##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 AMENDMENT NO. 1
 TO
 FORM 10-KSB
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the fiscal year ended March 31, 2005
 o
    
    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 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
    
    33607(Address of principal executive offices)
    
    (Zip Code)
   o
  o þ
 þ
 o o
 State issuers revenues for its most recent fiscal year ended March 31, 2005
    
    $39,571,970
    o þ




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##### 



FORM 10-KSB  Index
 PagePART IItem 1. Business
    
    
    1Item 2. Description of Property
    
    
    14Item 3. Legal Proceedings
    
    
    15Item 4. Submission of Matters to a Vote of Security Holders
    
    
    17PART IIItem 5. Market Price of the Registrants Securities and Related
Stockholder Matters
    
    
    17Item 6. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    20Item 7. Financial Statements and Supplementary Data
    
    
    26Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
    
    
    26Item 8a. Disclosure Controls and Procedures
    
    
    27PART IIIItem 9. Directors and Executive Officers of the Registrant
    
    
    30Item 10. Executive Compensation
    
    
    33Item 11. Security Ownership of Certain Beneficial Owners and Management
    
    
    38Item 12. Certain Relationships and Related Transactions
    
    
    39Item 13. Exhibits, Consolidated Financial Statements, Schedules and
Reports on Form 8-K
    
    
    41Item 14. Principal Accountants Fees and Services
    
    
    46Signatures
    
    
    48Ex-31 Section 302 CertificationEx-32 Section 906 Certification




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PART I
 
 ITEM 1. BUSINESS
 Overview
      www.xrginc.com.
 1




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Interim Turn Around Plan
 The major components of our turn around plan consist of the following:
    
    Reduction of overhead by reducing personnel in our Clearwater, Florida office and eventually
closing our Clearwater, Florida executive offices.
    
    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 in the Pittsburgh, Pennsylvania
area.
    
    We entered into an Administrative Services Agreement with R&R Express, Inc. and Richard
Francis. Our strategy is to rely upon the infrastructure and expertise of R&R 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.
 Summary of Restructured Operations
  Headquarters
    
    Carrier
    
    Owner/Operators or Owned
    
    
    
    
    
    Original ClosingCompany
    
    Location
    
    Type
    
    Tractors
    
    Trailers
    
    DateJ. Bently
Companies, Inc.
    
    Sweetwater, TN
    
    Van
    
    17 Owner Operators, 46
Fleet Contracted
Tractors
    
    
    209
    
    
    9/1/03*R&R Express
Intermodal, Inc.
    
    Pittsburgh, PA
    
    Intermodal
    
    34 Owner Operators
    
    
    
    
    
    1/1/04Highbourne Corporation
    
    Champaign, IL
    
    Van
    
    34 Owner Operators
    
    
    46
    
    
    4/2/04Highway Transport
Services, Inc.
    
    Evergreen, AL
    
    Flatbed
    
    32 Tractors, 12 Owner
Operators
    
    
    47
    
    
    4/2/04Express Freight
Systems, Inc.
    
    Chattanooga, TN
    
    Van
    
    106 Owner Operators
    
    
    242
    
    
    4/21/04Carolina Truck
Connection, Inc.
(CTC)
    
    Fletcher, NC
    
    Van
    
    7 Tractors, 2 Owner
Operators
    
    
    40
    
    
    4/30/04RSV, Inc.
    
    Kingsport, TN
    
    Van
    
    42 Tractors
    
    
    
    
    
    4/30/04
 
 *
    
    Began operating under a Fleet Owner and Independent Contractor Agreement on this date. 2




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 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 us for the movement of
our 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 Registrants
common stock. 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.
    
    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.
 3




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
    
    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.
    
    We 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 our
direction. Under this agreement, we are not responsible for any
expenses incurred for the operation of the Agents terminal.
    Restructuring of Highway Transport, Inc. Acquisition
      4




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
    
    Carolina Truck Connection, Inc.  Amendment
  
    
    Termination of RSV Merger
    
    
    Termination of Highbourne Asset Acquisition Agreement/AGB Terminal
Agreement  Related Litigation
  th
 5




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Administrative Services Agreement with R&R Express, Inc. and Richard Francis
     Industry
    6




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Current Business Strategy
  
    
    Operating costs vary directly with revenue.Agents and owner-operators
are compensated based on a percentage of revenues. This benefit of
this structure is that short-term fluctuations in operating activity
have less of an impact on our financials that 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.
  Marketing and Customers
    Competition
  7




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Regulation
       8




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Employees
  Risks
 Risks Related to Our Business
 We operate in a highly competitive industry, and our business will suffer if we are unable to
adequately address factors that may adversely affect our operations and profitability.
  
    
    We compete with many other transportation service providers of varying
sizes, some of which have more equipment, a broader coverage network,
a wider range of services and greater capital resources than we do or
have other competitive advantages;
    
    Some of our competitors periodically reduce their prices to gain
business, especially during times of reduced growth rates in the
economy, which may limit our ability to maintain or increase prices or
maintain significant growth in our business;
    
    Many customers reduce the number of carriers they use by selecting
core carriers as approved transportation service providers, and in
some instances we may not be selected;
    
    Many customers periodically accept bids from multiple carriers for
their shipping needs, and this process may depress prices or result in
the loss of some business to competitors;
    
    The trend towards consolidation in the ground transportation industry
may create other larger carriers with greater financial resources than
us and other competitive advantages relating to their size;
    
    Advances in technology require increased investments to remain
competitive, and our customers may not be willing to accept higher
prices to cover the cost of these investments; and
    
    Competition from non-asset-based logistics and freight brokerage
companies may adversely affect our customer relationships and prices.
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Losses from Operations; Accumulated Deficit; and Negative Net Worth and Going Concern.
   If we are unable to successfully execute our growth strategy, our business and future results of
operations may suffer.
  
    
    Geographic expansion requires start-up costs, and often requires lower rates to generate
initial business. In addition, geographic expansion may disrupt our freight patterns to and
from and within the expanded area and may expose us to areas where we are less familiar with
customer rates, operating issues and the competitive environment.
    
    Growth may strain our management, capital resources, information systems and customer service.
    
    Hiring new employees may increase training costs and may result in temporary inefficiencies
as the employees learn their jobs.
    
    Expanding our service offerings may require us to enter into new markets and compete with
additional competitors.
  Our information technology systems are subject to certain risks that we cannot control.
  We are exposed to potential risks from recent legislation requiring companies to evaluate their
internal control over financial reporting.
  10




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Difficulty in attracting drivers could affect our operating results.
  Our business is subject to general economic factors that are largely out of our control.
  We may be adversely impacted by fluctuations in the price and availability of fuel.
  We operate in a highly regulated industry, and increased costs of compliance with, or liability for
violation of, existing or future regulations could have a material adverse effect on our business.
  We are subject to various environmental laws and regulations, and costs of compliance with,
liabilities under, or violations of, existing or future environmental laws or regulations could
adversely affect our business.
  11




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Our results of operations may be affected by seasonal factors and harsh weather conditions.
  Our business may be harmed by anti-terrorism measures.
  Loss of Key Personnel.
  Risks Related to Our Common Stock
 Our Common Stock price may be volatile, which could result in substantial losses for individual
stockholders.
  
    
    actual or anticipated variations in our quarterly operating results;
    
    changes in financial estimates by securities analysts;
    
    conditions or trends in the trucking industry;
    
    changes in the economic performance and/or market valuations of other trucking companies;
    
    additions or departures of key personnel.
 Our Certificate of Incorporation limits director liability thereby making it difficult to bring any
action against them for breach of fiduciary duty.
 12




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We may be unable to meet our future capital requirements.
  Penny stock regulations may impose certain restrictions on marketability of our stock.
    Substantial sales of our Common Stock could cause our stock price to rapidly decline.
  
    
    The sale of shares of our Common Stock underlying the exercise of
outstanding options and warrants.
    
    The sale of shares of our Common Stock, which are available for resale
under Rule 144 or are otherwise freely tradable and which are not
subject to lock-up restrictions.
  Our principal shareholder controls a large portion of our outstanding common stock.
 13




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Our failure to register shares in the near future will materially affect the interest of all
shareholders.
  Our inability to refinance or payoff a significant amount of debt by December 31, 2005 will
adversely affect the interests of our shareholders
  
 ITEM 2. DESCRIPTION OF PROPERTY
     14




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ITEM 3. LEGAL PROCEEDINGS
  
     
    15




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
   
  
    16




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
 PART II
 
 ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS COMMON EQUITY AND OTHER SHAREHOLDER
MATTERS
 Market Value
   Fiscal Year Ended March 31, 2003Fourth Quarter (January 1, 2003 to March 31, 2003)
    
    $
    8.00
    
    
    $
    5.00Fiscal Year Ending March 31, 2004First Quarter (April 1, 2003 to June 30, 2003)
    
    
    25.00
    
    
    
    5.00Second Quarter (July 1, 2003 to September 30, 2003)
    
    
    28.00
    
    
    
    11.20Third Quarter (October 1, 2003 to December 31, 2003)
    
    
    17.00
    
    
    
    6.60Fourth Quarter (January 1, 2004 to March 31, 2004)
    
    
    8.20
    
    
    
    3.80Fiscal Year Ending March 31, 2005First Quarter (April 1, 2004 to June 30, 2004)
    
    
    8.00
    
    
    
    3.80Second Quarter (July 1, 2004 to September 30, 2004)
    
    
    5.20
    
    
    
    2.00Third Quarter (October 1, 2004 to December 31, 2004)
    
    
    3.80
    
    
    
    2.18Fourth Quarter (January 1, 2005 to March 31, 2005)
    
    
    3.00
    
    
    
    .85
 
 *
    
    Restated for a 20:1 reverse split on January 3, 2005.  Description of Securities
 Common Stock
  17




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Preferred Stock
  Certain Provisions of the Certificate of Incorporation and Bylaws
   Dividends
  Transfer Agent
  Registration Rights Issues
   18




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Common Stock Purchase Warrants
     Penny Stock Considerations
   Shares Eligible for Future Sale
  19




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
    
    1% of the number of shares of Common Stock then outstanding
(approximately 150,360 shares as of June 30, 2005); or
    
    the average weekly trading volume in the Common Stock during the four
calendar weeks preceding the filing of a notice on Form 144 with
respect to such sale.
     
 ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 IMPORTANT NOTE ABOUT FORWARD-LOOKING STATEMENTS
    20




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GENERAL
 Losses from Operations; Accumulated Deficit; Negative Net worth and Going Concern.
   Risk Management
  Critical Accounting Policies and Estimates
        21




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RESULTS OF OPERATIONS
 Year ended March 31, 2005 compared to the year ended March 31, 2004
       22




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Year ended March 31, 2004 compared to the year ended March 31, 2003
      23




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Liquidity and Capital Resources
   Initial Barron Funding
       Other Equity Financings During Fiscal 2005
  24




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 Interim Financing Arrangements with Barron
  Interest
    
    
    
    Current
    
    ExtendedDate
    
    Amount
    
    Rate
    
    Collateral
    
    Maturity Date
    
    Maturity Date9/10/04
    
    $
    225,809.86
    
    
    
    6
    %
    
    20 Trailers
    
    3/31/05
    
    12/31/0510/1/04
    
    
    166,275.00
    
    
    
    6
    %
    
    15 Tractors
    
    3/31/05
    
    12/31/052/23/05
    
    
    1,180,000.00
    
    
    
    10
    %
    
    All Assets
    
    4/23/05
    
    12/31/053/3/05
    
    
    800,000.00
    
    
    
    10
    %
    
    All Assets
    
    5/1/05
    
    12/31/056/2/05
    
    
    1,250,000.00
    
    
    
    10
    %
    
    All Assets
    
    12/31/05
    
    N/A
     Restructured Arrangements with Kenneth A. Steel, Jr.
  25




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 Capco Accounts Receivable Financing Line
  Seasonality
  Inflation
  
 ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
       26




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ITEM 8a. DISCLOSURE CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures.
  Changes in internal controls over financial reporting.
   27




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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.
    28




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29




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PART III
 
 ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS , PROMOTERS AND CONTROL PERSONS
 Directors and Executive Officers of the Company
  NAME
    
    AGE
    
    POSITIONRichard Francis
    
    
    49
    
    
    President, Chief Executive Officer, Chief Financial Officer, DirectorStephen R. Couture
    
    
    35
    
    
    DirectorTerence Leong
    
    
    38
    
    
    DirectorMichael T. Cronin
    
    
    49
    
    
    Director
  Business Experience of Current Executive Officers and Directors
     30




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Changes in our Board of Directors and Principal Executive Officers in Connection with our
Restructuring
     Board of Directors
  The Committees
  Executive Officers
  Code of Ethics
 31




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www.xrginc.com
 32




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ITEM 10. EXECUTIVE COMPENSATION
 Executive Compensation
  SUMMARY COMPENSATION TABLE
  Annual Compensation
    
    Long-Term Compensation AwardsRestrictedOther Annual
    
    Stock
    
    Options/
    
    LTIP
    
    All OtherName & Principal
    
    
    
    
    
    Salary
    
    Bonus
    
    Compensation(10)
    
    Award(s)(9)
    
    SARs
    
    Payouts
    
    CompensationPosition
    
    Year
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    (#)
    
    ($)
    
    ($)Kevin Brennan
Former President and
    
    
    2005
    
    
    $
    231,917
    
    
    
    
    
    
    $
    16,500
    
    
    $
    
    
    
    
    20,000
    (1)
    
    
    
    
    
    
    CEO
    
    
    2004
    
    
    $
    140,000
    
    
    
    
    
    
    
    
    
    
    
    48,750
    
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    $
    103,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Donald G. Huggins, Jr.
    
