Filed On 8/22/05 5:24pm ET ˇ SEC File 0-28223 ˇ Accession Number 1144204-5-26683
As Of Filer Filing As/For/On Docs:Pgs Issuer Agent
8/22/05 Cargo Connection Log..Holding/Inc 10QSB 6/30/05 5:38 1144204
Document/Exhibit Description Pages Size
1: 10QSB Quarterly Report -- Small Business 32 163K
2: EX-31.1 Certification per Sarbanes-Oxley Act (Section 302) 2 10K
3: EX-31.2 Certification per Sarbanes-Oxley Act (Section 302) 2 10K
4: EX-32.1 Certification per Sarbanes-Oxley Act (Section 906) 1 6K
5: EX-32.2 Certification per Sarbanes-Oxley Act (Section 906) 1 6K
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
|_| TRANSITION REPORT PURSUANT TO 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.
(f/k/a CHAMPIONLYTE HOLDINGS, INC.)
(Exact name of small business issuer as specified in its charter)
Florida 65-0510294
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 Bayview Avenue
Inwood, New York 11096
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(516) 239-7000
(ISSUER TELEPHONE NUMBER)
3450 Park Central Boulevard
Pompano Beach, Florida 33064
(FORMER NAME AND ADDRESS)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the issuer was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
State the number of shares outstanding of each of the issuer's classes of common
equity, as of August 19, 2005: 496,820,360 shares of common stock outstanding,
$0.001 par value.
CARGO CONNECTION LOGISTICS HOLDING, INC. AND SUBSIDIARIES
f/k/a Championlyte Holdings, Inc.
CONSOLIDATED BALANCE SHEET
June 30, 2005
(UNAUDITED)
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ASSETS
Current Assets
Cash $ 8,220
Escrow held by factor 99,406
Escrow held by attorney 14,276
Accounts receivable, net 984,950
Due from factor 353,405
Prepaid expenses 90,359
-----------
Total current assets 1,550,616
-----------
Property and equipment, net 535,109
Due from officers 36,780
Due from related parties 39,310
Due from employees 1,714
Security deposits 88,881
Deferred financing costs 127,498
Other assets 740
-----------
Total Assets $ 2,380,648
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Accounts payable and accrued expenses $ 3,565,677
Convertible notes payable 844,455
Current portion of notes payable 181,367
Current portion of capital leases payable 53,585
Note payable - factor 209,995
Due to related parties 458,274
Payroll taxes payable 782
Due to officers 203,906
Due to others 136,885
Security deposits and escrowed funds 36,582
-----------
Total current liabilities 5,691,508
-----------
Long term portion of capital leases payable 58,878
Long term portion of notes payable 66,986
Deferred rent 354,837
Secured debenture 120,452
-----------
Total Liabilities 6,292,661
-----------
Commitments and contingencies
Stockholders' Deficiency
Series III convertible preferred stock, par value $1.00 - authorized
500,000 shares, 165,000 shares issued and outstanding (liquidated value of $165,000) 165,000
Series IV convertible preferred stock, par value $1.00 - authorized
250,000 shares, 100,000 shares issued and outstanding (liquidation value $100,000) 125,000
Common stock, par value $.001 - authorized 750,000,000 shares,
296,941,898 shares issued and outstanding 296,941
Additional paid in capital 1,210,140
Accumulated deficit (5,709,094)
-----------
Total Stockholders' Deficiency (3,912,013)
-----------
Total Liabilities and Stockholders' Deficiency $ 2,380,648
===========
See notes to consolidated financial statements.
Cargo Connection Logistics Holding, Inc. And Subsidaries
f/k/a/ Championlyte Holdings, Inc.
Consolidated Statements of Operations
For the Six Months Ended June 30, 2005 and 2004
(UNAUDITED)
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Six Months Ended Six Months Ended
June 30, 2005 June 30, 2004
------------ ------------
Operating revenue:
Direct revenue $ 6,758,987 $ 8,305,607
------------ ------------
Total operating revenue 6,758,987 8,305,607
------------ ------------
Direct operating expenses 4,776,553 4,977,671
------------ ------------
Gross profit 1,982,434 3,327,936
------------ ------------
Indirect operating expenses:
Selling 173,521 121,832
General and administrative 3,152,857 3,236,182
------------ ------------
Total indirect operating expenses 3,326,378 3,358,014
------------ ------------
Loss from continuing operation before other income
(expense) (1,343,944) (30,078)
------------ ------------
Other income (expense)
Interest income 171 200
Interest expense (176,530) (96,698)
Management fee -- 1,305
Rental income 82,200 28,430
Commission income -- 2,437
Gain on sale of asset -- 25,000
Financing Expenses (361,562) --
Other income (expenses) (1,183) 18,647
------------ ------------
Total other income (expense) (456,904) (20,679)
------------ ------------
Net loss $ (1,800,848) $ (50,757)
============ ============
Net loss per share $ (0.02) $ (0.00)
============ ============
Weighted average number of common shares used
in the net loss per share calculation 88,722,649 19,824,491
============ ============
See notes to consolidated financial statements.
CARGO CONNECTION LOGISTICS HOLDING, INC. AND SUBSIDIARIES
f/k/a Championlyte Holdings, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2005 AND 2004
(UNAUDITED)
ˇ Download Table
Three Months Ended Three Months Ended
06/30/2005 06/30/2004
------------------ ------------------
Operating revenue:
Direct revenue 3,376,227 4,209,707
------------------ ------------------
Total operating revenue 3,376,227 4,209,707
------------------ ------------------
Direct operating expenses 2,561,660 2,591,639
Gross profit 814,567 1,618,068
------------------ ------------------
Indirect operating expenses:
Selling 79,334 59,817
General and administrative 1,683,192 1,690,007
------------------ ------------------
Total indirect operating expenses 1,762,526 1,749,824
------------------ ------------------
Loss from continuing operation before
other income (expense) (947,959) (131,756)
------------------ ------------------
Other income (expense)
Interest income 151 132
Interest expense (86,780) (41,639)
Management fee -- 1,305
Rental income 42,850 18,980
Commission income -- 1,547
Gain on sale of asset -- 16,500
Other income (25,564) 15,885
------------------ ------------------
Total other income (expense) (69,343) 12,710
------------------ ------------------
Net loss (1,017,302) (119,046)
================== ==================
See notes to consolidated financial statements.
