##### Table of Contents



U. S. SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-QSB
 þ
    
    Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2005
 o
    
    Transition report under Section 13 or 15(d) of the Exchange Act
 For
the transition period from  to
 Commission File Number 0-49659
 XRG, INC.
  DELAWARE
    
    58-2583457(State or Other Jurisdiction of
Incorporation or Organization)
    
    (I.R.S. Employer
Identification No.)
 
 601
Cleveland Street, Suite 820 Clearwater, Florida 33755
 
  o þ
   o þ
  o o




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XRG, Inc. and Subsidiaries
 Index
 PagePart I  Financial InformationItem 1. Consolidated Financial Statements (Unaudited)Consolidated Balance Sheet  September 30, 2005
    
    1Consolidated Statements of Operations  Three and six months ended September 30, 2005 and 2004
    
    2Consolidated Statements of Cash Flows  Six months ended September 30, 2005 and 2004
    
    3Notes to Consolidated Financial Statements
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    15Item 3. Controls & Procedures
    
    26Part II  Other InformationItem 1. Legal Proceedings
    
    29Item 2. Change in Securities and Use of Proceeds
    
    30Item 3. Defaults Upon Senior Securities
    
    30Item 5. Other Information
    
    31Item 6. Exhibits
    
    31Signatures
    
    32Exhibit 31.1 Section 302 CertificationExhibit 31.2 Section 302 CertificationExhibit 32.1 Section 906 CertificationEx-31.1 Section 302 CertificationEx-31.2 Section 302 CertificationEx-32.1 Section 906 CertificationEx-99.2 Amendment to Contract of SaleEx-99.3 Agreement With Wilder Corporation




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XRG, Inc. and Subsidiaries
 
 Consolidated Balance Sheet
 September 30, 2005
(Unaudited)
 AssetsCurrent assets:Accounts receivable, net of allowance of $300,000
    
    $
    5,410,292Other current assets
    
    
    442,489Total current assets
    
    
    5,852,781Fixed assets, net of accumulated depreciation
    
    
    729,106Other assets:Goodwill
    
    
    675,358Other assets
    
    
    2,946Total other assets
    
    
    678,304$
    7,260,191Liabilities and Stockholders DeficitCurrent liabilities:Current portion of long-term debt, net of $778,365 discount
    
    $
    4,441,924Current portion of capital lease obligations
    
    
    5,171Bank overdraft
    
    
    328,580Accounts payable
    
    
    343,151Accrued expenses
    
    
    1,621,437Accrued purchased transportation
    
    
    514,491Line of credit
    
    
    4,339,253Total current liabilities
    
    
    11,594,007Long-term liabilities:Long-term debt
    
    
    664,814Total long-term liabilities
    
    
    664,814Total liabilities
    
    
    12,258,821Stockholders deficit:Series A Preferred stock; $.001 par value; 5,000,000 shares authorized, issued and cancelled
    
    
    Preferred stock; $.001 par value; 45,000,000 shares authorized
    
    
    Common stock; $.001 par value; 25,000,000 shares authorized;
15,032,656 shares issued and outstanding
    
    
    15,034Additional paid-in capital
    
    
    35,886,356Accumulated deficit
    
    
    (39,836,593
    )Prepaid interest
    
    
    (88,427
    )Treasury stock, at cost, 187,500 shares
    
    
    (975,000
    )Total stockholders deficit
    
    
    (4,998,630
    )$
    7,260,191
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XRG, Inc. and Subsidiaries
 
 Consolidated Statements of Operations
 (Unaudited)
 Three months ended
    
    
    Six months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues
    
    $
    8,621,795
    
    
    $
    10,105,147
    
    
    $
    17,413,196
    
    
    $
    19,626,455Cost of revenues
    
    
    6,304,890
    
    
    
    8,449,334
    
    
    
    13,455,880
    
    
    
    17,144,687Gross profit
    
    
    2,316,905
    
    
    
    1,655,813
    
    
    
    3,957,316
    
    
    
    2,481,768Selling, general and administrative expenses
    
    
    2,512,063
    
    
    
    3,568,641
    
    
    
    5,577,534
    
    
    
    7,062,453Bad debt expense
    
    
    
    
    
    
    
    
    
    
    38,192
    
    
    
    8,000Restructuring costs
    
    
    (17,472
    )
    