    
    2005
    
    
    $
    146,250
    
    
    
    
    
    
    $
    11,000
    
    
    $
    539,750
    
    
    
    
    
    
    
    
    
    
    
    Former
Chairman (2)
    
    
    2004
    
    
    $
    76,500
    
    
    
    
    
    
    
    
    
    
    $
    48,750
    
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    $
    82,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stephen R. Couture
    
    
    2005
    
    
    $
    126,057
    
    
    
    
    
    
    $
    11,000
    
    
    $
    47,250
    
    
    
    
    
    
    
    
    
    
    
    Former Vice
    
    
    2004
    
    
    $
    57,500
    
    
    
    
    
    
    
    
    
    
    $
    48,750
    
    
    
    
    
    
    
    
    
    
    
    President, Finance,
    
    
    2003
    
    
    $
    80,546
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Former CFO (3)Neil Treitman
    
    
    2005
    
    
    $
    136,594
    
    
    
    
    
    
    $
    2,400
    
    
    $
    235,000
    (2)
    
    
    
    
    
    
    
    
    
    
    Former Chief
    
    
    2004
    
    
    $
    140,000
    
    
    
    
    
    
    
    
    
    
    $
    48,750
    
    
    
    
    
    
    
    
    
    
    
    Operations
Officer (4)
    
    
    2003
    
    
    $
    42,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,500
    (4)
    
    
    
    
    
    
    Richard
Francis (5)
    
    
    2005
    
    
    $
    101,883
    
    
    
    
    
    
    
    
    
    
    $
    32,000
    
    
    
    
    
    
    
    
    
    
    
    Current CEO and President of
XRG G&A, Inc. and President
of R&R Express Intermodal,
Inc. (3)Larry M. Berry
    
    
    2005
    
    
    $
    150,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Vice President of Business
Development XRG Logistics,
Inc. (6)Eddie R. Brown
    
    
    2005
    
    
    $
    125,000
    
    
    
    
    
    
    $
    9,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    CEO of XRG Logistics,
Inc. (7)Stanley Shadden
    
    
    2005
    
    
    $
    95,000
    
    
    
    
    
    
    $
    6,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    President of XRG Logistics,
Inc. (8)
 
 (1)
    
    Mr. Brennan recognized $13,200 of value in connection with the exercise of these options.(2)
    
    The salary amounts represent payments to Private Capital Group, Inc., a corporation
owned by Mr. Huggins wife. The Restricted Stock Awards value represents the value of
100,000 shares issued to Private Capital Group, Inc. for consulting services with a
value per share of $4.40 and an imputed compensation value of $99,750 in connection with
the issuance of 95,000 shares of our Common Stock at a value of $1.00 per share to
satisfy accrued compensation which was less than the fair market value of such shares as
of that date. 33




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(3)
    
    The Restricted Stock Awards represents
the difference in fair market value of
45,000 shares of our Common Stock which
were used to satisfy $45,000 of accrued
and unpaid compensation based upon such
shares being issued at $1.00 per share,
which was less than the fair market value
of such shares as of that date.(4)
    
    The Restricted Stock Awards value
attributable to Mr. Treitman represents
the issuance of 50,000 shares of our
Common Stock to settle $180,000 of
compensation obligations in connection
with the termination of his Employment
Agreement. In addition, Mr. Treitman was
issued 12,500 shares of our Common Stock
which had a fair market value of $55,000
as of the date of issuance of such shares
as a bonus. The 50,000 shares were issued
to Charter Development Services
International, LLC, an affiliate of Mr.
Treitman. The 22,500 options granted
during 2003, were deemed to be immaterial
based on our calculation using the Black
Scholes Option Pricing Model.(5)
    
    During fiscal 2005 Mr. Francis was paid
this amount pursuant to a Consulting
Agreement with KDR Transport, Inc. which
entitled him to .5% of billed revenues.
See Certain Transactions. We issued
5,000 shares to KDR Transport, Inc., an
affiliate of Mr. Francis which has shares
had a fair market value of $32,000.(6)
    
    Mr. Berry was paid this amount pursuant
to an Employment Agreement dated November
1, 2003 which was superseded by an
Employment Agreement dated April 22,
2005. See New Employment Agreements and
Other Arrangements below.(7)
    
    Mr. Brown was paid this amount pursuant
to an Employment Agreement dated April 1,
2004 entered into in connection with the
original Asset Acquisition Agreement
between Highway Transport, Inc. and XRG.
XRGs obligations under this Employment
Agreement were terminated in connection
with the restructuring of the Highway
Transport, Inc. acquisition effective as
of May 30, 2005. See Item 1 Business 
Restructuring of Highway Transport, Inc.
Acquisition(8)
    
    These amounts were paid pursuant to an
Employment originally dated September 1,
2003 with Mr. Shadden. This Employment
Agreement was terminated pursuant to the
restructuring of our relationship with J.
Bently Companies. See Item 1 Business -
Summary of Restructured Operations  J.
Bently Companies.(9)
    
    Excludes stock issued as founders, in
connection with capital raising
transactions, in connection with
acquisitions and in exchange for
preferred shares. See Certain
Transactions(10)
    
    Represents car allowances. Option/SAR Grants in Last Fiscal Year
 Percent of TotalNumber of
    
    Options/SARsSecurities
    
    GrantedUnderlying
    
    to Employees/
    
    Exercise
    
    Fair Market ValueOptions/SARs
    
    Directors
    
    or Base
    
    At date of
    
    ExpirationName of Individual
    
    Granted (1)
    
    In Fiscal Year
    
    Price
    
    Grant
    
    DateKevin Brennan
    
    
    20,000
    
    
    
    100
    %
    
    $
    4.14
    
    
    $
    4.14
    
    
    
    N/A
 
 (1)
    
    Mr. Brennan exercised these options during 2005. Options/SARs Grants During Last Fiscal Year
  Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value
 Number of Securities
    
    Value of UnexercisedUnderlying Unexercised
    
    In-The-MoneyShares
    
    
    
    
    
    Options/SARs
    
    Options/SARsName of
    
    Acquired on
    
    Value
    
    at Fiscal Year End (#)
    
    at Fiscal Year End($)Individual
    
    Exercise (#)
    
    Realized (1)
    
    Exercisable/Unexercisable
    
    Exercisable/UnexercisableKevin Brennan
    
    
    20,000
    
    
    
    13,200
    
    
    
    -0-
    
    
    
    -0-
 
 (1)
    
    Value Realized represents the market value of the underlying
securities on the exercise date minus the exercise price of such
options. Previous Employment and Other Agreements
  34




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New Employment Agreements and Other Arrangements
   35




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(a) Number of Securities to
    
    
    
    
    
    (c) Number of Securities Remainingbe Issued Upon
    
    (b) Weighted Average
    
    Available for Future Issuance UnderExercise of
    
    Exercise Price of
    
    Equity Compensation PlansOutstanding Options,
    
    Outstanding Options,
    
    (Excluding Securities Reflected inPlan Category(1)
    
    Warrants, and Rights
    
    Warrants, and Rights
    
    Column (a))Equity
Compensation PlansApproved by
Stockholders
    
    
    -0-
    
    
    
    N/A
    
    
    
    N/AEquity Compensation
Plans
    
    
    5,000Not Approved by
Stockholders
    
    
    
    
    
    $
    .20
    
    
    
    (2
    )Total
    
    
    5,000
 
 (1)
    
    Exclude warrants issued to investors in connection with capital raising
transactions not approved by our stockholders.(2)
    
    See the discussion under Employee Equity Incentive Plans immediately below. 36




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Employee Equity Incentive Plans
  37




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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  Common StockName and Address of Beneficial Owner (1)
    
    Number
    
    Percent of All Voting Securities (2)Donald G. Huggins, Jr. (3)(4)
    
    
    552,500
    
    
    
    3.7
    %Kevin P. Brennan (3)
    
    
    396,875
    
    
    
    2.6
    %Stephen R. Couture
    
    
    530,416
    
    
    
    3.5
    %Neil Treitman (3)(5)
    
    
    -0-
    
    
    
    Barron Partners, LP(6)
    
    
    14,091,667
    
    
    
    93.7
    %Richard Francis (7)
    
    
    164,275
    
    
    
    1.1
    %Michael T. Cronin(8)
    
    
    42,500
    
    
    
    .3
    %Terence Leong
    
    
    -0-
    
    
    
    Kenneth A. Steel, Jr. (9)
    
    
    1,262,500
    
    
    
    8.3
    %All current executive officers and
directors as a group (4 persons)
    
    
    729,166
    
    
    
    4.9
    %
 
 (1)
    
    Except as otherwise indicated, the address of each beneficial owner is c/o XRG,
Inc., 601 Cleveland Street, Suite 820, Clearwater, Florida 33755.(2)
    
    Calculated on the basis of approximately 15,036,027 shares of common stock issued
and outstanding as of June 30, 2005 except that shares of common stock underlying
options and warrants exercisable within 60 days of the date hereof are deemed to
be outstanding for purposes of calculating the beneficial ownership of securities
of the holder of such options or warrants.(3)
    
    Messrs. Huggins, Brennan and Treitman are no longer directors but are included in
the table as they held positions as officers and directors during fiscal 2005.(4)
    
    These shares are held in the name of Margaret J. Huggins, Mr. Huggins wife and
Private Capital Group, Inc., a corporation which is wholly owned by Margaret J.
Huggins. Mr. Huggins disclaims beneficial ownership of these shares.(5)
    
    XRG believes that Mr. Treitman has sold or has pending Rule 144 sale requests for
all of his Common Stock. Accordingly, the above table reflects Mr. Treitman as
owning -0- shares.(6)
    
    Represents (i) 5,416,667 shares acquired for $3,250,000 in March, 2004; (ii)
3,000,000 shares acquired in exchange for warrants in a cashless tender on June
15, 2004; (iii) 175,000 shares acquired for $350,000 in June, 2005; and (iv)
warrants to acquire 5,500,000 shares of our Common Stock at a $2.00 exercise price
issued in June 2005.(7)
    
    Excludes 150,000 shares issuable to R&R Express. Inc. and includes 13,750 owned by
KDR Transport, Inc.(8)
    
    Includes options to acquire 5,000 shares exercisable at $.20 issued in March, 2003.(9)
    
    Represents (i) 175,000 shares held by Mr. Steel and his affiliates; (ii) warrants
to acquire 87,500 shares at a $2.00 exercise price issued to Mr. Steel and his
affiliates; and (iii) a Common Stock purchase warrant for 1,000,000 shares
exercisable at $2.00 issued to Mr. Steel in consideration for restructuring his
$500,000 promissory note. 38




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ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
          39




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40




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##### Table of Contents



Reports of Independent Registered Public Accounting Firms
    
    
    F-1Consolidated Financial Statements:Consolidated Balance Sheet
    
    
    F-2Consolidated Statements of Operations
    
    
    F-3Consolidated Statements of Changes in Stockholders Equity (Deficit)
    
    
    F-4Consolidated Statements of Cash Flows
    
    
    F-8Notes to Consolidated Financial Statements




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Report of Independent Registered Public Accounting Firm
 
     Mahoney Cohen &Company, CPA, P.C.
 
