CARGO CONNECTION LOGISTICS HOLDING, INC. - FORM 10-Q

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EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - CARGO CONNECTION LOGISTICS HOLDING, INC.	f10q0609ex31i_cargoconn.htm
EX-32.1 - SECTION 1350 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER. - CARGO CONNECTION LOGISTICS HOLDING, INC.	f10q0609ex32i_cargoconn.htm
EX-32.2 - CERTIFICATE OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - CARGO CONNECTION LOGISTICS HOLDING, INC.	f10q0609ex31ii_cargoconn.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2009

Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from

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.)

P.O. Box 248

East Meadow, New York 11554

(Address of Principal Executive Offices)

(888) 886-4610

(Registrant’s Telephone Number)

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 periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes o No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “accelerated filer” and “large accelerated filer” in rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.

Yes o No x

Indicate the number of shares outstanding of the Registrant’s common stock as of the latest practicable date.

Class		Outstanding at November 30, 2010
Common Stock, $.001 par value		1,569,907,354

CARGO CONNECTION LOGSITICS HOLDING, INC. AND SUBSIDIARIES

FORM 10-Q

Table of Contents

	Page
Part I – FINANCIAL INFORMATION	3
Item 1. Financial Statements (Unaudited)	3
Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008	3
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2009 and 2008	4
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008	5
Notes to Condensed Consolidated Financial Statements	6
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3 – Quantitative and Qualitative Disclosures About Market Risk	27
Items 4 and 4T –Controls and Procedures	27

Part II – OTHER INFORMATION	29
Item 1. Legal Proceedings	29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3. Defaults Upon Senior Securities	31
Item 4. Submission of Matters to Vote of Security Holders	32
Item 5. Other Information.	32
Item 6. Exhibits	33

SIGNATURES	34

LIST EXHIBITS

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

CARGO CONNECTION LOGISTICS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET

	June 30, 2009			December 31, 2008
	(Unaudited)			(Audited)
ASSETS
Current Assets
Cash	$	1,670		$	2,157
Cash - restricted		274			1,000
Current assets of discontinued operations		-			478
Total current assets		1,944			3,635
TOTAL ASSETS	$	1,944		$	3,635

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Accounts payable and accrued expenses	$	1,298,475		$	1,202,148
Secured convertible debenture, net of discount of $0 and
$0, respectively		75,000			75,000
Current portion of notes payable		275,043			275,043
Due to related parties		134,000			134,000
Due to others		1,120,000			1,120,000
Current liabilities of discontinued operations		3,398,894			3,398,794
Total current liabilities		6,301,412			6,204,985
TOTAL LIABILITIES		6,301,412			6,204,985

Commitments and contingencies

Non-controlling interest – ITG subsidiary		-			342

Mezzanine Financing
Series III convertible preferred stock, par value $1.00 - authorized
500,000 shares, 100,000 shares issued and outstanding (liquidation
value $100,000)		100,000			100,000
Series IV convertible preferred stock, par value $1.00 - authorized
600,000 shares, 517,500 shares issued and outstanding (liquidation
value $517,500)		517,500			517,500
Series V convertible preferred stock, par value $1.00 - authorized
500,000 shares, 479,867 shares issued and outstanding
(liquidation value $479,867)		479,867			479,867

Stockholders' Deficiency
Common stock, par value $.001 - authorized 5,000,000,000 shares
1,569,907,354 and 1,569,907,354 shares issued and
outstanding , respectively		1,569,908			1,569,908
Additional paid in capital		3,492,207			3,492,207
Accumulated deficit		(12,458,950	)		(12,361,174	)
TOTAL STOCKHOLDERS' DEFICIENCY		(7,396,835	)		(7,299,059	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY	$	1,944		$	3,635

The accompanying notes are an integral part of these condensed consolidated financial statements

CARGO CONNECTION LOGISTICS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008

(UNAUDITED)

	For the three months ended June 30,						For the six months ended June 30,
	2009			2008			2009			2008
Operating expenses:
Selling, general and
administrative	$	26,148		$	240,186		$	78,464		$	443,071
Total operating expenses		26,148			240,186			78,464			443,071

Loss from continuing operations		(26,148	)		(240,186	)		(78,464	)		(443,071	)

Other expense
Interest expense, net		(9,510	)		(125,564	)		(18,916	)		(184,216	)
Loss from debt
extinguishment		-			(120,000	)		-			(38,153	)
Other expense		(159	)		-			(159	)		(750	)
Total other expense		(9,669	)		(245,564	)		(19,075	)		(223,119	)

Net loss from continuing
operations attributable to
common stockholders		(35,817	)		(485,750	)		(97,539	)		(666,190	)

Discontinued operations
Gain on debt extinguishment in
connection with forbearance
for consideration of
discontinued operations		342			4,443,238			342			4,443,238
(Loss) gain from operations of
discontinued entity		(1	)		652,968			(579	)		(177,727	)
Income tax benefit		-			211,281			-			211,281
(Loss) gain from discontinued
operations		341			5,307,487			(237	)		4,476,792

Net (loss) income	$	(35,476	)	$	4,821,737		$	(97,776	)	$	3,810,602

Net (loss) income per common share:
Basic and Diluted:

Loss from continuing operations	$	(0.000	)	$	(0.000	)	$	(0.000	)	$	(0.001	)
Loss from discontinuing operations	$	(0.000	)	$	0.004		$	(0.000	)	$	0.003

Weighted average number of
common shares – Basic and Diluted		1,569,907,354			1,416,061,200			1,569,907,354			1,308,857,354

The accompanying notes are an integral part of these condensed consolidated financial statements

CARGO CONNECTION LOGISTICS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
	June 30,			June 30,
	2009			2008
Cash flows from operating activities:
Net loss from continuing operations attributable to
common stockholders	$	(97,539	)	$	(666,190	)
Adjustments to reconcile net loss to net cash used in operating activities:
(Loss) gain from operations of discontinued entity		(237	)		4,476,792
Amortization of note discounts		-			38,327
Loss on extinguishment of debt		-			38,153
Non-controlling interest		(342	)		13
Changes in:
Escrow held by attorney		726			-
Prepaid expenses		-			(11,993	)
Accounts payable and accrued expenses		96,327			560,628

Net cash (used in) provided by operating activities - continuing		(1,065	)		4,435,730
Net cash provided by (used in) operating activities - discontinued		100			(5,281,813	)
Net cash used in operating activities		(965	)		(846,083	)

Cash flows from investing activities:
Net cash provided by investing activities - continuing		-			-
Net cash provided by investing activities - discontinued		-			303,815
Net cash provided by investing activities		-			303,815

Cash flows from financing activities
Net cash provided by financing activities - continuing		-			-
Net cash provided by financing activities - discontinued		478			549,448
Net cash provided by financing activities		478			549,448

Net (decrease) increase in cash		(487	)		7,180

Cash, beginning of period		2,157			1,194

Cash, end of period	$	1,670		$	8,374

Supplemental disclosure of cash flow information
Interest expense	$	-		$	34,372
Income taxes	$	-		$	-

Supplemental schedule of non-cash activities:
Conversion of secured debenture to common stock	$	-		$	172,100
Issuance of common stock as principal payment of note payable	$	-		$	250,000
Assumption of liabilities of discontinued operations from parent company	$	-		$	911,481

The accompanying notes are an integral part of these condensed consolidated financial statements

CARGO CONNECTION LOGISTICS HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2009 and 2008

(UNAUDITED)

NOTE 1 – ORGANIZATION HISTORY AND BASIS OF PRESENTATION

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.”

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.

The Company had operated as a provider of logistics solutions for global partners through its network of branch terminal locations and independent agents in North America. The Company operated predominately as a non-asset based transportation provider which provided 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 had established relationships.

