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U.S. SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 AMENDMENT NO. 1
 TO
 FORM 10-QSB
 þ
    
    Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
 For the quarterly period ended December 31, 2004
 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
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 
 
  o þ
   o þ




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PagePart I  Financial InformationItem 1. Consolidated Financial Statements (Unaudited)Consolidated Balance Sheet 
December 31, 2004
    
    
    1Consolidated Statements of Operations 
Three and Nine months ended December 31, 2004 and 2003
    
    
    2Consolidated Statements of Cash Flows 
Nine months ended December 31, 2004 and 2003
    
    
    3Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    20Item 3. Controls & Procedures
    
    
    32Part II  Other InformationItem 1. Legal Proceedings
    
    
    36Item 2. Change in Securities and Use of Proceeds
    
    
    36Item 3. Defaults Upon Senior Securities
    
    
    39Item 5. Other Information
    
    
    40Item 6. Exhibits and Reports on Form 8-K
    
    
    41Signatures
    
    
    42Section 302 CertificationSection 906 Certification
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AssetsCurrent assets:Accounts receivable, net of allowance of $133,746
    
    $
    4,890,968Other current assets
    
    
    844,382Total current assets
    
    
    5,735,350Fixed assets, net of accumulated depreciation
    
    
    2,270,792Other assetsGoodwill
    
    
    3,757,988Other assets
    
    
    1,425,226Total other assets
    
    
    5,183,214$
    13,189,356Liabilities and Stockholders EquityCurrent liabilities:Current portion of long-term debt
    
    $
    905,040Current portion of long-term convertible debt;
net of unamortized discount of $73,725
    
    
    231,276Current portion of capital lease obligations
    
    
    6,111Bank overdraft
    
    
    644,924Accounts payable
    
    
    592,849Accrued expenses
    
    
    593,996Accrued purchased transportation
    
    
    102,798Accrued payroll expenses
    
    
    127,158Factor line of credit
    
    
    3,487,967Related party advances and payables
    
    
    163,126Total current liabilities
    
    
    6,855,245Long-term liabilities:Notes payable
    
    
    1,284,041Other long-term liabilities
    
    
    55,923Total long-term liabilities
    
    
    1,339,964Total liabilities
    
    
    8,195,209Stockholders equity: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;
14,500,040 shares issued and outstanding
    
    
    14,500Common stock to be issued
    
    
    24,000Additional paid-in capital
    
    
    33,137,265Subscription receivable
    
    
    (380,000
    )Accumulated deficit
    
    
    (26,621,618
    )Treasury stock; at cost, 210,500 shares
    
    
    (1,180,000
    )Total stockholders equity
    
    
    4,994,147$
    13,189,356
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Three months ended
    
    
    Nine months endedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Revenues
    
    $
    10,630,462
    
    
    $
    908,065
    
    
    $
    30,256,917
    
    
    $
    1,206,290Cost of revenues
    
    
    7,472,214
    
    
    
    228,130
    
    
    
    24,616,901
    
    
    
    251,100Gross profit
    
    
    3,158,248
    
    
    
    679,935
    
    
    
    5,640,016
    
    
    
    955,190Selling, general and administrative expenses
    
    
    3,091,250
    
    
    
    281,921
    
    
    
    10,161,703
    
    
    
    1,507,546Restructuring costs
    
    
    
    
    
    
    
    
    
    
    13,378
    
    
    
    3,091,250
    
    
    
    281,921
    
    
    
    10,175,081
    
    
    
    1,507,546Income (loss) from operations
    
    
    66,998
    
    
    
    398,014
    
    
    
    (4,535,065
    )
    
    
    (552,356
    )Interest expense
    
    
    (187,586
    )
    
    
    (153,799
    )
    
    
    (784,840
    )
    
    
    (222,741
    )Intrinsic value of convertible debt and debt
discount for value of
detachable warrants
    
    
    
    
    
    
    
    
    
    
    (153,844
    )
    
    
    (551,798
    )(187,586
    )
    
    
    (153,799
    )
    
    
    (938,684
    )
    
    
    (774,539
    )Net income (loss) applicable to common
shareholders
    
    $
    (120,588
    )
    
    $
    244,215
    
    
    $
    (5,473,749
    )
    
    $
    (1,326,895
    )Basic income (loss) per common shareholder
    
    $
    (0.01
    )
    
    $
    0.22
    
    
    $
    (0.52
    )
    
    $
    (1.59
    )Basic weighted average number of
common shares outstanding
    
    
    13,920,467
    
    
    
