UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





FORM
      10-QSB




x
            QUARTERLY REPORT UNDER SECTION 13 OR
              15(d)OF
              THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March
              31,
              2006o
            TRANSITION REPORT UNDER SECTION 13 OR
              15(d)
              OF THEEXCHANGE
              ACT





For
      the
      transition period from _______________ to _______________





Commission
      File Number 0-30831




CAPITAL
                GROWTH SYSTEMS, INC.(Exact
                name of small business issuer as specified in its
                charter)





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




50
                  East Commerce Drive, Schaumburg,
                  Illinois 60173(Address
                  of principal executive offices)




630-872-5800(Issuer’s
                telephone
                number)








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





Yes S No £





The
      total
      number of shares outstanding of the issuer’s common stock, par value $.0001, as
      of May 14, 2006 is 17,015,754.





Transitional
      Small Business Disclosure Format: Yes £ No S








**CAPITAL
      GROWTH SYSTEMS, INC. AND SUBSIDIARIES**




Page
                  No.PART
                  I
              
              FINANCIAL
                  INFORMATION
              
              
              3Item
                  1.
              
              Financial
                  Statements
              
              
              3Interim
                  Consolidated Condensed Balance Sheets as of March 31, 2006 [Unaudited]
                  and
                  December 31, 2005 [Audited]
              
              
              4Consolidated
                    Condensed Statements of Operations For the three month periods
                    ended March
                    31, 2006 and 2005 [Unaudited]
              
              
              5Consolidated
                    Condensed Statement of Shareholders' Equity from January 1, 2006
                    to March
                    31, 2006 [Unaudited]
              
              
              6Consolidated
                    Condensed Statements of Cash Flows For the three month periods
                    ended March
                    31, 2006 and 2005 [Unaudited]
              
              
              7Notes
                    to Interim Consolidated Condensed Financial
                    Statements.
              
              
              8Item
                  2.
              
              Management's
                  Discussion and Analysis.
              
              
              19Item
                  3.
              
              Controls
                  and Procedures.
              
              
              26PART
                  II.
              
              OTHER
                  INFORMATION
              
              
              26Item
                  1.
              
              Legal
                  Proceedings.
              
              
              26Item
                2.
              
              Changes
                    in Securities and Small Business Issuer Purchases of EquitySecurities.
              
              
              26Item
                  3.
              
              Defaults
                  Upon Senior Securities.
              
              
              26Item
                  4.
              
              Submission
                  of Matters to a Vote of Security Holders.
              
              
              26Item
                  5.
              
              Other
                  Information.
              
              
              26Item
                  6.
              
              Exhibits.
              
              
              26Signatures
                  and Certifications
              27




2




**PART
      I - FINANCIAL INFORMATION**




**Item
      1. Financial Statements**





NOTE
      REGARDING FORWARD-LOOKING STATEMENTS





Except
      with respect to historical financial information, the discussion contained
      in
      this report contains forward-looking statements that involve risk and
      uncertainties. These statements may be identified by use of forward-looking
      terminology such as “believes,” “expects,” “may,” “should,” or “anticipates,” or
      similar expressions, or by discussions of strategy. The cautionary statements
      made in this report should be read as being applicable to all related
      forward-looking statements wherever they appear in this report. Our actual
      results could differ materially from those discussed in this report. Factors
      that could cause our results to differ from those discussed in this report,
      include, but are not limited to, those discussed under the heading “Factors
      Affecting Future Performance” in our report on Form 10-KSB for the period ending
      December 31, 2005.








CAPITAL
      GROWTH SYSTEMS, INC.




Interim
      Consolidated Condensed Financial Statements


(Unaudited)




March
      31,
      2006






3




**CAPITAL
        GROWTH SYSTEMS, INC.**
 **CONSOLIDATED
        CONDENSED BALANCE SHEETS**




**(Unaudited)**
            
            **(Audited)****March
                31, 2006**
            
            **December
                31, 2005****ASSETS:**Current
                Assets:Cash
            
            $
            263,298
            
            $
            436,842Accounts
                receivable, net
            
            
            1,795,595
            
            
            1,232,606Inventories,
                net
            
            
            1,525,406
            
            
            1,537,908Prepaid
                expenses
            
            
            169,211
            
            
            121,466Other
                current assets
            
            
            28,532
            
            
            34,987Total
                current assets
            
            
            3,782,042
            
            
            3,363,809Fixed
                assets, net of accumulated depreciation
            
            
            961,409
            
            
            947,203Software
                license fees
            
            
            23,044
            
            
            26,778Customer
                list acquired, net
            
            
            2,670,723
            
            
            2,812,334Goodwill
            
            
            3,965,543
            
            
            3,965,543Other
                assets
            
            
            12,188
            
            
            18,543Total
                Assets
            
            $
            11,414,949
            
            $
            11,134,210**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                Liabilities:Current
                maturities of debt
            
            $
            3,820,291
            
            $
            3,815,337Accounts
                payable
            
            
            1,398,000
            
            
            536,453Accrued
                expenses
            
            
            1,378,863
            
            
            1,389,514Deferred
                revenues
            
            
            1,429,811
            
            
            1,536,369Advance
                billings
            
            
            1,246,399
            
            
            964,734Other
                current liabilities
            
            
            147,692
            
            
            191,624Total
                current liabilities
            
            
            9,421,056
            
            
            8,434,031Long-term
                liabilitiesDebt
            
            
            783,072
            
            
            851,379Total
                Liabilities
            
            
            10,204,128
            
            
            9,285,410Stockholders’
                EquityCommon
                Stock, $.0001 par value, 25,000,000 authorized; 17,015,754 outstanding,
                100,000 shares issuable as of March 31, 2006 and 17,015,754 issued
                and
                outstanding as of December 31, 2005, respectively
            
            
            1,711
            
            
            1,701Additional
                paid-in capital
            
            
            12,979,045
            
            
            12,831,414Retained
                earnings, (deficit)
            
            
            (11,769,935
            )
            
            (10,984,315
            )Total
                Stockholders’ Equity
            
            
            1,210,821
            
            
            1,848,800Total
                Liabilities and Stockholders’ Equity
            
            $
            11,414,949
            
            $
            11,134,210


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





4




**CAPITAL
          GROWTH SYSTEMS, INC.**
 **CONSOLIDATED
          CONDENSED STATEMENTS OF OPERATIONS**
 (Unaudited)


**Three
                Months Ended March 31,****2006**
            
            **2005****Revenue**
            
            $
            3,862,896
            
            $
            4,054,746**Cost
                of Goods Sold**
            
            
            2,022,716
            
            
            2,141,654**Gross
                Margin**
            
            
            1,840,180
            
            
            1,913,092**Operating
                Expenses:**Compensation
            
            
            1,492,296
            
            
            1,296,843Other
                operating expenses
            
            
            1,016,246
            
            
            928,254**Total
                Operating Expenses**
            
            
            2,508,542
            
            
            2,225,097**Operating
                Loss**
            
            
            (668,362
            )
            
            (312,005
            )**Interest
                expense**
            
            
            102,107
            
            
            83,996**Net
                Loss Before Income Taxes**
            
            
            (770,469
            )
            
