UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly period ended December 31, 2006

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-29754

TARGET LOGISTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware		11-3309110
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization		Identification No.)

500 Harborview Drive, Third Floor Baltimore, Maryland		21230
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (410) 332-1598

Inapplicable

(Former name, former address and former fiscal year if changed from last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Large accelerated filer o Accelerated filer o Non-Accelerated Filer 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 þ

At February 1, 2007, the number of shares outstanding of the registrant’s common stock was 18,076,735.

TABLE OF CONTENTS

		Page
Part I - Financial Information

Item 1.	Financial Statements:

	Consolidated Balance Sheets, December 31, 2006 (unaudited) and June 30, 2006 (audited)	3

	Consolidated Statements of Income for the Three Months Ended December 31, 2006 and 2005 (unaudited)	4

	Consolidated Statements of Income for the Six Months Ended December 31, 2006 and 2005 (unaudited)	5

	Consolidated Statements of Shareholders’ Equity for the Year Ended June 30, 2006 (audited)and the Six Months Ended December 31, 2006 (unaudited)	6

	Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2006 and 2005 (unaudited)	7

	Notes to Unaudited Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosure about Market Risk	16

Item 4.	Controls and Procedures	16

Part II - Other Information

Item 1.	Legal Proceedings	17

Item 4.	Submission of Matters to a Vote of Security Holders	17

Item 6.	Exhibits	17

	Signatures	19

-2-

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TARGET LOGISTICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31, 2006			June 30, 2006
	(unaudited)			(audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	8,164,724		$	7,015,018
Accounts receivable, net of allowance for doubtful accounts of $615,717 and $503,288, respectively		27,889,227			21,595,301
Deferred income taxes		883,540			882,244
Prepaid expenses and other current assets		350,074			305,177
Total current assets		37,287,565			29,797,740
PROPERTY AND EQUIPMENT, NET		2,397,375			2,300,306
OTHER ASSETS		2,377,890			1,279,862
GOODWILL, net of accumulated amortization of $3,715,106		11,351,402			11,872,973
Total assets	$	53,414,232		$	45,250,881

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		7,800,085			6,499,771
Accrued expenses		3,154,631			2,933,536
Accrued transportation expenses		13,220,090			9,952,452
Line of credit		6,084,461			2,493,787
Deferred purchase price liability		-			207,840
Dividends payable		62,145			60,801
Taxes payable		348			678,000
Deferred tax liability		28,052			57,143
Lease obligation - current portion		117,242			131,342
Total current liabilities		30,467,054			23,014,672
LEASE OBLIGATION -- LONG TERM		225,388			283,772
DEFERRED TAX LIABILITY - LONG TERM		119,219			271,427
Total liabilities	$	30,811,661		$	23,569,871

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS’ EQUITY:
Preferred Stock, $10 par value; 2,500,000 shares authorized, 122,946 and 122,946 shares issued and outstanding, respectively		1,229,460			1,229,460
Common Stock, $.01 par value; 30,000,000 shares authorized, 18,811,686 and 18,621,686 shares issued and outstanding, respectively		188,117			186,217
Paid-in capital		28,404,752			28,289,402
Accumulated deficit		(6,574,953	)		(7,379,264	)
Less: Treasury stock, 734,951 shares held at cost		(644,805	)		(644,805	)
Total shareholders’ equity		22,602,571			21,681,010
Total liabilities and shareholders’ equity	$	53,414,232		$	45,250,881

The accompanying notes are an integral part of these consolidated balance sheets.

-3-

TARGET LOGISTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Three Months ended December 31,
	2006			2005
Operating revenues	$	47,550,567		$	46,704,140

Cost of transportation		33,644,422			32,497,640

Gross profit		13,906,145			14,206,500

Selling, general and administrative expenses (“SG&A”):
Exclusive Forwarder Commissions - Target Subsidiary		4,241,084			4,887,904
SG&A - Target subsidiary		8,027,904			7,016,417
SG&A - Corporate		297,190			376,348
Depreciation and amortization		224,692			158,714
Selling, general and administrative expenses		12,790,870			12,439,383

Operating income		1,115,275			1,767,117

Other expense:
Interest expense		(50,865	)		(43,825	)

Income before income taxes		1,064,410			1,723,292
Provision for income taxes		474,906			746,978
Net income	$	589,504		$	976,314

Preferred stock dividends		62,145			103,902
Net income applicable to common stockholders	$	527,359		$	872,412

Income per share attributable to common stockholders:
Basic:	$	0.03		$	0.05
Diluted:	$	0.03		$	0.05
Weighted average shares outstanding:
Basic:		18,076,735			16,070,811
Diluted:		21,480,385			21,490,385