    
    13,378
    
    
    
    580,674
    
    
    
    13,3782,494,591
    
    
    
    3,582,019
    
    
    
    6,196,400
    
    
    
    7,083,831Loss from operations
    
    
    (177,686
    )
    
    
    (1,926,206
    )
    
    
    (2,239,084
    )
    
    
    (4,602,063
    )Interest expense
    
    
    (379,756
    )
    
    
    (242,596
    )
    
    
    (789,257
    )
    
    
    (597,254
    )Intrinsic value of convertible debt and debt discount for
value of detachable warrants
    
    
    (804,714
    )
    
    
    (80,119
    )
    
    
    (1,076,070
    )
    
    
    (153,844
    )Loss on change in fair value of derivative instrument
    
    
    (347,444
    )
    
    
    
    
    
    
    (347,444
    )
    
    
    (1,531,914
    )
    
    
    (322,715
    )
    
    
    (2,212,771
    )
    
    
    (751,098
    )Net loss
    
    $
    (1,709,600
    )
    
    $
    (2,248,921
    )
    
    $
    (4,451,855
    )
    
    $
    (5,353,161
    )Basic and diluted loss per share
    
    $
    (0.11
    )
    
    $
    (0.17
    )
    
    $
    (0.30
    )
    
    $
    (0.61
    )Basic and diluted weighted average number of
common shares outstanding
    
    
    15,185,459
    
    
    
    12,918,654
    
    
    
    15,061,197
    
    
    
    8,714,308
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XRG, Inc. and Subsidiaries
 
 Consolidated Statements of Cash Flows
 (Unaudited)
 Six Months EndedSeptember 30,2005
    
    
    2004Operating activitiesNet loss
    
    $
    (4,451,855
    )
    
    $
    (5,353,161
    )Adjustments to reconcile net loss to net cash
used by operating activities:Depreciation and amortization
    
    
    189,796
    
    
    
    361,909Bad debt expense
    
    
    38,192
    
    
    
    8,000Common stock, options and warrants issued for services and compensation
    
    
    477,693
    
    
    
    1,596,331Stock issued in lieu of interest
    
    
    33,800
    
    
    
    158,000Amortization of discount and intrinsic value of convertible notes
    
    
    1,076,070
    
    
    
    73,725Amortization of deferred financing fees
    
    
    129,441
    
    
    
    20,442Amortization of deferred stock compensation and consulting
    
    
    
    
    
    
    163,689Non-cash restructuring costs
    
    
    282,805
    
    
    
    Loss on change in fair value of derivative instrument
    
    
    347,444
    
    
    
    (Increase) decrease, net of effect of acquisitions:Accounts receivable
    
    
    (401,202
    )
    
    
    (958,753
    )Other assets
    
    
    19,009
    
    
    
    (223,288
    )Increase (decrease), net of effect of acquisitions:Accounts payable
    
    
    (4,553
    )
    
    
    50,367Accrued expenses and other liabilities
    
    
    78,783
    
    
    
    89,880Total adjustments
    
    
    2,267,277
    
    
    
    1,300,302Net cash used by operating activities
    
    
    (2,184,578
    )
    
    
    (4,052,859
    )Investing activitiesPurchase of equipment
    
    
    
    
    
    
    (12,923
    )Acquisition for business, net of cash acquired in acquisition
    
    
    
    
    
    
    (2,000,000
    )Net cash used by investing activities
    
    
    
    
    
    
    (2,012,923
    )Financing activitiesBank overdraft
    
    
    (131,825
    )
    
    
    485,149Factoring line of credit, net
    
    
    284,714
    
    
    
    625,811Net borrowings (payments) on related party advances
    
    
    
    
    
    
    (15,000
    )Proceeds from common stock issued and to be issued and options exercised
    
    
    501,667
    
    
    
    5,425,865Proceeds from issuance of notes payable
    
    
    1,700,000
    
    
    
    255,336Principal payments on notes payable
    
    
    (169,743
    )
    
    
    (551,922
    )Payments for treasury stock
    
    
    
    
    
    
    (95,000
    )Payments on capital lease
    
    
    (235
    )
    
    
    (64,457
    )Net cash provided by financing activities
    
    
    2,184,577
    
    
    
    6,065,782Net increase in cash
    
    
    
    
    
    
    Cash at beginning of period
    
    
    
    
    