 F-1




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##### Table of Contents



XRG, Inc. and Subsidiaries
 
 Consolidated Balance Sheet
March 31, 2005
 AssetsCurrent assets:Accounts receivable, net of allowance of $300,000
    
    $
    5,047,282Prepaid expenses
    
    
    590,939Total current assets
    
    
    5,638,221Fixed assets, net of accumulated depreciation
    
    
    1,621,497Other assetsGoodwill
    
    
    675,358Other assets
    
    
    2,946Total other assets
    
    
    678,304$
    7,938,022Liabilities and Stockholders DeficitCurrent liabilities:Bank Overdraft
    
    $
    460,405Current portion of long-term debt
    
    
    3,809,816Current portion of capital lease obligations
    
    
    5,406Accounts payable
    
    
    491,732Settlement payable
    
    
    430,750Accrued expenses
    
    
    494,005Line of credit
    
    
    4,054,539Accrued purchased transportation
    
    
    665,691Total current liabilities
    
    
    10,412,344Long-term liabilities:Long-term debt
    
    
    849,379Total liabilities
    
    
    11,261,723Commitments and contingencies
    
    
    Stockholders 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;
14,521,971 shares issued and 14,316,471 outstanding
    
    
    14,523Additional paid-in capital
    
    
    33,511,514Subscription receivable
    
    
    (380,000
    )Accumulated deficit for unrelated dormant operations
    
    
    (15,405,274
    )Accumulated deficit
    
    
    (19,979,464
    )Treasury stock, at cost, 205,500 shares
    
    
    (1,085,000
    )Total stockholders deficit
    
    
    (3,323,701
    )$
    7,938,022
  F-2




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##### Table of Contents



XRG, Inc. and Subsidiaries
 
 Consolidated Statements of Operations
For the Years Ended March 31, 2005 and 2004
 2005
    
    
    2004Revenues
    
    $
    39,353,428
    
    
    $
    4,682,277Cost of revenues
    
    
    33,315,008
    
    
    
    3,283,415Gross profit
    
    
    6,038,420
    
    
    
    1,398,862ExpensesSelling, general and administrative expenses
    
    
    13,221,960
    
    
    
    3,838,338Bad debt expense
    
    
    246,289
    
    
    
    1,049,642Impairment of goodwill
    
    
    3,719,688
    
    
    
    Settlement loss
    
    
    1,665,313
    
    
    
    18,853,250
    
    
    
    4,887,980Loss from operations
    
    
    (12,814,830
    )
    
    
    (3,489,118
    )Interest expense
    
    
    (1,083,553
    )
    
    
    (183,836
    )Intrinsic value of convertible debt and
debt discount for value of detachable
warrants
    
    
    (338,486
    )
    
    
    (777,259
    )(1,422,039
    )
    
    
    (961,095
    )Net loss
    
    $
    (14,236,869
    )
    
    $
    (4,450,213
    )Basic and diluted loss per share
    
    $
    (1.25
    )
    
    $
    (4.92
    )Basic and diluted weighted average number
of common shares outstanding
    
    
    11,385,176
    
    
    
    905,176
  F-3




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##### Table of Contents



XRG, Inc. and Subsidiaries
 
 Consolidated Statements of Changes in Stockholders Deficit
For the years ended March 31, 2004 and 2005
 Common Stock
    
    
    
    
    
    
    CommonNumber of
    
    
    
    
    
    
    Treasury
    
    
    StockShares
    
    
    Amount
    
    
    Stock
    
    
    PayableBalance, April 1, 2003
    
    
    532,489
    
    
    $
    533
    
    
    $
    
    
    
    $
    57,649Preferred stock issued, September 30, 2003Stock subscription
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,250,000Stock issued for interest
    
    
    12,179
    
    
    
    12
    
    
    
    
    
    
    
    (57,649
    )Stock issued for warrant exchange
    
    
    236,600
    
    
    
    237Stock issued for warrants exercised
    
    
    11,714
    
    
    
    12Stock issued for options exercised
    
    
    27,500
    
    
    
    28Stock issued for cash
    
    
    92,250
    
    
    
    92Stock to be issued for cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    230,000Stock issued for note conversion
    
    
    69,300
    
    
    
    69Stock issued for deposit on transportation
equipment
    
    
    57,500
    
    
    
    57
    
    
    
    
    
    
    
    304,000Stock issued for acquisition
    
    
    10,000
    
    
    
    10
    
    
    
    
    
    
    
    19,000Stock issued for services and software
    
    
    227,135
    
    
    
    227Stock to be issued for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    455,000Stock to be issued to certain shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    321Value of warrants issued for servicesValue of warrants issued for deferred financing feeBeneficial conversion feature of convertible debtDiscount on debt for value of warrants issued to
debt holdersTreasury stock acquired
    
    
    
    
    
    
    
    
    
    
    (110,000
    )Amortization of deferred consulting and
compensationNet loss for periodBalance at March 31, 2004
    
    
    1,276,667
    
    
    
    1,277
    
    
    
    (110,000
    )
    
    
    4,258,321Rounding of shares for 20 for 1 reverse stock split
    
    
    (746
    )Preferred stock converted to common stock, June
29, 2004
    
    
    1,250,000
    
    
    
    1,250Stock issued for interest
    
    
    45,135
    
    
    
    45Stock issued that was issuable
    
    
    5,560,217
    
    
    
    5,560
    
    
    
    
    
    
    
    (4,123,321
    )Stock issued for cashless warrant exercise
    
    
    3,002,792
    
    
    
    3,003Stock issued for warrants exercised
    
    
    23,286
    
    
    
    23Stock issued for options exercised
    
    
    20,000
    
    
    
    20Stock issued for cash
    
    
    2,172,000
    
    
    
    2,172
    
    
    
    
    
    
    
    Offering costsStock issued for note conversions
    
    
    135,000
    
    
    
    135Stock issued for acquisitions
    
    
    475,000
    
    
    
    475
    
    
    
    (975,000
    )Stock issued for services and compensation
    
    
    417,620
    
    
    
    418
    
    
    
    
    
    
    
    (135,000
    )Stock issued for settlements of compensation
    
    
    50,000
    
    
    
    50Stock issued for RSV recorded as settlement expense
    
    
    100,000
    
    
    
    100Value of options issued for servicesValue of warrants issued for deferred financing feeValue of warrants issued for stock offering costsDiscount on debt for value of warrants issued to
debt holdersTreasury stock acquired
    
    
    (5,000
    )
    
    
    (5
    )Deferred stock consulting expensed to settlement
costsAmortization of deferred consulting and
compensationNet loss for periodBalance, March 31, 2005
    
    
    14,521,971
    
    
    
    14,523
    
    
    
    (1,085,000
    )
    
    
    
  F-4




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##### Table of Contents



Stock
    
    
    Preferred Stock
    
    
    AdditionalSubscription
    
    
    Number of
    
    
    
    
    
    
    Paid-inReceivable
    
    
    Shares
    
    
    Amount
    
    
    CapitalBalance, April 1, 2003
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    15,662,765Preferred stock issued, September 30, 2003
    
    
    (5,000
    )
    
    
    5,000,000
    
    
    
    5,000Stock subscriptionStock issue for interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,637Stock issued for warrant exchange
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (237
    )Stock issued for warrants exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,988Stock issued for options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    522Stock issued for cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    461,158Stock to be issued for cashStock issued for note conversion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    692,931Stock issued for deposit on transportation equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    436,943Stock issued for acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    137,990Stock issued for services and software
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,646,176Stock to be issued for servicesStock to be issued to certain shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (321
    )Value of warrants issued for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111,743Value of warrants issued for deferred financing fee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,900Beneficial conversion feature of convertible debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    507,780Discount on debt for value of warrants issued to
debt holders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    283,404Treasury stock acquiredAmortization of deferred consulting and compensationNet loss for periodBalance at March 31, 2004
    
    
    (5,000
    )
    
    
    5,000,000
    
    
    
    5,000
    
    
    
    20,079,379Rounding of shares for 20 for 1 reverse stock splitPreferred stock converted to common stock, June 29,
2004
    
    
    
    
    
    
    (5,000,000
    )
    
    
    (5,000
    )
    
    
    3,750Stock issued for interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    168,226Stock issued that was issuable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,017,761Stock issued for cashless warrant exercise
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,003
    )Stock issued for warrants exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,343Stock issued for options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85,882Stock issued for cash
    
    
    (375,000
    )
    
    
    
    
    
    
    
    
    
    
    4,341,828Offering costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,111,583
    )Stock issued for note conversions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    514,865Stock issued for acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,528,526Stock issued for services and compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,458,918Stock issued for settlements of compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    179,950Stock issued for RSV recorded as settlement expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    599,900Value of options issued for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,200Value of warrants issued for deferred financing fee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63,881Value of warrants issued for stock offering costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,454,768Discount on debt for value of warrants issued to
debt holders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110,918Treasury stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (99,995
    )Deferred stock consulting expensed to settlement
costsAmortization of deferred consulting and compensationNet loss for periodBalance, March 31, 2005
    
    
    (380,000
    )
    
    
    
    
    
    
    
    
    
    
    33,511,514
  F-5




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##### Table of Contents



Accumulated
    
    
    
    
    
    
    DeferredDeficit for
    
    
    
    
    
    
    StockUnrelated
    
    
    
    
    
    
    ConsultingDormant
    
    
    Accumulated
    
    
    andOperations
    
    
    Deficit
    
    
    Compensation
    
    
    TotalBalance, April 1, 2003
    
    $
    (15,405,274
    )
    
    $
    (1,292,382
    )
    
    $
    
    
    
    $
    (976,709
    )Preferred stock issued, September 30, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock issued for interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,250,000Stock issued for warrant exchange
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock issued for warrants exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,000Stock issued for options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    550Stock issued for cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    461,250Stock to be issued for cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    230,000Stock issued for note conversion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    693,000Stock issued for deposit on
transportation equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    741,000Stock issued for acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    157,000Stock issued for services and software
    
    
    
    
    
    
    
    
    
    
    (297,500
    )
    
    
    1,348,903Stock to be issued for services
    
    
    
    
    
    
    
    
    
    
    (320,000
    )
    
    
    135,000Stock to be issued to certain shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Value of warrants issued for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111,743Value of warrants issued for deferred
financing fee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,900Beneficial conversion feature of
convertible debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    507,780Discount on debt for value of warrants
issued to debt holders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    283,404Treasury stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (110,000
    )Amortization of deferred consulting and
compensation
    
    
    
    
    
    
    
    
    
    
    75,013
    
    
    
    75,013Net loss for period
    
    
    
    
    
    
    (4,450,213
    )
    
    
    
    
    
    
    (4,450,213
    )Balance at March 31, 2004
    
    
    (15,405,274
    )
    
    
    (5,742,595
    )
    
    
    (542,487
    )
    
    
    2,538,621Rounding of shares for 20 for 1 reverse
stock split
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Preferred stock converted to common
stock, June 29, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock issued for interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    168,271Stock issued that was issuable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100,000
    )Stock issued for cashless warrant exercise
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock issued for warrants exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,366Stock issued for options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85,902Stock issued for cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,969,000Offering costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,111,583
    )Stock issued for note conversions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    515,000Stock issued for acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,554,001Stock issued for services and compensation
    
    
    
    
    
    
    
    
    
    
    (135,000
    )
    
    
    1,189,336Stock issued for settlements of
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    180,000Stock issued for RSV recorded as
settlement expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600,000Value of options issued for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,200Value of warrants issued for deferred
financing fee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63,881Value of warrants issued for stock
offering costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,454,768Discount on debt for value of warrants
issued to debt holders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110,918Treasury stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100,000
    )Deferred stock consulting expensed to
settlement costs
    