            (396,001
            )**Income
                taxes**
            
            
            15,151
            
            
            8,216**Net
                Loss**
            
            $
            (785,620
            )
            $
            (404,217
            )**Loss
                per Share**
            
            $
            (0.05
            )
            $
            (0.02
            )**Average
                Shares Outstanding**
            
            
            17,016,853
            
            
            16,940,754





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




5




**CAPITAL
        GROWTH SYSTEMS, INC.**
 **CONSOLIDATED
              CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY**
 (Unaudited)


**Common
                Shares Outstanding**
            
            **Retained
                Deficit**
            
            **Common
                Stock**
            
            **Additional
                Paid-in Capital**
            
            **Total
                Equity**Balance,
                January 1, 2006
            
            
            17,015,754
            
            $
            (10,984,315
            )
            $
            1,701
            
            $
            12,831,414
            
            $
            1,848,800Net
                loss
            
            
            -
            
            
            (785,620
            )
            
            -
            
            
            -
            
            
            (785,620
            )Stock
                issuable for consulting services
            
            
            100,000
            
            
            -
            
            
            10
            
            
            134,990
            
            
            135,000Stock-based
                compensation expense
            
            
            
            
            
            
            
            
            
            
            
            12,641
            
            
            12,641Balance,
                March 31, 2006
            
            
            17,115,754
            
            $
            (11,769,935
            )
            $
            1,711
            
            $
            12,979,045
            
            $
            1,210,821





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




6




**CAPITAL
        GROWTH SYSTEMS, INC.**
 **CONSOLIDATED
                CONDENSED STATEMENTS OF CASH FLOWS**
 (Unaudited)


Three
                Months Ended March 31,2006
            
            2005Net
                Cash Used in Operating Activities
            
            $
            (44,397
            )
            $
            (1,115,269
            )Net
                Cash Used In Investing Activities
            
            
            (65,794
            )
            
            (10,075
            )Net
                Cash Provided By (Used in) Financing Activities
            
            
            (63,353
            )
            
            (296,070
            )Increase
                (Decrease) in Cash and Cash Equivalents
            
            
            (173,544
            )
            
            (1,421,414
            )Cash
                and Cash Equivalents - Beginning of Period
            
            
            436,842
            
            
            3,660,894Cash
                and Cash Equivalents - End of period
            
            $
            263,298
            
            $
            2,239,480SUPPLEMENTAL
                CASH FLOW INFORMATION:Cash
                paid for interest
            
            $
            91,785
            
            $
            102,478Cash
                paid for income taxes
            
            $
            2,446
            
            $
            8,216NONCASH
                INVESTING AND FINANCING ACTIVITIES:Stock
                issued for consulting services
            
            $
            135,000
            
            $
            -Stock-based
                compensation expense
            
            $
            12,641
            
            $
            -





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




7


**CAPITAL
      GROWTH SYSTEMS, INC.**


**Notes
      To Interim Consolidated Condensed Financial Statements**


**March
      31, 2006 (Unaudited)**




**NOTE
      1 - Organization and Basis of Presentation**




The
      accompanying unaudited consolidated condensed financial statements include
      the
      accounts of Capital Growth Systems, Inc. (“CGSI” or “Company”) and its
      wholly-owned subsidiaries, Nexvu Technologies, LLC (“Nexvu”) and Frontrunner
      Network Systems Corp. (“Frontrunner”). Except where necessary to distinguish the
      three entities, we will refer to all three as the “Company.” All significant
      intercompany transactions and balances have been eliminated in
      consolidation.




These
      financial statements have been prepared in accordance with accounting principles
      generally accepted in the United States of America for interim financial
      information and the rules and regulations of the Securities and Exchange
      Commission for interim financial statements. These financial statements reflect
      all adjustments and accruals of a normal recurring nature, which, in the opinion
      of management are necessary in order to make the financial statements not
      misleading. The results for the interim periods presented are not necessarily
      indicative of results to be expected for any future period.




These
      financial statements should be read in conjunction with the audited financial
      statements and the notes thereto of both companies included in CGSI’s 2005
      Annual Report on Form 10-KSB filed with the Securities Exchange Commission
      for
      the year ended December 31, 2005.




**NOTE
      2 - Summary of Significant Accounting Policies**




**Accounts
      Receivable**




Accounts
      receivable represent amounts owed from billings to customers and are recorded
      at
      gross amounts owed less an allowance for uncollectible accounts. The Company
      provides an allowance for uncollectible accounts receivable based upon prior
      experience and management’s assessment of the collectibility of existing
      specific accounts. Total reserve for uncollectible accounts was $73,775 and
      $83,148 as of March 31, 2006 and December 31, 2005, respectively.




**Revenue
      Recognition**




The
      Company ** generates
      revenue from selling and installing hardware, licensing its software and the
      provision of services.




For
      revenue from product sales and services, the Company recognizes revenue in
      accordance with Staff Accounting Bulletin No. 104 “Revenue Recognition”
(“SAB104”), which superseded Staff Accounting Bulletin No. 101, “Revenue
      Recognition in Financial Statements” (“SAB101”).




SAB101
      requires that four basic criteria must be met before revenue can be recognized:
      (1) persuasive evidence of an arrangement exists; (2) delivery has occurred;
      (3)
      the selling price is fixed and determinable; and (4) collectibility is
      reasonably assured. Determination of criteria (3) and (4) are based on
      management’s judgments regarding the fixed nature of the selling prices of the
      products delivered and the collectibility of those amounts. Provisions for
      discounts and rebates to customers, estimated returns and allowances, and other
      adjustments are provided for in the same period the related sales are recorded.
      The Company defers any revenue for which the product has not been delivered
      or
      is subject to refund until such time that the Company and the customer jointly
      determine that the product has been delivered or no refund will be
      required.




8




SAB
      104
      incorporates Emerging Issues Task Force 00-21 (“EITF 00-21”),
“Multiple-Deliverable Revenue Arrangements.” EITF 00-21 addresses accounting for
      arrangements that may involve the delivery or performance of multiple products,
      services and/or rights to use assets. The effect of implementing EITF 00-21
      on
      the Company’s consolidated financial position and results of operations was not
      significant.




The
      Company recognizes revenues and all related costs on installation contracts
      with
      revenues of $100,000 or more using the percentage of completion method. Progress
      is measured by the percentage of actual labor incurred to date to management’s
      estimate of total labor to be incurred on each contract. This method is used
      as
      management considers labor incurred to be the best available measure of progress
      on these contracts. Contract costs include all direct subcontractor labor and
      supervisory labor costs and those indirect costs related to contract performance
      such as indirect labor, supplies, and other general expenses. Provisions for
      estimated losses on uncompleted contracts are made in the period in which such
      losses are determined. Changes in job performance, conditions and estimated
      profitability may result in revisions to costs and income and are recognized
      in
      the period in which revisions are determined. All installation contracts with
      revenues less than $100,000 are accounted for on the completed contract method.
      The Company recognizes revenue and all related costs on these contracts upon
      delivery and acceptance by the customer.




**Product
      Warranties**




The
      Company’s subsidiary, Frontrunner, sells certain of its products to customers
      with a product warranty that provides repairs at no cost to the customer or
      issuance of credit to the customer for a one year period. The Company accrues
      its estimated exposure to warranty claims based upon estimates of future costs
      associated with fulfilling the warranty obligations. Management reviews these
      obligations on a regular basis and adjusts the warranty provisions as actual
      experience differs from historical estimates or other information becomes
      available.




