CAPITAL GROWTH HOLDINGS LTD /DE/, 10KSB, 1998-03-31

CAPITAL GROWTH HOLDINGS LTD /DE/
10KSB, 1998-03-31
SECURITY BROKERS, DEALERS & FLOTATION COMPANIES

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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------------

FORM 10-KSB

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

For the fiscal year ended December 31, 1997

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

For the transition period from ________ to _________

Commission file number 33-21443
CAPITAL GROWTH HOLDINGS, LTD.
----------------------------------------------
(Name of Small Business Issuer in Its Charter)

Delaware 06-1489574
--------------------------- -------------------
(Sate of Other Jurisdiction (I.R.S. Employer
of Incorporation) Identification No.)

660 Steamboat Road, Greenwich, CT 06830
--------------------------------- -------------------
(Address of Principal Executive Offices) (Zip Code)

(203) 861-7750
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Exchange Act: None
----

Securities Registered Pursuant to Section 12(g) of the Exchange Act: None
----

Check whether the issuer (1) has 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 issuer 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 the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10KSB
or any amendment to this Form 10-KSB. [X]

The issuer's revenues for the fiscal year ended December 31, 1997 were
$3,428,054.

The aggregate market value of the common equity stock held by
non-affiliates of the registrant based on the average bid and asked price of the
common stock on March 16, 1998, and a discount therefrom on the Class B common
stock was $1,790,155. Directors, officers and ten percent or greater
shareholders are considered affiliates for purposes of this calculation but
should not necessarily be deemed affiliates for any other purpose.

The number of shares outstanding of each of the issuer's classes of common
equity as of March 30, 1998 was as follows: 3,398,496 shares of common stock and
16,431,000 shares of Class B common stock.

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

<PAGE>

TABLE OF CONTENTS

Page
----
PART I
Item 1. Description of Business ....................................... 1
Item 2. Description of Properties ..................................... 5
Item 3. Description of Legal Proceedings .............................. 6
Item 4. Submission of matters to a Vote of Securityholders ............ 6

PART II
Item 5. Market for Common Equity and Related Stockholder Matters ...... 6
Item 6. Management's Discussion and Analysis .......................... 7
Item 7. Financial Statements .......................................... 12
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ........................................ 12

PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act ............ 13
Item 10. Executive Compensation ........................................ 16
Item 11. Security Ownership of Certain Beneficial Owners and Management 19
Item 12. Certain Relationships and Related Transactions ................ 21
Item 13. Exhibits, List and Reports on Form 8-K ........................ 23

<PAGE>

PART I

Item 1. Description of Business.

General

Capital Growth Holdings, Ltd. ("CGH" or the "Company") is a financial
services firm concentrating in investment and merchant banking in the United
States and Europe. The Company, through its wholly-owned operating investment
banking subsidiary, International Capital Growth, Ltd. , a Delaware corporation
("ICG"), provides growth companies with access to needed capital on an agency or
principal basis by using creative financing approaches and tools, while
providing the opportunity for investors and the Company to potentially earn
above-average market returns.

ICG commenced limited operations in October, 1996 and through December,
1996 was in the development stage. Accordingly, the Company has limited
operating history upon which an evaluation of the Company's performance and
prospects can be made. ICG's business focus is to act as placement agent in
connection with the international private placement of securities of its client
companies through a world-wide network of sub-placement agents ("Sub-Placement
Agents"). In addition, Capital Growth (Europe) Limited ("CGE"), a London based
financial services firm which is 50% owned by ICG, acts as a sub-placement agent
for ICG in Europe and sources European investment banking transactions. Since
inception, ICG has raised approximately $17.6 million on behalf of two client
companies.

The Company also conducts merchant banking activities through ICG. In
the course of its business activities, ICG encounters investment opportunities
that are more appropriate for a direct principal investment due to the nature,
size or timing of a subject company's capital requirements. ICG, has made direct
investments in, and anticipates to continue making direct investments in, such
opportunities if they meet ICG's criteria.

Despite limited experience working together at ICG, management of the
Company ("Management") has developed substantial expertise throughout their
careers in identifying young companies exhibiting the necessary fundamentals
required for their success. In addition, management has developed a relationship
oriented approach towards both corporate clients and investors, emphasizing
communication and a common goal. By maintaining seats on, or participating in
meetings of, a client company's board of directors and providing consulting
services, management believes it will be able to provide guidance at a more
sophisticated level than is typically available to young companies. As a result
of this hands-on approach, management also believes it is well equipped to
communicate client company developments to the financial community.

The Board of Directors has decided not to expand the Company's
operations into the retail brokerage business. This decision was based on the
Board of Directors' belief that the current market level for equities in the
U.S., the increasing level of competition in the brokerage industry from
Internet based brokerage services and brokerage firms offering unlimited trading
for a fixed annual fee and the high volatility in the Microcap sector present
significant barriers to entry into

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the securities brokerage business for the Company. Accordingly, the Company will
concentrate on its core businesses, investment and merchant banking.

The Company has historically generated revenues primarily from ICG's
activities as a placement agent in private financings as well as from the
appreciation of its portfolio of securities acquired in connection with its
investment and merchant activities. The Company's net loss for the fiscal year
ended December 31, 1997 of approximately $1.0 million resulted primarily from
insufficient placement fees to cover general and administrative expenses and a
decline in the value of its portfolio of securities. This was predominantly the
result of the decline in the per share bid price of the Company's largest
portfolio position, common stock of First American Railways, Inc., from $2.94 at
September 30, 1997 to $0.50 at December 31, 1997, approximately an 83% decline.
Further, at March 28, 1997, the per share bid price of such common stock
declined to $.2813. As of December 31, 1997, the Company had an accumulated
deficit of $2.5 million.

The Company has taken significant steps to reduce its expenses for the
fiscal year 1998 such as eliminating salaried personnel and reducing salaries
paid to management. Alan L. Jacobs, the Company's Executive Vice President, who
has been providing consulting services to First American Railways, Inc., a
client of ICG is being compensated directly by First American Railways, Inc. for
his services in lieu of salary otherwise due to him from the Company. Mr. Jacobs
is being compensated at a rate equivalent to that which would be paid to the
Company. Upon completion of his consulting services to First American Railways,
Inc. Mr. Jacobs is anticipated to re-join the payroll of ICG. In addition, in
September 1998, the Company anticipates consolidating its Greenwich, Connecticut
and West Palm Beach, Florida offices in an effort to further reduce overhead and
increase efficiency. The Company believes its current resources will permit the
Company to continue operations for approximately 12 months. To continue
operations beyond twelve months from the date hereof, the Company must generate
placement income, sell a portion of its portfolio securities and/or raise
additional funds through the sale of its equity securities. The Company is
currently exploring each of these alternatives.

Acquisition of International Capital Growth, Ltd.

In March, 1997, CGH, then an inactive company, acquired 100% of the
outstanding capital stock of ICG in a reverse acquisition consummated through a
share exchange transaction (the "Share Exchange"). The Share Exchange was
treated as a recapitalization. In connection therewith, ICG's historic capital
accounts were retroactively adjusted to reflect the equivalent number of shares
issued by CGH in the transaction while ICG's historical deficit accumulated
during the development stage is carried forward.

U.S. Investment and Merchant Banking: International Capital Growth Ltd.

ICG was formed in February, 1996 and commenced formal operations in
October, 1996 when it was granted registration as a broker-dealer from the
Securities and Exchange Commission ("SEC") and membership with the National
Association of Securities Dealers, Inc. ("NASD"). Management's goal through ICG
is to provide access to capital for its corporate clients, primarily through
"agency

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financings," and offer its investor clients the potential to earn substantial
returns while earning fees for its own account consisting of both cash and
equity securities. In an agency financing, a placement agent, such as ICG,
offers to investors, securities of its clients and typically receives a cash
commission on the sale of such securities as well as certain other compensation,
including equity securities. Management believes that ICG's success will be
based upon the combination of (a) management's expertise in identifying growth
companies with strong fundamentals, skillful management and a sustainable
competitive advantage in their respective fields; (b) a long-term relationship
approach to investment banking; (c) a global distribution network; and (d)
creative financing tools.

In June, 1997, and in January and February, 1998, ICG, acting as
placement agent, raised approximately $13.2 million in two private placements,
of convertible debentures and equity securities, for a publicly-held company.
Further, in November and December, 1997, the Company raised approximately $4.4
million in a private placement of equity securities for a privately-held
company.

A critical element in ICG's approach to its business is the strong,
personal relationships maintained between management and the international,
independent network of sales representatives that distribute securities for ICG
sponsored transactions. This network of Sub-Placement Agents currently
encompasses in excess of 30 agents in 7 countries and is anticipated to be
expanded by Management.

In its capacity as agent, ICG encounters opportunities that are more
appropriate for a direct principal investment than an agency financing due to
the nature, size or timing of a subject company's capital requirements. ICG has
made direct investments in, and is anticipated to continue making direct
investments in securities of operating companies through ICG, if they meet
Management's criteria, including exhibiting the necessary fundamentals required
for their success. Management believes that such merchant banking opportunities
will include investments through both debt and equity securities in both public
and private companies in a variety of industries and at various stages of
development.

To the extent permitted by applicable rules and regulations, ICG may,
in certain instances, raise capital on an agency basis for companies in which it
has made a principal investment. Management believes the ability to invest on a
principal basis offers a significant competitive advantage in attracting
companies that require agency financing in those cases in which the company's
financing requirements call for an initial or "bridge" component (i.e., a
relatively small short-term debt financing which typically includes an equity
"kicker" and is re-paid from the proceeds of a subsequent, larger financing).
Thus, investing on a principal basis is a logical extension of ICG's agency
financing.

Management has also independently organized a public "blank check"
company, Emerging Growth Acquisition Corp. I ("EGAC") to be used in connection
with an ICG sponsored or other reverse merger transaction. A blank check company
is a development stage company that has no specific business plan or purpose or,
in this case, has indicated that its business plan is to engage in a merger or
acquisition with an unidentified company. Assuming the successful regulatory
approval of the aforementioned transaction, ICG, as part of its merchant banking
activities, may organize several similar public blank check companies.
Management believes substantial value may be created by merging a public blank
check company with an active private operating company. In addition, as part

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of its merchant banking activities, ICG may acquire positions in one or more
operating companies unrelated to financial services. ICG, as part of its
merchant banking activities, may also acquire control of inactive public
companies for such purpose.

European Corporate Finance: Capital Growth Europe, Limited.

CGE was formed as a United Kingdom corporation in May, 1996 by ICG and
an experienced group of financial professionals in London; each of ICG and such
group holds a 50% interest therein. CGE became licensed with the Securities
Futures Authority of the United Kingdom in November, 1996, which enables CGE to
carry out corporate finance business in United Kingdom.

CGE undertakes sales and distribution functions for ICG sponsored
transactions in the United Kingdom. Further, CGE plans to operate as an
originator of European transactions and as a corporate finance business in the
small-cap sector of the European equity markets.

In addition, it is intended that CGE will carry out corporate finance
advisory work for its clients. CGE's target client is a business with sales of
less than $825 million, net assets of less than $165 million and/or profits of
under $82.5 million.

The Company believes there are substantial synergies between ICG and
CGE. Management believes that by applying its U.S. investment banking expertise
to the United Kingdom and European financial markets, it will benefit by
diversifying its efforts and widening the regions from which its potential
investment banking transactions may be generated. Further, ICG will seek to
capitalize upon the synergies in terms of personnel and knowledge of products,
industry and markets between the United States and the United Kingdom corporate
financing activities.