    
    Cash at end of period
    
    $
    
    
    
    $
    
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XRG, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
 Six Months EndedSeptember 30,2005
    
    2004Supplemental disclosures of cash flow
information and non-cash investing
and financing activities:Cash paid during the period for interest
    
    $
    452,260
    
    
    $
    455,381
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XRG,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Months Ended June 30, 2005 and 2004 (Unaudited)
 
 1. Consolidated Financial Statements
      Revenue Recognition
  Derivative Instruments
  6




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XRG,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Months Ended June 30, 2005 and 2004 (Unaudited)
  Stock Based Employee Compensation
 Accounting for Stock Issued to Employees
 Accounting for Stock-Based Compensation and SFAS 148 Accounting for Stock-Based
Compensation  transition and disclosure
 Three months ended
    
    
    Six months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss, as reported
    
    $
    (1,709,600
    )
    
    $
    (2,248,921
    )
    
    $
    (4,451,855
    )
    
    $
    (5,353,161
    )Deduct: Fair value of
stock-based employee
compensation costs
    
    
    
    
    
    
    (13,205
    )
    
    
    (110,000
    )
    
    
    (13,205
    )Plus: Intrinsic value of
compensation costs included in
net loss
    
    
    
    
    
    
    13,200
    
    
    
    110,000
    
    
    
    13,200Pro forma net loss
    
    $
    (1,709,600
    )
    
    $
    (2,248,926
    )
    
    $
    (4,451,855
    )
    
    $
    (5,353,166
    )Loss per share:Basic and
Diluted  as reported
    
    $
    (0.11
    )
    
    $
    (0.17
    )
    
    $
    (0.30
    )
    
    $
    (0.61
    )Basic and
Diluted  pro forma
    
    $
    (0.11
    )
    
    $
    (0.17
    )
    
    $
    (0.30
    )
    
    $
    (0.61
    )
  Recent Accounting Pronouncements
   7




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XRG,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Months Ended June 30, 2005 and 2004 (Unaudited)
     Restatements
and Reclassifications
     2. Per Share Calculations
  3. Fixed assets
  Trailers
    
    $
    309,000Tractors
    
    
    664,750Office equipment and software
    
    
    155,7091,129,459Accumulated depreciation
    
    
    (400,353
    )Total Fixed assets, net
    
    $
    729,106
   4. Notes Payable
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XRG,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Months Ended June 30, 2005 and 2004 (Unaudited)
 XRG, Inc.  Notes payable secured by the assets
of the Company: interest ranging from 6.00% to
18.00%; Monthly payments of approximately $13,500
on one note maturing during October 2007; six
notes have no principal or interest payments and
require a total balloon principal payment of
$4,346,275 which is due by December 31, 2005;
additionally, all accrued interest is due by
December 31, 2005; Secured by all assets of the
companies. This balance is net of $778,365
discount on debt.
    
    $
    3,856,615XRG, Inc.  Convertible note payable; interest
10%, interest only payments payable annually;
principal due on November 11, 2005, collateral is
senior position in the assets of XRG, Inc. This
note is convertible into the Companys common
stock at a conversion price of $8.40 per share.
This note is currently overdue.
    
    
    100,000XRG, Inc.
 Notes payable; interest 12.0%;
interest only payments payable quarterly;
principal due between April 2005 and June 2005;
at maturity, the note holder will be paid the
remaining unpaid principal at an 150% redemption
premium plus accrued interest. These notes are
currently overdue and in default
    
    
    20,000XRG, Inc.
 Convertible unsecured notes payable;
interest 15%; the first 6 months of interest was
put into escrow; principal and remaining interest
was due December 31, 2004; these notes may be
converted into the Companys common stock based
upon a $3.00 price per share; Company is
obligated to utilize 80% of the cash proceeds
from future issuances of certain equity or debt
securities, exercise of warrants or options to
repay the principal and accrued interest on these
notes prior to their maturity. These notes are
currently overdue and in default.
    
    
    155,000XRG, Inc.  Notes payable; interest ranging from
12.0% to 10,000 shares of common stock per month;
these notes are overdue and in default.
    
    
    60,000Carolina Truck Connection, Inc. (CTC)  Notes
payable; interest ranging from 6.74% to 8.53%;
Monthly payments of approximately $3,400; due at
various dates between October 2005 to October
2006; one note required a balloon payment of
$180,810 due by December 31, 2005; Secured by
equipment.
    