CARGO CONNECTION HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE SIX MONTHS ENDED JUNE 30, 2005
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Series III Series IV
Convertible Convertible
Common Stock Preferred Stock Preferred Stock
----------------------- -------------------- --------------------
Shares Amount Shares Amount Shares Amount
----------- --------- ------- --------- ------- ---------
Balance December 31, 2004 44,421,899 $ 44,422 165,000 $ 165,000 100,000 $ 100,000
Conversions of convertible notes payable to common stock 11,236,661 11,236 -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
Amortization of unearned services -- -- -- -- -- --
Beneficial conversion features of convertible notes payable -- -- -- -- -- --
Issuance of options for services -- -- -- -- -- --
Conversion of convertible notes payable to preferred stock -- -- -- -- 50,000 50,000
Conversion of preferred stock to common stock 10,000,000 10,000 -- -- (25,000) (25,000)
Recapitalization in connection with reverse acquisition of
Championlyte Holdings, Inc. 239,599,127 239,599 -- -- -- --
Cancellation of shares issued to Cornell Capital (8,315,789) (8,316) -- -- -- --
Issuance of warrants for financing -- -- -- -- -- --
Net loss at June 30, 2005 -- -- -- -- -- --
----------- --------- ------- --------- ------- ---------
Balance June 30, 2005 296,941,898 $ 296,941 165,000 $ 165,000 125,000 $ 125,000
=========== ========= ======= ========= ======= =========
Additional Deferred
Paid-in Deferred Unearned Offering Accumulated
Capital Compensation Services Costs Deficit
------------ --------- --------- ---------- ----------
Balance December 31, 2004 $ 17,410,588 $ (29,250) $ (34,120) $ (800,000) (19,138,851)
Conversions of convertible notes payable to common stock 319,764 -- -- -- --
Amortization of deferred compensation -- 19,191 -- -- --
Amortization of unearned services -- -- 5,250
Beneficial conversion features of convertible notes payable 1,144,681 -- -- -- --
Issuance of options for services 3,000 (3,000) -- -- --
Conversion of convertible notes payable to preferred stock -- -- -- -- --
Conversion of preferred stock to common stock 15,000 -- -- -- --
Recapitalization in connection with reverse acquisition of
Championlyte Holdings, Inc. (16,908,109) 13,059 28,870 10,000 15,230,605
Cancellation of shares issued to Cornell Capital (781,684) -- -- 790,000 --
Issuance of warrants for financing 6,900 -- -- -- --
Net loss at June 30, 2005 -- -- -- -- (1,800,848)
------------ --------- --------- ---------- ----------
Balance June 30, 2005 $ 1,210,140 $ -- $ -- $ -- (5,709,094)
============ ========= ========= ========== ==========
Total
Stockholders'
Deficiency
------------
Balance December 31, 2004 $ (2,282,211)
Conversions of convertible notes payable to common stock 331,000
Amortization of deferred compensation 19,191
Amortization of unearned services 5,250
Beneficial conversion features of convertible notes payable 1,144,681
Issuance of options for services --
Conversion of convertible notes payable to preferred stock 50,000
Conversion of preferred stock to common stock --
--
Recapitalization in connection with reverse acquisition of
Championlyte Holdings, Inc. (1,385,976)
Cancellation of shares issued to Cornell Capital --
Issuance of warrants for financing 6,900
Net loss at June 30, 2005 (1,800,848)
------------
Balance June 30, 2005 $ (3,912,013)
============
See notes to consolidated financial statements.
CARGO CONNECTION LOGISTICS HOLDING, INC. AND SUBSIDIARIES
f/k/a Championlyte Holdings, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(UNAUDITED)
ˇ Enlarge/Download Table
6/30/2005 6/30/2004
---------- ---------
Cash flows from operating activities:
Net (loss) income (1,800,848) $ (50,757)
Adjustments to reconcile net (loss) income to net
cash used in operating activities:
Financing cost related to beneficial conversion value 131,824 --
Amortization of deferred financing cost 120,452 --
Depreciation and amortization 122,526 78,750
Bad debt expense 1,537 --
Deferred rent 260,522 --
Changes in operating assets and liabilities:
Decrease in escrow held by factor 260,747 274,751
Decrease (increase) in accounts receivable 101,038 (40,012)
(Increase) decrease in due from factor (109,358) 316,467
Decrease (increase) in prepaid expenses 175,089 (66,035)
Decrease (increase) in due from others 5,526 (9,584)
Increase in security deposits (88,881) --
Increase in other assets (740) --
Decrease in accounts payable and accrued expenses (249,516) (318,491)
Decrease in note payable - factor (218,539) --
Increase in due to others 136,885 --
Increase in security deposits and escrowed funds 1,535 8,580
Increase in intercompany -- 855
Decrease in income taxes payable -- (5,400)
---------- ---------
Net cash provided by (used in) operating activities (1,150,201) 189,124
---------- ---------
Cash flows from investing activities
Payments for security deposits 164,414 93,461
Purchase of property and equipment (16,468) (84,299)
Proceeds from sale of property and equipment 38,347 --
---------- ---------
Net cash provided by investing activities 186,293 9,162
---------- ---------
Cash flows from financing activities
Proceeds from convertible notes payable 1,016,452 --
Redemption of convertible notes payable (257,006) --
Deferred financing fees paid from convertible note proceeds (120,452) --
Escrow funds held related to convertible note payable (14,276) --
Advances to (repayments from) officers 18,267 (19,476)
Advances to related parties 303,044 18,960
Advances from (repayments towards) related parties 7,000 (8,075)
Advances from (repayments towards) officers 26,643 (7,700)
Principal payments on notes payable (63,456) (144,767)
Principal payments on capital leases payable (39,718) (25,990)
---------- ---------
Net cash provided by (used in) financing activities 876,498 (187,048)
---------- ---------
CARGO CONNECTION LOGISTICS HOLDING, INC. AND SUBSIDIARIES
f/k/a Championlyte Holdings, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(UNAUDITED)
ˇ Enlarge/Download Table
Net increase (decrease) in cash $ (87,410) $ 11,238
Cash, beginning of period $ 95,630 $ 232,717
---------- ---------
Cash, end of period $ 8,220 $ 243,955
========== =========
Supplemental disclosure of cash flow information
Interest expense $ -- $ --
========== =========
Income taxes $ -- $ --
========== =========
Supplemental schedule of non-cash activities:
Conversion of convertible notes payable to common stock $ 246,000 $ --
========== =========
Conversion of loans officers and accrued expenses officer
to convertible notes payable $ 86,790 $ --
========== =========
Deferred financing cost related to beneficial conversion value $1,000,000 $ --
========== =========
Issuance of warrants related to deferred financing cost $ 6,900 $ --
========== =========
Conversion of convertible notes payable to preferred stock $ 50,000 $ --
========== =========
Conversion of preferred stock to common stock $ 25,000 $ --
========== =========
See notes to consolidated financial statements
CARGO CONNECTION LOGISTICS HOLDING, INC. AND SUBSIDIARIES
f/k/a Championlyte Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(UNAUDITED)
NOTE 1 - ORGANIZATION, HISTORY AND NATURE OF BUSINESS
Effective May 23, 2005 the name Championlyte Holdings, Inc. was changed to Cargo
Connection Logistics Holding, Inc. (the "Company")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".
