U.S.            SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

FORM            10-KSB

 

|X|            ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)

OF            THE SECURITIES EXCHANGE ACT OF 1934

 

FOR            FISCAL YEAR ENDED

DECEMBER 31, 2007

 

Commission File No. 0-28223

 

CARGO            CONNECTION LOGISTICS HOLDING, INC.

 

(Exact name of small business issuer as specified in its            charter)

 
| Florida                        | 65-0510294          |
|--------------------------------|---------------------|
| (State or other jurisdiction   | (I.R.S. Employer    |
| Incorporation or organization) | Identification No.) |

 

 

600            Bayview Avenue

Inwood, New York 11096

(Address of Principal Executive Offices)

 

(516)            239-7000

(Issuer Telephone Number)

 

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

Common Stock, $0.001 Par Value

 

Indicate by check mark whether the registrant (1) has filed all reports            required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934            during the preceding 12 months (or for such shorter period that the registrant was            required to file such reports), and (2) has been subject to such filing requirements            for the past 90 days.

 
| Yes |  [X| | No | | [  ] |
|-----|-----------|----|-------------|

 

Check if there is no disclosure of delinquent filers in response to Item            405 of Regulation S-B not contained in this form, and no disclosure will be contained,            to the best of the registrant’s knowledge, in definitive proxy or information            statement incorporated by reference in Part III of this Form 10-KSB or any amendment to            this Form 10-KSB.

 

Indicate by check mark whether the registrant is a shell company as            defined in Rule 12B-2 of the Exchange Act.
| Yes |  [  ] | No | |X| |
|-----|-----------------|----|-----|

 

Revenues for year ended December 31, 2007: $17,212,765

 

Aggregate market value of the voting Common Stock held by non-affiliates            of the registrant as of February 29, 2008, was: $1,120,582

 

Number of shares of the registrant’s Common Stock outstanding as            of February 29, 2008 is: 1,258,310,353.

 

 

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**Cautionary Statement Regarding Forward Looking            Statements:**

 

Certain statements contained in this Annual Report should be considered            “forward-looking statements” within the meaning of the Private Securities            Litigation Reform Act of 1995, which reflect the current views of the Company with            respect to the current events and financial performance. Readers can identify these            statements by forward-looking words such as “may,” “will,”            “expect,” “intend,” “anticipate,”            “believe,” “estimates,” “plan,”            “could,” “should,” and “continue” or similar words.            These forward-looking statements may also use different phrases. From time to time, the            Company also provides forward-looking statements in other material the Company releases            to the public or files with the SEC, as well as oral forward-looking statements.            Important factors known to us that could cause such material differences are identified            in this Annual Report on Form 10-KSB under the heading “Risk            Factors”.

 

Such            forward-looking statements are and will be subject to many risks, uncertainties and            factors which may cause the Company’s actual results to be materially different            from any future results, express or implied, by such forward-looking statements.            Factors that could cause the Company’s actual results to differ materially from            these forward-looking statements include, but are not limited to, the            following:

 
|   | **•** | the ability to operate in compliance with the terms of its                        financing facilities (particularly the financial covenants), leases and                        other agreements |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | the ability to maintain adequate liquidity and produce                        sufficient cash flow to meet the Company’s capital expenditure                        plans |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | the ability to attract and retain qualified management and                        other personnel |
|--------|------------|---------------------------------------------------------------------------------------------------|
|   | **•** | the number and magnitude of customers |
|--------|------------|---------------------------------------|
|   | **•** | changes in the competitive environment in which the Company                        operates |
|--------|------------|---------------------------------------------------------------------------------------------|
|   | **•** | changes in, or the failure to comply with, government and                        regulatory policies |
|--------|------------|------------------------------------------------------------------------------------------------------|
|   | **•** | the ability to obtain regulatory approvals and to maintain                        approvals previously granted |
|--------|------------|----------------------------------------------------------------------------------------------------------------|
|   | **•** | uncertainty relating to economic conditions generally and                        particularly affecting the markets in which the Company operates |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | changes in the Company’s business strategy,                        development plans or cost savings plans |
|--------|------------|------------------------------------------------------------------------------------------------------------------|
|   | **•** | the Company’s ability to complete the development of,                        market and sell the RadRopeTM product                        (“RadRopeTM”) |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | the Company may be subject to default remedies pursuant to                        the debentures issued to YA Global Investments, LP (“YA                        Global”) and other lenders |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | the Company requires additional financing in order to                        complete the acquisition of Fleet Global Services, Inc. a Florida                        corporation (“Fleet”), and may not be able to obtain such                        financing |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | the ability to complete acquisitions or divestitures and to                        integrate any business or operation acquired |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | the ability to enter into strategic alliances or other                        business relationships |
|--------|------------|------------------------------------------------------------------------------------------------------|
|   | **•** | the ability to overcome significant operating                        losses |
|--------|------------|-----------------------------------------------------------------------------|
|   | **•** | the frequency and severity of accidents, particularly                        involving our trucking operations |
|--------|------------|----------------------------------------------------------------------------------------------------------------|
|   | **•** | the ability to reduce costs |
|--------|------------|-----------------------------|
|   | **•** | the ability to develop products and services and to                        penetrate existing and new markets |
|--------|------------|---------------------------------------------------------------------------------------------------------------|
|   | **•** | the Company is delinquent in filing certain tax                        returns |
|--------|------------|--------------------------------------------------------------------------------|
|   | **•** | technological and other developments and changes in the                        industry |
|--------|------------|-----------------------------------------------------------------------------------------|
|   | **•** | the risks discussed in Item 1 – Business - Risk                        Factors |
|--------|------------|--------------------------------------------------------------------------------------|

 

Statements in this Annual Report and the exhibits to this Annual Report            should be evaluated in light of these important factors. The Company is not obligated            to, and undertakes no obligation to, publicly update any forward-looking statement due            to actual results, changes in assumptions, new information or as the result of future            events.

 

References in this Annual Report to “we,” “us,”            “our,” or the “Company” or similar terms refer to Cargo            Connection Logistics Holding, Inc. and its consolidated subsidiaries unless the context            otherwise requires.

 

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**PART I**

 

**Item 1.**- DESCRIPTION OF            BUSINESS

 

**General**

 

The            Company is a provider of logistics solutions for customers through its network of            branch terminal locations and independent agents in North America. The Company’s            target customer base ranges from mid-sized to Fortune 100TM            companies.

 

The            Company predominately operates as a non-asset based transportation provider of            truckload and less-than-truckload (“LTL”) transportation services utilizing            some Company equipment and dedicated owner operators, as well as in coordination with            other transportation companies with whom the Company has established relationships. The            Company also provides a wide range of value-added logistics services, including those            provided through its U.S. Customs Bonded warehouse facilities, U.S. Customs approved            container freight station operations and a U.S. Customs approved General Order            warehouse operation which the Company began operating during the third quarter of 2006.            All of these facilities are leased premises by the Company and they each enhance and            support the supply chain logistics needs of the Company’s customers. Some of the            services provided are pick-and-pack services, special projects that may include            changing labels or tickets on items and assistance in the inspection of            customers’ shipments into the United States, as well as storage of goods and            recovery of goods damaged in transit.

 

In            December 2006, the Company acquired Nuclear Material Detection Technologies, Inc.            (“NMDT”), formerly a wholly-owned subsidiary of UTEK Corporation, in a            tax-free stock-for-stock exchange for 168,539,326 shares of the Company’s common            stock, par value $.001 per share (the “Common Stock”), valued at            approximately $1,500,000. NMDT holds a license to a patented portable nuclear material            detecting technology. The Company intends to develop, with the licensor, a market-ready            nuclear radiation detection device, called RadRopeTM, to service the logistics,            transportation and general cargo industries. The Company anticipates that the            development of a revised prototype will be completed by the fiscal quarter ending June            30, 2008. The Company expects the prototype to be marketed by the third quarter of            2008, subject to the requirements of any potential purchasers. There can be no            assurances that the prototype will be marketable without additional revisions,            improvements and resulting expenses for the Company.

 

On            August 29, 2007, the Company entered into a letter agreement with Fleet and its sole            stockholder to acquire all of the issued and outstanding shares of capital stock of            Fleet for an aggregate purchase price of $1 million, 270,000,000 shares of Common Stock            of the Company and additional shares of Common Stock based upon the earnings before            interest, taxes, depreciation and amortization of Fleet for the two-year period ending            on the second anniversary of the closing date. The Company expects that if the            acquisition is completed, the combined business synergies that would be accomplished            through the addition of Fleet would favorably impact the Company's operating            profitability. The Company also expects that this transaction would benefit Independent            Transport Group, LLC, a majority-owned subsidiary (“ITG”). The consummation            of this transaction has been delayed because, among other things, the Company has been            unable to raise the capital necessary for this transaction. No assurance can be given            that this transaction will be consummated, or that financing necessary for the            transaction will be obtained.

 

**History**

 

The            Company was incorporated as Meridian Holdings, Inc. (“Meridian”) in Florida            in August 1994 for the purpose of merging, as the surviving entity, with a then public            “shell” entity, MHI Telecommunications, Inc. (“MHI Telecom”).            MHI Telecom was a Delaware corporation that had sold shares to the public pursuant to            Regulation A during 1969 under its original corporate name of Pilgrim Mills, Inc. From            1985 through August 1994, MHI Telecom had not actively been engaged in any business            operations. On December 3, 1999, Meridian changed its name to Meridian USA Holdings,            Inc. On October 1, 2001, the Company changed its name to Championlyte Products, Inc.            and began operating a beverage business through a subsidiary. On March 7, 2003, the            Company changed its name to Championlyte Holdings, Inc.

 

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On            May 12, 2005, the Company purchased all of the outstanding shares of Cargo Connection            Logistics Corp., a Delaware corporation (“Cargo Connection”) and Cargo            Connection Logistics-International, Inc., formerly known as Mid-Coast Management, Inc.,            an Illinois corporation (“Cargo International”), for seventy percent (70%)            of the issued and outstanding shares of common stock of Championlyte Holdings, Inc.            pursuant to a Stock Purchase Agreement and Share Exchange among Championlyte Holdings,            Inc., Cargo Connection, Mid-Coast Management, Inc. and the stockholders thereof. As            additional consideration, the Company issued shares of Series V Preferred Stock to the            stockholders of Cargo Connection and Mid-Coast Management, Inc., which were convertible            into a number of shares of common stock of the Company on the first anniversary of the            closing date so that the stockholders of Cargo Connection and Mid-Coast Management,            Inc. would own eighty percent (80%) of the outstanding shares of the Company. On May            23, 2005, the Company changed its name to Cargo Connection Logistics Holding,            Inc.

 

**Product Overview**

 

The            Company is a provider of logistics solutions for customers ranging from mid-size to            Fortune 500TM companies through its network of branch locations and independent            agents in North America. We operate predominately as a non-asset based transportation            provider which provides truckload and less-than-truckload transportation services            utilizing some Company equipment, dedicated owner operators and relationships with            transportation companies. We select and hire transportation services to manage our            customers’ needs through approved contract carriers. One of the Company’s            core competitive features is specializing in time-definite transportation, which offers            our customers expedited, dedicated and exclusive use vehicles. Exclusive use services            require pinpoint and time-sensitive coordination for those customers that require it.            Management estimates the expedited market in the United States is in excess of $2            billion per year, growing as manufacturers shift even more to just-in-time inventories            and leaner supply chains. We believe our footprint within the expedited transportation            services niche and our understanding of the supply chain will give us opportunities to            expand this portion of our business at a substantial rate for the foreseeable            future.

 

The            Company also provides a wide range of value-added logistics services which include U.S.            Customs Bonded warehouse facilities, container freight station operations, and a            General Order warehouse operation which began in the third quarter of 2006, all of            which enhance and support our customer's supply chain logistics needs.

 

This            is accomplished through innovative solutions taking into account the specific            diversified markets of our customers. Some of the value-added services that can be            provided are “pick and pack services”, which are special projects that will            include changing labels or tickets on items, inspection of goods into the United States            and recovery of goods damaged in transit. Our variable cost business model allows us to            be flexible and adapt to changing economic and industry conditions. We also keep our            personnel and other operating expenses as variable as possible. We believe that our            decentralized branch network is a major competitive advantage which allows our            customers to better use available capacity from Ocean and Air Carriers. Our network of            offices located in Atlanta, GA; Bensenville, IL; Columbus, OH; Inwood, NY; and Miami,            FL; along with third party owned and operated facilities in San Jose, CA; Pittsburgh,            PA, and Charlotte, NC support our core strategy of serving customers locally nationally            and globally.

 

The            Company’s warehouse operations are integrated into the transportation system,            which allows complete tracking of cargo from arrival into the United States through            United States Customs clearance process. Once the cargo has cleared customs the            directions for distribution can be sent via any mode of communications, (e-mail, fax or            voice). These services may be provided by the Company or a third party that the            customer has chosen. The integration of the transportation and warehouse systems            provide customers with complete visibility to their goods through the entire import            process.

 

The            Company is capable of being the domestic transportation partner for those international            companies who require assistance throughout the United States as well as companies who            require truckload and LTL services for their freight shipments to be moved from one            point (origin) to another point (destination). The Company operates line-haul services            throughout the United States. The Company runs scheduled LTL services up and down the            east coast and into the mid-west. It also offers truck-load and exclusive use vehicle            service to anywhere in the United States. In addition, the Company’s            transportation network allows for the movement of goods throughout the United States,            Canada and Mexico, on behalf of its customers. The Company has facilities to assist            customers and other transportation companies with their freight by holding the freight            in its bonded facilities and providing for the sorting of freight for the customers            while the goods are clearing customs in our U.S. Customs approved container freight            stations.

 

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In            2006, the Company became one of an exclusive number of companies that work closely with            the Department of Homeland Security and Customs and Border Patrol (“CBP”).            The Company has become the operator of the sole General Order warehouse for John F.            Kennedy International Airport (“JFK”) in New York. General Order warehouses            operate under specific provisions of the U.S. Code of Federal Regulations            (“CFR”) which consider merchandise to be general order merchandise when it            is taken into the custody by CBP (i) whenever entry of any imported merchandise is not            made within the time provided by law or regulations prescribed by the Secretary of the            Treasury; (ii) whenever entry is incomplete because of failure to pay estimated duties;            (iii) whenever, in the opinion of the port director, entry cannot be made for lack of            proper documents or other causes; (iv) whenever the port director believes that any            merchandise is not correctly or legally invoiced; or (v) whenever, at the request of            the consignee or the owner or master of the vessel or person in charge of the vehicle            in which merchandise is imported, any merchandise is taken possession of by the port            director after the expiration of 1 day after entry of the vessel or report of the            vehicle. Goods may be entered into United States commerce at either a bonded warehouse            or a General Order warehouse after the full payment of Customs duties, fees and taxes,            proof that all associated liens have been satisfied for the air or ocean carrier            charges or liens, all cartage agent fees and the bonded warehouse or General Order            warehouse storage charges.

 

With            national security concerns causing the U.S. Government to tighten transportation            regulations, the Company expects that the current 15-day customs clearance period could            be shortened. With the world focused on the ever evolving global supply chain, any            freight that is not entered into the United States Customs’ system could become            suspect and as such should be isolated and inspected. This will give the government            more visibility to not only security threats but fraudulent threats to commerce that            include trade infringements and counterfeit products. The shorter time period for which            non-customs cleared goods would need to enter a G.O warehouse, could potentially result            in additional revenue for the Company.

 

In            2008, the Company intends to continue to attempt to expand its business with smaller            companies that have their own customers along with their own base of operations. This            sector of the business is referred to within the industry as “agents.”            Agents typically have an office from which they operate and control between two million            and five million dollars worth of business. The Company, through its systems, would            provide these agents with insurance, authority and back office functionality to assist            them in operating their business. Typically, the Company receives between approximately            15 to 21 percent of the gross revenue of a project originated by an agent, depending            upon the particular customer, its credit worthiness and the extent of the support that            the customers will require from the Company. This portion of the business generally            will add trucking capacity to our fleet. However, these trucks must meet all of the            safety standards that the Company requires.

 

Cargo International has become the international division of the            Company. Cargo International intends to seek out opportunities internationally,            cultivate those opportunities and to broaden our range of services, which can be            directly by the Company or through joint ventures or business relationships with third            party providers. The Company has sent representatives to the Pacific Rim and to Costa            Rica on numerous occasions to seek out and explore the potential for the Company to            open offices and establish personnel relationships in international markets. The            Company is presently using the contacts and relationships it has made to begin doing            business on a limited basis beginning in 2008. No assurance can be given that these            efforts will be successful

 

The            Company anticipates being able to provide to its customers tracking capability from            pick-up to delivery, even for overseas operations, in the first six months of 2008,            assuming the customer provides us with access to all necessary information. We are            dedicated to providing our customers with premium services that can be customized to            meet the individual needs of our customers and are flexible enough to cope with an            ever-changing business environment. With these organizations, we are able to target a            gross profit of 15% of gross revenue. We anticipate providing these services today            through the internet.

 

**Nuclear Material Detection Technologies, Inc.**

 

In            December 2006, the Company acquired NMDT. NMDT’s primary business is the            development, marketing and sale of a proprietary device which detects radiation for the            logistics, transportation and general cargo industry. The Company believes that            NMDT’s RadRopeTM product is a natural complement to the Company’s            existing transportation services, and that in the near future radiation detection such            as that provided by RadRopeTM may become a requirement for the transportation            industry. Each year, more then 6 million ocean cargo containers enter the United States            seaports

 

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and            only a small fraction of them are inspected upon arrival. The possibility that nuclear            material may be hidden in large seagoing cargo containers poses a major security            threat. Improving security at U.S. ports is a difficult challenge since the systems            used to screen cargo must work in concert with ongoing seaport activities. The Company            believes that using RadRopeTM, inspectors will be able to rapidly detect the            presence of nuclear material in a sealed container without the use of harmful x-rays.            The applications of this technology are flexible in that they can be applied to fixed            installations or completely transportable portable devices.

 

NMDT            is operated as a subsidiary of the Company. The Company anticipates that the product            will be sold to governmental and private purchasers, both domestically in the U.S. and            internationally.

 

The            Company believes that once RadRopeTM is in production, the independent contractor            who will ultimately manufacture the device on behalf of NMDT would be responsible for            any warranty work associated with the device. Until RadRopeTM is actually in            production, the Company expects that no out-of-pocket expenses will be incurred by the            Company, as this work is currently being performed by the patent owner. The Company            expects that once an order for RadRopeTM product is placed with NMDT, the required            deposits associated with the device would fund the Company’s preparation for the            initial setup and production of both manufacturing and support operations. The            production and deployment time of the device is expected to be between 90 and 120 days.            This includes the purchasing of all components and the required waterproof housing            necessary for the device, for its most complex application.

 

**Independent Transportation Group**

 

The            Company has continued to explore other areas that it believes will complement the needs            of the industry, either by adding additional services, helping to form entities that            have beneficial attributes or through acquisitions. In this connection, we have formed            ITG as a joint venture in which the Company owns a 51% majority share. The remaining            49% is owned by EmplifyHR Services, Inc., a Florida corporation ("EmplifyHR"), which            manages the venture. The Company believes that ITG has the ability to attract            independent contractors and other carriers to perform work on behalf of Cargo            Connection. The primary goal is to assist the Company through increasing the size and            scope of its driver fleet, while offering agents comprehensive packages for medical            insurance, profit sharing plans, as well as other benefits for themselves as well as            their driver pool. EmplifyHR provides payroll and human resource services to the            Company. Ivan Dobrin, a principal shareholder of EmplifyHR, is the brother of Jesse            Dobrinsky, the Company's CEO.

 

**Fleet Acquisition**

 

On            August 29, 2007, the Company entered into a letter agreement with Fleet and its sole            stockholder to acquire all of the issued and outstanding shares of capital stock of            Fleet. The Company expects that its proposed acquisition of Fleet, a non-asset based            carrier company, would increase its annual revenue in the range of $25 to $50 million.            The Company expects that if the acquisition is completed, the combined business            synergies that would be accomplished through the addition of Fleet will favorably            impact the Company's operating profitability. The Company also expects that this            transaction will benefit ITG. The consummation of this transaction has been delayed due            to funding limitations, and no assurance can be given that it will be consummated, nor            that financing necessary for the transaction will be secured.

 

**Marketing**

 

The            Company has a customer-focused strategy. We analyze freight market trends and specific            customer needs and respond to customer requests for differentiated levels of service or            capacity when the yield justifies. The Company also offers a broad range of services            and we cross market between business units through programs such as our demand service            that optimizes capacity for high priority loads. Our primary customers include            airlines, freight forwarders, retailers and manufacturers, as well as other            transportation companies such as less-than truckload carriers and third party freight            consolidators.

 

 

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**Competition**

 

The            transportation and logistics services industry is highly competitive. The Company            competes against other integrated logistics companies and third party carriers offering            logistics services. The Company also competes with truck lines for the services of            fleet contractors and drivers. Competition is based primarily on freight rates, quality            of service, reliability, transmit times and scope of operations. Several other            logistics companies, third party brokers and numerous carriers have substantially            greater financial and other resources and are more established than the Company.            Additionally, the Company competes against carriers’ internal sales forces and            shippers’ transportation departments. The Company also encounters competition            from regional and local air freight forwarders and carriers, and associations of            shippers organized for the purpose of consolidating their members’ shipments to            obtain lower freight rates from carriers. Deregulation has also increased competitive            pressures on pricing. The intense competition to which the Company is subject could            materially adversely affect the Company’s operating margins. The Company may also            use many outside vendors and independent contractors to limit the assets the Company            needs to maintain in order to be competitive.

 

**Sources and availability of raw materials and the names of principal            suppliers**

 

Our            operations are heavily dependent upon the use of diesel fuel. The price and            availability of diesel fuel can vary and is subject to political, economic, and market            factors.

 

**Dependence on few customers**

 

For            the year ended December 31, 2007, the Company had no customers which comprised more            than 10% of its operating revenue. For the year ended December 31, 2006, the Company            had one customer who comprised of approximately 21% of operating revenue and one            additional customer that accounted for 9.4% of operating revenues.

 

**Patents, trademarks, licenses, franchises, etc.**

 

As            previously discussed, NMDT holds a license to a patented portable nuclear detection            device, called RadRopeTM in December 2006. The Company anticipates that NMDT will            market and manufacture the product, after the patent owner/developer has completed the            modifications to the device and it is ready for production. The developer of the            product is still currently pursuing the final patents for all the uses of this device.            Currently, the U.S. Patent & Trade Office has approved 8 of the 16 applications for            the device. Other than this, the Company is not dependent on any intellectual property.            The Company has not registered any of its trademarks.

 

**Research and Development**

 

The            Company has expended funds and management efforts toward the completion of NMDT’s            RadRopeTM device mostly pertaining to travel expenses for meetings with            prospective customers for the device. The Company anticipates that Jesse Dobrinsky,            President and CEO of the Company will assist in further developing this product. Except            for some costs being borne by the U.S. government, a potential customer for the            RadRopeTM product, the Company has not borne costs of this development at this            time.

 

**Government Regulation**

 

The            Company’s operations are subject to various state, local, federal and foreign            regulations that in many instances require permits and licenses. In 1996,            responsibility for oversight of motor carriers, brokers and freight forwarders was            assumed by the Surface Transportation Board (the “STB”) and the Federal            Highway Administration (the “FHWA”) both of which are part of the United            States Department of Transportation (the “DOT”). The FHWA prescribes            qualifications for acting in this capacity, including certain surety bonding            requirements. The Company’s motor carrier operations are subject to safety            regulations of the FHWA related to such matters as hours of service by drivers,            equipment inspection and equipment maintenance. The Company is also a common carrier            and a contract motor carrier regulated by the STB and various state agencies. The            Company’s drivers and independent contractors also must comply with the safety            and fitness regulations of the DOT.

 

 

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Any            violation of the laws and regulations discussed above could increase claims and/or            liability, including claims for uninsured punitive damages. Violations also could            subject the Company to fines or, in the event of a serious violation, suspension or            revocation of operating authority, or criminal penalties. All of these regulatory            authorities have broad powers generally relating to governing activities such as            authority to engage in motor carrier operations, rates and charges, and certain            mergers, consolidations and acquisitions. Although compliance with these regulations            has not had a material adverse effect on the Company’s operations or financial            condition in the past, there can be no assurance that such regulations or changes            thereto will not materially adversely impact the Company’s operations in the            future.

 

Certain federal officials have announced that they are considering            implementing increased security measures with respect to cargo. There can be no            assurance as to what, if any, regulations will be adopted or what, if adopted, their            ultimate effect on the Company will be. Failure of the Company to maintain required            permits or licenses, or to comply with applicable regulations, could result in            substantial fines or revocation of the Company's operating authorities.

 

**Environmental Regulations**

 

The            Company is subject to various environmental regulations including regulations dealing            with underground storage fuel tanks, transportation and disposal of hazardous materials            and other environmental matters that import inherent environmental risks. The Company            also transports environmentally hazardous materials. The Company has been in compliance            with all the applicable regulations regarding these materials. As part of the            Company’s policy with respect to environmental regulations, the Company’s            drivers have obtained Hazardous Materials (“HazMat”) certifications and            warehouse workers attend HazMat training courses.

 

**Pick-Up and Delivery Claims Exposure**

 

The            Company utilizes the services of a significant number of drivers in connection with its            local pick-up and delivery operations as well as over-the-road transportation needs.            From time to time such drivers are involved in accidents. Although most of these            drivers are independent contractors, there can be no assurance that the Company will            not be held liable for the actions of such drivers. The Company currently carries, or            requires its independent owner-operators to carry, liability insurance in varying            amounts, depending on federal requirements and the state in which operations are being            conducted, for each such liability. There can be no assurance that claims against the            Company will not exceed the amount of coverage in force. If the Company were to            experience a material increase in the frequency or severity of accidents, liability            claims or workers' compensation claims, or unfavorable resolutions of claims, the            Company's operating results and financial condition could be materially adversely            affected. In addition, significant increases in insurance costs could reduce the            Company's profitability.

 

**Employees**

 

As            of December 31, 2007 we employed approximately 117 persons, including 100 full-time            employees, including executive officers, managers, supervisors, drivers, warehouse            workers, sales and clerical personnel. None of our employees are covered by a            collective bargaining agreement and we believe that our relationship with our employees            is satisfactory.

 

 

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**RISK FACTORS**

 

*The Company’s operations, as well an investment in its            securities, involve numerous risks and uncertainties. The reader should carefully            consider the risk factors discussed below and elsewhere in this Annual Report on Form            10-KSB before making any investment decision involving the Company’s            securities.*

 

***Company Risks***

 

**The Company has a history of losses.**

 

The            Company has a limited history as a public company during which it has reported            significant losses, and expects losses to continue. Should the Company continue to            incur losses, the value of the Company’s Common Stock could be adversely            affected.

 

**The Company expects to require additional financing.**

 

The            Company expects to need to raise additional funds through the public market, private            debt or private sales of equity to achieve the Company’s current business            strategy. The need to raise additional funds in the future will likely involve the            issuance of additional shares of stock, which could dilute the value of the Common            Stock. The Company’s inability to raise additional working capital or to raise            the required financing in a timely manner could negatively impact the ability to fund            operations, generate revenues and to otherwise execute the business plan. The            Company’s inability to obtain financing may have a material adverse effect on the            Company’s financial condition.

 

**The Company is subject to general economic and business factors that            are largely out of our control, any of which could have a materially adverse effect on            our operating results.**

 

The            Company’s financial condition is dependent on a number of general economic and            business factors that may have a materially adverse effect on our results of            operations, many of which are beyond our control. These factors include excess capacity            in the trucking industry, a shortage of qualified drivers, strikes or other work            stoppages, and significant increases or fluctuations in interest rates, fuel taxes, and            license and registration fees. The Company is affected by recessionary economic cycles            and downturns in customers’ business cycles, particularly in market segments and            industries where we have a significant concentration of customers. Economic conditions,            including rising fuel prices, may adversely affect our customers and their ability to            pay for our services.

 

**The Company’s indebtedness could adversely impact our economic            performance.**

 

The            Company is subject to risks associated with debt financing, such as the insufficiency            of cash flow to meet required debt service payment obligations and the inability to            refinance existing indebtedness. If the Company does not meet its debt service            obligations, any assets securing such indebtedness could be foreclosed on, which would            have a material adverse effect on our cash flow and financial condition, and could            cause us to go out of business. Increases in interest rates on variable rate            indebtedness would increase our interest expense, which could adversely affect our cash            flow. Rising interest rates could also restrict our ability to refinance existing debt            when it matures.

 

**The Company may not be able to continue as a going            concern.**

 

The            Company has losses from operations, resulting in a net stockholders’ deficiency            and negative working capital as of December 31, 2007. These factors may limit the            Company’s ability to continue development of ongoing operations. These factors            raise substantial doubt about the Company’s ability to continue as a going            concern. Additionally, the Company’s auditors have referred to the substantial            doubt about the Company’s ability to continue as a going concern in their audit            report on the Company’s consolidated financial statements included in this Annual            Report on Form 10-KSB.

 

 

9

 

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**The Company may have inadequate insurance coverage.**

 

The            Company may have inadequate insurance coverage for its current operations. This could            result in the Company not being covered for claims asserted against it and may have a            material adverse affect the Company’s business, financial condition and results            of operations.

 

**The Company is vulnerable to certain economic            conditions.**

 

The            Company’s future operating results may be dependent on the economic environments            in which it operates. Demand for the Company’s services could be materially            adversely affected by economic conditions in the industries of the Company’s            customers. Interest rate fluctuations, economic recession, customers’ business            cycles, availability of qualified drivers, and the transportation costs of third party            carriers are all economic factors over which the Company has little or no control.            Increased operating expenses incurred by transportation carriers can be expected to            result in higher transportation costs, and the Company’s operating margins would            be materially adversely affected if it were unable to pass them through to its            customers the full amount of increased transportation costs. Economic recession or a            downturn in customers’ business cycles, particularly in industries in which the            Company has a large number of customers, could also have a material adverse effect on            the Company’s operating results due to reduced volume of loads shipped. The            Company expects that demand for the Company’s services (and, consequently, its            results of operations) will continue to be sensitive to both domestic and international            economic conditions and other factors beyond its control.

 

**The            Company's operating results are subject to inflation and currency risks.**

 

The            Company has international operations and therefore our costs can increase as a result            of current trends in inflation rates and currency value fluctuations. The            Company’s operating results are historically subject to inflation, particularly            with respect to fuel prices, much but not all of which is passed onto our customers. We            cannot accurately predict the effect of inflation on our financial condition. Inflation            may cause our operating costs to increase. Additionally, the overall increase in energy            costs, including natural gas and petroleum products, has adversely impacted our overall            operating costs in the form of higher freight costs. We cannot assure you we will be            able to pass all these cost increases on to our customers.

 

**Our failure to file tax returns in a timely manner may subject us to            penalties and interest which would impair our financial condition.**

 

Currently we are delinquent in filing certain federal and state tax            returns due to timing and financial constraints. We are working to have those returns            filed as soon as practicable. We believe that we will have no income tax liability,            although we may be subject to penalties and interest which could adversely affect our            financial condition.

 

**The Company is dependent on the management team and the loss of these            individuals could negatively impact the financial condition of the            Company.**

 

The            Company’s success depends, to a critical extent, on the continued efforts and            services of our Chairman of the Board and Chief Executive Officer, Jesse Dobrinsky; our            Chief Financial Officer and Chief Operating Officer, Scott Goodman; our Vice President            and Head of New Business Development, John L. Udell; and our Vice President of Sales            and Marketing, William F. O’Connell. The Company has entered into an employment            agreement with William F. O’Connell, but does not have any employment or            non-competition agreements with its other executive officers. If any of these            executives were to leave the Company, the Company would be compelled to expend            significant time and money in the pursuit of a replacement, which would result in both            a delay in the implementation of the business plan and also the diversion of the            Company’s limited working capital. There is no assurance that we can find            satisfactory replacements for these key executive officers at all, or on terms that are            not unduly expensive or burdensome to our Company.

 

 

10

 

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**If internal control over financial reporting remains ineffective, the            Company’s business and prospects may suffer.**

 

The            Company has existing material weaknesses in its internal controls. If the Company is            unsuccessful in implementing improvements in our internal controls or fails to update            its internal control over financial reporting as our business evolves or integrating            acquired businesses into our internal controls system, we may not be able to timely or            accurately report our financial condition, results of operations or cash flows or to            maintain effective disclosure controls and procedures. If the Company is unable to            report financial information in a timely and accurate manner or to maintain effective            disclosure controls and procedures, the Company could be subject to, among other            things, regulatory or enforcement actions, including securities litigation and a            general loss of investor confidence, any one of which could adversely affect the            business prospects and the market value of our Common Stock.

 

**The Company is involved in certain litigation matters.**

 

The            Company is currently involved in several ongoing litigation matters which are more            fully explained in “Item 3. – Legal Proceedings” below, and may be            involved in additional litigations in the future. Any judgment against the Company or            its subsidiaries could have a material adverse affect on the Company’s            operation.

 

**The Company’s ability to consummate the acquisition of Fleet or            properly integrate its business.**

 

On            August 29, 2007, the Company entered into a letter agreement with Fleet and its            shareholder, to acquire Fleet from Mack Fulmer. The Company is required to obtain            financing in order to complete the transaction, and to date has been unable to do so.            Accordingly, the consummation of this transaction has been delayed, and may not occur.            If the Company fails to consummate this transaction, we will be unable to realize the            expected benefits from it. If this transaction is consummated, the Company may face            integration difficulties. This could have a material adverse affect on the            Company’s results of operations and financial condition could be adversely            affected. Additionally, this financing could result in further dilution of the            Company’s Common Stock.