Competition

All aspects of the Company's business and anticipated business are
highly competitive. The Company expects to compete in domestic and international
markets with numerous financial services companies for potential financing
transactions and investment capital.

Because the securities industry is highly capital-intensive, the
Company is continuously exploring opportunities to raise additional capital. The
ability of an investment bank to expand its business is closely related to its
capital structure and its ability to raise additional capital. Large brokerage
firms and brokerage subsidiaries of large corporations have greater capital,
financial and other resources than the Company. They may also have the ability
to raise substantially more capital than the Company can raise on terms more
favorable than those available to the Company. In addition, several small and
specialized securities firms have been successful in raising significant amounts
of capital for their merger and acquisition activities, merchant banking
investment vehicles and for their own accounts, thereby further intensifying the
level of competition in the industry in which the Company is and plans to
operate.

As a result of legislative and regulatory initiatives in the United
States to remove or relieve

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certain restrictions on the businesses in which commercial banks can operate,
the Company also competes with large commercial banking institutions, certain of
which are in the process of enlarging the scope of their investment banking
activities. Commercial banking organizations, in general, are expanding their
securities and investment advisory activities, as well as other activities
related to the provision of financial services. These developments may lead to
the creation of integrated financial services firms that are able to compete
more effectively than the Company in certain of its businesses. Furthermore,
competition with well-capitalized foreign firms is intense in international
capital markets and is increasing in domestic markets. To the extent that the
Company can compete for investment opportunities it may only be able to do so on
less favorable terms than those obtained by larger, more established firms.

Employees

As of March 15, 1998, the Company, including ICG but not including CGE,
had a total of seven full-time employees and one part-time employee. None of the
Company's employees are represented by a union and the Company has not
experienced any work stoppages. The Company believes its relations with its
employees is satisfactory.

Item 2. Description of Properties.

The Company, its subsidiaries and affiliates share or plan to share the
use of office space as described below.

1. Approximately 855 square feet at 660 Steamboat Road, Greenwich,
Connecticut 06830 for use as the principal executive offices of the
Company, ICG, Capital Growth International, LLC ("CGI"), an affiliate
of the Company, and EGAC, a blank check company organized by
Management, pursuant to a lease held by CGI expiring on September 30,
1998 for monthly rent of $6,250 payable entirely by ICG for the benefit
of the Company, ICG, CGI and EGAC;

2. Approximately 700 square feet at 777 South Flagler Drive, 8th Floor,
West Tower, West Palm Beach, Florida 33401 for use by the Company, ICG
and CGI pursuant to a monthly tenancy in favor of ICG for monthly rent
of $2,500 payable entirely by ICG for the benefit of the Company, ICG
and CGI;

3. Approximately 2,040 square feet at 2425 Olympic Boulevard #660E,
Santa Monica, California 90404 for use by the Company, ICG and CGI
pursuant to a lease held by ICG expiring on November 30, 2000 for
monthly rent of $5,834 payable entire by ICG for the benefit of the
Company, ICG and CGI; and

4. Approximately 325 square feet of office space at 4 Hill Street,
London, England W1X 7FU, consisting of one separate office for use by
the Company and ICG pursuant to a sub-lease held by CGI expiring in
October 2111 for monthly rent of $2,467.50 payable by ICG. See "Certain
Transactions."

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Item 3. Description of Legal Proceedings.

The Company is not a party to any pending legal proceedings and is not
aware of any contemplated proceeding by any governmental authority.

Item 4. Submission of Matters to a Vote of Securityholders.

None.

PART II

5. Market for Common Equity and Related Stockholder Matters.

Market Information

The Company's common stock, par value $.001 per share ("Common Stock"),
is currently quoted on the OTC Bulletin Board under the symbol "CGHL". There is
currently no public trading market for the Company's Class B common stock, par
value $.001 per share ("Class B Common Stock"). The table set forth below
presents the high and low bid prices of the Common Stock for the period
indicated in 1997 based on information provided by the OTC Bulletin Board. Such
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark down or commissions and may not necessarily represent actual
transactions. Further, for the period from June 6, 1997 through July 8, 1997,
traditional high and low quotes could not be determined as during such time
there was only one market maker for the Common Stock. Prior to June 6, 1997,
there was no trading market for the Common Stock.

1997: High Low
- ----- ---- ---
From June 6 (initial listing), through June 30............. $2.75 $2.25
From July 1, through September 30.......................... $2.75 $2.25
From October 1, through December 31........................ $2.50 $0.75

On March 16, 1998, the last reported bid price of the Common Stock was
$0.3125.

Holders

As of March 16, 1998, there were approximately 370 holders of record of
the Common Stock and 16 holders of record of the Class B Common Stock.

Dividends

As of March 25, 1997, the Company's Board of Directors declared an
annual cumulative dividend of $.225 per share on the Common Stock for the
calendar years 1997 and 1998, subject to (i) the payment of dividends on any
class of capital stock with priority over the Common Stock, (ii)

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applicable net capital requirements and (iii) restrictions under applicable law
(the "Common Stock Dividend"). The Common Stock Dividend is currently payable on
a quarterly basis ending on December 31, 1998.

On October 12, 1997, each share of the Company's 4,001,334 shares of 5%
Cumulative Convertible Series A Preferred Stock and 1,080,000 shares of 5%
Cumulative Convertible Series B Preferred Stock converted into one share of
Class B Common Stock. Pursuant to the terms of the Certificates of Designation
of such preferred stock, the holders thereof are entitled to 5% per share annual
cumulative dividends prior to payment of dividends on any other class of capital
stock of the Company. The cumulative dividends on such preferred stock have
accrued unpaid since October 12, 1996 and were payable on a quarterly basis
commencing December 31, 1996 and on October 24, 1997, ten business days after
the conversion thereof. The aggregate amount of such arrearage owed by the
Company to the former holders of such preferred stock as of October 12, 1997 is
approximately $38,000.

The Company's ability to pay dividends on its common equity is limited
by state law and the Company's ability to pay dividends on classes of capital
stock with priority over the class of equity on which such dividend is paid.
Under Delaware law, the Company may declare and pay dividends or make other
distributions on its capital stock only out of capital surplus (as defined under
Delaware Law) and in case there shall be no such surplus, out of its net profits
for the fiscal year in which the dividend is declared and/or the preceding
fiscal year. The Class B Common Stock is junior in priority to the Common Stock
with respect to the payment of dividends and is subject to a $.20 per share
limitation on dividends in 1998.

The Company does not anticipate declaring any additional dividends on
any of its classes of capital stock. Any future dividend declarations and
payments would be subject to the restrictions set forth above, approval of the
Company's Board of Directors and any contractual restrictions.

Item 6. Management's Discussion and Analysis.

Overview

CGH is a financial services firm concentrating in investment and
merchant banking in the United States and Europe. The Company has one
wholly-owned operating subsidiary, ICG. ICG owns a 50% interest in CGE.

ICG commenced formal operations in October, 1996 when it became
registered as a broker-dealer with the SEC and obtained membership with the
NASD. On March 14, 1997, ICG consummated a share exchange transaction with the
Company and became the Company's wholly-owned subsidiary. In June 1997, the
Company reincorporated into the State of Delaware and had its common stock
listed on The Nasdaq Stock Market, Inc.'s OTC Bulletin Board under the symbol
"CGHL". Through December 1996, ICG was a development stage company.

The Company has historically generated revenues primarily from ICG's
activities as a

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placement agent in private financings and from the marking to market of its
portfolio of securities.

Management is considering the possibility of merging the Company with
one of a number of unaffiliated companies engaged in businesses unrelated to the
Company's current business. If such a transaction is consummated, the Company
may divest itself of its current business, which may be purchased by affiliates
of the Company or an independent third party. There can be no assurance that any
such transaction will be consummated. The consummation of such a transaction
would be subject to numerous conditions, including, without limitation, the
successful completion of due diligence investigations, the execution of
definitive documentation, the requisite approvals of the Company's and the
merger candidate's boards of directors and shareholders and the consents of the
appropriate regulatory agencies.

The Company has taken significant steps to reduce its expenses for the
fiscal year 1998 such as eliminating salaried personnel and reducing salaries
paid to management. Alan L. Jacobs, the Company's Executive Vice President, who
has been providing consulting services to First American Railways, Inc. a client
of ICG is being compensated directly by First American for his services in lieu
of salary otherwise due to him from the Company. Mr. Jacobs is being compensated
at a rate equivalent to that which would be paid to the Company. Upon completion
of his consulting services to First American Railways, Inc. Mr. Jacobs is
anticipated to re-join the payroll of ICG. In addition, in September 1998, the
Company anticipates consolidating its Greenwich, Connecticut and West Palm
Beach, Florida offices in an effort to further reduce overhead and increase
efficiency. The Company believes that its current resources will permit the
Company to continue operations for approximately twelve months. To continue
operations beyond twelve months from the date hereof, the Company must generate
placement income, sell a portion of its portfolio securities and/or raise
additional funds through the sale of its equity securities. The Company is
currently exploring each of these alternatives.

This report contains certain "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act
which represents the Company's expectation or beliefs, including statements
regarding, among other things, (i) the Company's growth strategy or potential,
(ii) anticipated trends in the Company's businesses, (iii) the Company's ability
to compete with its competitors and (iv) the Company's profitability and
projected financial condition. Any statements contained in this Prospectus that
are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, words such as "may," "will,"
"expect," "plan," "believe," "anticipate," "intent," "estimate" or "continue,"
the negative statements are based upon Management's beliefs at the time they are
made as well as assumptions made by Management

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based upon information available to it. The current assumptions regarding the
Company's operations, performance, development and results of its business
include (i) the accuracy of estimates of anticipated increases in the Company's
expenses due to implementation of the Company's business plan, (ii) the
successful completion of securities offerings anticipated to be consummated
through ICG, (iii) the maintenance of market conditions affecting the Company's
services, and (iv) appropriate regulatory approvals for certain corporate
actions. Forward-looking statements are inherently subject to various risks and
uncertainties, including those described above, as well as potential changes in
economic or regulatory conditions that are largely beyond the Company's control.
Should one or more of these risks materialize or changes occur, or should
Management's assumptions prove to be incorrect, the Company's actual results may
materially vary from those anticipated or projected.

As ICG did not commence business activities until October, 1996, the
Company believes that a period to period comparison of results of operations
would not be meaningful.

Results of Operations for the Period from February 26, 1996 (inception) to
December 31, 1996

Revenues. The Company generated interest income of $22,033 on funds raised
in a private placement of the Company's securities in October, 1996.

Operating Expenses. Operating expenses for the period were $740,649,
consisting principally of professional fees, management and employee salaries
and establishment of its business as a broker-dealer.

Net Loss. As a result of the foregoing, the Company had net loss of
$718,616 during the period from February 26, 1996 (inception) to December 31,
1996.

Results of Operating for the Fiscal Year ended December 31, 1997

Revenues. The Company generated $3,428,054 in revenues during the fiscal
year ended December 31, 1997, of which $1,650,268 resulted from fees in
connection with an $11.1 million private placement consummated by ICG as
placement agent for a publicly held company in the second quarter. Further, in
the fourth quarter, the Company earned $401,408 in fees in connection with a
$4.3 million private placement consummated by ICG as placement agent. The
Company generated $1,331,461 in other private placement fees, $359,914 in
consulting fees, $94,170 in interest income and $39,804 in gain on settlement of
a debt. The Company also recognized $448,971 in unrealized losses on its
securities portfolio, principally from the decline in value of securities of one
company held by the Company.