In December 2006, the Company acquired Nuclear Material Detection Technologies, Inc. (“NMDT”), which was 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 intended to develop, with the licensor, a market-ready nuclear radiation detection device, called RadRope™, to service the logistics, transportation and general cargo industries. The Company anticipated that its current stage of research and development of a revised prototype would have been completed by the end of the 2008 fiscal year or within the 1st quarter of 2009. Since the prototype and other modifications necessary to have the device marketed properly have not occurred, along with the company’s inability to begin paying royalties on the technology beginning in 2009, the Company has determined that it would cease in its efforts to develop and market the device and therefore recorded an impairment to the intangible asset in the amount of $1.3 million as of December 31, 2008.

The Company owned a 51% interest in Independent Transport Group, LLC (“ITG”), in which Emplify HR Services, Inc. (“Emplify”) (a related party at the time) owned a 49% interest. The financial statements of ITG are included in the Company’s condensed consolidated financial statements. The minority interest in operating results is reflected as an element of non-operating expense in the Company’s condensed consolidated statements of operations and the minority interest in the equity of ITG is reflected as a separate component in the Company’s condensed consolidated balance sheet. The Parties agreed to dissolve their partnership interests in ITG in June, 2009.

On May 5, 2008, the Company received a written notice of default dated April 29, 2008 (the “Default Notice”) from Pacer Logistics LLC (“Pacer”) which stated that the balance due on three convertible debentures payable to Pacer was in excess of $4,000,000 and was in default. The Default Notice provided that Pacer would conduct a “self-help” foreclosure ten days from the date of the Notice pursuant to a Security Agreement, dated December 28, 2005. On May 13, 2008, the Company entered into a Strict Foreclosure and Transfer of Assets Agreement with Pacer (the “Strict Foreclosure Agreement”), pursuant to which the Company acknowledged that it was in default of certain obligations, in the aggregate amount of $3,826,068 to Pacer, as assignee of all right, title and interest of YA Global Investments, LP (“YA Global”), including as assignee of Montgomery Equity Partners Ltd. (“Montgomery”), with respect to the Companies’ obligations (collectively the “Outstanding Obligations”) under the:

·	Secured Convertible Debenture, dated December 28, 2005, issued to Montgomery in the principal amount of $1,750,000 (the “2005 Montgomery Debenture”);

·	Investor Rights Registration Agreement, dated December 28, 2005, by and between the Company and Montgomery.

·	Secured Convertible Debenture, dated February 13, 2006, issued to Montgomery in the principal amount of $600,000 (the “2006 Montgomery Debenture”);

·	Secured Convertible Debenture, dated November 17, 2007, issued to YA Global, in the principal amount of $46,500 (the “YA Global Debenture”);

The outstanding balance of the above was an aggregated amount of $2,084,400 in principal, plus accrued interest of $598,513 and accumulated liquid damages of $1,143,155 incurred as of the foreclosure date, totaling $3,826,068.

The Outstanding Obligations were secured by certain assets of the Company and its subsidiaries. Pursuant to the Strict Foreclosure Agreement and a related assumption agreement, all of the Outstanding Obligations have been extinguished, and Pacer foreclosed on substantially all the operating assets of the Company and its subsidiaries and assumed certain liabilities of the Company including:

·	all obligations to Wells Fargo Bank, National Association ("WFBA") in the amount of $1,195,064;

·	the obligations to HSBC Bank (“HSBC”) in connection with the HSBC Loan in the amount of $60,460, including in connection with all collateral provided in connection therewith; and

·	the obligations to U.S. Small Business Administration (“SBA”) pursuant to a loan (the “SBA Loan”) in the amount of $8,418.

As a result of this foreclosure, the Company at that time consisted only of the following non-operating assets:

·	Cargo International and its remaining net assets;

NMDT;

·	ITG and its assets; and

·	the stock of Cargo Connection, without its former assets.

The unaudited condensed consolidated interim financial statements include the accounts of the Company and its wholly-owned 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. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the SEC for quarterly reports on Form 10-Q and therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. However, in the opinion of management, the unaudited condensed consolidated financial statements have been prepared to reflect all adjustments necessary to present fairly the Company’s financial position as of June 30, 2009, and the results of its operations and cash flows for the six months ended June 30, 2009. The results for the six months ended June 30, 2009 are not necessarily indicative of the results to be expected for any future interim period or the entire fiscal year ending December 31, 2009.

These unaudited condensed consolidated interim financial statements should be read in conjunction with the Company's audited financial statements and notes thereto for the year ended December 31, 2008 as included in the Company's Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC on December 17, 2010.

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 before discontinued operations of $97,539 compared to a net loss of $666,190 for the six months ended June 30, 2009 and 2008, respectively. The Company has a working capital deficiency of $6,299,468 and an accumulated deficit of $12,458,950 at June 30, 2009 and expects that it will incur additional losses in the immediate future. The Company’s operations have been severely curtailed after its compliance with the Strict Foreclosure Agreement (see Note 1). To date the Company has financed operations primarily through sales of its equity securities and issuances of debt instruments to related and unrelated parties.

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, 2008 and filed with the SEC on December 17, 2010, had included an explanatory paragraph expressing the substantial doubt about our ability to continue as a going concern.

NOTE 3 - SUMMARY OF SELECTED 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 insurance limit. The Company has not experienced any losses on these accounts, and believes that such risk is minimal.

Property and equipment and depreciation and amortization

Property and equipment was recorded at cost. Depreciation and amortization of property and equipment was 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 were five and seven years. Computer equipment and software was depreciated over three years and leasehold improvements were 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 accounted 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, 2008, there was an impairment charge of $1.3 million taken relating to NMDT’s patent rights under long-lived assets.

Revenue recognition

The Company had recognized all transportation revenues based upon the tendering of freight to the Company for the delivery of the goods at their final destination. The Company had recognized warehouse services operations revenue upon the completion of those services.

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 June 30, 2009, 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, 2007, 2008 and 2009 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.

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 condensed consolidated 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 condensed consolidated financial statements include estimates as to the 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, accounts payable, accrued expenses and financial instruments, the carrying amounts approximate their fair values due to their short-term maturities.

Earnings per share

Basic (loss) earnings per share excludes dilution and is computed by dividing net (loss) earnings available to common shareholders by the weighted average number of shares outstanding during the period. Diluted (loss) earnings per share is computed by dividing net (loss) earnings available to common shareholders by the weighted average number of shares outstanding during the period increased by the number of additional shares that would have been outstanding if the impact is dilutive. For the period ended June 30, 2009, there were no shares outstanding that would have been dilutive.

	Three Months Ended June 30,				Six Months Ended June 30,
	2009		2008		2009		2008
Basic and diluted
number of common
shares outstanding		1,569,907,354		1,416,061,200		1,569,907,354		1,308,857,354

For the six month period ended June 30, 2009 and 2008, outstanding shares of preferred stock of 1,097,367 and 1,097,367, respectively, which were convertible into 12,456,421,096 and 5,399,278,239 shares of commons stock, respectively, have been excluded from the above calculation because the effect on net loss per share would have been antidilutive

For the six month period ended June 30, 2008, outstanding shares of warrants of 2,000,000, which were convertible into 2,000,000 shares of commons stock, have been excluded from the above calculation because the effect on net loss per share would have been antidilutive.

For the six month period ended June 30, 2009 and 2008, convertible debentures (including accrued interest) valuing $117,150 and $105,930, respectively, which were convertible into 1,562,000,000 and 282,480,800 shares of commons stock, respectively, have been excluded from the above calculation because the effect on net loss per share would have been antidilutive.

Stock-based compensation

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 granted 1,000,000,000 stock options in 2009 to Scott Goodman, CEO, in lieu of payment for accrued compensation valued at $100,000. The Company has not granted any stock options in 2008. No stock options have been exercised or expired in 2008 or 2009.

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.

In connection with the foreclosure activity, the Company’s financial instruments were written-off and included in the “Gain from discontinued operations” in the Statement of Operations.