 

**NMDT is a development stage company.**

 

NMDT            is a development stage company with no revenues to date. As such, NMDT does not have an            operating history upon which to evaluate its ability to assist the Company in            accomplishing its current business plan and future objectives. Because of the            NMDT’s lack of an operating history, management has limited insight into trends            that might emerge and could materially affect the NMDT’s business. The Company            may not be able to complete development of its RadRopeTM product so that its            marketing and sale can be commenced. Further, even if the Company is able to develop            the RadRopeTM product, there can be no assurances that the product will be            marketable.

 

**The Company cannot accurately predict the useful life of the patent            of the RadRopeTM Product.**

 

The            Company cannot accurately predict the value or eventual actual useful life of the            patent in light of the continuing progress in this area of technology. The current            useful life of this technology is based on the remaining life of the patent and will be            subject to periodic review for impairment, subsequent to being place into            service.

 

**The Company is subject to governmental regulations.**

 

The            Company is subject to various governmental regulations. The Company is required to            obtain various permits and licenses in order to continue operations. Failure to comply            with any state, federal or foreign law or regulation may have a material adverse affect            on the Company’s financial condition. The Company can make no assurances it will            be able to comply with all the regulations imposed in the future.

 

 

11

 

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**The Company is subject to environmental regulations.**

 

We            are subject to various environmental regulations including but not limited to fuel            storage, fuel consumption, and storage and transportation of hazardous material. Any            violations or failure to comply with these regulations may result in the imposition of            criminal and civil penalties. These penalties would have a material adverse effect on            our operations.

 

**The Company has issued Secured Convertible Debentures to various            third parties which expressly limit the Company’s ability to issue additional            securities.**

 

The            Company has issued secured convertible debentures that restrict its ability to obtain            additional financing. In 2005 and 2006 the Company issued two secured debentures that            are convertible into shares of the Company’s Common Stock to Montgomery Equity            Partners, LP (“Montgomery”), an affiliate of Cornell Capital Partners, LP,            which debentures are now owned by YA Global, which is also an affiliate of Cornell            Capital Partners, LP. Additionally, the Company issued a one-year secured debenture in            2007 that is convertible into shares of Common Stock to YA Global. Under the terms of            these secured debentures, the Company is prohibited from issuing any Common Stock at a            discount to its fair market value or issue any derivative security, such as warrants or            options, convertible into Common Stock at less than fair market value as long as any            portion of the principal or interest on the secured debentures remains outstanding. The            Company is also precluded under the terms of the secured debentures from granting any            third party a security interest in the Company’s assets. The Company’s            inability to obtain the secured debenture holders’ consent to provide a discount            on the Company’s Common Stock or to grant a security interest could make it            difficult to find parties willing to make additional investments in or provide            additional financing to the Company.

 

**The Company is subject to the default provisions of the agreements            with Montgomery.**

 

Pursuant to the terms of our agreements with Montgomery, the Company was            required to file a registration statement by June 5, 2007. The Company has failed to do            so. As a result, the Company may be subject to the default provisions under the            agreements with Montgomery. The principal amount of the debentures plus accrued and            unpaid interest if any may be declared immediately due and payable. In addition, the            debentures matured on December 28, 2007 and February 12, 2008 and were not repaid.            There can be no assurances that the Company would have the ability repay the principal            amount and interest accrued under the debentures and/or any additional monies owed in            connection with the debentures, if Montgomery determines to exercise its            remedies.

 

**The Company is subject to the liquidated damages pursuant to the            transaction with Montgomery.**

 

The            Investor Registration Rights Agreement, dated as of December 28, 2005 (the            “Registration Rights Agreement”) entered into in connection with the            issuance of the December 28, 2005 Montgomery Debenture contains liquidated damages            provisions relating to the Company’s failure to file a registration statement            within the agreed upon time period. As of December 31, 2007, the Company had recognized            an aggregate $1,030,540 liability for these liquidated damages, of which $396,000 has            been recorded as a cumulative effect adjustment in conformity with EITF 00-19-2. The            total maximum liquidated damages liability cannot be determined until such time as the            registration statement is declared effective. The registration statement which the            Company previously filed has been withdrawn, and the Company failed to file a            registration statement by a second deadline. If the Company is found to be in default            of its obligations to have such registration statement declared effective, Montgomery            could declare the full principal amount of the debentures, together with interest and            other amounts owing thereunder, to become immediately due and payable. These debentures            are secured by substantially all of the assets of the Company and therefore any            exercise of this provision would result in a material adverse effect on the            Company’s financial condition.

 

**Some            of our preferred stock may not have been properly designated.**

 

We            issued shares of our convertible preferred stock designated as Series III Preferred            Stock (“Series III Preferred Stock”) and Series IV Preferred Stock            (“Series IV Preferred Stock”). We subsequently discovered that the Series            III Preferred Stock may not have been properly designated. Additionally, the conversion            price and rate for the Series IV Preferred Stock may not have been accurately            described. The Company cannot assure that the previous conversions of Series III and            Series IV Preferred Stock into Common Stock were made accurately.

 

12

 

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**We have debt obligations which are payable on demand.**

 

The            Company has received loans from several persons, including related parties, which have            no definite payment or other terms. These loans may be repayable upon demand by the            lenders, and the Company cannot control whether or when these demands may be made. Any            such demands could adversely affect the Company’s cash flow and could trigger            defaults under other instruments of indebtedness.

 

***Stock Risks***

 

**The            market price of our Common Stock may be volatile.**

 

The            market price of shares of our Common Stock has been and is likely to continue to be            highly volatile. Factors that may have a significant effect on the market price of our            Common Stock include the following:

 
|   | **•** | sales of large numbers of shares of our Common Stock in the                        open market; |
|--------|------------|-------------------------------------------------------------------------------------------------|
|   | **•** | including shares issuable at fluctuating conversion price at                        a discount to the market price of our Common Stock; |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | our operating results; |
|--------|------------|------------------------|
|   | **•** | our need for additional financing; |
|--------|------------|------------------------------------|
|   | **•** | announcements of technological innovations or new commercial                        products by us or our competitors; |
|--------|------------|------------------------------------------------------------------------------------------------------------------------|
|   | **•** | developments in our patent or other proprietary rights or                        our competitors’ developments; |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------|
|   | **•** | our relationships with current or future collaborative                        partners; |
|--------|------------|-----------------------------------------------------------------------------------------|
|   | **•** | governmental regulation; and |
|--------|------------|------------------------------|
|   | **•** | factors and events beyond our control. |
|--------|------------|----------------------------------------|

 

In            addition, the stock market in general has experienced extreme volatility that often has            been unrelated to the operating performance of particular companies. These broad market            and industry fluctuations may adversely affect the trading price of our Common Stock,            regardless of our actual operating performance.

 

**The            value of the Common Stock may fluctuate.**

 

The            Company expects that factors such as quarterly fluctuations in the financial results            and changes in the overall economy or the condition of the financial markets could            cause the price of the our Common Stock to experience significant price and volume            fluctuations that could adversely affect the market price of our Common Stock without            regard to our operating performance. In addition, we believe that factors such as            quarterly fluctuations in our financial results and changes in the overall economy or            the condition of the financial markets could cause the price of our Common Stock to            fluctuate substantially.

 

**If we obtain additional financing, our shareholders may suffer            significant dilution.**

 

In            order to obtain financing we will likely be required to issue additional shares to            obtain such funds, which issuances have in the past and will in the future dilute the            percentage ownership of our stockholders. This dilution could also have an adverse            impact on our earnings per share and reduce the price of our Common Stock. In addition,            the new securities may have rights, preferences or privileges senior to those of our            Common Stock.

 

**Existing shareholders will experience significant dilution from            issuance of shares pursuant to the conversion of our secured convertible debentures            issued to YA Global and possibly any other equity financing.**

 

The            issuance of shares pursuant to the conversion of secured convertible debentures issued            to YA Global, members of management or any other future financing transaction, will            have a dilutive impact on stockholders. As a result, net income per share could            decrease in future periods, and the market price of the Company’s Common Stock            could decline. In addition, the lower our stock price is, the more shares of Common            Stock we will have to issue pursuant to the conversion of our secured convertible            debentures issued to YA Global. If the stock price is lower, then existing stockholders            would experience greater dilution. The Company cannot predict the actual number of            shares of Common Stock that will be issued pursuant to the conversion of our secured            convertible debentures or any other future convertible debt equity financing            transaction, in part, because the conversion price of the debentures will fluctuate            based on prevailing market conditions.

 

13

 

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**The Company’s Common Stock may be affected by limited trading            volume and may fluctuate significantly.**

 

The            Company’s Common Stock is currently traded on the Over-the-Counter Bulletin            Board. Prior to this offering, there has been a limited public market for our Common            Stock and there can be no assurance that an active trading market for our Common Stock            will develop. As a result, this could adversely affect the shareholders’ ability            to sell Common Stock in short time periods, or at all. The Company’s Common Stock            is thinly traded compared to larger, more widely known companies in our industry.            Thinly traded Common Stock can be more volatile than Common Stock traded in an active            public market. The Company has experienced fluctuations in the Company’s Common            Stock. The Company is likely to experience in the future, significant price and volume            fluctuations, which could adversely affect the market price of the Company’s            Common Stock without regard to its operating performance.

 

***Industry Risks***

 

**The Company is involved in a highly competitive            industry.**

 

Numerous competitive factors could impair the ability to maintain or            achieve profitability. These factors include the following:

 
|   | **•** | Competition with many other truckload carriers of varying                        sizes and, to a lesser extent, with less-than-truckload carriers,                        railroads, and other transportation companies. Many competitors have more                        equipment, a wider range of services, greater capital resources, or other                        competitive advantages. |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | Competitors may periodically reduce their freight rates to                        gain business, especially during times of reduced growth in the economy.                        This may limit the Company’s ability to maintain or increase freight                        rates or to continue to expand our business. |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | Customers may also operate their own private trucking                        fleets, and they may decide to transport more of their own                        freight. |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | In recent years, many shippers have reduced the number of                        carriers they use by selecting “core carriers” as approved                        service providers. As this trend continues, some of our customers may not                        select us as a “core carrier.” |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | Many customers periodically solicit bids from multiple                        carriers for their shipping needs, and this process may depress freight                        rates or result in a loss of business to competitors. |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**Increases in driver compensation or difficulty in attracting and            retaining drivers could affect profitability and the ability to grow.**

 

The            Company may experience difficulty in attracting and retaining sufficient numbers of            qualified drivers, including independent contractors. In addition, due in part to            current economic conditions, including the higher cost of fuel, insurance, and            tractors, the available pool of independent contractor drivers has been declining.            Because of the shortage of qualified drivers, the availability of alternative jobs, and            intense competition for drivers from other trucking companies, the Company expects to            continue to face difficulty increasing the number of drivers, including independent            contractor drivers, which is one of the Company’s principal sources of            anticipated growth. In addition, the industry suffers from high turnover rates of            drivers. This turnover rate requires the Company to continually recruit a substantial            number of drivers in order to operate existing equipment. If the Company is unable to            continue to attract a sufficient number of drivers and independent contractors, the            Company could be required to adjust our compensation packages, let trucks sit idle, or            operate with fewer trucks and face difficulty meeting shipper demands, all of which            would adversely affect our results of operations.

 

**Our results have historically been seasonal.**

 

Our            operations are seasonal in nature. Usually, we recognize less revenue in our first and            second fiscal quarters, and recognize approximately 60% of our revenues in our third            and fourth quarters. Seasonality may have a material adverse affect on our stock price            and overall financial condition.

 

 

14

 

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**Fluctuations in the price or availability of fuel may increase the            cost of operations, which could materially and adversely affect            profitability.**

 

The            Company’s freight operations require large amounts of diesel fuel to operate            tractors. Diesel fuel prices fluctuate greatly, and prices and availability of all            petroleum products are subject to economic, political, and other market factors beyond            the Company’s control. Substantially all of the customer contracts contain fuel            surcharge provisions to mitigate the effect of price increases over base amounts set in            the contract. However, these arrangements do not fully protect the Company from fuel            price increases and also may result in our not receiving the full benefit of any fuel            price decreases. Fuel surcharges to customers do not fully recover all fuel increases            because engine idle time, out-of-route miles, and non-revenue miles are not generally            billable to the customer.

 

**The Company operates in a highly regulated industry.**

 

In            general, the increasing burden of regulation raises the Company’s costs and            lowers efficiency. Future laws and regulations may be more stringent and require            changes in the Company’s operating practices, influence the demand for            transportation services, or require the Company to incur significant additional costs.            Higher costs incurred by the Company or suppliers who pass the costs onto us through            higher prices would adversely affect our results of operations.

 

In            the aftermath of the September 11, 2001 terrorist attacks, federal, state, and            municipal authorities have implemented and continue to implement various security            measures, including checkpoints and travel restrictions on large trucks. These            regulations also could complicate the matching of available equipment with hazardous            material shipments, thereby increasing our response time on customer orders and our            non-revenue miles. As a result, it is possible we may fail to meet the needs of our            customers or may incur increased expenses to do so. These security measures could            negatively impact our operating results.

 

15

 

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**Item            2.**– DESCRIPTION OF PROPERTIES

 

The            following table sets forth the leases held by the Company, each of which is for office            and warehouse space which is in good condition:

 
| **Location of Property**                      | **Entity Occupying the Property** | **Description of Property** | **Term of Lease**                                                                             | **Monthly Rent** |
|-----------------------------------------------|-----------------------------------|-----------------------------|-----------------------------------------------------------------------------------------------|------------------|
| Inwood, New York                              | Cargo Connection                  | 80,000 total square feet    | Monthly payments commencing on March 1, 2004 through                        February 28, 2014 | $47,000          | Year 1 |
| $48,880                                       | Year 2                            |
| $50,000                                       | Year 3                            |
| $52,000                                       | Year 4                            |
| $54,080                                       | Year 5                            |
| $56,243                                       | Year 6                            |
| $58,493                                       | Year 7                            |
| $60,833                                       | Year 8                            |
| $63,266                                       | Year 9                            |
| $65,797                                       | Year 10                           |
| Atlanta, Georgia                              | Cargo Connection                  | 27,520 total square feet    | Monthly payments commencing March 2008 through June                        2018.              | $10,664          | Year 1 |
|  $10,893                                 | Year 2                            |
|  $11,123                                 | Year 3                            |
|  $11,352                                 | Year 4                            |
|  $11,581                                 | Year 5                            |
|  $11,811                                 | Year 6                            |
|  $12,040                                 | Year 7                            |
| $12,269                                       | Year 8                            |
| $12,499                                       | Year 9                            |
| $12,728                                       | Year 10                           |
| Bensenville, Illinois                         | Cargo International               | 92,000 total square feet    | Monthly payments commencing January 1, 2008 – December                        31, 2017  | $50,000          | Year 1 |
| $50,000                                       | Year 2                            |
| $52,000                                       | Year 3                            |
| $52,000                                       | Year 4                            |
| $56,000                                       | Year 5                            |
| $56,000                                       | Year 6                            |
| $60,000                                       | Year 7                            |
| $60,000                                       | Year 8                            |
| $62,000                                       | Year 9                            |
| $62,000                                       | Year 10                           |
| Columbus, Ohio                                | Cargo Connection                  | 26,000 total square feet    | Monthly payments                                                                              | $5,942           |   |
| Miami, Florida                                | Cargo Connection                  | 36,017 total square feet    | As Amended, monthly payments from November 2007 through                        April 2010     | $40,031          | November 2007 |
| $40,031                                       | December 2007                     |
| $40,031                                       | January 2008                      |
| $40,031                                       | February 2008                     |
| $40,031                                       | March 2008                        |
| $40,031                                       | April 2008                        |
| $34,605                                       | May 2008                          |
| $23,111

monthly                              | June2008-March 2009               |
| $23,921

monthly                              | April 2009- March 2010            |
| Corporate offices located in Inwood, New York | Cargo Connection                  | 6,000 total square feet     | April 2006 through February 2009                                                              | $7,425           |   |

 

 

 

 

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The            Company also utilizes facilities located in the San Jose, California; Pittsburgh,            Pennsylvania; and Charlotte, North Carolina. These properties are owned and operated by            third parties, as agents for the Company and its subsidiaries. The Company believes            that the above facilities are adequate for its current and anticipated future needs.            The Company believes that it has adequate insurance coverage for all of the above            properties. However, no assurance can be made as to whether the Company will be able to            maintain the insurance in all of the above properties.

 

17

 

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**Item 3.**– LEGAL            PROCEEDINGS

 

On            March 7, 2008, the Company and Cargo International were served with a summons and            complaint in connection with the action entitledTravelers            Indemnity Company v. Mid Coast Management and Cargo Connection Logistics Holding,            Inc.The action seeks payment of $16,196.00, relating to an            insurance premium for the period commencing January 26, 2005 through January 25, 2006            and was brought in New York State Supreme Court, Nassau County.

 

On            or about September 7, 2007, Rikki Hawkins-Fuller (“Hawkins”), a former            employee, filed a verified complaint against the Company with the New York State            Division of Human Rights, seeking an unspecified amount of damages for alleged unlawful            discriminatory practices, under captionRikki Hawkins-Fuller            v. Cargo Connection Logistics, case no. 10114466 (State            Division of Human Rights, State of New York, Hempstead, New York). The Company has            responded to allegations in the verified complaint. Management believes that the            Company has meritorious defenses to this claim and intends to vigorously defend this            matter.

 

On            or about November 17, 2006, Daniel Murray (“Murray”), a former employee,            filed a complaint against the Company, seeking damages for alleged age discrimination,            fraudulent inducement, breach of contract and other forms of discrimination, under the            captionDaniel Murray v. Cargo Connection Logistics Holding,            Inc., case no. 19405-06 (Supreme Court of the State of New            York, Nassau County, New York). Murray sought damages equal to the annual salary            contained in his employment agreement of $150,000 per year for five years, or $750,000.            On February 27, 2007, the Company’s motion to dismiss all causes of action other            than the breach of contract and age discrimination claims was granted. On or about July            10, 2007, the Company and Murray reached a settlement agreement. Under such settlement            agreement, Murray delivered to the Company a general release in consideration for            $20,000, payable by the Company in three equal consecutive monthly installments            commencing on July 17, 2007. The Agreement has been satisfied in full as of December            31, 2007.

 

On            or about November 10, 2006, One Rason Road Joint Venture, Inc. (“Rason”)            filed a complaint against Cargo Connection seeking damages in the amount of $282,672            for alleged lease payments for a non-owned, non-related or non-affiliated company,            Airfreight Management Group, Inc. (“AMG”), under the captionOne Rason Road Joint Venture v. Airfreight Management Group, Inc.            n/k/a Cargo Connection Logistics Corporation, case no.            06-017600 (Supreme Court of the State of New York, County of Nassau, NY). Rason filed            the action for alleged breach of a lease, dated July 10, 2003 between itself and AMG            for premises located at 45 Rason Road, Inwood, NY, which lease expires on July 31,            2008. Rason alleges that AMG vacated the premise on or about May, 2006 and owes back            rent. Rason also alleges that AMG is now known as Cargo Connection and asserts that the            Company is liable for AMG’s debts under the lease. The Company’s motion to            dismiss the complaint was granted on May 8, 2007.

 

On            or about November 6, 2006, in an application to the Bankruptcy Court for an Examination            of Airfreight Warehouse Corporation (“AFW”), which filed for bankruptcy            protection under Chapter XI in the US Bankruptcy Court for the Southern District of New            York, the trustee in the matter alleged that, pursuant to an agreement entered into            between AFW and Cargo Connection, Cargo Connection has not paid all funds due to AFW            under the agreement in the amount of $300,000. The Company has not conducted any            discovery related to this matter. The Company believes that it has acted in good faith            and remitted all funds due to AFW under the agreement.

 

On            or about May 2006, Cargo Connection filed suit against a former business agent, under            the captionCargo Connection Logistics Corp. v. Fleet Global            Services, Inc., case no. 48-2006-CA-3208-0 (9th Judicial            Circuit, Orange County, Florida), for breach of contract, seeking $128,179 in damages.            Cargo Connection claims that, upon the ending of its relationship with the business            agent, there were funds still owed to Cargo Connection. As part of the terms and            conditions under the letter agreement entered into by both parties on August 29, 2007,            Fleet has agreed to pay $56,000 to Cargo Connection in settlement of this pending            litigation. Both parties entered into a settlement agreement, dated November 19, 2007            agreeing that the funds are to be paid to the Company if a merger does not occur and            that a Final Judgment be entered in the Company’s favor.

 

 

18

 

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The            Company is party to various legal proceedings generally incidental to its business as            is the case with other companies in the same industry. Although the ultimate            disposition of legal proceedings cannot be predicted with certainty, it is the opinion            of management that the outcome of any such claim which is pending or threatened, either            individually or on a combined basis, will not have a materially adverse effect on the            consolidated financial statements of the Company.

 

**Item 4**. - SUBMISSION OF MATTERS TO A VOTE            OF SECURITY HOLDERS

 

None.

 

19

 

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**PART II**

 

**Item            5.**- MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S            COMMON EQUITY AND OTHER STOCKHOLDER MATTERS

 

The            Company’s Common Stock trades on The National Association of Securities Dealers,            Inc. Over-the-Counter Bulletin Board (the “OTC Bulletin Board”) under the            symbol “CRGO”. The following table represents the closing high and low bid            information for our Common Stock during the last two fiscal years as reported by the            OTC Bulletin Board. The quotations reflect inter-dealer prices, without retail mark-up,            mark-down or commission and may not represent actual transactions. The market for our            common stock is sporadic.

 
| 2007           |   | High   |   | Low    |
|----------------|--------|--------|--------|--------|
| First Quarter  |   | $.007  |   | $.004  |
| Second Quarter |   | $.005  |   | $.003  |
| Third Quarter  |   | $.003  |   | $.002  |
| Fourth Quarter |   | $.003  |   | $.001  |
|           |   |   |   |   |
| 2006           |   | High   |   | Low    |
| First Quarter  |   | $.015  |   | $.003  |
| Second Quarter |   | $.019  |   | $.010  |
| Third Quarter  |   | $.025  |   | $.011  |
| Fourth Quarter |   | $.013  |   | $.006  |

 

**Dividend Policy**

 

The            Company has not declared, or paid, any cash dividends since inception and does not            anticipate declaring or paying a cash dividend for the foreseeable future.

 

**DESCRIPTION OF CAPITAL STOCK**

 

The            Company has authorized 5,000,000,000 shares of Common Stock, $.001 par value per share            and 2,000,000 shares of preferred stock, $1.00 par value per share, with such            designations, and powers of preferences and rights, and the qualification, limitations            or restrictions as the Board of Directors may determine. As of February 29, 2008, we            had 462 shareholders of record of our Common Stock.

 

**Preferred Stock**

 

The            Company has 2,000,000 authorized shares of blank check preferred stock, of which the            Company has designated (i) 500,000 shares as Series III Preferred Stock, $1.00 par            value; (ii) 600,000 shares as Series IV Preferred Stock; (iii) 500,000 shares of Series            V Preferred Stock, $1.00 par value. The remaining 400,000 shares remain undesignated            blank check preferred stock. The Board of Directors of the Company is authorized to            fix, subject to the provisions herein set forth, before the issuance of any shares of a            particular series, the number, designation, and relative rights, preferences and            limitations of the shares of such series, including:

 
|   | (1) | voting rights, if any, which may include the right to vote                        together as a single class with the Common Stock and any other series of                        the preferred stock with the number of votes per share accorded to shares                        of such series being the same as or different from that accorded to such                        other shares; |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

             
|   | (2) | the dividend rate per annum, if any, and the terms and                        conditions pertaining to dividends and whether such dividends shall be                        cumulative; |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

20

 

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|   | (3) | the amount payable upon voluntary or involuntary                        liquidation; |
|--------|-----|--------------------------------------------------------------------------------------|

 
|   | (4) | the terms and conditions of the redemption; |
|--------|-----|---------------------------------------------|

 
|   | (5) | sinking fund provisions; |
|--------|-----|--------------------------|

 
|   | (6) | the terms and conditions on which such shares are                        convertible, in the event the shares are to have conversion rights;                        and |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
|   | (7) | all other rights, preferences and limitations pertaining to                        such series which may be fixed by the Corporation’s Board of                        Directors pursuant to the Florida Business Corporation Act. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Series III Preferred Stock: There are            265,000 shares of Series III Preferred Stock issued and outstanding as of December 31,            2007. Of these shares, 100,000 were issued upon the conversion of an outstanding loan            entered into between the Company and Jesse Dobrinsky and John L. Udell, two of our            executive officers, and 165,000 of these shares are held by Triple Crown. Each share of            Series III Preferred Stock is treated as being convertible into shares of the            Company’s common stock at a conversion price equal to the lesser of (i) the            average of the lowest of three-day trading prices during the five trading days            immediately prior to the conversion date multiplied by .70, or (ii) the average of the            lowest of three-day trading prices during the five trading days immediately prior to            the funding date(s). The Series III Preferred Stock votes together with the Common            Stock on all matters subject to stockholder approval and has voting power equal to            twenty votes for each share of common stock into which such holder’s shares of            Series III Preferred Stock are then convertible. The holders of the Series III            Preferred Stock are entitled to receive non-cumulative cash dividends at an annual            dividend rate as determined by the Board of Directors. The Series III Preferred Stock            has a liquidation preference of $1.00 per share in the event of any liquidation,            dissolution or winding up of the Company, whether voluntary or involuntary. The Company            believes that its articles of incorporation may not properly reflect certain of the            above terms, and intends to take corrective action in this regard.

 

Series IV Preferred Stock: There are            517,500 shares of Series IV issued and outstanding of as of December 31, 2007 These            Shares were issued upon conversion of a convertible promissory note entered into            between the Company and Triple Crown. The Series IV is convertible into shares of the            Company’s common stock at a conversion price equal to the lesser of (i) the            average of the lowest of three-day trading prices during the five trading days            immediately prior to the Conversion Date multiplied by .70, or (ii) the average of the            lowest of three-day trading prices during the five trading days immediately prior to            the funding date(s). The Series IV Preferred Stock votes together with the Common Stock            on all matters subject to stockholder approval and has voting power equal to twenty            votes for each share of common stock into which such holder’s shares of Series IV            Preferred Stock are then convertible. In addition, the holders of the Series IV            Preferred Stock are entitled to receive non-cumulative cash dividends at an annual            dividend rate as determined by the Board of Directors. The Series IV Preferred Stock            has a liquidation price of $1.00 per share in the event of any liquidation, dissolution            or winding up of the Company, whether voluntary or involuntary. The Company believes            that its articles of incorporation may not properly reflect certain of the above terms,            and intends to take corrective action in this regard.

             

Series V Preferred Stock: There are 479,867            shares of Series V issued and outstanding as of December 31, 2007. The Series V            Preferred Stock is convertible into 7,575 shares of Common Stock. The Series V            Preferred Stock votes together with the Common Stock on all matters subject to            stockholder approval and has voting power equal to thirty votes per outstanding share            of Series V. In addition, the holders of the Series V Preferred Stock are entitled to            receive non-cumulative cash dividends at an annual dividend rate as determined by the            Board of Directors. In the event of any liquidation, dissolution or winding up of the            Company, the holders of the Series V Preferred Stock shall be entitled to receive            distributions out of the assets of the Corporation, whether from capital or from            earnings available for distribution to its stockholders, before any amount shall be            paid to the holders of Common Stock.

 

21

 

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**Warrants**

 

In            connection with the convertible debt issued on December 28, 2005, the Company has            issued to Montgomery a warrant to purchase 2,000,000 shares which is exercisable at an            exercise price of $0.001 and will expire on December 28, 2008. This warrant is subject            to anti-dilution provisions which include an adjustment of the exercise price to equal            the issuance price of any shares issued at a lower price than the exercise            price.

 

**Equity Compensation Plan Information**

 

The            following table sets forth the information about securities authorized for issuance            under our equity compensation plans.

 
| **Plan category**                                           | **(a) Number of securities to be issued on exercise of                        outstanding options, warrants and rights** | **(b) Weighted average exercise price of outstanding                        options, warrants, and rights** | **(c) Number of securities remaining available for future                        issuance under equity compensation plans.** |
|-------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------|
| Equity Compensation Plans

approved by security holders     | 220,000                                                                                                                  | $1.07                                                                                                       | 50,780,000                                                                                                                   |
| Equity compensation plans not

approved by security holders | 0                                                                                                                        | 0                                                                                                           | 0                                                                                                                            |
| Totals                                                      | 220,000                                                                                                                  | $1.07                                                                                                       | 50,780,000                                                                                                                   |

 

**Stock-based compensation**

 

The            Company has not granted any stock options and no stock options have been exercised or            expired in 2006 or 2007.

 

 

22

 

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**Recent Sales of Unregistered Securities**

 

We            issued a total of 804,071,696 shares of our common stock for payment of both debt and            services to the Company. The following table evidences those issuances pursuant to the            corresponding party and instrument or agreement to which the shares were issued in            2005, 2006, 2007 and through March 17, 2008.

 

 
| **Name**                               | **Date**                      | **Agreement/**

**Instrument**   | **Shares Issued** | **Conversion Issuance Price/Term** | **Conversion Issuance Rate ($)/per share** |
|----------------------------------------|-------------------------------|----------------------------------|-------------------|------------------------------------|--------------------------------------------|
| Former Director                        | May, 2005                     | Resignation Settlement Agreement | 200,000           | $42,000                            | .21                                        |
| Gamma Opportunity Capital Partners, LP | January 6, 2005               | Convertible Promissory Note      | 747,044           | $25,000                            | .033                                       |
| Cornell Capital Partners, LP           | January 24, 2005              | Convertible Promissory Note      | 332,226           | $10,000                            | .03                                        |
| Latitude Asset Investments Corp.       | January 14, 2005              | Convertible Promissory Note      | 5,500,000         | $135,000                           | .025                                       |
| Alpha Capital AG                       | June 23, 2005                 | Convertible Promissory Note      | 3,125,000         | $50,000                            | .016                                       |
| July 29, 2005                          | Convertible Promissory Note   | 18,578,083                       | $75,000           | .004                               |
| August 4, 2005                         | Convertible Promissory Note   | 7,783,084                        | $30,000           | .003                               |
| November 7, 2005                       | Convertible Promissory Note   | 5,244,707                        | $25,000           | .005                               |
| Montgomery                             | May 18, 2005                  | Convertible Promissory Note      | 704,225           | $15,000                            | .021                                       |
| May 31, 2005                           | Convertible Promissory Note   | 825,206                          | $11,000           | .013                               |
| July 21, 2005                          | Convertible Promissory Note   | 2,083,333                        | $10,000           | .005                               |
| August 1, 2005                         | Convertible Promissory Note   | 399,799                          | $2,065.54         | .005                               |
| August 16, 2005                        | Convertible Promissory Note   | 1,500,000                        | $18,156           | .012                               |
| September 14, 2005                     | Convertible Promissory Note   | 1,818,182                        | $20,000           | .011                               |
| September 26, 2005                     | Convertible Promissory Note   | 2,702,702                        | $20,000           | .007                               |
| October 12, 2005                       | Convertible Promissory Note   | 3,681,908                        | $23,942           | .007                               |
| November 7, 2005                       | Convertible Promissory Note   | 736,382                          | $5,891            | .008                               |
| January 6, 2006                        | Convertible Promissory Note   | 4,566,210                        | $10,000           | .002                               |
| January 19, 2006                       | Convertible Promissory Note   | 3,436,426                        | $10,000           | .003                               |
| January 30, 2006                       | Convertible Promissory Note   | 8,230,452                        | $20,000           | .002                               |
| February 8, 2006                       | Convertible Promissory Note   | 5,249,344                        | $20,000           | .004                               |
| February 16, 2006                      | Convertible Promissory Note   | 8,264,463                        | $20,000           | .002                               |
| February 27, 2006                      | Convertible Promissory Note   | 11,509,993                       | $20,000           | .002                               |
| March 3, 2006                          | Convertible Promissory Note   | 8,064,516                        | $25,000           | .003                               |
| March 7, 2006                          | Convertible Promissory Note   | 6,053,269                        | $25,000           | .004                               |
| May 4, 2006                            | Convertible Promissory Note   | 40,000,000                       | $40,000           | .001                               |
| July 6, 2006 (1)                       | Secured Convertible Debenture | 8,000,000                        | $20,000           | .0025                              |
| July 21, 2006 (1)                      | Secured Convertible Debenture | 32,000,000                       | $80,000           | .0007                              |
| November 30, 2007(1)                   | Secured Convertible Debenture | 40,000,000                       | $40,000           | .001                               |
| February 21, 2008 (1)                  | Secured Convertible Debenture | 55,000,000                       | $55,000           | .001                               |
| February 28, 2008 (1)                  | Secured Convertible Debenture | 55,000,000                       | $55,500           | .001                               |
| March 17 , 2008 (1)                    | Secured Convertible Debenture | 61,600,000                       | $61,600           | .001                               |
| Advantage Fund I (2)                   | January 9, 2006               | Convertible Promissory Note      | 4,032,258         | $10,000                            | .002                                       |
| January 30, 2006                       | Convertible Promissory Note   | 8,230,452                        | $20,000           | .002                               |
| January 30, 2006                       | Convertible Promissory Note   | 3,541,666                        | $8,500            | .002                               |
| March 1, 2006                          | Convertible Promissory Note   | 8,710,801                        | $25,000           | .003                               |
| March 10, 2006                         | Convertible Promissory Note   | 4,180,602                        | $25,000           | .006                               |

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23

 

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| Advantage

Capital (3)    | September 2, 2005                                                                          | Convertible Promissory Note                                                                | 546,218                     | $6,500                     | .012   |
|---------------------------|--------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------|-----------------------------|----------------------------|--------|
| January 9, 2006           | Convertible Promissory Note                                                                | 2,705,628                                                                                  | $5,000                      | .002                       |
| March 1, 2006             | Convertible Promissory Note                                                                | 3,496,503                                                                                  | $10,000                     | .003                       |
| Triple Crown              | May 5, 2005                                                                                | Exchange of Series IV Convertible Preferred Stock for Common                        Shares | 10,000,000                  | 25,000 shares of Series IV |   |
| July 11, 2005             | Exchange of Series IV Convertible Preferred Stock for Common                        Shares | 25,000,000                                                                                 | 12,500 shares of Series IV  |                       |
| July 30, 2005             | Exchange of Series IV Convertible Preferred Stock for Common                        Shares | 42,000,000                                                                                 | 12,500 shares of Series IV  |                       |
| August 4, 2005            | Exchange of Series IV Convertible Preferred Stock for Common                        Shares | 25,000,000                                                                                 | 12,500 shares of Series IV  |                       |
| August 19, 2005           | Exchange of Series IV Convertible Preferred Stock for Common                        Shares | 25,000,000                                                                                 | 12,500 shares of Series IV  |                       |
| September 14, 2005        | Exchange of Series IV Convertible Preferred Stock for Common                        Shares | 25,000,000                                                                                 | 12,500 shares of Series IV  |                       |
| March 17, 2006            | Exchange of Series IV Convertible Preferred Stock for Common                        Shares | 180,000,000                                                                                | 35,000 shares of Series IV. |                       |
| David Goldberg            | July 25, 2006                                                                              | Convertible Promissory Note                                                                | 11,692,593                  | $86,790                    | .007   |
| UTEK Corporation          | August 28, 2006                                                                            | Consulting Agreement                                                                       | 4,838,710                   | $120,000                   | .02    |
| TJM Investments, Inc.     | December 19, 2006                                                                          | Consulting Agreement                                                                       | 8,426.966                   | $75,843                    | .009   |
| Aware Capital Consultants | December 19, 2006                                                                          | Consulting Services                                                                        | 8,426.966                   | $75,743                    | .009   |
| Charles Oswald            | December 28, 2006                                                                          | Services Rendered                                                                          | 7,142,857                   | $75,000                    | .01    |
| EmplifyHR                 | May 10, 2007                                                                               | Goods and Services                                                                         | 25,000,000                  | $100,000                   | .004   |
| A&H Consulting        | May 11, 2007                                                                               | Goods and services provided                                                                | 25,000,000                  | $100,000                   | .004   |

 
| (1) | Pursuant to the Secured Convertible Debentures issued to                        Montgomery in December 2005. |
|-----|--------------------------------------------------------------------------------------------------------------|
| (2) | Pursuant to the Convertible Promissory Note, issued to                        Advantage Fund Capital in the principal amount of $250,000. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------|
| (3) | Pursuant to the Series A Convertible Note issued to                        Advantage Capital, LLC in the principal amount of $1,250,000. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------|

 

All            of these shares were issued in reliance on the exemption from registration provided by            Section 4(2) of the Securities Act of 1933. No commissions were paid for the issuance            of such shares. All of the above issuances of shares of our common stock qualified for            exemption under Section 4(2) of the Securities Act of 1933 since the issuance of such            shares by us did not involve a public offering. All shareholders were sophisticated            investors and had access to information normally provided in a prospectus regarding            us.

