UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-KSB/A
                                 AMENDMENT NO. 2

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005

                          Commission File No.: 1-31292

                        EMPIRE FINANCIAL HOLDING COMPANY
                 ----------------------------------------------
        (Exact Name of Small Business Issuer as Specified in its Charter)

                   Florida                                 56-3627212
      -------------------------------                  -------------------
      (State or other jurisdiction of                   (I.R.S. Employer
       incorporation or organization)                  Identification No.)

                       2170 West State Road 434, Suite 100
                       Suite 100, Longwood, Florida 32779
               ---------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                                 (407) 774-1300
                           ---------------------------
                           (Issuer's telephone number)

         Securities registered under Section 12(b) of the Exchange Act:

    Title of Each Class                Name of Each Exchange on Which Registered
    -------------------                -----------------------------------------
Common Stock, $.01 Par Value                    American Stock Exchange

           Securities Registered Pursuant to Section 12(g) of the Act:

                                      None

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

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

         The issuer's revenues for its fiscal year ended December 31, 2005:
$22,485,731.

         The aggregate market value of the voting stock held by non-affiliates
of the Company as of March 20, 2006 computed by reference to the average bid and
asked prices of registrant's common stock reported on the American Stock
Exchange on such date was $5,959,420.

         The number of shares of outstanding registrant's Common Stock, $.01 par
value per share, as of March 20, 2006 was 6,889,005.

         Transitional Small Business Disclosure Format (check one): Yes[_] No[X]

<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

None.

                                EXPLANATORY NOTE

This Amendment No. 2 to the Company's annual report on Form 10-KSB for the
fiscal year ended December 31, 2005, as filed by the Company on March 20, 2005
and as amended by Amendment No. 1, filed on May 2, 2005, is being filed solely
to correct the report of the independent registered public accounting firm.


ITEM 7.  FINANCIAL STATEMENTS
-----------------------------

The consolidated financial statements of Empire Financial Holding Company, the
accompanying notes thereto and the independent registered public accounting
firm's report are included as part of this Amendment No. 2 to the Company's
annual report on Form 10-KSB and immediately follow the signature page of this
Amendment No. 2 to the Company's annual report on Form 10-KSB.


ITEM 13. EXHIBITS
-----------------

Exhibit No.  Description of Exhibit
-----------  ----------------------

3.1          Articles of Incorporation of Empire Financial Holding Company (1)

3.2(a)       Bylaws of Empire Financial Holding Company(1)

3.2(b)       Amendment to Sections 3.9 and 4.16 of Bylaws of Empire Financial
             Holding Company(2)

4.1          Form of Underwriter's Warrant Agreement, including form of Warrant
             Certificate(1)

4.2          Form of Common Stock Certificate (1)

4.3          Certificate of Designation, Preferences and Rights of Series A
             Convertible Preferred Stock of Empire Financial Holding Company(4)

4.4          Articles of Amendment designating Series B Convertible Preferred
             Stock, Series C Convertible Preferred Stock, and Series D
             Convertible Preferred Stock of Empire Financial Holding Company,
             dated May 19, 2005 (5)

4.5          Articles of Amendment designating Series E Convertible Preferred
             Stock of Empire Financial Holding Company, dated December 14, 2005
             (6)

4.6          Articles of Amendment increasing the number of authorized shares of
             Series E Convertible Preferred Stock of Empire Financial Holding
             Company, dated February 21, 2006 (7)

4.7          Articles of Amendment designating Series F Convertible Preferred
             Stock of Empire Financial Holding Company, dated March 13, 2006

10.1         Amended and Restated 2000 Incentive Compensation Plan(9)

10.2*        Severance Agreement between Empire Financial Holding Company and
             Kevin M. Gagne(10)

                                        2
<PAGE>

10.3*        Employment Agreement between Empire Financial Holding Company and
             Patrick E. Rodgers(9)

10.4*        Employment Agreement between Empire Financial Holding Company and
             Donald A. Wojnowski Jr.(9)

10.5         Lease between Empire Financial Holding Company and Emerson
             Investments International, Inc., relating to the lease of the
             Registrant's principal executive offices(9)

10.6         Form of Indemnification Agreement between Empire Financial Holding
             Company and each of its Directors and executive officers(1)

10.7         Mutual Release between Empire Financial Holding Company, Richard L.
             Goble, the Richard L. Goble First Revocable Trust, Henry N.
             Dreifus, Kevin M. Gagne, Bradley L. Gordon, and John J. Tsucalas(3)

10.8         Stock Purchase Agreement between the Gagne First Revocable Trust,
             Kevin M. Gagne and Richard L. Goble(3)

10.9         Promissory Note in the principal amount of $500,000, executed by
             Empire Financial Holding Company in favor of Kevin M. Gagne and the
             Gagne First Revocable Trust(3)

10.10        Fully Disclosed Clearing Agreement by and between Penson Financial
             Services, Inc. and Empire Financial Group, Inc.(9)

10.11        Stock Purchase Agreement, dated March 8, 2005, between Empire
             Financial Holding Company and EFH Partners, LLC.(11)

10.12        Stock Exchange Agreement, dated March 8, 2005, between Empire
             Financial Holding Company, Kevin M. Gagne and the Gagne First
             Revocable Trust.(11)

10.13        Transfer Agreement by and among Empire Financial Holding Company,
             Empire Financial Group, Inc., Regal Securities, Inc., and Penson
             Financial Services, Inc., as Clearing Broker dated as of November
             21, 2005. (12)

10.14        Form of Securities Purchase Agreement dated as of March 10, 2006
             (8)

10.15        Form of Warrant to be issued in connection with Securities Purchase
             Agreement dated as of March 10, 2006 (8)

10.16        Employment Agreement with Donald A. Wojnowski dated June 1, 2005
             (13)

10.17        Employment Agreement with Steven M. Rabinovici dated June 1, 2005
             (13)

10.18        Employment Agreement with John J. Wilson date November 15, 2005
             (13)

10.19        Employment Agreement with James Matthew dated May 15, 2006 (14)

14.1         Code of Ethical Conduct(9)

21.1         Subsidiaries of Empire Financial Holding Company(9)

31.1         Certification by Principal Executive Officer pursuant to Rule
             13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934,
             as amended

                                        3
<PAGE>

31.2         Certification by Principal Financial Officer pursuant to Rule
             13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934,
             as amended

32.1         Principal Executive Officer Certification pursuant to Rule
             13a-14(a) or Rule 15d-14(a) of the Securities and Exchange Act of
             1934, as amended, and 18 U.S.C. Section 1350

32.2         Principal Financial Officer Certification pursuant to Rule
             13a-14(a) or Rule 15d-14(a) of the Securities and Exchange Act of
             1934, as amended, and 18 U.S.C. Section 1350
_________________

*    Indicates management contract or compensatory plan or arrangement

(1)  Incorporated by reference from the exhibits filed with Empire Financial
     Holding Company's Registration Statement on Form S-1 Registration No.
     333-86365.

(2)  Incorporated by reference from the exhibits filed with Empire Financial
     Holding Company's Annual Report on Form 10-K for the fiscal year ended
     December 31, 2002.

(3)  Incorporated by reference from the exhibits filed with Empire Financial
     Holding Company's Current Report on Form 8-K dated October 17, 2003.

(4)  Incorporated by reference from the exhibits filed with Empire Financial
     Holding Company's Current Report on Form 8-K dated October 17, 2003.

(5)  Incorporated by reference from the exhibits filed with Empire Financial
     Holding Company's Current Report on Form 8-K dated May 26, 2005.

(6)  Incorporated by reference from the exhibits filed with Empire Financial
     Holding Company's Current Report on Form 8-K dated December 20, 2005

(7)  Incorporated by reference from the exhibits filed with Empire Financial
     Holding Company's Current Report on Form 8-K dated February 28, 2006.

(8)  Incorporated by reference from the exhibits filed with Empire Financial
     Holding Company's Current Report on Form 8-K dated March 17, 2006.

(9)  Incorporated by reference from the exhibits filed with Empire Financial
     Holding Company's Annual Report on Form 10-KSB for the fiscal year ended
     December 31, 2004.

(10) Incorporated by reference from the exhibits filed with Empire Financial
     Holding Company's Current Report on Form 8-K dated June 25, 2004.

(11) Incorporated by reference from the exhibits filed with Empire Financial
     Holding Company's Current Report on Form 8-K dated March 8, 2005.

(12) Incorporated by reference from the exhibits filed with Empire Financial
     Holding Company's Current Report on Form 8-K dated November 23, 2005.