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 amortized over the term of the leases on a straight line basis. Deferred rent included Illinois and Atlanta rent and represented the unamortized rent adjustment amount, and was reflected as deferred rent obligations in the Company’s condensed consolidated balance sheet. This is now reflected as part of discontinued operations as the leases were associated with the logistics operations, which were either foreclosed upon or the operations ceased due to lack of complementary revenue caused by the foreclosure. Due to the effect of the foreclosure on those operations, the deferred rent liability is reflected as part of discontinued operations.

Intangible Assets

The Company accounted 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.

The Company had intangible assets, such as patents or licenses, that were determined to have a definite life and was amortized its useful life (19 years) and was measured for impairment when events or circumstances indicated that the carrying value may be impaired. The Company estimated the future undiscounted cash flows to be derived from the intangible asset to determine whether or not a potential impairment existed. If the carrying value exceeded the estimate of future undiscounted cash flows, the impairment was calculated as the excess of the carrying value of the asset over the estimate of its fair value.

The Company has took a full impairment of the License for the RadRope™ product as of December 31, 2008 after determining that there was no market for the product in the amount of $1,316,854. The License and all related products associated with it have been returned to the manufacturing company as of April, 2010.

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 4 – ACQUISITIONS AND DISCONTINUED OPERATIONS

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.

Discontinued Operations - ITG

The Company had owned a 51% interest in ITG, in which Emplify owned a 49% interest. The financial statements of ITG are included in the Company’s condensed consolidated financial statements. The minority interest in operating results is reflected as an element of non-operating expense in the Condensed Consolidated Statements of Operations and the minority interest in the equity of ITG is reflected as a separate component on the Condensed Consolidated Balance Sheet. The Parties agreed to dissolve their partnership interests in ITG in June, 2009.

Discontinued Operations – Due to Strict Foreclosure

On May 13, 2008, the Company entered into a Strict Foreclosure Agreement with Pacer, pursuant to which the Company acknowledged that it is in default of certain obligations, in the aggregate amount of $3,826,068 to Pacer as assignee of all right, title and interest of YA Global, including as assignee of Montgomery, with respect to the Outstanding Obligations (see Note 1).

The Company, subsequent to this transaction, has discontinued the operations of its Cargo Connection subsidiary, as the business which had existed no longer could operate without its assets, which included its cash, accounts, accounts receivable, factoring availability, fixed assets such as its machinery and equipment and the operating leases on the trucks, trailers, and warehouse equipment, along with its customers, which were all assigned to Pacer Logistics, LLC pursuant to the Strict Foreclosure Agreement.

As a result of the Strict Foreclosure Agreement, the Company extinguished secured convertible debt in the amount of $3,826,068, which consisted of $2,084,400 in principal, accrued interest of $598,513 and accumulated liquid damages of $1,143,155 incurred as of the foreclosure date. Additionally, in connection with the Strict Foreclosure Agreement and the discontinued operations, the Company was also relieved of $2,083,623 of additional liabilities. Those liabilities primarily arise from:

·	$800,000 of notes payable;

·	$444,000 of with respect to certain outstanding obligations of the Company existing as of May 13, 2008 (the “Cash Overflows”);

·	$187,946 of accounts payable and credit card obligations;

·	$210,000 from the Pacer loan;

·	$148,000 of derivative liabilities;

·	$71,000 of other notes;

·	$179,287 of capital leases; and

·	$43,428 of other remaining liabilities.

In accordance with SFAS 144, the Company has classified the results of its Cargo Connection subsidiary as “discontinued operations” in the condensed consolidated statements of operations.

In connection with the discontinued operations, the Company had a total loss of $237 as of June 30, 2009 and a total gain of $4,476,792 as of June 30, 2008. The following is a summary of the $237 loss from discontinued operations as of June 30, 2009, and the $4,476,792 gain from discontinued operations as of June 30, 2008:

	2009			2008
Add: total debt assumed under Strict Foreclosure Agreement	$	342		$	5,597,875
Less: total assets assumed under Strict Foreclosure Agreement		-			(1,154,637	)
Total gain on debt extinguishment in connection with
forbearance for consideration of discontinued operations		342			4,443,238
Loss from operations of discontinued entity		(579	)		(177,727	)
Income tax benefit		-			211,281
Gain from discontinued operations	$	(237	)	$	4,476,792

Please note though that the Company has also projected that for the year ended December 31, 2008, that it would utilize approximately $2,700,000 of its net operating loss carryforward due to the gain recognized from discontinued operations of $4,476,792 (see Note 14).

In addition, management of the Company had determined that as of July 18, 2008, its Cargo International subsidiary would cease operations at its facility in Illinois. As a result of this, the Company has classified the results of its Cargo International subsidiary as “discontinued operations” in the condensed consolidated statements of operations.

NOTE 5 - RECENT ACCOUNTING PRONOUNCEMENTS

In June 2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162,” (“SFAS 168”). SFAS 168 establishes the FASB Accounting Standards Codification (“Codification”) as the source of authoritative generally accepted accounting principles (“GAAP”) for nongovernmental entities. The Codification does not change GAAP. Instead, it takes the thousands of individual pronouncements that currently comprise GAAP and reorganizes them into approximately ninety accounting topics, and displays all topics using a consistent structure. Contents in each topic are further organized first by subtopic, then section and finally paragraph. The paragraph level is the only level that contains substantive content. Citing particular content in the Codification involves specifying the unique numeric path to the content through the topic, subtopic, section and paragraph structure. FASB suggests that all citations begin with “FASB ASC,” where ASC stands for Accounting Standards Codification. Changes to the ASC subsequent to June 30, 2009 are referred to as Accounting Standards Updates (“ASU”).

In conjunction with the issuance of SFAS 168, the FASB also issued its first Accounting Standards Update No. 2009-1, “Topic 105 – Generally Accepted Accounting Principles” (“ASU 2009-1”) which includes SFAS 168 in its entirety as a transition to the ASC.

ASU 2009-1 is effective for interim and annual periods ending after September 15, 2009 and will not have an impact on the Company’s financial position or results of operations but will change the referencing system for accounting standards.

As of December 17, 2010, all citations to the various SFAS’ have been eliminated and will be replaced with FASB ASC as suggested by the FASB in future interim and annual financial statements.

As of December 17, 2010, the Company does not expect any of the recently issued accounting pronouncements to have a material impact on its financial condition or results of operations.

NOTE 6 – DUE TO OTHERS

The Company classifies advances as current liabilities, as the Company is expected to pay back these advances within a twelve month period unless a more formal agreement is put into place for the repayment of these funds. The Company may be required to enter into settlement agreements with lenders unless other sources of capital can be obtained.

The following table details Due to Others as of June 30, 2009 and December 31, 2008:

	June 30, 2009		December 31, 2008
Loan from RAKJ Holdings	$	145,000	$	145,000
Loan from Triple Crown		975,000		975,000
Total account balance	$	1,120,000	$	1,120,000

NOTE 7 - NOTES PAYABLE

Effective January 1, 2007, Cargo International entered into a four year term loan with HSBC Bank (the “HSBC Loan”). This obligation, which was administered by HSBC on behalf of the SBA, was collateralized by all of the assets of Cargo International and is guaranteed by certain executive officers of the Company. In connection with the Strict Foreclosure Agreement and the related assumption agreement, Pacer assumed this loan. Subsequent to the foreclosure, Pacer defaulted on its obligation, after having made some payments towards this loan. The loan, in default since January 1, 2009, was remanded to the SBA’s Birmingham Disaster Loan Servicing Center for collection enforcement. The loan balance, in the amount of $50,043, originally written-off in connection with the foreclosure proceedings, has been placed back on the books of the Company until the matter is resolved between the Company and Pacer. In the interim, the Company will begin to remit payments to the SBA towards this obligation.

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 and was not paid upon the maturity date. The Company is currently in default of this note. The Company has accrued interest of $40,433 as of June 30, 2009.