**Research
      and Development**




The
      Company accounts for research and development costs in accordance with
      the SFAS No. 2 “Accounting for Research and Development Costs.” Under SFAS
      No. 2, all research and development costs must be charged to expense as
      incurred. Accordingly, internal research and development costs are expensed
      as
      incurred. Third-party research and developments costs are expensed when the
      contracted work has been performed or as milestones are achieved.
      Company-sponsored research and development costs related to both present and
      future products are expensed in the period incurred. Total research and
      development costs incurred during the three months ended March 31, 2006 and
      2005
      were $362,394 and $335,405, respectively.




9




**Goodwill
      and Purchased Intangible Assets**




In
      July
      2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets.”
Effective for fiscal years beginning after December 15, 2001, SFAS No. 142
      requires goodwill to be tested for impairment on an annual basis and between
      annual tests in certain circumstances, and written down when impaired, rather
      than being amortized as previous accounting standards required. Furthermore,
      SFAS No. 142 requires purchased intangible assets other than goodwill to be
      amortized over their useful lives unless these lives are determined to be
      indefinite. Intangible assets, consisting of software licenses and customer
      lists, are amortized on a straight-line basis over periods ranging 3 to 7 years,
      representing the remaining life of the assets.




Based
      on
      the impairment tests performed by management, there was no impairment of
      goodwill in 2005. The Company has no reason to believe that goodwill impairment
      has occurred in 2006. There can be no assurance that future goodwill impairment
      tests will not result in a charge to earnings.




**Stock-Based
      Compensation**




At
      March
      31, 2006, the Company has a stock option plan, which is described more fully
      in
      Note 4. Prior to January 1, 2006, the company accounted for those plans under
      the recognition and measurement provisions of APB Opinion No. 25, *Accounting
      for Stock Issued to Employees* ,
      and
      related Interpretations, as permitted by FASB Statement No. 123, *Accounting
      for* *Stock-Based
      Compensation*.
      No
      stock-based employee compensation cost was recognized in the Statement of
      Operations for the three month period ended March 31, 2005, as all outstanding
      unvested options granted under those plans at that time had an exercise price
      equal to the market value of the underlying common stock on the date of grant
      and no restricted stock grants were outstanding during that period. Effective
      January 1, 2006, the Company adopted the fair value recognition provisions
      of
      FASB Statement No. 123(R),*Share-Based
      Payment*,
      using
      the modified-prospective-transition method. Under this transition method,
      compensation cost recognized in fiscal 2006 includes: (a) compensation cost
      for
      all share-based payments granted prior to, but not yet vested as of January
      1,
      2006, based on the grant date fair value estimated in accordance with the
      original provisions of Statement 123, and (b) compensation cost for all
      share-based payments granted subsequent to January 1, 2006, based on the
      grant-date fair value estimated in accordance with the provisions of Statement
      123(R) (of which there were none). Results for prior periods have not been
      restated.





**Segment
      Information**




SFAS No.
      131, “Disclosures about Segments of an Enterprise and Related Information”
establishes standards for reporting information regarding operating segments
      in
      annual financial statements and requires selected information for those segments
      to be presented in interim financial reports issued to stockholders. SFAS No.
      131 also establishes standards for related disclosures about products and
      services and geographic areas. Operating segments are identified as components
      of an enterprise about which separate discrete financial information is
      available for evaluation by the chief operating decision maker, or
      decision-making group, in making decisions how to allocate resources and assess
      performance. The information disclosed herein materially represents all of
      the
      financial information related to the Company's principal operating
      segments.




10




**Intangible
      assets**




Intangible
      assets represent purchased customer lists with respect to our acquisition of
      Frontrunner. The intangible assets are carried at cost less accumulated
      amortization. We amortize intangible assets over the expected benefits of the
      list over the estimated useful life. The estimated useful life on this
      identifiable intangible asset is 7 years. The
      Company monitors the balance and related accumulated amortization of the
      intangible assets quarterly in regards to impairment. Based on our analysis,
      no
      provision for impairment was made as of March 31, 2006. Total
      amortization of the customer lists was $141,611 and $153,552 for the quarters
      ending March 31, 2006 and 2005 respectively. Remaining amortization of the
      customer list for the year ended December 31, 2006 and amortization for future
      years is expected to be as follows:




2006
            $
            415,3972007
            
            529,1602008
            
            502,7042009
            
            477,5682010
            
            453,6882011
            
            292,206




Total
      cost and accumulated amortization for the customer list is as
      follows:




March
                31, 2006
            
            December
                31, 2005Customer
                list costs
            
            $
            3,615,358
            
            $
            3,615,358Accumulated
                amortization
            
            
            (944,635
            )
            
            (803,024
            )Customer
                list, net
            
            $
            2,670,723
            
            $
            2,812,334




**Use
      of Estimates**




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and the disclosures of contingent assets and liabilities at the
      date
      of the financial statements and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from these
      estimates.




**Going
      Concern**




As
      of
      March 31, 2006, the Company’s current liabilities exceeded its current assets by
      $5.6 million. Included in the current liabilities is $3.8 million of current
      maturities of long-term debt, including a $2.9 million demand note payable
      to
      Harris Bank. This debt reflects pre-existing balances from the acquisition
      of
      Frontrunner during 2004. Cash on hand at March 31, 2006 was $263 thousand.
      The
      Company has incurred operating losses of $2.3 million and $4.9 million for
      the
      two years ended December 31, 2005 and 2004 respectively and $786 thousand for
      the three months ended March 31, 2006. Cash utilized in operating activities
      were $1.8 million and $3.3 million for the two years ended December 31, 2005
      and
      2004 respectively. Only $44 thousand of cash was utilized for operating
      activities during the three months ended March 31, 2006. However, net losses
      were funded by delaying payments to some vendors, increasing accounts payable
      by
      $862 thousand since December 31, 2005.




11




The
      Company’s net working capital deficiency, recurring losses and negative cash
      flows from operations raise substantial doubt about the Company’s ability to
      continue as a going concern. During the three months ended March 31, 2006,
      the
      Company’s revenues decreased by 5% and increased its loss from $404 thousand to
      $786 thousand. Nexvu is continuing to strive to increase sales of its software
      products and professional services in order decrease the operating losses
      experienced previously. Frontrunner sales have decreased during the quarter
      and
      they have recently reduced its headcount by an additional 5%. Both companies
      continue to be vigilant on operating expenses. Through May 14, 2006, the Company
      has raised $200 thousand in bridge loans and is attempting to raise additional
      funds through this method in order to fund current working capital needs.
      Additionally, the Company may attempt to raise additional capital which may
      involve the issuance of common stock in order to fund working capital needs,
      reduce debt and provide additional funding. However, no assurance can be made
      that the additional bridge loans and an adequate capital raise can be
      completed.