    1,110,354
    
    
    
    10,456,005
    
    
    
    832,791Diluted income (loss) per common shareholder
    
    $
    (0.01
    )
    
    $
    0.21
    
    
    $
    (0.52
    )
    
    $
    (1.59
    )Diluted weighted average number of
common shares outstanding
    
    
    13,920,467
    
    
    
    1,165,123
    
    
    
    10,456,005
    
    
    
    832,791
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Nine months endedDecember 31,2004
    
    
    2003Operating activitiesNet loss
    
    $
    (5,473,749
    )
    
    $
    (1,326,895
    )Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    445,281
    
    
    
    10,249Bad debt
    
    
    112,746
    
    
    
    Common stock, options and warrants issued for services and compensation
    
    
    1,997,667
    
    
    
    856,076Stock issued in lieu of interest
    
    
    188,400
    
    
    
    4,955Amortization of discount and intrinsic value of convertible notes
    
    
    73,725
    
    
    
    671,053Amortization of deferred financing fees
    
    
    20,442
    
    
    
    Amortization of deferred stock compensation and consulting
    
    
    163,689
    
    
    
    (Increase) decrease, net of effect of acquisitions:Accounts receivable
    
    
    (1,810,553
    )
    
    
    (66,408
    )Other assets
    
    
    (608,394
    )
    
    
    Increase (decrease), net of effect of acquisitions:Accounts payable
    
    
    233,102
    
    
    
    46,278Accrued expenses and other liabilities
    
    
    63,339
    
    
    
    9,491Total adjustments
    
    
    879,444
    
    
    
    1,531,694Net cash provided by (used in) operating activities
    
    
    (4,594,305
    )
    
    
    204,799Investing activitiesPurchase of equipment
    
    
    (567,673
    )
    
    
    (1,305
    )Acquisition for business
    
    
    (2,000,000
    )
    
    
    Deposit on purchase of transportation equipment
    
    
    
    
    
    
    (50,000
    )Net cash used by investing activities
    
    
    (2,567,673
    )
    
    
    (51,305
    )Financing activitiesBank overdraft
    
    
    593,593
    
    
    
    191,084Increase in advances to J. Bently Companies, Inc.
    
    
    
    
    
    
    (1,142,653
    )Factoring line of credit
    
    
    683,151
    
    
    
    59,094Net borrowings (payments) on stockholder advances
    
    
    (260,000
    )
    
    
    38,500Proceeds from common stock issued and to be issued and options exercised
    
    
    6,730,853
    
    
    
    463,918Proceeds from common stock to be issued
    
    
    
    
    
    
    80,000Proceeds from issuance of notes payable, net
    
    
    421,611
    
    
    
    270,000Principal payments on notes payable
    
    
    (846,128
    )
    
    
    (30,000
    )Payment for treasury stock
    
    
    (95,000
    )
    
    
    (100,000
    )Payments on capital lease
    
    
    (66,102
    )
    
    
    Net cash provided by (used by) financing activities
    
    
    7,161,978
    
    
    
    (170,057
    )Net decrease in cash
    
    
    
    
    
    
    (16,563
    )Cash at beginning of period
    
    
    
    
    
    
    16,563Cash at end of period
    
    $
    
    
    
    $
    
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Nine Months EndedDecember 31,2004
    
    2003Supplemental disclosures of cash flow
information and non-cash investing
and financing activities:Cash paid during the period for interest
    
    $
    555,556
    
    
    $
    64,139
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Revenue Recognition
  6




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Stock Based Employee Compensation
    Three months ended
    
    
    Nine months endedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Net income (loss), as reported
    
    $
    (120,588
    )
    
    $
    244,215
    
    
    $
    (5,473,749
    )
    
    $
    (1,326,895
    )Deduct: Fair value of
stock-based employee
compensation costs
    
    
    
    
    
    
    
    
    
    
    (13,205
    )
    
    
    Plus: Intrinsic value of
compensation costs included
in net loss
    
    
    
    
    
    
    
    
    
    
    13,200
    
    
    
    Pro forma net income (loss)
    
    $
    (120,588
    )
    
    $
    244,215
    
    
    $
    (5,473,754
    )
    
    $
    (1,326,895
    )Income (loss) per share:Basic as reported
    
    $
    (0.01
    )
    
    $
    0.22
    
    
    $
    (0.52
    )
    
    $
    (1.59
    )Basic pro forma
    
    $
    (0.01
    )
    
    $
    0.22
    
    
    $
    (0.52
    )
    