    
    
    
    
    
    
    
    
    
    513,798
    
    
    
    513,798Amortization of deferred consulting and
compensation
    
    
    
    
    
    
    
    
    
    
    163,689
    
    
    
    163,689Net loss for period
    
    
    
    
    
    
    (14,236,869
    )
    
    
    
    
    
    
    (14,236,869
    )Balance, March 31, 2005
    
    
    (15,405,274
    )
    
    
    (19,979,464
    )
    
    
    
    
    
    
    (3,323,701
    )
  F-6




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##### Table of Contents



XRG, Inc. and Subsidiaries
 
 Consolidated Statements of Cash Flows
For the Years ended March 31, 2005 and 2004
 2005
    
    
    2004Operating activitiesNet loss
    
    $
    (14,236,869
    )
    
    $
    (4,450,213
    )Adjustments to reconcile net loss to net cash used by operating activities:Depreciation and amortization
    
    
    544,268
    
    
    
    17,915Bad debt
    
    
    246,289
    
    
    
    1,049,642Common stock, options and warrants issued for services and compensation
    
    
    1,795,834
    
    
    
    1,557,646Stock issued in lieu of interest
    
    
    213,021
    
    
    
    Impairment of goodwill
    
    
    3,719,688
    
    
    
    Amortization of discount and intrinsic value of convertible notes
    
    
    338,486
    
    
    
    777,259Amortization of deferred financing fees
    
    
    97,898
    
    
    
    8,475Amortization of deferred stock compensation and consulting
    
    
    163,689
    
    
    
    75,013Settlement loss
    
    
    1,404,333
    
    
    
    (Increase) decrease, net of effect of acquisitions:Accounts receivable
    
    
    (2,099,766
    )
    
    
    (1,193,213
    )Other assets
    
    
    (128,922
    )
    
    
    (49,248
    )Increase (decrease), net of effect of acquisitions:Accounts payable
    
    
    (295,633
    )
    
    
    519,962Related party payables
    
    
    
    
    
    
    175,000Accrued expenses and other liabilities
    
    
    721,823
    
    
    
    345,341Total adjustments
    
    
    6,721,008
    
    
    
    3,283,792Net cash used by operating activities
    
    
    (7,515,861
    )
    
    
    (1,166,421
    )Investing activitiesPurchase of equipment
    
    
    (566,027
    )
    
    
    (29,055
    )Acquisition for business, net of cash acquired in acquisition
    
    
    (2,038,000
    )
    
    
    Deposit on purchase of transportation equipment
    
    
    
    
    
    
    (50,000
    )Net cash used by investing activities
    
    
    (2,604,027
    )
    
    
    (79,055
    )Financing activitiesBank overdraft
    
    
    405,031
    
    
    
    114,155Increase in advances to J. Bently Companies, Inc.
    
    
    
    
    
    
    (994,794
    )Factoring line of credit
    
    
    1,249,722
    
    
    
    935,652Net borrowings (payments) on related party advances
    
    
    (130,126
    )
    
    
    63,500Proceeds from common stock issued and to be issued and options exercised
    
    
    6,752,453
    
    
    
    736,800Proceeds from issuance of notes payable
    
    
    3,260,560
    
    
    
    565,000Loan costs
    
    
    (210,000
    )
    
    
    (33,900
    )Principal payments on notes payable
    
    
    (1,040,945
    )
    
    
    (47,500
    )Payments for treasury stock
    
    
    (100,000
    )
    
    
    (110,000
    )Payments on capital lease
    
    
    (66,807
    )
    
    
    Net cash provided by financing activities
    
    
    10,119,888
    
    
    
    1,228,913Net increase in cash
    
    
    
    
    
    
    (16,563
    )Cash at beginning of period
    
    
    
    
    
    
    16,563Cash at end of period
    
    $
    
    
    
    $
  F-7




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##### Table of Contents



XRG, Inc. and Subsidiaries
 Consolidated Statements of Cash Flows
(continued)
 Years Ended March 31,2005
    
    
    2004Supplemental disclosures of cash flow
information and noncash investing
and financing activities:Cash paid during the year for interest
    
    $
    730,409
    
    
    $
    91,645
           F-8




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##### Table of Contents



XRG, Inc. and Subsidiaries
 Consolidated Statements of Cash Flows
(continued)
            F-9




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##### Table of Contents



XRG, Inc. and Subsidiaries
 
 Notes to Consolidated Financial Statements
        Principles of Consolidation
  F-10




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##### Table of Contents



XRG, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Use of EstimatesThe preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates.Concentration of Credit RisksFinancial instruments, which potentially subject the Company to concentrations of credit risk,
are cash and accounts receivable.The Company sells services and extends credit based on an evaluation of the customers
financial condition and ability to pay the Company in accordance with the payment terms without
requiring collateral. The Company provides for estimated losses on accounts receivable
considering a number of factors, including the overall aging of accounts receivables, customers
payment history and the customers current ability to pay its obligations. Exposure to losses
on receivables is principally dependent on each customers financial condition. The Company
monitors its exposure for credit losses and maintains allowances for anticipated losses. Based
upon managements review of accounts receivable the allowance for doubtful accounts of
approximately $134,000 is considered adequate. The Company does not accrue interest on past due
receivables.Concentration of credit risk with respect to trade receivables is limited due to the Companys
large number of customers and wide range of industries and locations served. One customer
comprised 15.7% of the Companys accounts receivable balance at March 31, 2005. Two customers
individually comprised more than 10% of the Companys accounts receivable balance at March 31,
2004. One customers balance represented 13.3% and the other 15.2%.No customer represented more than ten percent of the Companys revenues for the year ending
March 31, 2005. One customer represented 10.3% of the Companys total revenue at March 31, 2004Cash is maintained with multiple financial institutions in the United States. Deposits with a
bank may exceed the amounts of insurance provided on such deposits. Generally, the deposits may
be redeemed on demand and, therefore, bear minimal risk.Cash and Cash EquivalentsThe Company considers all highly liquid debt instruments and other short-term investments with
an initial maturity date of three months or less from the purchase date to be cash equivalents.
The cash is maintained with major financial institutions in the United States. Deposits with
these banks may exceed the amount of FDIC insurance provided on such
deposits. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal
risk.Revenue RecognitionIn accordance with the Emerging Issues Task Force 99-19, the Company records revenue (including
fuel surcharge revenues) on a gross basis because the Company is the primary obligor, the
carrier of record and insurer of all freight, establishes pricing, prepares all invoicing and
has the risk of loss as it relates to the ultimate collection of accounts receivable and
uninsured cargo losses. For shipments where a third-party provider is utilized under an agency
arrangement to provide some or all of the service, the company records a purchased
transportation expense for the costs of transportation paid by the Company to the agent upon
delivery of the shipment. Accordingly, revenue and the related direct freight expenses of the
Companys business and its agency arrangements are recognized on a gross basis upon completion
of freight delivery and no additional services are required by the Company. Fuel surcharges
billed to customers for freight hauled by the Companys agency arrangements are excluded from
revenue and paid in entirety to the Agents.Estimated Fair Value of Financial InstrumentsThe Companys financial instruments include cash, receivables, and debt. Management believes
the estimated fair value of these financial instruments at March 31, 2005 approximate their
carrying value as reflected in the consolidated balance sheets due to the short-term nature of
these instruments. It is not practicable for the Company to estimate the fair value of its
long-term convertible notes payable as there are not currently any quoted market prices
available.Fixed AssetsFixed assets are recorded at the lower of cost or fair value. Depreciation is calculated by the
straight-line method over the estimated useful lives of the assets, generally three to seven
years. Additions to and major improvements of equipment are capitalized. Maintenance and
repairs are charged to expense as incurred. As equipment is sold or retired, the applicable
cost and accumulated depreciation
 F-11




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XRG, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 are eliminated from the accounts and any gain or loss is recorded. Estimated useful lives are
periodically reviewed and, where appropriate, changes are made prospectively.Long Lived AssetsManagement periodically reviews the Companys long-lived assets for indications of impairment
whenever circumstances and situations change such that there is an indication that the carrying
amounts may not be recoverable. If the non-discounted future cash flows of the long-lived
assets are less than their carrying amount, their carrying amounts are reduced to fair value
and an impairment loss is recognized. Management does not believe there is any impairment of
long lived assets at March 31, 2005.GoodwillGoodwill consists of the excess of cost over the fair value of net assets acquired in business
combinations.The Company follows the provision of Statement of Financial Accounting Standards (SFAS) No.
142, Goodwill and Other Intangible Assets. SFAS No. 142 requires an annual impairment test for
goodwill and intangible assets with indefinite lives. Under the provisions of SFAS No. 142, the
first step of the impairment test requires that the Company determine the fair value of each
reporting unit, and compare the fair value to the reporting units carrying amount. To the
extent a reporting units carrying amount exceed its fair value, an indication exists that the
reporting units goodwill may be impaired and the Company must perform a second more detailed
impairment assessment. The second impairment assessment involves allocating the reporting
units fair value to all of its recognized and unrecognized assets and liabilities in order to
determine the implied fair value of the reporting units goodwill as of the assessment date.
The implied fair value of the reporting units goodwill is then compared to the carrying amount
of goodwill to quantify an impairment charge as of the assessment date. During the year ended
March 31, 2005, the Company recorded $3,720,000 of goodwill impairment (see Note 4).Income TaxesDeferred income tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the consolidated financial statements carrying
amounts of existing assets and liabilities and their respective income tax basis, principally
fixed assets. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized as income or expense in the period that included the enactment date.Valuation allowances have been established against the Companys deferred tax assets due to
uncertainties in the Companys ability to generate sufficient taxable income in future periods
to make realization of such assets more likely than not. The Company has not recognized an
income tax benefit for its operating losses generated during 2005 and 2004
based on uncertainties concerning the Companys ability to generate taxable income in future
periods. There was no income tax receivable at March 31, 2005 and 2004. In future periods, tax
benefits and related deferred tax assets will be recognized when management considers
realization of such amounts to be more likely than not.Stock-Based TransactionsThe Company issues stock in lieu of cash for certain transactions. Generally, the fair value of
the stock, based upon the quoted fair market value is used to value the transactions.For the stock options issued to employees, the Company has elected to apply the intrinsic value
based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations. Under the intrinsic
value based method, compensation cost is measured on the date of grant as the excess of the
quoted market price of the underlying stock over the exercise price. Such compensation amounts
are amortized over the respective vesting periods of the options.The following table illustrates the effect on net loss and loss per share as if the fair value
based method of accounting had been applied to stock-based employee compensation, as required
by SFAS No. 123, Accounting for Stock-Based Compensation and SFAS 148 Accounting for
Stock-Based
 F-12




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XRG, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Compensation  transition and disclosure, an amendment of SFAS No. 123 for years ended March
31, 2005 and 2004:
 2005
    
    
    2004Net loss. as reported
    
    $
    (13,852,073
    )
    
    $
    (4,450,213
    )Deduct: Total stock-based employee compensation expense
determined under fair value based methods for all awards, net
of related tax effects
    
    
    (13,205
    )
    
    
    Plus: Intrinsic value of compensation Costs included in net loss
    
    
    13,200
    
    
    
    Pro forma net loss
    
    $
    (13,852,078
    )
    
    $
    (4,450,213
    )Net loss per common shareBasic and diluted loss, as reported
    
    $
    (1.22
    )
    
    $
    (4.92
    )Basic and diluted (loss), pro forma
    
    $
    (1.22
    )
    
    $
    (4.92
    )
 Loss Per ShareBasic net loss per share is computed by dividing the net loss by the weighted average number of
common shares outstanding during the period. Diluted net loss per share is computed by dividing
the net loss for the period by the weighted average number of common and common equivalent
shares outstanding during the period. Common equivalent shares outstanding as of March 31, 2005
and 2004, which consist of employee stock options, warrants and convertible debentures, have
been excluded from the diluted net loss per common share calculations because they are
anti-dilutive. Accordingly, basic and diluted net loss per share is identical for the years
ended March 31, 2005 and 2004. The following table summarizes the Companys common stock
equivalents outstanding at March 31, 2005 which may dilute future earning per share.
 Warrants and options
    