**Reclassifications**




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




**NOTE
      3 - Inventories**




Inventories
      as of March 31, 2006 and December 31, 2005 consist of the
      following:




March
                31, 2006
            
            Dec
                31,2005Equipment
            
            $
            1,403,196
            
            $
            1,459,357Work
                in process
            
            
            786,329
            
            
            718,512Gross
                Inventory
            
            
            2,189,525
            
            
            2,177,869Less:
                Inventory reserve
            
            
            (664,119
            )
            
            (639,961
            )Net
                inventory
            
            $
            1,525,406
            
            $
            1,537,908





Inventories
      are stated at lower of cost or market as determined by the First-in, First-out
      (FIFO) method. The reserve balance is estimated by management based on previous
      experience and considers the on-hand inventory needs based on the networks
      under
      maintenance service agreements.




12




**NOTE
      4 - Employee Benefit Plans**




**2003
      Stock Option Plan**




In
      December 2003, we adopted the 2003 Long-Term Incentive Plan for key employees
      and other persons providing assets or services to us. The plan provides for
      the
      issuance of stock-based awards to key employees as part of their overall
      compensation. We consider our option program a core component of our operating
      productivity. A total of 2,285,000 restricted shares of common stock, stock
      options or other equity-based compensation can be issued under the plan. As
      of
      March 31, 2006, we have issued and outstanding 1,524,557 restricted shares
      under
      the plan, net of forfeitures.






The
      following table summarizes the activity under the stock option plan from
      inception to March 31, 2006:




Number
                of Shares
            
            Price
                Per Share
            
            Weighted
                Average Price per ShareOptions
                Outstanding:January
                1, 2006
            
            
            1,524,557
            
            
            0.95
                - 1.35
            
            $
            1.34Granted
            
            
            -
            
            
            -
            
            
            -Terminated
            
            
            -
            
            
            -
            
            
            -March
                31, 2006
            
            
            1,524,557
            
            
            0.95
                - 1.35
            
            $
            1.34Vested
                Shares:Vested,
                March 31, 2006
            
            
            965,567
            
            $
            0.95
                - 1.35
            
            $
            1.34





During
      2006 we implemented SFAS No.123R, which requires the Company to account for
      the
      value of our stock based compensation as an expense. The Company is utilizing
      the modified prospective application transition method in implementing this
      standard. Under the modified prospective application, SFAS No 123R applies
      to
      new awards and to awards modified, repurchased, or cancelled after the effective
      date, which is January 1, 2006. Additionally, compensation cost for the stock
      options issued prior to January 1, 2006 is recognized as the requisite service
      is rendered for these awards. The value of all options granted prior to January
      1, 2006 was calculated utilizing the minimum value model, as our shares have
      historically not been publicly traded.




The
      weighted-average fair value of stock-based compensation to our employees is
      based on the single option value approach. We have estimated that no forfeitures
      of stock will take place, and it is assumed that no dividends will be declared.
      The weighted-average fair-value calculations are based on the following
      assumptions:




13




Three
                  monthsEnded
                  March 31,2006
              
              2005Estimated
                life (in years)
              
              
              5.0
              
              
              5.0Risk-free
                interest rate
              
              
              3.85
              %
              
              3.85
              %







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




Three
                months ended March 31,2006
            
            2005Reported
                net loss
            
            $
            (785,620
            )
            $
            (
                404,217
            )Employee
                stock-based compensation included in reported net loss
            
            
            12,641Employee
                stock-based compensation as calculated under the fair value method
                (SFAS
                No. 123)
            
            
            (12,641
            )
            
            (12,033
            )Pro
                forma net loss
            
            $
            (785,620
            )
            $
            (416,250
            )Loss
                Per Share:As
                reported
            
            $
            (0.05
            )
            $
            (0.02
            )Pro
                forma
            
            $
            (0.05
            )
            $
            (0.02
            )





**NOTE
      5 - Property and Equipment**




Property
      and equipment at March 31, 2006 and December 31, 2005 consists of the
      following:




March
                31, 2006
            
            Dec.
                31, 2005Furniture
                & fixtures
            
            $
            163,202
            
            $
            165,702Computer
                equipment
            
            
            951,271
            
            
            921,611Leasehold
                improvements
            
            
            130,493
            
            
            88,154Machinery
                & equipment
            
            
            285,264
            
            
            285,9461,530,230
            
            
            1,461,413Accumulated
                depreciation
            
            
            (568,821
            )
            
            (514,210
            )Net
                property and equipment
            
            $
            961,409
            
            $
            947,203





Depreciation
      and amortization of property and equipment were $57,943 and $59,237 for the
      three months ended March 31, 2006 and 2005 respectively.




14




**NOTE
      6 - Debt**




Debt
      as
      of March 31, 2006 and December 31, 2005 consist of the following:




March
                31, 2006
            
            December
                31, 2005Demand
                note payable to Harris Bank, plus interest at 1.50% above prime rate;
                7.25% at March 31, 2006, until the loan is paid in full or full demand
                is
                made by the bank. Secured by substantially all of the assets of
                Frontrunner and personal guarantee by a separate related party entity
                and
                three individuals (one of which is a related party).
            
            $
            2,930,000
            
            $
            3,155,000Promissory
                note payable to Nortel Networks, payable in monthly payments of $27,776
                through October 2009. Secured by certain assets of Frontrunner. Interest
                on the note is fixed at 7.25%.
            
            
            1,049,047
            
            
            1,112,591Unsecured
                note payable to Global Crossing North America, due in monthly installments
                of $16,667 through May 2006. The note bears interest (imputed at
                8%) and
                is subordinated to the outstanding bank debt. As of March 31, 2006,
                Frontrunner was in default under the terms of the
                agreement.
            
            
            183,740
            
            
            178,070Unsecured
                promissory note payable to Review Video, payable in monthly payments
                of
                $10,000 through September 2006. Interest on the note is fixed at
                7.25%
            
            
            59,348
            
            
            87,926Unsecured
                note payable to related party creditor, unsecured, payable in monthly
                installments of $12,500, including interest at 8.25%, through December
                2005. The Company is in default under the terms of this
                note.
            
            
            85,143
            
            
            96,976Unsecured
                installment payment agreement to New York State Department of Taxation
                and
                Finance, payable in monthly payments of $5,455 through June 2006.
                Includes
                principle and imputed interest and penalties at 16.67%.
            
            
            21,085
            
            
            36,153Unsecured
                term note to individual creditor, payable June 30, 2006, including
                all
                accrued interest at 14%.
            
            
            100,000
            
            
            -Unsecured
                term note, payable to Momentum Capital, a related party, due June
                30,
                2006, including all accrued interest at 7.5%.
            
            
            100,000
            
            
            -Unsecured
                bridge advance to related party, payable upon demand, including all
                accrued interest at 7.5%.
            
            
            75,000
            
            
            -Total
                debt
            
            
            4,603,363
            
            
            4,666,716Less:
                Current maturities
            
            
            3,820,291
            
            
            3,815,337Long
                term portion
            
            $
            783,072
            
            $
            851,379




15




As
      of
      March 31, 2006, the Company is in default on two of the loan agreements. The
      Company is in arrears by $109,870 for the Global Crossing note and the entire
      balance on the unsecured note payable to a related party creditor is in arrears.
      There have been no adverse actions from these creditors concerning the arrearage
      amount.




The
      weighted-average interest rate on the debt listed above is 8.8% as of March
      31,
      2006.