Cargo Connection Logistics Corp.
Cargo Connection Logistics Corp. ("Cargo Connection") was incorporated in the
State of Delaware on February 20, 1996. Cargo is a third party logistics
provider. Cargo Connection specializes in transporting small and large shipments
throughout North America through its transportation network. Cargo Connection
provides domestic logistics services for both domestic and international freight
of all kinds. The focus of Cargo Connection is to reduce the time that
merchandise runs through the supply chain. The service provided is through the
use of Cargo Connection's Container Freight Station Operations and Cargo
Connection's Truck Network. Cargo Connections' headquarters is located in
Inwood, NY. Cargo Connection also has stations in Atlanta, GA; Charlotte, NC;
Chicago, IL; Columbus, OH; Inwood, NY; Miami, FL and Pittsburgh, PA.
Mid-Coast Management, Inc.
Mid-Coast Management, Inc. ("Mid-Coast") was incorporated in the State of
Illinois on December 28, 1994. Mid-Coast is a nationwide logistics service
provider engaged in receiving customers' goods, warehousing such goods, and
while awaiting for or after clearance through United States Customs,
coordinating the breakdown and sorting or the consolidation of customers' goods,
and arranging for the shipments of those goods within the United States.
Mid-Coast has facilities in Illinois, New York and Ohio.
Underwing International, LLC
Underwing International, LLC ("Underwing") is owned by the major shareholders of
the Company. Its business purpose is to enter into leases for equipment and
facilities that are then used in the operations of Cargo Connection and
Mid-Coast. This entity was not consolidated as its impact in the consolidated
financial statement would be immaterial.
Reverse Acquisition
On May 12, 2005 (the "Effective Date"), pursuant to a Stock Purchase Agreement
and Share Exchange (the "Agreement") between the Company, Cargo Connection
Logistics Corp. ("Cargo Connection"), a Delaware corporation, and Mid-Coast
Management, Inc. ("Mid-Coast"), an Illinois corporation, the Company purchased
all of the outstanding shares of Cargo Connection and Mid-Coast for a total of
70% of the then issued and outstanding shares of the Company's common stock. As
additional consideration, the Company will issue shares of a new series of
preferred stock, the amount to be determined, to Cargo Connection and Mid-Coast
which, when converted into shares of the Company's common stock expected to be
within twelve (12) months from the Closing Date, Cargo Connection and Mid-Coast
will own a total of eighty (80%) percent of the outstanding shares of the
Company at such time. Pursuant to the Agreement, Cargo Connection and Mid-Coast
became wholly owned subsidiaries of the Company.
The acquisition of Cargo Connection and Mid-Coast has been treated as a
recapitalization and purchase by Cargo Connection and Mid-Coast as the acquirer
(reverse acquisition) of the Company, as control rests with the former Cargo
Connection and Mid-Coast shareholders, although prior to the acquisition, the
Company had been the registrant. Therefore, the historical financial statements
prior to May 12, 2005 are those of Cargo Connection and Mid-Coast. The
transaction is considered a capital transaction whereby the Company contributed
its stock for the net assets of Cargo Connection and Mid-Coast.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles in the United States
of America for interim financial information, the instructions to Form 10-QSB
and Items 303 and 310(B) of Regulation S-B. In the opinion of management, the
unaudited financial statements have been prepared on the same basis as the
annual financial statements and reflect all adjustments, which include only
normal recurring adjustments, necessary to present fairly the financial position
as of June 30, 2005 and the results of the operations, changes in stockholders'
deficiency and cash flows for the six months ended June 30, 2005. The results
for the six months ended June 30, 2005, are not necessarily indicative of the
results to be expected for any subsequent quarter or the entire fiscal year
ending December 31, 2005.
Certain information and footnote disclosures normally included in financial
statements are prepared in accordance with generally accepted accounting
principles in the United States of America and have been condensed or omitted
pursuant to the Securities and Exchange Commission's ("SEC") rules and
regulations.
These unaudited consolidated financial statements should be read in conjunction
with the Company's audited financial statements and notes thereto for the year
ended December 31, 2004 as included in the Company's report on Form 10-KSB filed
on April 22, 2005 and the Company's report on the Amended Form 8-K filed on July
27, 2005.
Reverse merger accounting requires the Company to present in all financial
statements and other public information filings, prior historical and other
information of Cargo and Mid-Coast, and a retroactive restatement of cargo
historical shareholders investment for the equivalent number of shares of common
stock received in the merger. Accordingly, the accompanying consolidated
financial statements present the results of operations for the six months ended
June 30, 2005 and 2004 which are based upon historical financial statements of
Cargo and Mid-Coast. Subsequent to May 12, 2005, the operations reflect the
combined operations of the former Company and Cargo and Mid-Coast.