 

On            April 19, 2007, we cancelled 105,263 shares of the Company’s common stock.            Additionally, in July 2007, we cancelled 50,000,000 shares of its common stock which            were held in escrow as part of the issuance of secured debentures to Highgate House,            Ltd. in May 2005. These shares were placed into escrow to secure our obligation to            issue shares of common stock upon conversion of such debentures. The shares were never            considered as issued and outstanding and thus were not included in any per share            computations.

 

24

 

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Item            6**– MANAGEMENT'S DISCUSSION AND ANALYSIS**

 

*The following discussion and analysis of our financial condition and            results of operations should be read in conjunction with the accompanying consolidated            financial statements and notes thereto. In addition to historical financial            information, the following discussion contains forward-looking statements that reflect            our plans, estimates and beliefs and are subject to a number of known and unknown risks            and external factors that in addition to general, economic, competitive and other            business conditions, could cause actual results, performance and achievements to differ            materially from those described or implied in the forward-looking statements, as more            fully discussed below and elsewhere in this filing.*

 

**GENERAL**

 

The            Company is a provider of logistics solutions for customers through its network of            branch terminal locations and independent agents in North America. The Company’s            target customer base ranges from mid-sized to Fortune 100TM            companies.

The            Company predominately operates as a non-asset based transportation provider of            truckload and LTL transportation services utilizing some Company equipment and            dedicated owner operators, as well as in coordination with other transportation            companies with whom the Company has established relationships. The Company also            provides a wide range of value-added logistics services, including those provided            through its leased U.S. Customs Bonded warehouse facilities, U.S. Customs approved            container freight station operations and a U.S. Customs approved General Order            warehouse operation which the Company began operating during the latter part of the            second quarter of 2006. All of these leased facilities enhance and support the supply            chain logistics needs of the Company’s customers. Some of the services provided            are pick-and-pack services, special projects that may include changing labels or            tickets on items and assistance in the inspection of customers’ shipments into            the United States, as well as storage of goods and recovery of goods damaged in            transit.

**Cargo Connection**

Cargo Connection is capable of being the domestic transportation partner            for those international companies who require assistance throughout the United States            as well as companies who require truckload LTL services for their freight shipments to            be moved from one point (origin) to another point (destination). Cargo Connection            operates line-haul services throughout the United States. It runs scheduled LTL            services up and down the east coast and into the mid-west. It also offers truck-load            and exclusive use vehicle service to anywhere in the United States. In addition, the            Company’s transportation network provides for transportation of goods throughout            the United States, Canada and Mexico on behalf of its customers. The Company has            facilities to assist other customers and companies with their freight by either holding            the freight in our bonded facilities providing for the sorting of freight while the            goods are clearing customs in our U.S. Customs-approved container freight            stations.

In            2006, Cargo Connection became one of an exclusive number of companies that work closely            with the Department of Homeland Security and CBP. The Company has become the operator            of the sole General Order warehouse at JFK. General Order warehouses operate under            specific provisions of the CFR. Applicable provisions of the CFR require merchandise to            be considered General Order merchandise when it is taken into the custody by            CBP.

 

**Cargo International**

 

Cargo International has become the international division of our            Company. Cargo International intends to seek out opportunities internationally,            cultivate those opportunities and to broaden our range of services, which can be            directly by the Company or through joint ventures or business relationships with third            party providers. The Company has sent representatives to the Pacific Rim and to Central            America, including Costa Rica, on numerous occasions to seek out and explore the            potential for the Company to open offices and establish personnel relationships in            international markets. No assurance can be given that these efforts will be            successful.

 

25

 

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The            Company expects that the addition of two handling agreements that the Company entered            into in April 2007 will add to the revenue stream that had been lacking for the            Company’s Illinois facility and positions the Company to perform its services for            customers in industries outside its normal scope. These agreements are being handled            through Cargo International as the revenue is from global organizations. The Company            believes this will also assist Cargo International in achieving            profitability.

 

**NMDT**

 

In            December 2006, the Company acquired NMDT, in a tax-free stock-for-stock exchange for            168,539,326 shares of the Company’s Common Stock valued at approximately            $1,500,000. NMDT holds a license to a patented portable nuclear material detecting            technology (the “License”). The license agreement provides for payments to            the licensor of up to 7% of the net revenues from sales of products utilizing the            patent rights, subject to minimum annual fees payable to the licensor, beginning in the            second year of the licensing agreement, which range from $5,000 in year 2 to $30,000 in            year five after the product is available for production. The Company is in the process            of developing, with the licensor, a market-ready nuclear radiation detection device,            called RadRopeTM, which inspectors at transportation hubs can utilize to rapidly            detect the presence of nuclear material in sealed containers without the use of harmful            x-rays, to service the logistics, transportation and general cargo            industries.

 

The            Company believes that the value of the License of $1,316,854, which was based on the            value of the shares of common stock issued by the Company in this transaction, was            justified based on the projected value of the acquired License and the underlying            technology. The Company does not believe that any events or changes in circumstances            have occurred indicating that the carrying amount of the RadRopeTM product based            on this technology may not be recoverable, as evidenced by the estimates of future            (undiscounted) cash flows expected to be generated by the RadRopeTM product and            used to test for recoverability under FAS 144 (as described below). As a result,            management has concluded that there should be no impairment under SFAS 144. Likewise,            in accordance with the guidance set forth in SFAS 142 paragraph 15, the Company            believes that the further development of the RadRopeTM product at the end of 2007            and the beginning of 2008 required no additional impairment analysis as the carrying            amount of the technology did not exceed its fair value. In addition, the Company            believes that the licensing rights, if it needed to sell them or sublicense them, would            exceed the fair value of this asset as reflected on the Company’s balance            sheet.

 

The            Company anticipates that NMDT’s cash flow needs will be addressed through            deposits to be received for products which are sold to customers. Research and            development and preliminary selling, general and administrative costs have been paid            for by the patent owner.

 

The            following events and circumstances helped determine the Company’s            analysis:

             
|   | **•** | The technology underlying the RadRopeTM product was                        developed by a laboratory unit of the United States Department of Energy,                        and the patent owner has continued to be engaged in the development of the                        product after the acquisition by NMDT of the license for this technology.                        Pursuant to the relationship between the Company and the patent owner, NMDT                        will market and manufacture the product after the patent owner has                        completed the modifications to the device and it is ready for                        production. |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

             
|   | **•** | The Company has received input from potential customers, in                        response to which the patent owner made modification/updates to the device.                        In January 2008, the Company received new schematics for the device. These                        schematics reflect the next generation of the device with some minor                        modifications to both the hardware and software. The Company believes that                        the RadRopeTM product is saleable in its current design stage.                        However, management has made the determination that it is in the                        Company’s best interest to sell the new generation of the product, in                        order to minimize needs for parts, maintenance and support upgrades. The                        costs for these upcoming modifications and updates are to be borne by the                        patent owner and are expected to be inconsequential. The Company currently                        anticipates that this second stage of research and development should be                        completed by the end of the second quarter of 2008. It also believes that                        its first sale should occur in the third quarter of 2008 with delivery in                        the fourth quarter of 2008, though there can be n assurances that the                        revised product will be marketable without additional revisions,                        improvements and possible resulting expenses to the Company. |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

26

 

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|   | **•** | The RadRopeTM product has received interest from the                        U.S. Department of Homeland Security’s Customs and Border Patrol, the                        United States Coast Guard and the Department of Defense                        (“DOD”). |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
|   | **•** | The Company has presented or expects to present the                        RadRopeTM product to representatives of two U.S. Senators who are                        members of the appropriate Senate committee. The Company has been advised                        that the staffs at the Department of Energy and the patent owner that they                        have met with representatives of the DOD and have also provided them with a                        working prototype, with respect to which DOD has asked for specific minor                        modifications. Once those modifications are completed and delivered by the                        patent owner, the Company believes that orders will be forthcoming to NMDT,                        at which time the Company expects that the Department of Energy                        representatives will introduce representatives of NMDT to DOD. The cost for                        modifications and updates for this prototype are being incurred by                        DOD. |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

             
|   | **•** | Given the interest in the RadRopeTM product from the                        United States Customs and Border Patrol, United States Coast Guard, and the                        DOD, the Company is confident that the RadRopeTM product will succeed                        in generating significant sales. |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

             
|   | **•** | The Company also believes the marketing of the                        RadRopeTM product will not be exclusive to the governmental agencies                        noted above. The technology itself can be transferred from a portable                        device to accommodate fixed portals in airports, train stations, ports of                        embarkation for ocean vessels, etc. The Company believes that as the                        functionality of the device and its uses increases, it will be deployable                        in diverse applications, and that potential customers include government                        and private purchases, both domestically in the U.S. and                        internationally. |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

             
|   | **•** | The Company expects that when the deployment of the                        RadRopeTM product commences, the Company will generate revenues                        through product sales and software licensing and support, software upgrades                        for the device and the sale of spare parts. |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

             
|   | **•** | The Company believes that it will be able to sell each unit                        of the RadRopeTM product, in its most complex application, for                        approximately $10,000, as compared to approximately $100,000 for any                        roughly competitive product. As the RadRopeTM product evolves and the                        applications diversify, the Company expects that the costs of each                        application will vary depending upon the size and scope of the application                        needed. The Company’s estimates of future cash flows are based on the                        RadRopeTM product's cost-effectiveness and the interest already                        communicated to the Company. The Company estimates that its cost to create                        one unit of the RadRopeTM devices will be approximately $2,000                        (including material costs, labor, lab testing, field testing, and                        transportation costs). The Company believes that it should be able to sell                        at least 250 units per year, which would represent sales of approximately                        $2,500,000 per year, with potential net profit of $1,900,000 per year, from                        the sale of the RadRopeTM product, after taking into account an                        estimate of approximately $100,000 in selling, general and administrative                        expenses for this business in its first year of product sales. |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

             
|   | **•** | The Company anticipates that once the RadRopeTM product                        is in production, the independent contractor who will ultimately                        manufacture the device on behalf of NMDT would be responsible for any                        warranty work associated with the device. NMDT would deal with the                        necessary and required upgrades and maintenance through continued research                        and development performed internally or outsourced to a third party. The                        Company expects that until the RadRopeTM product is actually in                        production, it would incur no out-of-pocket expenses for either, as this                        work is currently being performed by the patent owner. In addition, the                        Company may apply for government grants to the extent available and                        necessary to fund any costs incurred. The Company believes that once an                        order for the RadRopeTM product is placed with NMDT, the required                        deposits associated with the device would fund the Company’s                        preparation for the initial setup and production of both manufacturing and                        support operations. The production and deployment time of the device is                        expected to be between 90 and 120 days. This includes the purchasing of all                        components and the required waterproof housing necessary for the device for                        its most complex application. |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

The            above factors demonstrate the Company’s reasonable belief that the value of the            projected revenues of and cash flows from the RadRopeTM product exceed the value            of NMDT on the Company’s balance sheet.

 

27

 

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**ITG**

 

The            Company owns a 51% interest in ITG and EmplifyHR owns a 49% interest. The financial            statements of ITG are included in the Company’s consolidated financial            statements. The minority interest in operating results is reflected as an element of            non-operating expense in the Consolidated Statements of Operations and the minority            interest in the equity of ITG is reflected as a separate component on the Consolidated            Balance Sheet. The Company believes that ITG will attract independent contractors and            other carriers to perform work on behalf of Cargo Connection, and thus to assist the            Company through increasing the size and scope of its driver fleet, while offering            agents comprehensive packages for medical insurance, profit sharing plans, as well as            other benefits for themselves as well as their driver pool.

 

**Expansion Plans**

 

The            Company intends to continue to explore other areas that would be expected to complement            the needs of customers within the industries in which it operates, either by adding            additional services, helping to form entities that have specific attributes or through            acquisitions.

 

On            August 29, 2007, the Company entered into a letter agreement with Fleet and its sole            stockholder to acquire all of the issued and outstanding shares of capital stock of            Fleet for an aggregate purchase price of $1 million, 270,000,000 shares of common stock            of the Company and additional shares of common stock based upon the earnings before            interest, taxes, depreciation and amortization of Fleet for the two-year period ending            on the second anniversary of the closing date. The Company expects that if the            acquisition is completed, the combined business synergies that would be accomplished            through the addition of Fleet would favorably impact the Company's operating            profitability. The Company also expects that this transaction would benefit ITG. The            consummation of this transaction has been delayed because, among other things, the            Company has been unable to raise the capital necessary for this transaction. No            assurance can be given that this transaction will be consummated, or that financing            necessary for the transaction will be obtained.

 

In            order to maintain operating stability or growth over next year, management believes            that the Company will still have to manage many conditions which are outside of its            control, such as a general decrease in demand for consumer products within the domestic            economy, which decreases demand for shipping, along with higher energy costs, including            fuel for the transportation-related equipment and the energy required to operate our            facilities.

 

The            Company’s General Order warehouse operation, which has now been fully integrated            with the Cargo Connection operations, will need to generate additional sales and            cultivate new customers in order to achieve major growth. The Company believes it is            also beginning to see the results of two handling agreements it has obtained for Cargo            International’s Illinois facility that became effective during the second quarter            of 2007. In addition to those agreements, however, Cargo International’s            operations will need to generate significant increased revenue in order for that            operation to generate profitability. In addition to producing revenue for its own            division, Cargo International has the opportunity to generate revenue for Cargo            Connection’s operations through cross-marketing customers’ needs for            domestic logistic services.

 

The            Company reports its results as one segment for reporting purposes. In the future, if            NMDT and/or any other component of the Company’s operations become a significant            part of the Company’s overall business, the Company will report results on a            segmented basis.

 

 

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**RESULTS OF OPERATIONS**

 

**Years Ended December 31, 2007 and December 31, 2006**

 

***Revenues.***

 

Revenues from operations for twelve months ended December 31, 2007, were            $17,212,765, compared with $17,927,544 for the twelve months ended December 31, 2006, a            decrease of $714,779, or 4%, due to a decrease in direct trucking revenue, which more            than offset additional revenue from the General Order warehouse business at the JFK            facility, which Cargo Connection commenced operating in June 2006. This decrease in            trucking revenue was due to a general decrease in demand for consumer products which            has decreased sales volumes from our current customer base. In addition, the Company            has discontinued providing certain low margin services and its reliance on certain            low-margin customers in an effort to broaden its customer base at higher            margins.

 

Cargo Connection’s revenues for the twelve months ended December            31, 2007, were $16,408,381, compared with $17,897,214 for the twelve months ended            December 31, 2006, a decrease of $1,488,833 or 8.3%, as a result of the factors            described above.

 

Cargo International’s revenues for the year ended December 31,            2007, were $800,180, compared with $7,548 for the year ended December 31, 2006, an            increase of $792,632 from the previous year, due to the addition of two handling            agreements that the Company entered into in April 2007 that are utilizing Cargo            International’s Illinois facility.

 

***Operating Expenses.***

 

Direct operating expenses for twelve months ended December 31, 2007 were            $11,615,518, as compared to $12,296,989 for the twelve months ended December 31, 2006,            a decrease of $681,471 or 5.5%, primarily due to a $1,140,084 decrease in outside            trucking and handling expenses, which more than offset an increase of $231,276 in            direct labor costs, $57,603 in truck and trailer expenses, $100,715 in warehouse            expenses, and $110,539 in truck fuel costs due to the higher fuel prices. As a            percentage of revenue, the direct expenses decreased slightly to 67.5% in 2007 from            68.6% in 2006.

 

***Selling, General and Administrative Expenses.***

 

Selling, general and administrative expenses were $6,677,192 for the            twelve months ended December 31, 2007, compared with $8,441,906 for the twelve months            ended December 31, 2006, a decrease of $1,764,714, or 20.9%, primarily as a result            of:

 
|   | **•** | a decrease in consulting and professional fees associated                        with being a public entity of approximately $609,855, |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | a decrease of over $400,000 in our rent expense which is                        mostly derived from the renegotiation of our Illinois lease, |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | a decrease in Guaranteed Rental Expense of $405,000 which                        was associated with the former Illinois Lease Agreement that has now been                        cancelled, |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | a decrease in insurance, telephone and utilities costs of                        approximately $10,000, and |
|--------|------------|-------------------------------------------------------------------------------------------------------------|
|   | **•** | a decrease of bad debt allowance of $142,800, |
|--------|------------|-----------------------------------------------|

 

which more than offset:

 
|   | **•** | an increase in wages and associated benefits and taxes of                        $326,244 due to an increase in the number of employees at the Illinois                        facility for the business that began in May 2007, as well as a full year of                        additional employees at the JFK facility that handle the business that                        began in June 2006, |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | an increase in depreciation of $22,926, |
|--------|------------|-----------------------------------------|
|   | **•** | an increase in repairs and maintenance for computers and                        office equipment as well as equipment rental of $83,900, and |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | an increase in travel expenses of approximately                        $22,000. |
|--------|------------|---------------------------------------------------------------------------------|

 

As a            percentage of revenue, selling, general and administrative expenses decreased to 38.8%            in 2007 as compared to 47.1% in 2006.

 

 

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***Depreciation and            Amortization***.

 

Depreciation and amortization expense for the year ended December 31,            2007 was $184,853, as compared to $161,927 in the year ended December 31, 2006, an            increase of $22,926 or 14.2%. In addition, depreciation and amortization on assets            under capital leases in the year ended December 31, 2007 was $102,477 as compared to            $75,206 in the year ended December 31, 2006, an increase of $27,271 or            36.3%.

 

***Operating Loss.***

 

The            Company reported a loss from operations before other income (expense) of $1,079,945 for            the twelve months ended December 31, 2007, compared to a loss from operations of            $2,811,351 for the twelve months ended December 31, 2006, a decrease of $1,731,406 or            61.6%. As a percentage of revenue, the loss from operations represented 6.3% of            revenues, as compared to 15.7% in 2006, which represents an approximate 9.4%            improvement.

 

***Net Interest Expense***.

 

The            Company’s net interest and financing expenses was $3,109,378 for the twelve            months ended December 31, 2007, as compared to $1,857,929 for the twelve months ended            December 31, 2006, an increase of $1,251,449, or 67.4%, primarily due to the interest            expenses associated with derivative instruments during the period of approximately            $3,000,000, resulting from approximately $1,030,540 accrued for liquidated damages,            approximately $236,500 of accrued interest on the underlying debt and approximately            $1,650,000 from the amortization of discount on the underlying debt.

 

***Net (Loss) Income.***

 

For            the fiscal year ended December 31, 2007, the Company incurred a net loss of            ($1,505,847), compared to a net loss of ($5,865,325) for the twelve months ended            December 31, 2006, a decrease of $4,359,478, or 74.3% improvement as a result            of:

 
|   | **•** | a decrease of $3,763,983 due to derivative liability                        instrument valuations, (See note 17 to the financial                        statements), |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | a decrease in indirect operating expenses of                        $1,764,714, |
|--------|------------|---------------------------------------------------------------------------------|
|   | **•** | a decrease of $466,344 relating to debt extinguishment                        expenses, |
|--------|------------|-----------------------------------------------------------------------------------------|
|   | **•** | a benefit from the change in value of financial instruments                        of $1,251,449, which relates to financial instrument market price                        adjustments, |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | a decrease in direct operating expenses of $681,471,                        and |
|--------|------------|---------------------------------------------------------------------------------|
|   | **•** | a decrease in other expenses of 45,648, |
|--------|------------|-----------------------------------------|

             

which more than offset:

 
|   | **•** | a decrease in revenue of $714,779 from operations,                        and |
|--------|------------|-------------------------------------------------------------------------------|
|   | **•** | an increase in minority interest adjustment of                        $1,646. |
|--------|------------|-------------------------------------------------------------------------------|

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

The            Company had a working capital deficiency of approximately $10,132,982 as of December            31, 2007. The Company has devoted substantially all of its efforts to increasing            revenues, attempting to achieve profitability, obtaining long-term financing and            raising capital. To date, the Company has successfully increased its revenues since its            acquisition of Cargo Connection and Cargo International in May 2005 and raised capital            to assist in meeting its working capital needs. The Company is continuing to seek            available capital. If the Company is not successful in continuing to raise working            capital through equity and debt financing, the Company could be materially and            adversely affected and there would be substantial doubt about the Company's ability to            continue as a going concern. The Company's condensed consolidated financial statements            have been prepared on the assumption that the Company will continue as a going            concern.

 

 

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**Going Concern**

 

Our            auditors have referred to the substantial doubt about the Company’s ability to            continue as a going concern in the audit report on our consolidated financial            statements included with the Annual Report. The accompanying condensed consolidated            financial statements do not include any adjustments that might result from the outcome            of this uncertainty.

 

Management is seeking various types of additional funding such as            issuance of additional common or preferred stock, additional lines of credit, or            issuance of subordinated debentures or other forms of debt. Such funding could            alleviate the Company’s working capital deficiency and provide working capital            which could allow the Company to decrease its operating losses or achieve operating            profitability. However, it is not possible to predict the success of the            Company’s efforts to raise such capital or achieve operating profitability. There            can be no assurance that additional funding will be available when needed or, if            available, that its terms will be favorable or acceptable.

 

The            Company’s available cash at December 31, 2007 was $470,779. In 2007, the Company            used net cash in operating activities of $138,733, compared with $1,982,558 in 2006, a            decrease of $1,843,825 or 93%.

 

To            assist with the Company’s short term cash flow needs, the Company received            aggregate advances of $150,000 from a related party in April 2007. The Company issued a            promissory note for these advances at an interest rate of 12% and both maturing in July            2007. During the three-month period ended September 30, 2007, $50,000 of the advances            was repaid in full. In June 2007, the Company also received a $100,000 loan from an            investor with an informal repayment term of $5,000 per week, which has subsequently            been paid in full.

 

**Factoring Facilities**

 

Effective November 20, 2007, Cargo Connection entered into: (i) an            Account Transfer Agreement (the "Account Transfer Agreement") with Wells Fargo Bank,            National Association ("WFBA"); and (ii) that certain letter agreement dated November            20, 2007 between WFBA and Cargo Connection, amending the Account Transfer Agreement            (the "Letter Agreement"); and, collectively with the Account Transfer Agreement, (the            "Amended Transfer Agreement"). The Amended Transfer Agreement provides that WFBA shall            serve as a factor to Cargo Connection by purchasing certain of the Cargo Connection's            accounts receivable, and provide a maximum factoring capacity of $3,000,000. The            obligations of Cargo Connection to WFBA are guaranteed by the Company and the executive            officers of the Company.

 

Concurrently with the Amended Transfer Agreement, WFBA, Cargo Connection            and Accord Financial, Inc. ("Accord"), Cargo Connection's previous factor, executed a            Buyout Agreement (the "Buyout Agreement") pursuant to which WFBA purchased all of Cargo            Connection’s accounts receivable owned by Accord and Accord assigned all of the            security interests, financing statements and liens it possessed in Cargo            Connection’s accounts receivable and assets to WFBA. The escrow accounts held by            Accord for customer reserves and the escrow account for vendor payments were included            in the Buyout Agreement.

 

Cargo Connection’s accounts receivable factoring facility, with            WFBA, provides that the factor purchases certain accounts receivable and extends credit            with a maximum borrowing amount of $3,000,000. The facility automatically renews            annually unless either party provides 30 days’ prior notice of cancellation. The            facility provides for the purchase up to 95% of eligible accounts receivable of Cargo            Connection minus a fixed discount of approximately .35% as of December 31, 2007, along            with a variable discount calculated by WFBC’s prime rate plus 1% per annum for            the time period from the initial payment to date of receipt of collections along with a            discretionary reserve (holdback) which is reduced with payments from the individual            accounts receivable debtors. If a receivable is outstanding over 90 days, under            recourse provisions, Cargo Connection is required to buy back the receivable from the            factor. Cargo Connection must submit a minimum of $1,000,000 of eligible invoices in            each calendar month. At December 31, 2007, $200,680 is due from the factor, which            represents the reserve against collected receivables. At December 31, 2007, the total            amount advanced by the factor was $1,793,438, which represents the proceeds from            financing of accounts receivables purchased of $1,992,714 less an escrow against these            funds in the amount of $199,276.

 

**Lease Commitment**

 

Pursuant to a Lease Agreement, dated as of October 22, 2002, as amended            by the First Amendment of the Lease Agreement, dated January 10, 2008 (the            “Atlanta Lease”), Cargo Connection is obligated to pay an aggregate of            $1,454,432 in monthly payments through June 30, 2018 for the commercial use of the            Atlanta, Georgia facility.

 

 

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Pursuant to a Lease Agreement dated as of December 15, 2005 (the            “New York Lease”), Cargo Connection is obligated to pay an aggregate            amount of $193,950 in monthly payments beginning January 1, 2007 through February 28,            2009, for the commercial use of the Inwood, New York corporate facility. In addition,            pursuant to a Lease Agreement dated as of December 15, 2005, Cargo Connection, as            assignee of Cargo International, is obligated to pay an aggregate amount of $5,028,544            in monthly payments beginning January 1, 2007 through February 28, 2014 for the            commercial use of the Inwood, New York warehouse facility.

 

Pursuant to the Lease Agreement, dated as of September 30, 2004 (the            “Miami Lease”), Cargo Connection is obligated to pay an aggregate of            $655,943 in monthly payments through April 1, 2010 for the commercial use of the Miami,            Florida facility, of which $113,014 represents payment arrearages to be paid pursuant            to a settlement agreement, dated as of November 21, 2007, all required payments in            connection with which have been made.

 

Pursuant to a Lease Agreement, dated as of October 12, 2004 (the            “Ohio Lease”), Cargo Connection, as assignee of Cargo International, is            obligated to pay $5,942 on a monthly, renewable basis, for the commercial use of the            Columbus, Ohio facility.

 

Pursuant to a Lease Agreement, dated as of January 11, 2008 (the            “Chicago Lease”) Cargo International is obligated to pay an aggregate            amount of $6,720,000 in monthly payments through December 31, 2018, for the commercial            use of the Bensenville, Illinois facility.

 

**Notes Receivable**

 

On            November 21, 2007, the Company loaned $300,000 to Fleet, which is represented by a            promissory note. The note bears interest at 11% per annum and matures on November 21,            2008. As of December 31, 2007, the principal amount outstanding on the note is            $300,000. Interest earned on the note for the year ended December 31, 2007 amounted to            $3,707.

 

**Secured Convertible Debentures and Warrant**

 

Pursuant to a Securities Purchase Agreement, dated as of December 28,            2005 (the “Montgomery Purchase Agreement”), with Montgomery, the Company            issued a $1,750,000 secured convertible debenture (the “First Montgomery            Debenture”) to Montgomery, which bears interest at a rate of 10% per annum and            matured on December 28, 2007. The First Montgomery Debenture is convertible into shares            of Common Stock at a conversion price equal to the lesser of (a) $0.0025 per share or            (b) 75% of the lowest closing bid price of the Common Stock for the ten trading days            immediately preceding the conversion date. The First Montgomery Debenture is secured by            substantially all of the assets of the Company.

 

Simultaneously with the issuance of the First Montgomery Debenture, the            Company issued to Montgomery a three year warrant (the “Montgomery            Warrant”) to purchase 2,000,000 shares of Common Stock at an exercise price of            $0.001 per share. The Montgomery Warrant, which is exercisable immediately, was valued            at $2,394,000 using a Black-Scholes option pricing model. Also in connection with the            issuance of the First Montgomery Debenture, the Company paid Montgomery a fee of            $135,000. The value of the Montgomery Warrant and the fees paid to Montgomery were            recorded as a discount to the First Montgomery Debenture and are being amortized over            the term of the First Montgomery Debenture using the effective interest            method.

 

On            February 13, 2006, the Company completed a financing for an additional $600,000 with            Montgomery as part of the funding package contemplated by the Montgomery Purchase            Agreement. In connection with the February 2006 financing, the Company issued to            Montgomery a second secured convertible debenture (the “Second Montgomery            Debenture” and, collectively with the First Montgomery Debenture, the            “Montgomery Debentures”) in the principal amount of $600,000, which bears            interest at a rate of 10% per annum and matured on February 12, 2008. The Second            Montgomery Debenture is convertible into shares of Common Stock at a conversion price            equal to the lesser of (a) $0.0025 per share or (b) 75% of the lowest closing bid price            of the Common Stock for the ten trading days immediately preceding the conversion date.            Shares of Common Stock issuable upon conversion of the Second Montgomery Debenture are            also subject to the Registration Rights Agreement.

 

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As            of December 31, 2007, $140,000 of principal due under the Montgomery Debentures had            been converted into shares of Common Stock, and as of March 25, 2008, an additional            $172,100 of the Montgomery Debentures had been converted into shares of Common Stock.            The remaining amounts due under the Montgomery Debentures are past due.

 

On            November 14, 2007, the Company issued a senior secured convertible subordinated            debenture in the principal amount of $46,500 to YA Global, which bears interest at a            rate equal to prime plus 2.25% per annum, matures on November 14, 2009, and initially            is convertible into shares of the Company’s common stock at a price per share            equal to, at the option of the holder, either (a) $.0025 or (b) 75% of the volume            weighted average price per share of the Company’s common stock for the 10 day            period prior to such conversion. This note is secured by substantially all the assets            of the Company.

 

The            Company is obligated under the Registration Rights Agreement between the Company and            Montgomery to have filed and declared effective the SB-2 Registration Statement            registering for resale shares of Common Stock issuable upon conversion of the            Montgomery Debentures, currently in the outstanding principal amount of $2,210,000 and            upon exercise of the Montgomery Warrant. The Registration Rights Agreement contains            liquidated damages provisions relating to the failure of the SB-2 Registration            Statement to be declared effective by the SEC no later than a specified date. The SB-2            Registration Statement was not declared effective by the specified date. Subsequently,            on May 2, 2007, the Company entered into a Waiver Agreement with Montgomery, pursuant            to which the Company was permitted to withdraw the SB-2 Registration Statement, and to            re-file another registration statement by June 5, 2007, which the Company failed to do.            The Company has accrued an aggregate $1,030,540 as a potential liquidated damages            liability as of December 31, 2007, which has been recorded as a cumulative effect            adjustment in conformity with EITF 00-19-2. The ultimate amount of potential damages            liability cannot be determined at this time because damages are determined based upon            the length of non-compliance and no maximum amount is provided in the Registration            Rights Agreement. If the Company is found to be in default of its obligations to have            the SB-2 Registration Statement declared effective, the holder of the Montgomery            Debentures could declare the full principal amount of the Montgomery Debentures,            together with interest and other amounts owing thereunder, to become immediately due            and payable. The Montgomery Debentures is secured by substantially all of the assets of            the Company. (SeeNote 13 to Item 7            – Financial Statements).