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

-4-

TARGET LOGISTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Six Months ended December 31,
	2006			2005
Operating revenues	$	90,998,629		$	82,849,925

Cost of transportation		64,213,040			56,802,839

Gross profit		26,785,589			26,047,086

Selling, general and administrative expenses (“SG&A”):
Exclusive Forwarder Commissions - Target Subsidiary		8,481,904			8,785,827
SG&A - Target subsidiary		15,644,476			13,668,280
SG&A - Corporate		572,907			664,507
Depreciation and amortization		401,075			280,836
Selling, general and administrative expenses		25,100,362			23,399,450

Operating income		1,685,227			2,647,636

Other expense:
Interest expense		(84,114	)		(77,908	)

Income before income taxes		1,601,113			2,569,728
Provision for income taxes		734,657			1,116,336
Net income	$	866,456		$	1,453,392

Preferred stock dividends		62,145			231,079
Net income applicable to common stockholders	$	804,311		$	1,222,313

Income per share attributable to common stockholders:
Basic:	$	0.04		$	0.08
Diluted:	$	0.04		$	0.07
Weighted average shares outstanding:
Basic:		18,027,007			15,964,619
Diluted:		21,480,385			21,490,343

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

-5-

TARGET LOGISTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE YEAR ENDED JUNE 30, 2006 AND THE

SIX MONTHS ENDED DECEMBER 31, 2006 (UNAUDITED)

	Preferred Stock						Common Stock				Additional Paid-In		Treasury Stock						Accumulated
	Shares			Amount			Shares		Amount		Capital		Shares			Amount			Deficit			Total
Balance, June 30, 2005		319,946		$	3,199,460			16,569,729	$	165,697	$	26,293,190		(734,951	)	$	(644,805	)	$	(9,853,783	)	$	19,159,759
Cash dividends associated with the Class C and F Preferred Stock		-			-			-		-		-		-			-			(231,079	)		(231,079	)
Common Stock issued in conjunction with the conversion of Class C Preferred Stock		(197,000	)		(1,970,000	)		1,970,000		19,700		1,950,300		-			-			-			-
Stock options exercised		-			-			81,957		820		37,015		-			-			-			37,835
Stock options expense		-			-			-		-		8,897		-			-			-			8,897
Net income		-			-			-		-		-		-			-			2,705,598			2,705,598
Balance, June 30, 2006		122,946		$	1,229,460			18,621,686	$	186,217	$	28,289,402		(734,951	)	$	(644,805	)	$	(7,379,264	)	$	21,681,010

Cash dividends associated with the Class C and F Preferred Stock		-			-			-		-		-		-			-			(62,145	)		(62,145	)

Stock options exercised		-			-			190,000		1,900		115,350		-			-			-			117,250
Net income		-			-			-		-		-		-			-			866,456			866,456
Balance, December 31, 2006		122,946		$	1,229,460			18,811,686	$	188,117	$	28,404,752		(734,951	)	$	(644,805	)	$	(6,574,953	)	$	22,602,571

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

-6-

TARGET LOGISTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Six Months Ended December 31,
	2006			2005

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	866,456		$	1,453,392
Bad debt expense		201,241			259,154
Depreciation and amortization		401,075			280,836
Stock option expense		-			6,833
Increase in deferred tax asset		(1,296	)		57,803
Decrease in deferred tax liability		(181,299	)		(41,373	)

Adjustments to reconcile net income to net cash provided by (used in) operating activities -
(Increase) in accounts receivable		(6,495,167	)		(5,145,258	)
Decrease in prepaid expenses and other current assets		255,392			3,811
(Increase) decrease in other assets		(10,442	)		164,842
(Increase) in goodwill resulting from earn-out due under ACI acquisition		-			(72,837	)
Increase in accounts payable and accrued expenses		3,903,555			6,428,500
Net cash provided by (used in) operating activities		(1,060,485	)		3,395,703

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(276,408	)		(1,593,917	)
Asset purchase acquisition - DCI		(69,120	)		-
Asset purchase acquisition - Capitaland		(1,013,520	)		-
Payment on deferred purchase price liability		-			(550,000	)
Net cash used for investing activities		(1,359,048	)		(2,143,917	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid		(60,801	)		(154,530	)
Stock options exercised		117,250			12,835
Borrowing from note payable to bank		83,112,915			76,923,700
Repayment of note payable to bank		(79,522,241	)		(78,270,814	)
Payment of lease obligations		(77,884	)		(59,795	)
Net cash provided by (used for) financing activities:		3,569,239			(1,548,604	)