Certain amounts in the prior period financial statements have been reclassified
to conform with the current period presentation.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Principals of consolidation
The consolidated financial statements include the accounts of the Company and
all subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation. Certain prior year amounts have been
reclassified to conform to the current year's presentation.
b) Cash, concentration of credit risk
The Companies maintain cash in bank accounts, which, at times, may exceed
Federal Deposit Insurance Corporation insured limits. The Companies have not
experienced any losses on these accounts, and believes that such risk in
minimal.
c) Accounts receivable
The Companies utilize the allowance method for recognizing the collectibility of
its accounts receivable. The allowance method recognizes bad debt expense based
on a review of the individual accounts outstanding and the facts surrounding
these accounts.
d) Property and equipment and depreciation and amortization
Property and equipment is recorded at cost. Depreciation and amortization of
property and equipment is provided for by the straight-line method over the
estimated useful lives of the respective assets. The estimated useful lives of
the office equipment, trucks, machinery and equipment, and furniture and
fixtures are five years. Computer equipment and software is depreciated over
three years and leasehold improvements are amortized over the shorter of the
life of the improvement for the length of the lease.
e) Revenue recognition
Cargo recognizes all revenues based upon delivery of the goods at their final
destination. Mid-Coast recognizes revenue upon the completion of services. Costs
related to such revenue are included in direct operating expenses.
f) Income taxes
The Company accounts for income taxes in accordance with the "liability method"
of accounting for income taxes. Accordingly, deferred tax assets and liabilities
are determined based on the difference between the financial statement and tax
bases of assets and liabilities, using enacted tax rates in effect for the year
in which the differences are expected to reverse. Current income taxes are based
on the respective periods' taxable income for federal, state and city income tax
reporting purposes.
g) Estimated liability for insurance claims
The Companies maintain automobile, general, cargo, and workers' compensation
claim liability insurance coverage under both deductible and retrospective
rating policies. In the month claims are reported, the Companies estimate and
establish any potential liabilities, if they exist, for its share of ultimate
settlements using all available information, coupled with the Companies' history
of such claims. Claim estimates are adjusted when additional information becomes
available. The recorded expense depends upon actual loss experience and changes
in estimates of settlement amounts for open claims that have not been fully
resolved. However, final settlement of these claims could differ from the
amounts the Companies have accrued at year-end.
h) Use of estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
i) Fair value disclosure
The carrying value for cash, receivables, and accounts payable approximate their
fair values due to the immediate or short-term maturities of these financial
instruments. The carrying amounts of the Companies' long-term debt also
approximate fair values based on current rates for similar debt.
j) Net loss per share
Basic earnings (loss) per share is computed as net income (loss) divided by the
weighted average number of common shares outstanding for the period. Diluted
earnings (loss) per share reflects the potential dilution that could occur from
common stock issuable through stock based compensation including stock options,
restrictive stock awards, warrants and other convertible securities.
k) Stock-based compensation
The Company adopted the fair value recognition provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123), prospectively for all awards granted, modified, or
settled during the year ended December 31, 2002. The prospective method is one
of the adoption methods provided for under SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure" (SFAS No. 148) issued in
December 2002. SFAS No. 123 requires that compensation cost for all stock awards
be calculated and recognized over the service period (generally equal to the
vesting period). This compensation cost is determined using option pricing
models intended to estimate the fair value of the awards at the grant date.
Similar to Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB No. 25), the alternative method of accounting, under
SFAS No. 123, an offsetting increase to stockholders' equity is recorded equal
to the amount of compensation expense charged. Earnings per share dilution is
recognized as well.
NOTE 4 - GOING CONCERN
The Company incurred a net loss in the year ended December 31, 2004, and through
June 30, 2005 and has had working capital deficiency in prior years. The Company
has devoted substantially all of its efforts to increasing revenues, achieving
profitability, and obtaining long-term financing and raising equity.
The Company's consolidated financial statements have been prepared on the
assumption that the Company will continue as a going concern. 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 will be pursued. The funding
should alleviate the Company's working capital deficiency and increase
profitability. However, it is not possible to predict the success of
management's efforts to achieve profitability. Also, there can be no assurance
that additional funding will be available when needed or, if available, that its
terms will be favorable or acceptable.
If the additional financing or arrangements cannot be obtained, 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 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.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. The financial statements do not include adjustments relating to
the recoverability and realization of assets and classification of liabilities
that might be necessary should the Company be unable to continue in operation.
Management is seeking to raise additional capital and to renegotiate certain
liabilities in order to alleviate the working capital deficiency.
NOTE 5 - RECENT ACCOUNTING PRONOUNCEMENTS
The FASB issued Staff Position FIN46(R)-5, Implicit Variable Interests Under
FASB Interpretation No. 46 (revised December 2003), in March 2005. It addresses
whether a reporting enterprise should consider whether it holds an implicit
variable interest in a variable interest entity ("VIE") or potential VIE when
specific conditions exist. In 2005, the Company has adopted this pronouncement.
The FASB issued Staff Position FIN 47, Accounting for Conditional Asset
Retirement Obligations, and an interpretation of FASB Statement No. 143, in
March 2005. The Interpretation is effective no later than the end of fiscal
years ending after December 15, 2005. The statement clarifies the term
"conditional asset retirement obligation" as used in FASB 143. The Company
believes that it is already in compliance with the statement and does not expect
any impact on financial position or results of operations when adopted.
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment". SFAS No.
123R is a revision of SFAS No. 123, "Accounting for Stock Based Compensation",
and supersedes APB 25, "Accounting for Stock Issued to Employees". Among other
items, SFAS 123R eliminates the use of APB 25 and the intrinsic value method of
accounting, and requires companies to recognize the cost of employee services
received in exchange for awards of equity instruments, based on the grant date
fair value of those awards, in the financial statements. In addition, SFAS No.
123R will cause unrecognized expense related to options vesting after the date
of initial adoption to be recognized as a charge to results of operations over
the remaining vesting period. The effective date of SFAS 123R is the first
reporting period beginning after June 15, 2005, which is third quarter 2005 for
calendar year companies, although early adoption is allowed. However, on April
14, 2005, the Securities and Exchange Commission (SEC) announced that the
effective date of SFAS 123R will be suspended until January 1, 2006, for
calendar year companies. There are no options which need to be revalued before
adoption of this standard. The Company is currently evaluating the impact of
this new standard, but believes that it will not have a material impact upon the
Company's financial position, results of operations or cash flows.
In December 2004, the FASB issued FSP FAS No. 109-1, "Application of FASB
Statement No. 109, Accounting for Income Taxes, for the Tax Deduction Provided
to U.S. Based Manufacturers by the American Jobs Creation Act of 2004" ("FSP FAS
No. 109-1"). This statement requires the qualified production activities
deduction as defined in the American Jobs Creation Act of 2004 (the "Jobs Act")
to be accounted for as a special deduction in accordance with SFAS No. 109,
"Accounting for Income Taxes." The statement also requires that the special
deduction should be considered in measuring deferred taxes when graduated tax
rates are a significant factor and when assessing whether a valuation allowance
is necessary. FSP FAS No. 109-1 was effective upon issuance. In accordance with
the Jobs Act, determination of the qualified production activities deduction is
not required until 2005. Due to the projected tax losses for the next few years,
management does not believe that this statement will have a material effect on
the Company's results of operations, financial condition and liquidity.