    $
    (1.59
    )Diluted as reported
    
    $
    (0.01
    )
    
    $
    0.21
    
    
    $
    (0.52
    )
    
    $
    (1.59
    )Diluted pro forma
    
    $
    (0.01
    )
    
    $
    0.21
    
    
    $
    (0.52
    )
    
    $
    (1.59
    )
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Trailers
    
    $
    281,000Tractors
    
    
    2,111,250Machinery and equipment
    
    
    8,000Office equipment and software
    
    
    221,9092,622,159Accumulated depreciation
    
    
    (351,367
    )Total Fixed assets, net
    
    $
    2,270,792
     8




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XRG, Inc.  Notes payable: interest ranging from 6.00%
to 10.00%; Monthly payments of approximately $13,500;
due at various dates between December 2004 and December
2007; one note required a balloon payment of $166,275 due by
December 1, 2004, the lender has extended the due date
to March 31, 2005; Secured by equipment and securities
    
    $
    738,952Carolina Truck Connection, Inc. (CTC)  Notes payable;
interest ranging from 6.48% to 8.53%; Monthly payments of
approximately $6,000; due at various dates between September
2005 to December 2008; one note required a balloon payment
of $226,000 due by November 10, 2004, the lender has
extended the due date to March 31, 2005; Secured by equipment.
    
    
    431,308Highway Transport, Inc.  Notes payable; interest ranging
from 6.25% to 14.95%; Monthly payments of approximately
$42,000; due at various dates between 2004 to 2006; Secured
by equipment.*
    
    
    1,250,097$
    2,420,357
 
 *
    
    The Company has an obligation to assume these notes in connection with its acquisitions.    9




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Express Freight Systems, Inc.
     12




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o
    
    The mutual termination of the Master Equipment Lease Agreement (MELA).o
    
    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.o
    
    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 Registrants common stock. 187,500 shares of our common stock was 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. This reduced the
purchase price from $5,041,000 to $3,066,000.o
    
    All six employment agreements were mutually terminated by the Company
and the former EFS shareholders and employees.o
    
    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.o
    
    XRG, Inc. (Carrier) and the former EFS shareholders (Agent)
executed 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 the
direction of the Agent. Under this agreement, Carrier is not
responsible for any expenses incurred for the operation of the Agents
terminal. The term of the Terminal Agreement is ongoing with severe
penalties if Agent terminates or violates the default provisions with
damages of $2 million if occurring in the first year, and $400,000
less each year thereafter. The former EFS shareholders are held
personally, jointly and severally, liable for these damages upon
termination or default.
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Accounts receivable
    
    $
    1,609,474Other current assets
    
    
    99,031Other assets
    
    
    55,171Goodwill and other intangibles
    
    
    2,982,092Total assets acquired
    
    
    4,745,768Accrued expenses and payables
    
    
    (114,682
    )Other liabilities
    
    
    (63,957
    )Factorer line of credit
    
    
    (1,501,129
    )Total liabilities assumed
    
    
    (1,679,768
    )Total purchase price
    
    $
    3,066,000
 EFS Capital lease obligation
  RSV, Inc.
  14




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Highway Transport, Inc.
   Other current assets
    
    $
    38,910Fixed assets
    
    
    1,355,200Goodwill and other intangibles
    
    
    393,793Total assets acquired
    
    
    1,787,903Accrued expenses and payables
    
    
    (96,000
    )Notes payable
    
    
    (1,593,903
    )Total liabilities assumed
    
    
    (1,689,903
    )Total purchase price
    
    $
    98,000
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Highbourne Corporation
   Goodwill and other intangibles
    
    $
    56,000Total assets acquired
    
    
    56,000Total liabilities assumed
    
    
    Total purchase price
    
    $
    56,000
  16




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Carolina Truck Connection, Inc.
     Fixed assets
    
    $
    556,500Goodwill and other intangibles
    
    
    304,500Total assets acquired
    
    
    861,000Notes payable
    
    
    (489,000
    )Total liabilities assumed
    
    
    (489,000
    )Total purchase price
    
    $
    372,000
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For the three months ended
    
    For the nine months endedDecember 31,
    
    December 31,2004
    
    2003
    
    2004
    
    2003Revenues
    
    $
    10,630,462
    
    
    $
    9,773,403
    
    
    $
    31,072,472
    
    
    $
    27,802,303Net loss applicable to common shareholders
    
    $
    (120,588
    )
    
    $
    (23,238
    )
    
    $
    (5,572,631
    )
    
    $
    (2,129,255
    )Basic loss per share
    
    $
    (0.01
    )
    
