Off-net extension services enable Global Capacity to identify, price, procure, provision and support competitive off-net
access services for large clients, providing access to a broad universe of providers with transparency and efficiency. Using the Companys pricing systems, we generate an automated, accurate price quote. We then manage that quote from initial
pricing through ordering, procurement, provisioning, test and turn up, and operations hand-off, utilizing the Companys proprietary Circuit Lifecycle Manager (CLM) system. Networks are then monitored and managed by our 7X24 Network Operations
Center (NOC). By leveraging automated systems across the entire telecom supply chain, the Company is able to accelerate the delivery of an optimal network.

Significant progress in gaining customer acceptance of our offerings during 2010 underlies Managements belief that our technology, systems, and logistics capabilities make the Companys
business offerings more efficient, faster, and less expensive for systems integrators, telecommunications companies, and enterprise customers to manage the telecom supply chain for their complex global networks. By purchasing our solutions to create
market-pricing transparency and improve the efficiency of the entire telecom supply chain, our customers are able to improve the responsiveness of sales, reduce operating expense, improve margins, and deliver better service.

Markets and customers

The global market for access networks is estimated at over $200 billion annually and represents a significant percentage of the overall network cost that service providers and large systems integrators
incur in delivering network solutions to their global customers. The global access market is served by over 900 primary suppliers, none of whom has a ubiquitous footprint. The market is further confused by varying business rules, customs, and
regulations in different regions of the world. These factors, coupled with the rapid pace of technology change and advancement, result in an inefficient, fragmented market where cost structures are unnecessarily high  creating margin pressure
on service providers and systems integrators. Because there is no market transparency relative to the supply and price of networks globally, most telecommunication companies and systems integrators have a lengthy, manual, inefficient process to
design and price global networks. This results in extended sales cycles, high operating costs, and inefficient procurement of networks.

One of the fundamental challenges for corporations and other institutions with complex and/or geographically dispersed data communications networks is the number of service providers and pricing
alternatives that must be pieced together in order to create an end-to-end data connectivity solution. Large multinational corporations are increasingly seeking to work with fewer vendors and a single network provider that they can look to for
provisioning end-to-end network solutions fits that design. Additionally, service providers, particularly in regions where facilities-based competition has been introduced, actively market their services with price as the primary differentiator and
network reach being the primary limiting factor. This price-based competition has stressed already challenged gross margins and, as a result, service providers are actively seeking means to reduce the costs associated with network quotation
management and off-network procurement.

Beyond the telecommunication service providers, expanding enterprises, multi-national
corporations, information service providers, and systems integrators are deploying and managing private network-based solutions that provide seamless connections in support of the ever-increasing demand for business continuity, disaster recovery,
regulatory compliance, and collaboration capabilities. Because telecommunications is not the primary line of business for these private network operators, but rather a facilitator to their end business goals, inefficiencies in the procurement
process result in most companies paying more than they should for connectivity. In a competitive environment, such a drain on profitability can be significant.

This confusion is increased by global deregulation, physical fragmentation of the network layer  whether copper, fiber, coaxial cable, or wireless spectrums  and geographic fragmentation. This
market environment appears ideal for an information-driven logistics model focused on minimizing the confusion and inefficiency that plagues the telecom market. The Company believes that it has such a business model and operating capability, as well
as a management team experienced in executing such an information-leveraged and technology-leveraged approach.



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We have assembled a
vast global knowledge base of critical information with respect to tariffs, competitive pricing, physical locations of facilities, and carriers connected to such buildings and nearby points of presence. We also have combined this information with
sophisticated software tools and algorithms to enable us to often obtain automated best of breed connectivity solutions in seconds, rather than weeks or months. This ability to automate the supply chain of connectivity
provides the Company with a competitive advantage. This process also requires continuous refreshing, updating, and validation of data and is therefore a continually evolving process to stay current with changing information and new information. This
requirement to constantly acquire and manage new and updated data sets, combined with the Companys investment in systems, tools, and processes, provides the basis for the Companys unique positioning as a telecom logistics company.

The Company believes its investment in market intelligence and efficiency tools, combined with the robust processes and deep
expertise of its staff, make it uniquely positioned to capitalize on this market opportunity with its unique, telecom logistics business model.

Sales and marketing

Optimization Solutions

Target Markets. Optimization Solutions are targeted at global, national, and regional telecommunications carriers, systems
integrators, and enterprise customers with large, complex global network requirements.

Sales Approach. We have an
international sales team that uses a consultative approach to sell Optimization Solutions to a financial buyer highly placed within our target customers. We employ a combination of direct and channel sales to maximize market penetration and coverage
and we offer limited scope pilot engagements to quickly demonstrate the value of the solution. We then use a high-touch, relationship-based approach to extend and expand our pilot engagements into more meaningful engagements that provide
a steady stream of revenue and margin for the Company.

Connectivity Solutions

Target Markets. Connectivity Solutions are targeted at enterprise, system integrator, and telecommunications companies seeking a
simplified, turnkey network connectivity solution.

Sales Approach. We have an international sales team that employs a
combination of direct and channel sales to maximize market penetration and coverage. The sales team is tasked with identifying and closing new business, which is then transitioned to account managers to maintain the ongoing relationship, creating
additional revenue and margin from the account. The sales teams work closely with the carrier management teams to insure the most robust, cost effective solutions are sold and delivered.

Competition

Management believes that the combination of capabilities and solutions which the Company has integrated and organized into the Optimization Solutions business and the Connectivity Solutions business is
unique in the marketplace. However, there are competitors in the market for some of the individual solutions that the Company brings to market.