(13) Incorporated by reference from the exhibits filed with Empire Financial
     Holding Company's Amendment No. 1 to the Annual Report on Form 10-KSB for
     the fiscal year ended December 31, 2005.

(14) Incorporated by reference from the exhibits filed with Empire Financial
     Holding Company's Current Report on Form 8-K dated May 15, 2006.


                                        4
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                       EMPIRE FINANCIAL HOLDING COMPANY


Dated    August 18, 2006               By: /s/ Donald A. Wojnowski Jr.
                                       -------------------------------
                                       Donald A. Wojnowski Jr., President
                                       (Principal Executive Officer)


Dated    August 18, 2006               By: /s/ James M. Matthew
                                       ------------------------
                                       James M. Matthew, Chief Financial Officer
                                       (Principal Financial Officer and
                                       Principal Accounting Officer)


In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.

Signatures                    Title                              Date

/s/ Donald A. Wojnowski Jr.   President and Director,            August 18, 2006
---------------------------   (Principal Executive Officer)
Donald A. Wojnowski Jr.

/s/ James M. Matthew          Chief Financial Officer,           August 18, 2006
--------------------          (Principal Financial Officer and
James M. Matthew              Principal Accounting Officer)

/s/ John Rudy                 Director                           August 18, 2006
-------------
John Rudy

/s/ Bradley L. Gordon         Director                           August 18, 2006
---------------------
Bradley L. Gordon

/s/ Steven M. Rabinovici      Director                           August 18, 2006
------------------------
Steven M. Rabinovici


                                        5
<PAGE>

                        EMPIRE FINANCIAL HOLDING COMPANY
                        CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004


                                TABLE OF CONTENTS

                                                                            Page

Report of Independent Registered Public Accounting Firm .................... F-2

Report of Independent Registered Public Accounting Firm .................... F-3

Consolidated Statement of Financial Condition December 31, 2005 ............ F-4

Consolidated Statements of Operations Years Ended December 31, 2005
 and 2004 .................................................................. F-5

Consolidated Statements of Cash Flows Years Ended December 31, 2005
 and 2004 .................................................................. F-6

Consolidated Statements of Changes in Stockholders' Equity Years Ended
 December 31, 2005 and 2004 ................................................ F-8

Notes to Consolidated Financial Statements .................................F-10


                                       F-1
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of
Empire Financial Holding Company and Subsidiaries

We have audited the accompanying consolidated statement of financial condition
of Empire Financial Holding Company and subsidiaries as of December 31, 2005,
and the related consolidated statements of operations, changes in stockholders'
equity (deficit), and cash flows for the year ended December 31, 2005. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Empire Financial
Holding Company and Subsidiaries at December 31, 2005, and the results of its
operations and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.


                                       MILLER, ELLIN & COMPANY, LLP

New York, New York
March 14, 2006


                                       F-2
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Shareholders of
Empire Financial Holding Company and Subsidiaries

We have audited the accompanying consolidated statements of operations,
shareholders' deficit, and cash flows for the year ended December 31, 2004 of
Empire Financial Holding Company and subsidiaries. These consolidated financial
statements are the responsibilities of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of its operations and its cash
flows for the year ended December 31, 2004, in conformity with accounting
principles generally accepted in the United States of America.


                                       SWEENEY, GATES & CO.

Ft. Lauderdale, Florida
March 11, 2005


                                       F-3
<PAGE>

                        EMPIRE FINANCIAL HOLDING COMPANY
                  CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
                                December 31, 2005

Assets

  Cash and cash equivalents .....................................  $    380,599
  Marketable securities owned, at market value ..................     2,612,037
  Securities not readily marketable, at estimated fair value ....       165,909
  Commissions and other receivables from clearing organization ..       551,816
  Deposits at clearing organization .............................     1,173,688
  Furniture and equipment, net ..................................       223,727
  Prepaid expenses and other assets .............................       483,089
  Deferred tax asset ............................................     2,117,000
  Cash in escrow ................................................       350,000
  Notes receivable ..............................................     1,791,568
                                                                   ------------

                                                                      9,849,433
                                                                   ============

Liabilities and stockholders' equity

Liabilities

  Notes payable .................................................  $    979,167
  Line of credit payable ........................................       350,000
  Accrued expenses and other liabilities ........................     1,021,487
  Securities sold, but not yet purchased, at market value .......       261,683
  Due to clearing organization ..................................     2,069,838
                                                                   ------------

    Total liabilities ...........................................  $  4,682,175
                                                                   ------------

Commitments and contingencies

Stockholders' equity

  Convertible preferred stock, series B, C, D and E
    $.01 par value 1,000,000 shares authorized
    29,395 issued and outstanding ...............................  $        294
  Common stock, $.01 par value
    100,000,000 shares authorized
    6,599,005 shares issued and outstanding .....................        65,990
  Additional paid-in capital ....................................    10,840,349
  Accumulated deficit ...........................................    (5,739,375)
                                                                   ------------

    Total stockholders' equity ..................................  $  5,167,258
                                                                   ------------

    Total liabilities and stockholders' equity ..................  $  9,849,433
                                                                   ============

        See accompanying notes to the consolidated financial statements.

                                       F-4
<PAGE>
<TABLE>
                           EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                                 CONSOLIDATED STATEMENT OF OPERATIONS
                                           December 31, 2005
<CAPTION>
                                                                         TWELVE MONTHS   TWELVE MONTHS
                                                                             ENDED           ENDED
                                                                          December 31,    December 31,
                                                                             2005             2004
                                                                         -------------   -------------
<S>                                                                       <C>             <C>
Revenues
  Commissions and fees .................................................  $ 16,374,914   $ 16,154,705
  Equity market making trading revenues, net ...........................     5,451,815      5,063,633
  Investment banking income ............................................       266,410              -
  Other ................................................................       392,593        207,445
                                                                          ------------   ------------

                                                                            22,485,731     21,425,783
                                                                          ============   ============

Expenses
  Employee compensation and benefits ...................................     4,789,976      4,667,564
  Clearing and execution costs .........................................    15,070,113     14,505,969
  General and administrative ...........................................     2,287,449      3,438,657
  Communications and data processing ...................................       225,844        454,965
                                                                          ------------   ------------

                                                                            22,373,382     23,067,155
                                                                          ------------   ------------

Income from operations .................................................       112,349     (1,641,372)
                                                                          ------------   ------------

Other income (expenses)
  Gain on sale of online trading discount business .....................       452,000              -
  Interest income ......................................................       210,386        170,327
  Provision for SEC settlement .........................................      (275,000)             -
  Interest expense .....................................................      (154,254)      (100,525)
                                                                          ------------   ------------

                                                                               233,132         69,802
                                                                          ------------   ------------

Income before income taxes .............................................       345,481     (1,571,570)
Income tax benefit .....................................................     2,117,000              -
                                                                          ------------   ------------
Net income .............................................................     2,462,481     (1,571,570)

Accrued preferred stock dividends ......................................      (167,512)       (28,125)
                                                                          ------------   ------------

Net income (loss) applicable to common shareholders ....................  $  2,294,969   $ (1,599,695)
                                                                          ============   ============

Basic and diluted earnings per share applicable to common stockholders:

  Earnings (loss) per share-basic and diluted ..........................  $       0.44   $      (0.50)
                                                                          ============   ============
  Earnings (loss) per share diluted ....................................  $       0.38   $      (0.50)
                                                                          ============   ============

Weighted average shares outstanding:
  Basic ................................................................     5,160,133      3,221,753
                                                                          ============   ============
  Diluted ..............................................................     6,084,538      3,221,753
                                                                          ============   ============

                   See accompanying notes to the consolidated financial statements.