Net increase (decrease) in cash and cash equivalents		1,149,706			(296,818	)

CASH AND CASH EQUIVALENTS, beginning of the period		7,015,018			6,525,577

CASH AND CASH EQUIVALENTS, end of the period	$	8,164,724		$	6,228,759

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for:
Interest		84,146			87,784
Income Taxes		1,434,905			366,362

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

-7-

TARGET LOGISTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

(unaudited)

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTMENT AND FINANCING ACTIVITIES:

	Six Months Ended December 31,
	2006		2005

Conversion of 30,000 Class C Preferred Shares		-		(300,000	)
Issuance of Common Stock for Conversion of 30,000 Class C Preferred Shares		-		300,000

Purchase of property and equipment under capital lease obligations		-		373,398

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

-8-

TARGET LOGISTICS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Notes to Unaudited Consolidated Financial Statements

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and Regulation S-X related to interim period financial statements and, therefore, do not include all information and footnotes required by generally accepted accounting principles. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments and accruals) considered necessary for a fair presentation of the consolidated financial position of the Company and its subsidiaries at December 31, 2006 and their consolidated results of operations and cash flows for the three and six months ended December 31, 2006 have been included. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the entire year. Reference should be made to the annual financial statements, including footnotes thereto, included in the Target Logistics, Inc. (the “Company”) Form 10-K for the year ended June 30, 2006.

Note 2 - Acquisitions

On October 2, 2006, our Target subsidiary acquired certain assets of Capitaland Express, Inc. (“Capitaland”), an Albany, New York based freight forwarder for a combination of cash and an earn out structure over five years. The earnout structure is strictly dependent on future profits achieved at the location acquired, and the Company has no minimum commitment or obligation. The Company does not expect that the earn out payments will have a material impact on its overall financial results.

On July 14, 2006, our Target subsidiary acquired certain assets of Discovery Cargo, Inc. (“DCI”), a Queens, New York based freight forwarder for a cash payment. In conjunction with the acquisition, our Target subsidiary entered into a consulting agreement with the principals of DCI and advanced them $450,000 as a loan repayable over three years beginning October 15, 2006 at an interest rate equal to the prime plus one percent (1.0%). As of December 31, 2006, the $193,530 current portion of this loan is reflected in accounts receivable and the balance of $264,302 is reflected in other assets.

On March 15, 2005 the Company acquired the stock of Air Cargo International and Domestic, Inc. (“ACI”) for a combination of (i) $1,000,000 cash payment on date of closing, (ii) cash payment based on the ACI shareholder’s equity after winding down the ACI balance sheet, and (iii) an earn-out structure based on certain future gross profit achievements over the next five years (the “ACI Acquisition”). In accordance with the terms of the ACI Acquisition, certain post closing adjustments were made in September of the current fiscal year and included below is the revised purchase price allocation. The adjusted balance of intangible assets will be amortized prospectively over its remaining useful life of approximately 5 years, 6 months. Any payments from the earn-out structure will be considered an increase to the purchase price in the period such amount is determinable. The Company has no minimum commitment or obligation under the earn-out or the wind down of the balance sheet. The Company does not expect that the earn-out payments will have a material impact on its liquidity.

The revised purchase price allocation is as follows:

Purchase Price:
Cash paid on closing date	$	1,000,000
Estimated additional cash payment to be paid based upon final ACI shareholder equity after wind down of balance sheet		757,840
Purchase price adjustment		(400,000	)
Expenses related to acquisition: legal and accounting		40,059
Total adjusted purchase price	$	1,397,899

-9-

Assets Purchased:
Cash	$	686,795
Accounts receivable		1,644,756
Prepaid expenses and other current assets		221,464
Property and equipment, net		26,065
Intangible assets:
Customer relationships/non-compete agreements		925,906
Total assets purchased	$	3,504,986

Less Liabilities Assumed:
Accounts payable		( 913,604	)
Accrued expenses		( 953,483	)
Deferred tax liabilities		( 240,000	)
Total liabilities assumed	$	(2,107,087	)

As a result of these adjustments, the ACI shareholders repaid $55,924 to the Company on November 28, 2006.

Note 3 - Use of Estimates

In the process of preparing our consolidated financial statements, the Company estimates the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. Management bases its estimates on historical experience and on various assumptions which are believed to be reasonable under the circumstances. The primary estimates underlying our consolidated financial statements include allowance for doubtful accounts, accruals for transportation and other direct costs, accruals for cargo insurance, and the classification of tax credit carry forwards between current and long-term assets.