    $
    0.02
    
    
    $
    (0.53
    )
    
    $
    (1.88
    )
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Long TermDebt/EquipmentStructure
    
    
    
    
    
    Common
    
    
    Leasesof
    
    Cash @
    
    
    Shares
    
    
    Assumed
    
    
    Type ofAcquisition
    
    Transaction
    
    Close
    
    
    Issued
    
    
    (Estimate)
    
    
    Equipment
    
    EquipmentExpress
Freight Systems, Inc.(1)
    
    Merger
    
    $
    2,000,000
    
    
    
    187,500
    
    
    
    0
    
    
    Van/Non-asset based
    
    106 O/O 32 TractorsHighway
Transport, Inc.
    
    Asset Purchase
    
    
    0
    
    
    
    17,500
    
    
    
    1,594,000
    
    
    Flatbed/Asset based
    
    Tractors, 12 O/OHighbourne Corporation (2)
    
    Asset Purchase
    
    
    0
    
    
    
    10,000
    
    
    
    0
    
    
    Van/Non-asset based
    
    34 O/OCarolina Truck Connection, Inc.
    
    Asset Purchase
    
    
    0
    
    
    
    60,000
    
    
    
    489,000
    
    
    Van/Asset based
    
    7 Tractors, 2 O/O$
    2,000,000
    
    
    
    275,000
    
    
    $
    2,083,000
 
 (1)
    
    On August 16, 2004, this Merger Agreement was amended which reduced
the common shares issued to 187,500 and eliminated Long-Term Debt and Equipment
Leases Assumed to $-0-.(2)
    
    On October 4, 2004, the Company entered into a five year Terminal Agreement
with the shareholders of Highbourne Corporation.      21




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o
    
    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 us for the movement of
our freight.o
    
    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.o
    
    187,500 shares of our common stock will be forfeited and returned to us as part of the
amendment. The additional $1,000,000 payment to the former EFS shareholders was mutually
terminated as part of this amendment.o
    
    All six employment agreements were mutually terminated by us and the
former EFS shareholders and employees.o
    
    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.o
    
    XRG, Inc. (Carrier) and the former EFS shareholders (Agent)
executed a Terminal Agreement on August 16, 2004 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 the direction of the Agent. Under this agreement,
Carrier is not responsible for any expenses incurred for the operation
of the Agents terminal. The term of the Terminal Agreement is
ongoing with severe penalties if Agent terminates or violates the
default provisions with damages of $2 million if occurring in the
first year, and $400,000 less each year thereafter. The former EFS
shareholders are held personally, jointly and severally, liable for
these damages upon termination or default.
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Headquarters
    
    
    
    Owner/Operators or
    
    
    
    
    
    ClosingCompany
    
    Location
    
    Carrier Type
    
    Owned Tractors
    
    Trailers
    
    DateJ. Bently Companies, Inc.*
    
    Sweetwater, TN
    
    Van
    
    17 Owner Operators,
    
    
    209
    
    
    September46 Fleet Contracted
    
    
    
    
    
    1, 2003*Tractors, 7 Company tractorsR&R Express Intermodal, Inc.
    
    Pittsburgh, PA
    
    Intermodal
    
    34 Owner Operators
    
    
    
    
    
    January 1,2004Highbourne Corporation
    
    Champaign, IL
    
    Van
    
    34 Owner Operators
    
    
    46
    
    
    April 2,2004Highway Transport
    
    Evergreen, AL
    
    Flatbed
    
    32 Tractors, 12
    
    
    47
    
    
    April 1,Owner Operators
    
    
    
    
    
    20041 Company tractorExpress Freight Systems
    
    Chattanooga, TN
    
    Van
    
    106 Owner Operators
    
    
    242
    
    
    April 21,2004Carolina Truck Connection
    
    Fletcher, NC
    
    Van
    
    7 Tractors, 2 Owner
    
    
    40
    
    
    April 28,Operators, 7 Company
    
    
    
    
    
    2004Tractors
 
 *
    
    Began operating under a Fleet Owner and Independent
Contractor Agreement on this date.       25




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
    
    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.
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Legal Proceedings
    
 Change in Securities and Use of Proceeds
    36




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Defaults Upon Senior Securities
    39




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Other Information
       40




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Exhibits and Reports on Form 8-K
           41




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XRG, Inc.Dated: December 16, 2005/s/ Richard FrancisRichard FrancisPresident, CEO, CFO and Director/s/ Jay OstrowJay OstrowPrincipal Accounting Officer, Controller
 42