                                                  F-5
</TABLE>
<PAGE>
<TABLE>
                           EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                                 CONSOLIDATED STATEMENT OF CASH FLOWS

<CAPTION>
                                                                         TWELVE MONTHS   TWELVE MONTHS
                                                                             ENDED           ENDED
                                                                          December 31,    December 31,
                                                                             2005             2004
                                                                         -------------   -------------
<S>                                                                       <C>             <C>
Cash flows from operating activities
  Net income (loss) ....................................................  $ 2,462,481     $(1,571,570)

  Adjustments to reconcile net income (loss) to net cash
   provided from operating activities
    Depreciation and amortization ......................................       77,443          30,061
    Amortization of customer lists .....................................            -         145,393
    Amortization of deferred compensation ..............................       63,683          70,145
    Provision for income tax benefits ..................................   (2,117,000)              -
    Proceeds from of sale of online trading discount business ..........     (452,000)              -
    Reversal of non-cash charge for stock ..............................     (240,000)              -
    Unrealized loss on securities ......................................      460,543               -
    Non-cash compensation expense ......................................       88,480         305,001
  (Increase) decrease in operating assets:
    Commissions and other receivables from clearing organizations ......    1,597,305      (1,511,842)
    Deposits at clearing organizations .................................     (768,916)       (100,304)
    Trading account securities, net ....................................   (1,135,894)        789,832
    Prepaid expenses and other assets ..................................     (294,488)         81,019
    Cash in escrow .....................................................     (350,000)              -
  Increase (decrease) in operating liabilities:
    Accrued expenses and other liabilities .............................     (669,833)      1,075,605
    Cash overdraft .....................................................     (144,202)        144,202
                                                                          -----------     -----------

      Total adjustments ................................................   (3,884,879)      1,029,112
                                                                          -----------     -----------

      Cash used by operating activities ................................   (1,422,397)       (542,458)

Cash flows from investing activities
  Purchases of furniture and equipment .................................     (162,179)       (151,256)
  Issuances of notes receivable ........................................   (1,806,701)              -
  Proceeds from sale of online trading discount business ...............      452,000               -
  Payments on notes receivalble ........................................       15,133               -
                                                                          -----------     -----------

    Total cash used by investing activities ............................   (1,501,747)       (151,256)
                                                                          -----------     -----------

Cash flows from financing activities
  Payments on notes payable ............................................   (1,721,528)       (177,778)
  Proceeds from issuance of notes payable ..............................    1,825,000         372,089
  Proceeds from line of credit .........................................      350,000               -
  Proceeds from sale of securities .....................................    2,350,000          25,000
  Proceeds from sale of warrants .......................................            -         125,000
  Proceeds from sale of options ........................................      750,000               -
  Fees paid for sale of stock ..........................................     (342,609)              -
  Stock subscriptions receivable .......................................       50,000               -
                                                                          -----------     -----------

    Total cash provided by financing activities ........................    3,260,863         344,311
                                                                          -----------     -----------


  Net increase (decrease) in cash and cash equivalents .................      336,719        (349,403)

  Cash and cash equivalents at beginning of period .....................       43,880         393,283
                                                                          -----------     -----------

  Cash and cash equivalents at end of period ...........................  $   380,599     $    43,880
                                                                          ===========     ===========
                                                                                  (continued)
                   See accompanying notes to the consolidated financial statements.

                                                  F-6
</TABLE>
<PAGE>
<TABLE>
                           EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                                 CONSOLIDATED STATEMENT OF CASH FLOWS
                                              (continued)
<CAPTION>
                                                                         TWELVE MONTHS   TWELVE MONTHS
                                                                             ENDED           ENDED
                                                                          December 31,    December 31,
                                                                             2005             2004
                                                                         -------------   -------------
<S>                                                                       <C>             <C>
Supplemental cash flow information:

  Interest .............................................................  $   154,254     $    76,766
                                                                          ===========     ===========

Supplemental disclosures of non-cash investing and financing activities:

  Conversion of debt to equity .........................................  $ 1,448,951     $         -
                                                                          ===========     ===========

  Marketable securities acquired through issuance of notes payable
    valued at $100,000 and warrants valued at $125,000 .................            -     $   225,000
                                                                          ===========     ===========

  Accrued preferred stock dividend .....................................  $    56,220     $    20,250
                                                                          ===========     ===========

  Deemed dividends from beneficial conversion feature on preferred stock  $   111,292     $         -
                                                                          ===========     ===========

  Conversion of accounts payable to preferred stock and warrants .......  $   543,178     $         -
                                                                          ===========     ===========

  Conversion of accounts payable to debt ...............................  $   100,000     $         -
                                                                          ===========     ===========

  Marketable securities acquired through issuance of
    Series E preferred stock at market value ...........................  $   783,750     $         -
                                                                          ===========     ===========

                   See accompanying notes to the consolidated financial statements.

                                                  F-7
</TABLE>
<PAGE>
<TABLE>
                                        EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                                    CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                          FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

<CAPTION>
                                            Series A           Series B          Series C          Series D         Series E
                                        Preferred Stock    Preferred Stock   Preferred Stock   Preferred Stock   Preferred stock
                                       -----------------   ----------------  ----------------  ----------------  ---------------
                                       Shares    Amount    Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount
                                       -------   -------   -------  -------  -------  -------  -------  -------  -------  ------
<S>                                    <C>       <C>       <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
Balance at January 1, 2004 ..........   10,000   $   100         0  $     -        0     $  -        0     $  -        -  $    -

Warrants issued in connection .......        -         -         -        -        -        -        -        -        -       -
  with note .........................        -         -         -        -        -        -        -        -        -       -
Issuance of restricted stock ........        -         -         -        -        -        -        -        -        -       -
Issuance of common stock for
 establishment of independent office         -         -         -        -        -        -        -        -        -       -
Amortization of restricted stock ....        -         -         -        -        -        -        -        -        -       -
Amortization of conversion of .......        -         -         -        -        -        -        -        -        -       -
  stock options to common stock .....        -         -         -        -        -        -        -        -        -       -
Non-cash stock compensation .........        -         -         -        -        -        -        -        -        -       -
Common stock cancelled ..............        -         -         -        -        -        -        -        -        -       -
Sale of common stock ................        -         -         -        -        -        -        -        -        -       -
Net loss ............................        -         -         -        -        -        -        -        -        -       -
Dividends accrued on preferred stock         -         -         -        -        -        -        -        -        -       -
Prior per adjustment ................        -         -         -        -        -        -        -        -        -       -
                                       -------   -------   -------  -------  -------  -------  -------  -------  -------  ------
Balance at December 31, 2004 ........   10,000       100         -        -        -        -        -        -        -       -

Sale of common stock ................        -         -         -        -        -        -        -        -        -       -
Conversion of note to common stock ..        -         -         -        -        -        -        -        -        -       -
Sale of preferred stock Series B ....        -         -     7,000       70        -        -        -        -        -       -
Sale of preferred stock Series C ....        -         -         -        -    7,062       71        -        -        -       -
Sale of preferred stock Series D ....        -         -         -        -        -        -    2,000       20        -       -
Cancellation of preferred ...........        -         -         -        -        -        -        -        -        -       -
  stock Series A ....................  (10,000)     (100)        -        -        -        -        -        -        -       -
Sale of preferred stock Series E ....        -         -         -        -        -        -        -        -   13,333     133
Conversion of convertible 10% .......        -         -         -        -        -        -        -        -        -       -
  promissory notes to common stock ..        -         -         -        -        -        -        -        -        -       -
Charge to paid-in-capital for capital        -         -         -        -        -        -        -        -        -       -
  costs associated with change of ...        -         -         -        -        -        -        -        -        -       -
  control and issuance of common and         -         -         -        -        -        -        -        -        -       -
  preferred stock ...................        -         -         -        -        -        -        -        -        -       -
Reversal of common stock issued for
  establishment of independent office        -         -         -        -        -        -        -        -        -       -
Conversion of options to common stock        -         -         -        -        -        -        -        -        -       -
Amortization of restricted stock ....        -         -         -        -        -        -        -        -        -       -
Dividends accrued on preferred stock         -         -         -        -        -        -        -        -        -       -
Net income ..........................        -         -         -        -        -        -        -        -        -       -
                                       -------   -------   -------  -------  -------  -------  -------  -------  -------  ------
Balance at December 31, 2005 ........        -   $     -     7,000  $    70    7,062  $    71    2,000  $    20   13,333  $  133
                                       =======   =======   =======  =======  =======  =======  =======  =======  =======  ======
                                                                                                                     (continued)
                                 See accompanying notes to the consolidated financial statements.