 

In            October 2005, the Company entered into a secured convertible debenture with members of            management in the amount of $75,000. Under the agreement, the Company issued a $75,000            secured convertible debenture with a 15% interest rate to the group with a maturity            date of September 30, 2006. The debenture is convertible into common stock of the            Company at a conversion price equal to the lesser of (a) $0.005 per share or (b)            seventy five percent (75%) of the lowest closing bid price of the common stock of the            five (5) trading days immediately preceding the conversion date. The holders of the            note informally agreed to extend the due date of the note to December 31, 2007. The            note has not been repaid as of this date. The Company has not received any notification            that it is in default under the provisions of the note.

 

**Notes and Advances Payable**

 

At            December 31, 2007, we had outstanding $1,196,510 in principal amount with respect to            five promissory notes. The promissory notes bear interest at 4% to 12% per annum. Notes            payable in an aggregate amount of $896,510 are collateralized by substantially all the            assets of Cargo Connection or Cargo International. Notes payable in an aggregate amount            of $75,043 are guaranteed by certain of the executive officers of the Company. (See            Note 12 to Item 7 – Financial Statements).

 

During the year ended December 31, 2007, the Company received cash            advances of $100,000 from Triple Crown. These advances were repaid in full by November            9, 2007.

 

During the year ended December 31, 2007, the Company received two            short-term loans, totaling $150,000 from Parkside Properties, LLC            (“Parkside”), a related party. The notes both provided for interest at a            rate of 12% and matured in July, 2007. As of December 31, 2007, only $50,000 plus the            accrued interest associated with it was paid to the Company. The balance of $100,000 is            still outstanding at this time.

 

During the year ended December 31, 2007, the Company received an            installment loan from Avalon Insurance and Premium Financing Specialists for the            Company’s insurance coverage, pursuant to which, at December 31, 2007, the            Company has an outstanding obligation in the amount of $138,158. (See Note 11 to Item 7            – Financial Statements).

 

The            Company is currently negotiating formal repayment terms with three lenders with respect            to an aggregate of $1,250,000 which they have advanced to the Company as of December            31, 2007.

 

33

 

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**Cancelled Stock**

 

On            April 19, 2007, we cancelled 105,263 shares of the Company’s common stock.            Additionally, in July 2007, the company cancelled 50,000,000 shares of its common stock            which were held in escrow as part of the issuance of secured debentures to Highgate            House, Ltd. in May 2005. These shares were placed into escrow to secure the            Company’s obligation to issue shares of common stock upon conversion of such            debentures. The shares were never considered as issued and outstanding and thus were            not included in any per share computations.

 

**Seasonality**

 

Our            operations are seasonal in nature. Usually, we recognize less revenue in our first and            second fiscal quarters, and recognize approximately 60% of our revenues in our third            and fourth quarters.

 

**Inflation**

 

We            may not be able to pass on fuel price increases to our customers. The overall increase            in energy costs, including natural gas and petroleum products, has adversely impacted            our overall operating costs in the form of higher freight costs. We cannot assure you            we will be able to pass all these cost increases on to our customers.

 

**Off-Balance Sheet Arrangements**

 

As            of December 31, 2007 and 2006, we had no off-balance sheet arrangements or            obligations.

 

**CRITICAL ACCOUNTING POLICIES**

 

We            have identified the policies outlined below as critical to our business operations and            an understanding of our results of operations. The list is not intended to be a            comprehensive list of all of our accounting policies. In many cases, the accounting            treatment of a particular transaction is specifically dictated by accounting principles            generally accepted in the United States, with no need for management's judgment in            their application. The impact and any associated risks related to these policies on our            business operations is discussed throughout Management's Discussion and Analysis where            such policies affect our reported and expected financial results. For a detailed            discussion on the application of these and other accounting policies, see the Notes to            the Financial Statements. Note that our preparation of the financial statements            requires us to make estimates and assumptions that affect the reported amount of            assets, liabilities, revenues and expenses, and related disclosure of contingent assets            and liabilities. Certain estimates and assumptions required to be made relate to            matters that are inherently uncertain as they pertain to future events. While            management believes that the estimates and assumptions used were the most appropriate,            actual results could differ significantly from those estimates under different            assumptions and conditions.

 

The            following is a description of those accounting policies believed by management to            require subjective and complex judgments or estimates which could potentially affect            reported results.

 

**Revenue Recognition**

 

The            Company recognizes all transportation revenues when the freight is tendered to the            Company for the delivery of the goods to their final destination. The Company            recognizes warehouse services revenue upon the completion of services. Costs related to            such revenues are included in direct operating expenses.

 

 

34

 

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**Accounts Receivable, and Allowance for Doubtful            Accounts**

 

Accounts receivable are recorded at the outstanding amounts net of the            allowance for doubtful accounts. Estimates are used in determining our allowance for            doubtful accounts based on the inability of our customers to make required payments,            historical collections experience, current economic trends and a percentage of our            accounts receivable by aging category. We review available customer account and            financial information, including public filings and credit reports, current trends,            credit policy, and accounts receivable aging and may also consult legal counsel when            appropriate. We also examine the credit quality of our customer base as well as changes            in our credit policies. We continuously monitor collections and payments from our            customers. When the Company deems it probable that an account of a specific customer            will become uncollectible, that customer’s account balance will be included in            the reserve calculation. While credit losses have historically been within expectations            and the provisions established, we cannot guarantee that we will continue to experience            the same credit loss rates that we have in the past. Our net income is directly            affected by management's estimate of the collectability of accounts            receivable.

 

**Valuation of Long-Lived Assets**

 

On a            periodic basis, management assesses whether there are any indicators that the value of            our long-lived assets may be impaired. An asset's value is considered impaired only if            management's estimate of current and projected operating cash flows (undiscounted and            without interest charges) of the asset over its remaining useful life is less than the            net carrying value of the asset. Such cash flow projections consider factors such as            expected future operating income, trends and prospects, as well as the effects of            demand, competition and other factors. To the extent impairment has occurred, the            carrying amount of the asset would be written down to an amount to reflect the fair            value of the asset.

 

We            are required to make subjective assessments as to whether there are impairments in the            value of our long-lived assets and other investments. Our net income is directly            affected by management's estimate of impairments.

 

**Deferred Income Taxes**

 

Determining our provision for income tax expense, income tax liabilities            and deferred tax assets and liabilities involves judgment. We record a valuation            allowance to reduce our deferred tax assets to the amount of future tax benefit that is            more likely than not to be realized. We have considered future taxable income and            prudent and feasible tax planning strategies in determining the need for a valuation            allowance. A valuation allowance is maintained by the Company due to the impact of the            current year's net operating loss carryforwards (“NOL”). In the event that            we determine that we would not be able to realize all or part of our net deferred tax            assets, an adjustment to the deferred tax assets would be charged to net income in the            period such determination is made.

 

If            we later determine that it is more likely than not that the net deferred tax assets            would be realized, and then the previously provided valuation allowance would be            reversed. Our current valuation allowance relates predominately to benefits derived            from the utilization of our NOL's.

 

**Derivative Instruments**

 

In            connection with the sale of debt or equity instruments, the Company may issue options            or warrants to purchase our common stock. In certain circumstances, these options or            warrants may be classified as derivative liabilities, rather than as equity.            Additionally, the debt or equity instruments may contain embedded derivative            instruments, such as variable conversion options or liquidated damages provisions,            which in certain circumstances may be required to be bifurcated from the host            instrument and accounted for separately as a derivative instrument            liability.

 

35

 

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The            identification of, and accounting for, derivative instruments is complex. Derivative            instrument liabilities are re-valued at the end of each reporting period, with changes            in fair value of the derivative liability recorded as charges or credits to income in            the period in which the changes occur. For options, warrants and bifurcated conversion            options that are accounted for as derivative instrument liabilities, we determine the            fair value of these instruments using the Black-Sholes option pricing model, binomial            stock price probability trees, or other valuation techniques, sometimes with the            assistance of a certified valuation expert. These models require assumptions related to            the remaining term of the instruments and risk-free rates of return, our current common            stock price and expected dividend yield, and the expected volatility of our common            stock price based on not only the history of our stock price but also the experience of            other entities considered comparable to us. The identification of, and accounting for,            derivative instruments and the assumptions used to value them can significantly affect            our financial statements.

 

The            Company has allocated the proceeds received from convertible debt instruments between            the underlying debt instruments and the warrants, and has recorded the conversion            feature as a liability in accordance with SFAS No. 133, "Accounting for Derivative            Instruments and Hedging Activities" ("SFAS 133") and related interpretations. The            conversion feature and certain other features that are considered embedded derivative            instruments, such as a variable interest rate feature, a conversion reset provision and            redemption option, have been recorded at their fair value within the terms of SFAS No.            133 as their fair value can be separated from the convertible note and their conversion            is independent of the underlying note value. The conversion liability is marked to            market each reporting period with the resulting gains or losses shown on the Statement            of Operations. The Company has also recorded the resulting discount on debt related to            the warrants and conversion feature and is amortizing the discount using the effective            interest rate method over the life of the debt instruments.

 

The            Company evaluates its convertible debt, options, warrants or other contracts to            determine if those contracts or embedded components of those contracts qualify as            derivatives to be separately accounted for under SFAS 133 and related interpretations,            including EITF 00-19 "Accounting for Derivative Financial Instruments Indexed to, and            Potentially Settled in, a Company's Own Stock" ("EITF 00-19"). The result of this            accounting treatment is that the fair value of the embedded derivative is recorded as a            liability and marked-to-market at each balance sheet date. In the event that the            embedded derivative is recorded as a liability, the change in fair value is recorded in            the consolidated statement of operations as other income or expense. Upon conversion or            exercise of a derivative instrument, the instrument is marked to fair value at the            conversion date and reclassified to equity.

 

In            circumstances where the embedded conversion option in a convertible instrument is            required to be bifurcated and there are also other embedded derivative instruments in            the convertible instrument that are required to be bifurcated, the bifurcated            derivative instruments are accounted for as a single, compound derivative            instrument.

 

The            classification of derivative instruments, including the determinations as to whether            instruments should be recorded as liabilities or as equity, is re-assessed at the end            of each reporting period. Instruments that are initially classified as equity that            become subject to reclassification under SFAS 133 are reclassified to liability at the            fair value of the instrument on the reclassification date. Derivative instrument            liabilities are classified in the balance sheet as current or non-current based on            whether or not net-cash settlement of the derivative instrument is expected within            twelve months of the balance sheet date.

 

**Stock Based Transactions**

 

We            have concluded various transactions where we paid the consideration in shares of our            common stock. These transactions include:

 
|   | **•** | Acquiring NMDT; |
|--------|------------|-----------------|
|   | **•** | Acquiring the services of various professionals who provided                        us with a range of corporate consultancy services, strategic planning,                        development of business plans, investor presentations and advise and                        assistance with investments funding; and |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | Settlement of our indebtedness. |
|--------|------------|---------------------------------|

 

36

 

----

 

 

When            our stock is used in transactions, the transactions generally are valued using the            price of the shares being transferred at the time the shares are issued for the            services provided. If the value of the asset or services being acquired is available            and believed to fairly represent its market value, the transaction is valued using the            value of the asset or service being provided and any excess of the value of the common            stock issued over this value as recorded as goodwill or a charge to the statement            of operations.

 

**Amortization of Intangible Assets**

 

Intangible assets, such as patents or trademarks, that are determined to            have definite lives are amortized over their useful lives and are measured for            impairment when events or circumstances indicate that the carrying value may be            impaired. In these cases, the Company estimates the future undiscounted cash flows to            be derived from the intangible asset to determine whether or not a potential impairment            exists. If the carrying value exceeds the estimate of future undiscounted cash flows,            the impairment is calculated as the excess of the carrying value of the asset over the            estimate of its fair value. Any impairment charges would be classified as other            expenses within the consolidated statement of operations for the subject accounting            period. In accordance with Statement of Financial Accounting Standards ("SFAS") No.            142, "Goodwill and Other Intangible Assets," the Company intends to conduct periodic            impairment tests on intangible assets without a definitive life based on comparison of            the estimated fair value of the intangible asset to the carrying value of the            intangible asset. If the carrying value exceeds the estimate of fair value, impairment            will be calculated as the excess of the carrying value over the estimate of fair            value.

 

**Estimated liability for insurance claims**

 

The            Company maintains automobile, general, cargo, and workers’ compensation claim            liability insurance coverage under both deductible and retrospective rating policies.            In the fiscal period in which claims are reported, the Company estimates and            establishes any potential liabilities, if they exist, for its share of ultimate            settlements using all available information, as well as the Company’s history of            such claims. Claim estimates are adjusted when additional information becomes            available. The recorded expense depends upon actual loss experience and changes in            estimates of settlement amounts for open claims that have not been fully resolved.            However, final settlement of these claims could differ from the amounts the Company has            accrued.

 

 

37

 

----

 

 

**Item            7.**- FINANCIAL STATEMENTS

 

Set            forth below is a list of our financial statements for December 31, 2007, included in            this Annual Report on Form 10-K following Item 14.

 

==================================================================================

PAGE

 
| Report of Independent Registered Public Accounting                        Firm                                         | F-1 |
|------------------------------------------------------------------------------------------------------------------------|-----|
| Consolidated Balance Sheet as of December 31,                        2007                                              | F-2 |
| Consolidated Statements of Operations for the Years Ended                        December 31, 2007 and 2006            | F-3 |
| Consolidated Statements of Stockholders' Deficit for the                        Years Ended December 31, 2007 and 2006 | F-4 |
| Consolidated Statements of Cash Flows for the Years Ended                        December 31, 2007 and 2006            | F-5 |
| Notes to Consolidated Financial Statements                                                                             | F-7 |

 

 

38

 

----

 

 

REPORT            OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The            Board of Directors and Stockholders of

Cargo            Connection Logistics Holding, Inc.

Inwood,            New York

 

We            have audited the accompanying consolidated balance sheet of Cargo Connection Logistics            Holding, Inc. as of December 31, 2007 and the related consolidated statements of            operations, and stockholders' deficiency and cash flows for the years ended December            31, 2007 and 2006. These financial statements are the responsibility of the Company's            management. Our responsibility is to express an opinion on these financial statements            based on our audits.

 

We            conducted our audits in accordance with the standards of the Public Company Accounting            Oversight Board (United States). Those standards require that we plan and perform the            audit to obtain reasonable assurance about whether the financial statements are free of            material misstatement. The Company is not required to have, nor were we engaged to            perform an audit of its internal control over financial reporting. Our audit included            consideration of internal control over financial reporting as a basis for designing            audit procedures that are appropriate in the circumstances, but not for the purpose of            expressing an opinion on the effectiveness of the Company's internal control over            financial reporting. Accordingly, we express no such opinion. An audit also includes            examining, on a test basis, evidence supporting the amounts and disclosures in the            financial statements. An audit also includes assessing the accounting principles used            and significant estimates made by management, as well as evaluating the overall            financial statement presentation. We believe that our audit provides a reasonable basis            for our opinion.

 

In            our opinion, the consolidated financial statements referred to above present fairly, in            all material respects, the consolidated financial position of Cargo Connection            Logistics Holding, Inc. as of December 31, 2007 and the consolidated results of its            operations and its cash flows for the years ended December 31, 2007 and 2006 in            conformity with accounting principles generally accepted in the United States of            America.

 

The            accompanying consolidated financial statements have been prepared assuming the Company            will continue as a going concern. As discussed in Note 2 to the consolidated financial            statements, the Company has reported losses from operations, negative cash flows from            operating activities, negative working capital and has a stockholders' deficit. These            conditions raise substantial doubt about its ability to continue as a going concern.            Management's plans in regard to these matters are described in note 2. The consolidated            financial statements do not include any adjustments that might result from the outcome            of this uncertainty.

 

/s/            Friedman LLP

Friedman LLP

East            Hanover, New Jersey

March            31, 2008

 

 

 

F-1

 

----

 

 

 
| **CARGO CONNECTION LOGISTICS HOLDING, INC. AND                        SUBSIDIARIES**                       |
|------------------------------------------------------------------------------------------------------------|
| **CONSOLIDATED BALANCE SHEET**                                                                             |
| **DECEMBER 31, 2007**                                                                                      |
|                                                                                                       |   |   |   |
| ASSETS                                                                                                     |
| **Current Assets**                                                                                         |   |   |   |
| Cash                                                                                                       |               $ | 470,779 |   |
| Accounts receivable, net of doubtful accounts of                        $177,075                           |   | 807,356 |   |
| Notes receivable                                                                                           |   | 300,000 |   |
| Due from officers                                                                                          |   | 74,949 |   |
| Prepaid expenses                                                                                           |   | 70,588 |   |
| **Total current assets**                                                                                   |   | 1,723,672 |   |
|                                                                                                       |   |   |   |
| Property and equipment, net of accumulated depreciation in                        the amount of $1,565,225 |   | 438,560 |   |
| License agreements - RadRopeTM                                                                        |   | 1,316,854 |   |
| Security deposits                                                                                          |   | 91,904 |   |
| **TOTAL ASSETS**                                                                                           |               $ | 3,570,990 |   |
|                                                                                                       |   |   |   |
| LIABILITIES AND STOCKHOLDERS' DEFICIENCY                                                                   |
| **Current Liabilities**                                                                                    |   |   |   |
| Accounts payable and accrued expenses                                                                      |               $ | 4,701,804 |   |
| Secured convertible debenture, net of discount of                        $38,327                           |   | 2,293,173 |   |
| Financial instruments                                                                                      |   | 997,743 |   |
| Current portion of notes payable                                                                           |   | 299,695 |   |
| Current portion of capital leases payable                                                                  |   | 105,975 |   |
| Due to related parties                                                                                     |   | 2,027,936 |   |
| Due to others                                                                                              |   | 1,388,158 |   |
| Security deposits and escrowed funds                                                                       |   | 42,170 |   |
| **Total current liabilities**                                                                              |   | 11,856,654 |   |
|                                                                                                       |   |   |   |
| Long term portion of capital leases payable                                                                |   | 110,342 |   |
| Long term portion of notes payable                                                                         |   | 896,815 |   |
| Deferred rent                                                                                              |   | 566,577 |   |
| **Total other liabilities**                                                                                |   | 1,573,734 |   |
| **TOTAL LIABILITIES**                                                                                      |   | 13,430,388 |   |
|                                                                                                       |   |   |   |
| Commitments and contingencies                                                                              |   |   |   |
|                                                                                                       |   |   |   |
| Non-controlling interest - ITG subsidiary                                                                  |   | 329 |   |
|                                                                                                       |   |   |   |
| Series III Preferred Stock, par value $1.00 -                        authorized                            |   |   |   |
| 500,000 shares, 265,000 shares issued and outstanding                        (liquidation value $265,000)  |   | 265,000 |   |
| Series IV Preferred Stock, par value $1.00 -                        authorized                             |   |   |   |
| 600,000 shares, 517,500 shares issued and outstanding                        (liquidation value $517,500)  |   | 517,500 |   |
| Series V Preferred Stock, par value $1.00 -                        authorized                              |   |   |   |
| 500,000 shares, 479,867 shares issued and outstanding                        (liquidation value $479,867)  |   | 479,867 |   |
|                                                                                                       |   |   |   |
| **Stockholders' Deficiency**                                                                               |   |   |   |
| Common stock, par value $.001 - authorized 5,000,000,000                        shares,                    |   |   |   |
| 1,147,807,354 shares issued and outstanding                                                                |   | 1,147,808 |   |
| Additional paid in capital                                                                                 |   | 3,335,297 |   |
| Accumulated deficit                                                                                        |   | (15,605,199) |   |
| **TOTAL STOCKHOLDERS' DEFICIENCY**                                                                         |   | (11,122,094) |   |
| **TOTAL LIABILITIES AND STOCKHOLDERS'                        DEFICIENCY**                                  |                                      $ | 3,570,990 |   |

 

See            accompanying notes to consolidated financial statements.

 

F-2

 

----

 

 

 
| **CARGO CONNECTION LOGISTICS HOLDING, INC. AND                        SUBSIDIARIES**       |
|--------------------------------------------------------------------------------------------|
| **CONSOLIDATED STATEMENTS OF OPERATIONS**                                                  |
| **FOR THE YEARS ENDED DECEMBER 31, 2007 AND                        2006**                  |
|                                                                                       |   |   |   |   |   |
|                                                                                       |   | 2007 |   |   | 2006 |
| Operating revenue:                                                                         |   |   |   |   |   |
| Revenue                                                                                    | $ | 17,212,765 |   | $ | 17,927,544 |
| Total revenue                                                                              |   | 17,212,765 |   |   | 17,927,544 |
|                                                                                       |   |   |   |   |   |
| Operating expenses:                                                                        |   |   |   |   |   |
| Direct operating expenses                                                                  |   | 11,615,518 |   |   | 12,296,989 |
| Selling, general and administrative                                                        |   | 6,677,192 |   |   | 8,441,906 |
| Total operating expenses                                                                   |   | 18,292,710 |   |   | 20,738,895 |
|                                                                                       |   |   |   |   |   |
| Loss from operations                                                                       |   | (1,079,945) |   |   | (2,811,351) |
|                                                                                       |   |   |   |   |   |
| Other (expense) income                                                                     |   |   |   |   |   |
| Interest expense, net                                                                      |   | (3,109,378) |   |   | (1,857,929) |
| Rental income                                                                              |   | 121,850 |   |   | 123,950 |
| Change in value of financial instruments                                                   |   | 2,946,392 |   |   | (817,591) |
| Non-controlling interest - ITG                                                             |   | 659 |   |   | (987) |
| Loss from debt extinguishment                                                              |   | (35,766) |   |   | (502,110) |
| Other income                                                                               |   | 46,341 |   |   | 693 |
| Total other expense                                                                        |   | (29,902) |   |   | (3,053,974) |
|                                                                                       |   |   |   |   |   |
| Net loss before cumulative effect of change in accounting                        principle |   | (1,109,847) |   |   | (5,865,325) |
|                                                                                       |   |   |   |   |   |
| Cumulative effect on prior years of retroactive application                        of a    |   |   |   |   |   |
| change in accounting principle                                                             |   | (396,000) |   |   | - |
|                                                                                       |   |   |   |   |   |
| Net loss attributable to common stockholders                                               | $ | (1,505,847) |   | $ | (5,865,325) |
|                                                                                       |   |   |   |   |   |
| Net loss per common share, basic and diluted                                               | $ | (0.001) |   | $ | (0.008) |
|                                                                                       |   |   |   |   |   |
| Weighted average number of common shares used                                              |   |   |   |   |   |
| in the net loss per share calculation                                                      |   | 1,102,435,761 |   |   | 738,792,011 |

 

See            accompanying notes to consolidated financial statements.

 

F-3

 

----

 

 

 
| **CARGO CONNECTION LOGISTICS HOLDING, INC. AND                        SUBSIDIARIES** |
|--------------------------------------------------------------------------------------|
| **CONSOLIDATED STATEMENT OF STOCKHOLDERS'                        DEFICIENCY**        |
| **AS OF DECEMBER 31, 2007**                                                          |
|                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                 |   |   |   |   |   | **Additional** |   | **Deferred** |   |   |   | **Total** |
|                                                                                 |   | **Common Stock** |   | **Paid-in** |   | **Offering** |   | **Accumulated** |   | **Stockholders'** |
|                                                                                 |   | **Shares** |   | **Amount** |   | **Capital** |   | **Costs** |   | **Deficit** |   | **Deficiency** |
| Balance December 31, 2006                                                            |   | 1,082,912,617 | $ | 1,082,913 | $ | 3,242,192 | $ | (10,000) | $ | (14,099,352) | $ | (9,784,247) |
|                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative effect of change in                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
| accounting principle                                                                 |   | - |   | - |   | - |   | - |   | (396,000) |   | (396,000) |
|                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Cancellation of shares in connection                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| with deferred offering costs                                                         |   | (105,263) |   | (105) |   | (9,895) |   | 10,000 |   | - |   | - |
|                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of shares for payables                                                      |   | 25,000,000 |   | 25,000 |   | 75,000 |   | - |   | - |   | 100,000 |
|                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion of principal on secured                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| convertible notes into commonstock                                                   |   | 40,000,000 |   | 40,000 |   | 28,000 |   | - |   | - |   | 68,000 |
|                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                                             |   | - |   | - |   | - |   | - |   | (1,109,847) |   | (1,109,847) |
|                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance December 31, 2007                                                            |   | 1,147,807,354 | $ | 1,147,808 | $ | 3,335,297 | $ | - | $ | (15,605,199) | $ | (11,122,094) |

 

See            accompanying notes to consolidated financial statements.

 

 

F-4

 

----

 

 

 
| **CARGO CONNECTION LOGISTICS HOLDING, INC. AND                        SUBSIDIARIES**       |
|--------------------------------------------------------------------------------------------|
| **CONSOLIDATED STATEMENTS OF CASH FLOWS**                                                  |
| **FOR THE YEARS ENDED DECEMBER 31, 2007 AND                        2006**                  |
|                                                                                       |   |   |   |   |   |
|                                                                                       | **December 31,** |   | **December 31,** |
|                                                                                       | **2007** |   | **2006** |
| **Cash flows from operating activities:**                                                  |   |   |   |   |   |
| Net loss attributable to common stockholders                                               | $ | (1,505,847) |   | $ | (5,865,325) |
| Cumulative effect of prior years of retroactive                        application         |   |   |   |   |   |
| of a change in accounting principle                                                        |   | 396,000 |   |   | - |
| Net loss before cumulative effect of change in accounting                        principle |   | (1,109,847) |   |   | (5,865,325) |
| Adjustments to reconcile net loss to net                                                   |   |   |   |   |   |
| cash used in operating activities:                                                         |   |   |   |   |   |
| Interest expense in connection with derivative                        instruments          |   | - |   |   | 490,902 |
| Amortization of note discounts                                                             |   | 1,645,921 |   |   | 645,158 |
| Change in derivative liability due to accrued liquidated                        damages    |   | 165,236 |   |   | - |
| Mark to market on derivative instrument                                                    |   | (2,946,392) |   |   | 817,591 |
| Depreciation and amortization                                                              |   | 184,853 |   |   | 161,927 |
| Deferred rent                                                                              |   | (496,949) |   |   | 187,959 |
| Issuance of shares for services                                                            |   | - |   |   | 562,978 |
| Bad debt expense                                                                           |   | 25,000 |   |   | 52,996 |
| Loss on extinguishment of debt                                                             |   | 35,766 |   |   | 534,789 |
| Non-controlling interest                                                                   |   | (658) |   |   | 987 |
| Guaranteed rental expense                                                                  |   | (495,000) |   |   | 495,000 |
| Changes in:                                                                                |   |   |   |   |   |
| Escrow held by factor                                                                      |   | 361,846 |   |   | (208,982) |
| Escrow held by attorney                                                                    |   | - |   |   | 49,351 |
| Accounts receivable                                                                        |   | (174,129) |   |   | (2,165) |
| Due from factor                                                                            |   | 351,924 |   |   | 259,760 |
| Prepaid expenses                                                                           |   | 231,441 |   |   | (85,884) |
| Accounts payable and accrued expenses                                                      |   | 2,080,598 |   |   | (84,471) |
| Security deposits and escrowed funds                                                       |   | 1,657 |   |   | 4,871 |
|                                                                                       |   |   |   |   |   |
| **Net cash used in operating activities**                                                  |   | (138,733) |   |   | (1,982,558) |
|                                                                                       |   |   |   |   |   |
| **Cash flows from investing activities**                                                   |   |   |   |   |   |
| Proceeds from sale of common stock for investment in                        NMDT           |   | - |   |   | 200,000 |
| Issuance of notes receivable                                                               |   | (300,000) |   |   | - |
| Redemption of security deposits                                                            |   | - |   |   | 3,171 |
| Payments received for security deposits                                                    |   | (1,096) |   |   | (18,445) |
| Sale of property and equipment                                                             |   | 7,300 |   |   | - |
| Purchase of property and equipment                                                         |   | (38,378) |   |   | (56,734) |
|                                                                                       |   |   |   |   |   |
| **Net cash (used in) provided by investing                        activities**             |   | (332,174) |   |   | 127,992 |
|                                                                                       |   |   |   |   |   |
| **Cash flows from financing activities**                                                   |   |   |   |   |   |
| Repayments from related parties                                                            |   | - |   |   | 66,378 |
| Repayments from officers                                                                   |   | - |   |   | 430 |
| Repayments due to others                                                                   |   | (177,051) |   |   | - |
| Proceeds received from others                                                              |   | - |   |   | 1,502,709 |
| Repayments to / advances from officers                                                     |   | (101,460) |   |   | (1,382) |
| Proceeds received from related parties                                                     |   | 900,777 |   |   | 323,635 |
| Proceeds from notes payable                                                                |   | 150,000 |   |   | - |
| Proceeds from secured debenture                                                            |   | 40,000 |   |   | 600,000 |
| Principal payments on convertible notes payable                                            |   | - |   |   | (251,002) |
| Principal payments on notes payable                                                        |   | (139,766) |   |   | (229,388) |
| Principal payments on capital leases payable                                               |   | (69,486) |   |   | (65,160) |
|                                                                                            |  |  |  |  |  |  |

 

 

F-5

 

----

 

 

 
|                                                                                     |   |      |   |   |      |
|------------------------------------------------------------------------------------------|--------|-----------|--------|--------|-----------|
| **Net cash provided by financing activities**                                            |   | 603,014   |   |   | 1,946,220 |
|                                                                                     |   |      |   |   |      |
| Net decrease in cash                                                                     |   | 132,107   |   |   | 91,654    |
|                                                                                     |   |      |   |   |      |
| Cash, beginning of period                                                                |   | 338,672   |   |   | 247,018   |
|                                                                                     |   |      |   |   |      |
| Cash, end of period                                                                      | $      | 470,779   |   | $      | 338,672   |
|                                                                                     |   |      |   |   |      |
| **Supplemental disclosure of cash flow                        information**              |   |      |   |   |      |
| Interest expense                                                                         | $      | -         |   | $      | 1,458,073 |
| Income taxes                                                                             | $      | -         |   | $      | -         |
|                                                                                     |   |      |   |   |      |
| **Supplemental schedule of non-cash                        activities:**                 |   |      |   |   |      |
| Conversion of convertible notes payable to common                        stock           | $      | -         |   | $      | 350,290   |
| Conversion of secured debenture to common stock                                          | $      | 40,000    |   | $      | -         |
| Conversion of preferred stock to common stock                                            | $      | -         |   | $      | 180,000   |
| Issuance of common stock for deferred consulting                        services         | $      | -         |   | $      | 100,000   |
| Discount on secured debenture                                                            | $      | 34,791    |   | $      | 600,000   |
| Value of shares issued in connection with investment in                        NMDT      | $      | -         |   | $      | 1,316,854 |
| Write off of derivatives for convertible note payable                        and         |   |      |   |   |      |
| secured debenture due to conversion and payoffs                                          | $      | 25,553    |   | $      | 291,584   |
| Write off of discount for convertible note payable                        and            |   |      |   |   |      |
| secured debenture due to conversion and payoffs                                          | $      | 33,319    |   | $      | 154,204   |
| Issuance of common stock for settlement of trade                        payables         | $      | 100,000   |   | $      | 21,784    |
| Purchase of equipment through capital lease                                              | $      | 265,696   |   | $      | 19,800    |
| Cumulative effect of accrued liquidated damages                                          | $      | 396,000   |   | $      | -         |
| Cancellation of shares in connection with deferred offering                        costs | $      | 10,000    |   | $      | -         |
| Conversion of trade payables into notes payable                                          | $      | 1,012,256 |   | $      | -         |

 

See            accompanying notes to consolidated financial statements.

 

 

F-6

 

----

 

 

**NOTE            1 - ORGANIZATION, HISTORY AND NATURE OF BUSINESS**

 

On            May 12, 2005, through a reverse merger, pursuant to a Stock Purchase Agreement and            Share Exchange among Cargo Connection Logistics Holding, Inc. (f/k/a Championlyte            Holdings, Inc.) and primarily through its newly acquired subsidiaries, Cargo Connection            Logistics Corp. (“Cargo Connection”) and Cargo Connection Logistics –            International, Inc., f/k/a Mid-Coast Management, Inc., (“Cargo            International”), the Company began operating in the transportation and logistics            industry as a third party logistics provider of transportation and management            services.  Effective May 23, 2005, the name Championlyte Holdings, Inc. was            changed to Cargo Connection Logistics Holding, Inc. to better reflect the new nature            and focus of the entity and its operations. Cargo Connection Logistics Holding, Inc.            and all of its subsidiaries are collectively referred to as the            “Company.”

 

The            Company is a provider of logistics solutions for global partners through its network of            branch terminal locations and independent agents in North America. The Company’s            target customer base ranges from mid-sized to Fortune 100(TM) companies.

 

On            May 12, 2005, the Company purchased all of the outstanding shares of Cargo Connection            Logistics Corp., a Delaware corporation (“Cargo Connection”) and Mid-Coast            Management, Inc., an Illinois corporation, for seventy percent (70%) of the issued and            outstanding shares of common stock of Championlyte Holdings, Inc. pursuant to a Stock            Purchase Agreement and Share Exchange among Championlyte Holdings, Inc., Cargo            Connection, Mid-Coast Management, Inc. and the stockholders thereof. As additional            consideration, the Company issued shares of preferred stock to the stockholders of            Cargo Connection and Mid-Coast Management, Inc., which were convertible into a number            of shares of common stock of the Company on the first anniversary of the closing date            so that the stockholders of Cargo Connection and Mid-Coast Management, Inc. would own            eighty percent (80%) of the outstanding shares of the Company. On May 23, 2005, the            Company changed its name to Cargo Connection Logistics Holding, Inc.

 

On            March 14, 2006, Mid Coast Management, Inc. changed its name to Cargo Connection            Logistics – International, Inc. (“Cargo International”).