Operating Expenses. Operating expenses for the fiscal year ended December
31, 1997 were $4,429,939, consisting of commissions of $859,844, insurance
expenses of $276,153, rent expenses of $259,295, travel and entertainment
expenses of $291,059, professional expenses in the United States of $238,763,
professional expenses in the United Kingdom of $96,342, and general and
administrative expenses of $2,287,368, approximately 59% of which consisted of
management and employee salaries, and the recognition of the equity in the net
loss of the Company's unconsolidated

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subsidiary Capital Growth Europe, Limited of $121,115.

Net Income. As a result of the foregoing, the Company had a net loss of
$1,001,885 for the fiscal year ended December 31, 1997.

Liquidity and Capital Resources

Capital for the Company has been provided by the investments made by
the initial shareholder group and through private placements of the Company's
securities. In March 1997, the Company raised net proceeds of approximately $1.0
million in a private placement of 549,496 shares of its Common Stock.

To date, the Company has used its capital for merchant banking
(securities investments), working capital and general corporate purposes. In
addition, in March, 1997, the Company loaned $200,000 to an entity controlled by
Messrs. Ronald B. Koenig and Stanley Hollander, two of the Company's directors,
officers and principal shareholders. The loan, which was due on March 26, 1998,
carries interest at the rate of 6% per annum and was approved by a majority of
disinterested directors of the Company. The Company has extended this note for
approximately 90 days subject to independent director approval.

In March 1997, the Company acquired from a third party marketable
securities for a total cost of $450,000, which were valued at approximately
$550,000 at December 31, 1997.

On July 1, 1997, the Company paid a $.1125 per share dividend to
holders of its Common Stock which dividend totaled $382,332 in the aggregate.
The dividend represented payment for the six month period from January 1, 1997
through June 30, 1997 of a two year $.225 annual per share dividend (the "Common
Stock Dividend"). On each of September 30, 1997 and December 31, 1997, the
Company paid a $.05625 per share dividend which in each case totaled $191,165 in
the aggregate, representing payment of the Common Stock Dividend for the three
month periods from July 1, 1997 through September 30, 1997 and from October 1,
1997 through December 31, 1997, respectively. The balance of the Common Stock
Dividend is anticipated to be paid on a quarterly basis at a rate of $.05625 per
share from March 31, 1998 through December 31, 1998.

On September 15, 1997, the Company loaned $25,000 to Capital Growth
International LLC, an affiliate of the Company. This loan was repaid on October
2, 1997 without interest.

On October 12, 1997, each share of the Company's 4,001,334 shares of 5%
Cumulative Convertible Series A Preferred Stock and 1,080,000 shares of 5%
Cumulative Convertible Series B Preferred Stock converted into shares of Class B
Common Stock on a one-for-one basis, at which time the 5% per share annual
dividend that has accrued thereon ceased to accrue and became due and payable on
October 24, 1997 out of funds legally available therefor. The dividend due and
payable to the holders of the Series A Preferred Stock and Series B Preferred
Stock is $38,154 in the aggregate. As a result of such conversion, the Company
has a total of 3,398,496 shares of Common Stock and 16,431,000 shares of Class B
Common Stock currently outstanding.

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In the fourth quarter, the market price of certain of the Company
investments in equity securities declined significantly. The securities with a
carrying amount of approximately $2,900,000 at September 30, 1997 declined to
approximately $850,000 at December 31, 1997. This was predominantly the result
of the decline in the per share bid price of the Company's largest portfolio
position, First American Railways, Inc., from $2.94 at September 30, 1997 to
$0.50 at December 31, 1997, approximately an 83% decline. As of March 28, 1997,
the per share bid price of such common stock declined to $.2813.

During the fiscal year ended December 31, 1997, the Company paid
consulting fees of $99,000 to a Company affiliated with a stockholder of CGH in
connection with the organizing of road show presentations in London, England
relating to an offering made pursuant to Regulation S as promulgated under the
Securities Act of 1933, as amended, for which ICG acted as placement agent.

The Company has no material capital commitments other than annual
salaries to its executive officers and employees of approximately $700,000 and a
letter of credit in the amount of $100,000 to secure future rent payments at the
Company's London office. The Company believes that its current cash resources
will be adequate to satisfy its operations for approximately twelve months.

The Company is currently seeking to increase its capital base by
generating revenues from ICG's investment banking activities and through a sale
of the Company's equity securities. Further, the Company has taken significant
steps to reduce its expenses for the fiscal year 1998 such as eliminating
salaried personnel and reducing salaries paid to management. Alan L. Jacobs, the
Company's Executive Vice President, who has been providing consulting services
to First American Railways, Inc., a client of ICG, is being compensated directly
by First American for his services in lieu of salary otherwise due from the
Company. Mr. Jacobs is being compensated at a rate equivalent to that which
would be paid to the Company. Upon completion of his consulting services to
First American Railways, Inc. Mr. Jacobs is anticipated to re-join the payroll
of ICG. In addition, in September 1998, the Company anticipates consolidating
its Greenwich, Connecticut and West Palm Beach, Florida offices in an effort to
further reduce overhead and increase efficiency.

Variability of Results

The Company anticipates that a substantial portion of its future
revenues will originate from ICG's activities as placement agent in private
financings. When acting as placement agent, ICG is typically compensated upon
the successful closing of a financing. Agency financings typically take from 90
to 120 days to consummate after ICG is retained as placement agent. Activities
will be undertaken and expenses incurred in one fiscal period although a fee may
not be earned until a subsequent period. As a result, the financial results of
the Company may vary dramatically from quarter to quarter. Further, the
Company's operating results will also vary as a result of the marking to market
of its portfolio of securities.

As of March 28, 1998, the Company's largest holding in its portfolio of
securities, First American Railways, Inc., common stock has declined 44% since
December 31, 1997. There are no

11
<PAGE>

other significant trends affecting the Company's portfolio of securities.

Item 7. Financial Statements.

The financial statements required by this Item, the accompanying notes
thereto and the reports of independent accountants are included as part of this
Form 10-KSB immediately following the signature page.

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

In March 1997, in connection with the Share Exchange, which effected a
change in control of the Company, the Company's Board of Directors voted to
engage Richard A. Eisner & Company, LLP to act as the Company's independent
auditors. Their appointment corresponded with the dismissal and replacement of
Angell & Deering, which resigned effective March 25, 1997. The former
accountant's reports for the Company's fiscal years ended January 31, 1995 and
1996 did not contain any adverse opinion or disclaimer of opinion, nor were any
such reports modified as to uncertainty, audit scope or accounting principles.
There have been no disagreements between the Company and the former accountant
with regard to any matters which would have caused such accountant to make
reference to the subject matter thereof with their report.

12
<PAGE>

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.

Identification of Directors and Executive Officers

Name Age Position(s)
- ---- --- -----------
Ronald B. Koenig(1) 64 Chairman of the Board of Directors, President
and Chief Executive Officer
Alan L. Jacobs(1) 56 Executive Vice President and Director
Stanley Hollander(2) 60 Senior Vice President and Director
Michael S. Jacobs 33 Senior Vice President, Secretary and Treasurer
Jay J. Matulich(3) 42 Senior Vice President
John D. Booth 39 Director
N. Bulent Gultekin 50 Director

- --------------------
(1) Ronald B. Koenig and Alan L. Jacobs are also Directors of Emerging Growth
Acquisition Corporation I, a publicly-held company.
(2) Stanley Hollander is also a Director of Capital Media Group, Ltd. and
Emerging Growth Acquisition Corporation I, each a publicly-held company.
(3) Jay J. Matulich is also a Director of Waste Systems International, Inc., a
publicly-held company.

Each officer and director listed above holds the same respective
position(s) with ICG, except that Alan L. Jacobs is also Senior Managing
Director of ICG, and Stanley Hollander and Jay J. Matulich are Vice Presidents
of ICG. Stanley Hollander is also a Director of ICG.

Each director of the Company listed in the above table holds office
until the next annual meeting of shareholders and until their respective
successors have been elected and qualified. Each officer of the Company listed
in the table above serves at the discretion of the Company's Board of Directors.

13
<PAGE>

Ronald B. Koenig. Mr. Koenig has been Chairman of the Board of Directors,
President and Chief Executive Officer of International Capital Growth, Ltd.
since March 1996. He has served as Chairman of the Board, Chief Executive
Officer and a Director of Emerging Growth Acquisition Corporation I, a
publicly-held corporation, since July 1996. Mr. Koenig has been Chairman, from
October 1994 to July 1995, and co-founder of U.S. Sachem Financial Consultants,
L.P. and, since July 1995, of its successor Capital Growth International, L.L.C.
From 1989 to 1993, Mr. Koenig was a Senior Managing Director and department head
of corporate finance at Gruntal & Co., Incorporated. From 1974 to 1985, Mr.
Koenig was a Managing Director, and from 1985 to 1989, Chairman of the Board, of
Ladenburg Thalmann & Co., Inc. From 1972 to 1974, he served as Vice President,
Institutional Sales at Jas. H. Oliphant & Co., an institutional research
boutique. From 1968 to 1972, he held a position in sales with Leif Werle & Co.,
an NYSE specialist firm. Mr. Koenig was educated at the University of
Pennsylvania (The Wharton School) and holds a B.S. in economics. Mr. Koenig
presently serves on The Wharton School Undergraduate Executive Board and is on
the business advisory board to Sterling National Bank & Trust Company of New
York.

Alan L. Jacobs. Mr. Jacobs has served as Executive Vice President and a Director
of the Company since March 1997. Since March 1996, Mr. Jacobs has served as
Senior Managing Director, Executive Vice President and a Director of
International Capital Growth, Ltd. and, since January 1995, of Capital Growth
International, L.L.C. He has served as Chief Operating Officer and a Director of
Emerging Growth Acquisition Corporation I, a publicly-held corporation, since
July 1996. From February 1995 to October 1997 and from July 1993 to September
1994, Mr. Jacobs served as a Director of Boca Raton Capital Corporation, a
publicly-held Florida corporation ("BRCC"). He was Chairman of the Board of
Directors of BRCC from November 1993 to September 1994 and Chief Executive
Officer of BRCC from November 1993 to October 1997. From January 1992 to
December 1995, Mr. Jacobs served as Associate Director of Investment Banking at
Josephthal Lyon & Ross Incorporated. From May 1985 to December 1991, Mr. Jacobs
served as Managing Director of Investment Banking with Ladenburg Thalmann & Co.,
Inc., an investment banking firm. Mr. Jacobs earned an A.B. in liberal arts in
1963 from Franklin & Marshall College and a J.D. from Columbia Law School in
1966.

Stanley Hollander. Mr. Hollander has served as Senior Vice President and a
Director of the Company since March 1997 and Vice President and a Director of
International Capital Growth, Ltd. since March 1996. He has served as President
and a Director of Emerging Growth Acquisition Corporation I, a publicly-held
corporation, since July 1996. Since 1993, Mr. Hollander has served as President,
Chief Executive Officer and co-founder of U.S. Sachem Financial Consultants,
L.P. and, since July, 1995, its successor Capital Growth International, L.L.C.
From December 1995 to present, Mr. Hollander has been a Director of Capital
Media Group, Ltd., a publicly-held company. From 1989 to 1993 he served as a
Managing Director and joint head of corporate finance at Gruntal & Co.,
Incorporated. From 1985 to 1989 he served as a Managing Director of Investment
Banking at Ladenburg Thalmann & Co., Inc. From 1979 to 1985 he was co-owner and
Vice President of Zemex Electronics-Stanlee, distributors of consumer
electronics. From 1959 to 1979, Mr. Hollander was president of All Brand
Appliances Brandmart, distributors of consumer electronics. Mr. Hollander was
educated at the University of Alabama.