    
    2,198,185Convertible debt
    
    
    1,290,476Total
    
    
    3,488,661
 During the year ended March 31, 2005, the Companys common stock shares had a reverse
split of 20 shares to one. This reverse stock split is reflected in all net loss per share
calculations.Beneficial Feature of Convertible Debt and Warrants Issued in Conjunction with DebtThe Company records the intrinsic value of the beneficial feature of convertible debentures as
additional paid in capital and amortizes the interest over the life of the debentures. The
Company records the warrants issued in conjunction with a debt issuance as a discount to debt
and amortizes the interest over the life of the debentures.Recently Issued Pronouncements statementsIn December 2004, the FASB issued SFAS No. 123 (revised 2004) (SFAS 123(R)), Share-Based
Payment. This statement replaces SFAS Statement No. 123 Accounting for Stock-Based
Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.
SFAS 123(R) will require the fair value of all stock option awards issued to employees to be
recorded as an expense over the related vesting period. The statement also requires the
recognition of compensation expense for the fair value of any unvested stock option awards
outstanding at the date of adoption. The adoption of FASB 123R will impact the Company by
requiring it to use the fair-value based method of accounting for future and unvested employee
stock transactions rather than the intrinsic method it currently uses. The Company will adopt
this SFAS as of April 1, 2006. The Company does not expect the adoption of this SFAS to have a
material impact relating to outstanding options since there are no awards currently outstanding
under the existing incentive stock option.Reclassifications
  F-13




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##### Table of Contents



XRG, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 3. Fixed assets
  Office equipment & software
    
    $
    143,696Tractors and trailers
    
    
    1,849,750Furniture & fixtures
    
    
    78,2132,071,659Accumulated depreciation
    
    
    (450,162
    )Total fixed assets, net
    
    $
    1,621,497
      4. Goodwill
  Goodwill
    
    $
    4,395,208Less: impairment charge
    
    
    (3,719,850
    )$
    675,358
   F-14




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##### Table of Contents



XRG, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 5. Obligations Due Under Line of Credit
  6. Notes Payable and Long-Term Debt
  XRG, Inc.  Notes payable secured by the assets of the Company: interest
ranging from 6.00% to 17.00%; Monthly payments of
approximately $13,500 on one note maturing during October 2007;
four notes have no principal or interest payments and require a
total balloon principal payment of $2,646,275 which is due by
December 31, 2005 additionally all accrued interest is due by
December 31, 2005 (these balloon notes were due at various
times prior to March 31, 2005 and the lenders have extended the
notes to December 31, 2005); Secured by all assets of the
companies.
    
    $
    2,992,079XRG, 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.
    
    
    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.
    
    
    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.
    
    
    155,000XRG, Inc.  Notes payable; interest ranging from 12.0% to 2,500
shares of common stock per month; these notes are overdue.
    
    
    60,000Carolina Truck Connection, Inc. (CTC)  Notes payable;
interest ranging from 6.00% to 8.53%; Monthly payments of
approximately $5,100; due at various dates between September
2005 to October 2006; one note required a balloon payment of
$180,810 due by November 10, 2004, the lender has extended the
due date to December 31, 2005; Secured by equipment.
    
    
    244,445
 F-15




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##### Table of Contents



XRG, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Highway Transport, Inc.  Notes payable; interest
ranging from 8.25% to 15.20%; Monthly payments of
approximately $57,000; due at various dates between
2005 to 2009; Secured by equipment.
    
    
    1,087,671Total notes payable
    
    $
    4,659,195Less current portion
    
    
    (3,809,816
    )Long-term portion of notes payable
    
    $
    849,379
  Year EndingMarch 31,
    
    Amount2006
    
    $
    3,809,8162007
    
    
    332,4132008
    
    
    250,1762009
    
    
    174,1922010
    
    
    92,598Total
    
    $
    4,659,195
       F-16




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##### Table of Contents



XRG, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
          F-17




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##### Table of Contents



XRG, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 7. Lease Commitments
  Year EndingMarch 31,
    
    Amount2006
    
    $
    71,3432007
    
    
    54,1672008
    
    
    3,000Total
    
    $
    128,510
  8. Related Party Transactions
          F-18




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##### Table of Contents



XRG, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 9. Income Taxes
    2005Deferred income tax asset:Net operating loss carryforward
    
    $
    6,373,000Allowance for doubtful accounts
    
    
    51,000Valuation allowance
    
    
    (6,345,000
    )Total deferred income tax asset
    
    $
    79,000Deferred income tax liabilityDifference between book and tax for fixed assets
    
    $
    (79,000
    )Total deferred income tax liability
    
    
    (79,000
    )Net deferred income tax asset
    
    $
    
  2005
    
    
    2004Statutory benefit
    
    $
    (4,710,000
    )
    
    $
    (1,513,000
    )State tax benefit, net of federal effect
    
    
    (554,000
    )
    
    
    (178,000
    )Increase in deferred income tax valuation allowance
    
    
    3,719,000
    
    
    
    1,314,000Non-deductible expenses
    
    
    132,000
    
    
    
    295,000Goodwill
    
    
    1,413,000
    
    
    
    Loss of net operating loss carryforward
    
    
    
    
    
    
    82,000$
    
    
    
    $
    
 10. Stock Options and Warrants
    F-19




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##### Table of Contents



XRG, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
  4/1/2004
    
    
    
    
    
    
    3,710,3796/15/2004
    
    
    
    
    
    
    300,0006/28/2004
    
    
    
    
    
    
    40,0006/30/2004
    
    
    
    
    
    
    218,1258/3/2004
    
    
    
    
    
    
    181,2509/23/2004
    
    
    
    
    
    
    5,1259/30/2004
    
    
    
    
    
    
    158,12510/21/2004
    
    
    
    
    
    
    62,50010/29/2004
    
    
    
    
    
    
    53,12510/31/2004
    
    
    
    
    
    
    406,25111/23/2004
    
    
    
    
    
    
    5,1301/5/2005
    
    
    
    
    
    
    60,0003/30/2005
    
    
    
    
    
    
    65,2205,265,230
  4/1/2003
    
    
    
    
    
    
    2,5004/4/2003
    
    
    
    
    
    
    1,0004/22/2003
    
    
    
    
    
    
    2,0004/29/2003
    
    
    
    
    
    
    2,0005/5/2003
    
    
    
    
    
    
    1,0005/9/2003
    
    
    
    
    
    
    1,0005/27/2003
    
    
    
    
    
    
    1,0005/30/2003
    
    
    
    
    
    
    1,0006/4/2003
    
    
    
    
    
    
    2,0006/10/2003
    
    
    
    
    
    
    2,0007/10/2003
    
    
    
    
    
    
    1,0007/18/2003
    
    
    
    
    
    
    3,00010/3/2003
    
    
    
    
    
    
    5,00011/12/2003
    
    
    
    
    
    
    5,0001/9/2004
    
    
    
    
    
    
    14,2051/13/2004
    
    
    
    
    
    
    41,6661/22/2004
    
    
    
    
    
    
    20,0001/30/2004
    
    
    
    
    
    
    23,3331/31/2004
    
    
    
    
    
    
    18,7502/25/2004
    
    
    
    
    
    
    5,0003/31/2004
    
    
    
    
    
    
    6,667159,121
  2005
    
    2004Dividend yield
    
    0%
    
    0%Risk-free interest rate
    
    2.71% - 4.24%
    
    0.87% - 2.91%Expected life
    
    5 years
    
    .25 - 5 yearsExpected volatility
    
    186.49% - 257.32%
    
    257%
  WeightedAverageExerciseWarrants
    
    
    priceOutstanding at April 1, 2003
    
    
    224,279
    
    
    $
    0.27Granted
    
    
    159,121
    
    
    
    3.41Exercised/Exchanged
    
    
    (248,313
    )
    
    
    0.20Cancelled
    
    
    (12,179
    )
    
    
    4.80Outstanding at March 31, 2004
    
    
    122,908
    
    
    $
    2.63Granted
    
    
    5,265,230
    
    
    
    0.73Exercised
    
    
    (3,189,953
    )
    
    
    0.23Outstanding at March 31, 2005
    
    
    2,198,185
    
    
    $
    1.56Warrants exercisable at December 31, 2005
    
    
    2,198,185
    
    
    $
    1.56
   Warrants outstanding
    
    Warrants exercisableWeightedAverage
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    average
    
    
    
    
    
    AverageNumber
    
    contractual
    
    exercise
    
    Number
    
    ExerciseExercise Price
    
    Outstanding
    
    life (years)
    
    price
    
    exercisable
    
    Price$0.20 to $0.60
    
    
    841,667
    
    
    
    4
    
    
    $
    0.46
    
    
    
    841,667
    
    
    $
    0.46$2.00 to $2.40
    
    
    1,307,768
    
    
    
    4
    
    
    
    2.04
    
    
    
    1,307,768
    
    
    
    2.04$8.00 to $8.40
    
    
    48,750
    
    
    
    4
    
    
    
    8.04
    
    
    
    48,750
    
    
    
    8.042,198,185
    
    
    
    4
    
    
    $
    1.56
    
    
    
    2,198,185
    
    
    $
    1.56
 F-20




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##### Table of Contents



XRG, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
  WeightedAverageExerciseOptions
    
    priceOutstanding at April 1, 2003
    
    
    27,500
    
    
    $
    0.02Exercised
    
    
    (27,500
    )
    
    
    0.02Outstanding at March 31, 2004
    
    
    
    
    
    $
    Granted
    
    
    20,000
    
    
    
    4.14Exercised
    
    
    (20,000
    )
    
    
    4.14Outstanding at March 31, 2005
    
    
    
    
    
    $
    
   11. Other Equity Transactions
    F-21




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##### Table of Contents



XRG, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
             F-22




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##### Table of Contents



XRG, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
         12. Commitments and Contingencies
  Year EndingMarch 31,
    
    Amount2006
    
    $
    835,5472007
    
    
    511,5462008
    
    
    462,4862009
    
    
    410,9072010
    
    
    156,000Total
    
    $
    2,376,486
  F-23




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##### Table of Contents



XRG, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 
  
  
  
  F-24




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##### Table of Contents



XRG, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
  
    13. Acquisitions
  Express Freight Systems, Inc.
     F-25




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##### Table of Contents



XRG, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
     
    
    mutual termination of the Master Equipment Lease Agreement (MELA);
    
    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;
    
    all employment agreements are mutually terminated with the former EFS
shareholders and employees;
    
    the former EFS shareholders personally assume all overdraft bank
liabilities and bank loans of EFS. In addition, former EFS
shareholders assume trade payables and accruals prior to March 1,
2004. All bad debt and charge-backs attributable to receivables
outstanding as of April 21, 2004 are assumed by the former EFS
shareholders;
    
    the One Million Dollar ($1,000,000) deferred payment obligation under
the EFS Merger Agreement is terminated;
    
    if XRG fails to make the required ComData fuel funding or settle
agency payments timely and in full, then EFI has the right to
terminate the Terminal Agreement. EFS is required to advance funds
necessary for regulatory compliance, fund vehicle license requirements
and fund owner/operator payments;
    
    EFS is required to maintain liability and cargo insurance in full
force and effect and maintain ancillary insurance benefits related to
physical damage coverages;
    
    the former EFS shareholders may engage in the boat hauling business
without violating any non-compete provisions;
 F-26




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##### Table of Contents



XRG, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 
    
    the parties anticipate entering into mutual releases subject to the
above covenants and representations.
   Initial
    
    
    
    
    
    
    Finalpurchase
    
    
    
    
    
    
    purchaseprice entry
    
    
    Adjustment
    
    
    price entryAccounts receivable
    
    $
    1,609,474
    
    
    $
    
    
    
    $
    1,609,474Other current assets
    
    
    99,031
    
    
    
    (1,892
    )
    
    
    97,139Fixed assets
    
    
    3,739,650
    
    
    
    (3,618,599
    )
    
    
    121,051Goodwill
    
    
    5,679,625
    
    
    
    (2,761,489
    )
    
    
    2,918,136Total assets acquired
    
    
    11,127,780
    
    
    
    (6,381,980
    )
    