On August 21, 2008, the Company issued a promissory note in the amount of $25,000 to Brainard Management Associates Inc. (“Brainard”) (the “Brainard Promissory Note”), evidencing advances given to the Company to assist in short-term cash flow needs. The note bears interest at a rate of 12% per annum and requires no interest payments to be made until its maturity date, which is August 19, 2009. The Company is currently in default of this note. The Company has accrued interest of $2,590 as of June 30, 2009.

At June 30, 2009 and December 31, 2008, future minimum annual principal payments on the above notes are as follows:

As of June 30, 2009		As of December 31, 2008

$	275,043	$	275,043
$	275,043	$	275,043

The following table details the Notes Payable as of June 30, 2009 and December 31, 2008:

	As of June 30, 2009		As of December 31, 2008
Target Temporaries	$	200,000	$	200,000
HSBC		50,043		50,043
Brainard		25,000		25,000
Total	$	275,043	$	275,043
Less: Current portion		275,043		275,043
Long-term portion	$	-	$	-

NOTE 8 - SECURED CONVERTIBLE DEBENTURES

In October 2005, the Company entered into a secured convertible debenture with members of management (the “Management Note”) 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, 2008. 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 Management 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 $-0- and $17,593 as of June 30, 2009 and 2008, respectively, 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, 2008.

NOTE 9 - EMPLOYEE BENEFIT PLAN

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

NOTE 10 - COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company had 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 leased equipment and trucks under non-cancelable operating leases. The leases are subject to escalation for the Company’s proportionate share of increases in real estate taxes and certain other operating expenses. Pursuant to the Strict Foreclosure Agreement, and in light of Pacer’s continued operating of the former business of Cargo Connection at those locations and its assumption of the operating lease with Sun-Bridge Capital for forklifts, the Company now has a primary obligation under the lease for the premises in Illinois for Cargo International. However, Cargo International had vacated the Illinois facility as of July 18, 2008 (see next paragraph).

As of January 11, 2008, Cargo International entered into a Commercial Lease Agreement (the “MP Cargo Lease”) 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 was for a term of ten years and called 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, then 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. As of July 18, 2008, Cargo International has vacated the premises under an order of eviction from the landlord stemming from a failure to pay the rental amount due in May 2008 and then subsequently in June 2008. On September 19, 2008, the Company received notification of MP Cargo’s Request for Judicial Intervention brought in New York State Supreme Court, Nassau County on September 11, 2008 seeking a judgment in the amount of $271,311.

There was no rent expense (inclusive of amortization of straight line expense) accrued to operations for office and warehouse space for the six months ended June 30, 2009 and 2008. There was no rent expense accrued to operations for trucks and equipment for the six months ended June 30, 2009 and 2008.

The Company recognizes rent expense based upon the straight-line method, which adjusts for rent abatements and future rent increases. In connection with future minimum lease payments, there was no liability for deferred rent at June 30, 2009 and December 31, 2008, respectively, for continuing operations.

Litigation

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 believes that it has acted in good faith and remitted all funds due to AFW under the agreement. The Company has not, nor has the Trustee, conducted any significant discovery related to this matter.

On March 7, 2008, the Company and Cargo International were served with a summons and complaint in connection with the action entitled Travelers Indemnity Company v. Mid Coast Management and Cargo Connection Logistics. The action seeks payment of $16,196, 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. This case was settled for $8,000 in June 2008 and called for payment to be made by Cargo International in August 2008, which has not been paid to date. Since the payment was not made a judgment was filed against the Company on or about February 19, 2010 in the amount of $23,484.

On May 22, 2008, Cargo International received a notice, dated May 14, 2008 (the “Notice”) from counsel for MP Cargo that Cargo International failed to pay the monthly payments required pursuant to the terms of the MP Cargo Lease. The letter demanded that Cargo International pay a sum of $63,800 within ten (10) days in order to cure the default. The notice provided that pursuant to the terms of the MP Cargo Lease and upon the failure to cure the default, Cargo International’s right to possession of the premises would be terminated. The MP Cargo Lease provided MP Cargo with the right to terminate the Lease and accelerate all payments due under the Lease, less fair rental value of the Premises for the remainder of the Term. Subsequently, a suit was filed on May 29, 2008 under the caption MP Cargo ORD Property LLC v. Cargo Connection Logistics Holding, Inc. & Pacer Logistics, LLC, case no. 2008-L-000608 (18th Judicial Circuit, DuPage County, Illinois) seeking a judgment in the amount of $258,551. MP Cargo received this default judgment on August 5, 2008. On September 19, 2008, Cargo Holdings and Cargo International each received notification of MP Cargo’s Request for Judicial Intervention brought in New York State Supreme Court, Nassau County on September 11, 2008. Subsequently, on or about November 5, 2008, Cargo International received a judgment through the Judicial Intervention brought in New York in the amount of $271,311, plus $1,500 in reasonable attorney’s fees.

On August 1, 2008 Cargo Connection received a summons and complaint in connection with the action entitled Lazzar Transportation, Inc. v. Cargo Connection Logistics Corp., which was brought in New York State Supreme Court, Nassau County on or about June 6, 2008. The action seeks payment of $80,473, relating to services provided to Cargo Connection by Lazzar between July 2005 and October 2005, which have allegedly never been paid to Lazzar. The Company believes that this case is without merit and intends to vigorously contest this matter to the extent its resources permit.

On August 8, 2008 Cargo Connection received a summons and complaint in connection with an action entitled Industrial Staffing Services, Inc. v. Cargo Connection Logistics Corp., which was brought in the Circuit Court, Cook County, Illinois on or about July 30, 2008. The alleged action for breach of contract seeks payment in the amount of $40,169. On March 26, 2009, Cargo Connection and Cargo International were to appear in court under a Rule to Show Cause. The amount that the Plaintiff showed unsatisfied is $44,779.

On August 14, 2008 Cargo Connection received a summons and complaint in connection with an action entitled Total Protective Security, Inc. v. Cargo Connection Logistics Corp., which was brought in New York State Supreme Court, Nassau County on or about June 17, 2008. The alleged action for non-payment for services rendered seeks payment in the amount of $51,362. They brought forth a Notice of Motion for Default Judgment (case number: 08-009965) on or about September 2, 2008 for $52,652.

On or about September 10, 2008, Mid-Coast Management Inc. (n/k/a Cargo Connection Logistics International, Inc.) and Cargo Connection Logistics Corp. received a summons and complaint in connection with an action entitled Star Leasing Co. v. Mid-Coast Management, Inc. and Cargo Connection Logistics Corp. and John Doe, which was brought in Civil Court, Franklin County, Columbus, Ohio (case number: 08CVH-06-8877) on or about June 19, 2008. The action seeks payment of $67,725, relating to the alleged amount owed for principal on trailer equipment leased to Cargo Connection.

On or about September 12, 2008, Cargo Connection Logistics Corp. received a Small Claims Summons from the Superior Court of New Jersey in connection with an action entitled Commercial Trailer Leasing, Inc. v. Cargo Connection Logistics Corp., (docket number: SC-002022-08) on or about August 25, 2008. The action seeks payment of $3,000, relating to the alleged amount owed for non-payment of outstanding invoices.

On or about September 19, 2008, Cargo Connection received a summons in connection with an action entitled National Bankers Trust Corporation v. Cargo Connection Logistics Corp., which was brought in the General Sessions Court of Shelby County, Memphis, Tennessee on or about August 21, 2008. The action seeks payment of $25,000, relating to an alleged breach of contact. The Company has not heard from the Court with regard to this legal action.

On or about October 16, 2008 the Company received a summons and complaint in connection with an action entitled Avalon Risk Management, Inc. v. Cargo Connection Logistics Corp.; Cargo Connection Logistics Holding, Inc.; Cargo Connection Logistics International Inc., which was brought in New York State Supreme Court, Nassau County on or about September 10, 2008. The action seeks payment of $344,540, relating to services provided by Avalon to the companies through securing certain policies of insurance through two other insurance companies.