14
<PAGE>

Michael S. Jacobs. Mr. Jacobs has served as Senior Vice President, Secretary and
Treasurer of the Company since March 1997 and of International Capital Growth,
Ltd. since March 1996. He has served as Chief Financial Officer and Treasurer of
Emerging Growth Acquisition Corporation I, a publicly-held corporation, since
July 1996. Since February 1995, Mr. Jacobs has been a Senior Vice President of
U.S. Sachem Financial Consultants, L.P. and, since July 1995, its successor
Capital Growth International, L.L.C. From 1993 to 1995 he was a Vice President
of Investment Banking at Josephthal Lyon & Ross Incorporated, and from 1990 to
1993, Mr. Jacobs was an associate in corporate finance at Gruntal & Co.,
Incorporated. From 1989 to 1990, Mr. Jacobs was a financial analyst at Ladenburg
Thalmann & Co., Inc. Educated at New York University's Stern School of Business
and Emory University, he holds an M.B.A. in finance and a B.B.A. degree.

Jay J. Matulich. Mr. Matulich has served as Senior Vice President of the Company
since March 1997 and Vice President of International Capital Growth, Ltd. since
March 1996. He has served as Secretary of Emerging Growth Acquisition
Corporation I, a publicly-held corporation, since July 1996. Since October 1994,
Mr. Matulich has been a Senior Vice President of U.S. Sachem Financial
Consultants, L.P. and, since July 1995, of its successor Capital Growth
International, L.L.C. Since April 1995, Mr. Matulich has served as a Director of
Waste Systems International, Inc., a publicly-held company. From March 1996 to
June 1996, Mr. Matulich served as Chairman of BioSafe International, Inc. From
May 1990 to October 1994, Mr. Matulich was a Vice President of Gruntal & Co.,
Incorporated. From 1989 to May 1990, Mr. Matulich served as an associate in the
Shansby Group, a San Francisco-based leveraged buy-out firm. From 1986 to 1989,
Mr. Matulich was a Senior Manager at Arthur Young & Co., accountants in the
merger and acquisitions group. Educated at Brigham Young University, Mr.
Matulich has a B.A. degree.

John D. Booth. Mr. Booth has been a Director of the Company since March 1997 and
of International Capital Growth, Ltd. since March 1996. He has been Chairman of
Maintel Europe Limited and Luther Pendragon Limited since 1996 and 1991,
respectively. From 1993 to 1996, Mr. Booth was Managing Director at Bankers
Trust International. From 1988 to 1993, he was Senior Vice President at
Prudential Bache Securities. From 1986 to 1988, Mr. Booth was a partner at E.F.
Hutton International Associates. From 1980 to 1983, he was Vice President at
Merrill Lynch, Pierce, Fenner & Smith Incorporated. From 1980 to 1983, Mr. Booth
was an Account Executive at J. Walter Thompson Company. Educated at Oxford
University, he holds an M.A. and a B.A. in modern languages.

N. Bulent Gultekin. Mr. Gultekin has been a Director of the Company since March
1997 and of International Capital Growth, Ltd. since March 1996. Since 1981, Mr.
Gultekin has been an Associate Professor of Finance at The Wharton School of the
University of Pennsylvania. From 1993 to 1994, he served as the Governor of the
Central Bank of the Republic of Turkey. From 1989 to 1991, Mr. Gultekin served
as Chief Advisor to Prime Minister Mesut Yilmaz of the Republic of Turkey. From
1990 to 1992, Mr. Gultekin was a director of The Bell Atlantic Mutual Funds. Mr.
Gultekin earned a BSC in 1965 and an MBA in 1973 from Turkish universities and a
Ph.D. in finance and statistics in 1976 from The Wharton School of the
University of Pennsylvania.

15
<PAGE>

Family Relationships

There is no family relationship among any of the directors or executive
officers of the Company or ICG except that Alan L. Jacobs and Michael S. Jacobs
are father and son, respectively.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and persons who own more than ten percent of a class of the
Company's equity securities registered pursuant to Section 12 of the Exchange
Act to file with the Commission initial reports of ownership and reports of
changes in ownership of equity securities of the Company. The Company has no
class of equity securities registered pursuant to Section 12 of the Exchange
Act. Accordingly, no such reports have been filed with the Commission.

Item 10. Executive Compensation.

The following table sets forth the compensation paid by ICG for
services rendered in all capacities to certain officers of ICG for the periods
indicated.

Summary Compensation Table

<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Securities
Compensation Underlying
Name and Position with ICG Fiscal Year Ended Salary Option(#)(1)
- -------------------------- ----------------- ------ ------------
<S> <C> <C> <C>
Ronald B. Koenig
President, Chief Executive
Officer and Director................................. December 1996 (2) $ 48,076
December 1997 (3) $250,000
Stanley Hollander
Vice President and................................... December 1996 (2) $ 48,076
Director December 1997 (3) $263,000

Alan Jacobs
Executive Vice President,
Senior Managing Director and
Director............................................. December 1996 (2) $ 43,269
December 1997 (3) $225,000
Michael Jacobs
Senior Vice President, Secretary
and Treasurer........................................ December 1996 (2) $ 32,588
December 1997 (3) $150,000 250,000
Jay J. Matulich
Vice President....................................... December 1996 (2) $ 24,038
December 1997 (3) $125,000 250,000
</TABLE>

- ----------
(1) Represents shares of Class B Common Stock underlying stock options granted
under the 1997 Stock Option Plan.
(2) Covers the period from February 26, 1996, ICG's inception, through
December 31, 1996, the Company's fiscal year for such period.
(3) Covers the period from January 1, 1997 through December 31, 1997, the
Company's fiscal year for such period.

16
<PAGE>

The Company, through ICG, currently pays annual salaries to Messrs.
Koenig, Hollander, M. Jacobs and Matulich of $175,000, $196,000, $150,000 and
$129,600 respectively. Alan L. Jacobs is being compensated at a rate equivalent
to that which would be paid to the Company. Upon completion of his consulting
services to First American Railways, Inc. Mr. Jacobs is anticipated to re-join
the payroll of ICG. Upon such occurrence, Mr. Jacobs' compensation will be
determined by the Company. Other than as set forth above, none of the Company's
executive officers or directors received any salary or wages or other
compensation from the Company during the last three completed fiscal years.

1997 Stock Option Plan

General. The Company has established the Company's 1997 Stock Option
Plan (the "Stock Option Plan"), which the Company believes is desirable to
attract and retain executive officers, other key employees and directors and to
further the growth and profitability of the Company. Under the Stock Option
Plan, options to purchase an aggregate of not more than 1,500,000 shares of
Class B Common Stock may be granted from time to time to key employees
(including officers), consultants and directors of the Company. The Company may
not grant options covering more than 500,000 shares to any one participant
during any fiscal year. Options shall be designated as Incentive Stock Options
("ISOs") or Nonqualified Stock Options ("NQSOs").

The Stock Option Plan was administered by a committee consisting of
John D. Booth and Emanuel M. Arbib, two disinterested, outside directors of the
Company. Mr. Bulent Gultekin will be asked to join the committee as an outside
director. The committee is generally empowered to interpret the Stock Option
Plan; to prescribe rules and regulations relating thereto; to determine the
terms of the option agreements; to amend the option agreements with the consent
of the optionee; to determine the key employees and directors to whom options
are to be granted; and to determine the number of shares subject to each option
and the exercise price thereof. The per share exercise price of options granted
under the Stock Option Plan will be not less than 100% (110% for ISOs if the
optionee owns more than 10% of the Class B Common Stock) of the fair market
value per share of Class B Common Stock on the date the options are granted.

Options will be exercisable for a term that will not be greater than
ten years from the date of grant (five years from the date of grant of an ISO if
the optionee owns more than 10% of the Class B Common Stock). In the event of
the termination of such relationship between the option holder and the Company
for cause (as defined in the Stock Option Plan), all options granted to that
option holder terminate immediately. Options may be exercised during the option
holder's lifetime only by the option holder, his or her guardian or legal
representative.

Options granted pursuant to the Stock Option Plan which are ISOs are
intended to enjoy the attendant tax benefits provided under Sections 421 and 422
of the Code. Accordingly, the Stock Option Plan provides that the aggregate fair
market value (determined at the time an ISO is granted) of the Class B Common
Stock subject to ISOs exercisable for the first time by an option holder during
any calendar year (under all plans of the company) may not exceed $100,000.

17
<PAGE>

The Board may modify, suspend or terminate the Stock Option Plan;
provided, however, that certain material modifications affecting the Stock
Option Plan must be approved by the stockholders, and any change in the Stock
Option Plan that may adversely affect an option holder's rights under an option
previously granted under the Stock Option Plan requires the consent of the
option holder.

Existing Stock Options. Under the Stock Option Plan, the Company has
outstanding ISOs to Jay J. Matulich, Michael S. Jacobs, N. Bulent Gultekin and
Richard Lane, employees and/or directors of the Company at the time of such
grants, to purchase 250,000, 250,000, 25,000 and 10,000 shares of Class B Common
Stock, respectively. All of such ISOs vest at the rate of one-third of the total
number of options granted at the end of each of the first three anniversaries of
the original date of grant and are exercisable at an exercise price of $2.00 per
share for a period of ten years from the original date of grant.

401(k) Plan

ICG maintains a 401(k) Plan (the "401(k) Plan") through a national
mutual fund company that is available to all employees. An employee may
contribute on a pre-tax basis up to 15% of the employee's total annual wages
from ICG, subject to annual limitations prescribed by the International Revenue
Code. Employee contributions are fully vested and non-forfeitable at all times.

ICG makes matching contributions to the 401(k) Plan on behalf of its
employees, subject to funding availability. ICG uses a matching formula under
which it contributes $.50 for each $1.00 contributed by employees. Fifty percent
of the matching contributions vest immediately while the remaining fifty percent
vest one year after the contribution. Once vested, the matching contributions
are non-forfeitable at all times.

During the fiscal year ended December 31, 1997, the Company had no
active retirement, stock option or other plans or arrangements pursuant to which
cash or non-cash compensation was paid to its officers or directors other than
the Stock Option Plan and ICG's 401(k) plan. As of March 14, 1997, in connection
with the Share Exchange, the Company put into effect the Capital Growth
Holdings, Ltd. 1997 Stock Option Plan pursuant to which the Company granted
options to purchase 635,000 shares of Class B Common Stock to certain directors
and employees of ICG in exchange for previously granted options of the same
tenor to purchase an equal number of shares of common stock of ICG and granted
options to purchase an additional 100,000 shares of Class B Common Stock to
another employee of ICG. Since the grant of such options, 100,000 of such
options have expired without exercise.