    
    221,044Highway Transport, Inc.  Notes
payable; interest at 8.25%;
Monthly payments of approximately
$15,800; due September 2009;
Secured by equipment.
    
    
    694,079Total notes payable
    
    $
    5,106,738Less current portion
    
    
    (4,441,924
    )Long-term portion of notes payable
    
    $
    664,814
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XRG,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Months Ended June 30, 2005 and 2004 (Unaudited)
    5. Other Equity Transactions
        10




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XRG,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Months Ended June 30, 2005 and 2004 (Unaudited)
   6. Restructuring Agreements
  
    
    J. Bently Companies
    
    
    Formal Settlement Agreement re: EFS
  Material terms of the settlement agreement are summarized below:
    
    The mutual termination of the master equipment lease agreement
(MELA). The MELA required us to pay Express Leasing Systems, Inc.
approximately $55,000 per month for a term of 36 months and contained
a $1,000,000 buyout at lease end. This lease consisted of a pool of
approximately 270 trailers from an entity owned by the prior
shareholders of EFS. This termination provides a provision that all
trailers under the MELA are made available to the Company for the
movement of its freight.
    
    The mutual termination of the facility lease agreement for the office
building in Chattanooga, Tennessee from the prior shareholders of EFS
and a warehouse facility in California.
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XRG,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Months Ended June 30, 2005 and 2004 (Unaudited)
 
    
    Pursuant to the terms of the EFS merger agreement $2,000,000 from the
stock purchase agreement was paid to the former shareholders of EFS
that they will retain as purchase consideration. In addition, the
former EFS shareholders were issued 375,000 shares of the XRGs common
stock. 187,500 shares of common stock will be forfeited and returned
to the Company as part of the amendment. The additional $1,000,000
payment to the former EFS shareholders was mutually terminated as part
of this amendment.
    
    EFS, as a wholly-owned subsidiary of ours entered into 6 new
employment agreements with the former shareholders and key employees
of EFS. These agreements were mutually terminated by us and the former
EFS shareholders and employees.
    
    Former EFS shareholders personally assumed all overdraft bank
liabilities and bank loans, as well as, all bank loans of Express
Freight Systems, Inc. In addition, former EFS shareholders assumed all
trade payables and accruals prior to March 1, 2004. All bad debts and
charge-backs attributable to receivables outstanding as of April 21,
2004 were assumed by the former EFS Shareholders.
    
    The Company entered into a terminal agreement which entitles the
former EFS shareholders as agent to receive a commission of 85% of
revenues on shipments that are secured, processed and supervised under
its direction. Under this agreement, the Company is not responsible
for any expenses incurred for the operation of the agents terminal.
   
    
    Restructuring of Highway Transport, Inc. Acquisition
     12




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XRG,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Months Ended June 30, 2005 and 2004 (Unaudited)
   
    
    Carolina Truck Connection, Inc.  Amendment
  8. Other Related Party Transactions
     9. Legal Proceedings
  
    
    Highbourne Litigation
  13




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XRG,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Months Ended June 30, 2005 and 2004 (Unaudited)
     
    
    Couture Litigation
      
    
    Note holder Litigation
   
    
    Former Employee Claims
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XRG,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Months Ended June 30, 2005 and 2004 (Unaudited)
  
    
    RSV Claims
    10. Subsequent Events
  
 Item 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The forward-looking statements safe harbor does not apply to our company because we issue
penny stock and are excluded from the safe harbor pursuant to Section 27A(b)(1)(C) of the
Securities Act of 1933, as amended, and Section 21E(b)(1)(C) of the Securities Exchange Act of
1934, as amended (the Exchange Act). Nevertheless, this Quarterly Report on Form 10-QSB contains
forward-looking statements. In addition, from time to time, the Company or its representatives
have made or may make other forward-looking statements orally or in writing. All forward-looking
statements included in this document are based on information available to the Company on the date
hereof. It is important to note that the Companys actual results could differ materially from
those projected in such forward-looking statements contained in this Form 10-QSB. The
forward-looking statements contained here-in are based on current expectations that involve
numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments
regarding, among other things, the Companys ability to secure financing or investment for capital
expenditures, future economic and competitive market conditions, and future business decisions.
All these matters are difficult or impossible to predict accurately and many of which may be beyond
the control of the Company. Although the Company believes that the assumptions underlying its
forward-looking statements are reasonable, any of the assumptions could be inaccurate and,
therefore, there can be no assurance that the forward-looking statements included in this form
10-QSB will prove to be accurate.
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Overview
       Summary of Restructured Operations
  Headquarters
    
    Carrier
    
    Owner/Operators or OwnedCompany
    
    Location
    
    Type
    
    Tractors
    
    TrailersJ. Bently Companies, Inc.
    