Optimization Solutions

Optimization Consulting: There are a number of
consulting firms that purport to offer network optimization services. Most of these, however, are focused on a specific area of network optimization  typically overcharge analysis. This narrow focus misses the largest opportunity to identify
and implement network savings available from financial and physical grooming. Furthermore, Management is not aware of any other company that owns or deploys a database of global supply and pricing data along with proprietary network optimization
tools to deliver an automated network optimization solution.

Automated Pricing Software: Management is not aware of any other
company that has an automated pricing system that leverages a similar global base of supply and pricing data along with robust pricing algorithms. The primary competition that we encounter is the legacy pricing system and related processes that are
entrenched in existing suppliers.

Remote Management Services and Professional Services: There is a wide range of
telecommunications carriers, hardware manufacturers, and services firms that offer NOC services and network implementation services. Management believes that the unusually high degree of integration and automation used in the delivery of the
Companys NOC services is a competitive differentiator in the marketplace. Further, the tight integration of the network management systems with the Companys unique pricing and provisioning systems and technologies make these solutions
very valuable in the highly integrated service delivery model employed by Global Capacity.



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Connectivity
Solutions

The marketplace for connectivity solutions is highly competitive, including Facility-based Carriers, Virtual
Network Operators (VNOs), and Systems Integrators. Despite this, the Company does provide services to carriers and VNOs and at times will collaborate with our competition to provide a seamless solution for their end users.

Financial Performance

The Company reported operating losses of $1.3 million and $2.8 million for the three months ended September 30, 2010 and 2009, respectively, and $6.5 million and $10.3 million for the nine-months
ended September 30, 2010 and 2009, respectively. As of September 30, 2010, the Companys current liabilities including liabilities subject to compromise exceeded its current assets (working capital deficiency) by $46.5 million.
Included in the current liabilities is $9.4 million of current maturities of DIP financing. Cash on hand at September 30, 2010 was $3.9 million (not including $0.3 million restricted cash for outstanding letters of credit and tax escrow). Cash
provided by (used in) operating activities was $1.9 million and $(7.7) million for the nine-month period ended September 30, 2010 and 2009, respectively. The Companys net working capital deficiency, accumulated deficit and recurring
operating losses raise substantial doubt about its ability to continue as a going concern.

Expenses are being managed closely
and lower-cost outsource opportunities are given case-by-case consideration. On May 3, 2010, Pivotal Global Capacity, LLC, an affiliate of the Pivotal Group of Companies, successfully closed on its purchase of rights and obligations of the
Senior Lender (ACF CGS, L.L.C.) with respect to the Term Loan and Security Agreement dated November 19, 2008, as amended, with no changes in terms and conditions.

On July 23, 2010, the Company and its domestic subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code. With these filings, the Debtors entered
into and the Bankruptcy Court approved, a Debtor in Possession Financing Facility (DIP Financing) which will provide up to an aggregate of $10.25 million. On August 2, 2010 the Debtors received $9.25 million under the DIP Financing.
On August 3, 2010, in accordance with the provisions of the DIP Financing, the Debtors paid $5.2 million to Pivotal representing payment in full of the outstanding Senior Secured Loan together with accrued interest.

As of August 31, 2010 and September 30, 2010, the Company was in default on the DIP Loan Agreement. The DIP Loan Agreement provided for
certain financial covenants to be maintained. Among those covenants was the requirement to maintain EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization), as defined in the DIP Loan Agreement, of at least $0.1 million for the month
ended August 31, 2010 and $0.2 million for the two months ended September 30, 2010. The Company did not meet this financial covenant test for the month of August and the two months ended September 30, 2010 and accordingly, was in default of the DIP
Loan Agreement. The DIP Loan Agreement provides, in the event of an Event of Default, for a default interest rate at a rate per annum which is 2% above the rate in effect immediately before the Event of Default. This rate will continue in effect
during the continuance of an Event of Default. The Default Rate of Interest on both the Tranche A and Tranche B Loans is 14% per annum.

Critical Accounting Policies and Estimates

The Company adopted
Accounting Standard Codification (ASC) 852Reorganizations (ASC 852),which is applicable to companies in Chapter 11, generally does not change the manner in which financial statements are prepared. However, it does
require that the financial statements for periods subsequent to the filing of the Chapter 11 petition distinguish between transactions and events that are directly associated with the reorganization proceedings and the ongoing operations of the
business as well as additional disclosures. Revenues, expenses, realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business must be reported separately as
reorganization items in the statements of operations beginning in the quarter ending September 30, 2010. The balance sheet must distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not
subject to compromise and from post-petition liabilities. Liabilities that may be affected by a plan of reorganization must be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. In addition, cash provided
by reorganization items must be disclosed separately in the statements of cash flows. The Company adopted ASC 852 effective on July 23, 2010 and will segregate those items as outlined above for all reporting periods subsequent to such date.

There has been no other changes to our critical accounting policies and estimates contained in Item 7
Managements Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K filed for the year ended December 31, 2009.

Results for the three-month period ended September 30, 2010 compared to 2009

Total revenues for the three-month period ended September 30, 2010 were $13.9 million compared to $16.5 million for the same period
in 2009, representing a 16 % decrease. This decrease is primarily due to disconnects from three major customers resulting from a shift in circuitry strategy.

Revenues generated from Optimization Solutions totaled $2.5 million for the three-month periods ended September 30, 2010 and 2009, which represents optimization consulting, automated pricing
software, remote management services, and professional services. The Connectivity Solutions business recorded $11.4 million for the three-month period ended September 30, 2010 compared to $14 million for the same period in 2009, which is from
the delivery of turn-key global networks and system management services.