18
<PAGE>

Option Grants in Fiscal Year Ended December 31, 1997
(Individual Grants)
<TABLE>
<CAPTION>
Number of Shares of Percent of Total Exercise
Class B Common Stock Options Granted Price
Name Underlying Options(1) in Fiscal Year Per Share Expiration Date
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael S. Jacobs........................... 250,000 31.8% $2.00 November 20, 2006
Jay J. Matulich............................. 250,000 31.8% $2.00 November 20, 2006
</TABLE>

(1) Consists of shares of Class B Common Stock underlying options granted
under the Stock Option Plan

Aggregated Option Exercises in Fiscal Year Ended December 31, 1997
And Option Values at December 31, 1997

<TABLE>
<CAPTION>
Number of Shares of Class B Common Stock
Underlying Unexercised Options Value of Unexercised
At December 31, 1997(1) In-the-Money Options at
Name Exercisable Unexercisable December 31, 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Michael S. Jacobs........................... 83,333 166,667 None
Jay J. Matulich............................. 83,333 166,667 None
</TABLE>

(1) Consists of shares of Class B Common Stock underlying options granted
under the Stock Option Plan

Indemnification

The Company's Certificate of Incorporation provides for indemnification
rights of officers, directors, and others and limits the personal liability of
directors for monetary damages to the extent permitted by Delaware Law. Insofar
as indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Securities Act"), may be permitted for directors, officers and
controlling persons of the Company, the Company has been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.

Item 11. Security Ownership of Certain Beneficial Owners and Management.

Principal Stockholders

The following table sets forth certain information with respect to the
beneficial ownership of the Company's capital stock as of March 16, 1998, by (i)
any person who is known to the Company to be the beneficial owner of more than
five percent of the capital stock of the Company; (ii) each director of the
Company; (iii) the Company's chief executive officer during the last completed
fiscal year; (iv) each officer of the Company; and (v) all current directors and
officers of the Company as a group. Except as noted below, each person has sole
voting and investment power with respect to all shares of capital stock of the
Company listed as owned by such person.

19
<PAGE>

<TABLE>
<CAPTION>
Amount & Nature of % of
Name and Address of Beneficial Owner(1) Beneficial Ownership Class(2)
- --------------------------------------- -------------------- --------
<S> <C> <C>
Rush & Co.
Swiss American Securities
100 Wall Street
4th Floor
New York, NY 10005 ............................................. 3,586,344(3)(4)(5) 18.09%
Emanuel Arbib ...................................................... 3,336,334(4) 16.83%
Ronald B. Koenig ................................................... 3,072,270 15.49%
Stanley Hollander .................................................. 2,997,270(6) 15.12%
Hollander Family
Partnership LP. ................................................ 2,997,270(6) 15.12%
Alan L. Jacobs ..................................................... 2,778,126 14.01%
Michael S. Jacobs .................................................. 830,333(7) 4.17%
Jay J. Matulich .................................................... 828,333(8) 4.16%
John D. Booth ...................................................... 250,000(5) 1.26%
N. Bulent Gultekin ................................................. 8,333(9) .04%
All current directors and
officers as a group ............................................ 10,764,665(10) 54.68%
</TABLE>

- ----------
(1) Each beneficial owner for which an address is not listed has an address
c/o Capital Growth Holdings, Ltd., 660 Steamboat Road, Greenwich, CT 06830
(2) Based on a total of 19,829,496 shares of capital stock outstanding
consisting of 3,383,496 shares of Common Stock and 16,431,000 shares of
Class B Common Stock, all of which vote together as one class.
(3) Consists of 3,536,334 shares of Class B Common Stock, 25,000 shares of
Common Stock and 25,000 warrants to purchase one share of Common Stock
("Warrants").
(4) Rush & Co., holds 3,336,334 shares of Class B Common Stock for the benefit
of Capital Growth Holdings, Limited, a Turks & Caicos Islands corporation.
Fifty percent of Capital Growth Holdings, Limited is owned by entities
which may be deemed to be in the control of Mr. Emanuel Arbib. As such,
Mr. Arbib may be deemed to be the beneficial owner of the shares of Common
Stock beneficially owned by Capital Growth Holdings, Limited. Other than
such holdings, Mr. Arbib owns no capital stock of the Company.
(5) Rush & Co. holds 200,000 shares of Class B Common Stock, 25,000 shares of
Common Stock and 25,000 Warrants for the benefit of John D. Booth, a
director of the Company. Other than such holdings, Mr. Booth owns no
capital stock of the Company.
(6) Stanley Hollander, Senior Vice President and Director of the Company, may
be deemed to be the beneficial owner of the shares of the Company held by
Hollander Family Partnership LP. Other than such holdings, Mr. Hollander
owns no capital stock of the Company.
(7) Consists of 747,000 shares of Class B Common Stock and options exercisable
to purchase 83,333 shares of Class B Common Stock that are currently
vested. Mr. Jacobs holds options to purchase a total of 250,000 shares of
Class B Common Stock which vest at the rate of one-third of the total
grant at the end of each of the first three anniversaries of the date of
the grant, November 21, 1996.
(8) Consists of 745,000 shares of Class B Common Stock and options exercisable
to purchase 83,333 shares of Class B Common Stock that are currently
vested. Mr. Matulich holds options to purchase a total of 250,000 shares
of Class B Common Stock which vest at the rate of one-third of the total
grant at the end of each of the first three anniversaries of the date of
grant, November 21, 1996.
(9) Consists of stock options exercisable to purchase 8,333 shares of Class B
Common Stock that are currently vested. Mr. Gultekin holds options to
purchase a total of 25,000 shares of Class B Common Stock which vest at
the rate of one-third of the total grant at the end of each of the first
three anniversaries of the date of grant, November 21, 1996.
(10) Consists of 10,539,666 shares of Class B Common Stock, 25,000 shares of
Common Stock, 25,000 Warrants and stock options exercisable to purchase
174,999 shares of Class B Common Stock.

20
<PAGE>

Item 12. Certain Relationships and Related Transactions.

The Company requires that all material transactions with affiliates be
made on terms that are no less favorable to the Company than those that can be
obtained from unaffiliated third parties. Such transactions will be approved by
a majority of the Company's independent directors.

On March 26, 1997, the Company loaned $200,000 to an entity controlled
by Messrs. Ronald B. Koenig and Stanley Hollander, two of the Company's
Directors. The Note, which was due on March 26, 1998 and carries interest at the
rate of 6% per annum. Such Note, when issued, was approved by a majority of the
independent members of the Board of Directors of the Company. The Company has
extended this note for approximately 90 days, subject to approval by the
Company's independent directors.

On March 27, 1997, the Company completed a private offering (the
"Private Offering") of its Common Stock at $2.25 per share pursuant to
Regulation D and Regulation S, each as promulgated under the Securities Act. The
Private Offering, which yielded gross proceeds to the Company of $1,236,366, was
offered and sold through Capital Growth International LLC ("CGI"), as placement
agent, which was paid $74,181.96 in commissions in connection therewith,
$39,074.76 of which was used to compensate certain sub-placement agents. CGI is
an affiliate of the Company and ICG. Several of the officers and directors of
the Company and ICG are also officers and directors of CGI. Additionally, the
beneficial holders of 100% of the membership interests in CGI beneficially hold
47.44% of the outstanding capital stock of the Company, which holds 100% of the
outstanding capital stock of ICG. Messrs. Ronald B. Koenig, Chairman of the
Board of Directors, President and Chief Executive Officer of the Company and
ICG, and Stanley Hollander, Senior Vice President and a Director of the Company
and Vice President and a Director of ICG, each own a 50% interest in Sachem
Financial Consultants, L.P., which holds a 60% membership interest in CGI.
Messrs. Koenig and Hollander beneficially own 15.49% and 15.12% of the
outstanding capital stock of the Company, respectively. Mr. Emanuel Arbib, a
former Director of the Company and ICG, may be deemed to beneficially own a 30%
membership interest in CGI and 16.83% of the outstanding capital stock of the
Company.

The Company, ICG, CGI and EGAC share the use of approximately 855
square feet of office space at 660 Steamboat Road, Greenwich, Connecticut 06830.
The lease on such property, which expires on September 30, 1998, is held by CGI.
Rent for use of such property which is $6,250.00 per month, is paid by ICG at no
cost to CGI or EGAC.

The Company, ICG, CGI and EGAC share the use of approximately 700
square feet of office space at 777 South Flagler Drive, 8th Floor, West Tower,
West Palm Beach, Florida 33401. The monthly tenancy on such property is in favor
of ICG. Rent for use of such property, which is $2,500 per month, is paid by ICG
at no cost to CGI and EGAC.

The Company, ICG and CGI share the use of approximately 2,040 square
feet of office space

21
<PAGE>

at 2425 Olympic Boulevard, #660E, Santa Monica, California 90404. The lease on
such property, which expires on November 30, 2000, is held by ICG. Rent for use
of such property, which is $5,834 per month, is paid by ICG at no cost to CGI.

Approximately 325 square feet of office space at 4 Hill Street, London,
England W1X 7FU, consisting of one separate office for use by the Company and
ICG pursuant to a sub-lease held by CGI expiring in October 2111 for monthly
rent of $2,467.50 payable by ICG.

Effective January 1, 1997, CGI assigned to ICG all rights and
obligations in connection with two Financial Advisory and Consulting Agreements
(the "Consulting Agreements") each of which are between CGI and a separate
publicly-held company. The Consulting Agreements, which were entered into in
connection with CGI's investment banking business, were assigned to ICG for no
consideration. One Consulting Agreement, which expires on July 30, 1998,
currently provides for monthly payments to ICG of $2,500 and compensation rights
in favor of ICG if certain business transactions introduced by ICG to such
public company are consummated. The other Consulting Agreement currently grants
to ICG a right of first refusal, exercisable until April 26, 1998, to offer
securities of such public company and provides for certain compensation rights
in favor of ICG if certain business transactions introduced by ICG to such
public company are consummated.

During the fiscal year ended December 31, 1997, the Company paid
consulting fees of $99,000 to a stockholder of CGH in connection with the
organization of road show presentations in London, England relating to an
offering made pursuant to Regulation S as promulgated under the Securities Act
of 1933, as amended, for which ICG acted as placement agent.

Alan L. Jacobs, the Company's Executive Vice President, who has been
providing consulting services to First American Railways, Inc., a client of ICG,
is being compensated directly by First American Railways, Inc. for his services
in lieu of salary otherwise due to him from the Company. Mr. Jacobs is being
compensated at a rate equivalent to that which would be paid to the Company.
During the period between January 1 and March 31, 1998, Mr. Jacobs has earned
$75,000. Upon completion of his consulting services to First American Railways,
Inc. Mr. Jacobs is anticipated to re-join the payroll of ICG. Upon such
occurrence, Mr. Jacobs' compensation will be determined by the Company.

22
<PAGE>

Item 13. Exhibits, List and Reports on Form 8-K.