The
      aggregate principal re-payments of long term debt are as follows:




2006
            
            $
            3,820,2912007
            
            
            285,9132008
            
            
            307,3442009
            
            
            189,815




**NOTE
      7 - Transactions with Related Parties**




On
      March
      31, 2004, the Company issued warrants to purchase 250,000 shares of common
      stock
      to two Board members in connection with advisory service agreements with each
      of
      these individuals. These two board members are now operating in the capacity
      of
      interim CEO’s of the Company. All warrants have an exercise price of $1.35 per
      share and are exercisable on or before March 31, 2007.




The
      Company currently has a $85,143 unsecured note payable to an entity that
      includes one of our board members. Although the Company is in default under
      this
      agreement, no demands have been made by this creditor to pay the loan.
      Additionally, the company has a $100,000 unsecured note payable to Momentum
      Capital, whose principals are comprised of our co-CEO’s. One of our co-CEO’s
      provided a bridge loan on March 31, 2006 in the amount of $75,000. This note
      was
      repaid on April 3, 2006.




**NOTE
      8 - Product Warranties**




The
      change in the aggregate product warranty liability which relates to Frontrunner
      for the year ended December 31, 2005 is as follows:




3/31/06
            
            3/31/05Beginning
                balance
            
            $
            191,624
            
            $
            115,030Additional
                warranties issued
            
            
            80,381
            
            
            96,958Claims
                paid
            
            
            (70,463
            )
            
            (49,032
            )Revisions
                in estimates
            
            
            (53,850
            )
            
            (3,780
            )Balance,
                end of period
            
            $
            147,692
            
            $
            159,176





16




**NOTE
      9 - Commitments and Contingencies**




As
      permitted under Florida law, the Company has agreements indemnifying its
      executive officers and directors for certain events and occurrences while the
      officer or director is, or was, serving at the Company’s request in such
      capacity. The maximum potential amount of future payments the Company could
      be
      required to make under these indemnification agreements is not estimable. The
      Company has secured an insurance policy, which will enable the company to
      recover a portion of any future amounts that may be paid. No liabilities have
      been recorded for these indemnification agreements as of March 31, 2006 or
      December 31, 2005.




During
      2005 the Company became aware of additional contingent liabilities for
      Frontrunner that related to periods prior to the acquisition date. The majority
      of these contingent liabilities were associated with potential prevailing wage
      laws for state work in the state of New York. The total amount of this potential
      liability is approximately $405 thousand of which approximately $317 thousand
      related to periods prior to the acquisition of Frontrunner. The amount of the
      liability related to pre acquisition periods was recorded as an adjustment
      to
      goodwill with the difference recorded in earnings prospectively. An additional
      $95 thousand of contingent liabilities were identified that related to prior
      periods. The majority of these liabilities were for costs to remove fiber optic
      cable from rented utility poles in New York. These liabilities also related
      to
      periods prior to the acquisition date of Frontrunner and were recorded as an
      adjustment to goodwill.




**NOTE
      10 - Segment Reporting**




The
      Company follows the provisions of SFAS No. 131, “Disclosures about Segments of
      an Enterprise and Related Information.” This standard establishes standards for
      reporting information regarding operating segments in annual financial
      statements and requires selected information for those segments to be presented
      in interim financial reports issued to stockholders. Operating segments are
      identified as components of an enterprise about which separate, discrete
      financial information is available for evaluation by the chief operating
      decision makers in making decisions on how to allocate resources and assess
      performance. Frontrunner is a single-source provider of business communications
      equipment and multimedia integration services for data, voice, video, and
      advanced applications. Most of Frontrunner’s customers are located in the
      northeast United States. Nexvu licenses its proprietary application performance
      monitoring software along with related hardware. It also provides consulting
      services to its customers. For purposes of segment reporting, the Company
      considers Nexvu and Frontrunner as two separate identifiable businesses. These
      two segments have separate management teams and financial statements.




17




**Results
      of Operation:**




Three
      months ended March 31, 2006.




Frontrunner
            
            Nexvu
            
            Corp/elim
            
            TotalRevenues
            
            $
            3,476,134
            
            $
            386,762
            
            $
            -
            
            $
            3,862,896Gross
                margin
            
            
            1,625,733
            
            
            214,447
            
            
            -
            
            
            1,840,180Expenses
            
            
            1,645,368
            
            
            481,493
            
            
            381,681
            
            
            2,508,542Operating
                income (loss)
            
            
            (19,635
            )
            
            (267,046
            )
            
            (381,681
            )
            
            (668,362
            )Interest
                expense (income)
            
            
            100,509
            
            
            (44
            )
            
            1,642
            
            
            102,107Loss
                before taxes
            
            
            (120,144
            )
            
            (267,002
            )
            
            (383,323
            )
            
            (770,469
            )Depreciation
                / amortization
            
            
            181,127
            
            
            22,161
            
            
            -
            
            
            203,288Capital
                expenditures
            
            
            19,100
            
            
            53,049
            
            
            -
            
            
            72,149





Three
      months ended March 31, 2005.




Frontrunner
            
            Nexvu
            
            Corp/elim
            
            TotalRevenues
            
            $
            3,727,562
            
            $
            327,184
            
            $
            -
            
            $
            4,054,746Gross
                margin
            
            
            1,757,032
            
            
            156,060
            
            
            -
            
            
            1,913,092Expenses
            
            
            1,590,260
            
            
            425,604
            
            
            209,233
            
            
            2,225,097Operating
                income (loss)
            
            
            166,772
            
            
            (269,544
            )
            
            (209,233
            )
            
            (312,005
            )Interest
                expense (income)
            
            
            100,622
            
            
            (16,626
            )
            
            -
            
            
            83,996Earning
                (loss) before taxes
            
            
            66,150
            
            
            (252,918
            )
            
            (209,233
            )
            
            (396,001
            )Depreciation
                / amortization
            
            
            197,115
            
            
            19,807
            
            
            -
            
            
            216,922Capital
                expenditures
            
            
            9,212
            
            
            863
            
            
            -
            
            
            10,075





**Segment
      assets as of March 31, 2006.**




Frontrunner
            
            Nexvu
            
            Corp/elim
            
            TotalTangible
                assets
            
            $
            3,310,475
            
            $
            2,624,120
            
            $
            (1,155,912
            )
            $
            4,778,683Intangibles
                & goodwill
            
            
            6,636,266
            
            
            -
            
            
            -
            
            
            6,636,266Total
                assets
            
            $
            9,946,741
            
            $
            2,624,120
            
            $
            (1,155,912
            )
            $
            11,414,949





**Segment
      assets as of December 31, 2005**




Frontrunner
            
            Nexvu
            
            Corp/elim
            
            TotalTangible
                assets
            
            $
            2,926,847
            
            $
            2,693,263
            
            $
            (1,263,777
            )
            $
            4,356,333Intangibles
                & Goodwill
            
            
            6,777,877
            
            
            -
            
            
            -
            
            
            6,777,877Total
                assets
            
            $
            9,704,724
            
            $
            2,693,263
            
            $
            (1,263,777
            )
            $
            11,134,210





18




**Item
      2. Management’s Discussion and Analysis**




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




**Overview**




As
      of
      March 31, 2006, the Company’s current liabilities exceeded its current assets by
      $5.6 million. Included in the current liabilities is $3.8 million of current
      maturities of long-term debt, including a $2.9 million demand note payable
      to
      Harris Bank. This debt reflects pre-existing balances assumed from the
      acquisition of Frontrunner during 2004. Cash on hand at March 31, 2006 was
      $263
      thousand. The Company has incurred operating losses of $2.3 million and $4.9
      million for the two years ended December 31, 2005 and 2004 respectively and
      $786
      thousand for the three months ended March 31, 2006. Cash utilized in operating
      activities were $1.8 million and $3.3 million for the two years ended December
      31, 2005 and 2004 respectively. Only $44 thousand of cash was utilized for
      operating activities during the three months ended March 31, 2006. However,
      net
      losses were funded by delaying payments to vendors, increasing accounts payable
      by $862 thousand since December 31, 2005.