The consolidated gross margin rate was 28% for the
three-month period ended September 30, 2010 compared to 24% for the same period in 2009. This increase was driven primarily by an improvement in the Optimization Solutions margins from lower costs and partially offset by a decrease in the
Connectivity Solutions margin. Optimization Solutions gross margin totaled $(0.1) million or (4%) for the three-month period ended September 30, 2010 as compared to $1.4 million or 57% for the same period in 2009. Connectivity
Solutions margin totaled $3.9 million or 34 % compared to $2.5 million or 18% for the same period in 2009.

Operating expenses for the three-months ending September 30, 2010 and 2009 consist of the following:



|                              |  |                                         |       |  |      |   |       | 
|----------------------------- |  | --------------------------------------- | ----- |  | ---- | - | ----- | 
|                              |  | Three-month periods 
endedSeptember 30, |      
|                              |  | (in thousands)                          |      
|                              |  | 2010                                    |       |  | 2009 |  
|Compensation                  |  | $                                       | 2,258 |  |      | $ | 2,747 | 
|Professional services         |  |                                         | 942   |  |      |   | 1,658 | 
|Depreciation and amortization |  |                                         | 680   |  |      |   | 1,139 | 
|Other operating expenses      |  |                                         | 1,240 |  |      |   | 1,168 | 
|                              |  |                                         |       |  |      |   |       | 
|                              |  |                                        
|Total operating expenses      |  | $                                       | 5,120 |  |      | $ | 6,712 | 
|                              |  |                                         |       |  |      |   |       | 



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Compensation expense
decreased $0.5 million (18%) for the three-month period ended September 30, 2010 as compared to 2009. Included in compensation expense for 2010 and 2009 are non-cash charges of $0.1 million and $0.8 million, respectively, related to stock-based
compensation. The decrease in compensation expense was due primarily to the reduction of 16 staff positions since September 30, 2009 and the decrease of $0.7 million in non-cash charges related to the accounting treatment of stock option
grants.

Professional services decreased $0.7 million (43%) for the three-month period ended September 30, 2010 as
compared to 2009. The decrease was primarily the result of an in depth review of the requirement for all professional services and renegotiation of rates.

Depreciation and amortization expense relates primarily to the Network Operating Center in the suburbs of Boston and the fair value assigned to the Companys intellectual property. Depreciation and
amortization decreased by $0.5 million (40%) for the three-month period ended September 30, 2010 as compared to September 30, 2009. This decrease was due primarily to the write down of certain intangible assets in the fourth quarter
of 2009.

Other operating expenses were essentially the same for the three-month period ended September 30, 2010 as
compared to the same period for 2009. Any significant increase in future operating costs is expected to be a direct result of a corresponding increase in revenues, excluding any additional stock-based compensation expense. Any significant increase
in revenues is anticipated to outpace the increase in related operating costs.

Any significant increase in future operating
costs is expected to be a direct result of a corresponding increase in revenues, excluding any additional stock-based compensation expense. Any significant increase in revenues is anticipated to outpace the increase in related operating costs.

Results for the three-month period ended September 30, 2010 reflect interest expense of $4.6 million, an increase of
$0.3 million from the three-month period ended September 30, 2009 amount of $4.3 million. Interest expense for the three-month periods ended September 30, 2010 and 2009 includes $3.9, related to the amortization of the fair value assigned
to the warrants and embedded derivatives issued with debt. Interest expense for the three-month period ended September 30, 2010 also includes $0.7 million of accrued interest.

Results for the three-month period ended September 30, 2010 reflect a gain on warrants and derivatives of $26.1 million compared to
a gain of $7.6 million for the comparable period in 2009. The current years gain was driven primarily by the $0.07 decrease in the period end price of the Companys stock as of September 30, 2010 as compared to the June 30, 2010
closing price of the Companys stock and the lack of expected future volatility of the Companys stock price due to the Chapter 11 bankruptcy filing. The 2009 gain on warrants and derivatives was driven primarily by the $0.03 decrease in
the per share closing price of the Companys stock as of September 30, 2009 as compared to the June 30, 2009 closing price. The warrant and embedded derivatives liabilities are revalued at each balance sheet date and marked to fair
value with the corresponding adjustment recognized as gain or loss on warrants and derivatives in the statement of operations.

Results for the three-month period ended September 30, 2010 reflect a loss on the extinguishment of debt of $(0.3) million as
compared to a gain of $0.3 million for the comparable period in 2009. The loss was due to the write off of unamortized deferred financing costs related to the Senior Secured Term Loan which was paid in full on August 3, 2010 in advance of the
Term Loans due date of November 10, 2010.

Reorganization items, net for the three-month period ended
September 30, 2010 were $2.7 million. These expenses represent professional and other fees incurred in connection with the Companys filing voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code on
July 23, 2010.

Results for the nine-month period ended September 30, 2010 compared to 2009

Total revenues for the nine-month period ended September 30, 2010 were $42.4 million compared to $48.6 million
for the same period in 2009, representing a 13 % decrease. This decrease is primarily due to disconnects from three major customers resulting from a shift in circuitry strategy.

Revenues generated from Optimization Solutions totaled $7.4 million for the nine-month period ended September 30, 2010 compared to
$7.1 million for the same period in 2009, which represents optimization consulting, automated pricing software, remote management services, and professional services, representing a 4% increase. The Connectivity Solutions business recorded $35.0
million for the nine-month period ended September 30, 2010 compared to $41.5 million for the same period in 2009, which is from the delivery of turn-key global networks and system management services, representing a 16% decrease.

The consolidated gross margin rate was 26 % for the nine-month period ended September 30, 2010 compared to 23% for the same
period in 2009. This increase was driven primarily by the improvement in the margins from Connectivity Solutions as a result of lower costs. Optimization Solutions gross margin totaled ($0.7) million or (9%) for the nine-month period
ended September 30, 2010 as compared to $3.5 million or 49% for the same period in 2009. Connectivity Solutions margin totaled $11.6 million or 33 % compared to $7.7 million or 18% for the same period in 2009.