    Sweetwater, TN
    
    Van
    
    47 Owner Operators
    
    
    170R&R Express Intermodal, Inc. (R&R)
    
    Pittsburgh, PA
    
    Intermodal
    
    30 Owner Operators
    
    
    Highway Transport Services, Inc.
(HTI)
    
    Evergreen, AL
    
    Flatbed
    
    37 Owner Operators
    
    
    54Express Freight Systems, Inc. (EFS)
    
    Chattanooga, TN
    
    Van
    
    108 Owner Operators
    
    
    289Carolina Truck Connection, Inc.
(CTC)
    
    Fletcher, NC
    
    Van
    
    24 Tractors, 6 Owner Operators
    
    
    60
 
    
    J. Bently Companies
  16




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
    
    Formal Settlement Agreement re: EFS
   
    
    The mutual termination of the master equipment lease agreement
(MELA). The MELA required us to pay Express Leasing Systems, Inc.
approximately $55,000 per month for a term of 36 months and contained
a $1,000,000 buyout at lease end. This lease consisted of a pool of
approximately 270 trailers from an entity owned by the prior
shareholders of EFS. This termination provides a provision that all
trailers under the MELA are made available to the Company for the
movement of its freight.
    
    The mutual termination of the facility lease agreement for the office
building in Chattanooga, Tennessee from the prior shareholders of EFS
and a warehouse facility in California.
    
    Pursuant to the terms of the EFS merger agreement $2,000,000 from the
stock purchase agreement was paid to the former shareholders of EFS
that they will retain as purchase consideration. In addition, the
former EFS shareholders were issued 375,000 shares of the XRGs common
stock. 187,500 shares of common stock will be forfeited and returned
to the Company as part of the amendment. The additional $1,000,000
payment to the former EFS shareholders was mutually terminated as part
of this amendment.
    
    EFS, as a wholly-owned subsidiary of ours entered into 6 new
employment agreements with the former shareholders and key employees
of EFS. These agreements were mutually terminated by us and the former
EFS shareholders and employees.
    
    Former EFS shareholders personally assumed all overdraft bank
liabilities and bank loans, as well as, all bank loans of Express
Freight Systems, Inc. In addition, former EFS shareholders assumed all
trade payables and accruals prior to March 1, 2004. All bad debts and
charge-backs attributable to receivables outstanding as of April 21,
2004 were assumed by the former EFS Shareholders.
    
    The Company entered into a terminal agreement which entitles the
former EFS shareholders as agent to receive a commission of 85% of
revenues on shipments that are secured, processed and supervised under
its direction. Under this agreement, the Company is not responsible
for any expenses incurred for the operation of the agents terminal.
  17




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
    
    Restructuring of Highway Transport, Inc. Acquisition
      
    
    Carolina Truck Connection, Inc.  Amendment
  
    
    Termination of Highbourne Asset Acquisition Agreement/AGB Terminal Agreement  Related Litigation
 18




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th
    Administrative Services Agreement with R&R Express, Inc. and Richard Francis
     GENERAL
 Managements Interim Operating Plan
  
    
    Reduction of overhead by reducing personnel in our Clearwater, Florida office and eventually
closing our Clearwater, Florida executive offices.
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
    
    Restructuring of our business model from an asset based carrier to a non-asset based carrier.
    
    We secured a new accounts receivable financing facility with CAPCO Financial Company. This
financing has improved our cash flow position because of the lower costs of funds and the
elimination of factoring reserves.
    
    Changes in our executive management team. We have entered into settlement agreements with
Kevin Brennan and Don Huggins. We have appointed Richard Francis as our new Chief Executive
Officer. We are in litigation with our former Chief Financial Officer, Stephen Couture. We
are actively searching for a new Chief Financial Officer.
    