The
      Company’s net working capital deficiency, recurring losses and negative cash
      flows from operations raise substantial doubt about the Company’s ability to
      continue as a going concern. During the three months ended March 31, 2006,
      the
      Company’s revenues decreased by 5% and increased its loss from $404 thousand to
      $786 thousand. Nexvu is continuing to strive to increase sales of its software
      products and professional services in order decrease the operating losses
      experienced previously. Frontrunner sales have decreased and subsequent to
      March 31, 2006, they reduced its headcount by an additional 5%. Both
      companies continue to be vigilant on operating expenses. Through May 14, 2006,
      the Company has raised $200 thousand in bridge loans and is attempting to raise
      additional funds through this method in order to fund current working capital
      needs. Additionally, the Company may attempt to raise additional capital which
      may involve the issuance of common stock in order to fund working capital needs,
      reduce debt and provide additional funding. However, no assurance can be made
      that the additional bridge loans and an adequate capital raise can be
      completed.




We
      presently have approximately 105 full time employees between Nexvu and
      Frontrunner. We do not anticipate that this number will increase significantly
      in the near future. In addition, there are no current plans to significantly
      increase our capital spending on software or equipment.




19




**Results
      of Operations**




**Three
      months ended March 31, 2006 compared to 2005**




Revenues
      for the three month period ended March 31, 2006 were heavily influenced by
      Frontrunner. Frontrunner is generating 90% of the consolidated revenue. Total
      revenues from Frontrunner were $3.5 million, representing a 7% decrease to
      the
      prior year comparable period. Revenues for Frontrunner are generated from
      installation of voice and data systems, as well as, through managed services
      and
      maintenance contracts on installed systems. Installation revenues represented
      approximately 46% of total Frontrunner revenues with managed services and
      maintenance revenues representing approximately 54% of the total Frontrunner
      revenues. Installation revenues were down 2% to the prior year with managed
      services and maintenance revenues declining 11%. This
      decrease reflects the decline in the base of customers with maintenance
      contracts that occurred during 2005.The Nexvu revenues for the three
      month period ended March 31, 2005 were approximately $327 thousand representing
      an 18% increase compared to the prior year. The Nexvu sales are comprised
      primarily of consulting services and sales of our software product. Consulting
      services experienced a 23% increase in revenues and resulted in the majority
      of
      the increase in the Nexvu revenues, with sales of Nexvu’s software product and
      related maintenance increasing 2%. The percentage of total revenue for Nexvu
      was
      81% for consulting services and 19% for product sales and related
      maintenance.




Our
      consolidated gross margin rate was 47.6% compared to 47.2% last year. Gross
      margins for Frontrunner were 47% and relatively flat to the prior year. The
      managed services and maintenance revenues had a 47% gross margin rate, down
      slightly from last year of 48%. Gross margin on installation revenues were
      32%
      comparing favorably to the 26% achieved last year. Although installation margins
      were up compared to the prior year, there is significant competition in this
      market and margin rates will continue to be pressured. The Nexvu gross margin
      rates were 55% for the three month period ended March 31, 2006, increasing
      from
      the 48% attained last year. Gross margin includes outside labor on consulting
      arrangements, amortization of software licensing fees related to the development
      of our product, sales commissions and incidental expenses billable to
      customers.




Total
      operating expenses were as follows:




Three
                months ended,March
                31, 2006
            
            March
                31, 2005Compensation
            
            $
            1,492,296
            
            $
            1,296,843Travel
                and entertainment
            
            
            51,862
            
            
            46,293Occupancy
            
            
            124,345
            
            
            128,721Professional
                services
            
            
            338,306
            
            
            118,336Insurance
            
            
            81,371
            
            
            40,152Depreciation
                and amortization
            
            
            203,288
            
            
            216,922Other
                operating expenses
            
            
            217,074
            
            
            377,830Total
                operating expenses
            
            $
            2,508,542
            
            $
            2,225,097





The
      majority of our operating expenses consist of compensation expenses,
      professional fees and depreciation and amortization expenses. The increase
      in
      the compensation expense is the result of higher levels of headcount at
      Frontrunner. Frontrunner compensation was approximately $1.0 million. Total
      compensation expense for Nexvu was approximately $351 thousand approximately
      flat to last year, with corporate salaries of approximately $105 thousand.
      The
      professional fees are primarily related to legal fees related to securities
      work
      related to filings with the Securities and Exchange Commission and NASD and
      other general legal work as well as, accounting fees. In addition, the Company
      agreed to issue an additional 100,000 shares of its common stock to two of
      the
      guarantors on the Harris demands loan in connection with the continuance of
      such
      guarantees. The Company has not yet issued such shares, but has expensed $135
      thousand during the three months ended March 31, 2006, with respect to such
      obligation to issue shares expenses. Our travel and entertainment expenses
      relate primarily to costs associated with our sales force. Our occupancy expense
      represents the costs of our corporate offices in Schaumburg, IL, our Frontrunner
      office in Rochester, NY, as well as 11 other sales offices. The majority of
      the
      depreciation is comprised of the amortization of the acquired customer list
      of
      Frontrunner, with $141.6 thousand of expense recorded during the quarter. Other
      expenses are principally comprised of operations and marketing expenses at
      Frontrunner.




20




The
      current period results reflect interest expense on the $4.6 million of debt.
      The
      debt has a weighted average interest rate of 8.8% compared to 6.2% during the
      same quarter last year. This increase in the average interest rate is primarily
      the result of higher prime interest rates, which correlate to the interest
      costs
      of Frontrunner’s largest lender, Harris Bank. However debt levels have fallen
      from $5.7 million at March 31, 2005 to the current level of $4.6 million,
      resulting in an overall decrease in interest expense.




**Three
      months ended March 31, 2005 compared to 2004**




Revenues
      for the three month period ended March 31, 2005 were heavily influenced by
      the
      acquisition of Frontrunner. Frontrunner is generating over 90% of the
      consolidated revenue. Total revenues from Frontrunner were $3.7 million with
      revenues generated from installation of voice and data systems, as well as,
      through managed services and maintenance contracts on installed systems.
      Installation revenues represented approximately 46% of total Frontrunner
      revenues with managed services and maintenance revenues representing
      approximately 37% of the total revenues. The Nexvu revenues for the three month
      period ended March 31, 2005 were approximately $327 thousand and are comprised
      primarily of sales of our product, as well as consulting fees and maintenance.
      The percentage of total revenue for Nexvu was 78% for consulting services and
      18% for product sales. Maintenance revenues comprised the remaining
      revenues.