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Operating expenses for
the nine-months ended September 30, 2010 and 2009 consist of the following:



|                              |  |                                        |        |  |      |   |        | 
|----------------------------- |  | -------------------------------------- | ------ |  | ---- | - | ------ | 
|                              |  | Nine-month periods 
endedSeptember 30, |       
|                              |  | (in thousands)                         |       
|                              |  | 2010                                   |        |  | 2009 |  
|Compensation                  |  | $                                      | 8,194  |  |      | $ | 9,459  | 
|Professional services         |  |                                        | 3,672  |  |      |   | 5,001  | 
|Depreciation and amortization |  |                                        | 2,044  |  |      |   | 3,415  | 
|Other operating expenses      |  |                                        | 3,585  |  |      |   | 3,543  | 
|                              |  |                                        |        |  |      |   |        | 
|                              |  |                                       
|Total operating expenses      |  | $                                      | 17,495 |  |      | $ | 21,418 | 
|                              |  |                                        |        |  |      |   |        | 

Compensation expense decreased $1.3 million 13% for the nine-month period ended September 30, 2010
as compared to 2009. Included in compensation expense for 2010 are non-cash charges of $0.9 million related to the accounting treatment of certain stock option grants as compared to $1.5 million for the same period in 2009. The decrease in
compensation expense was due to the decrease of $0.7 million in non cash charges related to the treatment of stock option grants and by a reduction of 16 staff positions since September 30, 2009.

Professional services decreased $1.3 million (27%) for the nine-month period ended September 30, 2010 as compared to the
nine-month period ended September 30, 2009, due to fewer advisory fees incurred and stronger controls over the utilization of outside services.

Depreciation and amortization expense relates primarily to the Network Operating Center in the suburbs of Boston and the fair value assigned to the Companys intellectual property. Depreciation and
amortization decreased by $1.4 million (40%) for the nine-month period ended September 30, 2010 as compared to September 30, 2009. This decrease was due primarily due to impairment of certain intangible assets in the fourth quarter of
2009.

Other operating expenses were essentially the same for the nine-month period ended September 30, 2010 as compared
to the same period for 2009. Any significant increase in future operating costs is expected to be a direct result of a corresponding increase in revenues, excluding any additional stock-based compensation expense. Any significant increase in
revenues is anticipated to outpace the increase in related operating costs.

Results for the nine-month period ended
September 30, 2010 reflect interest expense of $15.6 million, an increase of $5.1 million from the nine-month period ended September 30, 2009 amount of $10.5 million. Interest expense for the nine-month periods ended September 30,
2010 and 2009 includes $11.7 million and $8.9 million, respectively, related to the amortization of the fair value assigned to the warrants and embedded derivatives issued with debt. Interest expense for the nine-month period ended
September 30, 2010 also includes $2.2 million of accrued interest and $1.7 million of fees incurred with respect to debt financings and exploring additional financing options.

Results for the nine-month period ended September 30, 2010 reflect a gain on warrants and derivatives of $46.2 million compared to a
loss of $12.3 million for the comparable period in 2009. The current years gain was driven primarily by the $0.11 decrease in the period end price of the Companys stock as of September 30, 2010 as compared to the December 31,
2009 closing price of the Companys stock and the lack of expected future volatility of the Companys stock price due to the Chapter 11 bankruptcy filing. The 2009 loss on warrants and derivatives was driven primarily by the $0.04 increase
in the period end closing price of the Companys stock as compared to the December 31, 2008 closing price. The warrant and embedded derivatives liabilities are revalued at each balance sheet date and marked to fair value with the
corresponding adjustment recognized as gain or loss on warrants and derivatives in the statement of operations.

Results for
the nine-month period ended September 30, 2010 reflect a loss on extinguishment of debt of $(0.3) million as compared to a loss of $(0.07) million for the comparable period in 2009. The loss in 2010 was due to the write off of unamortized
deferred financing costs related to the Senior Secured Term Loan which was paid in full on August 3, 2010 in advance of the Loans maturity date of November 10, 2010.

Reorganization items, net for the nine month period ended September 30, 2010 were $2.7 million. These expenses represent
professional and other fees incurred in connection with the Companys filing voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code on July 23, 2010.

Liquidity and Capital Resources

Cash provided by operating activities for the nine-month period ended September 30, 2010 was $1.9 million. The primary variance between the net income of $21.0 million and net cash provided by
operating activities for the nine-month period ended September 30, 2010 was due to non-cash charges from amortization and depreciation of $2.0 million, amortization of debt discount, interest paid-in-kind, and OID of $11.7 million, stock-based
compensation of $0.9 million, amortization of deferred financing costs of $1.7 million, and the addback of the gain due to the change in fair value of embedded derivatives and warrants of $46.2 million. There was a reduction in accounts receivable
of $5.3 million, mainly due to the collection of the BT settlement proceeds during the first quarter.



40



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Cash (used in)
operating activities in the amount of $(7.7) million for the nine-month period ended September 30, 2009 was due to a loss of $33.2 million. The variance between the loss and net cash used in operating activities during the nine-month period
ended September 30, 2009 was primarily due to the non-cash charges of $1.5 million for stock-based compensation, $3.4 million of depreciation and amortization, a $1.5 million non-cash extinguishment of debt, $12.3 million from the change in
fair value of embedded derivatives and warrants, and $5.1 million of amortization of debt discounts, interest paid-in-kind, and OID.

The cash provided by (used in) investing activities during the nine-month period ended September 30, 2010 and 2009 was $0.04 million and $(0.2) million, respectively. Capital expenditures in both
2010 and 2009 consisted primarily of computer-related equipment. Although we currently do not anticipate any significant capital expenditures in the near future, we may have a need to make similar additional capital expenditures related to the
integration of our operations.