On or about May 22, 2010, the Company received information from the U.S. Small Business Administration with reference to the HSBC Loan that had been assumed by Pacer under the terms of the Strict Foreclosure Agreement. The Company had been informed that the loan was in default due to non-payment by Pacer. The Company and certain executive officers are guarantors of the loan (see Note 7).

NOTE 11 - LITIGATION/JUDGMENT LIABILITY PAYABLE

As presented in Note 11 (Commitment and Contingencies), there are items under the litigation section that have or may result in judgments against the Company. The Company has classified these items under Litigation/Judgment Liabilities and are reflected as part of the Liabilities (Accounts Payable and Accruals) section of discontinued operations and are shown in the chart below at June 30, 2009 and December 31, 2008, respectively:

	June 30, 2009		December 31, 2008
Avalon Risk Management	$	344,540	$	344,540
Total Protective Security		52,652		52,652
Travelers Insurance		23,484		23,484
MP ORD		272,811		272,811
MES Managed Employee Solutions		7,078		7,078
Industrial Staffing Services		44,779		44,779
Total	$	745,344	$	745,344

NOTE 12 - STOCKHOLDERS' DEFICIENCY

Common Stock

On February 21, 2008, Montgomery converted $55,000 of principal into 55,000,000 shares of the Company’s common stock at a conversion rate of $.001 per share.

On February 29, 2008, Montgomery converted $55,500 of principal into 55,500,000 shares of the Company’s common stock at a conversion rate of $.001 per share.

On March 17, 2008, Montgomery converted $61,600 of principal into 61,600,000 shares of the Company’s common stock at a conversion rate of $.001 per share.

On May 27, 2008, the Company, pursuant to an Equity Exchange Agreement, the Company issued 250,000,000 shares of Common Stock to Rosemary Ferro as repayment for a loan in the principal amount of $130,000. The Company recorded $120,000 as a loss on extinguishment of debt.

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 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 13 - RELATED PARTY TRANSACTIONS

As of June 30, 2009 and December 31, 2008, the Company owed an aggregate of $134,000 to related parties pursuant to non-interest bearing loans which have no formal repayment terms, the proceeds of which were used for working capital.

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.

NOTE 14 - INCOME TAXES

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 June 30, 2009 and December 31, 2008 are as follows:

	June 30, 2009			December 31, 2008
Deferred tax asset
Net operating loss carryforward	$	3,779,700		$	3,712,300
Deferred rent		(221,000	)		(135,000	)
Accrued compensation		(23,000	)		148,000
Asset reserves and other items		(68,000	)		(41,000	)
Total deferred tax asset		3,467,700			3,684,300
Less valuation allowance		(3,467,700	)		(3,684,300	)
Total net deferred tax asset	$	-		$	-

The Company had net operating losses carryforwards of approximately $9,500,000 at December 31, 2008 that is available to offset future taxable income. As of June 30, 2009, there is a remaining carryforward of approximately $9,700,000 available to offset the future taxable income. The Company has concluded that a full valuation allowance was appropriate for the remaining deferred tax items as they are more likely than not going to be utilized in the foreseeable future.

The Company had approximately $9,500,000 of tax loss carryforward (“NOL”s) as of December 31, 2008 and currently as of June 30, 2009 has an approximately $172,000 additional carryforward. The scheduled expiration of such NOL’s is as follows:


For the Period Ending:	June 30			December 31
2025	$	4,000,000		$	4,000,000
2026		3,000,000			3,000,000
2027		(318,000	)		(318,000	)
2028		2,837,000			2,837,000
2029		172,000			-

Total	$	9,691,000		$	9,519,000

Income taxes computed at the statutory rate for the period ended June 30, 2009 and the year ended December 31, 2008 differ from amounts provided as follows:

	June 30, 2009			December 31, 2008
Tax provision (benefit) at statutory rate		34	%		34	%
State and local taxes, net of federal benefit		5	%		(3	%)
Derivative expenses		0	%		(56	%)
Change in valuation allowance		(39	%)		25	%

Effective income tax rate		0	%		0	%

NOTE 15 - SUBSEQUENT EVENTS

On January 15, 2010 the Company issued a convertible denture to Target Temporaries, Inc. (“Target”), (the “Target Debenture”), in the amount of $200,000, which bears interest at a date of 12% per annum, matures on January 15, 2011, 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, equal to the lesser of (a) an amount equal to $0.005 (the “Fixed Conversion Price”), or (b) an amount equal to eighty percent (80%) of the average closing price of the Company’s Common Stock, for the five (5) trading days immediately preceding the Conversion Date. The entire unpaid principal amount, along with any accrued interest, is payable on January 15, 2011. This Note replaces the Original Promissory Note dated June 30, 2007 and was done so to prevent Target from placing the Company in default on that Note.

On January 15, 2010 the Company issued a secured convertible denture to Parkside Properties, LLC. (“Parkside”), (the “Parkside Debenture”), in the amount of $134,000, which bears interest at a date of 15% per annum, matures on January 15, 2011, 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, equal to the lesser of (a) an amount equal to $0.005 (the “Fixed Conversion Price”), or (b) an amount equal to eighty percent (80%) of the average closing price of the Company’s Common Stock, for the five (5) trading days immediately preceding the Conversion Date. The entire unpaid principal amount, along with any accrued interest, is payable on January 15, 2011. This Note formalizes the funds lent to the Company in 2007.

On March 12, 2010, the Company issued a secured convertible debenture to Long Side Ventures, LLC (“Long Side”), (the “Long Side Debenture”),in the amount of $50,000, which bears interest at a rate of 20% per annum, matures on March 12, 2012, 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, 40% of the average of the five lowest closing prices per share of the Company’s common stock for the 15 day trading period prior to such conversion. This note is secured by substantially all the assets of the Company. The entire unpaid principal amount, along with any accrued interest, is payable on March 12, 2012.

On March 12, 2010, the Company entered into a $25,000 note receivable with ZeroSmoke North America (“ZeroSmoke”). The note bears interest at 20% per annum and matures on June 12, 2010. The note can be extended for two separate six month period after the original maturity date of June 12, 2010. The Note is backed by a Security Agreement on ZeroSmoke’s inventory.

On April 2, 2010, the Company issued a secured convertible debenture to R&T Sports Marketing, Inc., (“R&T”), (the “R&T Debenture”), in the amount of $50,000, which bears interest at a rate of 15% per annum, matures on April 2, 2012, 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, 50% of the average of the five lowest closing prices per share of the Company’s common stock for the 15 day trading period prior to such conversion. This note was part of a formalization of terms for the funds loaned to the Company by RAKJ Holdings, Inc. (“RAKJ”) in July, 2006 and part of the funds totaling $145,000 outstanding as of December 31, 2009. This note is secured by substantially all the assets of the Company. The entire unpaid principal amount, along with any accrued interest, is payable on April 2, 2012.

On April 2, 2010, the Company issued a secured convertible debenture to Somesing, LLC, (“Somesing”), (the “Somesing Debenture”), in the amount of $50,000, which bears interest at a rate of 15% per annum, matures on April 2, 2012, 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, 50% of the average of the five lowest closing prices per share of the Company’s common stock for the 15 day trading period prior to such conversion. This note was part of a formalization of terms for the funds loaned to the Company by RAKJ Holdings, Inc. (“RAKJ”) in April, 2006 and part of the funds totaling $145,000 outstanding as of December 31, 2009. This note is secured by substantially all the assets of the Company. The entire unpaid principal amount, along with any accrued interest, is payable on April 2, 2012.