 

The            Company operates predominately as a non-asset based transportation provider which            provides truckload and less-than-truckload transportation services utilizing some            Company equipment and dedicated owner operators, as well as in coordination with other            transportation companies with whom the Company has established relationships. The            Company also provides a wide range of value-added logistics services, including those            provided through its leased U.S. Customs Bonded warehouse facilities, U.S. Customs            approved container freight station operations, and a U.S Customs approved General Order            warehouse operation which began during the latter part of the second quarter of 2006.            All of these leased facilities enhance and support the supply chain logistics needs of            the Company’s customers. Some of the services provided are pick-and-pack            services, special projects that may include changing labels or tickets on items and            assistance in the inspection of customers’ shipments into the United States, as            well as storage of goods and recovery of goods damaged in transit.

 

In            December 2006, the Company acquired NMDT, which has been accounted for as a            wholly-owned subsidiary. At the time of its acquisition by the Company, NMDT’s            assets consisted of a license to certain patent rights and cash. The Company intends to            develop, with the licensor, a market-ready nuclear radiation detection device, called            RadRopeTM, to service the logistics, transportation and general cargo industries.            The Company anticipates that the development of a revised prototype will be completed            by the end of the second quarter 2008. The Company expects the prototype to be marketed            by the middle of 2008, subject to the requirements of any potential purchaser. There            can be no assurances that the prototype will be marketable without additional            revisions, improvements and resulting expenses for the Company.

 

The            Company owns a 51% interest in ITG and EmplifyHR (a related party – see note 12)            owns a 49% interest. The financial statements of ITG are included in the            Company’s consolidated financial statements. The minority interest in operating            results is reflected as an element of non-operating expense in the Company’s            consolidated statements of operations and the minority interest in the equity of ITG is            reflected as a separate component in the Company’s consolidated balance            sheet.

 

 

F-7

 

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In            2006, Cargo Connection became one of an exclusive number of companies that works            closely with the Department of Homeland Security CBP. The Company has become the            operator of the sole General Order warehouse for JFK. General Order warehouses operate            under specific provisions of the CFR. Applicable provisions of the CFP require            merchandise to be considered General Order merchandise when it is taken into the            custody by CBP.

 

**NOTE 2 - GOING CONCERN**

 

The            accompanying consolidated financial statements have been prepared on a basis which            contemplates the realization of assets and the satisfaction of liabilities and            commitments in the normal course of business. The Company incurred a net loss            attributable to common stockholders of approximately $1,109,847 for the year ended            December 31, 2007, prior to the cumulative effect of the adjustment for prior            year’s adjustment for compliance with EITF 00-19-2 and a net loss of $1,505,847            after the cumulative effect of such adjustment, as compared with a net loss of            $5,865,325 for the year ended December 31, 2006. The Company has a working capital            deficiency of $10,132,982 and a stockholders’ deficit of $11,122,094 at December            31, 2007 and expects that it will incur additional losses in the immediate future. The            effect of the change in the value of the financial instruments is not included in            operational losses. To date the Company has financed operations primarily through sales            of its equity securities and issuances of debt instruments to related and unrelated            parties.

 

As            of December 31, 2007, the Company was obligated under the Registration Rights Agreement            between the Company and Montgomery to have filed and declared effective a Securities            Act registration statement registering for resale the shares issuable upon conversion            of outstanding debentures held of record by Montgomery and in the outstanding aggregate            principal amount of $2,210,000 at such date (see note 14). The Registration Rights            Agreement contains liquidated damages provisions relating to the failure of such            registration statement to become effective by a specified date. Such registration            statement was not declared effective by the specified date. The Company has previously            accrued an aggregate $1,030,540 with respect to such liquidated damages provisions, of            which $396,000 has been recorded as a cumulative effect adjustment in conformity with            EITF 00-19-2. The total maximum liquidated damage liability cannot be determined until            such time as the registration statement is declared effective. The registration            statement which the Company previously filed was withdrawn with the consent of            Montgomery. Subsequently, the Company failed to file another registration statement by            the required date. Currently the debentures have matured and the Company owes the            principal plus accrued interest. Additionally, the Company is in default of its            obligation under a Registration Rights Agreement and additional liquidating damages are            due. In addition, the Montgomery Debentures have matured and have not been            repaid.

 

The            Company’s ability to continue as a going concern is dependent upon its ability to            generate profitable operations in the future, raise additional capital through the            issuance of debt and sale of its common or preferred stock and/or to obtain the            necessary financing to meet its obligations and repay its liabilities arising from            normal business operations when they come due. Although the Company continues to pursue            these plans, there is no assurance that the Company will be successful in obtaining            financing on terms acceptable to the Company, if at all. The outcome of these matters            cannot be predicted with any certainty at this time.

 

These factors raise substantial doubt that the Company may be able to            continue as a going concern. These consolidated financial statements do not include any            adjustments to the amounts or classification of assets and liabilities that may be            necessary should the Company be unable to continue as a going concern.

 

The            audit report prepared by our independent registered public accounting firm relating to            our consolidated financial statements for the year ended December 31, 2007 includes an            explanatory paragraph expressing the substantial doubt about our ability to continue as            a going concern.

 

F-8

 

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**NOTE            3 - BASIS OF PRESENTATION**

 

The            consolidated financial statements include the accounts of the Company and all            subsidiaries. All significant intercompany accounts and transactions have been            eliminated in consolidation. Certain prior year amounts have been reclassified to            conform to the current year’s presentation.

 

**NOTE            4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

**Cash            and concentration of credit risk**

 

Financial instruments, which potentially subject the Company to            concentrations of credit risk, consist of cash. The Company places its cash with high            quality financial institutions and at times may exceed the FDIC $100,000 insurance            limit. The Company has not experienced any losses on these accounts, and believes that            such risk is minimal.

 

The            Company extends credit based on an evaluation of the customer’s financial            condition, generally without collateral. 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, as required.

 

**Accounts receivable and allowance for doubtful            accounts**

 

Accounts receivable are recorded at the outstanding amounts, net of the            allowance for doubtful accounts. The Company uses estimates to determine its allowance            for doubtful accounts based on the ability of its customers to make required payments,            historical collections experience, current economic trends and a percentage of accounts            receivable by aging category. The Company reviews available customer account and            financial information, including public filings and credit reports, current trends,            credit policy, and accounts receivable aging and may also consult legal counsel when            appropriate. The Company continuously monitors collections and payments from its            customers. When the Company deems it probable that an account of a specific customer            will become uncollectible, that customer’s account balance will be included in            the reserve calculation. While credit losses have historically been within expectations            and the provisions established, the Company cannot guarantee that it will continue to            experience the same credit loss rates that it has experienced in the past.

 

**Property and equipment and depreciation and            amortization**

 

Property and equipment is recorded at cost. Depreciation and            amortization of property and equipment is provided for by the straight-line method over            the estimated useful lives of the respective assets. The estimated useful lives of the            office equipment, trucks, machinery and equipment, and furniture and fixtures are five            and seven years. Computer equipment and software is depreciated over three years and            leasehold improvements are amortized over the shorter of the life of the improvement or            the length of the lease.

 

The            Company amortizes deferred financing costs over the respective terms of their            agreements using the straight-line method.

 

**Valuation of long-lived assets**

 

The            Company accounts for its long-lived assets in accordance with Statement of Financial            Accounting Standards (“SFAS”) SFAS No. 144, “Accounting for the            Impairment or Disposal of Long-Lived Assets,” (“SFAS 144”) which            requires that long-lived assets be evaluated whenever events or changes in            circumstances indicate that the carrying amount may not be recoverable. If the total of            the undiscounted future cash flows is less than the carrying amount of the asset or            asset group, an impairment loss is recognized for the difference between the estimated            fair value and the carrying value of the asset or asset group. During the year ended            December 31, 2007, there were no impairment charges relating to long-lived            assets.

 

F-9

 

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**Revenue recognition**

 

The            Company recognizes all transportation revenues based upon the tendering of freight to            the Company for the delivery of the goods at their final destination. The Company            recognizes warehouse services operations revenue upon the completion of those services.            Costs related to such revenue are included in direct operating expenses. The Company            presents taxes that are directly imposed on revenue-producing transactions by a            governmental authority on a gross basis (i.e., included in revenues and cost of            sales).

 

**Income taxes**

 

The            Company accounts for income taxes in accordance with SFAS No. 109, “Accounting            for Income Taxes.” Deferred taxes are provided utilizing the liability method            whereby deferred tax assets are recognized for deductible temporary differences, and            deferred tax liabilities are recognized for taxable temporary differences. Temporary            differences are the differences between the financial statement and tax bases of assets            and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the            opinion of management, it is more likely than not that some portion or all of the            deferred tax assets will not be realized. Deferred tax assets and liabilities are            adjusted for the effects of changes in tax laws and rates on the date of enactment.            Current income taxes are based on the respective periods’ taxable income for            federal, state and city income tax reporting purposes. No benefit for income taxes has            been provided as the deferred tax asset generated from net operating losses and            temporary differences has been offset by a full valuation allowance.

 

Effective January 1, 2007, the Company adopted Financial Accounting            Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income            Taxes” (“FIN 48”) - an interpretation of FASB Statement No. 109,            “Accounting for Income Taxes.” FIN 48 addresses the determination of            whether tax benefits claimed or expected to be claimed on a tax return should be            recorded in the financial statements. Under FIN 48, the Company may recognize the tax            benefit from an uncertain tax position only if it is more likely than not that the tax            position will be sustained on examination by the taxing authorities, based on the            technical merits of the position. The tax benefits recognized in the financial            statements from such a position should be measured based on the largest benefit that            has a greater than 50% likelihood of being realized upon ultimate settlement. FIN 48            also provides guidance on derecognition, classification, interest and penalties on            income taxes, accounting in interim periods and requires increased disclosures. At the            date of adoption, and as of December 31, 2007, the Company does not have a liability            for unrecognized tax benefits.

 

The            Company files income tax returns in the U.S. federal jurisdiction and various states.            The Company is subject to U.S. federal or state income tax examinations by tax            authorities for years after 2002. During the periods open to examination, the Company            has net operating losses (“NOLs”) and tax credit carry forwards for U.S.            federal and state tax purposes that have attributes from closed periods. Since these            NOLs and tax credit carry forwards may be utilized in future periods, they remain            subject to examination. The Company is in the process of preparing the Company’s            consolidated tax returns for the years ended December 31, 2003, 2004, 2005, 2006 and            2007 and does not anticipate any adverse effect from any of the filings            thereof.

 

The            Company’s policy is to record interest and penalties on uncertain tax provisions            as income tax expense. As of December 31, 2007, the Company has no additional accrued            interest or penalties related to uncertain tax positions.

 

**Estimated liability for insurance claims**

 

The            Company, under a self insurance program, maintains automobile, general, cargo, and            workers’ compensation claim liability insurance coverage under both deductible            and retrospective rating policies. In the fiscal period in which claims are reported,            the Company estimates and establishes any potential liabilities, if they exist, for its            share of ultimate settlements using all available information, as well as the            Company’s history of such claims. Claim estimates are adjusted when additional            information becomes available. The recorded expense depends upon actual loss experience            and changes in estimates of settlement amounts for open claims that have not been fully            resolved. However, final settlement of these claims could differ from the amounts the            Company has accrued.

 

F-10

 

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**Use            of estimates**

 

The            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 the disclosure of contingent assets and liabilities at the date of the            financial statements and the reported amounts of revenues and expenses during the            reporting periods. Actual results could differ from these estimates. The more            significant accounting estimates inherent in the preparation of the Company’s            consolidated financial statements include estimates as to the depreciable lives of            property and equipment, valuation of equity related instruments and derivatives issued            and valuation allowance for deferred income tax assets.

 

**Fair            value disclosure**

 

For            certain of the Company’s financial instruments, including cash, receivables,            accounts payable, accrued expenses and financial instruments, the carrying amounts            approximate their fair values due to their short-term maturities. The carrying amounts            of the Company’s long-term debt also approximate fair values based on current            rates for similar debt offered to the Company.

 

**Net            loss per share**

 

The            Company reports loss per share in accordance with SFAS No. 128, “Earnings per            Share.”Basic loss per common share is computed by dividing net loss attributable            to common stockholders by the weighted average number of common shares outstanding for            the period. Diluted net loss per share reflects the dilution from the potential            conversion or exercise into common stock of securities such as warrants, stock options,            restrictive stock awards and other convertible securities. All potentially dilutive            shares as of December 31, 2007 and 2006, of 6,208,253,135 and 3,777,138,477 shares,            respectively, have been excluded from diluted loss per share as the effect would be            antidilutive for the periods then ended. In all financial statements presented, diluted            net loss per common share is the same as basic net loss per common share. As of            December 31, 2007 and 2006, there were 1,147,807,354 and 1,082,912,617 shares of common            stock outstanding, respectively, with a weighted average number of shares used for the            net loss per share computation of 1,102,435,761 and 738,792,011 shares,            respectively

 

**Stock-based compensation**

 

On            January 1, 2002, the Company adopted fair value accounting for grants of common stock,            options and warrants to employees and non-employees in accordance with SFAS No. 123,            “Accounting for Stock-Based Compensation” (“SFAS No. 123”), as            amended by FAS 148 and Emerging Issues Task Force Issue 96-18, “Accounting for            Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in            Conjunction with Selling, Goods or Services” (“EITF 96-18”).            Accordingly, compensation expense is recognized over the vesting period.

 

On            January 1, 2006, the Company adopted SFAS No. 123R, “Share-based            Payment”(“SFAS 123R”), using the modified prospective method. SFAS            123R supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock            Issued to Employees” (“APB 25”), and its interpretations and revises            SFAS No. 123 and requires all share-based payments, including grants of employee stock            options, to be recognized in the financial statements based on their fair values. Under            SFAS 123R, the Company measures the cost of services received in exchange for stock            options and similar awards based on the grant-date fair value of the award and            recognizes this cost in the income statement over the period during which an award            recipient is required to provide service in exchange for the award. The Company uses            the Black-Scholes model to assess the fair value of share-based payments and amortizes            this cost over the service period.

 

The            Company has not granted any stock options nor have any stock options been exercised or            expired in 2006 or 2007.

 

 

F-11

 

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**Financial instruments**

 

The            Company has allocated the proceeds received from convertible debt instruments between            the underlying debt instruments and the warrants, and has recorded the conversion            feature as a liability in accordance with SFAS No. 133, “Accounting for            Derivative Instruments and Hedging Activities” (“SFAS 133”), and            related interpretations. The conversion feature and certain other features that are            considered embedded derivative instruments, such as a variable interest rate feature, a            conversion reset provision and redemption option, have been recorded at their fair            value within the terms of SFAS 133, as their fair value can be separated from the            convertible note and the conversion feature liability is independent of the underlying            note value. The conversion liability is marked-to-market each reporting period with the            resulting gains or losses shown on the Company’s consolidated statements of            operations. For debt instruments having conversion features whereby the holder can            convert at any time, the deferred charge is recorded as interest expense in the period            proceeds are received.

 

The            Company evaluates its convertible debt, options, warrants or other contracts to            determine if those contracts or embedded components of those contracts qualify as            derivatives to be separately accounted for under SFAS 133 and related interpretations,            including EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to,            and Potentially Settled in, a Company’s Own Stock” (“EITF            00-19”). The result of this accounting treatment is that the fair value of the            embedded derivative is recorded as a liability and marked-to-market at each balance            sheet date. In the event that the embedded derivative is recorded as a liability, the            change in fair value is recorded in the consolidated statement of operations as other            income or expense. Upon conversion or exercise of a derivative instrument, the            instrument is marked to fair value at the conversion date and reclassified to            equity.

 

In            circumstances where the embedded conversion option in a convertible instrument is            required to be bifurcated and there are also other embedded derivative instruments in            the convertible instrument that are required to be bifurcated, the bifurcated            derivative instruments are accounted for as a single, compound derivative            instrument.

 

The            classification of derivative instruments, including the determinations as to whether            instruments should be recorded as liabilities or as equity, is re-assessed at the end            of each reporting period. Instruments that are initially classified as equity that            become subject to reclassification under SFAS 133 are reclassified to liability at the            fair value of the instrument on the reclassification date. Derivative instrument            liabilities are classified in the balance sheet as current or non-current based on            whether or not net-cash settlement of the derivative instrument is expected within            twelve months of the balance sheet date.

 

**Deferred Rent**

 

The            term of certain of the Company’s lease obligations provide for scheduled            escalations in the monthly rent. In accordance with SFAS 13, “Accounting for            Leases” the non-contingent rent increases are being amortized over the term of            the leases in a straight line basis. Deferred rent includes Illinois & Atlanta rent            and represents the unamortized rent adjustment amount, and is reflected as deferred            rent obligations in the Company’s consolidated balance sheet.

 

**Intangible Assets**

 

Excess of cost over fair value of net tangible assets acquired arising            from the acquisition of NMDT are first attributed to patents and licenses based upon            their estimated fair value at the date of acquisition. These intangible assets are            being amortized over their estimated useful lives, which is 19 years. Excess of cost            over fair value of net assets acquired will be reviewed for impairment pursuant to the            SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived            Assets” (“SFAS No. 144”).

 

The            Company accounts for its intangible assets under the provisions of SFAS No. 142. In            accordance with SFAS No. 142, intangible assets with a definite life are accounted for            impairment under SFAS No. 144 and intangible assets with indefinite lives are accounted            for impairment under SFAS No. 142.

 

 

F-12

 

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The            Company’s intangible assets, such as patents or trademarks, that are determined            to have definite lives are amortized over their useful lives and are measured for            impairment when events or circumstances indicate that the carrying value may be            impaired. In these cases, the Company estimates the future undiscounted cash flows to            be derived from the intangible asset to determine whether or not a potential impairment            exists. If the carrying value exceeds the estimate of future undiscounted cash flows,            the impairment is calculated as the excess of the carrying value of the asset over the            estimate of its fair value. Any impairment charges would be classified as other expense            within the consolidated statement of operations for the subject accounting period.            Alternatively, and until a patent with respect to the Patent Rights is granted by the            PTO (or the Company is advised that the PTO has rejected the patent application with            respect to the Patent Rights), in accordance with SFAS No. 142 the Company intends to            conduct periodic impairment tests on the License based on a comparison of the estimated            fair value of the License to the carrying value of the License. Such testing will be            based on the status of the development of the marketable RadRopeTM product and,            once developed, the extent of market acceptance of the RadRopeTM product following            the commencement of the marketing of the product. If the carrying value exceeds the            estimate of fair value, impairment will be calculated as the excess of the carrying            value over the estimate of fair value.

 

**Stock Based Transactions**

 

The            Company has concluded various transactions in which it paid the consideration in shares            of common stock. These transactions include:
|   | **•** | Acquiring NMDT; |
|--------|------------|-----------------|
|   | **•** | Acquiring the services of various professionals who provided                        the Company with a range of corporate consultancy services, strategic                        planning, development of business plans, investor presentations and advice                        and assistance with funding; and |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | Settlement of the Company’s indebtedness. |
|--------|------------|-------------------------------------------------|

 

When            common stock is used in transactions, the transactions are generally valued using the            market price of the common stock at the time the shares are issued for the services            provided. If the value of the asset or services being acquired is available and            believed to fairly represent its market value, the transaction is valued using the            value of the asset or service being provided, and any excess of the value of the common            stock issued over this value is recorded as goodwill or a charge to the statement of            operations.

 

**NOTE            5 - PROPERTY AND EQUIPMENT**

 

The            components of property and equipment at December 31, 2007 are as follows:

 
| Communication systems                           |   | $      | 182,884     |
|-------------------------------------------------|--------|--------|-------------|
| Computer equipment                              |   |   | 633,271     |
| Furniture and fixtures                          |   |   | 45,249      |
| Leasehold improvements                          |   |   | 144,154     |
| Machinery and equipment                         |   |   | 858,416     |
| Office equipment                                |   |   | 139,811     |
| Property and equipment, at cost                 |   |   | 2,003,785   |
| Less: accumulated depreciation and amortization |   |   | (1,565,225) |
| Property and equipment, net                     |   | $      | 438,560     |

 

Depreciation and amortization expense for the years ended December 31,            2007 and 2006 was $184,853 and $161,927, respectively. In addition, $102,477 and            $75,206 of depreciation and amortization on assets under capital leases have been            included in depreciation expense for the years ended December 31, 2007 and 2006,            respectively.

 

F-13

 

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**NOTE            6 - ACQUISITIONS**

 

On            August 29, 2007, the Company entered into a letter agreement with Fleet and its sole            stockholder to acquire all of the issued and outstanding shares of capital stock of            Fleet. The consummation of this transaction has been delayed due to, among other            things, financing limitations, and no assurance can be given that it will be            consummated, nor that financing for the transaction will be obtained.

 

Effective December 6, 2006, the Company acquired certain exclusive            license rights, including limited sublicensing rights (the “License”), to            manufacture, use and sell products utilizing intellectual property rights (the            “Patent Rights”) which are the subject of a pending patent application with            the United States Patent and Trademark Office (the “PTO”). The Patent            Rights relate to portable nuclear radiation detection technology for use within the            logistics, transportation and general cargo industries.

 

The            Company acquired the License as a result of its acquisition of NMDT, a then            wholly-owned subsidiary of UTEK Corporation, in a stock-for-stock exchange transaction.            Pursuant to such transaction, the Company issued 168,539,326 shares of Company common            stock to UTEK Corporation in exchange for all of the issued and outstanding NMDT equity            securities. The Company has valued such 168,539,326 shares at $1,516,854, based on the            fair market value of the Company’s common stock on the date of issuance. Such            purchase price has been allocated among the assets of NMDT as follows:

 
| Cash    | $    200,000 |
|---------|----------------------------------|
| License | 1,316,854                        |
|    | $ 1,516,854                 |

 

NMDT            was formed in November 2006 and acquired the License less than two weeks prior to its            acquisition by the Company in December 2006. From the date of its formation through the            date of its acquisition by the Company, NMDT had no employees, business operations or            material liabilities. At the time of its acquisition by the Company, NMDT’s only            assets consisted of $200,000 of cash and the License. The License agreement provides            for payments to the licensor of up to 7% of the net revenues from sales of products            utilizing the Patent Rights, subject to minimum annual fees payable to the licensor,            beginning in the second year of the licensing agreement, which range from $5,000 in            year 2 to $30,000 in year 5 after the product is available for production. The License            is scheduled to terminate upon the extinguishment of the Patent Rights. The latest            possible date of such extinguishment cannot be determined at this time and will only be            determinable when and if a patent with respect to the Patent Rights is granted by the            PTO. The patent owner is still currently pursuing the final patents for all the uses of            the RadRopeTM product. Currently, the PTO has approved 8 of the 16 claims for            which the patent owner has applied. The patent expires in 2025. The Company cannot            accurately predict the value or eventual useful life of the patent in light of the            continuing progress in the development of this technology. The Company intends to            continue to account for the License based on the License’s allocated portion of            the Company’s purchase price for NMDT until such time as a patent with respect to            the Patent Rights is granted by the PTO and/or the Company determines the extent of            market acceptance of the RadRopeTM product following the commencement of the            marketing of the product. The current useful life of this technology is based on the            remaining life of the patent and will be subject to periodic review for impairment            under SFAS 144.

 

**NOTE            7 - RECENT ACCOUNTING PRONOUNCEMENTS**

 

In            December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations"            (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an            acquirer recognizes and measures in its financial statements the identifiable assets            acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the            goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the            evaluation of the nature and financial effects of the business combination. SFAS 141R            is effective for financial statements issued for fiscal years beginning after December            15, 2008. The Company is currently evaluating the potential impact of adoption of SFAS            141R on its consolidated financial statements. However, the Company does not expect the            adoption of SFAS 141R to have a material effect on its consolidated financial            statements.

 

F-14

 

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In            December 2007, the FASB issued SFAS No. 160. "Noncontrolling Interests in Consolidated            Financial Statements - an Amendment of ARB No. 51" (“SFAS 160”). SFAS 160            establishes accounting and reporting standards pertaining to ownership interests in            subsidiaries held by parties other than the parent, the amount of net income            attributable to the parent and to the noncontrolling interest, changes in a parent's            ownership interest, and the valuation of any retained noncontrolling equity investment            when a subsidiary is deconsolidated. This statement also establishes disclosure            requirements that clearly identify and distinguish between the interests of the parent            and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years            beginning on or after December 15, 2008. The Company is currently evaluating the            potential impact of adoption of SFAS 160 on its consolidated financial statements.            However, the Company does not expect the adoption of SFAS 160 to have a material effect            on its consolidated financial statements.

 

In            December 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin            (“SAB”) No. 110 Share-Based Payment (“SAB 110”). SAB 110            establishes the continued use of the simplified method for estimating the expected term            of equity based compensation. The simplified method was intended to be eliminated for            any equity based compensation arrangements granted after December 31, 2007. SAB 110 was            published to help companies that may not have adequate exercise history to estimate            expected terms for future grants. The Company does not expect the adoption of SAB 110            to have a material effect on its consolidated financial statements.

 

In            June 2007, the EITF reached a consensus on EITF Issue No. 06-11, “Accounting for            Income Tax Benefits on Dividends on Share-Based Payment Awards” (“EITF            06-11”). EITF 06-11 addresses share-based payment arrangements with dividend            protection features that entitle employees to receive (a) dividends on            equity-classified nonvested shares, (b) dividend equivalents on equity-classified            nonvested share units, or (c) payments equal to the dividends paid on the underlying            shares while an equity-classified share option is outstanding, when those dividends or            dividend equivalents are charged to retained earnings under SFAS 123(R) and result in            an income tax deduction for the employer. A realized income tax benefit from dividends            or dividend equivalents that are paid to employees for equity-classified nonvested            shares, nonvested equity share units, and outstanding equity share options are charged            to retained earnings are and should be recognized as an increase in additional paid in            capital. The amount recognized in additional paid-in capital for the realized income            tax benefit from dividends on those awards should be included in the pool of excess tax            benefits available to absorb potential future tax deficiencies on share-based payments.            The Company does not expect the adoption of this pronouncement to have a material            impact on its financial position or results of operation.

 

In            February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial            Assets and Financial Liabilities - Including an amendment of FASB Statement No.            115” (“SFAS No. 159”). SFAS No. 159 permits entities to choose to            measure many financial instruments and certain other items at fair value. SFAS No. 159            is effective for fiscal years beginning after November 15, 2007. Earlier adoption is            permitted, provided the Company also applies the provisions of SFAS No. 157. The            Company currently is evaluating the effect of SFAS No. 159 on its consolidated            financial statements.

 

**NOTE            8 - FACTORING FACILITIES**

 

Cargo Connection had entered into an accounts receivable factoring            facility with Accord Financial Services, Inc. Pursuant to that factoring agreement, the            factor purchased certain accounts receivable and extended credit with a maximum            borrowing amount of $2,000,000. The Company ended that factoring facility on November            20, 2007. The facility provided for the purchase of up to 90% of eligible accounts            receivable of Cargo Connection minus a discount of approximately 1.6% as of that last            day of the agreement and a discretionary reserve (holdback) which was reduced via            payments from the individual accounts receivable debtors. If a receivable was            outstanding over 90 days, under recourse provisions, Cargo Connection would have to buy            back the receivable from the factor. Cargo Connection had to submit a minimum of            $1,500,000 of eligible invoices in each calendar quarter. At December 31, 2007, $-0- is            due to and or from the factor. The factor and the Company also had an informal            agreement, whereby the Company escrowed funds that were to be used to pay for the            services of outside transportation vendors. This was mainly due to the concerns of the            factor for any of its transportation clients as to the potential default of payments by            their clients to outside transportation vendors to ensure that these funds are not            diverted for other uses.

 

 

F-15

 

 

 

----

 

Effective November 20, 2007, Cargo Connection entered into: (i) an            Account Transfer Agreement (the "Account Transfer Agreement") with Wells Fargo Bank,            National Association ("WFBA"); and (ii) that certain letter agreement dated November            20, 2007 between WFBA and Cargo Connection, amending the Account Transfer Agreement            (the "Letter Agreement"); and, collectively with the Account Transfer Agreement, (the            "Amended Transfer Agreement"). The Amended Transfer Agreement provides that WFBA shall            serve as a factor to Cargo Connection by purchasing certain of the Cargo Connection's            accounts receivable, and provide a maximum factoring capacity of $3,000,000. The            obligations of Cargo Connection to WFBA are guaranteed by the Company and the executive            officers of the Company.

 

Concurrently with the Amended Transfer Agreement, WFBA, Cargo Connection            and Accord Financial, Inc., ("Accord") Cargo Connection's previous factor, executed a            Buyout Agreement (the "Buyout Agreement") pursuant to which WFBA purchased all of Cargo            Connection's accounts receivable owned by Accord and Accord assigned all of the            security interests, financing statements and liens it possessed in Cargo Connection's            accounts receivable and assets to WFBA. In addition, all previous amounts escrowed by            Accord were returned to the Company.

 

Cargo Connection’s accounts receivable factoring facility with            WFBA, provides that the factor purchase certain accounts receivable and extend credit            with a maximum borrowing amount of $3,000,000 The facility automatically renews            annually unless either party provides 30 days’ prior notice of cancellation. The            facility provides for the purchase of up to 95% of eligible accounts receivable of            Cargo Connection minus a fixed discount of approximately .35% as of December 31, 2007,            along with a variable discount calculated by WFBC’s prime rate plus 1% per annum            for the time period from the initial payment to date of receipt of collections along            with a discretionary reserve (holdback) which is reduced with payments from the            individual accounts receivable debtors. If a receivable is outstanding over 90 days,            under recourse provisions, Cargo Connection is required to buy back the receivable from            the factor. Cargo Connection must submit a minimum of $1,000,000 of eligible invoices            in each calendar month. At December 31, 2007, $200,680 is due from the factor, which            represents the reserve against collected receivables. At December 31, 2007, the total            amount advanced by the factor was $1,793,438, which represents the proceeds from            financing of accounts receivables purchased of $1,992,714 less an escrow against these            funds in the amount of $199,276

 

**NOTE 9 - NOTES RECEIVABLE**

 

On            November 21, 2007, the Company loaned $300,000 to Fleet Global Services, Inc., which is            represented by a promissory note. The note bears interest at 11% per annum and matures            on November 21, 2008. As of December 31, 2007, the principal amount outstanding on the            note is $300,000. Interest earned on the note for the year ended December 31, 2007            amounted to $3,707.

 

**NOTE            10 - OBLIGATIONS UNDER CAPITAL LEASES**

 

The            Company leases machinery, equipment and software under various non-cancelable capital            leases with a capitalized cost of $1,014,427, less accumulated amortization of $698,318            as of December 31, 2007. The remaining obligations require monthly payments, including            interest, totaling $10,796. Interest rates on these leases range from 2% to 23%. These            leases mature at various times through September 2011. Certain obligations are            guaranteed by certain executive officers of the Company.

 

On            September 20, 2007, Cargo International acquired seven forklifts to be used in the            operations of the Company. In connection with this purchase, the Company financed            $129,168 of the purchase price under a capital lease obligation. The lease bears            interest at 22.275% per annum and matures on September 20, 2011, and requires monthly            payments of $4,089. The Company traded in old forklifts valued at $14,500, which was            applied against the purchase price of the new forklifts.

 

 

F-16

 

----

 

 

As            of December 31, 2007, the aggregate future minimum annual lease payments under these            leases are as follows:

 
| Year Ending December 31,                       |   |   |      |
|------------------------------------------------|--------|--------|-----------|
|                                           |   |   |      |
| 2008                                           |   | $      | 132,129   |
| 2009                                           |   |   | 59,370    |
| 2010                                           |   |   | 49,067    |
| 2011                                           |   |   | 36,800    |
| Total payments                                 |   |   | 277,366   |
| Less: amount representing interest             |   |   | (61,049)  |
| Net present value of capital lease obligations |   |   | 216,317   |
| Less: current portion                          |   |   | (105,975) |
| Long-term portion                              |   | $      | 110,342   |

 

 

**NOTE            11 – DUE TO OTHERS**

 

During the year ended December 31, 2007, the Company received cash            advances of $100,000 from Triple Crown, which were repaid in full by November 9,            2007.

 

The            Company classifies advances as current liabilities, as the Company is expected to repay            these advances within a twelve month period unless a more formal agreement is put into            place for the repayment of these funds. The Company is currently negotiating formal            note agreements with the lenders listed below with respect to their advances to the            Company.

 

The            following table details Due to Others as of December 31, 2007:

 
| Loan from Ferro                  | $      | 130,000   |
|----------------------------------|--------|-----------|
| Loan from RAKJ Holdings          |   | 145,000   |
| Loan from Triple Crown           |   | 975,000   |
|                             |   | 1,250,000 |
|                             |   |      |
| Due to Avalon Insurance Co.      |   | 128,140   |
| Due to Premium Financing Special |   | 10,018    |
|                             |   | 138,158   |
|                             |   |      |
| Total account balance            | $      | 1,388,158 |

 

In            addition, the Company has entered into insurance premium financing arrangements with            two providers with balances due to the providers of $138,158 as of December 31,            2007.

 

**NOTE            12 - NOTES PAYABLE**

 

On            December 31, 2007, the Company issued a promissory note in the principal amount of            $800,000 to EmplifyHR, evidencing payroll advances previously extended by EmplifyHR to            the Company. The Note bears interest at a rate of 12% per annum, requires equal monthly            amortization payments and matures on January 1, 2012. The Company may prepay the unpaid            principal balance, or any portion thereof, of the note at any time without premium or            penalty. Concurrently with the issuance of the note: (i) the Company entered into a            security agreement with EmplifyHR, pursuant to which it granted to EmplifyHR a security            interest in all of their respective assets; and (ii) Cargo Connection and Cargo            International entered into a Guaranty of Payment Agreement pursuant to which Cargo            Connection and Cargo International agreed to guarantee the Company's payment            obligations under the note. EmplifyHR provides payroll and human resource services to            the Company. EmplifyHR owns a 49% interest in ITG, of which the Company owns 51%. Ivan            Dobrin, a principal shareholder of EmplifyHR, is the brother of Jesse Dobrinsky, the            Company's CEO.