Gross
      margins for Frontrunner were 47% with the managed services and maintenance
      revenues having a 48% gross margin and installation revenues having a 26% gross
      margin. There is significant competition in this market and margins have been
      decreasing over the last year. The Nexvu gross margin rates were 48% for the
      three month period ended March 31, 2005. Gross margin includes the costs of
      the
      appliances included in the product sales, outside labor on consulting
      arrangements, amortization of software licensing fees related to the development
      of our product, sales commissions and incidental expenses billable to
      customers.




21




Total
      operating expenses were as follows:




Three
                months ended,March
                31, 2005
            
            March
                31, 2004Compensation
            
            $
            1,296,843
            
            $
            674,582Travel
                and entertainment
            
            
            46,293
            
            
            48,634Occupancy
            
            
            128,721
            
            
            29,628Professional
                services
            
            
            118,336
            
            
            157,293Insurance
            
            
            40,152
            
            
            6,098Depreciation
                and amortization
            
            
            216,922
            
            
            17,754Other
                operating expenses
            
            
            377,830
            
            
            97,385Total
                operating expenses
            
            $
            2,225,097
            
            $
            1,031,374





The
      majority of our operating expenses consist of compensation expenses,
      professional fees and depreciation and amortization expenses. During 2004,
      we
      took steps to reduce the overall number of Nexvu employees by over 50%. This
      was
      accomplished by a partial reduction in July and another reduction in August.
      Annual savings from this reduction are estimated to be over $1.5 million due
      to
      decreased compensation, travel and other incidental expenses. Nexvu currently
      has 12 full time employees, down from a level during early 2004 that reached
      30.
      Total compensation expense for Nexvu was approximately $350 thousand, down
      from
      the $675 thousand during the 1 st quarter
      2004. Frontrunner compensation was approximately $855 thousand with corporate
      salaries of approximately $92 thousand. The professional fees are primarily
      related to legal fees related to acquisitions and securities work related to
      filings with the Securities and Exchange Commission and NASD, as well as
      accounting fees. Our travel and entertainment expenses relate primarily to
      costs
      associated with our sales force. Our occupancy expense represents the costs
      of
      our corporate offices in Schaumburg, IL, our Frontrunner office in Rochester,
      NY, as well as, 11 other sales offices. During September 2004, we made the
      decision to move our corporate offices to another location in Schaumburg, IL,
      sharing space with the Frontrunner division. We subleased the vacated offices
      through the remaining term (December 2005) and recorded a charge of $78 thousand
      for the remaining lease payments, net of future sublease income. The majority
      of
      the depreciation is comprised of the amortization of the acquired customer
      list
      of Frontrunner, with $153.6 thousand of expense recorded during the quarter.
      Other expenses are principally comprised of operations and marketing expenses
      at
      Frontrunner.




The
      current period results reflect interest expense on the $5.7 million of debt.
      The
      debt has a weighted average interest rate of 6.2%. Partially offsetting the
      debt
      is interest income on the invested cash balances. The 2004 results reflect
      interest expense on the remaining debt of Nexvu prior to the raise of capital
      and subsequent conversion and repayment of the debt.




**Liquidity
      and Capital Resources**




Cash
      utilized in operating activities was $44 thousand during the three month period
      ending March 31, 2006 compared to $1.1 million the previous comparable period.
      Although the cash utilization is favorable, it was attained by delaying payments
      to vendors, with accounts payable growing during the first quarter by $861
      thousand. Accounts receivable increased since December 31, 2005 primarily due
      to
      timing of receipts of existing receivables and to timing of advanced billings
      to
      customers.




22




The
      Company did not utilize significant cash for investing activities as $66
      thousand was used during the quarter. These expenditures were primarily the
      result of moving our offices for our Nexvu engineering staff to new facilities
      during the first quarter. This was required as our old lease expired and was
      not
      renewed by the landlord. We do not expect to require significant expenditures
      in
      the future.




Total
      cash utilized in financing activities was $63 thousand and represents a $338
      reduction in Frontrunner debt during the three month period ended March 31,
      2006
      partially offset by an additional $275 thousand of debt taken by CGSI (the
      holding company).




Through
      May 14, 2006, the Company has raised $200 thousand in bridge loans and is
      attempting to raise additional funds through this method in order to fund
      current working capital needs. Additionally, the Company may attempt to raise
      additional capital which may involve the issuance of common stock in order
      to
      fund working capital needs, reduce debt and provide additional funding. However,
      no assurance can be made that the additional bridge loans and an adequate
      capital raise can be completed.




We
      have
      future contractual obligations for leases of our offices and for minimum future
      royalty payments related to a software licensing agreement with a third party.
      This software is being utilized as a component of our own proprietary software.
      The following table summarizes our future contractual obligations as of March
      31, 2006:




Operating
              Leases
            
            Debt
                Obligations
            
            Minimum
                Royalty Payments2006
            
            $
            331,551
            
            $
            3,820,291
            
            $
            100,0002007
            
            
            173,440
            
            
            285,913
            
            
            125,0002008
            
            
            193,706
            
            
            307,344
            
            
            150,0002009
            
            
            150,657
            
            
            189,815
            
            
            -2010
                and beyond
            
            
            179,111
            
            
            -
            
            
            -Total
                contractual obligations
            
            $
            1,028,465
            
            $
            4,603,363
            
            $
            375,000





All
      debt
      that is callable or not in compliance is reflected in the 2006 obligations.




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




23




**Critical
      Accounting Policies**




The
      preparation of our consolidated financial statements in conformity with
      accounting principles generally accepted in the United States requires us to
      make estimates and judgments that affect our reported assets, liabilities,
      revenues, and expenses, and the disclosure of contingent assets and liabilities.
      We base our estimates and judgments on historical experience and on various
      other assumptions we believe to be reasonable under the circumstances. Future
      events, however, may differ markedly from our current expectations and
      assumptions. While there are a number of significant accounting policies
      affecting our consolidated financial statements; we believe the following
      critical accounting policies involve the most complex, difficult and subjective
      estimates and judgments.




**Revenue
      Recognition**




The
      Company generates revenue from selling and installing hardware, licensing its
      software and the provision of services.




For
      revenue from product sales and services, the Company recognizes revenue in
      accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition”
(“SAB104”), which superceded Staff Accounting Bulletin No. 101, “Revenue
      Recognition in Financial Statements” (“SAB 101”).




SAB
      101
      requires that four basic criteria must be met before revenue can be recognized:
      (1) persuasive evidence that an arrangement exists; (2) delivery has occurred;
      (3) the selling price is fixed and determinable; and (4) collectibility is
      reasonably assured. Determination of criteria (3) and (4) are based on
      management's judgments regarding the fixed nature of the selling prices of
      the
      products delivered and the collectibility of those amounts. Provisions for
      discounts and rebates to customers, estimated returns and allowances, and other
      adjustments are provided for in the same period the related sales are recorded.
      The Company defers any revenue for which the product has not been delivered
      or
      is subject to refund until such time that the Company and the customer jointly
      determine that the product has been delivered or no refund will be
      required.