Net cash (used in) provided by financing activities during the nine-month period ended
September 30, 2010 and 2009 was $(1.4) million and $5.6 million, respectively. During the nine-month period ended September 30, 2010 there was a $9.6 million repayment of debt to the Senior Lender and payment of $1.0 million for financing
costs which were offset by proceeds of $9.3 million from DIP financing. During the nine month period ended September 30, 2009, the Company received proceeds from debenture offerings of $5.6 million.

The accompanying condensed consolidated statements have been prepared on a going concern basis, which contemplates the realization of its
assets and the discharge of its liabilities in the normal course of business for the foreseeable future. As of September 30, 2010, the Companys current liabilities and liabilities subject to compromise exceeded its current assets by $46.5
million. Included in the current liabilities is $9.4 million of current maturities of DIP financing. Cash on hand at September 30, 2010 was $3.9 million (not including $0.3 million restricted for outstanding letters of credit and tax escrow).

On May 3, 2010 Pivotal Global Capacity, LLC, an affiliate of the Pivotal Group of companies engaged in the private
equity business and based in Phoenix, Arizona (Pivotal), successfully closed on its purchase of all the rights and obligations of the Senior Lender (ACF CGS, L.L.C.) with respect to the Term Loan and Security Agreement dated
November 19, 2008, as amended, with no changes in the terms and conditions. Pivotal had been assigned the same rights and obligations of the previous holder and has stepped into the role as the new Senior Lender in the same capacity as ACF
CGS, L.L.C. See below for details of this transaction which discusses the subsequent pay off of this Term Loan.



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On July 23, 2010,
the Company and certain of its subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code. The Company remains in possession of its assets and properties and continues to operate its businesses.
The Company has obtained and the Bankruptcy Court has approved debtor-in possession financing (DIP Financing).

The July Debentures, Amended March Debentures, November Debentures , VPP Debentures and Seller Debentures are all subject to compromise
and full recovery by the debenture holders has been impaired as a result of the Debtors filing voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code. The outstanding balances as of September 30, 2010
are listed under Liabilities Subject to Compromise in Note 2 Reorganization under Chapter 11. Because of the uncertainty that the principal balances of the debentures may not be paid in full, the Company has
suspended the accrual of interest on the debentures as of the date of the filing of the voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code on July 23, 2010. The amount of interest that would have
been accrued had the Company not suspended interest accrual on the debentures amounted to $0.2 million as of September 30, 2010.

The DIP Financing has been entered into with Downtown CP-CGSY, LLC or its nominee (Downtown Capital or Tranche A Lender) in the amount of $3 million (Tranche A) and with
certain holders of Junior Convertible Debentures (Junior Debentures, and collectively with Downtown Capital, the DIP Lenders) in the amount of $7.25 million for a total aggregate amount not to exceed $10.25 million.

The Debtors have entered into a Debtor in Possession Loan and Security Agreement (DIP Credit Agreement) in order
to provide funds to the Debtors to assist in the restructuring, to pay critical vendors and utility deposits, to prevent an immediate shutdown of the Companys operations, and to pay off the pre-petition secured indebtedness of Pivotal Global
Capacity, LLC (the Senior Lender or Pivotal). The Junior Debentures have voluntarily agreed to subordinate their pre-petition liens to the Tranche A Lender.

The DIP Financing provides for the following:



| | a) | Borrowers: Global Capacity Group, Inc. and the other debtors, as debtors-in possession.
| | -- | ----------------------------------------------------------------------------------------



| | b) | DIP Lenders: Downtown Capital or its nominee, and the certain holders of the Junior Debentures.
| | -- | -----------------------------------------------------------------------------------------------



| | c) | DIP Facility/Availability: upon entry of the Interim Order, an initial advance of: (i) $9.25 million (consisting of a $3 million Tranche A Loan and $6.25
million Tranche B Loan), (ii) such additional amount as may be agreed to by Downtown Capital in writing, or (iii) such other sum as is approved by the Bankruptcy Court on an interim basis. Upon entry of a Final Order, up to $10.25 million
outstanding at anytime.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d) | Purpose: Principally short-term working capital, utility deposits, critical vendor payments, payment of pre-petition secured indebtedness of Secured Lien Lender.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e) | Financial Terms: Interest on Tranche A Loan will be payable at the end of each month in arrears at 12% per annum. Interest on the Tranche B Loan, including
PIK interest added to the principal amount of the Tranche B Loans, shall accrue at 12% payment in kind which shall accrue and be added to the principal monthly, but be paid in full upon the earlier of the Effective Date of a plan of reorganization,
upon an Event of Default or the Maturity Date.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | f) | Maturity: The Borrowers shall repay ant outstanding advances and loans under the DIP Financing on the earliest of: (i)(a) the occurrence of an Event of Default
and (b) the Effective Date of a Plan of Reorganization; provided that subject to the Lenders written consent the Borrowers may extend such date by up to two periods of sixty days each; (ii) the date of the acceleration of any
outstanding extensions of credit under the DIP Financing; (iii) entry of an order reversing in any respect either of the DIP Financing Orders (unless waived in writing by DIP Lenders); (iv) the conversion of any of the Chapter 11 Cases to
a case under Chapter 7 of the Bankruptcy Code; (v) the appointment of a trustee or an examiner with special powers; and (vi) the dismissal of any of the Chapter 11 Cases.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | g) | Fees: The Tranche A Lender has received a Structuring fee of $.02 million and a Commitment Fee of $.06 million. In addition, the Tranche A Lender shall receive
an Extension Fee of 1% for each of the two sixty day extensions of the Maturity Date, which extensions must be consented to by the DIP Lenders in writing.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | h) | Mandatory Prepayment: (i) 100% of the net sale proceeds from non-ordinary course assets sales; (ii) 100% of insurance and condemnation proceeds and tax
refunds, in each case received by the Borrowers or any of the Guarantors.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents



| | i) | Financial Covenants:
| | -- | --------------------



| | a) | EBITDA of at Least:
| | -- | -------------------



|                                            |  |   |              | 
|------------------------------------------- |  | - | ------------ | 
|1-      Month Ended August 31, 2010         |  | $ | 0.1 million  | 
|2-      Two Months Ended September 30, 2010 |  | $ | 0.2 million  | 
|3-      Three Months Ended October 31, 2010 |  | $ | 0.3 million  | 
|4-      Four Months Ended November 30, 2010 |  | $ | 0.45 million | 



| | b) | Monthly Recurring Circuit Revenue of at least $3.65 million for the months ended August 31, 2010, September 30, 2010, October 31, 2010 and
November 30, 2010.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) | Monthly Recurring Circuit Margin Percentages of 19.5% each for August, September, October and November, 2010 and Cumulative Recurring Circuit Margin Percentage of
19.5 % for August and 20.0% for September, October and November 2010.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d) | Shall not have on a consolidated basis outstanding Accounts Payable of more than $4.1 million as at August 31, September 30, October 31 and
November 30, 2010.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

Prior to making the filings, the Debtors entered into a Plan Support and Restructuring
Agreement (the Plan) with the Junior Debentures which provides a plan for the Debtors exit out of Bankruptcy. In accordance with the terms of the Plan, the holders of the Junior Debentures can credit bid to purchase the assets of
the Debtors all or some of the liens and pre-petition amounts due under the Debentures including accrued OID and Tranche B amounts due under the DIP Facility plus accrued interest.

On August 2, 2010, $9.3 million was advanced to the Company by the Lenders under the terms of the DIP Financing. In addition to
paying critical vendors and utility deposits, the funds were used to pay $5.2 million to the Senior Secured Lender (Pivotal Global Capacity, LLC or Pivotal) which represents payment in full of the outstanding Senior Secured Loan.

As of August 31, 2010 and September 30, 2010, the Company was in default on the DIP Loan Agreement. The DIP Loan Agreement
provided for certain financial covenants to be maintained. Among those covenants was the requirement to maintain EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization), as defined in the DIP Loan Agreement, of at least $0.1 million
for the month ended August 31, 2010 and $0.2 million for the two months ended September 30, 2010. The Company did not meet this financial covenant test for the month of August and the two months ended September 30, 2010 and accordingly, was in
default of the DIP Loan Agreement. The DIP Loan Agreement provides, in the event of an Event of Default, for a default interest rate at a rate per annum which is 2% above the rate in effect immediately before the Event of Default. This rate will
continue in effect during the continuance of an Event of Default. The Default Rate of Interest on both the Tranche A and Tranche B Loans is 14% per annum.

The Company is currently operating pursuant to Chapter 11 under the Bankruptcy Code and continuation of the Company as a going concern is contingent upon, among other things, the Companys ability
(i) to comply with the terms and conditions of the DIP Financing Agreement described above; (ii) to develop a plan of reorganization and obtain confirmation under the Bankruptcy Code; (iii) to reduce unsustainable debt and other
liabilities and simplify the its complex and restrictive capital structure through the bankruptcy process; (iv) to return to profitability; (v) to generate sufficient cash flow from operations; and (vi) to obtain financing sources to
meet its future obligations. These matters create uncertainty relating to the Companys ability to continue as a going concern. The accompanying condensed consolidated financial statements do not reflect any adjustments relating to the
recoverability and classification of assets or liabilities that might result from the outcome of these uncertainties. In addition, any plan of reorganization could materially change amounts reported in the Companys condensed consolidated
financial statements, which do not give effect to any adjustments of the carrying value of assets and liabilities.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements and their expected impact on our future consolidated results of operations or financial condition, see the Notes to Consolidated Financial
Statements.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements in place as of September 30, 2010 or December 31, 2009.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

NOT APPLICABLE



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Interim Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this report, have concluded that, based on the evaluation of these controls and procedures required by paragraph (b) of Exchange
Act Rules 13a-15 or 15d-15, our disclosure controls and procedures were effective as of the end of the period covered by this report.



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Changes in
Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting
that occurred during the Companys third fiscal quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.



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PART II  OTHER INFORMATION



|
|

|ITEM 1. | LEGAL PROCEEDINGS.
|------- | ------------------

From
time to time, we are involved in various legal matters arising in the ordinary course of business. In the opinion of Management, the ultimate disposition of such matters will not have a material adverse effect on our consolidated financial position
or the results of operations.

On July 23, 2010, Capital Growth Systems, Inc. (CGSIQ.OB) (the Company) and
its domestic subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court in the District of Delaware. The Debtors will continue to operate their business as
debtors-in-possession under the jurisdiction of the bankruptcy court and in accordance with the applicable provisions of the Bankruptcy Code. The bankruptcy court approved the Companys motion to have the Chapter 11 cases jointly administered
under Case No.10-12302. The Companys subsidiary in the United Kingdom was not included in the filings and will continue to operate their business without supervision from the Bankruptcy Court and will not be subject to the requirements of the
Bankruptcy Code.

Plan Support and Restructuring Agreement.

Prior to making these filings, we entered into a Plan Support and Restructuring Agreement (Plan) with the Junior Debentures
which provides a plan for the Debtors exit out of bankruptcy. Pursuant to the Plan, the parties agreed to the terms of a pre-negotiated consensual plan of reorganization to be filed with the Bankruptcy Court. Pursuant to the Plan, the parties
thereto have agreed to support a financial reorganization of the Debtors consistent with the terms and conditions set forth in the term sheets attached as Exhibit A to the Plan Support and Restructuring Agreement.