                                                               F-8
</TABLE>
<PAGE>
<TABLE>
                                        EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                                    CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                          FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
                                                           (continued)
<CAPTION>

                                          Common Stock       Additional                                    Stock
                                       -------------------     paid-in     Accumulated    Deferred     subscriptions
                                        Shares     Amount      capital       deficit     compensation   receivable       Totals
                                       ---------   -------   -----------   -----------   ------------  -------------  ------------
<S>                                    <C>         <C>       <C>           <C>           <C>           <C>            <C>
Balance at January 1, 2004 ..........  3,194,450   $31,945   $ 5,763,374   $(6,462,774)  $  (133,828)  $          -   $  (801,183)

Warrants issued in connection
  with note .........................          -         -       125,000             -             -              -       125,000
Issuance of restricted stock ........     65,500       655        78,945             -             -              -        79,600
Issuance of common stock for
 establishment of independent office     200,000     2,000       238,000             -             -              -       240,000
Amortization of restricted stock ....          -         -             -             -        43,665              -        43,665
Amortization of conversion of .......          -
  stock options to common stock .....          -         -             -             -        26,480              -        26,480
Non-cash stock compensation .........          -         -       (25,880)            -             -              -       (25,880)
Common stock cancelled ..............    (21,925)     (219)      (10,375)            -             -              -       (10,594)
Sale of common stock ................     75,000       750        74,250             -             -        (50,000)       25,000
Net loss ............................          -         -             -    (1,571,570)            -              -    (1,571,570)
Dividends accrued on preferred stock           -         -       (28,125)            -             -              -       (28,125)
                                       ---------   -------   -----------   -----------   -----------   ------------   -----------
Balance at December 31, 2004 ........  3,513,025    35,131     6,215,189    (8,034,344)      (63,683)       (50,000)   (1,897,607)

Sale of common stock ................  3,071,516    30,715     2,316,207             -             -         50,000     2,396,922
Conversion of note to common stock ..     50,000       500        49,500             -             -              -        50,000
Sale of preferred stock Series B ....          -         -       699,930             -             -              -       700,000
Sale of preferred stock Series C ....          -         -       736,219             -             -              -       736,290
Sale of preferred stock Series D ....          -         -       199,980             -             -              -       200,000
Cancellation of preferred
  stock Series A ....................          -         -      (299,900)            -             -              -      (300,000)
Sale of preferred stock Series E ....          -         -     1,033,617             -             -              -     1,033,750
Deemed dividends from beneficial
  conversion feature on preferred
  stock .............................          -         -       111,292      (111,292)            -              -             -
Conversion of convertible 10% .......          -
  promissory notes to common stock ..    108,835     1,088       271,000             -             -              -       272,088
Charge to paid-in-capital for capital
  costs associated with change of
  control and issuance of common and
  preferred stock ...................          -         -      (342,609)            -             -              -      (342,609)
Reversal of common stock issued for
  establishment of independent office   (200,000)   (2,000)     (238,000)            -             -              -      (240,000)
Conversion of options to common stock     55,629       556        87,924             -             -              -        88,480
Amortization of restricted stock ....          -         -             -             -        63,683              -        63,683
Dividends accrued on preferred stock           -         -             -       (56,220)            -              -       (56,220)
Net income ..........................          -         -             -     2,462,481             -              -     2,462,481
                                       ---------   -------   -----------   -----------   -----------   ------------   -----------
Balance at December 31, 2005 ........  6,599,005   $65,990   $10,840,349   $(5,739,375)  $         -   $          -   $ 5,167,258
                                       =========   =======   ===========   ===========   ===========   ============   ===========

                                 See accompanying notes to the consolidated financial statements.

                                                               F-9
</TABLE>
<PAGE>

                EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

1. NATURE OF BUSINESS

ORGANIZATION AND OPERATIONS - Empire Financial Holding Company (the "Company"),
a Florida corporation, owns Empire Financial Group, Inc. ("EFG") and Empire
Investment Advisors, Inc. ("EIA"). All intercompany transactions and accounts
have been eliminated in consolidation.

EFG is an introducing securities broker dealer which provides brokerage and
advisory services to retail and institutional customers and a trading platform,
order execution services and market making services for domestic and
international securities to its customers and network of independent registered
representatives. In November, the Company sold its online discount trading
business to an unrelated broker dealer. EIA is a fee-based investment advisory
service which offers its services to retail customers.

The Company's executive offices are located in Longwood, Florida with
independent registered representatives throughout the United States.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

MARKETABLE SECURITIES OWNED, AT MARKET VALUE - Marketable securities owned are
comprised of the equity securities held in the Company's inventory account for
its trading and market making operations. The securities are recorded at market
value with unrealized gains and losses reflected in the current period earnings.
Market values are generally based on prices from independent sources, such as
listed market prices or broker or dealer price quotations.

SECURITIES NOT READILY MARKETABLE, AT ESTIMATED FAIR VALUE - Securities not
readily marketable are comprised of equity securities held by the Company for
investment purposes. The securities are, for the most part, recorded at cost and
are not readily marketable due to the low daily trading volumes. The Company
still carries these securities at cost because management believes they will
recover their value from anticipated future events.

COMMISSIONS AND OTHER RECEIVABLES FROM CLEARING ORGANIZATION - Receivables from
broker dealers and clearing organizations represent monies due to the Company
from its clearing agent for transactions processed.

DEPOSIT AT CLEARING ORGANIZATION - The Company is required, by its clearing
agreement, to maintain a deposit with its clearing organization.

FURNITURE AND EQUIPMENT, NET - Property and equipment are recorded at cost.
Depreciation on property and equipment is provided utilizing the straight-line
method over the estimated useful lives of the related assets, which range from
five to seven years.

                                      F-10
<PAGE>

                EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

IMPAIRMENT OF LONG-LIVED ASSETS - The Company evaluates the recoverability of
its property and equipment and other assets. The Company recognizes an
impairment of long-lived assets in the event the net book value of such assets
exceeds the estimated future undiscounted cash flows attributable to such assets
or the business to which such assets relate. When an asset exceeds its expected
cash flows, it is considered to be impaired and is written down to fair value,
which is determined based on either discounted future cash flows or appraised
values. The Company recorded no impairments for the year ended December 31, 2005
and 2004.

CLEARING AND EXECUTION COSTS - Clearing and execution costs include revenues
generated from transactional fees charged to retail and institutional customers
as well as commissions and fees from mutual fund transaction sales commissions
and trailer fees, which are periodic fees paid by mutual funds as an incentive
to keep assets invested with them over time.

SECURITIES TRANSACTIONS - Securities transactions and the related revenues and
expenses are recorded on a trade date basis.

EQUITY MARKET-MAKING TRADING REVENUES, NET - Consist of net realized and net
unrealized gains and losses on securities traded for the Company's own account.
Trading revenues are generated from the difference between the price paid to buy
securities and the amount received from the sale of securities. Volatility of
stock prices, which can result in significant price fluctuations in short
periods of time, may result in trading gains or losses. Gains or losses are
recorded on a trade date basis.

STOCK BASED COMPENSATION - The Company accounts for its employee stock option
plans under the intrinsic value method, in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees", and related interpretations. Compensation expense related to the
granting of employee stock options is recorded over the vesting period only, if,
on the date of grant, the fair value of the underlying stock exceeds the
option's exercise price. The Company has adopted the disclosure-only
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation", which
allows entities to continue to apply the provisions of APB No. 25 for
transactions with employees and provide pro forma net loss and pro forma loss
per share disclosures for employee stock grants made as if the fair value based
method of accounting in SFAS No. 123 had been applied to these transactions.

Had the Company determined compensation expense of employee stock options based
on the estimated fair value of the stock options at the grant date, consistent
with the guidelines of SFAS 123, its net income would have been decreased to the
pro forma amount indicated below:

                                      F-11
<PAGE>

                EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

                                                       Year ended December 31,
                                                         2005           2004
                                                     -----------    -----------
Net income (loss) applicable to common
  stockholders as reported .......................   $ 2,294,969    $(1,599,695)

Subtract stock-based employee
  compensation expense related to stock
  options determined under the fair value method .      (383,172)      (207,791)

Add (deduct) amounts charged (credited) to
   compensation expense ..........................       152,163        (25,880)
                                                     -----------    -----------
  Pro forma ......................................   $ 2,063,960    $(1,833,366)
                                                     ===========    ===========

Net income (loss) per share applicable
 to common stockholders:
  As reported ....................................   $       .44    $      (.50)
                                                     ===========    ===========

  Pro forma ......................................   $       .40    $      (.57)
                                                     ===========    ===========

The per share weighted average fair value of options granted during the years
ended December 31, 2005 and 2004 was $ 1.89 and $ .78, respectively, on the
grant date using the following weighted average assumptions:

                                                       Year ended December 31,
                                                         2005           2004
                                                     -----------    -----------
Expected dividend yield ..........................       None           None
Risk-free interest rate ..........................       4.37%          5.01%
Expected life ....................................    3.0 years      9.4 years
Volatility .......................................      100.5%           74%

         The pro forma impact of options on the net income (loss) for the years
ended December 31, 2005 and 2004 is not representative of the effects on net
income (loss) for future years, as future years will include the effects of
additional years of stock option grants.