    
    4,745,800Accrued expenses and payables
    
    
    (1,857,781
    )
    
    
    1,743,098
    
    
    
    (114,683
    )Other liabilities
    
    
    (2,371,397
    )
    
    
    2,307,409
    
    
    
    (63,988
    )Notes payable
    
    
    (662,623
    )
    
    
    662,623
    
    
    
    Factorer line of credit
    
    
    (1,501,129
    )
    
    
    
    
    
    
    (1,501,129
    )Total liabilities assumed
    
    
    (6,392,930
    )
    
    
    4,713,130
    
    
    
    (1,679,800
    )Total purchase price
    
    $
    4,734,850
    
    
    $
    (1,668,850
    )
    
    $
    3,066,000
 EFS Capital lease obligation
  RSV, Inc.
  F-27




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##### Table of Contents



XRG, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
   Highway Transport, Inc.
   Initial
    
    
    
    
    
    
    Finalpurchase
    
    
    
    
    
    
    purchaseprice entry
    
    
    Adjustment
    
    
    price entryOther current assets
    
    $
    38,910
    
    
    $
    
    
    
    $
    38,910Fixed assets
    
    
    1,355,200
    
    
    
    (413,000
    )
    
    
    942,200Goodwill
    
    
    393,793
    
    
    
    351,760
    
    
    
    745,553Total assets acquired
    
    
    1,787,903
    
    
    
    (61,240
    )
    
    
    1,726,663Accrued expenses
    
    
    (96,000
    )
    
    
    
    
    
    
    (96,000
    )Notes payable
    
    
    (1,593,903
    )
    
    
    61,240
    
    
    
    (1,532,663
    )Total liabilities assumed
    
    
    (1,689,903
    )
    
    
    61,240
    
    
    
    (1,628,663
    )Total purchase price
    
    $
    98,000
    
    
    $
    
    
    
    $
    98,000
  F-28




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##### Table of Contents



XRG, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Highbourne Corporation
   Goodwill
    
    
    56,000Total assets acquired
    
    
    56,000Total liabilities assumed
    
    
    Total purchase price
    
    $
    56,000
     F-29




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##### Table of Contents



XRG, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
  Carolina Truck Connection, Inc.
      Initial
    
    
    
    
    
    
    Finalpurchase price
    
    
    
    
    
    
    purchaseentry
    
    
    Adjustment
    
    
    price entryFixed assets
    
    $
    556,500
    
    
    $
    (137,500
    )
    
    $
    419,000Goodwill
    
    
    304,500
    
    
    
    349,417
    
    
    
    653,917Total assets acquired
    
    
    861,000
    
    
    
    211,917
    
    
    
    1,072,917Notes payable
    
    
    (489,000
    )
    
    
    134,583
    
    
    
    (354,417
    )Total liabilities assumed
    
    
    (489,000
    )
    
    
    134,583
    
    
    
    (354,417
    )Total purchase price
    
    $
    372,000
    
    
    $
    346,500
    
    
    $
    718,500
   14. Unaudited Pro Forma Consolidated Financial Information for Acquisitions
  F-30




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##### Table of Contents



XRG, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 For the year ended March 31,2005
    
    2004Revenues
    
    $
    40,387,525
    
    
    $
    40,143,626Net loss
    
    $
    (13,950,955
    )
    
    $
    (5,520,026
    )Basic loss per share
    
    $
    (1.23
    )
    
    $
    (4.23
    )
 15. Equipment Purchases
     F-31




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##### Table of Contents



XRG, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 16. Subsequent Events
 No.
    
    Event Description
    
    DateA.
    
    CTC Addendum
    
    4/1/05B.
    
    Highbourne/AGB Terminal Litigation
    
    4/8/05C.
    
    Administrative Services Agreement (amended 5/20/05)
    
    4/20/05D.
    
    EFS Settlement
    
    4/21/05E.
    
    Larry Berry Employment Agreement
    
    4/22/05F.
    
    Barron Interim Financing
    
    5/20/05G.
    
    Ken Steel Restructure
    
    5/20/05H.
    
    Waivers of Liquidated Damages
    
    5/20/05I.
    
    Huggins, Brennan Releases, Leong & Francis on Board of Directors
    
    5/20/05J.
    
    Highway Settlement
    
    5/30/08K.
    
    Bentley Settlement
    
    6/2/05
 A.
    
    Carolina Truck Connection, Inc.  AmendmentEffective April 1, 2005, XRG entered into the Second Amendment to Asset Acquisition Agreement with Carolina Truck Connection, Inc., Larry
Puckridge and Robert Luther. XRG has agreed to issue Mr. Puckridge and Mr. Luther an additional 350,000 shares as additional consideration
in connection with the original Asset Acquisition Agreement. In addition, XRG agreed to issue Mr. Puckridge 25,000 shares in consideration
for past consulting services. XRG has agreed to continue servicing the debt related to the CTC equipment and is entitled to take title to
such equipment which is guaranteed by Mr. Puckridge at such time as Mr., Puckridges guaranties are released and provided that after the
annual anniversary date of this Agreement XRG shares have a market value of at least $1.60. CTC also has the right to convert the original
Asset Acquisition Agreement into an Agency Agreement with the revenue split being 85% to CTC and 15% to XRG.
 B.
    
    Termination of Highbourne Asset Acquisition Agreement/AGB Terminal Agreement  Related LitigationOn April 8, 2005, a principal of AGB Transportation Services, LLC, the successor in interest to Highbourne Corporation, notified XRG that
AGB was terminating the Terminal Agreement dated October 4, 2004 between AGB and the Company. AGB alleged that XRG failed to make timely
payments of certain regular commissions and monthly productivity bonuses. XRG disagrees with the allegations made by AGB and believes that
the termination was improper. On April 27, 2005, XRG filed a complaint against Highbourne Corporation, its successor in interest, AGB and
the principals of these entities. The complaint alleges that AGB and its shareholders breached the original Acquisition Agreement entered
into between the parties in February 2004. In addition, the complaint alleges that the AGB shareholders have violated the confidential and
non-compete provisions of their employment agreements. XRG alleges that the actions of AGB and its shareholders in entering into a new
agency agreement with a third party, American Trans-Freight, LLC, and the utilization by such parties of XRGs transportation equipment is
improper. Furthermore, XRG alleges that such parties are improperly using its customer list, supplier list, shipper contracts and
owner/operator contracts for their own benefit and for the benefit of a competitor of XRG. Due to AGB and its shareholders terminating the
terminal agreement, subsequent to yearend March 31, 2005, the operations of Highbourne will no longer be included in the Companys
financial statements.
 C.
    
    Administrative Services Agreement with R&R Express, Inc. and Richard FrancisEffective April 20, 2005 the Company entered into an Administrative Services Agreement with R&R Express, Inc. (R&R) and Richard Francis.
The Company appointed Mr. Francis as its Chief Executive Officer, replacing Kevin Brennan. Mr. Francis is also the President of R&R.
Pursuant to the Administrative Services Agreement, R&R is responsible for certain of the daily administrative, procedural and regulatory
issues relating to the Companys operations. The Company has agreed to pay R&R an administrative services fee equal to 12% of line haul
revenue (excluding pass throughs) for all agents. This fee is payable weekly.
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##### Table of Contents



XRG, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
    D.
    
    Formal Settlement Agreement re: EFS
Effective as of April 26, 2005, XRG finalized a Settlement
Agreement with Express Leasing Systems, Inc. (ELS), Express
Freight, Inc. (EF) and the former shareholders and employees
(Holders) of Express Freight Systems, Inc. (EFS). This
Settlement Agreement formalized the understandings of the
parties in connection with the restructuring of the original
merger with EFS in April 2004, and the subsequent restructuring
of that merger into an agency arrangement, pursuant to a
Terminal Agreement with an effective date of August 16, 2004
and related Bullet Point Addendum. The Settlement Agreement
formalizes the understandings of the parties pursuant to the
Bullet Point Addendum.Material terms of the Settlement Agreement are summarized below:
 
    
    The mutual termination of the Master Equipment Lease Agreement (MELA). The
MELA required the Company 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 Companys common stock. 187,500 shares of the
Companys common stock will be forfeited and returned to it 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. The former
president of EFS agreed to a 3 year employment agreement. All other individuals
had 10 year employment agreements in which annual compensation ranged from
$125,000 to $250,000 per annum. These agreements contained nondisclosure and
restrictive covenant arrangements. These agreements were mutually terminated by
the Company 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
 F-33




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##### Table of Contents



XRG, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
  
    
    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.XRG has the obligation to fulfill certain funding obligations pursuant to the Settlement Agreement on a timely basis, including but not
limited to funding COMDATA, funding driver payroll, paying insurance, advance funding license/tag fees, and other items as set forth in
the Settlement Agreement. The failure to make these fundings is considered a Major Funding Default, pursuant to the Settlement
Agreement. Upon the occurrence of a Second Funding Default, EF and the Holders have the right to terminate the Terminal Agreement and
shall be released from any further liability or obligations to damage provisions of the Terminal Agreement.Pursuant to the terms of the Settlement Agreement, XRG is entitled to a return of 187,500 shares issued in connection with the EFS
merger. XRG has the risk of EF declaring a Major Funding Default because of its limited financial resources if the Company was unable
to timely fulfill its funding obligations under the Settlement Agreement. Representatives of EF have alleged that XRG has already
committed a Major Funding Default. XRG disputes this assertion. However, if two (2) Major Funding Defaults were deemed to have
occurred, which would result in a potential termination of the Terminal Agreement, this would have a material adverse effect on the
financial position of XRG.
 E.
    
    Larry Berry Employment AgreementOn April 22, 2005, the Company finalized an Employment Agreement between Larry M. Berry and XRG G&A, Inc. Mr. Berry is employed as an
Acquisition Specialist and reports directly to the Companys Chief Executive Officer and assists in entering into agency agreements,
terminal agreements, asset based acquisitions and other similar agreements with trucking companies. Mr. Berry is entitled to a weekly
draw of $3,000. In addition, he is entitled to compensation in an amount equal to one-half (1/2) of one percent (1%) of all invoice
line haul revenues attributable to agency, transfer and acquisition agreements entered into with truckload candidates directed to XRG
by Mr. Berry. As of the date of this Agreement, Mr. Berry is entitled to be paid such compensation with respect to invoice line haul
revenues of EFS Corp., Highbourne Corporation, Carolina Truck Connection, Inc., and Highway Transport, Inc. XRG has agreed to issue Mr.
Berry options to acquire 100,000 shares of its common stock at a nominal exercise price of $.01. XRG also agreed to issue Mr. Berry
shares
of its common stock valued at $1.00 per share as compensation for all prior amounts owed to Mr. Berry for past compensation. The
payments due Mr. Berry are made by R&R and are considered a credit against the fees payable to R&R pursuant to the Administrative
Services Agreement.F.
    
    Interim Financing Arrangements with BarronIn order to satisfy the Companys interim working capital requirements, it has borrowed funds from Barron, its largest shareholder. The
following table sets forth a summary of the date, amount, interest rate, collateral and extended maturity date relating to such
borrowings:
 Current
    
    
    ExtendedInterest
    
    
    
    
    
    
    Maturity
    
    
    MaturityDate
    
    Amount
    
    
    Rate
    
    
    Collateral
    
    
    Date
    
    
    Date9/20/04
    
    $
    225,809.86
    
    
    
    6
    %
    
    20 Trailers and
    
    
    3/31/05
    
    
    
    12/31/05all assets10/1/04
    
    
    166,275.00
    
    
    
    6
    %
    
    15 Tractors and
    
    
    3/31/05
    
    
    
    12/31/05all assets2/23/05
    
    
    1,180,000.00
    
    
    
    10
    %
    
    All Assets
    
    
    4/23/05
    
    
    
    12/31/053/3/05
    
    
    800,000.00
    
    
    
    10
    %
    
    All Assets
    
    
    5/1/05
    
    
    
    12/31/056/20/05
    
    
    1,250,000.00
    
    
    
    10
    %
    
    All Assets
    
    
    12/31/05
    
    
    
    N/A
 F-34




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##### Table of Contents



XRG, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
    G.
    