The Terms of the Plan Support and Restructuring Agreement include:



| | a) | The Participating Debenture Holders will form a Newco with which to purchase the assets of the Company.
| | -- | -------------------------------------------------------------------------------------------------------



| | b) | A $10.25 million DIP Facility will be provided for the purpose of;
| | -- | ------------------------------------------------------------------



| | 1- | Pay in full the Senior Secured Lender and
| | -- | -----------------------------------------



| | 2- | Pay critical vendors and utility deposits.
| | -- | ------------------------------------------



| | c) | If Newco is winning bidder, Newco will purchase assets of the Company.
| | -- | ----------------------------------------------------------------------

The DIP Financing provides for the following:



| | a) | Borrowers: Global Capacity Group, Inc. and the other debtors, as debtors-in possession.
| | -- | ----------------------------------------------------------------------------------------



| | b) | DIP Lenders: Downtown Capital or its nominee, and the certain holders of Junior Debentures.
| | -- | -------------------------------------------------------------------------------------------



| | c) | DIP Facility/Availability: upon entry of the Interim Order, an initial advance of: (i) $9.25 million (consisting of a $3 million Tranche A Loan and $6.25
million Tranche B Loan), (ii) such additional amount as may be agreed to by Downtown Capital in writing, or (iii) such other sum as is approved by the Bankruptcy Court on an interim basis. Upon entry of a Final Order, up to $10.25 million
outstanding at any time.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d) | Purpose: Principally short-term working capital, utility deposits, critical vendor payments, payment of pre-petition secured indebtedness of Secured Lien Lender.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e) | Financial Terms: Interest on Tranche A Loan will be payable at the end of each month in arrears at 12% per annum. Interest on the Tranche B Loan, including
PIK interest added to the principal amount of the Tranche B Loans, shall accrue at 12% payment in kind which shall accrue and be added to the principal monthly, but be paid in full upon the earlier of the Effective Date of a plan of reorganization,
upon an Event of Default or the Maturity Date.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | f) | Maturity: The Borrowers shall repay ant outstanding advances and loans under the DIP Financing on the earliest of: (i)(a) the occurrence of an Event of Default
and (b) the Effective Date of a Plan of Reorganization; provided that subject to the Lenders written consent the Borrowers may extend such date by up to two periods of sixty days each; (ii) the date of the acceleration of any
outstanding extensions of credit under the DIP Financing; (iii) entry of an order reversing in any respect either of the DIP Financing Orders (unless waived in writing by DIP Lenders); (iv) the conversion of any of the Chapter 11 Cases to
a case under Chapter 7 of the Bankruptcy Code; (v) the appointment of a trustee or an examiner with special powers; and (vi) the dismissal of any of the Chapter 11 Cases.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | g) | Fees: The Tranche A Lender has received a Structuring fee of $.02 million and a Commitment Fee of $.06 million. In addition, the Tranche A Lender shall receive
an Extension Fee of 1% for each of the two sixty day extensions of the Maturity Date, which extensions must be consented to by the DIP Lenders in writing.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | h) | Mandatory Prepayment: (i) 100% of the net sale proceeds from non-ordinary course assets sales; (ii) 100% of insurance and condemnation proceeds and tax
refunds, in each case received by the Borrowers or any of the Guarantors.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | i) | Financial Covenants:
| | -- | --------------------



| | a. | EBITDA of at Least:
| | -- | -------------------



|     |  |                                     |  |   |              | 
|---- |  | ----------------------------------- |  | - | ------------ | 
|i.   |  | Month Ended August 31, 2010         |  | $ | 0.1 million  | 
|ii.  |  | Two Months Ended September 30, 2010 |  | $ | 0.2 million  | 
|iii. |  | Three Months Ended October 31, 2010 |  | $ | 0.3 million  | 
|iv.  |  | Four Months Ended November 30, 2010 |  | $ | 0.45 million | 



| | b. | Monthly Recurring Circuit Revenue of at least $3.65 million for the months ended August 31, 2010, September 30, 2010, October 31, 2010 and
November 30, 2010.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | Monthly Recurring Circuit Margin Percentages of 19.5% each for August, September, October and November, 2010 and Cumulative Recurring Circuit Margin Percentage of
19.5 % for August and 20.0% for September, October and November 2010.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | Shall not have on a consolidated basis outstanding Accounts Payable of more than $4.1 million as at August 31, September 30, October 31 and
November 30, 2010.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



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The Plan Support and
Restructuring Agreement contains customary terms, are subject to material conditions and may be terminated upon the occurrence of certain events.



|ITEM 1A. | RISK FACTORS.
|-------- | -------------

The following
updates the risk factors included in the Companys Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2009, and the Quarterly Report on Form 10-Q for the Quarterly Period Ended June 30, 2010.

We face significant risks and uncertainties in connection with our bankruptcy reorganization Chapter 11 Filing.