 

On            June 30, 2007, Cargo International issued a promissory note to Target Temporaries, Inc.            in the principal amount of $200,000, representing an accounts payable obligation due to            Target Temporaries, Inc. The note bears interest at a rate of 12% per annum and has a            maturity date of June 30, 2009. Interest totaling $6,564 is unpaid and included in            accrued expenses as of December 31, 2007.

 

F-17

 

----

 

 

On            April 17, 2007, Cargo International borrowed $100,000 from a related party to assist in            meeting the short term cash flow needs of the Company. Cargo International issued the            lender a promissory note in such principal amount. This note provides for interest at            the annual rate of 12% and a maturity date of July 10, 2007. As of December 31, 2007,            the accrued interest, was $8,515 and is included in accrued expenses.

 

On            April 10, 2007, Cargo International borrowed $50,000 from a related party to assist in            short term cash flow needs of the Company. This note provided for interest at the            annual rate of 12% and a maturity date of July 3, 2007. The principal balance of this            note was repaid in full, including accrued interest of $1,381 prior to December 31,            2007.

 

In            January 2006, the Company issued a promissory note to National Semi-Trailer in the            principal amount of $87,910 bearing interest at 10% per annum, representing an accounts            payable obligation due to National Semi-Trailer Corp. This note was to mature November            16, 2006, but was informally extended by the holder. In June 2007, the Company settled            with National Semi-Trailer Corp. on a balance of $34,452, payable in three equal            consecutive monthly installments commencing on June 15, 2007. As of December 31, 2007,            the note was fully repaid.

 

In            March 2004, Cargo International entered into a revolving term loan with HSBC Bank            whereby Cargo International was granted a $100,000 line of credit that bears interest            at a rate of prime plus 2.5% (9.5% at December 31, 2007). Cargo International made            monthly interest only payments until December 15, 2006, when under the terms of the            loan agreement, the line of credit terminated and the remaining balance became a note            payable with a four year term. This obligation is collateralized by all of the assets            of Cargo International and is guaranteed by certain of the executive officers of the            Company.

 

In            May 2003, the Company entered into a loan agreement with U.S. Small Business            Administration (“SBA”) whereby the SBA loaned $90,200 to the Company for            working capital purposes. The loan bears interest at a rate of 4% per annum and matures            in 2008, when the balance due approximates $14,000. Monthly installments totaling            $2,664 commenced in June 2005. The note is collateralized by substantially all the            assets of Cargo Connection and is supported by the personal guarantees of certain of            the executive officers of Cargo Connection. As of December 31, 2007 the outstanding            balance of the note is $21,467.

 

At            December 31, 2007, future minimum annual principal payments on the above notes are as            follows:

 
| Year Ending December 31, |   |      |
|--------------------------|--------|-----------|
|                     |   |      |
| 2008                     | $      | 299,695   |
| 2009                     |   | 409,892   |
| 2010                     |   | 231,301   |
| 2011                     |   | 234,764   |
| 2012                     |   | 20,858    |
|                     | $      | 1,196,510 |

 

The            following table details the Notes Payable as of December 31, 2007:

 
| EmplifyHR             |   | $      | 800,000   |
|-----------------------|--------|--------|-----------|
| US-SBA                |   |   | 21,467    |
| HSBC Bank             |   |   | 75,043    |
| Target Temporaries    |   |   | 200,000   |
| Parkside Properties   |   |   | 100,000   |
| Total                 |   |   | 1,196,510 |
| Less: Current portion |   |   | 299,695   |
| Long-term portion     |   | $      | 896,815   |

 

 

F-18

 

----

 

 

 

**NOTE            13 - SECURED CONVERTIBLE DEBENTURES**

 

In            October 2005, the Company entered into a secured convertible debenture with members of            management in the amount of $75,000. Under the agreement, the Company issued a $75,000            secured convertible debenture with a 15% interest rate to the group with a maturity            date of September 30, 2006. The debenture is convertible into common stock of the            Company at a conversion price equal to the lesser of (a) $0.005 per share or (b)            seventy five percent (75%) of the lowest Closing Bid Price of the common stock of the            five (5) trading days immediately preceding the conversion date. The holders of the            note informally agreed to extend the due date of the note to December 31, 2007. The            note has not been repaid as of this date. The Company has not received any notification            that it is in default under the provisions of the note.

 

This            Note is a hybrid instrument which contains an embedded derivative feature which would            individually warrant separate accounting as a derivative instrument under SFAS 133. The            embedded derivative feature has been bifurcated from the debt host contract, referred            to as the “Compound Embedded Derivative Liability.” The embedded derivative            feature includes the conversion feature within the note and an early redemption option.            The value of the embedded derivative liability, in the amount of $14,286 as of December            31, 2007 (see note 14), was bifurcated from the debt host contract and recorded as a            derivative liability, which resulted in a reduction of the initial carrying amount (as            unamortized discount) of the notes and was fully amortized as of December 31,            2007.

 

Pursuant to a Securities Purchase Agreement, dated December 28, 2005            (the “Montgomery Purchase Agreement”), with Montgomery, the Company issued            a $1,750,000 secured convertible debenture (the “First Montgomery            Debenture”) to Montgomery with an interest rate of 10% per annum and a maturity            date of December 28, 2007. The First Montgomery Debenture is convertible into shares of            common stock at a conversion price equal to the lesser of (a) $0.0025 per share or (b)            seventy five percent (75%) of the lowest Closing Bid Price of the common stock for the            ten (10) trading days immediately preceding the conversion date. The First Montgomery            Debenture is secured by substantially all of the assets of the Company. Simultaneously            with the issuance of the First Montgomery Debenture, the Company issued to Montgomery a            three year warrant (the “Montgomery Warrant”) to purchase 2,000,000 shares            of common stock at an exercise price of $0.001 per share, which is exercisable            immediately. The Montgomery Warrant was valued at $2,394,000 using a Black-Scholes            option pricing model. Also in connection with the issuance of the First Montgomery            Debenture, the Company paid Montgomery a fee of $135,000. The value of the Montgomery            Warrant and the fees paid to Montgomery were recorded as a discount to the First            Montgomery Debenture and are being amortized over the term of the First Montgomery            Debenture using the effective interest method.

 

The            First Montgomery Debenture is a hybrid instrument which contains both freestanding            derivative financial instruments and multiple embedded derivative features each of            which would require separate accounting as a derivative instrument under SFAS 133. The            freestanding derivative financial instruments include the Montgomery Warrant, which was            valued individually at $1,861,535 at the date of inception. The various embedded            derivative features have been bundled together as a single, compound embedded            derivative instrument that has been bifurcated from the debt host contract, referred to            as a “Compound Embedded Derivative Liability.” The compound embedded            derivative features include the conversion feature within the First Montgomery            Debenture, the conversion reset feature, the early redemption option and the interest            rate adjustments. The value of the compound embedded derivative liability was            bifurcated from the debt host contract and recorded as a derivative liability of            $1,857,752, which resulted in a reduction of the initial carrying amount (as            unamortized discount) of the First Montgomery Debenture. The unamortized discount is            being amortized to interest expense using the effective interest method over the life            of the First Montgomery Debenture, or 24 months. The unamortized discount and the            effect of this transaction are included with the accounting treatment relating to the            issuance to Montgomery of a second debenture on February 13, 2006.

 

 

F-19

 

----

 

 

The            Company has classified the Montgomery Warrant as a liability and recorded an associated            interest expense effective December 28, 2005 to reflect that the Registration Rights            Agreement entered into, in connection with the issuance of the Montgomery Warrant and            the First Montgomery Debenture. The agreement requires the Company to pay liquidated            damages under specified conditions, which in some cases could exceed a reasonable            discount for delivering unregistered shares and thus would require the Montgomery            Warrant to be classified as a liability until the earlier of the date the Montgomery            Warrant is exercised or expires. In accordance with EITF 00-19, the Company has            allocated a portion of the proceeds of the First Montgomery Debenture to the Montgomery            Warrant based on their fair value. EITF 00-19 also requires that the Company revalue            the Montgomery Warrant as a derivative instrument periodically to compute the value in            connection with changes in the underlying stock price and other assumptions, with the            change in value recorded as other expense or other income.

 

On            February 13, 2006, the Company completed a financing for an additional $600,000 with            Montgomery as part of the funding package contemplated by the Montgomery Purchase            Agreement. In connection with the February 2006 financing, the Company issued to            Montgomery a second secured convertible debenture (the “Second Montgomery            Debenture” and, collectively with the First Montgomery Debenture, the            “Montgomery Debentures”) in the principal amount of $600,000 with a 10%            interest rate and a maturity date of February 13, 2008. The Second Montgomery Debenture            is convertible into shares of common stock at a conversion price equal to the lesser of            (a) $0.0025 per share or (b) 75% of the lowest closing bid price of the common stock            for the ten trading days immediately preceding the conversion date. Shares of common            stock issuable upon conversion of the Second Montgomery Debenture are also subject to            the Registration Rights Agreement.

 

The            Second Montgomery Debenture is a hybrid instrument which contains an embedded            derivative feature which would individually require separate accounting as a derivative            instrument under SFAS 133. The freestanding derivative financial instruments totaled            $1,090,902 at the date of inception. The embedded derivative feature has been            bifurcated from the debt host contract, referred to as the “Compound Embedded            Derivative Liability.” The embedded derivative feature includes the conversion            feature within the debenture and an early redemption option. The value of the embedded            derivative liability was bifurcated from the debt host contract and recorded as a            derivative liability of $1,090,902, which resulted in a reduction of the initial            carrying amount (as unamortized discount) of the notes. The unamortized discount is            being amortized to interest expense using the effective interest method over the life            of the notes, or 24 months. The discount on these debentures was fully amortized at            December 31, 2007.

 

Pursuant to the Registration Rights Agreement, the Company committed to            file with the Securities and Exchange Commission, no later than 45 days from date of            funding, a Registration Statement on Form SB-2 (the “SB-2 Registration            Statement”) with respect to the shares of common stock issuable upon conversion            of the Montgomery Debentures and upon exercise of the Montgomery Warrant. The Company            could have been held in default under the Registration Rights Agreement because the            SB-2 Registration Statement was not declared effective by the Securities and Exchange            Commission within 150 days of the filing of the registration statement. There is no            limitation on the maximum amount of liquidated damages that the Company could incur as            a result of the failure to have the SB-2 Registration Statement declared effective.            There are liquidated damages provisions under the Registration Rights Agreement,            effective upon the SB-2 Registration Statement not being declared effective by the            Securities and Exchange Commission within 120 days of filing the SB-2 Registration            Statement. The SB-2 Registration Statement was filed in February 2006 (SEC File No:            333-131825). An amendment to the SB-2 Registration Statement was filed in July 2006.            The registration statement which the Company previously filed has been withdrawn, and            the Company failed to file a registration statement by a second deadline.

 

The            liquidated damages liability accrues monthly at a rate equal to 2% of the outstanding            principal amount due under the Montgomery Debentures. As of December 31, 2007, the rate            of the liquidated damages liability is being calculated at approximately $45,000 per            month. As of December 31, 2007, the Company had recognized an aggregate $1,030,540            liability for these liquidated damages, of which $396,000 has been recorded as a            cumulative effect adjustment against retained earnings as of December 31, 2007, in            conformity with EITF 00-19-2. The total maximum liquidated damages liability cannot be            determined until such time as the registration statement is declared            effective.

 

F-20

 

----

 

 

On            May 7, 2007, the Company entered into an agreement with Montgomery (the “Waiver            Agreement”). Under the Waiver Agreement, Montgomery agreed to:

 
|   | (a) | Waive 50% of the Company’s obligation under the                        Registration Rights Agreement to pay Montgomery the liquidated damages                        relating to the Company’s inability to obtain effectiveness of the                        SB-2 Registration Statement. Such waiver was effective only if (i) the                        Company complied with all of its obligations under the Waiver Agreement and                        (ii) the Company redeemed the Montgomery Debentures on or prior to June 5,                        2007. Montgomery reserved the right to consent, which consent may not be                        unreasonably, withheld, conditioned or denied, to an extension of such                        redemption deadline to June 30, 2007 if the Company delivered to                        Montgomery, no later than June 5, 2007, significant evidence of a potential                        financing transaction, the proceeds of which would, at a minimum, be                        sufficient to repay the all of the outstanding principal and accrued                        interest due under the Montgomery Debentures and other debt due Montgomery.                        The Company actively pursued potential financing transactions during this                        time period, but such efforts have been unsuccessful to date. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
|   | (b) | Permit the Company to withdraw the SB-2 Registration                        Statement. On May 9, 2007, the Company filed a Request for Withdrawal of                        Registration Statement on Form RW. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Also            under the Waiver Agreement, the Company agreed to file a new registration no later than            June 5, 2007 (or June 30, 2007, if Montgomery consented to an extension of the            redemption date for the Secured Convertible Debentures to June 30, 2007), registering            for resale under the Securities Act the shares of common stock issuable upon conversion            of the Montgomery Debentures. The Company is obligated to use its best efforts to have            such registration statement (the “New Registration Statement”) declared            effective within 60 days after its filing with the Commission. The maximum number of            shares of common stock that the Company is required to include in the New Registration            Statement is equal to the lesser of (i) one-third of the number of shares of common            stock issued and held by persons other than Company affiliates, or (ii) the number of            shares of common stock issuable upon conversion of the Montgomery Debentures. If the            New Registration Statement includes less than all of the shares of common stock            issuable upon complete conversion of the Montgomery Debentures, the Company is required            to file further registration statements, within specified time frames, as may be            necessary to register for resale all of the remaining shares of common stock issuable            upon exercise of the Montgomery Debentures. To date, the Company has not filed the New            Registration Statement with the Securities and Exchange Commission .

 

On            November 14, 2007, the Company issued a senior secured convertible subordinated            debenture in the principal amount of $46,500 to a related entity of Montgomery, YA            Global, which bears interest at a rate equal to prime plus 2.25% per annum, matures on            November 14, 2008, and initially is convertible into shares of the Company’s            common stock at a price per share equal to, at the option of the holder, either (a)            $.0025 or (b) 75% of the volume weighted average price per share of the Company’s            common stock for the 10 day period prior to such conversion. This note is secured by            substantially all the assets of the Company. Interest is scheduled to be paid on the            first day of each calendar quarter effective January 1, 2008. The Company is late in            making the payment owed on January 1 and is in default of this debenture. The Company            has not received any notice of default from YA Global.

 

On            November 30, 2007, Montgomery converted $40,000 of principal into 40,000,000 shares of            the Company’s common stock at a conversion rate of $.001 per share. The change in            value of the embedded derivatives within the convertible notes due to these conversions            was $25,553.

 

As            of December 31, 2007, $140,000 represents the cumulative principal amount of the            Montgomery Debentures that has been satisfied pursuant to common stock            conversions.

 

The            Montgomery Debentures have matured and have not been repaid.

 

F-21

 

----

 

 

**NOTE            14**-**FINANCIAL INSTRUMENTS            (“Compound Embedded Derivative Liability”)**

 

The            effect of the mark to market adjustments associated with the financial instruments for            the year ending December 31, 2007 generated a gain of $2,946,392, as compared to a loss            of $817,591 for the year ended December 31, 2006. In addition, interest expense            associated with the derivative financial instruments totaled $1,645,921 for the year            ended December 31, 2007, as compared to $1,458,935 for the year ended December 31,            2006.

 

The            following table details the liability for financial instruments as of December 31,            2007:

 
|                |   |   |           |   |   |          |   |   |            |   |   |            |   |   |           |
|---------------------|--------|--------|----------------|--------|--------|---------------|--------|--------|-----------------|--------|--------|-----------------|--------|--------|----------------|
| **Financial**       |   |   | **Balances**   |   |   |          |   |   |            |   |   | **Mark to**     |   |   | **Balances**   |
| **Instrument**      |   |   | **as of**      |   |   |          |   |   | **Other**       |   |   | **Market**      |   |   | **as of**      |
| **Liability**       |   |   | **12/31/2006** |   |   | **Additions** |   |   | **Adjustments** |   |   | **Adjustments** |   |   | **12/31/2007** |
|                |   |   |           |   |   |          |   |   |            |   |   |            |   |   |           |
| Management Note     |   | $      | 142,890        |   | $      | -             |   | $      | -               |   | $      | (128,604)       |   | $      | 14,286         |
| Montgomery Notes    |   |   | 3,615,412      |   |   | -             |   |   | 139,683         |   |   | (2,807,952)     |   |   | 947,143        |
| Montgomery Warrants |   |   | 11,359         |   |   | -             |   |   | -               |   |   | (9,433)         |   |   | 1,926          |
| YA Global Note      |   |   | -              |   |   | 34,791        |   |   | -               |   |   | (403)           |   |   | 34,388         |
|                |   |   |           |   |   |          |   |   |            |   |   |            |   |   |           |
| Totals              |   | $      | 3,769,661      |   | $      | 34,791        |   | $      | 139,683         |   | $      | (2,946,392)     |   | $      | 997,743        |

 

**NOTE            15 - EMPLOYEE BENEFIT PLAN**

 

The            Company maintains a 401(k) savings plan that covers substantially all of its employees.            Participants in the savings plan may elect to contribute, on a pretax basis, a certain            percentage of their salary to the plan. Presently, the Company does not match any            portion of the participant’s contributions as per the provisions of the            plan.

 

**NOTE            16 - COMMITMENTS AND CONTINGENCIES**

 

**Lease Commitments**

 

The            Company has entered into non-cancelable operating leases for offices and warehouse            space in several states including Illinois, New York, Ohio, Florida and Georgia.            Additionally, the Company leases equipment and trucks under non-cancelable operating            leases. The office and warehouse leases are subject to escalation for the            Company’s proportionate share of increases in real estate taxes and certain other            operating expenses. The approximate future minimum rentals under non-cancelable            operating leases in effect on December 31, 2007, are as follows:

 

 
| Year Ended   |   |   | Office and      |   |   | Equipment  |
|--------------|--------|--------|-----------------|--------|--------|------------|
| December 31, |   |   | Warehouse Space |   |   | And Trucks |
|         |   |   |            |   |   |       |
| 2008         |   | $      | 1,680,166       |   | $      | 115,688    |
| 2009         |   |   | 1,570,062       |   |   | 117,424    |
| 2010         |   |   | 1,393,179       |   |   | 89,055     |
| 2011         |   |   | 1,349,316       |   |   | -          |
| 2012         |   |   | 1,426,326       |   |   | -          |
| Thereafter   |   |   | 4,516,096       |   |   | -          |
|         |   | $      | 11,935,145      |   | $      | 322,167    |

 

 

F-22

 

----

 

 

The            Company and AMB HTD Beacon Centre, LLC ("AMB"), the lessor under the lease agreement            between Cargo Connection (as tenant) and AMB (as landlord), dated as of September 30,            2004, for Cargo Connection's commercial use of the premises located at 8501 N.W. 17th            Street, Suite 102, Miami, Florida, entered into an agreement, dated as of November 21,            2007 pursuant to which Cargo is required to make a series of six equal monthly            installment payments in the amount of $40,031, plus one final payment in the amount of            $34,605, to AMB, or an aggregate amount of $274,792, to fully cure previous payment            arrearages.

 

As            of January 11, 2008, Cargo International entered into a Commercial Lease Agreement with            MP Cargo ORD Property LLC, a Delaware limited liability company, for Cargo            International's commercial use of the premises located at 491 Supreme Drive,            Bensenville, Illinois (the "Premises"). The lease is for a term of ten years and calls            for annual rent in the amount of $600,000 for the first two years, with bi-annual            increases thereafter throughout the term of the lease, which is paid on a monthly            basis. As an inducement for the landlord to enter into the lease and concurrently            therewith: (i) the Company issued a Guaranty of Lease dated as of January 11, 2008 (the            "Corporate Guaranty”); and (ii) Jesse Dobrinsky, the Chief Executive Officer of            the Company, issued a Personal Guaranty of the lease dated as of January 11, 2008 (the            "Dobrinsky Personal Guaranty"; and together with the Corporate Guaranty, collectively            the "Guarantees"), in each case in favor of the landlord, guaranteeing all of Cargo            International's obligations under the lease.

 

In            connection with the execution of this lease, on January 11, 2008, Cargo International            entered into a Sublease Termination Agreement (the "Termination Agreement"), with            Underwing International, LLC ("Underwing"), a related party, terminating a sublease            agreement between itself and Underwing, dated as of May 1, 2007, pursuant to which            Underwing (as the prior tenant of the premises) sub-leased the Premises to Cargo            International. The Termination Agreement, which terminated Underwing's status as Cargo            International's sub-lessor of the Premises, allowed Cargo International to enter into            the lease directly with the landlord. The landlord and Underwing contemporaneously            terminated the Commercial Lease Agreement dated January 31, 2005 between Underwing and            the landlord.

 

Rent            charged to operations for office and warehouse space for the years ended December 31,            2007 and 2006 amounted to $909,893 and $1,311,112, respectively (see note 19 for rent            expense paid to related entities). Rent expense charged to operations for trucks and            equipment for the years ended December 31, 2007 and 2006 amounted to $602,136 and            $550,964, respectively.

 

**Litigation**

 

On            or about November 17, 2006, Daniel Murray (“Murray”), a former employee,            filed a complaint against the Company, seeking damages for alleged age discrimination,            fraudulent inducement, breach of contract and other forms of discrimination, under the            captionDaniel Murray v. Cargo Connection Logistics Holding,            Inc., case no. 19405-06 (Supreme Court of the State of New            York, Nassau County, New York). Murray sought damages equal to the annual salary            contained in his employment agreement of $150,000 per year for five years, or $750,000.            On February 27, 2007, the Company’s motion to dismiss all causes of action other            than the breach of contract and age discrimination claims was granted. On or about July            10, 2007, the Company and Murray reached a settlement agreement. Under such settlement            agreement, Murray delivered to the Company a general release in consideration for            $20,000, payable by the Company in three equal consecutive monthly installments            commencing on July 17, 2007. The Agreement has been satisfied in full as of December            31, 2007.

 

On            or about November 10, 2006, One Rason Road Joint Venture, Inc. (“Rason”)            filed a complaint against Cargo Connection seeking damages in the amount of $282,672            for alleged lease payments for a non-owned, non-related or non-affiliated company,            Airfreight Management Group, Inc. (“AMG”), under the captionOne Rason Road Joint Venture v. Airfreight Management Group, Inc.            n/k/a Cargo Connection Logistics Corporation, case no.            06-017600 (Supreme Court of the State of New York, County of Nassau, NY). Rason filed            the action for alleged breach of a lease, dated July 10, 2003 between itself and AMG            for premises located at 45 Rason Road, Inwood, NY, which lease expires on July 31,            2008. Rason alleges that AMG vacated the premise on or about May, 2006 and owes back            rent. Rason also alleges that AMG is now known as Cargo Connection and asserts that the            Company is liable for AMG’s debts under the lease. The Company’s motion to            dismiss the complaint was granted on May 8, 2007.

 

F-23

 

----

 

 

On            or about November 6, 2006, in an application to the Bankruptcy Court for an Examination            of Airfreight Warehouse Corporation (“AFW”), which filed for bankruptcy            protection under Chapter XI in the US Bankruptcy Court for the Southern District of New            York, the trustee in the matter alleged that, pursuant to an agreement entered into            between AFW and Cargo Connection, Cargo Connection has not paid all funds due to AFW            under the agreement in the amount of $300,000. The Company has not conducted any            discovery related to this matter. The Company believes that it has acted in good faith            and remitted all funds due to AFW under the agreement.

 

On            or about May 2006, Cargo Connection filed suit against a former business agent, under            the captionCargo Connection Logistics Corp. v. Fleet Global            Services, Inc., case no. 48-2006-CA-3208-0 (9th Judicial            Circuit, Orange County, Florida), for breach of contract, seeking $128,179 in damages.            Cargo Connection claims that, upon the ending of its relationship with the business            agent, there were funds still owed to Cargo Connection. As part of the terms and            conditions under the letter agreement entered into by both parties on August 29, 2007,            Fleet Global Services agreed to pay $56,000 to Cargo Connection in settlement of this            pending litigation.

 

On            or about September 7, 2007, Rikki Hawkins-Fuller (“Hawkins”), a former            employee, filed a verified complaint against the Company with the New York State            Division of Human Rights, seeking an unspecified amount of damages for alleged unlawful            discriminatory practices, under captionRikki Hawkins-Fuller            v. Cargo Connection Logistics, case no. 10114466 (State            Division of Human Rights, State of New York, Hempstead, New York). The Company has            responded to allegations in the verified complaint. Management believes that the            Company has meritorious defenses to this claim and intends to vigorously defend this            matter.

 

On            March 7, 2008, the Company and Cargo–International were served with a summons and            complaint in connection with the action entitledTravelers            Indemnity Company v. Mid Coast Management and Cargo Connection Logistics Holding,            Inc.The action seeks payment of $16,196.00, relating to an            insurance premium for the period commencing January 26, 2005 through January 25, 2006            and was brought in New York State Supreme Court, Nassau County.

 

The            Company is party to various legal proceedings generally incidental to its business as            is the case with other companies in the same industry. Although the ultimate            disposition of legal proceedings cannot be predicted with certainty, it is the opinion            of management that the outcome of any such claim which is pending or threatened, either            individually or on a combined basis, will not have a materially adverse effect on the            consolidated financial statements of the Company.

 

**Significant Customers**

 

For            the year ended December 31, 2007, the Company had no customers which comprised more            than 10% of its operating revenue. For the year ended December 31, 2006, the Company            had one customer who comprised approximately 21% of operating revenue and one            additional customer that accounted for 9.4% of operating revenues.

 

**NOTE            17 - STOCKHOLDERS' DEFICIENCY**

 

**Common Stock**

 

On            April 19, 2007, 105,263 shares of outstanding Common Stock were deemed returned to the            Company and cancelled. The accounting for these shares is included in the number of            shares outstanding as of December 31, 2007.

 

On            May 11, 2007, the Company issued 25,000,000 shares of Common Stock in payment for            $100,000 of outstanding payables, which represented the fair market value of the            transaction at this date.

 

F-24

 

----

 

 

In            July 2007, the Company cancelled 50,000,000 shares of its Common Stock which were held            in escrow as part of the issuance of secured debentures to Highgate House, Ltd. in May            2005. These shares were placed into escrow to secure the Company’s obligation to            issue shares of common stock upon conversion of such debentures. The debentures were            not converted prior to their repayment by the Company. Because these shares were not            formally issued and the debentures were not converted prior to their repayment, they            were not included in the net loss per share calculations.

 

On            November 30, 2007, Montgomery converted $40,000 of principal into 40,000,000 shares of            the Company’s Common Stock at a conversion rate of $.001 per share. The change in            value of the embedded derivatives within the convertible notes due to these conversions            was $25,553.

 

**Preferred Stock**

 

The            Company has 2,000,000 authorized shares of blank check preferred stock, of which the            Company has designated (i) 500,000 shares as Series III Preferred Stock, $1.00 par            value; (“Series III Preferred Stock”); (ii) 600,000 shares as Series IV            convertible preferred stock (“Series IV Preferred Stock”); (iii) 500,000            shares of Series V preferred stock (“Series V Preferred Stock”), $1.00 par            value. The remaining 400,000 shares remain undesignated blank check preferred stock.            The Board of Directors of the Company is authorized to fix, subject to the provisions            herein set forth, before the issuance of any shares of a particular series, the number,            designation, and relative rights, preferences and limitations of the shares of such            series, including

 

(1)           voting            rights, if any, which may include the right to vote together as a single class with the            Common Stock and any other series of the preferred stock with the number of votes per            share accorded to shares of such series being the same as or different from that            accorded to such other shares;

 

(2)           the            dividend rate per annum, if any, and the terms and conditions pertaining to dividends            and whether such dividends shall be cumulative;

             

(3)           the            amount payable upon voluntary or involuntary liquidation;

 

(4)           the            terms and conditions of the redemption;

 

(5)           sinking            fund provisions;

 

(6)           the            terms and conditions on which such shares are convertible, in the event the shares are            to have conversion rights; and

 

(7)           all            other rights, preferences and limitations pertaining to such series which may be fixed            by the Corporation’s Board of Directors pursuant to the Florida Business            Corporation Act.

 

Series III Preferred Stock: There are            265,000 shares of Series III Preferred Stock issued and outstanding as of December 31,            2007. Of these shares, 100,000 were issued upon the conversion of an outstanding loan            entered into between the Company and Jesse Dobrinsky and John L. Udell, two of our            executive officers and 165,000 of these shares are held by Triple Crown. Each share of            Series III Preferred Stock is treated as being convertible into shares of the            Company’s common stock at a conversion price equal to the lesser of (i) the            average of the lowest of three-day trading prices during the five trading days            immediately prior to the conversion date multiplied by .70, or (ii) the average of the            lowest of three-day trading prices during the five trading days immediately prior to            the funding date(s). The Series III Preferred Stock votes together with the Common            Stock on all matters subject to stockholder approval and has voting power equal to            twenty votes for each share of common stock into which such holder’s shares of            Series III Preferred Stock are then convertible. The holders of the Series III            Preferred Stock are entitled to receive non-cumulative cash dividends at an annual            dividend rate as determined by the Board of Directors. The Series III Preferred Stock            has a liquidation preference of $1.00 per share in the event of any liquidation,            dissolution or winding up of the Company, whether voluntary or involuntary. The Company            believes that its articles of incorporation may not properly reflect certain of the            above terms, and intends to take corrective action in this regard.

 

F-25

 

----

 

 

Series IV Preferred Stock: There are            517,500 shares of Series IV Preferred Stock issued and outstanding of as of December            31, 2007 These Shares were issued upon conversion of a convertible promissory note            entered into between the Company and Triple Crown. The Series IV is convertible into            shares of the Company’s common stock at a conversion price equal to the lesser of            (i) the average of the lowest of three-day trading prices during the five trading days            immediately prior to the Conversion Date multiplied by .70, or (ii) the average of the            lowest of three-day trading prices during the five trading days immediately prior to            the funding date(s). The Series IV Preferred Stock votes together with the Common Stock            on all matters subject to stockholder approval and has voting power equal to twenty            votes for each share of common stock into which such holder’s shares of Series IV            Preferred Stock are then convertible. In addition, the holders of the Series IV            Preferred Stock are entitled to receive non-cumulative cash dividends at an annual            dividend rate as determined by the Board of Directors. The Series IV Preferred Stock            has a liquidation price of $1.00 per share in the event of any liquidation, dissolution            or winding up of the Company, whether voluntary or involuntary. The Company believes            that its articles of incorporation may not properly reflect certain of the above terms,            and intends to take corrective action in this regard.

             

Series V Preferred Stock: There are 479,867            shares of Series V Preferred Stock issued and outstanding as of December 31, 2007.            These shares were issued based on the Stock Purchase Agreement and Share Exchange            entered into on May 12, 2005 between the Company and the shareholders of Cargo            Connection and Cargo International, which called for the Company to issue shares of its            preferred stock which are convertible into Common Stock of the Company additional            consideration to be given to the shareholders twelve (12) months from the closing date            of the transaction whereby they would own eighty percent (80%) of the outstanding            shares of the Company at that time. The Series V Preferred Stock is convertible into            7,575 shares of Common Stock. The Series V Preferred Stock votes together with the            Common Stock on all matters subject to stockholder approval and has voting power equal            to thirty votes per outstanding share of Series V Preferred Stock. In addition, the            holders of the Series V Preferred Stock are entitled to receive non-cumulative cash            dividends at an annual dividend rate as determined by the Board of Directors. In the            event of any liquidation, dissolution or winding up of the Company, the holders of the            Series V Preferred Stock shall be entitled to receive distributions out of the assets            of the Corporation, whether from capital or from earnings available for distribution to            its stockholders, before any amount shall be paid to the holders of Common            Stock.

 

The            Company has determined that it is treating all three of the above series of preferred            stock issuances on the balance sheet as mezzanine financing in accordance with the            guidelines set forth under EITF D-98. This is required since there are liquidation            preferences to be paid from capital or from earnings available for distribution to its            stockholders, before any amount shall be paid to the holders of common stock in the            event of any liquidation, whether voluntary or involuntary.

 

**NOTE 18 - STOCK OPTION PLANS**

 

In            August 1999, the Company’s stockholders approved the adoption of an Incentive            Stock Option Plan (“1999 Option Plan”), which allows the Board of Directors            to grant options to purchase up to 100,000 shares of common stock to employees and            directors. On August 17, 2000, with the approval of the shareholders of the Company,            the number of shares available under the 1999 Option Plan was increased to 1,000,000.            As of December 31, 2007, 220,000 options were outstanding under the 1999 Option Plan.            During the year ended December 31, 2007, the Company did not issue any shares of its            common stock under non-plan options in lieu of granting options. As of December 31,            2007, there are no non-plan options outstanding.

 

In            July 2005, the Company's stockholders approved the adoption of an Incentive Stock            Option Plan ("2005 Stock Incentive Plan"), which allows the Board of Directors to grant            options to employees and members of the Board of Directors. The 2005 Option Plan            provided the Board of Directors the right to grant options to purchase up to a total of            50,000,000 shares of the Company's Common Stock. As of December 31, 2007, the Company            has not issued any options under the 2005 Stock Incentive Plan.