    We entered into an administrative services agreement with R&R Express and Richard Francis.
Our strategy is to rely upon the infrastructure and expertise of R&R Express and Mr. Francis
to more efficiently handle certain daily administrative, procedural and regulatory issues
relating to our operations.
    
    Recruiting additional agents and owner operators in new markets and expanding our network in
existing markets. We have entered into a new employment agreement with Larry Berry who has
substantial experience in the trucking and transportation industry to assist us in securing
new business.
    
    We have deferred principal payments on certain of our debt service obligations until
December 31, 2005 with Barron and Mr. Steel. However, we have not been able to settle or
defer payments relating to approximately $235,000 of promissory notes. The holders of
$155,000 of outstanding notes instituted litigation in June, 2005 relating to the collection
of such obligations.
    
    We eliminated substantial liquidated damages in connection with the withdrawal of our
previous registration statement. We are required to file a new registration statement by
September 30, 2005 and have this registration statement declared effective by December 31,
2005 in order to avoid additional liquidated damages.
 Current Business Strategy
  
    
    Operating costs vary directly with revenue.Agents and owner-operators
are compensated based on a percentage of revenues. The benefit of this
structure is that short-term fluctuations in operating activity have
less of an impact on our financial statements than they have on asset
based truck transportation companies that assume all of the fixed
cost. Therefore, our operating costs tend to be in direct proportion
to revenues.
    
    Minimize capital investments and fixed costs.Our non-asset based
structure allows us to limit our investment in tractors and trailers
and allows us to grow our core business with less capital
requirements.
    
    Performance/commission based compensation.Our agents and
owner-operators are compensated based on performance that provides
them with the incentive to seek new revenue opportunities. In
addition, our owner operators seek to increase their equipment
utilization as well as operating their equipment more safely,
efficiently, and reliably because of this performance based
compensation structure.
  Revenue
  20




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##### Table of Contents



Revenue Equipment
   Critical Accounting Policies and Estimates
       21




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Recent Accounting Pronouncements
       22




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##### Table of Contents



RESULTS OF OPERATIONS
 Three months ended September 30, 2005 compared to three months ended September 30, 2004
         Six months ended September 30, 2005 compared to six months ended September 30, 2004
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LIQUIDITY AND CAPITAL RESOURCES
  
    
    Interim Financing Arrangements with Barron
  Interest
    
    
    
    Current
    
    ExtendedDate
    
    Amount
    
    Rate
    
    Collateral
    
    Maturity Date
    
    Maturity Date9/10/04
    
    $225,810
    
    6%
    
    20 Trailers
    
    3/31/05
    
    12/31/0510/1/04
    
    166,275
    
    6%
    
    15 Tractors
    
    3/31/05
    
    12/31/052/23/05
    
    1,180,000
    
    10%
    
    All Assets
    
    4/23/05
    
    12/31/053/3/05
    
    800,000
    
    10%
    
    All Assets
    
    5/1/05
    
    12/31/056/2/05
    
    1,250,000
    
    10%
    
    All Assets
    
    12/31/05
    
    N/A7/29/05
    
    450,000
    
    18%
    
    All Assets
    
    12/31/05
    
    N/A
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
    
    Restructured Arrangements with Kenneth A. Steel, Jr.
  
    
    Current Liquidity
  25




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##### Table of Contents



Seasonality
  Inflation
  
 Item 3. Evaluation of Disclosure Controls and Procedures
 Evaluation of disclosure controls and procedures.
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Changes in internal controls over financial reporting.
             
    
    faulty human judgment and simple errors, omissions or mistakes;
    
    collusion of two or more people;
    
    inappropriate management override of procedures; and
    
    risk that enhanced controls and procedures may still not be adequate
to assure timely and reliable financial information.
  27




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28




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Legal Proceedings
   Highbourne Litigation
      Couture Litigation
       Note holder Litigation
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 Former Employee Claims
   RSV Claims
    
 Change in Securities and Use of Proceeds.
   
 Defaults Upon Senior Securities.
  30




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##### Table of Contents



Other Information
      
 Exhibits
      31




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##### Table of Contents



SIGNATURES
  XRG, Inc.Dated: November 21, 2005/s/ Richard FrancisRichard Francis
President, Chief Executive Officer, Chief Financial
Officer and Director/s/ Jay OstrowJay Ostrow
Principal Accounting Officer and Controller
 32