    Restructured Arrangements with Kenneth A. Steel, Jr.On January 5, 2005 Mr. Steel, an existing shareholder advanced the
Company $500,000 pursuant to a promissory note that was originally
repayable on February 5, 2005. The Company did not pay this note as
due and obtained an original extension through March 31, 2005. As part
of the Companys recent restructuring it has entered into a new
restated promissory note with Ken Steel for $500,000, which is payable
on December 31, 2005 and bears interest at 17%. Default interest is
24% XRG has agreed to grant Mr. Steel a lien and security interest in
its assets. Barron has agreed to subordinate repayment of principal
and interest on all Barron notes to the repayment of Mr. Steels note.
In May 2005, XRG paid Mr. Steel approximately $72,900 as forbearance
consideration and loan fees. Interest is payable monthly. The Company
has agreed to issue Mr. Steel warrants to acquire up to 1,000,000
shares of its Common Stock at an exercise price of $2.00 per share,
subject to anti-dilution adjustment. This warrant is substantially the
same form of warrant as issued to other investors with favored nations
and anti-dilution rights. Such rights were also granted to other
affiliates of Mr. Steel.H.
    
    Waivers of Liquidated DamagesIn February, 2005 the Company withdrew a registration statement filed
under cover of Form SB-2 on behalf of certain selling shareholders.
The companys decision to withdraw this registration statement was
predicated upon the restructuring of its operations and the need to
raise additional capital. In connection with its restructuring during
May, 2005, the Company entered into waivers and extensions of
liquidated damages rights with all of the holders, who are entitled to
liquidated damages in connection with the failure to register the
Companys securities on behalf of such selling shareholders. The
Company is required to file a new registration statement on or before
September 30, 2005 and to have such registration statement declared
effective on December 31, 2005. If the new registration statement is
not filed and declared effective by such dates, then the holders are
entitled to the liquidated damages or penalties for failure to have
such registration statement filed and declared effective, with such
liquidated damages rights commencing as of September 30, 2005 or
December 31, 2005 as applicable. There is no assurance that the
Company will be able to timely prepare, file and have declared
effective a new selling shareholder registration statement. Liquidated
damages due Barron are approximately $292,500 per quarter. Liquidated
damages due the other investors are approximately $20,000 per month.I.
    
    Changes in Officers/DirectorsMr. Francis was appointed as XRGs Chief Executive Officer in April,
2005 in connection with the Administrative Services Agreement with
R&R. On May 20, 2005 Mr. Francis and Mr. Leong were appointed to the
Companys Board of Directors to fill vacancies created by the
resignations of Mr. Huggins and Mr. Brennan, as described below.
Effective May 20, 2005 a Mutual General Release was entered into
between XRG, Barron and Donald Huggins. Mr. Huggins agreed that upon
execution of this Release by all parties, he shall resign as a
 F-35




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##### Table of Contents



XRG, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
   J.
    
    Restructuring of Highway Transport, Inc. AcquisitionIn April 2004, XRG entered into an Asset Purchase Agreement for
Highway Transport, Inc., an Alabama corporation (HTI), and its
shareholders, Mr. Brown and Mr. Adams. Pursuant to this Agreement, XRG
agreed to acquire certain transportation equipment and other assets
use by HTI and to assume the debt and liabilities of HTI. In order to
resolve disputes among the parties in connection with the prior Asset
Purchase Agreement, XRG, HTI and its principals entered into a
Termination Agreement and Terminal Agreement effective May 30, 2005.Pursuant to the Termination Agreement, XRG repaid HTI $180,000, the
proceeds of which was used to make debt service payments on
obligations due United Bank and to satisfy other payables of HTI. XRG
is also obligated to issue the principals of HTI 75,000 shares of its
Common Stock.The Termination Agreement requires XRG to pay HTI $6,000 per month for
the first 41 months after the Termination Agreement, and $16,000 per
month thereafter for 19 months (Settlement Payments). The
understanding of the parties is that the Settlement Payments will be
directed to United Bank to pay down the obligations of XRG and HTI to
United Bank (Settlement Payments). It is the intent and desire of
the parties to restructure the obligations due United Bank, such that
XRG is the primary obligor on 4/7s and HTI and its principals are the
obligors on the other 3/7s of the amounts due United Bank, which
approximates $807,000 as of March 31, 2005. XRG is currently the
primary obligor on these obligations to United Bank. There is no
assurance that XRG will be successful in restructuring the United Bank
obligations, which limits XRGs obligations to 4/7s of the amount due
United Bank.The Terminal Agreement with HTI has a term for five (5) years. HTI
covenants to use XRG on an exclusive basis as its carrier. XRG agrees
to pay HTI eighty-seven percent (87%) of revenues. XRG shall retain
the remaining thirteen percent (13%) of HTI revenues. If HTI ceases
operations, sell substantially all of its assets, terminates the
Terminal Agreement, or defaults in performing its obligations under
the Terminal Agreement, XRG will be relieved of its obligations to
make any remaining Settlement Payments. If any of such events occur
within six (6) months after the effective date of the Termination
Agreement, all previous shares of XRG common stock issued to the
principals of HTI shall be immediately canceled.If XRG does not fund COMDATA immediately when due or make settlement
of commissions on HTI invoices in presently available fund and fails
to cure such default within a 24-hour period after receiving written
notice, such shall constitute a major funding default (Major Funding
Default). During any rolling 30-day period, XRG shall permit two
Major Funding Defaults, then HTI shall have the right to terminate the
Terminal Agreement and be released of any further obligations to XRG.
 F-36




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##### Table of Contents



XRG, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 K.
    
    J. Bently CompaniesOn June 2, 2005, the agreement with J. Bently Companies was
restructured. The original purchase agreement, amendments thereto,
employment agreements associated with the acquisition, the original
override agreement and the original fleet owner agreement were
terminated. In lieu thereof, XRG and a J. Bently Company shareholder
entered into a new terminal agreement; where the revenue split being
85% to CTC and 15% to XRG. This terminal agreement has a term of five
years. In addition, XRG has entered into a new trailer lease and fleet
owner agreement with this J. Bently Company shareholder, which
requires the payment of seventy-six percent of line haul revenue to
him for utilization of his equipment, which is a credit against the
85% agent fee due in accordance to the terminal agreement. In
addition, XRG agreed to issue a total of 150,000 shares of its
restricted common stock to the J. Bently Company shareholders, subject
to certain vesting provisions relating to the Terminal Agreement
remaining in full force and effect through April 30, 2007. In
addition, XRG has agreed to reimburse these J. Bently Company
shareholders $90,000 for previous deposits for insurance and to pay
$52,000 for workers compensation insurance overcharges.
 F-37




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##### Table of Contents



ITEM 13. EXHIBITS
 EXHIBITS AND SEC REFERENCE NUMBERS
 Exhibit No.
    
    Description of Exhibit3.1
    
    Certificate of Incorporation of USA Polymers, Inc. (2)3.2
    
    Amendment to Certificate of Incorporation of USA Polymers, Inc. changing name to XRG,
Inc. (2)3.3
    
    Agreement and Plan of Merger of XRG, Inc. and XRG International, Inc. (2)3.4
    
    Certificate of Merger of XRG, Inc. and XRG International, Inc.  Delaware. (2)3.5
    
    Certificate of Merger of XRG, Inc. and XRG International, Inc.  New Jersey. (2)3.6
    
    Amendment to Certificate of Incorporation to Increase Authorized Shares of XRG, Inc. (2)3.7
    
    Bylaws of XRG, Inc. (2)3.8
    
    Amendment to Certificate of Incorporation to Increase Authorized Shares of XRG, Inc.
dated July 7, 2003. (3)3.9
    
    Certificate of Designation, Preferences and Rights of Series A Preferred Stock of XRG,
Inc. (3)3.95
    
    Amendment to Certificate of Incorporation to Increase Authorized Shares of XRG, Inc.
dated July 29, 2004 (5)10.1
    
    Lease Agreement between Pittsburgh Properties, Ltd. and XRG, Inc. dated August 28,
2001. (2)10.2
    
    Administrative Services Agreement between XRG G&A, Inc. and KDR Transport, Inc. dated
February 1, 2002. (1)10.3
    
    Lease Agreement between Highwoods/Florida Holdings, L.P. and XRG, Inc. dated September
5, 2002. (3)10.4
    
    Asset Purchase Agreement between J. Bently Companies, Inc. and XRG, Inc. (3)10.5
    
    Fleet Owner Agreement between J. Bently Companies, Inc. and XRG, Inc. (3)10.5.5
    
    Asset Acquisition Agreement Addendum between J. Bently Companies, Inc. and XRG, Inc. (4)10.6
    
    Employment Agreement between Neil Treitman and XRG, Inc. (3)10.7
    
    Stock Option Agreement between Michael T. Cronin and XRG, Inc. (3)10.8
    
    Stock Option Agreement between Neil Treitman and XRG, Inc. (3)10.9
    
    Employment Agreement between Kevin Brennan and XRG, Inc. (4)10.10
    
    Employment Agreement between Stephen Couture and XRG, Inc. (4)10.11
    
    Consultant Agreement between Donald G. Huggins, Jr. and XRG, Inc. (4)10.12
    
    Stock Purchase Agreement between XRG, Inc. and R&R Intermodal dated August 20, 2003. (7)
 41




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##### Table of Contents



Exhibit No.
    
    Description of Exhibit10.13
    
    Stock Purchase Agreement Addendum between XRG, Inc. and R&R Intermodal dated January
1, 2004. (8)10.12
    
    XRG, Inc. 2004 Non-Qualified Stock Option Plan. (6)10.13
    
    Independent Contractor Agreement between XRG Logistics, Inc. and J. Bently Companies,
Inc. dated August 30, 2003. (9)10.14
    
    XRG, Inc. Amended & Restated 2004 Non-Qualified Stock Option Plan. (10)10.15
    
    Stock Purchase Agreement Addendum No. 2 between XRG, Inc. and R&R Intermodal dated
July 8, 2004. (11)10.16
    
    Form of Stock Purchase Agreement between XRG, Inc. and Barron Partners, LP, dated
March 31, 2004.(12)10.17
    
    Form of Series A Common Stock Purchase Warrant, issued to Barron Partners, LP.(12)10.18
    
    Form of Series B Common Stock Purchase Warrant, issued to Barron Partners, LP.(12)10.19
    
    Registration Rights Agreement by and between XRG, Inc. and Barron Partners, LP.(12)10.20
    
    Agreement and Plan of Merger by and among XRG, Inc., XRG Acquisition Sub I, Inc.,
Express Freight Systems, Inc. and the Shareholders of Express Freight Systems, Inc.,
originally dated January 31, 2004.(12)10.21
    
    Addendums to Agreement and Plan of Merger, dated March 29, 2004 and April 21, 2004.(12)10.22
    
    Articles of Merger between XRG Acquisition Sub I, Inc. and Express Freight Systems,
Inc., filed April 21, 2004  including Plan of Merger.(12)10.23
    
    Master Equipment Lease Agreement by and between Express Leasing Systems, Inc. and
Express Freight Systems, Inc., dated April 21, 2004.(12)10.24
    
    Employment Agreement between Express Freight Systems, Inc. and John Limerick, Sr.(12)10.25
    
    Employment Agreement between Express Freight Systems, Inc. and Matthew Limerick.(12)10.26
    
    Employment Agreement between Express Freight Systems, Inc. and Gregory L. Poe.(12)10.27
    
    Employment Agreement between Express Freight Systems, Inc. and John Limerick, III(12)10.28
    
    Employment Agreement between Express Freight Systems, Inc. and Douglas F. Varnell.(12)10.29
    
    Employee Agreement between Express Freight Systems, Inc. and Mark Limerick.(12)10.30
    
    Blanket Corporate Guaranty of XRG, Inc.(12)10.31
    
    Agreement and Plan of Merger by and between XRG, Inc. and its wholly owned subsidiary
XRG Acquisition Sub II, Inc. and RSV, Inc., a Tennessee corporation and its
Shareholders, dated February, 2004 with Addendum, dated March 29, 2004.(12)10.32
    
    Addendum to Agreement and Plan of Merger dated March 29, 2004.(12)10.33
    
    Articles and Plan of Merger by and between RSV, Inc. and XRG Acquisition Sub II, Inc.,
filed on April 29, 2004.(12)
 42




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##### Table of Contents



Exhibit No.
    