 

F-26

 

----

 

 

The            following information summarizes the Company’s stock option activity at December            31, 2007:

 

**Stock Options Plans:**

 
|                             |   | Weighted |   |   |   |
|----------------------------------|--------|----------|--------|--------|--------|
|                             |   | Average  |   |   |   |
|                             |   | Exercise |   |   |   |
|                             |   | Options  |   |   | Price  |
| Outstanding at December 31, 2005 |   | 220,000  |   | $      | 1.07   |
|                             |   |     |   |   |   |
| Granted                          |   | -        |   |   | -      |
| Exercised                        |   | -        |   |   | -      |
| Expired or cancelled             |   | -        |   |   | -      |
| Outstanding at December 31, 2006 |   | 220,000  |   | $      | 1.07   |
|                             |   |     |   |   |   |
| Granted                          |   | -        |   |   | -      |
| Exercised                        |   | -        |   |   | -      |
| Expired or cancelled             |   | -        |   |   | -      |
| Outstanding at December 31, 2007 |   | 220,000  |   | $      | 1.07   |

 
| **Non-plan stock                        options**: |
|----------------------------------------------------|

 
|                             |   | Weighted |   |   |   |
|----------------------------------|--------|----------|--------|--------|--------|
|                             |   | Average  |   |   |   |
|                             |   | Exercise |   |   |   |
|                             |   | Options  |   |   | Price  |
| Outstanding at December 31, 2005 |   | 500,000  |   | $      | 0.07   |
|                             |   |     |   |   |   |
| Granted                          |   | -        |   |   | -      |
| Exercised                        |   | -        |   |   | -      |
| Expired or cancelled             |   | 400,000  |   |   | 0.16   |
| Outstanding at December 31, 2006 |   | 100,000  |   | $      | 0.03   |
|                             |   |     |   |   |   |
| Granted                          |   | -        |   |   | -      |
| Exercised                        |   | -        |   |   | -      |
| Expired or cancelled             |   | 100,000  |   |   | -      |
| Outstanding at December 31, 2007 |   | -        |   | $      | -      |

 

 

The            following table summarizes information about stock options outstanding and exercisable            at December 31, 2007

 
|                     |   |        |   |     |   | Weighted  |   |        |
|--------------------------|--------|-------------|--------|----------|--------|-----------|--------|-------------|
|                     |   |        |   |     |   | Average   |   | Weighted    |
|                     |   |        |   | Average  |   | Remaining |   | Average     |
|                     |   | Number      |   | Life     |   | Exercise  |   | Number      |
| Range of exercise price: |   | Outstanding |   | In Years |   | Price     |   | Exercisable |
| $0.001 to $0.50          |   | -           |   | -        |   | -         |   | -           |
| $0.51 to $1.00           |   | -           |   | -        |   | -         |   | -           |
| $1.01 to $1.50           |   | 220,000     |   | 1.71     |   | 1.07      |   | 220,000     |
|                     |   | 220,000     |   |     |   |      |   | 220,000     |

 

 

F-27

 

----

 

 

**NOTE            19 - RELATED PARTY TRANSACTIONS**

 

The            Company is owed $29,450 from employees of the Company. These amounts are non-interest            bearing and do not have formal repayment terms. The Company anticipates full collection            of these amounts within a one-year period.

 

As            of December 31, 2007, the Company owes an aggregate of $2,027,936 to related parties            pursuant to non-interest bearing loans which have no formal repayment terms. The            majority of this amount is for office and warehouse space due to one entity for the            space the Company occupies in New York. The lease in New York is not collateralized by            the Company and the related party is the master leaseholder for those premises and            there are other tenants in the facility.

 

Effective as of January 31, 2005, Underwing, a Delaware limited            liability company controlled by Jesse Dobrinsky, Scott Goodman and John L. Udell, three            of the executive officers of the Company, entered into a ten-year lease for a 92,000            square foot facility located in Bensenville, Illinois (the “Bensenville            Lease”), with the intention of initially subleasing a portion of the facility to            the Company and the remaining portions to third parties on short-term basis until the            Company needed to sublease such remainder of the facility. Underwing intended to sublet            the facility to the Company and other sub-tenants at market-comparable rental rates and            as of May 1, 2007 Cargo International and Underwing entered into a sublease agreement            (the “Sublease Agreement”). The owner of the facility, MP Cargo ORD            Property, LLC as a condition to leasing the facility to Underwing, thereby making the            facility available to the Company for subletting, demanded that the Company agree to            guaranty all of Underwing’s obligations under the Bensenville Lease pursuant to a            Guaranty of Lease, dated as of January 31, 2005 (the “Guaranty”). No rent            was accrued or payable under the Bensenville Lease prior to February 2006, other than            utility and similar charges, which the Company paid proportionally based upon the area            within the facility which the Company utilized. Commencing in February 2006, the            monthly rental cost for the entire facility was approximately $45,000. Underwing did            not make any rental payments under the Bensenville Lease although rent began to be            accrued in February 2006; it being the understanding between Underwing and the landlord            that payment of rent would commence no sooner than August 2007. On January 11, 2008            this lease and Sublease Agreement was terminated and simultaneous therewith Cargo            International entered into a ten year commercial lease agreement with ORD. (see note            16). As a result of this transaction, the guaranteed rental payments that the Company            had recorded on its books relating to the guarantee of the lease payments of Underwing            have been reversed in the amount of $900,000 at December 31, 2007.

 

The            Company rents warehouse space and equipment from related entities. For the year ended            December 31, 2007 and 2006, rent expense charged to operations relating to these            rentals totaled $871,958 and $909,912, respectively. The leases contain various            extension options and currently call for termination in February 2014.

 

On            April 10, 2007, Cargo International borrowed $50,000 from a related party to assist in            short term cash flow needs of the Company. This note provides for interest at the            annual rate of 12% and a maturity date of July 3, 2007. The principal balance of this            note was repaid in full, along with accrued interest of $1,381, on July 3,            2007.

 

On            April 17, 2007, Cargo International borrowed $100,000 from a related party to assist in            short term cash flow needs of the Company. Cargo International issued the lender a            promissory note in such principal amount. This note provides for interest at the annual            rate of 12% and a maturity date of July 10, 2007. As of December 31, 2007, the balance            of the note, inclusive of accrued interest, was $108,515.

 

In            June 2007, the Company borrowed $100,000 from an entity controlled by a nephew of an            executive officer of the Company in order to assist in short term cash flow needs of            the Company. This informal loan provided for a weekly payment of $5,000 to be applied            against the balance until the loan was paid off. The principal balance of this loan was            repaid as of November 9, 2007. Other amounts previously borrowed from the entity            continue to be outstanding without interest or formal negotiated payment            terms.

 

 

F-28

 

----

 

 

On            December 31, 2007, the Company issued a promissory note in the principal amount of            $800,000 to EmplifyHR evidencing loans previously extended by EmplifyHR to the Company.            The Note bears interest at a rate of 12% per annum, requires equal monthly amortization            payments and matures on January 1, 2012. The Company may prepay the unpaid principal            balance, or any portion thereof, of the note at any time without premium or penalty.            Concurrently with the issuance of the note: (i) the Company entered into a security            agreement with EmplifyHR, pursuant to which it granted to EmplifyHR a security interest            in all of their respective assets; and (ii) Cargo Connection and Cargo International            entered into a Guaranty of Payment Agreement pursuant to which Cargo Connection and            Cargo International agreed to guarantee the Company's payment obligations under the            note. EmplifyHR provides payroll and human resource services to the Company. EmplifyHR            owns a 49% interest in ITG, of which the Company owns 51%. Ivan Dobrin, a principal            shareholder of EmplifyHR, is the brother of Jesse Dobrinsky, the Company's            CEO.

 

**Employment Agreements**

 

The            Company does not currently have employment agreements with any of its officers or the            officers of Cargo Connection. In addition, the current members of the Board of            Directors serve without compensation, except that on April 28, 2006, Cargo Connection            entered into an employment agreement with William F. O’Connell (the            “O’Connell Agreement”), the terms of which include:

 
|   | **•** | a base annual salary of $250,000, |
|--------|------------|-----------------------------------|
|   | **•** | a term of five years commencing on May 29, 2006 which shall                        renew in subsequent one year renewal periods, unless terminated by either                        party with prior notice or as otherwise provided therein, |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | a non-competition provision restricting William F.                        O’Connell from being involved with a business in direct competition                        with Cargo Connection during the term of the agreement and for two years                        thereafter, |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | a non-solicitation provision, and |
|--------|------------|-----------------------------------|
|   | **•** | a confidentiality provision. |
|--------|------------|------------------------------|

 

The            Company has not fully performed its payment obligations pursuant to the terms of the            O’Connell Agreement.

 

 

F-29

 

----

 

 

**NOTE            20 - INCOME TAXES**

 
| For the years ended December 31, 2007 and 2006, there                            was no income tax expense        |   |     |   |
|-------------------------------------------------------------------------------------------------------------------|--------|----------|--------|
|                                                                                                              |   |     |   |
|                                                                                                              |   | **2007** |   | **2006** |
| Federal                                                                                                           |   |     |   |   |   |   |
| Current                                                                                                           |   | $        | -      |   | $ | - |
| Deferred                                                                                                          |   |     | -      |   |   | - |
| Total                                                                                                             |   |     | -      |   |   | - |
|                                                                                                              |   |     |   |   |   |   |
| State and local                                                                                                   |   |     |   |   |   |   |
| Current                                                                                                           |   |     | -      |   |   | - |
| Deferred                                                                                                          |   |     | -      |   |   | - |
| Total                                                                                                             |   |     | -      |   |   | - |
| Total                                                                                                             |   |     | -      |   |   | - |
|                                                                                                              |   |     |   |   |   |   |
|                                                                                                              |   |     |   |   |   |   |
| Deferred income taxes reflect the net tax effects of                            temporary differences between     |   |     |   |
| the carrying amount of the assets and liabilities for                            financial reporting purposes     |   |     |   |
| and the amounts reported for income tax purposes.                            Significant components of the        |   |     |   |
| Company’s net deferred income tax assets and                            liabilities as of December 31, 2007 |   |     |   |
| and 2006 are as follows:                                                                                          |   |     |   |

 
|                                                                                                         |   | **2007** |        | **2006** |
|--------------------------------------------------------------------------------------------------------------|--------|----------|-------------|----------|
| Deferred tax asset                                                                                           |   |     |        |     |   |   |
| Net operating loss carryforward                                                                              |   | $        | 2,605,600   |     | $ | 2,594,000 |
| Deferred rent                                                                                                |   |     | 221,000     |     |   | 415,000 |
| Accrued compensation                                                                                         |   |     | 362,000     |     |   | 123,000 |
| Asset reserves and other items                                                                               |   |     | 69,000      |     |   | 74,000 |
| Total deferred tax asset                                                                                     |   |     | 3,257,600   |     |   | 3,206,000 |
| Less valuation allowance                                                                                     |   |     | (3,257,600) |     |   | (3,206,000) |
| Total net deferred tax asset                                                                                 |   |     | -           |     |   | - |
|                                                                                                         |   |     |        |     |   |   |
| The Company has net operating losses                            carryforwards                                |   |     |        |
| of approximately $6,700,000 at December 31, 2007 that                            will be available to offset |   |     |        |
| future taxable income. The Company has concluded that a                            full valuation allowance  |   |     |        |
| was appropriate for the deferred tax items as they are                            not more likely than not   |   |     |        |
| going to be utilized in the foreseeable                            future.                                   |   |     |        |

 
| The Company has approximately $6,700,000 of tax loss                            carryforward (“NOL”s) as of December 31, 2007. |   |   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| The scheduled expiration of such NOL’s is as                            follows:                                                     |   |   |   |
|                                                                                                                                       |   |   |   |
| For the Year Ending December 31,                                                                                                           |   |   |   |   |   |   |
| 2025                                                                                                                                       |   |   |   |   | $ | 4,000,000 |
| 2026                                                                                                                                       |   |   |   |   |   | 3,000,000 |
| 2027 |   |   |   |   |   | (318,000) |
|------|--------|--------|--------|--------|--------|-----------|
|   |   |   |   |   |   |      |
|--------|--------|--------|--------|--------|--------|-----------|
| Total  |   |   |   |   | $      | 6,682,000 |

 
| Income taxes computed at the statutory rate for the                            years ended December 31, 2007 |   |   |     |
|--------------------------------------------------------------------------------------------------------------|--------|--------|----------|
| and 2006 differ from amounts provided as                            follows:                                 |   |   |     |
|                                                                                                         |   |   | **2007** |   |   | **2006** |
| Tax provision (benefit) at statutory rate                                                                    |   |   | 34%      |   |   | (34%) |
| State and local taxes, net of federal benefit                                                                |   |   | (1%)     |   |   | (3%) |
| Derivative expenses                                                                                          |   |   | (39%)    |   |   | 16% |
| Change in valuation allowance                                                                                |   |   | 6%       |   |   | 21% |
|                                                                                                         |   |   |     |   |   |   |
| Effective income tax rate                                                                                    |   |   | 2%       |   |   | 0% |

 

 

 

 

 

 

 

F-30

 

----

 

 

**NOTE            21 - SUBSEQUENT EVENTS**

 

On            January 11, 2008, Cargo Connection Logistics – International, Inc. entered into a            10 year lease with MP Cargo ORD Property LLC for premises in Bensenville, Illinois (the            "Premises"). The lease is for a term of ten years and calls for annual rent in the            amount of $600,000 for the first two years, with bi-annual increases thereafter            throughout the term of the lease, which is paid on a monthly basis. As an inducement            for the landlord to enter into the lease and concurrently therewith: (i) the Company            issued a Guaranty of Lease dated as of January 11, 2008 (the "Corporate            Guaranty”); and (ii) Jesse Dobrinsky, the Chief Executive Officer of the Company,            issued a Personal Guaranty of the lease dated as of January 11, 2008 (the "Dobrinsky            Personal Guaranty"; and together with the Corporate Guaranty, collectively the            "Guarantees"), in each case in favor of the landlord, guaranteeing all of Cargo            International's obligations under the lease.

 

On            January 11, 2008, Cargo International entered into a Sublease Termination Agreement            (the "Termination Agreement") with Underwing International, LLC ("Underwing"), a            related party, terminating a sublease agreement between itself and Underwing, dated as            of May 1, 2007, pursuant to which Underwing (as the prior tenant of the premises)            sub-leased the Premises to Cargo International. The Termination Agreement, which            terminated Underwing's status as Cargo International's sub-lessor of the Premises,            allowed Cargo International to enter into the lease directly with the landlord. The            landlord and Underwing contemporaneously terminated the Commercial Lease Agreement            dated January 31, 2005 between Underwing and the landlord.

 

On            February 29, 2008, Cargo Connection Logistics Corp. entered into a renegotiated            65-month lease with LIT/Hodges Industrial Trust for a premises in College Park, Georgia            (the "Premises") which: (i) extends the term for an additional period of one hundred            twenty (120) months, ending June 30, 2018 (the "Extended Term"); (ii) provides for a            new rent schedule commencing on March 1, 2008 through the expiration of the Extended            Term; (iii) grants Cargo Connection a right of first opportunity to lease, under            certain terms and conditions, certain additional space which is contiguous to the            Premises consisting of approximately 12,760 square feet; and (iv) grants Cargo            Connection a new right to terminate the Lease, as amended by the First Amendment, in            the event that Cargo Connection and the Landlord agree to relocate Cargo Connection to            another building in the Landlord’s portfolio and such parties enter into a new            lease agreement for a minimum term of five (5) years with a minimum square footage of            40,000 square feet, at “then market” rent. All other terms and conditions            of the Lease not amended by the First Amendment shall remain in full force and            effect.

 

On            February 21, 2008, the Company issued 55,000,000 shares of common stock to Montgomery,            in connection with its conversion of $55,000 of a convertible secured debenture, at a            conversion rate of $.001 per share.

 

On            February 28, 2008, the Company issued 55,500,000 shares of common stock to Montgomery,            in connection with its conversion of $55,500 of a convertible secured debenture, at a            conversion rate of $.001 per share.

 

On            March 17, 2008, the Company issued 61,600,000 shares of common stock to Montgomery, in            connection with its conversion of $61,600 of a convertible secured debenture, at a            conversion rate of $.001 per share.

 

On            March 18, 2008, the Company received notification of a non-recourse assignment by            Montgomery to YA Global of its interest in all documents relating to the financing            arrangements between the Company and Montgomery.

 

F-31

 

----

 

 

**Item 8. -**CHANGES IN AND DISAGREEMENTS WITH            ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

**Item 8A(T)**– MANAGEMENT’S            REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

 

The            management of the Company is responsible for establishing and maintaining adequate            internal control over financial reporting. Internal control over financial reporting is            defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process            designed by, or under the supervision of, the Company's principal executive and            principal financial officer and effected by the Company's board of directors,            management and other personnel, to provide reasonable assurance regarding the            reliability of financial reporting and the preparation of financial statements for            external purposes in accordance with generally accepted accounting            principles.

 

Under the supervision and with the participation of the Company's            management, including the Chief Executive Officer and Chief Financial Officer, the            Company conducted an evaluation of the effectiveness of its internal control over            financial reporting as of December 31, 2007 using the criteria established in Internal            Control—Integrated Framework issued by the Commission of Sponsoring Organizations            of the Treadway Commission ("COSO"). The Company's management was unable to complete            its documentation and testing of all internal controls. Because of this, management has            concluded that the Company's internal control over financial reporting was not            effective as of December 31, 2007.

 

A            material weakness is a deficiency, or a combination of deficiencies, in internal            control over financial reporting, such that there is a reasonable possibility that a            material misstatement of the Company's annual or interim financial statements will not            be prevented or detected on a timely basis. Management identified the following            material weaknesses in the Company's internal control over financial            reporting:

 
|   | **•** | Inadequate derivative valuation controls: Management did not                        possess sufficient expertise in order to properly account for and prepare                        financial statement footnotes in accordance with generally accepted                        accounting principals (“GAAP”) with regard to derivatives                        financing transactions. These control deficiencies result in a reasonable                        possibility that a material misstatement of the Company's annual or interim                        financial statements will not be prevented or detected on a timely                        basis. |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
|   | **•** | Inadequate controls related to the income taxes and deferred                        taxes: Management lacked sufficient expertise and knowledge in order to                        adequately account for and prepare financial statement footnotes in                        accordance with GAAP with regard to income taxes and deferred taxes. These                        control deficiencies result in a reasonable possibility that a material                        misstatement of the Company's annual or interim financial statements will                        not be prevented or detected on a timely basis. |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

             
|   | **•** | Ineffective controls related to significant transactions:                        Management failed to provide internal controls over period-end reporting                        related to equity transactions, specifically embedded derivatives in                        certain financial instruments. These control deficiencies result in a                        reasonable possibility that a material misstatement of the Company's annual                        or interim financial statements will not be prevented or detected on a                        timely basis. |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

The            material weaknesses described above have been determined by management to exist not            only because certain remedial actions have not been made by management to address past            design and operating failures, but also because the areas in which remedial actions            have occurred were not able to be assessed by management as of December 31,            2007.

 

This            annual report does not include an attestation report of the Company’s registered            public accounting firm regarding internal control over financial reporting.            Management’s report was not subject to attestation by the Company’s            registered public accounting firm pursuant to temporary rules of the Securities and            Exchange Commission that permit the Company to provide only management’s report            in this annual report.

 

 

39

 

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Remediation of Material Weaknesses:

 

Since the Company identified the material weaknesses identified above,            management has been working to identify and remedy the causes of those material            weaknesses, and we believe that we have identified the primary causes of and            appropriate remedial actions to resolve these issues. The Company has implemented the            following measures in order to improve its internal controls over financial            reporting:

 
|   | **•** | the Company has engaged an independent Chartered Financial                        Analyst (“CFA”) to analyze the valuations relating to the                        embedded derivatives associated with financial instruments; |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
|   | **•** | the Company has retained an accounting firm (other than                        Company's independent auditor) to provide technical consulting services                        with respect to accounting issues; |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
|   | **•** | the Company’s financial and accounting staff has                        undertaken to review new accounting pronouncements to determine the                        applicability to the Company; |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
|   | **•** | the Company has subscribed to professional publications that                        discuss new accounting rules and regulations; and |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------------|

 
|   | **•** | members of Company's accounting management have undertaken                        to attend financial related seminars. |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------|

 

Notwithstanding the efforts of management, there is a risk that the            Company may be unable to fully remedy these material weaknesses. The corrective actions            that the Company has implemented and is implementing may not fully remedy the material            weaknesses that we have identified to date or prevent similar or other control            deficiencies or material weaknesses from having an adverse impact on our business and            results of operations or our ability to timely make required SEC filings in the            future.

 

These changes in the internal control over financial reporting during            the period covered by this Annual Report on Form 10-KSB have materially affected, or            are reasonably likely to materially affect, the Company's internal control over            financial reporting.

 

**Item            8B. -**OTHER INFORMATION

 

We            have a code of ethics which applies to our principal executive officer, principal            financial officer, principal accounting officer or controller and persons performing            similar functions (“Senior Officers”). The Code of Ethics amends a prior            Code of Business Conduct and Ethics (the “Initial Code”). The Initial Code            combined terms, provisions and policies typical of both a code of ethics and a code of            conduct. Our Code of Ethics includes certain new provisions, revises certain provisions            that were included in the Initial Code and deletes certain other provisions, which            deleted provisions have been moved to a new code of conduct (the “Code of            Conduct”).

 

The            new and revised provisions to the Code of Ethics include:

 
|   | **•** | an obligation of Senior Officers to exhibit and promote the                        highest standards of honest and ethical conduct (including among other                        things, a prohibition of actual or apparent conflicts of                        interests); |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | a revised financial records and periodic reports                        policy; |
|--------|------------|---------------------------------------------------------------------------------|
|   | **•** | a revised section regarding compliance with applicable laws,                        rules and regulations; |
|--------|------------|------------------------------------------------------------------------------------------------------------|
|   | **•** | a new provision regarding the accountability of Senior                        Officers to adhere to the Code of Ethics; and |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------|
|   | **•** | a new section providing that the Code of Ethics may be                        amended, and compliance with the Code may only be waived, by approval of                        the Audit Committee, or in the absence thereof, approval of the Board of                        Directors. |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

40

 

----

 

 

Provisions which were not included in the Initial Code and which have            been incorporated into our Code of Conduct include:

 
|   | **•** | a prohibition of loans to directors, officers and their                        immediate family members; |
|--------|------------|----------------------------------------------------------------------------------------------------------|
|   | **•** | a forfeiture provision requiring the Company’s chief                        executive officer or chief financial officer to return any monies received                        by them from the Company due relating to any accounting restatements caused                        by the Company’s material non-compliance, as a result of misconduct,                        with any financial reporting requirement under the securities                        laws; |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | a “whistleblower” protection; |
|--------|------------|-------------------------------------------|
|   | **•** | a restriction on the Company’s officers’,                        directors’, or employees’ use of the Company’s firm of                        independent auditors; |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | a restriction placed on the Company regarding its hiring of                        any member of the Company’s independent auditor; |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | a policy regarding employees’ purchase of Company                        securities; |
|--------|------------|--------------------------------------------------------------------------------------------|
|   | **•** | a document retention policy; and |
|--------|------------|----------------------------------|
|   | **•** | a recordkeeping and accounting practices policy. |
|--------|------------|--------------------------------------------------|

 

The            sections which were in the Initial Code and revised and incorporated into the Code of            Conduct include:

 
|   | **•** | the reporting policy for reporting concerns to the                        Company’s Audit Committee or Board of Directors; |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | the disclosure policy (in accordance with Regulation FD of                        the U.S. federal securities laws); |
|--------|------------|----------------------------------------------------------------------------------------------------------------------|
|   | **•** | protection of confidential information; and |
|--------|------------|---------------------------------------------|
|   | **•** | insider trading, which has been revised to be a more                        thorough and explanatory policy and to provide a pre-clearance mechanism,                        blackout periods and post-termination transaction provisions. |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

41

 

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**PART III**

 

**ITEM 9. -**DIRECTORS, EXECUTIVE OFFICERS,            PROMOTERS AND CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A)            OF THE EXCHANGE ACT.

 

Officers and Directors

 

The            following table sets forth the name, age and position of each director and executive            officer of the Company, as well as individuals who the Company believes will make a            significant contribution to the Company’s business, at December 31,            2007.

 
| **NAME**                   |   | **AGE** |   | **POSITION**                                                                    |
|----------------------------|--------|---------|--------|---------------------------------------------------------------------------------|
|                       |   |    |   |                                                                            |
| Jesse Dobrinsky            |   | 52      |   | President, Chief Executive Officer and                                          |
|                       |   |    |   | Chairman of the Board of Directors. (Principal                        Executive |
|                       |   |    |   | Officer)                                                                        |
|                       |   |    |   |                                                                            |
| Scott Goodman              |   | 48      |   | Chief Financial Officer, Chief Operating Officer,                               |
|                       |   |    |   | Secretary and Director. (Principal Financial and                                |
|                       |   |    |   | Accounting Officer)                                                             |
|                       |   |    |   |                                                                            |
| John L. Udell              |   | 52      |   | Vice President and Assistant Secretary                                          |
|                       |   |    |   |                                                                            |
| William F. O’Connell |   | 53      |   | Vice President - Sales and Marketing, Cargo                        Connection   |
|                       |   |    |   | Logistics Corp.                                                                 |

 

The            following is a biographical summary of our directors and executive officers:

 

**Jesse Dobrinsky**has been our President,            Chief Executive Officer and Chairman of the Board of Directors since 2005. Prior to            that and since 1996, Mr. Dobrinsky was President of Cargo Connection, a then privately            owned entity, until it was acquired by the Company in 2005. From 1982 through 1995, Mr.            Dobrinsky served as the President and managed the operations of Coast Dispatch, Inc., a            New York City based irregular route common carrier.

 

**Scott Goodman**has been our Chief Financial            Officer, Chief Operating Officer, Secretary and director since 2005. Commencing in            1996, Mr. Goodman has served as Executive Vice President of Cargo Connection Logistics            Corp. From 1995 to 1996, Mr. Goodman served as Chief Financial Officer of Coast            Dispatch, Inc., a New York City based irregular route common carrier. Mr. Goodman holds            a Bachelor of Science Degree in Business Administration with a major in accounting from            Northeastern University in 1982 and an MBA from Adelphi University with majors in            International Business and Corporate Finance in 1984.

 

**John L. Udell**has been our Vice President            since 2005. Mr. Udell has held the position as Vice President of Cargo Connection            Logistics Corp. and Cargo Connection Logistics-International, since            1998**.**Currently, Mr. Udell manages            our Safety and Compliance department and directs our driver recruitment initiative.            From 1997 to 2005**,**Mr. Udell served            as director of our container freight stations operations. From 1982 to 1997, Mr. Udell            was the founder of Coast Dispatch, Inc., a New York City based irregular route common            carrier, of which he became President in 1996. John attended the Rochester Institute of            Technology from 1973 to 1975.

 

42

 

----

 

 

**William F. O’Connell**has been the            Vice President - Sales and Marketing of Cargo Connection, since 2006. From 1972 to            2006, Mr. O’Connell worked in various capacities for Airfreight Warehouse            Corporation, eventually rising to the position of Executive Vice President in 2001. Mr.            O’Connell has been invited to sit on the advisory board for the U.S. Customs and            Border Protection Agency (formerly the U.S. Customs Service) to help write and            implement regulations for all general order and bonded warehouses and was instrumental            in obtaining the appointment of Cargo Connection Logistics Corp. as a new General Order            warehouse by the U.S. Customs and Border Protection Agency.

 

**Board of Directors**

 

All            of our directors hold office until the next annual meeting of our shareholders or until            their successors are duly elected and qualified. Our directors are not paid any            compensation for their services but are entitled to reimbursement of reasonable            expenses, incurred in connection with the performance of their duties. Our directors            regularly meet immediately following our annual shareholders meeting.

 

**Code            of Ethics**

 

The            Company has adopted a code of ethics which applies to our principal executive officer,            principal financial officer, principal accounting officer or controller and persons            performing similar functions. See Item 8B.

 

The            Company’s code of ethics has been posted on the Company’s website at            www.cargocon.comand is filed as an exhibit to this Annual Report on Form 10-KSB. A copy            of the code of ethics can be obtained from the Company website or by contacting the            Company’s headquarters, from which a copy will be provided free of            charge.

 

**Section 16(a) Beneficial Ownership Reporting            Compliance**

 

Section 16(a) of the Exchange Act requires our executive officers            directors and persons who beneficially own more than ten percent of a registered class            of our equity securities ("Reporting Persons") to file reports of beneficial ownership            and changes in beneficial ownership on Forms 3, 4 and 5 with the SEC. These Reporting            Persons are required by SEC regulation to furnish us with copies of all Forms 3, 4 and            5 that they file with the SEC. Based solely upon our review of the copies of all Forms            3, 4 and 5 and amendments to these forms, we believe that all Reporting Persons            complied on a timely basis with all filing requirements applicable to them with respect            to our fiscal year ended December 31, 2007.

 

**Committees**

 

The            Board of Directors has not established any committees. The functions of an Audit            Committee and Compensation Committee are performed by the Board.

 

 

43

 

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**Item            10 –**EXECUTIVE COMPENSATION

 

The            table below summarizes all compensation awarded to, earned by, or paid to our principal            executive officer, our principal financial officer and our two most highly compensated            executive officers (other than the principal executive officer) for all services            rendered in all capacities to us for fiscal years ended December 31, 2007 and            2006.

 
| **SUMMARY COMPENSATION TABLE**                                                                             |
|------------------------------------------------------------------------------------------------------------|
| **Name and Principal Position**

                                                                     | **Year**

                          | **Salary**

**($)**

                          | **Bonus**

**($)**

                          | **Stock Awards**

**($)**

                          | **Option**

**Awards**

**($)**

                          | **Non-Equity Incentive Plan Compensation                        Earnings**

**($)**

                          | **Nonqualified**

**Deferred Compensation Earnings**

**($)**

                          | **All Other Compensation**

**($)**

                          |  

**Total**

**($)**

                          |
| **(a)**                                                                                                    | **(b)** | **(c)** | **(d)** | **(e)** | **(f)** | **(g)** | **(h)** | **(i)** | **(j)** |
| Jesse Dobrinsky,

CEO                                                                                      | 2007 | 181,250 | 0 | 0 | 0 | 0 | 0 | $9,730(1) | 190,980 |
| 2006                                                                                                       | 175,000 | 0 | 0 | 0 | 0 | 0 | 0 | 175,000 |
| Scott Goodman,

CFO, COO and Secretary

                                                              | 2007 | 156,250 | 0 | 0 | 0 | 0 | 0 | $5,769(2) | 162,019 |
| 2006                                                                                                       | 150,000 | 0 | 0 | 0 | 0 | 0 | 0 | 150,000 |
| John L. Udell, Vice President and Assistant Secretary, Cargo                        Connection             | 2007 | 135,000 | 0 | 0 | 0 | 0 | 0 | $5,000(3) | 140,000 |
| 2006                                                                                                       | 130,000 | 0 | 0 | 0 | 0 | 0 | 0 | 130,000 |
| William F. O’Connell

Vice President of Sales and Marketing, Cargo                        Connection | 2007 | 250,000 | 0 | 0 | 0 | 0 | 0 | 0 | 250,000 |
| 2006                                                                                                       | 144,230 | 0 | 0 | 0 | 0 | 0 | 0 | 144,230 |

 
| (1) | Represents (a) annual premiums paid by the Company with                        respect to a life insurance policy, the beneficiary of which is Mr.                        Dobrinsky’s wife, with a death benefit of $200,000 and (b) amounts                        paid for accrued and unused vacation time (“Unused Vacation                        Time”). |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Represents amounts paid for Unused Vacation Time. |
|-----|---------------------------------------------------|
| (3) | Represents amounts for Unused Vacation Time. |
|-----|----------------------------------------------|

 

We            have not entered into any employment or non-competition agreements with our executive            officers, except that on April 28, 2006, Cargo Connection entered into an employment            agreement with William F. O’Connell (the “O’Connell            Agreement”), the terms of which include:

 
|   | **•** | a base annual salary of $250,000, |
|--------|------------|-----------------------------------|
|   | **•** | a term of five years commencing on May 29, 2006 which shall                        renew in subsequent one year renewal periods, unless terminated by either                        party with prior notice or as otherwise provided therein, |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | a non-competition provision restricting William F.                        O’Connell from being involved with a business in direct competition                        with Cargo Connection during the term of the agreement and for two years                        thereafter, |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **•** | a non-solicitation provision, and |
|--------|------------|-----------------------------------|
|   | **•** | a confidentiality provision. |
|--------|------------|------------------------------|

 

44

 

----

 

 

The            Company has not fully performed its payment obligations pursuant to the terms of the            O’Connell Agreement, of which $182,692 and $112,500were actually paid in 2007 and            2006, respectively.

 

Jesse            Dobrinsky, our CEO, is employed at will and received a base salary of $181,250 in 2007            and $175,000 in 2006, of which $133,272 and $156,579were actually paid in 2007 and            2006, respectively.

 

Scott            Goodman, our CFO and COO, is employed at will and received a base salary of $156,250 in            2007 and $150,000 in 2006, of which $118,472 and $135,472were actually paid in 2007 and            2006, respectively.

 

John L.            Udell, the Vice President, is employed at will and received a base salary of $135,000            in 2007 and $130,000 in 2006, of which $99,994 and $110,475were actually paid in 2007            and 2006, respectively.