The FASB issued Statement of Financial Accounting Standards No. 154, Accounting
Changes and Error Corrections -- a replacement of APB Opinion No. 20 and FASB
Statement No. 3 ("SFAS 154"). SFAS 154 is effective, and will be adopted, for
accounting changes made in fiscal years beginning after December 15, 2005 and is
to be applied retrospectively. SFAS 154 requires that retroactive application of
a change in accounting principle be limited to the direct effects of the change.
Adoption is not expected to have a material effect on the Company's financial
position or results of operations.
In December 2004, the FASB issued SFAS No. 153 "Exchanges of Non-monetary
Assets--an amendment of APB Opinion No. 29." This Statement amended APB Opinion
No. 29 to eliminate the exception for non-monetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
non-monetary assets that do not have commercial substance. A non-monetary
exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. The Company is
currently evaluating the impact of this new standard, but believes that it will
not have a material impact upon the Company's financial position, results of
operations or cash flows.
In November 2004, the FASB issued SFAS No. 151 "Inventory Costs". This Statement
amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing", to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). In addition, this Statement requires that
allocation of fixed production overhead to the costs of conversion be based on
the normal capacity of the production facilities. The provisions of this
Statement will be effective for the Company beginning with its fiscal year
ending 2005. The Company is currently evaluating the impact of this new
standard, but believes that it will not have a material impact on the Company's
financial position, results of operations or cash flows.
NOTE 6 - FACTORING FACILITIES
Cargo Connection has an agreement with a factor which provides an accounts
receivable factoring facility by purchasing certain accounts receivable and
extending credit with a maximum borrowing amount of $2,000,000. The contract is
annual in nature, automatically renewing annually unless Cargo Connection
provides thirty (30) days cancellation notice. The agreement provides that the
factor will purchase up to 90% of eligible accounts receivable of Cargo
Connection minus a discount of approximately 1.2% and a discretionary reserve
(holdback) which is reduced with payments from the debtor. If an invoice is
outstanding over 90 days, Cargo Connection, under recourse provisions, must buy
back the invoice from the factor. Cargo Connection must submit a minimum of
$1,500,000 of eligible invoices in any calendar quarter. At June 30, 2005,
$353,405 is due from the factor which represents the reserve against submitted
invoices. The escrow being held by the factor totaling $99,406 represents funds
available to assist Cargo Connection in funding payments to carriers. At June
30, 2005, the total amount advanced by the factor was $1,237,154, which
represents the financing of accounts receivables purchased.
Promissory Note
In addition, with the bankruptcy filing of one of Cargo Connection's customers,
a Promissory Note was entered into for the repayment of the advances given to
Cargo Connection for eligible invoices for that customer. This note was entered
into on December 3, 2004 in the amount of $523,412 with interest rate of
eighteen percent (18%). Terms of the note call for five percent (5%) of the
eligible and certain accounts receivable not previously sold, collections be
applied as payment towards the note and the balance of the note is due in full
on June 30, 2006. The note balance as of June 30, 2005 was $209,995. Cargo
Connection expects that through its collection process that this obligation will
be fully paid in 2005.
NOTE 7 - CONVERTIBLE NOTES PAYABLE
Convertible notes at June 30, 2005, consist of promissory notes to four
entities. Some of the owners of the entities are also shareholders of the
Company. A note exists with Advantage Fund, LLC ("Advantage") which was
originated in January 2003. Advantage, is the holder of a Series A Convertible
Note from the Company which has been amended at various times from January 7,
2003 to March 2004. In August 2004, Advantage sold a total of $400,000 worth of
such convertible note to Cornell Capital Partners, LLP ("Cornell"). The Note
bears interest at a rate of 6.5% per annum and is convertible into shares of the
Company's common stock with a conversion price per share equal to the lesser of
the average of the lowest of three day trading prices during the five trading
days immediately prior to the conversion date multiplied by .70 or, the average
of the lowest of three day trading prices during the five trading dates
immediately prior to the funding dates. On May 12, 2005 as part of the proceeds
from the financing arrangement with Highgate House, LLC ("Highgate"), the
Company elected to redeem $257,006 of the notes at a rate of 125% of the
principal balance of the note. The additional redemption costs, less interest,
has been recorded as a financing expense. The convertible notes matured in
December 2004 and as of June 30, 2005 are in default. The Company has not been
notified of any actions related to this default from Advantage or Cornell.
During the six months ended June 30, 2005, Advantage funded the Company and the
note increased by $60,000. During the six months ended June 30, 2005, Cornell
elected to convert $26,000 of its promissory notes into 1,532,431 shares of the
Company's common stock.
The Company has promissory notes with two unrelated third parties ("Alpha and
Gamma"), representing the $225,000 assigned to them. The notes matured on
December 31, 2004 and bear interest at a rate of 6.5% per annum. The notes are
convertible into shares of the Company's common stock at a conversion price
equal to the lesser of (1) the average of the lowest of the three day trading
price during the five trading days immediately prior to the conversion date,
multiplied by .80%, or (2) the average of the lowest of three day trading prices
during the five trading days immediately prior to the funding date. During the
six months ended June 30, 2005, Gamma converted $25,000 of its note into 747,004
shares of the Company's common stock and Alpha converted $50,000 of its note
into 3,125,000 shares of the Company's common stock. As of June 30, 2005 the
promissory notes are in default. The Company has not been notified of any action
related to this default by either Alpha or Gamma.
Pursuant to the terms of the notes, the Company entered into a Security
Agreement with a collateral agent, on behalf of Advantage, Cornell, Alpha and
Gamma, the holders' granting the collateral agent a security interest in the
Company's inventory, equipment and fixtures.
In June 2004, the Company received $50,000 from Triple Crown Consulting, Inc.
("Triple Crown"), and entered into a $50,000 Series B 6.5% Convertible
Promissory Note. The note provides the holder with the right at any time to
convert into common stock of the Company as follows: The Conversion Price per
share shall be equal to the lesser of (1) the average of the lowest of three-day
trading prices during the five trading days immediately prior to the Conversion
Date multiplied by .70, or (2) the average of the lowest of three-day trading
prices during the five trading days immediately prior to the funding date(s). In
May, 2005, Triple Crown elected to convert this promissory note into Series IV
preferred stock.