    Description of Exhibit10.34
    
    Stock Escrow Agreement by and between XRG, Inc. and Richard Venable.(12)10.35
    
    Noncompetition Agreement with Richard Venable.(12)10.36
    
    Asset Acquisition Agreement by and between XRG, Inc., Highway Transport, Inc. and
the Shareholders of Highway Transport, Inc., dated March 31, 2004.(12)10.37
    
    Bill of Sale, Assignment of Contract, and Assumption Agreement by and between
Highway Transport, Inc. and XRG, Inc., effective April 2, 2004 (without
exhibits).(12)10.38
    
    Commercial Sublease Agreement, executed by XRG, Inc. in connection with Highway
Transport, Inc. facilities.(12)10.39
    
    Employment Agreement by and between XRG Logistics, Inc. and Eddie R. Brown.(12)10.40
    
    Employment Agreement by and between XRG Logistics, Inc. and Milton Adams.(12)10.41
    
    Asset Purchase Agreement dated February 28, 2004, by and between Highbourne
Corporation, XRG, Inc. and the Shareholders of Highbourne Corporation.(12)10.42
    
    Bill of Sale, Assignment of Contract and Assumption Agreement by and between
Highbourne Corporation and XRG, Inc., effective April 2, 2004 (without
exhibits).(12)10.43
    
    Commercial Sublease Agreement, executed by XRG, Inc. in connection with the
Sublease of the Highbourne Corporation facilities.(12)10.44
    
    Employment Agreement by and between XRG Logistics, Inc. and Sherrie J. Kenner.(12)10.45
    
    Employment Agreement by and between XRG Logistics, Inc. and Steven M. Orenic.(12)10.46
    
    Asset Purchase Agreement, dated February, 2004 by and among XRG, Inc., Carolina
truck Connection, Inc. and the Shareholders of Carolina Truck Connection,
Inc.(12)10.47
    
    Bill of Sale, Assignment of Contract and Assumption Agreement by and between
Carolina Truck Connection, Inc. and XRG, Inc., effective April 28, 2004 (without
exhibits).(12)10.48
    
    Commercial Sublease Agreement, executed by XRG, Inc. in connection with the
Carolina Truck Connection, Inc. facilities.(12)10.49
    
    Security Agreement by and between XRG, Inc. and Larry Puckridge.(12)10.50
    
    Noncompetition and Consulting Agreement of Mr. Larry Puckridge.(12)10.51
    
    Stock Purchase Agreement Addendum between XRG, Inc. and J. Bently Companies, Inc.
dated April 12, 2004. (4)10.52
    
    Form of XRG, Inc. Subscription Agreement dated June 14, 2004.(13)10.53
    
    Placement Agent agreement between XRG, Inc. and Vertical Capital Partners, Inc.
dated June 17, 2004.(13)10.54
    
    Form of XRG, Inc. Registration Rights Agreement dated June 14, 2004.(13)10.55
    
    Amendment No.1 to Common Stock Purchase A and B Warrants between XRG, Inc. and
Barron Partners, LP dated June 15, 2004.(13)
 43




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##### Table of Contents



Exhibit No.
    
    Description of Exhibit10.56
    
    Form of XRG, Inc. Subscription Agreement dated July 30, 2004.(13)10.57
    
    Funds Escrow Agreement between XRG, Inc. and Various Subscribers dated July 30,
2004.(13)10.58
    
    Form of Warrant Agreement between XRG, Inc. and Various Subscribers dated July 30,
2004.(13)10.59
    
    Form of Warrant Agreement between certain finders and the Company dated March 31, 2004
and June 15, 2004.(13)10.60
    
    Lease Agreement by and between Wilder Corporation of Delaware and XRG, Inc. dated July
29, 2004 (14)10.61
    
    Terminal Agreement between Express Freight Systems, Inc. and Express Freight, Inc.
dated August 16, 2004 (14)10.62
    
    Merger Agreement Addendum between the former shareholders of Express Freight Systems,
Inc. and XRG, Inc. (14)10.63
    
    Promissory Note between Barron Partners, LP and XRG, Inc. dated September 10, 2004 (14)10.64
    
    Administrative Services Agreement between XRG, Inc., XRG G&A, Inc. and R&R Express,
Inc. and Richard Francis (15)10.65
    
    Employment Agreement by and between XRG G&A, Inc. and Larry M. Berry (15)10.66
    
    Second Amendment to Asset Acquisition Agreement by and among XRG, Inc. and Carolina
Truck Connection, Inc., Larry Puckridge, Robert Luther (15)10.67
    
    Letter of Resignation from Kevin B. Brennan, as Chief Executive Officer and Member of
Board of Directors (15)10.68
    
    Amendment to Employment Agreement  Kevin Brennan (16)10.69
    
    Amendment to Consulting Agreement  Don Huggins (16)10.70
    
    Letter of Agreement with Walker Street Associates (16)10.71
    
    $1,180,000 Promissory Note payable to Barron Partners, LP dated February 23, 2005 (16)10.72
    
    Security Agreement with Barron Partners, LP dated February 23 2005 (16)10.73
    
    $500,000 Promissory Note payable to Ken Steel dated January 5, 2005 (16)10.74
    
    Promissory Note Modification Agreement for Extension until March 31, 2005 with Ken
Steel, dated February 6, 2005 (16)10.75
    
    Promissory Note Modification Agreement for Extension until March 31, 3005 with Barron
Fund, LP, dated February 16, 2005 (16)10.76
    
    Contract of Sale and Security Agreement by and between XRG, Inc. and Capco Financial
Company, a division of Greater Bay Bank, N.A. (16)10.77
    
    Deposit Account Control Agreement between Wachovia Bank, Capco Financial, and XRG,
Inc., dated February 15, 2006 (16)10.78
    
    Promissory Notes Modification Agreement with Barron Partners, LP (17)
 44




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##### Table of Contents



Exhibit No.
    
    Description of Exhibit10.79
    
    Copy of $1,250,000 Promissory Note, payable to Barron Partners, LP (17)10.80
    
    Copy of $350,000 Subscription Agreement with Barron Partners, LP (17)10.81
    
    Copy of Common Stock to Purchase Warrant for 5,500,000 shares with Barron Partners, LP
(17)10.82
    
    Escrow Agreement regarding Conditions to Funding (17)10.83
    
    Amendment No. 1 to Administrative Services Agreement between XRG, Inc., XRG G&A, Inc.,
R&R Express, Inc. and Richard Francis (17)10.84
    
    Agreement with Ken Steel (17)10.85
    
    Restated $500,000 Promissory Note, payable to Ken Steel (17)10.86
    
    Form of Warrant issued to Ken Steel (17)10.87
    
    Conditional Waiver and Extension of Liquidated Damages Rights (17)10.88
    
    Agreement by and among XRG, Inc., XRG Logistics, Inc., J. Bently Companies, its
successors, Joseph Stapleton and Stanley Shadden (17)10.89
    
    Fleet Owner Agreement by and between Joseph Stapleton and XRG Logistics, Inc. (17)10.90
    
    Trailer Lease by and between XRG Logistics, Inc. and Joseph Stapleton (17)10.91
    
    Terminal Agreement by and between XRG Logistics, Inc. and Stanley Shadden (17)10.92
    
    Settlement Agreement by and between XRG, Inc., Express Leasing Systems, Inc., Express
Freight, Inc. and Holders (17)10.93
    
    Mutual Release by and between Donald Huggins, XRG, Inc. and Barron Partners, LP (17)10.94
    
    Mutual Release by and between Kevin Brennan, XRG, Inc. and Barron Partners, LP (17)10.95
    
    Termination Agreement between Highway Transport, Inc., its shareholder and XRG, Inc. (18)10.96
    
    Termination Agreement between Highway Transport, Inc. and XRG Logistics, Inc. (18)10.97
    
    Employment Agreement between Stanley Shadden and XRG Logistics, Inc. dated September 1,
2003.(19)10.98
    
    Employment Agreement between Larry M. Berry and XRG Logistics, Inc. dated November 1,
2003.(19)10.99
    
    Employment Agreement between Gary Walborn and XRG G&A, Inc. dated January 1, 2004.(19)10.100
    
    Employment Agreement between Herman Rios and XRG G&A, Inc. dated May 1, 2004.(19)10.101
    
    Employment Agreement between Richard S. Francis and XRG G&A, Inc. dated July 1, 2004.(19)10.102
    
    Employment Agreement between Richard S. Francis and R&R Express Intermodal, Inc. dated
July 1, 2004.(19)10.103
    
    Consulting Agreement by and between KDR Transport, Inc. and XRG, Inc. dated July 7,
2004.(19)10.104
    
    Common Stock Purchase Warrant issued to Greater Bay Bank, N.A. (Capco affiliate) for
63,820 shares.(19)10.105
    
    Letter Agreement with Oberon Securities.(19)
 45




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##### Table of Contents



Exhibit No.
    
    Description of Exhibit10.106
    
    Consulting Agreement with Michael Conroy.(19)31
    
    Section 302 Certification of the Sarbanes-Oxley Act of 2002*32
    
    Section 906 Certification of the Sarbanes-Oxley Act of 2002*99.1
    
    Code of Ethics(19)
 
 (1)
    
    Incorporated by reference to the Registrants Form 10-KSB filed on July 10, 2002.(2)
    
    Incorporated by reference to the Registrants Registration Statement on Form 10-SB, File No.
0-49659, filed March 4, 2002.(3)
    
    Incorporated by reference to the Registrants Form 10-KSB filed on July 14, 2003.(4)
    
    Incorporated by reference to the Registrants Form 10-KSB filed on July 14, 2004.(5)
    
    Incorporated by reference to the Registrants Definitive Schedule 14(C) filed on September 29,
2004.(6)
    
    Incorporated by reference to the Registrants Form S-8 filed on January 9, 2004(7)
    
    Incorporated by reference to the Registrants Form 8-K filed on August 22, 2003.(8)
    
    Incorporated by reference to the Registrants Form 8-K filed on February 9, 2004.(9)
    
    Incorporated by reference to the Registrants Form 10-QSB filed on November 24, 2003.(10)
    
    Incorporated by reference to the Registrants Amendment No.1 to Form S-8 filed on February 27,
2004.(11)
    
    Incorporated by reference to the Registrants Form 8-K/A Amendment No.1 filed on July 8, 2004.(12)
    
    Incorporated by reference to the Registrants Form 8-K/A Amendment No.3 filed on July 13, 2004.(13)
    
    Incorporated by reference to the Registrants Form 10-QSB filed on August 25, 2004.(14)
    
    Incorporated by reference to the Registration Form 10K-SB for March 31, 2005.(15)
    
    Incorporated by reference to the Registration Form 8-K filed on April 26, 2005.(16)
    
    Incorporated by reference to the Registration Form 8-K filed on March 3, 2005.(17)
    
    Incorporated by reference to the Registration Form 8-K filed on June 3, 2005.(18)
    
    Incorporated by reference to the Registration Form 8-K filed on June 9, 2005.(19)
    
    Incorporated by reference to the Registration Form 10-K-SB
filed on July 14, 2005.*
    
    Filed herewith. 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  March 31, 2005(i) Audit Fees
    
    $
    74,856(ii) Audit Related Fees
    
    
    -0-(iii) Tax Fees
    
    
    -0-(iv) All Other Fees
    
    
    -0-
 46




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##### Table of Contents



Audit Committee Pre-Approval Process, Policies and Procedures
  47




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##### Table of Contents



SIGNATURES
   XRG, INC.By:
    /s/ Richard FrancisRichard FrancisPresident, Chief Executive Officer,
Chief Financial Officer and
DirectorBy:
    /s/ Jay OstrowJay OstrowPrincipal Accounting Officer,
Controller   Signature
    
    Title
    
    Date/s/ Richard Francis
Richard Francis
    
    Chief Executive Officer,
Chief Financial Officer
And Director
    
    December 16, 2005/s/ Michael T. CroninMichael T. Cronin
    
    Director
    
    December 16, 2005/s/ Terence LeongTerence Leong
    
    Director
    
    December 16, 2005
 48