SAB
      104
      incorporates Emerging Issues Task Force 00-21 (“EITF 00-21”),
“Multiple-Deliverable Revenue Arrangements.” EITF 00-21 addresses accounting for
      arrangements that may involve the delivery or performance of multiple products,
      services and/or rights to use assets. The effect of implementing EITF 00-21
      on
      the Company's consolidated financial position and results of operations was
      not
      significant.




The
      Company recognizes revenues and all related costs on installation contracts
      with
      revenues of $100,000 or more using the percentage of completion method. Progress
      is measured by the percentage of actual labor incurred to date to management’s
      estimate of total labor to be incurred on each contract. This method is used
      as
      management considers labor incurred to be the best available measure of progress
      on these contracts. Contract costs include all direct subcontractor labor and
      supervisory labor costs and those indirect costs related to contract performance
      such as indirect labor, supplies and other general expenses. Provisions for
      estimated losses on uncompleted contracts are made in the period in which such
      losses are determined. Changes in job performance, conditions and estimated
      profitability may result in revisions to costs and income and are recognized
      in
      the period in which revisions are determined. All installation contracts with
      revenues less than $100,000 are accounted for on the completed contract method.
      The Company recognizes revenue and all related costs on these contracts upon
      delivery and acceptance by the customer.




24




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




**Goodwill
      and Purchased Intangible Assets**




In
      July
      2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets.”
Effective for fiscal years beginning after December 15, 2001, SFAS No. 142
      requires goodwill to be tested for impairment on an annual basis and between
      annual tests in certain circumstances, and written down when impaired, rather
      than being amortized as previous accounting standards required. Furthermore,
      SFAS No. 142 requires purchased intangible assets other than goodwill to be
      amortized over their useful lives unless these lives are determined to be
      indefinite. Intangible assets, consisting of software licenses and customer
      lists, are amortized on a straight-line basis over periods ranging from 3 to
      7
      years, representing the remaining life of the assets.




Based
      on
      the impairment tests performed by management, there was no impairment of
      goodwill in 2005 or 2004 nor does management believe that any impairment has
      occurred during 2006. There can be no assurance that future goodwill impairment
      tests will not result in a charge to earnings.




**Stock-Based
      Compensation**




At
      March
      31, 2006, the Company has a stock option plan, which is described more fully
      in
      Note 4. Prior to January 1, 2006, the company accounted for those plans under
      the recognition and measurement provisions of APB Opinion No. 25, *Accounting
      for Stock Issued to Employees* ,
      and
      related Interpretations, as permitted by FASB Statement No. 123, *Accounting
      for Stock-Based Compensation* .
      No
      stock-based employee compensation cost was recognized in the Statement of
      Operations for the three month period ended March 31, 2005, as all outstanding
      unvested options granted under those plans at that time had an exercise price
      equal to the market value of the underlying common stock on the date of grant
      and no restricted stock grants were outstanding during that period. Effective
      January 1, 2006, the Company adopted the fair value recognition provisions
      of
      FASB Statement No. 123(R), *Share-Based
      Payment* ,
      using
      the modified-prospective-transition method. Under this transition method,
      compensation cost recognized in fiscal 2006 includes: (a) compensation cost
      for
      all share-based payments granted prior to, but not yet vested as of January
      1,
      2006, based on the grant date fair value estimated in accordance with the
      original provisions of Statement 123, and (b) compensation cost for all
      share-based payments granted subsequent to January 1, 2006, based on the
      grant-date fair value estimated in accordance with the provisions of Statement
      123(R) (of which there were none). Results for prior periods have not been
      restated.




**Inventory**
 
 Inventories
        are stated at lower of cost or market as determined by the first in, first
        out
        (FIFO) method. The entire inventory represents balances from Frontrunner
        as
        Nexvu has no inventory. The reserve balance is estimated by management based
        on
        previous experience and considers the on-hand inventory needs based on the
        networks under maintenance service agreements.


Off-Balance
      Sheet Obligations




The
      Company has no off-balance sheet
      obligations.




**Subsequent
      Events**




On
        April
        21, 2006, the NASD cleared the common stock shares of the Company for unpriced
        quotation on the Over the Counter Bulletin Board. the Company's shares will
        be
        quoted under the symbol "CGSY.OB".





25




**Item
      3. Controls and Procedures**




**Evaluation
      of Disclosure Controls and Procedure**




Our
      co-chief executive officers and chief financial officer have evaluated our
      disclosure controls and procedures as of March 31, 2006, and have concluded
      that, as of March 31, 2006, these controls and procedures have been effectively
      designed to ensure that information required to be disclosed in reports that
      we
      file with or submit to the United States Securities and Exchange Commission
      is
      recorded, processed, summarized and reported within the time periods specified
      in the Commission’s rules and forms and is accumulated and communicated to
      management as appropriate to allow timely decisions regarding this
      disclosure.




**Changes
      in Internal Control Over Financial Reporting**




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




**PART
      II - OTHER INFORMATION**




**Item
      1. Legal Proceedings**




None.




**Item
      2. Changes in Securities and Small Business Issuer Purchases of Equity
      Securities**




None.




**Item
      3. Defaults Upon Senior Securities**




None.




**Item
      4. Submission of Matters to a Vote of Security Holders**




None.




**Item
      5. Other Information**




None.




**Item
      6.** **Exhibits**




Exhibits filed as a part of this quarterly report on Form 10-QSB are listed
      in
      the Index to Exhibits located on page 28 of this Report.




26




**SIGNATURES**






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




CAPITAL
                GROWTH SYSTEMS, INC.By:
            /s/ Lee
              WiskowskiLee
              Wiskowski, Co-Chief Executive
              Officer




By:
            /s/ Douglas
              StukelDouglas
              Stukel, Co-Chief Executive
              Officer




By:
            /s/ Derry
              L.
              BehmDerry
              L. Behm, Chief Financial and Accounting
              OfficerDated: May 22, 2006




27




**EXHIBIT
      INDEX**


Exhibit
                  Number
              Description
                  of Document3.i
              Articles
                  of Incorporation of Capital Growth Systems, Inc.(1)3.ii
              By-laws
                  of Capital Growth Systems, Inc.(1)4.1
              Registration
                  Rights Agreement by and among Capital Growth Systems, Inc. and
                  certain
                  shareholders of the Company dated as of December 16, 2003.(2)4.2
              Form
                  of Warrant to Purchase common stock of Capital Growth Systems,
                  Inc. for
                  bridge lenders.(3)4.3
              Form
                  of Warrant to Purchase common stock of Capital Growth Systems,
                  Inc. for
                  Advisory Service Agreements.(3)4.4
              Form
                  of Warrant to Purchase common stock of Capital Growth Systems,
                  Inc. for
                  selling shareholder.(3)4.5
              2003
                  Long-Term Incentive Plan.(3)31.1
              Certification
                  of co-CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.31.2
              Certification
                  of co-CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.31.3
              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.




__________________________
 (1)
              Incorporated
                  herein by reference to the Form 10-SB filed with the Commission
                  on June
                  20, 2000 (File No. 0-30831)
 
 (2)
              Incorporated
                  herein by reference to the Form 8-K filed with the Commission on
                  February
                  11, 2004 (File No. 0-30831).
 
 (3)
              Incorporated
                  herein by reference to the Form 10-KSB for fiscal year ended December
                  31,
                  2003, filed with the Commission on May 6, 2004 (File No.
                  0-30831).




28