 

**Outstanding Equity Awards at Fiscal Year-End**

 

The            table below summarizes all unexercised options, stock that has not vested, and equity            incentive plan awards for each named executive officer as of December 31, 2007. The            Company has not issued any options and or awards to the named executive officers listed            below.

 
| **OUTSTANDING EQUITY AWARDS AT FISCAL                        YEAR-END** |
|-------------------------------------------------------------------------|
|                                                                    | **Option Awards** | **Stock Awards.** |
| **Name**

                                                         | **Number of Securities Underlying Unexercised Options (#)                        Exercisable**

                          | **Number of Securities Underlying Unexercised Options (#)                        Unexcersiable**

                          | **Equity Incentive Plan Awards: Number of Securities                        Underlying Unexcercised Unearned Options (#)**

                          | **Option Exercise Price ($)**

                          | **Option Expiration Date**

                          | **Number of Shares that Have Not Vested**

                          | **Market Value of Shares That Have Not                        Vested**

                          | **Equity Incentive Plan Awards: Number of Unearned Shares                        or Other Rights That Have Not Vested**

                          | **Equity Incentive Plan Awards: Market or Payout Value of                        Unearned Shares, Units or Other Rights That Have Not Vested                        ($)**

                          |
| **(a)**                                                                 | **(b)** | **(c)** | **(d)** | **(e)** | **(f)** | **(g)** | **(h)** | **(i)** | **(j)** |
| Jesse Dobrinsky                                                         | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Scott Goodman                                                           | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| John L. Udell                                                           | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| William F. O’Connell                                              | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |

 

 

45

 

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**Compensation of Directors**

 

The            table below summarizes all compensation of our directors as of December 31, 2007. The            Directors of the Company were not compensated as directors in fiscal year            2007.

 
| **DIRECTOR COMPENSATION**                       |
|-------------------------------------------------|
| **Name**

                                 | **Fees Earned or Paid in Cash**

**($)**

                          | **Stock Awards**

**($)**

                          | **Option Awards**

**($)**

                          | **Non- Equity Incentive Plan**

**($)**

                          | **Nonqualified**

**Deferred**

**Compensation Earnings**

**($)**

                          | **All Other Compensation**

**($)**

                          | **Total**

**($)**

                          |
| **(a)**                                         | **(b)** | **(c)** | **(d)** | **(e)** | **(f)** | **(g)** | **(h)** |
| Jesse Dobrinsky

                          | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 0                                               | 0 | 0 | 0 | 0 | 0 | 0 |
| Scott Goodman

                            | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 0                                               | 0 | 0 | 0 | 0 | 0 | 0 |

 

 

 

46

 

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**ITEM 11. -**SECURITY OWNERSHIP OF CERTAIN            BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

**Security Ownership of Certain Beneficial Owners**

 

The            following table sets forth information about the beneficial ownership of our capital            stock as of February 29, 2008, by each person who is the beneficial owner of more than            5% of the outstanding shares of any class of capital stock, based on filings with the            Securities and Exchange Commission and other information.

 

 
| **Name and Address of Beneficial Owner**              | **Title of Class**

**Amount, Nature and Percentage of Beneficial                        Ownership(1)** | **Percent of Combined Voting Power of All                        Classes** |
|-------------------------------------------------------|---------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------|
| **Common Stock(2)**

                            | **Series III**

**Preferred Stock(3)**                                                                  | **Series IV**

**Preferred Stock(3)**                                      | **Series V**

**Preferred Stock** |
| **No. of**

**Shares**                                | **Percent**

**of**

**Class**                                                                          | **No. of Shares**                                                          | **Percent**

**of**

**Class** | **No. of**

**Shares** | **Percent**

**of**

**Class** | **No. of**

**Shares** | **Percent**

**Of**

**Class** |
| Jesse

Dobrinsky (4)

                           | 20,634,963,113(5)                                                                                       | 94.3%                                                                      | 50,000

                          | 18.87%

                          | 517,500(6)

                          | 100% | 143,960 | 30% | 94.3% |
| Scott Goodman (4)

                              | 1,166,695,538(7)                                                                                        | 48.1%                                                                      | 0 | 0 | 0 | 0 | 143,960 | 30% | 48.1% |
| John L. Udell (4)

                              | 2,881,961,398(8)                                                                                        | 69.6%                                                                      | 50,000 | 18.87% | 0 | 0 | 143,960 | 30% | 69.6% |
| Utek

Corporation (9)

                          | 164,951,070                                                                                             | 13.1%                                                                      | 0 | 0 | 0 | 0 | 0 | 0 | 13.1% |
| Triple Crown (10)

                              | 23,413,379,073(11)                                                                                      | 94.9%                                                                      | 165,000 | 62.26% | 517,500(12) | 100% | 0 | 0 | 94.9% |
| Jay Finkelstein (4)

                            | 388,901,048(13)                                                                                         | 23.6%                                                                      | 0 | 0 | 0 | 0 | 47,987 | 10% | 23.6% |

 
|   | (1) | Unless otherwise indicated, the persons or entities                        identified herein have sole voting and investment power with respect to the                        shares shown as beneficially held by them, subject to community property                        laws where applicable. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (2) | Applicable percentage of ownership is based on 1,258,310,353                        shares of Common Stock outstanding as of February 29, 2008. Beneficial                        ownership is determined in accordance with the rules of the Securities and                        Exchange Act of 1934 and generally includes voting or investment power with                        respect to such securities. Shares of Common Stock subject to securities                        exercisable for or convertible into shares of Common Stock that are                        currently exercisable or exercisable within sixty (60) days are deemed to                        be beneficially owned by the person holding such options, warrants, rights,                        conversion privileges or similar obligations, for the purpose of computing                        the percentage of ownership of such person, but are not treated as                        outstanding for the purpose of computing the percentage ownership of any                        other person. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (3) | In determining the amount of Common Stock beneficially owned                        by a holder of Series III and Series IV Preferred Stock, we have assumed a                        conversion date of February 29, 2008 and have assumed that, each share of                        Series III and Series IV Preferred Stock, as the case may be, may be                        converted into Common Stock using a conversion price per share equal to the                        average of the lowest of three trading day prices during the five trading                        days immediately prior to the conversion date, multiplied by                        .70. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (4) | The address for this individual is 600 Bayview Avenue,                        Inwood Avenue, New York 11096. |
|--------|-----|--------------------------------------------------------------------------------------------------------------|

 

47

 

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|   | (5) | Includes: (i) 71,879,738 shares of Common Stock owned by Mr.                        Dobrinsky directly; (ii) 85,763,293 shares of Common Stock issuable upon                        conversion of 50,000 shares of Series III Preferred Stock owned by Mr.                        Dobrinsky which are convertible within sixty (60) days and which have                        voting power equal to 1,715,265,860 shares of Common Stock; (iii)                        887,650,086 shares of Common Stock issuable upon conversion of 517,500                        shares of Series IV Preferred Stock owned by Triple Crown, which are                        convertible within sixty (60) days and which have voting power equal to                        17,753,001,715 shares of Common Stock with respect to which Mr. Dobrinsky                        has shared voting power, pursuant to a voting proxy expiring on March 26,                        2013 (the “Triple Crown Voting Proxy”); and (iv) 1,090,497,000                        shares of Common Stock issuable upon conversion of 143,960 shares of Series                        V Preferred Stock owned by Mr. Dobrinsky which are convertible within sixty                        (60) days, and which currently have voting power equal to 4,318,800 shares                        of Common Stock. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (6) | Pursuant to the Triple Crown Voting Proxy, Mr. Dobrinsky,                        our CEO, has the right to vote the 517,500 shares of Series IV Preferred                        Stock. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (7) | Includes: (i) 71,879,738 shares of Common Stock owned by Mr.                        Goodman directly; (ii) 1,090,497,000 shares of Common Stock issuable upon                        conversion of 143,960 shares of Series V Preferred Stock owned by Mr.                        Goodman which are convertible within sixty (60) days and which have voting                        power equal to 4,318,800 shares of Common Stock. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (8) | Includes: (i) 71,879,738 shares of Common Stock owned                        directly by Mr. Udell; (ii) 85,763,293 shares of Common Stock issuable upon                        conversion of 50,000 shares of Series III Preferred Stock owned by Mr.                        Udell which are convertible within sixty (60) days and which have voting                        power equal to 1,715,265,860 shares of Common Stock; and (iii)                        1,090,497,000 shares of Common Stock issuable upon conversion of 143,960                        shares of Series V Preferred Stock owned by Mr. Udell which are convertible                        within sixty (60) days and which currently have voting power equal to                        4,318,800 shares of Common Stock. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (9) | The address for this party is 2109 East Palm Avenue, Tampa,                        Florida 33605. |
|--------|-----|---------------------------------------------------------------------------------------------------|
|   | (10) | This address for this party is 1850 South Ocean Drive, Apt.                        2709, Hollandale Beach, FL 33009. The Company believes that Ben Kaplan, a                        nephew of Mr. Dobrinsky, controls Triple Crown and thus is the beneficial                        owner of the Series IV Preferred Stock owned by Triple Crown. |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (11) | Includes: (i) 283,018,868 shares of Common Stock issuable                        upon conversion of 165,000 shares of Series III Preferred Stock owned by                        Triple Crown which are convertible within sixty (60) days and which have                        voting power equal to 5,660,377,358 shares of Common Stock; and (ii)                        887,650,086 shares of Common Stock issuable upon conversion of 517,500                        shares of Series IV Preferred Stock owned by Triple Crown which are                        convertible within sixty (60) days and which have voting power equal to                        17,753,001,715 shares of Common Stock. |
|--------|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (12) | Triple Crown owns and has shared voting power with respect                        to these shares. Triple Crown has granted a voting proxy with respect to                        these shares to Mr. Dobrinsky, our CEO, pursuant to the Triple Crown Voting                        Proxy. |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (13) | Includes: (i) 23,959,913 shares of Common Stock owned by Mr.                        Finkelstein directly; and (ii) 363,501,525 shares of Common Stock issuable                        upon conversion of 47,987 Series V Preferred Stock owned by Mr. Finkelstein                        which are convertible within sixty (60) days and which have voting power                        equal to 1,439,610 shares of Common Stock. |
|--------|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

48

 

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**Security Ownership of Management**

 

The            following table sets forth information about the beneficial ownership of our Common            Stock as of February 29, 2008, by (i) each of our directors or those nominated to be            directors, and executive officers, and (ii) all of our directors and executive officers            as a group.

 

The            following table sets forth information about the beneficial ownership of our Common            Stock as of February 29, 2008, by (i) each of our directors or those nominated to be            directors, and executive officers, and (ii) all of our directors and executive officers            as a group.

 
| **Name and Address of Beneficial Owner**

**(1)** | **Title of Class**

**Amount, Nature and Percentage of Beneficial                        Ownership(2)** | **Percent of Combined Voting Power of All                        Classes(3)** |
|---------------------------------------------------|---------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------|
| **Common Stock**

                           | **Series III**

**Preferred Stock**                                                                     | **Series IV**

**Preferred Stock**                                            | **Series V**

**Preferred Stock** |
| **No. of**

**Shares**                            | **Percent**

**of**

**Class**                                                                          | **No. of Shares**                                                             | **Percent**

**of**

**Class** | **No. of**

**Shares** | **Percent**

**of**

**Class** | **No. of**

**Shares** | **Percent**

**Of**

**Class** |
| Jesse

Dobrinsky

                           | 26,634,963,113(4)                                                                                       | 94.25%                                                                        | 50,000

                          | 50%

                          | 517,500(5)

                          | 100% | 143,960 | 30% | 94.25% |
| Scott

Goodman

                             | 1,166,695,538(6)                                                                                        | 48.11%                                                                        | 0 | 0 | 0 | 0 | 143,960 | 30% | 48.11% |
| John L. Udell

                              | 2,881,961,398(7)                                                                                        | 69.61%                                                                        | 50,000 | 50% | 0 | 0 | 143,960 | 30% | 69.61% |
| William F.

O’Connell                       | 0                                                                                                       |                                                                          | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| All executive officers and directors, as a group  | 30,683,620,049                                                                                          | 96.06%                                                                        | 100,000 | 100% | 517,500 | 100% | 431,880 | 90% | 96.06% |

 
|   | (1) | The address for these individuals is 600 Bayview Avenue,                        Innwood, New York 11096. |
|--------|-----|----------------------------------------------------------------------------------------------------------|
|   | (2) | Unless otherwise indicated, the persons or entities                        identified herein have sole voting and investment power with respect to the                        shares shown as beneficially held by them, subject to community property                        laws where applicable. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (3) | Applicable percentage of ownership is based on 1,258,310,353                        shares of Common Stock outstanding as of February 29, 2008. Beneficial                        ownership is determined in accordance with the rules of the Securities and                        Exchange Act of 1934 and generally includes voting or investment power with                        respect to such securities. Shares of Common Stock subject to securities                        exercisable for or convertible into shares of Common Stock that are                        currently exercisable or exercisable within sixty (60) days are deemed to                        be beneficially owned by the person holding such options, warrants, rights,                        conversion privileges or similar obligations, for the purpose of computing                        the percentage of ownership of such person, but are not treated as                        outstanding for the purpose of computing the percentage ownership of any                        other person. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (4) | Includes: (i) 71,879,738 shares of Common Stock owned by Mr.                        Dobrinsky directly; (ii) 85,763,293 shares of Common Stock issuable upon                        conversion of 50,000 shares of Series III Preferred Stock owned by Mr.                        Dobrinsky which are convertible within sixty (60) days and which have                        voting power equal to 1,715,265,860 shares of Common Stock; (iii)                        887,650,086 shares of Common Stock issuable upon conversion of 517,500                        shares of Series IV Preferred Stock owned by Triple Crown Consulting, Inc.                        (“Triple Crown”), which are convertible within sixty (60) days                        and which have voting power equal to 17,753,001,715 shares of Common Stock,                        with respect to which Mr. Dobrinsky has shared voting power, pursuant to a                        voting proxy expiring on March 26, 2013 (the “Triple Crown Voting                        Proxy”); and (iv) 1,090,497,000 shares of Common Stock issuable upon                        conversion of 143,960 shares of Series V Preferred Stock owned by Mr.                        Dobrinsky which are convertible within sixty (60) days, and which currently                        have voting power equal to 4,318,800 shares of Common Stock. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

49

 

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|   | (5) | Pursuant to the Triple Crown Voting Proxy, Mr. Dobrinsky,                        our CEO has sole voting power over these 517,500 shares of Series IV                        Preferred Stock. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (6) | Includes: (i) 71,879,738 shares of Common Stock owned by Mr.                        Goodman directly; (ii) 1,090,497,000 shares of Common Stock issuable upon                        conversion of 143,960 shares of Series V Preferred Stock owned by Mr.                        Goodman which are convertible within sixty (60) days and which have voting                        power equal to 4,318,800 shares of Common Stock. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (7) | Includes: (i) 71,879,738 shares of Common Stock owned                        directly by Mr. Udell; (ii) 85,763,293 shares of Common Stock issuable upon                        conversion of 50,000 shares of Series III Preferred Stock owned by Mr.                        Udell which are convertible within sixty (60) days and which have voting                        power equal to 1,715,265,860 shares of Common Stock; and (iii)                        1,090,497,000 shares of Common Stock issuable upon conversion of 143,960                        shares of Series V Preferred Stock owned by Mr. Udell which are convertible                        within sixty (60) days and which currently have voting power equal to                        4,318,800 shares of Common Stock. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

             

**Equity Compensation Plan Information**

 

The            following table sets forth the information about securities authorized for issuance            under our equity compensation plans.

 
| **Plan category**                                                                 | **(a) Number of Securities to be issued on exercise of                        outstanding options, warrants and rights** | **(b) Weighted average exercise price of outstanding                        options, warrants, and rights** | **(c) Number of securities remaining available for future                        issuance under equity compensation plans.** |
|-----------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------|
| Equity Compensation Plans approved by security                        holders     | 220,000                                                                                                                  | $1.07                                                                                                       | 50,780,000                                                                                                                   |
| Equity compensation plans not approved by security                        holders | 0                                                                                                                        | 0                                                                                                           | 0                                                                                                                            |
| Totals                                                                            | 220,000                                                                                                                  | $1.07                                                                                                       | 50,780,000                                                                                                                   |

 

 

 

50

 

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**ITEM            12.**– CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,            AND DIRECTOR INDEPENDENCE

 

In            2006 and 2007, we leased both rental property and equipment from CDI Management, Inc.            (“CDI”), an entity controlled by Jesse Dobrinsky, our CEO, Scott Goodman,            our CFO, John L. Udell, Vice President of Cargo Connection and Jay Finkelstein, a            principal shareholder, pursuant to which CDI furnished the Company with both rental            property and equipment leases. The rental payments under the real property lease for            2006 and 2007 were $366,825 and $709,100, respectively. The payments under equipment            leases for 2006 and 2007 were $21,600 and $28,800, respectively.

 

As            of December 31, 2007, the Company issued a promissory note to EmplifyHR, in the amount            of $800,000.00. Ivan Dobrin, who is the brother of our CEO Jesse Dobrinsky, has a            direct material interest in EmplifyHR as a principal shareholder. This note provides            for interest at the annual rate of 12% and a maturity date of July 3, 2007.

 

As            of May 1, 2007 Cargo International sub-leased 92,000 square feet of office and            warehouse space in Illinois from Underwing International, LLC            (“Underwing”), a Delaware limited liability company controlled by Jesse            Dobrinsky, our CEO, Scott Goodman, our CFO, John L. Udell, Vice President of Cargo            Connection and Jay Finkelstein, a principal stockholder of the Company (the            “Sublease”), for aggregate Sublease payments of $45,000. The Sublease was            terminated by a Sublease Termination Agreement between Cargo International and            Underwing, dated January 11, 2008.

 

On            April 10, 2007, we issued a promissory note to Parkside Properties, LLC            (“Parkside”), in the amount of $50,000.00. Parkside is an entity owned by            Jesse Dobrinsky, our CEO, Scott Goodman, our CFO and John L. Udell, Vice President of            Cargo Connection. This note provides for interest at the annual rate of 12% and a            maturity date of July 3, 2007. As of December 31, 2007, the principal balance of this            note was repaid in full, along with accrued interest of $1,381.

On            April 17, 2007, we issued a promissory note to Parkside in the amount of $100,000.00.            This note provides for interest at the annual rate of 12% and a maturity date of July            10, 2007. As of December 31, 2007, the balance of the note, inclusive of accrued            interest was $108,515.

In            October 2005, we issued a secured convertible debenture to Jesse Dobrinsky, Scott            Goodman and John L. Udell, in the amount of $75,000. Pursuant to the terms of the            debenture, the Company issued a $75,000 secured convertible debenture with a 15%            interest rate to the group with a maturity date of September 30, 2006. The debenture is            convertible into Common Stock of the Company at a conversion price equal to the lesser            of (a) $0.005 per share or (b) seventy five percent (75%) of the lowest Closing Bid            Price of the Common Stock of the five (5) trading days immediately preceding the            conversion date. The holders of the note informally agreed to extend the due date of            the note to December 31, 2007. The note has not been repaid as of this filing . The            Company has not received any notification that it is in default under the provisions of            the note.

**Director Independence**

 

The            OTC Bulletin Board, on which our common shares are traded, does not have any director            independence requirements.

 

We            have determined that none of our directors are independent. We use the definition of an            “independent director” provided by the NASDAQ Marketplace Rules to            determine whether each of our directors is independent. The definition states that a            director is independent if he or she is not an executive officer or employee of the            company, or if the board affirmatively determines that the director has no relationship            with the company which, in the board's opinion, would interfere with the director's            exercise of independent judgment in carrying out a director's responsibilities. The            definition, which is found in Rule 4200, lists six relationships that preclude an            independence finding, including if the director is an employee of a parent or            subsidiary of the company. As Jesse Dobrinsky and Scott Goodman hold executive officer            positions with us, they do not qualify as independent directors.

 

51

 

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**PART IV**

 
| **ITEM 13.** | EXHIBITS |
|--------------|----------|

 
| 3.1   | Amended and Restated Articles of Organization                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2   | By-Laws (Incorporated by reference to the Company’s                        Registration Statement on Form 10-SB originally filed with the Securities                        and Exchange Commission on November 19, 1999. SEC File No.                        000-28233)                                                                                                                                                                                                             |
| 4.1   | Specimen Common Stock Certificate                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.2   | Specimen Series III Preferred Stock Certificate                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.3   | Specimen Series V Preferred Stock Certificate                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.4   | 1999 Stock Incentive Plan (Incorporated by reference to the                        Company’s Registration Statement on Form 10-SB originally filed with                        the Securities and Exchange Commission on November 19, 1999. SEC File No.                        000-28233)                                                                                                                                                                                           |
| 4.5   | 2005 Stock Incentive Plan (Incorporated by reference to the                        Company’s Registration Statement on Form S-8 filed with the                        Securities and Exchange Commission on July 1, 2005. SEC File No.                        333-126354)                                                                                                                                                                                                            |
| 4.6   | Warrant issued by the Company in favor of Montgomery, for                        2,000,000 shares dated December 28, 2005 (Incorporated by reference to the                        Company’s Form 8-K originally filed with the Securities and Exchange                        Commission on January 9, 2006. SEC File No. 000-28223)                                                                                                                                                |
| 10.1  | Strategic Alliance Agreement dated August 4, 2004, by and                        between the Company and Utek Corporation                                                                                                                                                                                                                                                                                                                                                                  |
| 10.2  | Consulting Agreement dated July 7, 2006, by and between the                        Company and TJM Investments, Inc.                                                                                                                                                                                                                                                                                                                                                                       |
| 10.3  | Consulting Agreement dated December 13, 2006, by and between                        the Company and Charles Oswald                                                                                                                                                                                                                                                                                                                                                                         |
| 10.4  | Employment Agreement dated April 28, 2006, by and between                        the Cargo Connection and William F. O’Connell                                                                                                                                                                                                                                                                                                                                                       |
| 10.5  | Secured Debenture dated February 12, 2006, issued by the                        Company to Montgomery                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.6  | Voting Proxy dated March 26, 2008, in favor of Jesse                        Dobrinsky for the 517,500 shares of Series IV Preferred Stock held by                        Triple Crown.                                                                                                                                                                                                                                                                                                     |
| 10.7  | Convertible Promissory Note, dated March 7, 2006 issued by                        the Company in favor of Advantage Capital Fund I in the principal amount of                        $100,000.                                                                                                                                                                                                                                                                                             |
| 10.8  | HSBC Agreement for Revolving Credit Term Loan dated March                        11, 2004, by and between Cargo International and HSBC Bank                                                                                                                                                                                                                                                                                                                                                |
| 10.9  | General Security Agreement dated March 11, 2009, between                        Cargo International and HSBC Bank                                                                                                                                                                                                                                                                                                                                                                          |
| 10.10 | Secured Convertible Debenture dated October 1, 2005, issued                        by the Company to Jesse Dobrinsky, Scott Goodman, and John L.                        Udell                                                                                                                                                                                                                                                                                                              |
| 10.11 | Lease Agreement dated October 22, 2002, by and between M.D.                        Hodges Enterprises, Inc. and Cargo Connection for premises located at 2410                        Paces Ferry Road, Suite 200, Atlanta, Georgia (Incorporated by reference to                        the Company’s registration statement on Form SB-2 filed with the                        Securities Exchange Commission on February 14, 2006. SEC File No.                        333-126354) |
| 10.12 | Lease Agreement dated December 15, 2005, by and between CDI                        and Cargo Connection for the premises located at 600 Bayview Avenue, Inwood                        New York                                                                                                                                                                                                                                                                                             |
| 10.13 | Lease Agreement dated September 30, 2004, by and between AMB                        and Cargo Connection for the premises located at 8501 N.W. 17th                        Street, Suite 102, Miami Florida (Incorporated by reference to the                        Company’s registration statement on Form SB-2 filed with the                        Securities Exchange Commission on February 14, 2006. SEC File No.                        333-126354)                        |

 

 

52

 

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| 10.14 | Lease Agreement dated October 12, 2004, by and between                        Ralston Industries, Inc. and Cargo International for the premises located                        at 580 N. Cassady Avenue, Columbus, Ohio (Incorporated by reference to the                        Company’s registration statement on Form SB-2 filed with the                        Securities Exchange Commission on February 14, 2006. SEC File No.                        333-126354) |
|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.15 | Securities Purchase Agreement dated December 28, 2005, by                        and between the Company and Montgomery (Incorporated by reference to the                        Company’s Form 8-K originally filed with the Securities and Exchange                        Commission on January 9, 2006. SEC File No. 000-28223)                                                                                                                                       |
| 10.16 | Secured Convertible Debenture dated December 28, 2005 issued                        to Montgomery (Incorporated by reference to the Company’s Form 8-K                        originally filed with the Securities and Exchange Commission on January 9,                        2006. SEC File No. 000-28223)                                                                                                                                                             |
| 10.17 | Investor Registration Rights Agreement dated December 28,                        2005, by and between the Company and Montgomery (Incorporated by reference                        to the Company’s Form 8-K originally filed with the Securities and                        Exchange Commission on January 9, 2006. SEC File No. 000-28223)                                                                                                                              |
| 10.18 | Escrow Agreement dated December 28, 2005, by and amongst the                        Company, Montgomery and David Gonzalez, Esq. (Incorporated by reference to                        the Company’s Form 8-K originally filed with the Securities and                        Exchange Commission on January 9, 2006. SEC File No. 000-28223)                                                                                                                              |
| 10.19 | Security Agreement dated December 28, 2005 by and between                        the Company and Montgomery (Incorporated by reference to the                        Company’s Form 8-K originally filed with the Securities and Exchange                        Commission on January 9, 2006. SEC File No. 000-28223)                                                                                                                                                   |
| 10.20 | Agreement and Plan of Acquisition dated December 6, 2006, by                        and between the Company and NMDT (Incorporated by reference to the                        Company’s Form 8-K originally filed with the Securities and Exchange                        Commission on December 12, 2006. SEC File No. 000-28223)                                                                                                                                        |
| 10.21 | Master Container Storage Agreement dated April 6, 2007, by                        and between the Cargo Connection and Rexam Beverage Can Company                        (Incorporated by reference to the Company’s Form 10-QSB originally                        filed with the Securities and Exchange Commission on August 15, 2007. SEC                        File No. 000-28223)                                                                                   |
| 10.22 | Promissory Note dated April 10, 2007, in the principal                        amount of $50,000, payable to Parkside, issued by Cargo International                        (Incorporated by reference to the Company’s Form 10-QSB originally                        filed with the Securities and Exchange Commission on May 21, 2007. SEC File                        No. 000-28223)                                                                                    |
| 10.23 | Promissory Note dated April 17, 2007, in the principal                        amount of $100,000, payable to Parkside, issued by Cargo International                        (Incorporated by reference to the Company’s Form 10-QSB originally                        filed with the Securities and Exchange Commission on May 21, 2007. SEC File                        No. 000-28223)                                                                                   |
| 10.24 | Agreement for Logistic Services dated April 13, 2007, by and                        between Cargo International and AIT Worldwide Logistics (Incorporated by                        reference to the Company’s Form 10-QSB originally filed with the                        Securities and Exchange Commission on August 15, 2007. SEC File No.                        000-28223)                                                                                         |
| 10.25 | Waiver Agreement dated May 7, 2007, by and between the                        Company and Montgomery (Incorporated by reference to the Company’s                        Form 8-K originally filed with the Securities and Exchange Commission on                        May 10, 2007. SEC File No. 000-28223)                                                                                                                                                             |
| 10.26 | Promissory Note dated June 30, 2007, in the principal amount                        of $200,000, payable to Target Temporaries, Inc., issued by Cargo                        International (Incorporated by reference to the Company’s Form 10-QSB                        originally filed with the Securities and Exchange Commission on November                        14, 2007)                                                                                       |
| 10.27 | Letter Agreement dated as of August 20, 2007, by and between                        the Company and Fleet (Incorporated by reference to the Company’s                        Form 8-K originally filed with the Securities and Exchange Commission on                        September 5, 2007. SEC File No. 000-28223)                                                                                                                                                   |
| 10.28 | Term Sheet dated October 29, 2007, by and between WFBA and                        Cargo Connection (Incorporated by reference to the Company’s Form                        10-QSB originally filed with the Securities and Exchange Commission on                        November 14, 2007. SEC File No. 000-28223)                                                                                                                                                       |

 

 

53

 

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| 10.29 | Senior Secured Convertible Debenture dated November 14,                        2007, issued to YA Global (Incorporated by reference to the Company’s                        Form 10-QSB originally filed with the Securities and Exchange Commission on                        November 14, 2007. SEC File No. 000-28223)                                                                                                       |
|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.30 | Account Transfer Agreement dated as of November 20, 2007                        between Cargo Connection and WFBA (Incorporated by reference to the                        Company’s Form 8-K originally filed with the Securities and Exchange                        Commission on November 27, 2007. SEC File No. 000-28223)                                                                                                 |
| 10.31 | Letter Agreement Amendment of the Account Transfer Agreement                        between the Cargo Connection and WFBA, dated as of November 20, 2007                        (Incorporated by reference to the Company’s Form 8-K originally filed                        with the Securities and Exchange Commission on November 27, 2007. SEC File                        No. 000-28223)                                   |
| 10.32 | Guaranty dated November 20, 2007 by Cargo Connection in                        favor of WFBA (Incorporated by reference to the Company’s Form 8-K                        originally filed with the Securities and Exchange Commission on November                        27, 2007. SEC File No. 000-28223)                                                                                                                      |
| 10.33 | Buyout Agreement dated November 20, 2007, by and amongst                        Cargo Connection, WFBA and Accord (Incorporated by reference to the                        Company’s Form 8-K originally filed with the Securities and Exchange                        Commission on November 27, 2007. SEC File No. 000-28223)                                                                                                 |
| 10.34 | Agreement dated November 21, 2007, by and between Cargo                        Connection and AMB (Incorporated by reference to the Company’s Form                        8-K originally filed with the Securities and Exchange Commission on                        November 27, 2007. SEC File No. 000-28223)                                                                                                                 |
| 10.35 | Promissory Note dated December 31, 2007, issued by the                        Company in the amount of $800,000, payable to EmplifyHR (Incorporated by                        reference to the Company’s Form 8-K originally filed with the                        Securities and Exchange Commission on January 7, 2008. SEC File No.                        000-28223)                                                        |
| 1036  | Security Agreement dated December 31, 2007, Company. Cargo                        International and EmplifyHR (Incorporated by reference by Company's Form                        8-K filed with Securities and Exchange Commission on January 7, 2008 (SEC                        File No.: 000-28223)                                                                                                                               |
| 10.37 | Guaranty dated December 31, 2007 by and amongst Company,                        Cargo International in favor of EmplifyHR (Incorporated by reference to the                        Company’s Form 8-K originally filed with the Securities and Exchange                        Commission on January 7, 2008. SEC File No. 000-28223)                                                                                           |
| 10.38 | Lease Agreement dated as of January 11, 2008 between Cargo                        Connection and MD Cargo ORD Property LLC for premises located at 491                        Supreme Drive, Bensenville, Illinois (Incorporated by reference to the                        Company’s Form 8-K originally filed with the Securities and Exchange                        Commission on January 15, 2008. SEC File No. 000-28223) |
| 10.39 | Guaranty Agreement issued by the Company as of January 11,                        2008 in favor of MD Cargo ORD Property LLC (Incorporated by reference to                        the Company’s Form 8-K originally filed with the Securities and                        Exchange Commission on January 15, 2008. SEC File No. 000-28223)                                                                                       |
| 10.40 | Termination of Sublease Agreement dated as of January 11,                        2008 between Cargo International and Underwing (Incorporated by reference                        to the Company’s Form 8-K originally filed with the Securities and                        Exchange Commission on January 15, 2008. SEC File No. 000-28223)                                                                                    |
| 10.41 | First Amendment to Lease dated as of January 10, 2008                        between Cargo Connection and LIT/Hodges Industrial Trust. (Incorporated by                        reference to the Company’s Form 8-K originally filed with the                        Securities and Exchange Commission on March 5, 2008. SEC File No.                        000-28223)                                                         |
| 10.42 | Lease Agreement dated December 15, 2005, between Cargo                        International and CDI                                                                                                                                                                                                                                                                                                                              |
| 14.1  | Code of Ethics                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 31.1  | Certification of Principal Executive Officer pursuant to                        Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                         |
| 31.2  | Certification of Principal Financial Officer pursuant to                        Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                         |
| 32.1  | Section 1350 Certification of Principal Executive Officer                        and Principal Financial Officer                                                                                                                                                                                                                                                                                                                      |

 

 

54

 

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**ITEM            14 -**PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

Our            board of directors reviews and approves audit and permissible non-audit services            performed by its independent accountants, as well as the fees charged for such            services. In its review of non-audit service fees and its appointment of the firm            Friedman, LLP, as our independent registered accounting firm, the board of directors            considered whether the provision of such services is compatible with maintaining            independence. In accordance with all statutory and regulatory compliance, the board of            directors approved the service of Friedman LLP.

 

**Audit Fees.**

 

The            aggregate fees billed by our principal accountant, Friedman, LLP, for professional            services for the audit of our annual financial statements for 2007 and 2006 were            $130,000 and $151,551, respectively net of expenses.

 

**Audit Related Fees.**

 

The            aggregate fees billed by our principal accountant, Friedman, LLP, for reasonably            related fees or expenses, aside from those referenced above, related to the audit of            our annual financial statements for 2007 and 2006 were $0 and $0, respectively, net of            expenses.

 

**Tax Fees.**

 

There were no fees charged to the Company for tax compliance, tax            related advice, or tax planning by our principal accountant, Friedman, LLP.

 

**All Other Fees.**

 

There were no other fees paid to our principal accountant, Friedman,            LLP.

 

 

55

 

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SIGNATURES

 

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

 

 
|   |   | CARGO CONNECTION LOGISTICS HOLDING, INC. |
|--------|--------|------------------------------------------|
|        |   |                                     | /s/ Jesse Dobrinsky |
|   |   |                                     | Jesse Dobrinsky |
|   |   |                                     | President, Chief Executive Office |
|   |   |                                     |   |
|   |   |                                     | Dated: March 31, 2008 |

 

 

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

 
|   |   |   |
|--------|--------|--------|
|        |   |   | /s/ Jesse Dobrinsky |
|   |   |   | Jesse Dobrinsky, President, Chief Executive                        Officer |
|   |   |   | and Director (Principal Executive Officer) |
|   |   |   |   |
|   |   |   | Dated: March 31, 2008 |

 

 
|   |   |   |
|--------|--------|--------|
|        |   |   | /s/ Scott Goodman |
|   |   |   | Scott Goodman, Chief Financial Officer |
|   |   |   | Chief Operating Office and Director |
|   |   |   | (Principal Accounting and Financial Officer) |
|   |   |   |   |
|   |   |   | Dated: March 31, 2008 |

 

 

 

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