In April, 2005, the Company entered into a Convertible Promissory Note for
repayment of funds due to a former Company officer that were advanced to the
Company in the amount of $86,790. The note has a 3-year term with an interest
rate of 8%. The Company has an option on the three year anniversary of the
debenture to pay the debenture in full or convert into the Company's shares of
common stock.
A note with Latitude, a related party for $135,000, was settled in January 31,
2005, through the issuance of 5,500,000 shares of the Company's common stock.
In summary, the following are represented on the consolidated balance sheet.
Advantage Funds $ 530,002
Cornell Capital 75,163
Alpha and Gamma 152,500
David Goldberg 86,790
-------------
Total: $ 844,455
=============
NOTE 8 - OBLIGATIONS UNDER CAPITAL LEASES
The Company leases machinery, equipment and software under various
non-cancelable capital leases with a capitalized cost of $714,431, less
accumulated amortization of $520,635 as of June 30, 2005. The obligations
require monthly payments, including interest totaling $7,619. Interest rates
ranging from 12% to 16.1% and mature through September 30, 2008. Certain
obligations are guaranteed by certain executive officers of the Company.
As of June 30, 2005, the aggregate future minimum remaining lease payments under
these leases are as follows:
Twelve Months
Ending June 30,
---------------
2006 $ 61,228
2007 40,926
2008 22,894
2009 4,948
--------
Total 129,996
Less: amount representing interest 17,533
--------
Net present value of capital lease obligations 112,463
Current portion 53,585
--------
Long-term portion $ 58,878
========
NOTE 9 - NOTES PAYABLE
Two obligations with a vendor originally totaling $157,773 relating to the
purchase of trailers were fully paid in April, 2005.
In May, 2003, Cargo Connection entered into a loan agreement with U.S. Small
Business Administration ("SBA") whereby the SBA loaned $90,200 for working
capital purposes. The loan bears interest at a rate of 4% per annum. The loan
matures in 2008, where the balance due approximates $14,000. Monthly
installments of $2,664 are due beginning in June, 2005. No payments for interest
or principal are required before that date. The note is secured by the personal
guarantees of the officers of Cargo Connection and is collateralized by
substantially all the assets of Cargo Connection.
In September, 2003, Cargo Connection entered into a note payable for $204,372
which is secured by six tractors. The note bears interest at rate of8% per annum
and is payable in monthly installments of principal and interest totaling
$7,489, matures in February 2006 and is collateralized by the tractors. At June
30, 2005, the balance due is $58,154. The note is secured by the personal
guarantees of the officers of Cargo Connection.
An obligation due to a vendor totaling $108,256 relating to services provided
was fully paid in February, 2005.
In March 2004, Mid-Coast entered into a revolving term loan with its financial
institution whereby Mid-Coast was granted a $100,000 line of credit. At June 30,
2005, the balance on the line of credit was $100,000 and bears interest at a
rate of prime plus 2-1/2% (8.5% at June 30, 2005). Mid-Coast is required to make
monthly interest only payments until December 15, 2006, when the line of credit
terminates. At that time the remaining balance becomes a note payable with a
four year term. The obligation is collateralized by all of the assets of
Mid-Coast and guaranteed by all of this company's officers. Mid-Coast expects to
fully repay this obligation in 2005 and is being classified as all currently
due.
At June 30, 2005 future minimum remaining principal payments on the above notes
are as follows:
Twelve Months
Ending June 30,
---------------
2006 $ 181,367
2007 30,145
2008 36,841
--
----------
$ 248,353
==========
NOTE 10 - SECURED CONVERTIBLE DEBENTURE
On May 12, 2005, the Company completed a financing agreement for $1,000,000 with
Highgate House Funds, Ltd. (the "Investor"). Under the agreement the Company
issued a $1,000,000 secured convertible debenture with a 10% interest rate to
the Investor with a maturity date of November 3, 2006. The debenture is
convertible after maturity into common shares of the Company at a conversion
price of $0.01 per share. The Company simultaneously issued to the Investor a
three year Warrant to purchase 250,000 Shares of the Company's common stock at
an exercise price of $0.001. The Company is committed to filing an SB-2
Registration Statement with the SEC within 90 days of funding. The debenture is
secured by all the assets of the Company. There are penalty provisions for the
Company should the filing not become effective within 120 days of funding. To
date, the registration statement has not been filed. We will begin incurring
penalties on September 9, 2005 if the registration statement is not filed by
that date. The debenture is secured by all of the assets of the Company.
NOTE 11 - DISCOUNT ON DEBT
The Company has allocated the proceeds from a convertible debt instrument
($1,000,000) between the underlying debt instrument and has recorded a discount
on the debt instrument totaling $1,000,000 due to a beneficial conversion
feature as a deferred charge. This deferred charge is being amortized to
financing expense over the life of the related debt instrument which is
approximately 1.5 years until November 2006.
NOTE 12 - ACCRUED EXPENSES
Accrued expenses consist of the following:
Salaries $ 219,713
Interest 123,521
Royalties 31,875
Other 213,102
----------
$ 588,211
==========
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Companies have entered into non-cancelable operating leases for offices and
warehouse space in several States including Illinois, New York, Ohio, Florida
and Georgia. Additionally, the Companies lease equipment and trucks under
non-cancelable operating leases. The leases are subject to escalation for the
Companies' proportionate share of increases in real estate taxes and certain
other operating expenses. The approximate future minimum rentals under
non-cancelable operating leases in effect on June 30, 2005 are as follows:
Office and Equipment
Warehouse Space and Trucks
------------- -------------
2005 $ 491,118 $ 11,416
2006 979,128 22,182
2007 970,341 22,182
2008 910,266 11,422
2009 566,622
Thereafter 71,763
------------- -------------
$ 3,989,238 $ 67,202
Rent expense charged to operations for office and warehouse space for the six
months ended June 30, 2005 and 2004 amounted to $910,697 and $809,001,
respectively. See note 15 for rent expense paid to related entities. Rent
expense charged to operations for trucks and equipment for the years ended June
30, 2005 and 2004 amounted to $284,900 and $321,534, respectively.