INCOME TAXES - The Company accounts for income taxes on an asset and liability
approach to financial accounting and reporting. Deferred income tax assets and
liabilities are computed annually for differences between the financial and tax
basis of assets and liabilities that will result in taxable or deductible
amounts in the future, based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income. A
valuation allowance is recognized if, based on the weight of available evidence,
it is more likely than not that some portion or all of the deferred asset will
not be realized. Income tax expense is the tax payable or refundable for the
period, plus or minus the change during the period in deferred tax assets and
liabilities.

                                      F-12
<PAGE>

                EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

MANAGEMENT ESTIMATES AND ASSUMPTIONS - 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 disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company's financial instruments other
than trading securities, which consist primarily of cash, commissions and other
receivables, deposits, notes payable, and accounts payable, approximate their
fair value due to their short-term nature.

EARNINGS/(LOSS) PER SHARE - Basic earnings/(loss) per share is computed by
dividing net income/(loss) available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted
earnings/(loss) per share considers the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or resulted
in issuance of common stock. Options, convertible notes and convertible
preferred stock are included in the computation of net earnings/loss per share.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET EFFECTIVE - In December 2004,
the FASB issued Statement of Financial Standards No. 123 (revised 2004),
SHARE-BASED PAYMENT ("SFAS No. 123 (R)"), which is a revision of SFAS No. 123.
SFAS No. 123 (R) supersedes APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and amends FASB Statement No. 95, STATEMENT OF CASHFLOWS. Generally,
the approach to accounting for share-based payments in SFAS No. 123(R) is
similar to the approach described in SFAS No. 123. However, SFAS No. 123(R)
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based on their fair
values. Pro forma disclosure of the fair value of share-based payments is no
longer an alternative to financial statement recognition. SFAS No. 123(R) is
effective for small public business issuers at the beginning of the first fiscal
year beginning after December 15, 2005, and therefore effective for the year
ending December 31, 2006 for the Company.

The Company expects the adoption of SFAS No. 123(R) to have a material effect on
its financial statements, in the form of additional compensation expense, on a
quarterly and annual basis. It is not possible to precisely determine the
expense impact of adoption since a portion of the ultimate expense that is
recorded will likely relate to awards that have not yet been granted. The
expense associated with these future awards can only be determined based on
factors such as the price for the Company's common stock, volatility of the
Company's stock price and risk free interest rates as measured at the grant
date. However, the pro forma disclosures related to SFAS No. 123 included in the
Company's historic financial statements are relevant data points for gauging the
potential level of expense that might be recorded in future periods.

Statement of Financial Accounting Standards No. 151, INVENTORY COSTS, an
amendment of ARB No. 43, Chapter 4 (SFAS 151) was issued in November 2004 and
becomes effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. The Company does not expect that SFAS 151 will have any
effect on future financial statements.

                                      F-13
<PAGE>

                EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

Statement of Financial Accounting Standards No. 152, ACCOUNTING FOR REAL ESTATE
TIME-SHARING TRANSACTIONS, an amendment of FASB Statements No. 66 and 67 (SFAS
152) was issued in December 2004 and becomes effective for financial statements
for fiscal years beginning after June 15, 2005. The Company does not expect that
SFAS 152 will have any effect on future financial statements.

Statement of Financial Accounting Standards No. 153, EXCHANGES OF NON-MONETARY
ASSETS, an amendment of APB Opinion No. 29 (SFAS 153) was issued in December
2004 and becomes effective for non-monetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. The Company does not expect that SFAS 153
will have any effect on future financial statements.

Statement of Financial Accounting Standards No. 154, ACCOUNTING CHANGES AND
ERROR CORRECTIONS, a replacement of APB Opinion No. 20 and FASB Statement No. 3
(SFAS 154) was issued in May 2005 and becomes effective for accounting changes
and corrections of errors made in fiscal years beginning after December 15,
2005. The Company does not expect that SFAS 154 will have any significant effect
on future financial statements.

Statement of Financial Accounting Standards No. 155, ACCOUNTING FOR CERTAIN
HYBRID FINANCIAL INSTRUMENTS--AN AMENDMENT OF FASB STATEMENTS NO. 133 AND 140,
was issued in February 2006 and is effective for all financial instruments
acquired or issued after the beginning of an entity's first fiscal year that
begins after September 15, 2006. Certain parts of this Statement may be applied
prior to the adoption of this Statement. Earlier adoption is permitted as of the
beginning of an entity's fiscal year, provided the entity has not yet issued
financial statements, including financial statements for any interim period for
that fiscal year. Provisions of this Statement may be applied to instruments
that an entity holds at the date of adoption on an instrument-by-instrument
basis. The Company does not expect that SFAS 155 will have any significant
effect on future financial statements.

In March 2005, FASB Interpretation No. 47, ACCOUNTING FOR CONDITIONAL ASSET
RETIREMENT OBLIGATIONS--AN INTERPRETATION OF FASB STATEMENT NO. 143 (FIN 47).
FIN 47 is effective no later than the end of fiscal years ending after December
15, 2005 (December 31, 2005, for calendar-year enterprises). Retrospective
application for interim financial information is permitted but is not required.
Early adoption of this Interpretation is encouraged. The Company does not expect
that FIN 47 will have any significant effect on future financial statements.

In December 2004, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AcSEC) issued Statement of Position
04-2, ACCOUNTING FOR REAL ESTATE TIME-SHARING TRANSACTIONS (SOP 04-2). SOP 04-2
is effective for financial statements issued for fiscal years beginning after
June 15, 2005, with earlier application encouraged. The Company does not expect
that SOP 04-2 will have any effect on future financial statements.

In September 2005, AcSEC issued Statement of Position 05-1: ACCOUNTING BY
INSURANCE ENTERPRISES FOR DEFERRED ACQUISITION COSTS IN CONNECTION WITH
MODIFICATIONS OR EXCHANGES OF INSURANCE CONTRACTS (SOP 05-1). SOP 05-1 is
effective for fiscal years beginning after December 15, 2006, with earlier
adoption encouraged. The Company does not expect that SOP 05-1 will have any
effect on future financial statements.

                                      F-14
<PAGE>

                EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

FASB Staff Position (FSP) FAS 13-1--ACCOUNTING FOR RENTAL COSTS INCURRED DURING
A CONSTRUCTION PERIOD, was issued on October 6, 2005 and becomes effective for
the new transactions or arrangements entered into after the beginning of the
first fiscal quarter following the date that the final FSP is posted by the
FASB. The Company does not expect that FSP 13-1 will have any significant effect
on future financial statements.

On June 29, 2005, the FASB ratified the consensus reached for Emerging Issues
Task Force (EITF) Issue No. 05-5, ACCOUNTING FOR EARLY RETIREMENT OR
POSTEMPLOYMENT PROGRAMS WITH SPECIFIC FEATURES (SUCH AS TERMS SPECIFIED IN
ALTERSTEILZEIT EARLY RETIREMENT ARRANGEMENTS). The consensus in this Issue
should be applied to fiscal years beginning after December 15, 2005, and
reported as a change in accounting estimate effected by a change in accounting
principle as described in paragraph 19 of FASB Statement 154. The Company does
not expect that EITF 05-5 will have any significant effect on future financial
statements.

On September 28, 2005, the FASB ratified the consensus reached for EITF Issue
No. 05-7, ACCOUNTING FOR MODIFICATIONS TO CONVERSION OPTIONS EMBEDDED IN DEBT
INSTRUMENTS AND RELATED ISSUES. The provisions of this Issue should be applied
to future modifications of debt instruments beginning in the first interim or
annual reporting period beginning after December 15, 2005. The Company expects
that the application of EITF 05-7 could have an effect on interest and debt
valuations in future financial statements. It is not possible to determine the
impact, if any, from the application of EITF05-7.

On September 28, 2005, the FASB ratified the consensus reached for EITF Issue
No. 05-8, INCOME TAX CONSEQUENCES OF ISSUING CONVERTIBLE DEBT WITH A BENEFICIAL
CONVERSION FEATURE. The provisions of this Issue should be applied beginning in
the first interim or annual reporting period beginning after December 15, 2005.
The Company expects that the application of EITF 05-8 could have an effect on he
income tax expense reported in future financial statements. It is not possible
to determine the impact, if any, from the application of EITF05-8.