On April 2, 2010, the Company issued a secured convertible debenture to DMREZ Corp., (“DMREZ”), (the “DMREZ Debenture”), in the amount of $10,000, which bears interest at a rate of 15% per annum, matures on April 2, 2012, 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, 50% of the average of the five lowest closing prices per share of the Company’s common stock for the 15 day trading period prior to such conversion. This note was part of a formalization of terms for the funds loaned to the Company by RAKJ Holdings, Inc. (“RAKJ”) in July, 2006 and part of the funds totaling $145,000 outstanding as of December 31, 2009. This note is secured by substantially all the assets of the Company. The entire unpaid principal amount, along with any accrued interest, is payable on April 2, 2012.

On April 7, 2010, the Company issued a secured convertible debenture to Long Side Ventures, LLC (“Long Side”), (the “Long Side Debenture”), in the amount of $50,000, which bears interest at a rate of 20% per annum, matures on April 7, 2012, 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, 40% of the average of the five lowest closing prices per share of the Company’s common stock for the 15 day trading period prior to such conversion. This note is secured by substantially all the assets of the Company. The entire unpaid principal amount, along with any accrued interest, is payable on March 12, 2012.

On May 7, 2010, the Company issued a secured convertible debenture to Triple Crown, Inc., (“Triple Crown”), (the “Triple Crown Debenture”), in the amount of $975,000, which bears interest at a rate of 15% per annum, matures on May 7, 2012, 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, 50% of the average of the five lowest closing prices per share of the Company’s common stock for the 15 day trading period prior to such conversion. This note is secured by substantially all the assets of the Company. The entire unpaid principal amount, along with any accrued interest, is payable on May 7, 2012. This Note formalizes the balance of funds loaned to the Company between 2005 and 2007.

On May 20, 2010, the Company filed an Articles of Amendment to the Articles of Incorporation with the Florida Department of State, amending Article 3. It was granted on June 2, 2010 and it amended Shares, Classes and Series Authorized. The Company has increased the authorized common stock to 30,000,000 shares and has clarified the Series V Preferred Stock voting rights to the correct thirty (30) times that number of shares of common stock into which such holders’ shares of Series V Preferred Stock are then convertible.

On May 21, 2010, the Company issued a secured convertible debenture to RAKJ Holdings, (“RAKJ”), (the “RAKJ Debenture”), in the amount of $35,000, which bears interest at a rate of 15% per annum 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, 50% of the average of the five lowest closing prices per share of the Company’s common stock for the 15 day trading period prior to such conversion. This note is secured by substantially all the assets of the Company. The entire unpaid principal amount, along with any accrued interest, is payable on May 21, 2012. This Note formalizes the balance of funds loaned to the Company by RAKJ in 2006.

On or about May 22, 2010, the Company was informed that the HSBC Loan obligation that Pacer had assumed, under the terms of the Strict Foreclosure Agreement, dated May 13, 2008, was in default. The HSBC Loan, which was a SBA loan being administered through HSBC, was now being handled by the SBA’s Birmingham Disaster Loan Servicing Center for purposes of collection and enforcement and was looking towards the Company for payment. The Company has placed the obligation on its books effective December 31, 2008 in anticipation that it may again, become liable for the debt.

On May 28, 2010, the Company was notified by Florida Atlantic Stock Transfer, its stock transfer agent, that the Company’s account was being transferred to Pacific Stock Transfer Company (located in Las Vegas, NV).

On June 10, 2010, Mack Fulmer resigned his positions as a director and vice president of the Company’s subsidiary, Cargo Connection Logistics Corp.

On July 6, 2010, the Company incorporated a wholly-owned subsidiary, Denari Media Productions, Inc. (“Denari”). The goal of Denari is to become an organization entrenched in the Entertainment, Media & Leisure Industry. We intend for Denari to become involved in the development, finance, sales, acquisition, distribution and marketing of high quality intellectual property devoted for the entertainment and leisure markets through films. We will also be developing a series of innovative commercial products through the acquisition and financing of carefully chosen complementary feature films in the midst of completion or exposure during the major film markets and film festivals.

On July 20, 2010, the Company issued a promissory note to Taconic Group, LLC (“Taconic”), (the “Taconic Group Note”), in the amount of $66,000, which bears interest at a rate of 10% per annum, and matures on July 20, 2012. This note is secured by substantially all the assets of the Company. The entire unpaid principal amount, along with any accrued interest, is payable on March 12, 2012.

On July 20, 2010, the Company issued a promissory note to Marine Industries, LLC (“Marine”), (the “Marine Note”), in the amount of $14,000, which bears interest at a rate of 10% per annum, and matures on July 20, 2012. This note is secured by substantially all the assets of the Company. The entire unpaid principal amount, along with any accrued interest, is payable on March 12, 2012.

Cautionary Statement Regarding Forward-Looking Statements

Certain of the statements contained in this Form 10-Q (“Report”) constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the current views of Cargo Connection Logistics Holding, Inc. (the “Company”) with respect to current events and financial performance. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “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 materials the Company releases to the public or files with the Securities and Exchange Commission (“SEC”), as well as oral forward-looking statements. You should consult any further disclosures on related subjects in the Company’s Annual Reports on Form 10-K, Quarterly Reports of Form 10-Q and Current Reports on Form 8-K filed with the SEC.

While we believe the judgments we have made with respect to forward-looking statements are reasonable, you should understand that these statements are not guarantees of future performance or results and 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 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:

	•		our ability to operate in compliance with the terms of our financing facilities (particularly the financial covenants);
	•		our ability to maintain adequate liquidity and produce sufficient cash flow to fund our capital expenditures and debt service;

•

our ability to attract and retain qualified management and other personnel;

	•		changes in government and regulatory policies;
	•		deterioration in and uncertainty relating to economic conditions generally and, in particular, affecting the markets in which we operate;

•

our ability to obtain regulatory approvals and to meet the requirements in our license agreements;

	•		our ability to complete the proposed merger described herein;
	•		our ability to complete acquisitions or divestitures and to integrate any business or operation acquired;

	•		our ability to enter into strategic business relationships;
	•		our ability to overcome significant operating losses;

Statements in this Report and the exhibits to this Report should be evaluated in light of these important factors and you should not unduly rely on these forward-looking statements. 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 future events.

Item 2 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements as that term is defined in applicable securities laws. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors,” that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Financial information contained in this quarterly report and in our unaudited interim consolidated financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles. The following discussion should be read in conjunction with our unaudited interim consolidated financial statements and the related notes that appear elsewhere in this quarterly report.

As used in this quarterly report, and unless otherwise indicated, the terms “we”, “us” and “our” mean Cargo Connection Logistics Holding, Inc., unless otherwise indicated.

GENERAL

Up until the strict foreclosure on May 13, 2008, the Company had been a provider of logistics solutions for customers through its network of branch terminal locations and independent agents in North America. The Company had predominately operated 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 had established relationships and offered a wide range of value-added logistics services, including those provided through its leased U.S. Customs Bonded warehouse facilities. The Company’s provision of these services has ceased by the recent foreclosure by Pacer on substantially all the assets of Cargo Connection and related developments.

Foreclosure by Pacer

The Outstanding Obligations were secured by certain assets of the Company and its subsidiaries. Pursuant to the Strict Foreclosure Agreement and a related assumption agreement, substantially all of the outstanding obligations were extinguished, and Pacer foreclosed on, and was assigned, substantially all the operating assets of the Company and its subsidiaries and assumed certain liabilities, including:

·	all obligations to Wells Fargo Bank, National Association ("WFBA") in the amount of $1,195,064;

the obligations to HSBC Bank (“HSBC”) in connection with the HSBC Loan in the amount of $60,460, including in connection with all collateral provided in connection therewith (Note: The Company has been informed that Pacer has defaulted on the repayment of this obligation. The Company has taken on the liability portion of this obligation [See Litigation and subsequent events]); and

·	the obligations to U.S. Small Business Administration (“SBA”) pursuant to a loan (the “SBA Loan”) in the amount of $8,418.