Litigation
Various vendors and consultants have filed actions against the Company. The
unsettled claims aggregate approximately $250,744. The Company has included
approximately $250,744 in accounts payable at June 30, 2005 as a contingency
related to these unsettled claims, actions and judgments based on the Company's
and Counsel's assessment. During the six months ended June 30, 2005, the Company
made cash payments of approximately $4,470 in settlement of certain actions.
During 2001, a suit was filed against the Company alleging that its trademark
corporate name, ChampionLyte(R), violated the plaintiff's trademark. A
settlement agreement was entered into April 1, 2003 between the Company and the
plaintiff.
At June 2005 the estimated settlement was accrued to be $31,875.
In addition to the aforementioned, the Company is party to various legal
proceedings generally incidental to its business as is the case with other
companies in the same industry. Although the ultimate disposition of legal
proceedings cannot be predicted with certainty, it is the opinion of management
that the outcome of any claim which is pending or threatened, either
individually or on a combined basis, will not have a materially adverse effect
on the consolidated financial statements of the Companies.
Significant Customers
For the six months ended June 30, 2005 and 2004, Cargo Connection had one
customer and two customers, which comprised 26% and 36% of operating revenue,
respectively.
Issuance of Stock for Services
The Company retained a financial advisory firm as a business consultant to
assist in a variety of areas relating to financial, strategic and related
development growth of the Company requiring monthly payments of $10,000. Upon
termination, the Company remains liable for payments in the twenty four
subsequent months.
NOTE 14 - STOCKHOLDER'S DEFICIENCY
In April 2005, the Company issued 10,000,000 common shares relative to a
conversion of its series IV Preferred Stock in the amount of 25,000 shares.
In May 2004, the Company issued 200,000 shares of its common stock valued at
$42,000 in accordance with an agreement with a Director who resigned on March
31, 2005.
Issuance of Stock Related to Capital
On August 9, 2004, the Company entered into a Standby Equity Distribution
Agreement with Cornell. Pursuant to the Standby Equity Distribution Agreement,
the Company may, at its discretion, periodically issue and sell shares of our
common stock for a total purchase price of $15 million. If the Company requests
advances under the Standby Equity Distribution Agreement, Cornell will purchase
shares of common stock of the Company for 98% of the lowest volume weighted
average price on the Over-the-Counter Bulletin Board or other principal market
on which the Company common stock is traded for the 5 days immediately following
the advance notice date. Cornell will retain 5% of each advance under the
Standby Equity Distribution Agreement. The Company may not request advances in
excess of a total of $15 million. The maximum of each advance is equal to
$400,000. In connection with the Standby Equity Distribution Agreement, the
Company issued 8,315,789 shares of its common stock valued at $790,000 to
Cornell as a commitment fee and we issued 105,263 shares of our common stock
valued at $10,000 to Newbridge Securities as a placement agent fee. Such amounts
have been recorded as deferred offering costs on the consolidated balance sheet
at December 31, 2004. In April 2005, the Company and Cornell agreed to terminate
this agreement and all related shares of common stock are to be returned to the
Company. In May 2005 the 8,315,789 shares of common stock issued to Cornell were
returned and cancelled. The Company has requested but, has not received the
105,263 shares of common stock issued to Newbridge Securities.
Conversion of Notes Payable
In January 2005, the Company issued 747,044 of common stock to Gamma for the
conversion of $25,000 of its promissory notes as requested in December 2004. The
conversion has been recorded in January 2005.
In January 2005, Cornell, holders of convertible promissory notes, had $10,000
of its promissory notes converted into 332,226 shares of the Company's common
stock.
In January 2005, Latitude, holders of convertible promissory notes, had $135,000
promissory notes converted into 5,500,000 shares of the Company's common stock.
In May 2005, Cornell, holders of convertible promissory notes, had $15,000 of
its promissory notes converted into 707,225 shares of the Company's common
stock.
In May 2005, Cornell, holders of convertible promissory notes, had $11,000 of
its promissory notes converted into 825,206 shares of the Company's common
stock.
In June 2005, Alpha, holders of convertible promissory notes, had $50,000 of
its promissory notes converted into 3,125,000 shares of the Company's common
stock.
NOTE 15 - RELATED PARTY TRANSACTIONS
The companies are due amounts from officers and related entities, which are not
included in these consolidated financial statements and are controlled by the
Companies' stockholders. These receivables are non-interest bearing and do not
have formal repayment terms. Management does not anticipate full collection of
these amounts within a one-year period.
The Companies owe amounts to related entities not included in these consolidated
financial statements which are controlled by the Companies' stockholders. These
amounts are non-interest bearing and do not bear formal repayment terms.
The Companies rent warehouse space and equipment from related entities. For the
six months ended June 30, 2005 and 2004, rent expense charged to operations
related to these rentals totaled approximately $486,000 and $202,000
respectively. The leases contain various options for extending and terminate in
February, 2014.
Grant of Stock Options
During the quarter ended March 31, 2005, the then President of Championlyte was
granted options pursuant to the June 2003 two year employment agreement to
purchase 100,000 shares of the Company's common stock, which are exercisable at
$0.03 per share. The employment agreement entitled the President, as long as he
was employed with Champion, to purchase 100,000 shares of the Company's common
stock for each 90-day period through the term of the employment agreement. All
options would have a term of two years. The options are exercisable at a price
equal to 100% of the closing price of the stock as of the grant date. The
options become fully exercisable on the date of grant. During the six months
ended June 30, 2005 the fair value of the options using the Black-Scholes Option
Pricing Model was $3,000 and was being amortized to compensation expense over
the term of the employment agreement. Upon the resignation of the President,
which occurred concurrently with the reverse acquisition, any unamortized
compensation was expensed.
Employment Agreements - Terminated upon Reverse Acquisition
In April 2003, the Company's Board of Directors had passed a resolution to
compensate its directors and certain officer's 150,000 shares of common stock on
a quarterly basis. In February 2004, this had been amended to 175,000 shares of
the Company's common stock to reflect the addition of a new member to the
Company's Board of Directors. The Board of Directors had also included the then
President of the Company. The Board of Directors resigned on May 12, 2005 in
concurrence with the reverse acquisition.
In June 2003, Champion had entered into a formal employment agreement with the
then President of Champion. The agreement was for a term of two years. The base
salary for the executive was $3,500 per month, paid in the Company's common
stock in the first year, and $4,000 per month payable in the Company's common
stock in the second year. The employee was also entitled to commissions based on
sales made as a direct result of the employee's efforts in amounts equal to 1%
of gross sales payable on a quarterly basis.