Exhibits and List

Exhibit
No. DESCRIPTION
- --------------------------------------------------------------------------------
2.1 Agreement Concerning the Exchange of Securities of
International Capital Growth, Ltd. for Securities of Galt
Financial Corporation dated January 7, 1997, is hereby
incorporated by reference to Exhibit 2.1 as included in the
Company's Form 8-K dated march 14, 1997

2.2 Agreement and Plan of Merger by and between Capital Growth
Holdings, Ltd., a Colorado corporation, and Capital Growth
Holdings, Ltd. a Delaware corporation, dated June 10, 1997, is
hereby incorporated by reference to Exhibit 2 as included in
the Company's Form 8-K dated June 25, 1997

3.1 Certificate of Incorporation of the Company, as amended, is
hereby incorporated by reference to Exhibit 3(i) as included
in the Company's Form 8-K dated June 25, 1997

3.2 By-Laws of the Company are hereby incorporated by reference to
Exhibit 3(ii) as included in the Company's Form 8-K dated June
25, 1997

4.1 Form of Common Stock certificate is hereby incorporated by
reference to Exhibit 4.1 as included in the Company's
Amendment No. 1 to Form SB-2 as filed with the SEC on January
16, 1998

4.2 Form of Redeemable Common Stock Purchase Warrant is hereby
incorporated by reference to Exhibit 4.2 as included in the
Company's Form SB-2 as filed with the SEC on October 14, 1997

4.3 Form of Redeemable Class B Common Stock Purchase Warrant is
hereby incorporated by reference to Exhibit 4.3 as included in
the Company's Form SB-2 as filed with the SEC on October 14,
1997

10.1 1997 Stock Option Plan is hereby incorporated by reference to
Exhibit 10 as included in the Company's Form 8-K dated March
14, 1997

10.3 Lease Agreement, as amended, regarding 660 Steamboat Road,
Greenwich, CT dated December, 1995 is hereby incorporated by
reference to Exhibit 10.3 as included in the Company's Form
SB-2 as filed with the SEC on October 14, 1997

23
<PAGE>

10.4 Lease Agreement, as amended, regarding 2425 Olympic Boulevard,
Santa Monica, CA dated November 30, 1994 is hereby
incorporated by reference to Exhibit 10.4 as included in the
Company's Form SB-2 as filed with the SEC on October 14, 1997

16.1 Letter, dated March 25, 1997, of Angell & Deering, is hereby
incorporated by reference to Exhibit No. 16 as included in the
Company's Form 8-K dated March 14, 1997

21.1 Subsidiaries of the Company

27.1 Financial Data Schedule

Reports on Form 8-K

No reports on Form 8-K were filed during the last quarter of the fiscal
year ended December 31, 1997.

Supplemental Information to Be Furnished with Reports Filed Pursuant to Section
15(d) of the Exchange Act by Non-Reporting Issuers

No proxy material or annual report covering the Company's last fiscal
year has been sent to the Company's security holders.

24
<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Company
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized on March 31, 1997.

CAPITAL GROWTH HOLDINGS, LTD.

By: /s/ Ronald B. Koenig
--------------------------------------
Ronald B. Koenig
President and Chief Executive Officer

In accordance with the Exchange Act, this Report has been signed below
by the following persons on behalf of the Company and in the capacities
indicated on March 31, 1997.

Signatures Title
- ---------- -----

/s/ Ronald B. Koenig President, Chief Executive Officer
- ----------------------- and Director (Principal Executive Officer)
Ronald B. Koenig

/s/ Michael S. Jacobs Senior Vice President
- ----------------------- Secretary and Treasurer (Principal Financial and
Michael S. Jacobs Accounting Officer)

/s/ Stanley Hollander Director
- ------------------------
Stanley Hollander

/s/ Alan L. Jacobs Director
- ------------------------
Alan L. Jacobs

/s/ John D. Booth Director
- ------------------------
John D. Booth

/s/ Bulent Gultekin Director
- ------------------------
Bulent Gultekin

25
<PAGE>

EXHIBIT INDEX

CAPITAL GROWTH HOLDINGS, LTD. AND SUBSIDIARY

Contents

<TABLE>
<CAPTION>
Page
----
Consolidated Financial Statements

<S> <C>
Independent auditors' report F- 2

Balance sheet as of December 31, 1997 F- 3

Statements of operations for the year ended December 31, 1997 and for the period from
February 26, 1996 (inception) through December 31, 1996 F- 4

Statements of changes in stockholders' equity for the year ended December 31, 1997
and for the period from February 26, 1996 (inception) through December 31, 1996 F- 5

Statements of cash flows for the year ended December 31, 1997 and for the period from
February 26,1996 (inception) through December 31, 1996 F- 6

Notes to financial statements F- 7
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
Capital Growth Holdings, Ltd.
Greenwich, Connecticut

We have audited the accompanying consolidated balance sheet of Capital Growth
Holdings, Ltd. and subsidiary as of December 31, 1997, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year ended December 31, 1997 and for the period from February 26,
1996 (inception) through December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of Capital Growth
Holdings, Ltd. and subsidiary as of December 31, 1997, and the consolidated
results of their operations and their consolidated cash flows for the year ended
December 31, 1997 and for the period from February 26, 1996 through December 31,
1996 in conformity with generally accepted accounting principles.

/s/ Richard A. Eisner & Company, LLP
------------------------------------
Richard A. Eisner & Company, LLP

New York, New York
February 4, 1998

With respect to Note H,
March 26, 1998

With respect to Note N,
March 28, 1998

F-2
<PAGE>

CAPITAL GROWTH HOLDINGS, LTD. AND SUBSIDIARY

Consolidated Balance Sheet
December 31, 1997
(Notes A and B)

<TABLE>
<CAPTION>
<S> <C>
ASSETS
Cash and cash equivalents $ 810,659
Due from broker 273,131
Securities owned at market value (cost $1,136,359) (Note C[7]) 634,058
Securities not readily marketable, at fair value (cost $759,000) (Note C[7]) 627,498
Note receivable and accrued interest from affiliate (Note H) 209,000
Restricted cash (Note K[1]) 102,334
Furniture, fixtures, equipment, and leasehold improvements (net of accumulated depreciation
of $21,772) (Notes C[2] and D) 197,503
Customer list (net of accumulated amortization of $40,000) (Notes C[6] and E[7]) 80,000
Investment in and advances to unconsolidated affiliate (Note C[8]) 65,000
Other assets 2,000
-----------
$ 3,001,183
===========

LIABILITIES
Accounts payable and accrued expenses $ 179,251
Dividends payable - preferred stockholders 38,154
Dividends payable - common stockholders 191,165
Deferred revenue 74,038
-----------
482,608
-----------

Commitments and other matters (Notes H, I, J and K)

STOCKHOLDERS' EQUITY (Notes A, B, E, F and G)
Preferred stock - $.001 par value; 20,000,000 shares authorized, none issued
Common stock - $.001 par value; 100,000,000 shares authorized; 3,398,496 shares
issued and outstanding 3,398
Class B common stock - $.001 par value; 25,000,000 shares authorized; 16,431,000
shares issued and outstanding 16,431
Additional paid-in capital 5,107,930
Accumulated deficit (2,525,584)
Subscription receivable (53,600)
Treasury stock - at cost (15,000 common shares) (30,000)
-----------
2,518,575
-----------
$ 3,001,183
===========
</TABLE>

See notes to financial statements F-3

<PAGE>

CAPITAL GROWTH HOLDINGS, LTD. AND SUBSIDIARY

Consolidated Statements of Operations

<TABLE>
<CAPTION>
February 26,
1996
Year Ended (Inception) Through
December 31, December 31,
1997 1996
<S> <C> <C>
Revenue (Notes C[7] and C[10]):
Consulting fees $ 359,914
Private placement fees 3,383,137
Net realized and unrealized loss on marketable and not readily
marketable securities (448,971)
Gain on debt settlement 39,804
Interest income 94,170 $ 22,033
------------ ------------
3,428,054 22,033
------------ ------------
Operating expenses:
Commission 859,844
General and administrative 3,448,980
Equity in loss of unconsolidated affiliate and write-down of
advances 121,115 740,649
------------ ------------
4,429,939 740,649
------------ ------------
Net loss (1,001,885) (718,616)
Less cumulative preferred dividend (29,624) (8,530)
------------ ------------
Net loss attributable to common stockholders $ (1,031,509) $ (727,146)
============ ============
Basic and diluted loss per common share, (Note C[5]) $ (.07) $ (.06)
============ ============
Weighted average number of common shares outstanding -
basic and diluted (Note C[5]) 15,655,000 11,613,000
============ ============
</TABLE>

See notes to financial statements F-4

<PAGE>

CAPITAL GROWTH HOLDINGS, LTD. AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders' Equity
(Notes A and B)

<TABLE>
<CAPTION>
Series A
Class B Convertible
Common Stock Common Stock Preferred
-------------------- ------------------- --------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock 2,549,000 $ 3,088,260
Issuance of common stock in a
noncash transaction (Note E[7]) $ 60,000 $ 120,000
Issuance of Class B stock 11,289,466 214,803
Issuance of Series A 4,001,334 $ 560,187
Issuance of Series B
Net loss
----------- ------------ ----------- ---------- ----------- ----------

Balance - December 31, 1996 2,549,000 3,088,260 11,349,666 334,803 4,001,334 560,187
Consulting expense attributable
to warrants (Note F)
Dividends declared
Recapitalization resulting from the
acquisition of Capital Growth
Holdings, Ltd. (Note B) 297,094
Issuance of common stock
(Note E[5]) 549,496 922,075
Collection of subscription
receivable
Issuance of common stock
to settle debt (Note H) 2,906 6,539
Exchange of shares of no par
shares for $.001 par value
shares (Note A) (4,013,476) (323,453)
Conversion of Series A and B
preferred stock into Class B
common stock (Note E[1]) 5,081,334 5,081 (4,001,334) (560,187)
Purchase of common stock
(Note E[6])
Net loss
----------- ------------ ----------- ---------- ----------- ----------

Balance - December 31, 1997 3,398,496 $ 3,398 16,431,000 $ 16,431 0 $ 0
=========== ============ =========== ========== =========== ==========
</TABLE>

<TABLE>
<CAPTION>
Series B
Convertible
Preferred Additional Treasury Stock
-------------------- Paid-in Accumulated Subscription --------------------
Shares Amount Capital Deficit Receivable Shares Amount Total
----------- ---------- ----------- ----------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock $ 3,088,260
Issuance of common stock in a
noncash transaction
(Note E[7]) 120,000
Issuance of Class B stock 214,803
Issuance of Series A $ (55,600) 504,587
Issuance of Series B 1,080,000 $ 226,800 226,800
Net loss $ (718,616) (718,616)
----------- ---------- ----------- ----------- -----------

Balance - December 31, 1996 1,080,000 226,800 (718,616) (55,600) 3,435,834
Consulting expense attributable
to warrants (Note F) $ 35,417 35,417
Dividends declared (805,083) (805,083)
Recapitalization resulting from
the acquisition of Capital Growth
Holdings, Ltd. (Note B) (46,322) (46,322)
Issuance of common stock
(Note E[5]) 922,075
Collection of subscription
receivable 2,000 2,000
Issuance of common stock
to settle debt (Note H) 6,539
Exchange of shares of no par
shares for $.001 par value
shares (Note A) 4,336,929 0
Conversion of Series A and B
preferred stock into Class B
common stock (Note E[1]) (1,080,000) (226,800) 781,906 0
Purchase of common stock
(Note E[6]) (15,000) $ (30,000) (30,000)
Net loss (1,001,885) (1,001,885)
----------- ---------- ----------- ----------- ---------- -------- ---------- ----------

Balance - December 31, 1997 0 $ 0 $ 5,107,930 $(2,525,584) $ (53,600) (15,000) $ (30,000) $ 2,518,575
=========== ========== =========== =========== ========= ======= ========= ===========