In connection with the Strict Foreclosure Agreement, the Company’s Cargo Connection subsidiary could no longer operate without its assets, including but not limited to its cash, accounts, accounts receivable, factoring availability, fixed assets such as its machinery and equipment and the operating leases on the trucks, trailers, and warehouse equipment, along with its customers. Cargo Connection represented a majority of the operations and sources of revenue for the Company.

In addition, at the beginning of October 2008, the Company’s Cargo International subsidiary as ceased operations as a result of the strict foreclosure and the loss of revenue associated with the complementary business that Cargo Connection and Cargo International had in the facility in Illinois.

NMDT

The Company had acquired NMDT in December 2006 and held the license to a patented portable nuclear material detecting technology. The Company was developing, with the licensor, a market-ready nuclear radiation detection device, called RadRope™, 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 device, however, never made it to production and no orders were received by the Company’s anticipated end of the 1st quarter of 2009 deadline. In addition, the Company could not find alternative sources of funding to cover the continued expenses of modifications, royalties and marketing the product. Due to these events, the Company’s patent license was revoked in 2009 and the product returned to the patent holder in April of 2010. The Company took an impairment of $1,316,854 for this investment as of December 31, 2008.

ITG

The Company had owned a 51% interest in ITG, in which Emplify owned 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 Parties agreed to dissolve their partnership interests in ITG in June, 2009. This resulted in a gain from discontinued operations of $342.

RESULTS OF OPERATIONS

The Company reports its results as one segment for reporting purposes. In the future, if 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.

Overview

As a result of the foreclosure by Pacer on substantially all of assets of Cargo Connection and management’s decision to cease operations of Cargo International’s Illinois facility, and both Cargo Connection and Cargo International becoming a discontinued operation, the Company expects its future revenues to decline significantly. As a result, despite related decrease in debt and operating expenses, the Company expects to generate losses from operations unless and until the Company’s operations begin to generate positive cash flow in amounts exceeding the Company’s overhead as a public company. The Company also intends to pursue opportunities to acquire additional business.

Six Months Ended June 30, 2009 Compared to the Six Months Ended June 30, 2008

Selling, General and Administrative Expenses.

Selling, general and administrative expenses for the six months ended June 30, 2009 were $78,464 as compared to $443,071 for the six months ended June 30, 2008, a decrease of $364,607 or 82.3% primarily due to the discontinued operations of both Cargo Connection and Cargo International, which were the primary sources of business for the Company.

Operating Loss.

The Company reported a loss from continuing operations before other income (expense) of $78,464 for the six months ended June 30, 2009, compared to a loss from continuing operations of $443,071 for the six months ended June 30, 2008, a decrease of $364,607 or 82.3%. All of the $78,464 loss from operations for the six months ended June 30, 2009 was from Cargo Holdings.

Net Interest Expense.

The Company’s net interest and financing expenses was $18,916 for the six months ended June 30, 2009, as compared to $184,216 for the six months ended June 30, 2008, a decrease of $165,300, or 90%, primarily due to lower associated interest costs from certain notes having been absorbed by Pacer.

Net Income (Loss)

For the six months ended June 30, 2009, the Company incurred a net loss of $97,776, compared to a net gain of $3,810,602 for the six months ended June 30, 2008 a decrease in income of $3,908,378 or 103% mostly as a result of:

·	a decrease of $364,607 in selling, general and administrative expenses;

·	a gain of $4,442,896 relating to debt forgiveness in connection with the Strict Foreclosure Agreement in 2008; and

·	a decrease of $165,300 relating to interest expense.

Three Months Ended June 30, 2009 Compared to the Three Months Ended June 30, 2008

Selling, General and Administrative Expenses.

Selling, general and administrative expenses for the three months ended June 30, 2009 were $26,148 as compared to $240,186 for the three months ended June 30, 2008, a decrease of $214,038 or 89% primarily due to the discontinued operations of both Cargo Connection and Cargo International, which were the primary sources of business for the Company.

Operating Loss.

The Company reported a loss from continuing operations before other income (expense) of $26,148 for the three months ended June 30, 2009, compared to a loss from continuing operations of $240,186 for the three months ended June 30, 2008, a decrease of $214,038 or 89%. All of the $26,148 loss from operations for the three months ended June 30, 2009 was from Cargo Holdings.

Net Interest Expense.

The Company’s net interest and financing expenses was $9,510 for the three months ended June 30, 2009, as compared to $125,564 for the three months ended June 30, 2008, a decrease of $116,054, or 92%, primarily due to lower associated interest costs from certain notes having been absorbed by Pacer.

Net Income.

For the three months ended June 30, 2009, the Company incurred a net loss of $35,476, compared to a net gain of $4,821,737 for the three months ended June 30, 2008 a decrease in income of $4,857,213 or 101% as a result of:

·	a decrease of $214,038 in selling, general and administrative expenses,

·	a gain of $5,307,146 relating to discontinued operations,

·	a decrease of $116,054 relating to interest expense, and

·	a decrease of $120,000 due to debt extinguishment.

LIQUIDITY AND CAPITAL RESOURCES

The Company had a working capital deficiency of $6,299,468 as of June 30, 2009. The Company has devoted substantially all of its efforts to increasing revenues, attempting to achieve profitability, obtaining long-term financing and raising capital. The Company had tried to increase its revenues since its acquisition of Cargo Connection and Cargo International in May 2005 and had to raise capital to assist in meeting its working capital needs.

On May 13, 2008, the Company entered into a Strict Foreclosure Agreement with Pacer pursuant to which the Company acknowledged that it is in default of certain obligations, in the aggregate amount of $3,826,068 to Pacer as assignee of all right, title and interest of YA Global, including as assignee of Montgomery, with respect to the Company’s Outstanding Obligations.

The Outstanding Obligations are secured by certain assets of the Company and its subsidiaries. Pursuant to the Strict Foreclosure Agreement and a related assumption agreement, all of the Outstanding Obligations have been extinguished, and Pacer foreclosed on substantially all the operating assets of the Company and Cargo Connection and assumed certain liabilities of the Company, Cargo Connection and Cargo International, including:

·	all obligations to WFBA;

·	the obligations to HSBC in connection with the HSBC Loan, including in connection with all collateral provided in connection therewith; and

·	the obligations pursuant to SBA Loan.

As a result of this foreclosure, the Company’s operations will be severely curtailed, and now will consist only of:

·	Cargo International and its assets, which operations have now been suspended;

·	NMDT and its assets;

·	ITG and its assets; and

·	the stock of Cargo Connection, without its former assets.

In connection with the Strict Foreclosure Agreement, the Company entered into an Assumption of Obligations Letter Agreement, pursuant to which Pacer agreed to indemnify the Company, subsidiaries, and its officers, directors and employees from and against all obligations and liabilities arising from or relating to any and all obligations pursuant to and/or guaranties issued with respect to any obligations relating to the (i) the obligations to HSBC (see Note 7) in connection with the loan dated March 11, 2004 to Cargo International, including in connection with all collateral provided in connection therewith, (ii) the obligations pursuant to the SBA loan made in May 2003; and (iii) all equipment leases or purchases relating to the Foreclosed Collateral. Additionally, Pacer agreed to pay the Company the sum of $200,000.

On May 13, 2008, the Company, Cargo Connection and Cargo International entered into a General Release Agreement pursuant to which Emplify released the Company and its subsidiaries of all obligations and liabilities under the Emplify Documents.

On August 21, 2008, the Company issued a promissory note in the principal amount of $25,000 to Brainard Management Associates Inc. (“Brainard”) (the “Brainard Promissory Note”), evidencing advances given to the Company to assist in short-term cash flow needs. The note bears interest at a rate of 12% per annum and has a maturity date of August 19, 2009

The Company believes that the foreclosure transaction was in our best interest as we have extinguished approximately $6,000,000 of indebtedness, while maintaining a portion of our business at the time and were able to avoid, in the short-term, an otherwise likely bankruptcy filing.