3. CHANGE OF CONTROL

         On March 8, 2005, the Company entered into a stock purchase agreement
with a Delaware limited liability company, (the "Purchaser"), pursuant to which
the Company agreed to sell to the Purchaser shares of convertible preferred
stock with a stated value of $700,000, in exchange for $500,000 of cash and
cancellation of a $200,000 note previously issued by the Company to an affiliate
of the Purchaser. The preferred stock is convertible into shares of the
Company's common stock at $.60 per share. In addition to the issuance of the
preferred stock, the Company received at closing a loan from the Purchaser in
the amount of $250,000. Concurrent with these transactions, the Company granted
to the Purchaser an option to acquire an additional 1,666,666 common shares at
an exercise price of $.60 per share. The Purchaser exercised their option in
June of 2005 whereby the Company received cash in the amount of $750,000 and
satisfied the $250,000 note in exchange for the issuance of 1,666,666 shares of
the Company's common stock.

                                      F-15
<PAGE>

                EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

         In addition, the stock purchase agreement provides that at the closing
(a) the Purchaser will have the right to designate three of our directors who
must be reasonably acceptable to the Company, two of whom must be independent
directors, and (b) the resignation of two directors of the Company.

         On March 8, 2005, the Company also entered into a stock exchange
agreement with a former officer of the Company and a trust controlled by him,
pursuant to which he agreed to exchange (a) 10,000 shares of the Company's
Series A Preferred Stock owned by him, (b) certain outstanding debt owed to him
by the Company in the approximate amount of $240,000 and (c) the Company's
remaining severance obligations owed to him, all in exchange for the Company
issuing to him shares of convertible preferred stock with a stated value of
$800,000. The preferred stock is convertible into shares of the Company's common
stock at $2.00 per share. The Company agreed to pay to him $150,000 no later
than June 30, 2007 and to repay at the closing a note owed to him by the Company
in the principal amount of $100,000.

         In addition, on March 8, 2005, the former officer of the Company and
the Purchaser entered into a stock purchase and option agreement, pursuant to
which, for an undisclosed amount, the Purchaser will acquire from him 500,000
shares of the Company's common stock and an option to purchase an additional
1,050,000 shares of the Company's common stock from him. The option will expire
on various dates from 24 to 42 months after the closing, unless accelerated as
provided in the option, and will have exercise prices ranging from $1.25 to
$2.25 per share. The former officer of the Company also agreed to deliver to the
Purchaser at the closing, irrevocable proxies covering the shares subject to the
option, which will permit the Purchaser to vote these shares on all matters,
except that without the approval of him, these shares may not be voted in favor
of (i) the sale of all or substantially all of the Company's assets, (ii) merger
with any other entity or (iii) the authorization of a new employee stock option
plan or an increase in the number of the Company's shares of common stock
available under any existing employee stock option plan.

         Due to the above transaction, the Purchaser has gained control of the
Company from the former officer.

                                      F-16
<PAGE>

                EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

4. PROPERTY AND EQUIPMENT

At December 31, 2005, property and equipment consists of the following:

                                                            Estimated
                                                           useful lives
                                                           ------------
         Equipment                            132,511       5-7 years
         Computers                            208,106         5 years
         Furniture and fixtures                54,336         7 years
                                            ---------
                                              394,953
         Less accumulated depreciation       (171,226)
                                            ---------
                                            $ 223,727
                                            =========

Depreciation expense charged to income was $73,789 in 2005 and $30,061 in 2004.

5. NOTES RECEIVABLE

The Company has advanced funds to the owner of an independent office on Long
Island, New York (Uniondale) which is processing its business through the
Company and to certain registered representatives, in its two Company owned
offices in New York City and Boca Raton, Florida. The notes receivable, by
location, at December 31, 2005, were as follows:

                                               Amount
                                               ------
         Long Island office                 $ 1,695,318
         New York office                         23,958
         Boca Raton office                       72,292
                                            -----------
         Total notes receivable             $ 1,791,568
                                            ===========

Long Island note:
Principal and interest payments on the Long Island note are paid from the
override commission and fees generated by the registered representatives of the
Long Island office. The note payments are calculated using an amount that
represents, the difference between commission payments to the registered
representatives in that location and, ninety percent of gross commissions
generated. Payments will also include 50% of the income generated from the
office's transaction charges. The note carries a 10% interest rate and matures
on October 5, 2008 unless otherwise extended by mutual agreement. At December
31, 2005, the note was credited with payments of $15,133.

New York and Boca Raton notes:
These notes carry a 10% interest rate and are due on demand.

                                      F-17
<PAGE>

                EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

6. NOTES PAYABLE

Notes payable at December 31, 2005, consisted of the following:

         Unsecured notes payable to a former officer of the EFH, which
         requires monthly installments of $18,056, plus interest at
         twelve percent through its maturity date. The note matures on
         September 20, 2006...........................................$  162,500

         Convertible notes payable to investors, interest payable
         semi-annually on June 30 and December 31 at ten percent.
         Notes convertible into common stock at $2.00 per share
         subject to certain adjustments. Payable in full on December
         31, 2006, if not converted...................................   200,000

         Unsecured note payable to the EFH's clearing organization
         which requires monthly installments of $16,667 plus interest
         at 2% over prime (nine percent at December 31, 2005). The
         note matures on February 20, 2006............................    33,333

         Unsecured note payable to the EFH's clearing organization,
         which requires monthly installments of $41,667 plus interest
         at 2% over prime (nine percent at December 31, 2005). The
         note matures on November 16, 2006............................   458,334

         Unsecured note payable to an investor, which requires monthly
         payments of $500 for interest only . The note matures on
         February 20, 2006............................................    50,000

         Unsecured non interest bearing note payable to a former
         officer, which is due upon final execution of the SEC
         settlement...................................................    75,000
                                                                      ----------
                                                                      $  979,167
                                                                      ==========

         The annual maturities of principal on the notes payable
         are as follows:

         Year ending December 31, 2006................................$  979,167
                                                                      ==========

7. LINE OF CREDIT PAYABLE

         On December 31, 2005, the Company entered into a promissory note that
gives the Company a $2,500,000 line of credit with an unrelated third party. The
note bears interest at 5% annually and matures on December 27, 2007. As of
December 31, 2005, the Company owed $350,000 on the line of credit.

                                      F-18
<PAGE>

                EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

8. ACCRUED EXPENSES AND OTHER LIABILITIES

         At December 31, 2005, accrued expenses consisted of the following:

         Accrued payroll and taxes................................... $  271,559
         Accrued commissions and management fees.....................    199,578
         Accrued preferred stock dividend............................     56,220
         Accrued SEC regulatory reserve..............................    350,000
         Other expenses..............................................    144,130
                                                                      ----------
                                                                      $1,021,487
                                                                      ==========
9. EARNINGS PER SHARE

         Basic earnings per share are computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted earnings per share considers the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that shared in the earnings of the entity.

Calculation of net income(loss) per share is as follows:

                                                       Years Ended December 31,
                                                       ------------------------
                                                          2005          2004
                                                       ----------   -----------
Numerator for net income (loss) per share:
Net income .........................................   $2,462,481   $(1,571,570)
Preferred stock dividends and deemed dividends from
  beneficial conversion feature on preferred stock .     (167,512)      (28,125)
                                                       ----------   -----------
Income attributable to common stockholders-basic ...    2,294,969    (1,599,695)

Plus: preferred stock dividends-Series B, C & D ....       43,095             -
                                                       ----------   -----------
Income attributable to common stockholders-diluted .    2,338,064    (1,599,695)
                                                       ==========   ===========
Denominator:
Basic weighted-average shares ......................    5,160,133     3,221,753
Outstanding options ................................      131,629             -
Outstanding warrants ...............................       73,598             -
Convertible preferred stock Series B ...............      719,178             -
Convertible preferred stock Series C ...............            -             -
Convertible notes ..................................            -             -
Convertible preferred stock Series D ...............            -             -
                                                       ----------   -----------
Diluted weighted-average shares ....................    6,084,538     3,221,753
                                                       ==========   ===========
Basic and diluted income (loss) per share:
Basic income per share .............................   $     0.44   $     (0.50)
                                                       ==========   ===========
Diluted income per share ...........................   $     0.38   $     (0.50)
                                                       ==========   ===========

                                      F-19
<PAGE>

                EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

Due to their anti-dilutive effect, the following potential common shares have
been excluded from the computation of diluted earning per share:

                                                       Years Ended December 31,
                                                       ------------------------
                                                          2005          2004
                                                       ----------   -----------

Warrants ...........................................      403,022             -
Stock options ......................................    1,570,000       765,000
Convertible preferred stock series A ...............       76,654             -
Convertible preferred stock series C ...............      217,664             -
Convertible preferred stock series D ...............       61,644             -
Convertible preferred stock series E ...............       15,095             -
Convertible notes ..................................      100,000             -