</TABLE>

See notes to financial statements F-5

<PAGE>

CAPITAL GROWTH HOLDINGS, LTD. AND SUBSIDIARY

Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
February 26, 1996
(Inception)
Year Ended Through
December 31, December 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,001,885) $ (718,616)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 63,486
Equity in loss of unconsolidated affiliate and write-down of
advances 121,115
Valuation of warrants for consulting 35,417
Change in unrealized depreciation of securities 633,802
Realized gains on securities (184,831)
Gain on conversion of debt (39,804)
Compensation paid with securities 283,432
Receipt of securities in payment of fees (1,583,141)
Loss on disposal of fixed assets 46,286
Accrued interest (9,000)
Changes in:
Due from broker (273,131)
Other assets (2,000)
Accounts payable and accrued expenses 128,251 51,000
Deferred revenue 74,038
------------ ------------
Net cash used in operating activities (1,707,965) (667,616)
------------ ------------

Cash flows from investing activities:
Additions to fixed assets (266,811)
Proceeds from sale of securities 273,132
Loans to affiliates (225,000)
Repayment of loan from affiliates 25,000
Investment in and advances to unconsolidated affiliate (186,115)
Investment in securities (563,950) (120,464)
Investment in restricted cash (2,334) (100,000)
------------ ------------
Net cash used in investing activities (759,963) (406,579)
------------ ------------

Cash flows from financing activities:
Proceeds from the issuance of common stock and preferred stock 924,075 4,034,450
Cash acquired on recapitalization 21
Dividends paid (575,764)
Purchase of treasury stock (30,000)
------------ ------------
Net cash provided by financing activities 318,332 4,034,450
------------ ------------

Net increase (decrease) in cash and cash equivalents (2,149,596) 2,960,255
Cash at beginning of period 2,960,255
------------ ------------

Cash and cash equivalents at end of period $ 810,659 $ 2,960,255
============ ============

Supplemental disclosures of noncash transactions:
Acquisition of customer list for common stock $ 120,000
Common stock issued to settle debt $ 46,343
Dividends declared but not paid $ 229,319
</TABLE>

See notes to financial statements F-6

<PAGE>

CAPITAL GROWTH HOLDINGS, LTD. AND SUBSIDIARY

Notes to Financial Statements
December 31, 1997

NOTE A - THE CORPORATION

Capital Growth Holdings, Ltd. (the "Company" or "CGH"), formerly Galt Financial
Corporation, was incorporated in the State of Colorado on June 15, 1987. On
March 14, 1997, CGH, an inactive company, acquired 100% of the outstanding
capital stock of International Capital Growth, Ltd. ("ICG") (a company formed in
February 1996), a Delaware corporation and member of the National Association of
Securities Dealers, Inc. The acquisition was consummated through an exchange of
shares that resulted in the former ICG shareholders receiving control of CGH
(see Note B for further discussion). In connection therewith, ICG's historic
capital accounts were retroactively adjusted to reflect the equivalent number of
shares issued by CGH in the transaction while ICG's historical accumulated
deficit was carried forward. The operations reflect those of ICG from inception.
Through December 31, 1996 the Company had been in the development stage and had
conducted no revenue producing activities. During the first quarter of 1997 the
Company ceased being in the development stage. The Company is developing a
financial services firm to pursue business opportunities in the United States
and the United Kingdom. In 1997, CGH, a Colorado corporation, was merged into a
Delaware corporation, Capital Growth Holdings, Ltd.

The Company has sustain recurring losses and at December 31, 1997 has an
accumulated deficit of $2,525,584 which has been funded by equity financing. The
Company has implemented certain cost reductions. However, there is no assurance
that profitable operations ultimately can be attained or that additional
financing will be available to support ongoing operations. The Company believes
that its current resources will enable it to meet its current and anticipated
obligations on a timely basis through December 31, 1998.

NOTE B - ACQUISITION

As discussed in Note A, the Company acquired 100% of the outstanding capital
stock of ICG in a reverse acquisition consummated through a share exchange
transaction (the "Share Exchange"). In accordance with the Share Exchange, the
Company issued 18,980,000 shares of its capital stock and 1,625,000 redeemable
warrants to the shareholders of ICG in exchange for the outstanding common and
convertible preferred shares and warrants of ICG. In addition, warrants to
obtain 250,000 shares of Class B common stock issued by ICG to a consultant were
exchanged.

The 18,980,000 shares of capital stock of the Company that were issued in the
Share Exchange consisted of (a) 2,549,000 shares of common stock, (b) 11,349,666
shares of Class B common stock, (c) 4,001,334 shares of 5% cumulative
convertible Series A preferred stock and (d) 1,080,000 shares of 5% cumulative
convertible Series B preferred stock. The warrants consist of 1,625,000
redeemable warrants, each exercisable to purchase one share of common stock at
$4.00 per share (subject to adjustment) at any time until October 1999 and
250,000 redeemable warrants, each exercisable to purchase one share of Class B
common stock at $2.00 per share (subject to adjustment) at any time, subject to
a vesting schedule, until November 1999. The issuance of warrants exercisable at
$2.00 per share will result in a charge to operations based on their fair value
over the number of months that such consulting services are provided.

NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

[1] Principle of consolidation:

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, ICG. All significant intercompany
transactions and balances have been eliminated.

F-7
<PAGE>

CAPITAL GROWTH HOLDINGS, LTD. AND SUBSIDIARY

Notes to Financial Statements
Decemher 31, 1997

NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

[2] Furniture, fixtures, equipment and leasehold improvements:

Furniture, fixtures, and equipment are recorded at cost. Depreciation is
provided using the straight-line method over the estimated useful lives of
the assets which range from 3 to 7 years. Leasehold improvements are
amortized over the lesser of the economic useful life of the improvement
or the term of the lease, whichever is shorter.

[3] Use of estimates:

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

[4] Fair value of financial instruments:

The carrying value of cash and cash equivalents, due from broker,
restricted cash, accounts payable and accrued expenses approximates their
fair value because of the short maturity of those instruments. Due to the
related party nature of notes receivable and accrued interest, the Company
is not reasonably able to determine their fair values.

[5] Net loss per common share:

The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share," in the year ended December 31, 1997 and has
retroactively applied the effects thereof for all periods presented.
Accordingly, the presentation of per share information includes
calculations of basic and dilutive loss per share. The impact on the per
share amounts previously reported was not significant.

Net loss per common share is based on the weighted average number of
common shares and Class B common shares outstanding during the year.
Common stock equivalents representing options and warrants and convertible
securities have not been included as they would be antidilutive. Net loss
attributable to common stock was adjusted to reflect cumulative dividends
on preferred shares outstanding.

[6] Customer list:

Customer lists are stated at cost and are being amortized over three
years.

[7] Valuation of securities:

Securities owned, which are listed on a national securities exchange, are
valued at their last reported sales price. Securities which trade
over-the-counter are valued at the "bid" price. Securities which do not
have a readily ascertainable market value are valued at their estimated
fair value as determined by the management. Management considers fair
value to be cost unless the value has deteriorated or where later
investments have been concluded by a significant outside investor, then
the investment is valued at the last per share sales price paid unless
circumstances dictate a lower valuation. Related changes in unrealized
appreciation or depreciation are reflected in the statement of operations.

F-8
<PAGE>

CAPITAL GROWTH HOLDINGS, LTD. AND SUBSIDIARY

Notes to Financial Statements
Decemher 31, 1997

NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

[8] Investment in and advances to an unconsolidated affiliate:

The Company has a 50% equity interest in an unconsolidated affiliate
Capital Growth (Europe) Limited ("CGE"). The investment is recorded using
the equity method of accounting.

[9] Cash equivalents:

The Company considers all liquid short-term investments with original
maturities of three months or less to be cash equivalents.

[10] Revenue recognition:

Consulting and private placement fees are recorded when earned. In
addition, the Company earns fees in the form of securities. These
securities are valued at market on the date they are earned. Security
transactions are recorded on a trade date basis.

[11] Recently issued accounting pronouncements:

The Financial Accounting Standards Board has recently issued Statements of
Financial Accounting Standards No. 129, "Disclosure of Information about
Capital Structure," No. 130, "Reporting Comprehensive Income," and No.
131, "Disclosures about Segments of an Enterprise and Related
Information." The above pronouncements will not have a significant effect
on the information presented in the financial statements.

NOTE D - FURNITURE, FIXTURES, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS

At December 31, 1997, fixed assets consist of the following:

Furniture and fixtures $ 89,802
Equipment 9,967
Leasehold improvements (located in Europe) 119,506
-----------

219,275
Less accumulated depreciation 21,772
-----------

Net $ 197,503
===========

NOTE E - STOCKHOLDERS' EQUITY

[1] Preferred stock:

Preferred stock may be issued in one or more series at the discretion of
the Board of Directors. In establishing a series, the Board of Directors
shall fix the number of shares in such series, and the preferences, rights
and restrictions thereof.

On March 14, 1997, the Board of Directors designated 4,365,000 shares of
preferred stock as 5% cumulative Series A preferred stock and 1,200,000
shares of preferred stock as 5% cumulative convertible Series B preferred
stock.

F-9
<PAGE>

CAPITAL GROWTH HOLDINGS, LTD. AND SUBSIDIARY

Notes to Financial Statements
Decemher 31, 1997

NOTE E - STOCKHOLDERS' EQUITY (CONTINUED)

[1] Preferred stock: (continued)

The holders of Series A and B preferred stock are entitled to a
preferential cumulative dividend which began accruing on October 12, 1996
equal to 5% of the liquidation preference per annum and share equally with
the Class B common stock in any dividends declared thereon. The Series A
and B have a liquidation preference of $.14 and $.21 per share,
respectively.

On October 12, 1997, each share of the Company's 4,001,334 shares of
Series A preferred stock and 1,080,000 shares of Series B preferred stock
converted into shares of Class B common stock on a one-for-one basis, at
which time the 5% per share annual dividend that accrued thereon ceased to
accrue and became due and payable on October 24, 1997, out of funds
legally available therefore.

[2] Class B common stock:

The holders of the Class B common stock are entitled to one vote per
share. The Class B common stock is junior in priority with respect to
dividends to the common stock and automatically converts into common stock
on a one-for-one basis on December 31, 1998.

[3] Dividend:

In March 1997, the Board of Directors declared annual dividends of $.225
per share of common stock, for the calendar years ended 1997 and 1998,
accruing as of January 1, 1997 payable commencing June 30, 1997 and on a
quarterly basis thereafter. The dividend will be paid after payment of any
dividends due on all classes of stock with priority over common stock
(currently Series A and B preferred stock), subject to any operating
restrictions. In addition, the Board of Directors determined that any
dividend declared on Class B common stock will be subject to a $.20 per
share limitation on annual dividends in 1998.

[4] Subscription receivable:

Subscription receivable represents amounts to be collected by the Company
for 382,851 shares of Series A convertible preferred stock converted to
Class B common stock on October 12, 1997.

[5] Private placement:

On March 27, 1997 the Company completed a private offering of its common
stock at $2.25 per share. The Company issued a total of 549,496 shares of
common stock which yielded net proceeds of approximately $922,000. A
placement fee of approximately $74,000 was paid to Capital Growth
International LLC ("CGI"), an affiliate of the Company (Note H). In
connection therewith, the Company agreed to issue warrants to purchase
24,984 shares of common stock as partial compensation to certain
nonaffiliated sub-placement agents. Each warrant is exercisable to
purchase one share at $4.00 per share (subject to adjustment) through
March 2000.

[6] Treasury stock:

In March and May 1997 the Company purchased an aggregate of 15,000 shares
of common stock from the original holders at its approximate fair value.

[7] Noncash transaction:

In November 1996, the Company granted 60,000 shares of common stock for a
customer list. The Company valued the shares at its fair value of $2.00
per share.