NOTE 17 - SUBSEQUENT EVENTS
On July 1, 2005, pursuant to an Employee Stock Option Plan, we registered
50,000,000 shares of our common stock on Form S-8 for a maximum offering price
of $0.02, based upon the average of the last price per share of our common stock
on June 29, 2005 a date within five (5) days prior to the date of filing of this
registration statement, as reported by the OTC Electronic Bulletin Board. On
July 8, 2005, we issued 27,534,183 of these S-8 shares to sixteen individuals
for services rendered.
On July 18, 2005, we issued 25,000,000 shares of our common stock to Triple
Crown Consulting, Inc. and its assignees based on the conversion of 12,500
shares of Series IV Convertible Preferred stock for payment of penalties and
interest.
On July 25, 2005, we issued 2,083,333 shares of our common stock to Montgomery
Equity Partners, Inc. based on the conversion of $10,000 of a convertible
promissory note. The issuance was valued at $10,000 or $.0048 per share.
On August 1, 2005, we issued 42,000,000 shares of our common stock to Triple
Crown Consulting, Inc. and its assignees based on the conversion of 12,500
shares of Series IV Convertible Preferred stock.
On August 4, 2005 we issued 18,578,083 shares of our common stock to Alpha
Capital AG based on the conversion of $75,000 of a convertible promissory note
including interest. The issuance was valued at $75,000 or $.004037 per share.
On August 4, 2005, we issued 25,000,000 shares of our common stock to Triple
Crown Consulting, Inc. and its assignees based on the conversion of 12,500
shares of Series IV Convertible Preferred stock including interest.
On August 4, 2005, we issued 7,783,084 shares of our common stock to Alpha
Capital AG based on the conversion of $30,000 of a convertible promissory note.
The issuance was valued at $30,000 or $.003855 per share.
On August 4, 2005, we issued 399,799 shares of our common stock to Montgomery
Equity Partners, Inc. based on the conversion of $2,065.54 of a convertible
promissory note. The issuance was valued at $2,065.54 or $.005167 per share.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
As of May 12, 2005, Cargo Connection Logistics Holding, Inc. (f/k/a Championlyte
Holdings, Inc.) is a public entity operating in the transportation and logistics
industry as a third party logistics provider of transportation and management
services, through its subsidiaries, Cargo Connection Logistics Corp. and
Mid-Coast Management, Inc., to its target client base, ranging from mid-sized to
Fortune 100(TM) companies. This is accomplished through its network of terminals
and transportation services.
Cargo Connection Logistics Corp. performs truckload and less-than-truckload
(LTL) transportation utilizing company equipment, dedicated owner operators and
approved contract carriers. A core competency is specializing in time-definite
transportation and offers to its customers expedited, dedicated and exclusive
use vehicles. Exclusive use services require pinpoint and time sensitive
coordination for those customers. Revenues for these services account for
approximately 20% of the total transportation.
Mid-Coast Management operates U.S. Customs Bonded warehouse facilities and
container freight station operations. The services provided are specifically
designed to enhance and to support the customer's supply chain logistics needs
through operational excellence and value-added services. This is accomplished
through innovative solutions taking into account the specific diversified
markets of our customers.
Both companies are dedicated to providing our customers with premium services
that can be customized to meet their individual needs and are also flexible
enough to cope with an ever-changing business environment.
Although our gross revenues are down as well as our net income for the first six
months, ended June 30, 2005, management believes that the second half of the
year will be much better. Historically Cargo Connection's yearly revenue was
recognized on a proportional basis of 40% of revenue earned in the first seven
months and 60% of revenue earned during the latter five months of the year.
Although there is no assurance that the company will achieve the same results as
predicted from past history, management has implemented its business plan to
assure that the Company moves in a forward direction to continue in these
business segments.
RESULTS OF OPERATIONS
Revenues from operations for the six months ended June 30, 2005 were $6,758,987
compared with $8,293,240 for the six months ended June 30, 2004. The decrease in
revenue was specifically due to the change in our Container Freight Station
operations run under the Mid-Coast Management division.
In specific, if we look at each operation independently, revenues generated from
the operations of our Cargo Connection Logistics Corp. division for the six
months ended June 30, 2005 were $5,772,945 compared with $5,649,002 for the six
months ended June 30, 2004 for the trucking operation. This is an increase of
$123,943 in gross revenue over the same time period. This two percent (2%)
increase in transportation revenue was due to (a) an increase in core service
offering and client acceptance of those offerings, (b) expansion of the
Atlanta-Miami (southern route) to include Charlotte, Raleigh-Durham and
Greensboro service areas, and (c) various expansion into related business lines
and contract based freight relationships. While two percent (2%) is low, the
company has managed to replace business generated from two key customers in 2004
with other business customers in 2005.
Conversely, revenues generated from the operations in our Mid-Coast Management,
Inc. division for the six months ended June 30, 2005 were $986,042 compared with
$2,644,238 for the six months ended June 30, 2004 for the Container Freight
Operations. This reflects a decrease in gross revenue of $1,658,196 or sixty two
percent (62%) over the same time period for the previous year. The reason for
the decrease is due to a change in business relationship with a major customer.
Under its prior relationship, Mid-Coast was restricted in obtaining new
customers in certain markets whereas a result of this change caused a loss of
revenues. Mid-Coast presently approved to look for new customers in those
markets. Due to seasonality Mid-Coast expects to regain a portion of the lost
revenues.
In comparing the operations for the second quarter (three months ended June 30,
2005) to the first quarter of 2005 (three months ended March 31, 2005) we show
total revenue of $3,376,227 versus $3,382,759 for those quarters. Transportation
revenue, which was stable during both quarters, had higher costs associated to
it in the second quarter. These higher costs were in the areas of fuel and
purchased transportation.
Selling, general and administrative expenses decreased to $3,326,378 for the six
months ended June 30, 2005 from $3,358,014 for the six months ended June 30,
2004. The $31,639 or a .9% decrease in selling, general and administrative
expenses and is primarily the result of decreased consulting and professional
fees and of a reduction in payroll expenses, especially in our Mid-Coast
division.
The net result of these efforts was an increase in loss from operations before
other income (expense) of $1,343,944 for the six months ended June 30, 2005 from
a loss of $30,078 for the six months ended June 30, 2004.
Interest and financing expense amounted to $176,530 for the six months ended
June 30, 2005 versus $96,698 for the six