10. EQUITY

         For the year ended December 31, 2005, the Company recorded the
following stock, option and warrant transactions:

         o  The Company sold 416,667 shares of common stock for $250,000 in
            cash;

         o  The Company sold 7,000 shares of Series B Convertible Preferred
            Stock accompanied with an option to acquire 1,666,666 shares of
            common stock at an exercise price of $.60 per share, in exchange for
            $500,000 of cash and cancellation of a $200,000 note previously
            issued to us;

         o  A trust administered by a former officer of ours sold 500,000 shares
            and an option to purchase an additional 1,050,000 shares of the
            Company's common stock for an undisclosed amount. The option expires
            on various dates from 24 to 42 months after May 20, 2005, and has
            exercise prices ranging from $1.25 to $2.25 per share; we exchanged
            10,000 shares of our preferred stock Series A, outstanding debt in
            the amount of $240,000 and a severance obligation owed to a former
            officer of the Company and a trust controlled by him, for 7,062
            shares of our preferred stock series C valued at $770,040. The
            preferred stock series C is convertible in to shares of our common
            stock at $2.00 per share.

         o  The Company sold 416,667 shares of common stock for $250,000.

         o  On June 29, the options, granted in conjunction with the sale of our
            Series B preferred stock, were exercised for $750,000 in cash and
            satisfaction of a note payable in the amount of $250,000.

                                      F-20
<PAGE>

                EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

         As a result of the completion of the above transactions, the Company is
no longer controlled by a former officer,

         Unrelated to the change of control of the Company, the following equity
transactions occurred in 2005:

         o  The Company issued 50,000 shares of common stock in exchange for
            $50,000 owed by the Company to the lender;

         o  An officer of the Company, exercised 200,000 options covering 55,629
            shares of the Company's common stock, granted under the stock option
            plan in 2003;

         o  The Company cancelled 200,000 shares of common stock and issued
            warrants to purchase 50,000 shares of our common stock, at $1.25 per
            share, as a result of cancellation of an agreement previously
            executed in 2004;

         o  Sold 100,000 shares of common stock at $1.00 per share and warrants
            to purchase 60,000 shares at $2.00 for $100,000; sold 150,000 shares
            of common stock at $1.00 per share and warrants to purchase 60,000
            shares at $1.50 per share for $150,000; sold 151,515 shares of
            common stock at $1.65 for $250,000;

         o  The Company issued 2,000 shares of Series D preferred stock with a
            stated value of $200,000 in exchange for accounts payable;

         o  Sold 20,000 shares of common stock at $2.50 per share, five year
            warrants to purchase 12,500 shares of our common stock at $3.73 and
            a thirty day option assignment from a stockholder to purchase 12,500
            shares of stock at $1.25 per share from a former officer for
            $50,000;

         o  Sold 100,000 shares of common stock, five year warrants to purchase
            62,500 shares of our common stock at $3.73 and a thirty day option
            assignment to purchase 62,500 shares of stock at $1.25 per share for
            $250,000;

         o  Sold 10,000 shares of the Company's newly created Series E preferred
            stock valued at $75.00 per share in exchange for listed common stock
            valued at $783,750 at the time of the exchange and 3,333 shares of
            the Company's Series E preferred stock valued at $75.00 per share
            for $250,000.

                                      F-21
<PAGE>

                EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

         Also during the fourth quarter, the Company converted, at the election
         of several of the convertible note holders, $200,000 of convertible
         notes to common stock valued at $2.00 per share and $72,079 of
         convertible notes to common stock at the value of $2.50 per share. As a
         result of this conversion, the Company issued:

         o  80,000 shares of common stock in exchange for $200,000 worth of
            convertible notes payable;

         o  13,635 shares of our common stock in exchange for $34,089 worth of
            convertible notes payable;

         o  15,200 shares of common stock in exchange for $38,000 worth of
            convertible notes payable to a major shareholder and previous
            officer of the Company.

         The table below outlines the conversion price of all outstanding
convertible issues, both debt and equity:

         Convertible Issue                             Conversion Price
         -----------------                             ----------------
         Series B preferred stock....................     $  0.60
         Series C preferred stock....................        2.00
         Series D preferred stock....................        2.00
         Series E preferred stock....................        3.51
         Notes payable-10% convertible debt..........        2.00

11. STOCK OPTIONS -

         The Company adopted the 2000 Incentive Compensation Plan (the "Plan").
The Plan is designed to serve as an incentive for retaining directors,
employees, consultants and advisors. Stock options, stock appreciation rights
and restricted stock options may be granted to certain persons in proportion to
their contributions to the overall success of the Company as determined by the
board of directors. Of the stock options outstanding at December 31, 2004,
610,500 vested immediately upon grant, 50,000 vest over a two year period from
the date of grant and 210,000 vest over a three year period from the date of
grant.

         The Company granted options to purchase 1,575,000 shares of the
Company's common stock to officers and key employees during the year 2005 at a
weighted average exercise price of $2.04. Of the 1,575,000 options granted,
275,000 options were granted to employees, 650,000 were granted to officers who
are not members of the Board of Directors, 500,000 were granted to officers who
are members of the Board of Directors and 150,000 were granted to outside
members of the Board of Directors. 280,000 options vest immediately and
1,295,000 options vest monthly over a two year period.

                                      F-22
<PAGE>

                EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

The following table summarizes stock options at December 31, 2005:

                  Outstanding Stock Options          Exercisable Stock Options
               ------------------------------     ------------------------------
                Weighted                            Weighted
                 Average     Weighted               Average     Weighted
 Exercise       Remaining    Average               Remaining    Average
   Price       Contractual   Exercise             Contractual   Exercise
   Range         Shares        Life     Price       Shares        Life     Price
-----------    -----------   --------   -----     -----------   --------   -----
$ .90-$1.00       110,000      8.31     $ .99       102,778       8.21     $1.00
$1.10-$1.12       110,000      8.05     $1.11       110,000       8.05     $1.11
$1.17-$1.24        69,514      8.45     $1.20        43,937       8.34     $1.21
$1.50-$1.54       145,000      8.55     $1.52        89,583       8.84     $1.51
   $1.74           70,000      9.58     $1.74        17,500       9.58     $1.74
$2.00-$2.05     1,460,000      9.32     $2.01       638,056       9.18     $2.01
$2.89-$2.94       110,000      9.89     $2.94         9,583       9.88     $2.93

The following table summarizes stock option activity for the years ended
December 31, 2005 and 2004:

                                         Weighted              Weighted
                                          Average               Average
                                         Exercise              Exercise
                                          Shares      Price     Shares     Price
                                         ---------    -----    --------    -----

Outstanding at beginning of year......     765,000    $1.35     605,500    $1.36
Granted...............................   1,575,000     2.04     349,500     1.22
Exercised.............................    (200,000)    3.59           -        -
Cancelled.............................     (65,486)    1.17    (190,000)    1.21
                                         ---------             --------
Outstanding at end of year............   2,074,514     2.04     765,000     1.35
                                         =========             ========

Exercisable at end of year............   1,011,437     1.30     670,239     1.30
                                         =========             ========
Weighted average fair value of
 options granted during the year 2005.       $1.89                $1.22
                                         =========             ========

12. EMPLOYEE BENEFIT PLAN

The Company has one savings plan (the "Plan") that qualifies as a deferred
salary arrangement under Section 401(d) of the Internal Revenue Code of 1986. To
participate in the Plan, an employee of the Company must have at least three
months of full time service with the Company and be at least 18 years old. The
amount of salary deferral during any year for a Plan participant cannot exceed
the dollar limit imposed by applicable federal law. The Plan also provides that
the Company may match employee contributions to the Plan. The Company did not
make any contributions to the Plan during the years ended December 31, 2005 and
2004.