F-10
<PAGE>

CAPITAL GROWTH HOLDINGS, LTD. AND SUBSIDIARY

Notes to Financial Statements
Decemher 31, 1997

NOTE F - WARRANTS

In October 1996 the Company raised $3,250,000 through the sale of units in a
private placement. Each unit was sold for $50,000 and consisted of 25,000 shares
of common stock and 25,000 redeemable warrants. As a result, the Company has
1,625,000 redeemable warrants issued and outstanding. Each redeemable warrant
entitles the registered holder to purchase one share of Class B common stock at
an initial exercise price of $4.00 per share (subject to adjustment for stock
splits, combinations and reclassifications) at any time prior to redemption from
October 1996 until October 1999.

In addition, the Company issued 24,984 redeemable warrants to sub-placement
agents in connection with the Company's March private placement. Each warrant is
exercisable into common stock at a price of $4.00 per share at any time prior to
redemption from March 1997 until March 2000.

In addition, the Company agreed to issue 250,000 redeemable warrants in exchange
for consulting services to be rendered on behalf of the Company. The consulting
warrants vest at the rate of 125,000 per annum on a pro rata basis based upon
the number of months that such consulting services are provided to the Company.
Consulting services were provided for a 5 month period and therefore 52,083
warrants were issued. Each consulting warrant is exercisable to purchase one
share of Class B common stock at an exercise price of $2.00 per share at any
time prior to redemption through November 3, 1999. The issuance has resulted in
a charge to operations of $35,417 based on the fair value of the warrant.

The above warrants may be redeemed by the Company at $.05 per redeemable warrant
subject to certain conditions and the closing bid price of the common stock
trades at least $6.00 for any 20 trading days within a period of 30 consecutive
trading days ending on the fifth trading day prior to the date of the notice of
redemption.

NOTE G - STOCK OPTION PLAN

The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options. The alternative
fair value accounting provided for under Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation,"
requires the use of an option valuation model. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.

Pro forma information regarding net loss is required by SFAS 123, and has been
determined as if the Company had accounted for its employee stock options under
the fair value method of that statement. Had compensation cost for the Company's
stock option grants to employees and directors been determined based upon the
fair value at the grant date consistent with the methodology prescribed under
SFAS 123, the net loss in 1997 and 1996 would have been approximately
$(1,218,000) and $(748,000) or $(.08) and $(.06), respectively, for basic and
diluted loss per share. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1996 interest rates of 5.79%, dividend yields
of 0%, volatility factor of expected market price of the Company's common stock
of .34; and a weighted-average expected life of the option of 5 years. The fair
value of options grant during 1996 was $.88 per share. No options were granted
during 1997.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide reliable single measure
of the fair value of its employee stock option.

F-11
<PAGE>

CAPITAL GROWTH HOLDINGS, LTD. AND SUBSIDIARY

Notes to Financial Statements
Decemher 31, 1997

NOTE G - STOCK OPTION PLAN (CONTINUED)

On January 7, 1997, the Company adopted a stock option plan (the "1997 Plan")
for granting of options to purchase up to 1,500,000 shares of Class B common
stock, pursuant to which employees, directors and consultants are eligible to
receive incentive and/or nonqualified stock options. Options granted under the
1997 Plan are exercisable for a period of up to 10 years from date of grant at
an exercise price which is not less than the fair value on date of grant, except
that the exercise price of options granted to a stockholder owning more than 10%
of the outstanding capital stock may not be less than 110% of the fair value of
the common stock at date of grant. In connection with the Share Exchange, ICG
option holders exchanged 635,000 options for options under the 1997 Plan.

A summary of the Company's stock option activity and related information for the
year ended December 31, 1997 is as follows:

<TABLE>
<CAPTION>
Weighted-Average
----------------------------------------
Remaining
Options Exercise Price Contractual Life
---------- -------------- ----------------
<S> <C> <C> <C>
Outstanding at end of year 635,000 $2.00 8.89 years
Exercisable at end of year 211,667 $2.00
</TABLE>

At December 31, 1997, 865,000 options were available for grant under the Plan.

NOTE H - RELATED PARTY TRANSACTIONS

Capital Growth International LLC ("CGI"), a company, owned by certain of the ICG
directors, utilizes space at the Company's offices without renumeration. Such
space was not considered significant for the year ended December 31, 1997 and
for the period from February 26, 1996 (inception) through December 31, 1996.

In March 1997, an aggregate of $46,343 of notes and accrued interest due to
stockholders and former officers were exchanged for 2,906 shares of common
stock. The shares were valued at their fair value of $6,539 ($2.25 per share)
and a gain of $39,804 was recorded.

In March 1997, the Company loaned $200,000 to an entity controlled by Messrs.
Ronald B. Koenig and Stanley Hollander, two of the Company's directors. The
transaction was approved by the independent members of the Board of Directors.
The loan is due on March 26, 1998 and bears interest at 6% per annum. At
December 31, 1997, $9,000 of interest was accrued on the loan. On March 26,
1998, the note was extended for 90 days.

On September 15, 1997 the Company loaned $25,000 to CGI which was repaid on
October 2, 1997 without interest.

During the year ended December 31, 1997, the Company paid consulting fees of
$99,000 to a stockholder of CGH.

During the year ended December 31, 1997, the Company paid commissions of $36,000
to CGE.

CGI assigned certain consulting and financial advisory service agreements to the
Company for no consideration. In addition, the Company purchased from CGI
warrants to acquire common stock in a public company for approximately $14,000.

(See also Note E[5])

F-12
<PAGE>

CAPITAL GROWTH HOLDINGS, LTD. AND SUBSIDIARY

Notes to Financial Statements
Decemher 31, 1997

NOTE I - NET CAPITAL REQUIREMENTS

ICG is subject to the Securities and Exchange Commission Uniform Net Capital
Rule (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, be at least the greater of 6 2/3 of aggregate indebtedness or $5,000.
At December 31, 1997 ICG had net capital of $1,259,314 which was $1,246,095 in
excess of its required net capital.

NOTE J - EXEMPTION FROM RULE 15C3-3

ICG is exempt from the reserve requirement of the Securities and Exchange
Commission's Rule 15c3-3 pursuant to Section 15c3-3(k)(2)(ii).

NOTE K - COMMITMENTS

[1] Letter of credit:

The Company has issued a letter of credit in the amount of $100,000 to
secure future rent payments and leasehold improvements at the London
office of CGE. The letter of credit is secured by a money market account.

[2] Leases:

The Company is obligated for annual minimum rentals under leases for
office space as follows:

Year Ending
December 31,
------------
1998 $ 136,000
1999 70,000
2000 64,000
-----------
$ 270,000
===========

Rent expense was approximately $259,000 and $51,000 for the year ended
December 31, 1997 and for the period February 26, 1996 to December 31,
1996, respectively.

[3] Retirement plan:

Effective January 1, 1997, the Company has a 401(k) profit-sharing plan
covering all eligible employees as defined in the plan. Contributions are
made at the discretion of employees. The Company contributes 50% of the
employee's contribution amount to the plan. Pension expense for the year
ended December 31, 1997 was approximately $21,000.

F-13
<PAGE>

CAPITAL GROWTH HOLDINGS, LTD. AND SUBSIDIARY

Notes to Financial Statements
Decemher 31, 1997

NOTE L - PROVISION FOR TAXES

At December 31, 1997, the Company has net operating loss carryforwards available
for tax purposes of $1,070,000, expiring in 2012 and capital loss carryforwards
of $161,000 expiring in 2001 that may be used to offset future taxable income.
The difference between the net loss for financial reporting purposes and the net
operating loss for tax purposes is primarily due to unrealized loss on
marketable securities and equity in loss of unconsolidated affiliate not
currently deductible for tax purposes. The Company has provided a valuation
reserve against the full amount of the net operating loss benefit of $424,000,
capital loss benefit of $60,000 and the benefit of $300,000 from temporary
differences, since the likelihood of realization cannot be determined.

The difference between the statutory tax rate of 34% and the Company's effective
tax rate of 0% is due to the increase in a valuation allowance of $394,000 and
$273,000 in 1997 and 1996.

NOTE M - FOURTH QUARTER ADJUSTMENTS

During the first three quarters of 1997 the Company did not reflect its security
portfolio at market value. The effect of such adjustment on each of the first
three quarters of 1997 has not yet been determined by the Company.

NOTE N - SUBSEQUENT EVENT

Through March 28, 1998 market value of one of the securities held by the Company
declined by approximately $165,000.

F-14
<PAGE>

- --------------------------------------------------------------------------------
Exhibit
No. DESCRIPTION
- --------------------------------------------------------------------------------
2.1 Agreement Concerning the Exchange of Securities of
International Capital Growth, Ltd. for Securities of Galt
Financial Corporation dated January 7, 1997, is hereby
incorporated by reference to Exhibit 2.1 as included in the
Company's Form 8-K dated march 14, 1997

3.1 Certificate of Incorporation of the Company, as amended, is
hereby incorporated by reference to Exhibit 3(i) as included
in the Company's Form 8-K dated June 25, 1997

3.2 By-Laws of the Company are hereby incorporated by reference to
Exhibit 3(ii) as included in the Company's Form 8-K dated June
25, 1997

4.1 Form of Common Stock certificate is hereby incorporated by
reference to Exhibit 4.1 as included in the Company's
Amendment No. 1 to Form SB-2 as filed with the SEC on January
16, 1998

4.2 Form of Redeemable Common Stock Purchase Warrant is hereby
incorporated by reference to Exhibit 4.2 as included in the
Company's Form SB-2 as filed with the SEC on October 14, 1997

4.3 Form of Redeemable Class B Common Stock Purchase Warrant is
hereby incorporated by reference to Exhibit 4.3 as included in
the Company's Form SB-2 as filed with the SEC on October 14,
1997

10.1 1997 Stock Option Plan is hereby incorporated by reference to
Exhibit 10 as included in the Company's Form 8-K dated March
14, 1997

26
<PAGE>

10.4 Lease Agreement, as amended, regarding 2425 Olympic Boulevard,
Santa Monica, CA dated November 30, 1994 is hereby
incorporated by reference to Exhibit 10.4 as included in the
Company's Amendment No. 1 to Form SB-2 as filed with the SEC
on January 16, 1998.

16.1 Letter, dated March 25, 1997, of Angell & Deering, is hereby
incorporated by reference to Exhibit No. 16 as included in the
Company's Form 8-K dated March 14, 1997

21.1 Subsidiaries of the Company

27.1 Financial Data Schedule

<PAGE>

EXHIBIT 21.1

List of Subsidiaries

Name Under Which
Subsidiary
Name of Subsidiary Jurisdiction of Incorporation Conducts Business
- ------------------ ----------------------------- -----------------

International Capital State of Delaware International Capital
Growth, Ltd. Growth, Ltd.

<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE COMPANY'S
FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS INCLUDED AS A PART
OF THIS FORM 10-KSB
</LEGEND>
<CIK> 0000832324
<NAME> Capital Growth Holdings, Ltd.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,490
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 2,490
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 46,343
<LONG-TERM> 0
0
0
<COMMON> 30
<OTHER-SE> (43,853)
<TOTAL-LIABILITIES-AND-EQUITY> 2,490
<INTEREST-LOAN> 0
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 0
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 3,430
<INTEREST-INCOME-NET> 0
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 22,298
<INCOME-PRETAX> 0
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,728)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0

</TABLE>