We filed for protection under Chapter 11 of the Bankruptcy Code on July 23, 2010. During our Chapter 11 proceedings, our operations,
including our ability to execute our business plan, are subject to the risks and uncertainties associated with bankruptcy. Risks and uncertainties associated with our Chapter 11 proceedings include the following:



| |  |  | Actions and decisions of our creditors and other third parties with interests in our Chapter 11 proceedings may be inconsistent with our plans;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our ability to obtain court approval with respect to motions in the Chapter 11 proceedings prosecuted from time to time;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | Our ability to develop, prosecute, confirm and consummate a plan of reorganization or effect a structured settlement with respect to the Chapter 11
proceedings;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our ability to maintain contracts that are critical to our operations;
| | - |  | ----------------------------------------------------------------------



| |  |  | Our ability to retain management and other key individuals; and
| | - |  | ---------------------------------------------------------------



| |  |  | Risks associated with third parties seeking and obtaining court approval to terminate or shorten the exclusivity period for us to propose and confirm a
plan of reorganization, to appoint a Chapter 11 trustee or to convert the cases to Chapter 7 cases.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These
risks and uncertainties could affect our business and operations in various ways. For example, negative events or publicity associated with our Chapter 11 proceedings could adversely affect our operations and financial condition, particularly if the
Chapter 11 proceedings are protracted. Also, transactions outside the ordinary course of business are subject to the prior approval of the Bankruptcy Court, which may limit our ability to respond timely to certain events or take advantage of certain
opportunities.

Because of the risk and uncertainties associated with our Chapter 11 proceedings, the ultimate impact of
events that occur during these proceedings will have on our business, financial condition and results of operations cannot be accurately predicted or quantified, and there is substantial doubt about our ability to continue as a going concern. We
cannot provide any assurance as to what values, if any, will be ascribed in our bankruptcy proceedings to our various pre-petition liabilities, common stock and securities. As a result of Chapter 11 proceedings, our currently outstanding common
stock could have no value and may be canceled under any plan of reorganization we might propose and, therefore, we believe that the value of our various pre-petition liabilities and other securities is highly speculative. According, caution should
be exercised with respect to existing and future investments in any of these liabilities or securities.

We may have insufficient
liquidity to successfully operate our business.

The Company expects to incur significant costs as a result of the
bankruptcy case. We are currently financing our operations during the reorganization using cash on hand and cash generated by operations. In the event that we do not have sufficient liquidity to fund our operations such that we need to obtain
additional financing, there can be no assurance as to our ability to obtain sufficient financing on acceptable terms or at all. The challenges of obtaining financing, if necessary, would be exacerbated by adverse conditions in the general economy
and the volatility and the tightness in the financial and credit markets. These conditions and our bankruptcy case would make it more difficult for us to obtain financing.



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We expect that the
plan of reorganization will call for the successful bidder to fund our DIP Loan and all other needs of the Company from the date of confirmation as the successful bidder until the date of closing of the transfer of ownership of our operations to the
successful bidder. We expect that one of the conditions to the closing of the transfer will be the obtaining of FCC and state regulatory authority for a change in control of our operations to the successful bidder, which approval could take 90 days
or more. We further expect that during this interim period, the successful bidder would seek to be responsible for oversight and control of our operations, although we expect that day to day operations will continue to be run primarily by the
current management team in place. There is a risk that the conditions precedent to the ultimate disposition of our operations may not be satisfied, or that the successful bidder will lack the funds to consummate the closing as consummated (which is
anticipated to require the provision of additional financing to cover obligations to critical vendors and working capital needs), which could result in a failure to close the contemplated sale. In such event, we would be required to seek another
buyer for our assets, and there can be no assurances that a subsequent successful buyer could be located on terms favorable to stakeholders, as well as a risk that our operations may not be successfully run during the interim period from turn over
of managerial authority of the Company to the initial bidder, until ultimate disposition of our business.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

None.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

As a result of the Company being in default on certain reporting and administrative covenants related to the Senior Debt, all long-term debts are presented as current obligations.

As of August 31, 2010 and September 30, 2010, the Company was in Default on the DIP Loan Agreement. The DIP Loan Agreement
provided for certain financial covenants to be maintained. Among those covenants was the requirement to maintain EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization), as defined in the DIP Loan Agreement, of at least $0.1 million
for the month ended August 31, 2010 and $0.2 million for the two months ended September 30, 2010. The Company did not meet this financial covenant test and accordingly, was in default of the DIP Loan Agreement as of August 31, 2010
and September 30, 2010. The DIP Loan Agreement provides, in the event of an Event of Default, for a default interest rate at a rate per annum which is 2% above the rate in effect immediately before the Event of Default. This rate will continue
in effect during the continuance of an Event of Default. The Default Rate of Interest on both Tranche A and Tranche B Loans is 14% per annum.



|ITEM 4. | (REMOVED AND RESERVED)
|------- | ----------------------



|ITEM 5. | OTHER INFORMATION.
|------- | ------------------

None.



|ITEM 6. | EXHIBITS.
|------- | ---------

Exhibits filed
as a part of this quarterly report on Form 10-Q are listed in the Index to Exhibits located on page 40 of this Report.



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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.



CAPITAL GROWTH SYSTEMS, INC.(DEBTOR-IN-POSSESSION)By:

/S/    PATRICK C.
SHUTTPatrick C. Shutt, Chief Executive Officer/S/    GEORGE A.
KINGGeorge A. King, Interim Chief Financial Officer


Dated: November 15, 2010



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##### Table of Contents



|               |  |                                                                                                                                                                                               
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
Number |  | Description of Document                                                                                                                                                                       
|               | 
|10.1           |  | Debtor in Possession Loan and Security Agreement (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K, filed on August 5,
2010).                            
|               | 
|10.2           |  | Joint Disclosure Statement of Capital Growth Systems, Inc. and Subsidiaries (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K, filed on
August 17, 2010).
|               | 
|10.3           |  | Plan of Reorganization of Capital Growth Systems, Inc. and Subsidiaries (incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K, filed on August
17, 2010).    
|               | 
|10.4           |  | Plan Support Agreement of Capital Growth Systems, Inc. and DIP Lenders (incorporated by reference to Exhibit 10.3 to the Companys Current Report on Form 8-K, filed on August
17, 2010).     
|               | 
|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. *                                                                     



|* | Furnished herewith.
|- | -------------------



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