                                      F-23
<PAGE>

                EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

13. INCOME TAXES

The federal and state income tax provision (benefit) for the years ended
December 31, 2005 and 2004 is summarized as follows:

                                                            2005         2004
                                                        -----------   ----------
         Current
            Federal ..................................  $         -   $        -
            State ....................................            -            -
                                                        -----------   ----------
                                                                  -            -
                                                        -----------   ----------

         Deferred
            Federal ..................................   (1,809,000)           -
            State ....................................     (308,000)           -
                                                         -----------  ----------
         Total provision (benefit) for income taxes ..  $(2,117,000)  $        -
                                                         ===========  ==========

Deferred income taxes 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. For financial reporting
purposes, the Company has incurred substantial losses in prior periods that
caused management to doubt, based on the available objective evidence; whether
it was more likely than not that the net deferred tax assets would be fully
realizable. Accordingly, the Company had provided for full valuation allowance
against its net deferred tax assets. During the year ended December 31, 2005 the
Company eliminated the valuation allowance that had been recorded because
management now believes that, based on current operations and future
projections, the benefits arising from the deferred tax assets will be realized.
The components of the Company's deferred tax assets at December 31, 2005 and
2004 were as follows:

                                                  2005         2004
                                               ----------   ----------
         Net operating losses carryforwards    $1,446,000    1,400,000
         Amortization of intangibles .......      645,000      650,000
         Other .............................       26,000       20,000
                                               ----------   ----------
         Deferred tax assets ...............    2,117,000    2,070,000
         Less : Valuation allowance ........            -   (2,070,000)
                                               ----------   ----------
         Net deferred tax asset ............   $2,117,000            -
                                               ==========   ==========

The Company has net operating loss carryforwards for federal tax purposes of
approximately $3,889,000 which expire in years 2022 through 2024. The amount
deductible per year is limited to approximately $630,000 under current tax
regulations.

                                      F-24
<PAGE>

                EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

A reconciliation of the provision (benefit) for income taxes with amounts
determined by applying the statutory U.S. federal income tax rate to income
before income taxes is as follows:
                                                       Year Ended December 31,
                                                     --------------------------
                                                         2005            2004
                                                     -----------    -----------
Computed tax at the federal statutory rate of 34%    $   117,000       (534,000)
State taxes, net of federal benefit .............        (37,000)       (57,000)
Operating loss carryforwards ....................     (1,446,000)
Amortization of intangibles .....................       (645,000)
Non-deductible compensation .....................       (105,000)
Other ...........................................         (1,000)
Valuation allowance .............................                       591,000
                                                     -----------    -----------
Provision (benefit) for income taxes ............    $(2,117,000)             -
                                                     ===========    ===========
Effective income tax rate .......................          (613)%
                                                     ===========    ===========

14. COMMITMENTS AND CONTINGENCIES

Office Lease Commitments

The Company's subsidiary and its company-owned branch offices lease office
facilities under operating lease agreements. Lease expense totaled $223,678 and
$139,296 for the year ended December 31, 2005 and 2004, respectively.

The following is a schedule by year of future lease commitments:

         Year Ending
         December 31,
         ------------
             2006              $ 207,506
             2007                139,372
             2008                142,786
             2009                146,554
             2110                 24,442
                               ---------
                               $ 660,660
                               =========

Regulatory and Legal Matters

During 2005, the Company's subsidiary, EFG, received and executed a settlement
offer from the Securities and Exchange Commission. This settlement offer
resolved an enforcement action that was brought against EFG, in May of 2004, for
trading of mutual fund shares on behalf of our clients.

EFG has deposited $350,000 into an escrow account pending ratification by the
SEC's main office in Washington D.C. Therefore, the Company has recognized an
expense of $275,000, in its Consolidated Statement of Operations for its share
of the settlement and has recorded a receivable of $75,000 for an amount due
from a former officer of the parent. This payment is represented on the
Consolidated Statement of Financial Position for the year ended December 31,
2005 as cash in escrow and the receivable from the former officer is reflected
as a prepaid expense and other assets. The corresponding liability of $350,000
is reflected in accrued expenses and other liabilities.

                                      F-25
<PAGE>

                EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

Customer Complaints and Arbitration

From time to time, EFG can be a defendant or co-defendant in arbitration matters
incidental to its retail brokerage services business. EFG may contest the
allegations of the complaints in these cases and carries error and omission
insurance policy to cover such incidences. The policy terms require that the
Company pay a deductible of $100,000 per incident. In the opinion of management,
based on discussions with legal counsel, the outcome of any pending matters will
not result in a material adverse affect on the financial position or results of
operations of the Company or its subsidiaries.

The Company's subsidiaries' business involves substantial risks of liability,
including exposure to liability under federal and state securities laws in
connection with the underwriting or distribution of securities and claims by
dissatisfied clients for fraud, unauthorized trading, churning, mismanagement
and breach of fiduciary duty. In recent years there has been an increasing
incidence of litigation involving the securities industry, including class
actions which generally seek rescission and substantial damages. In the ordinary
course of business, the Company operating through its subsidiaries and its
principals are, and may become a party to additional legal or regulatory
proceedings or arbitrations. The Company is not currently involved in any
additional legal or regulatory proceeding or arbitrations, the outcome of which
is expected to have a material adverse impact on the Company's business.

Employment Agreements

The Company has employment agreements with several of it key officers and a
director. The agreements typically are for a two year duration and can be
cancelled by either party upon 90 days written notice. Currently the Company has
three individuals who have employment agreements totaling $510,000 per year.

15. OFF BALANCE SHEET RISKS

Retail customer transactions are cleared through the clearing broker on a fully
disclosed basis. In the event that customers default in payments of funds or
delivery of securities, the clearing broker may charge the Company for any loss
incurred in satisfying the customer obligations. Additional credit risk occurs
if the clearing brokers of affiliates do not fulfill their obligations. The
Company regularly monitors the activity in its customer accounts for compliance
with margin requirements.

In addition, we have sold securities which we do not currently own and therefore
will be obligated to purchase the securities at a future date. We have recorded
these obligations in our financial statements at December 31, 2005 at the market
values of the securities and will incur a loss if the market value decreases
subsequent to December 31, 2005.

16. CONCENTRATION OF CREDIT RISKS

We are engaged in various trading and brokerage activities in which
counterparties primarily include broker-dealers, banks and other financial
institutions. In the event counterparties do no fulfill their obligations, we
may be exposed to risk. The risk of default depends on the creditworthiness of
the counterparty or issuer of the instrument. It is our policy to review, as
necessary, the credit standing of each counterparty.

                                      F-26
<PAGE>

                EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

Our cash in bank accounts, at times, exceeds the Federal Deposit Insurance
Corporation ("FDIC") insurable limit of $100,000. We have not experienced any
previous losses due to this policy.

17. NET CAPITAL REQUIREMENTS AND VIOLATIONS OF BROKER DEALER SUBSIDIARY

The Company's subsidiary, EFG, is subject to SEC Uniform Net Capital Rule
15c3-1, which requires the maintenance of minimum net capital and requires that
the ratio of aggregate indebtedness to net capital, both as defined, shall not
exceed 15 to 1. Net capital and the related ratio of aggregate indebtedness to
net capital, as defined, may fluctuate on a daily basis.

At December 31, 2005, EFG's net capital was $827,719 which exceeded the capital
requirement by $291,719.The Company's ratio of aggregate indebtedness to net
capital was 4.5 to 1. The Company claims exemption under rule 15c3-3 under
paragraph (k)(2)(ii) of the Rule as all customer transactions are cleared
through other broker-dealers on a fully disclosed basis.

18. SUBSEQUENT EVENTS

In January 2006, the Company increased our stockholders equity by $725,000 from
proceeds from the sale of 290,000 shares of common stock and the issuance of
181,500 warrants to purchase the Company's common stock at $4.99 per share.

On March 13, 2006, the Company issued 863,074 shares of newly created Series F
preferred stock, to unrelated third parties, for $2,804,990. The series F
preferred stock includes five year warrants to purchase 431,537 shares of the
Company's common stock at $4.50 per share and carries a 4% cumulative dividend.

On February 6, 2006, the Company received a letter from the National Association
of Securities Dealers ("NASD") stating that they intended to recommend that
disciplinary action be brought against the Company for failing to maintain the
minimum net capital required by Securities Exchange Act ("SEA") Rule 15c3-1. The
letter states that from September 2003 until February 14, 2005, that the
Company, acting through it former Financial and Operations Principal ("FINOP")
prepared and submitted materially inaccurate Financial and Operational Combined
Uniform Single Report ("FOCUS Reports"). The NASD letter further states that the
firm acting through it former FINOPs prepared and maintained materially
inaccurate net capital computation in violation of NASD rules. Also during the
period beginning in September of 2003 until December of 2004, the Company
implemented a material change in business operations by increasing the number of
equity securities in which it made a market from 136 to 1427 without filing an
application for approval with the NASD thus violating NASD regulations.

The NASD has given the Company the opportunity to submit reasons indicating why
the action should not be brought against us. The Company is in the process of
preparing it response. Management believes any action or settlement will not be
material in relation to the net worth of the Company.

                                      F-27