The Company’s available cash at June 30, 2009 was $1,670. During the six month period ending June 30, 2009, the Company used net cash in operating activities of $965 compared with $846,083 in 2008, a decrease of $845,118 or 99.9%.

The Company will be continuing to seek available capital as well as revenue streams wherever possible for its business subsidiaries. If the Company is unable 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.

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 Company’s Annual Report for the year ended December 31, 2008 on Form 10-K filed with the SEC. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company incurred a net loss attributable to common stockholders before discontinued operations of $97,539 compared to a net loss of $666,190 for the six months ended June 30, 2009 and 2008, respectively. The Company has a working capital deficiency of $6,299,468 and an accumulated deficit of $12,458,950 at June 30, 2009 and expects that it will incur additional losses in the immediate future. The Company’s operations have been severely curtailed after its compliance with the “Strict Foreclosure Agreement” (see Note 1). 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 for its continuing operations. 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 arrangements cannot be obtained, along with the penalties that may be incurred, the Company would be materially and adversely affected and there would be substantial doubt about the Company’s ability to continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and realization of assets and classifications of liabilities necessary if the Company becomes unable to continue as a going concern.

During the six month period ending June 30, 2009, the Company had net cash provided by (used in) financing activities of $478, compared to $549,448 in 2008, an increase of $548,970 or 99.9%.

Factoring Facilities

Information regarding our factoring facilities is provided in Note 6 to the condensed consolidated interim financial statements included in Item 1 of this Form 10-Q.

Off-Balance Sheet Arrangements

As of June 30, 2009, we had no off-balance sheet arrangements or obligations.

CRITICAL ACCOUNTING POLICIES

Our significant accounting policies are described in Note 3 to the condensed consolidated interim financial statements included in Item 1 of this Form 10-Q. Our discussion and analysis of financial condition and results from operations are based upon our condensed consolidated interim financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the condensed consolidated interim financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. We evaluate the estimates that we have made on an on-going basis. These estimates have been based upon historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe our most critical accounting policies include revenue recognition, an allowance for doubtful accounts, the impairment of long-lived assets and the recognition of deferred tax assets and liabilities.

Item 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a Smaller Reporting Company as defined in Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item 3.

Items 4 and 4T – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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 June 30, 2009 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 June 30, 2009.

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 principles (“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 and other reporting related to related party transactions, 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.

Ineffective controls related to the Company’s ability timely file as required by the Exchange Act: Management has failed to timely file the Company’s periodic report on Form 10-Q for the period ended June 30, 2009. Additionally, the Company has failed to timely file previous reports within the last twenty four months. 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 June 30, 2009.

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.

Changes in Internal Control over Financial Reporting

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 the Company has been 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 Quarterly Report on Form 10-Q have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

On or about May 2006, Cargo Connection filed suit against a former business agent, under the caption Cargo 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 the Company does not acquire Fleet and that a final judgment be entered in the Company’s favor. The rights to this receivable have been assigned to Pacer pursuant to the Strict Foreclosure Agreement.

Item 1A. Risk Factors

Not applicable because we are a smaller reporting company

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On February 21, 2008, Montgomery converted $55,000 of principal into 55,000,000 shares of the Company’s common stock at a conversion rate of $.001 per share.

On February 29, 2008, Montgomery converted $55,500 of principal into 55,500,000 shares of the Company’s common stock at a conversion rate of $.001 per share.

On March 17, 2008, Montgomery converted $61,600 of principal into 61,600,000 shares of the Company’s common stock at a conversion rate of $.001 per share.

Item 3. Defaults Upon Senior Securities

On May 5, 2008, the Company received a Default Notice from Pacer pursuant to the Montgomery Security Agreement, which stated that the balance due on three convertible debentures payable to Pacer was in excess of $4,000,000. The Notice provided that Pacer would conduct a “self-help” foreclosure ten days from the date of the Default Notice.

On May 13, 2008, the Company entered into a Strict Foreclosure Agreement with Pacer, pursuant to which the Company acknowledged that it is in default of certain obligations, in the aggregate amount of $3,826,068 to Pacer, as assignee of all right, title and interest of YA Global Investments, including as assignee of Montgomery, with respect to the Companies’ Outstanding Obligations.

·	all obligations to WFBA;

·	the obligations to HSBC in connection with the HSBC Loan, including in connection with all collateral provided in connection therewith; and

·	the obligations pursuant to SBA Loan.

As a result of this foreclosure, the Company’s operations will be severely curtailed, and now will consist only of:

·	Cargo International and its assets;

·	NMDT and its assets;

·	ITG and its assets; and

·	the stock of Cargo Connection, without its former assets.

Also in connection with the Strict Foreclosure Agreement, the Company, Cargo Connection and Cargo International entered into a General Release Agreement dated May 13, 2008, pursuant to which Emplify released the Company and its subsidiaries of all obligations and liabilities under the Emplify Documents.

On June 30, 2007, Cargo International issued a promissory note to Target Temporaries, Inc. (“Target Temporaries”) (the “Target Temporaries Promissory Note”), 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. The Company is currently in default of this note. The Company has accrued interest of $40,433 as of June 30, 2009.

Item 4. (Removed and Reserved)

Not applicable.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits

3.1	Amended and Restated Articles of Organization, dated January 21, 2009. (1)
3.2	Amended and Restated Articles of Organization, dated May 20, 2010. (1)
4.8	Denari Media Productions, Inc., a wholly-owned subsidiary, formed on July 6, 2010. (1)
10.1	Convertible Debenture, dated January 15, 2010, issued by the Company to Target Temporaries, Inc. in the amount of $200,000. (1)
10.2	Secured Convertible Debenture, dated January 15, 2010, issued by the Company to Parkside Properties, LLC, in the amount of $134,000. (1)
10.3	Secured Convertible Debenture, dated March 12, 2010, issued by the Company to Long Side Ventures, LLC, in the amount of $50,000. (1)
10.4	Note Receivable from ZeroSmoke North America, in the amount of $25,000, dated March 12, 2010. (1)
10.5	Security Agreement on ZeroSmoke North America’s inventory, dated March 12, 2010. (1)
10.6	Secured Convertible Debenture, dated April 2, 2010, issued by the Company to R&T Sports Marketing, Inc., in the amount of $50,000. (1)
10.7	Secured Convertible Debenture, dated April 2, 2010, issued by the Company to Somesing, LLC, in the amount of $50,000. (1)
10.8	Secured Convertible Debenture, dated April 2, 2010, issued by the Company to DMREZ Corp., in the amount of $10,000. (1)
10.9	Secured Convertible Debenture, dated April 7, 2010, issued by the Company to Long Side Ventures, LLC, in the amount of $50,000. (1)
10.10	Secured Convertible Debenture, dated May 7, 2010, issued by the Company to Triple Crown, Inc., in the amount of $975,000. (1)
10.11	Secured Convertible Debenture, dated May 21, 2010, issued by the Company to RAKJ Holdings, in the amount of $35,000. (1)
10.12	Promissory Note, dated July 20, 2010, issued by the Company to Taconic Group, LLC, in the amount of $66,000. (1)
10.13	Promissory Note, dated July 20, 2010, issued by the Company to Marine Industries, LLC, in the amount of $14,000. (1)
10.14	SBA Notification on or about May 22, 2010, with regard to the default on the HSBC Loan obligation that Pacer had assumed, under the terms of the Strict Foreclosure Agreement, dated May 13, 2008. (1)
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certificate 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.

(1)	Previously filed with the Securities and Exchange Commission as an exhibit to the Form 10-K on December 17, 2010.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the under thereunto duly authorized.

Date: December 17, 2010

CARGO CONNECTION LOGISTICS HOLDING, INC.

By:	/s/ Scott Goodman
Name:	Scott Goodman
Title:	Chief Executive Officer and Chief Financial Officer

Attached files

CARGO CONNECTION LOGISTICS HOLDING, INC. Reports

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