Note 4 - Goodwill

In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets”, which requires the use of a non-amortization approach to account for purchased goodwill and certain intangibles. We adopted this statement on July 1, 2002. Under the non-amortization approach, goodwill and certain intangibles are not amortized into results of operations, but instead are reviewed for impairment, written down and charged to results of operations only in periods in which the recorded value of goodwill and certain intangibles is more than its fair value. The last annual independent valuation analysis was completed in January 2007, and based on the valuation, we determined that the goodwill was not impaired.

The independent valuation analysis is substantially dependent on three separate analyses: (1) discounted seven-year cash flow analysis, (2) comparable public company analysis, and (3) comparable transaction analysis.

The discounted cash flow analysis is dependent on the Company’s Target Logistic Services, Inc. (“Target”) subsidiary achieving certain future results. These include the following major assumptions: (a) Revenue growth of 15.0% for fiscal 2007, 12.5% for fiscal 2008 through 2009, 10% for fiscal 2010 through 2011 and 7.5% for fiscal 2012 thru 2013; (b) Gross Profit percentage of 30.6% in fiscal 2007 and 31.8% in fiscal 2008 and thereafter; (c) Operating expenses (excluding forwarder commissions) reducing from 17.2% in fiscal 2006, to 17.1% in fiscal 2008 and thereafter; and (d) a 15% discount rate. While management believes that these are achievable, any downward variation in these major assumptions or in any other portion of the discounted cash flow analysis could negatively impact the overall valuation analysis.

The Company performs an annual valuation analysis. Based on the results of these annual valuation analyses, our financial results could be impacted by impairment of goodwill, which could result in periodic write-downs ranging from zero to $11,351,402.

The decrease in goodwill for the six months ended December 31, 2006 is attributable to the post closing adjustment under the ACI Acquisition. See Note 2.

-10-

Note 5 - Per Share Data

Basic income per share is calculated by dividing net income attributable to common stockholders less preferred stock dividends, by the weighted average number of shares of common stock outstanding during the period. Diluted income per share is calculated by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding, adjusted for potentially dilutive securities.

There were outstanding options to purchase 330,000 and 655,000 shares of common stock for the three and six months ended December 31, 2006 and 2005, respectively. Options to purchase 75,000 were not included in the computation of diluted EPS for the three and six months ended December 31, 2005, because the exercise prices of those options were greater than the average market price of the common shares, and thus were anti-dilutive.

Note 6 - Stock-Based Compensation

Effective July 1, 2005, we adopted the fair value measurement provisions of Financial Accounting Standards Board (“FASB”) Statement No. 123 (revised 2004) “Share-Based Payment”, and accordingly have adopted the modified prospective application method. Under the provisions of FASB Statement No. 123(R) the compensation cost relating to share-based payment transactions (in our case, the employee stock option plan) is to be recognized in the financial statements. The Company will recognize as expense all outstanding, unvested employee stock options over the remaining vesting period that remained on such options based on the fair value at the date the employee stock options were granted. For the six months ended December 31, 2006, there was no expense to be recognized in the financial statements. However, for the six months ended December 31, 2005, the total share based employee compensation expense included in the determination of net income, net of tax effect was $4,100.

Prior to July 1, 2005, the Company accounted for its employee stock option plan in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations. Compensation expense relating to employee stock options is recorded only if, on the date of grant, the fair value of the underlying stock exceeds the exercise price. The Company adopted the disclosure-only requirements of SFAS No. 123, “Accounting for Stock-Based Compensation”, and SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure”, which allows entities to continue to apply the provisions of APB Opinion No. 25 for transactions with employees and provide pro forma net income and pro forma earnings per share disclosures for employee stock options as if the fair value based method of accounting in SFAS No. 123 had been applied to these transactions.

The fair value of options was estimated at the grant date using a Black-Scholes option pricing model, which requires the input of subjective assumptions. No options were granted during the six months ended December 31, 2006 or 2005.

Note 7 - Stock Options

The following summarizes the Company’s stock option activity and related information:

	Shares		Range of Exercise Price		Weighted average Exercise Price
Outstanding at June 30, 2006		520,000	$	0.50 - $1.125	$	0.59
Granted		-		-		-
Exercised		190,000	$	0.50 - $1.125	$	0.62
Forfeited		-		-		-
Cancelled		-		-		-

Outstanding at December 31, 2006		330,000	$	0.50 - $1.125	$	0.58
Exercisable at December 31, 2006		330,000	$	0.50 - $1.125	$	0.58

There were 190,000 stock options exercised for $117,250 during the six months ended December 31, 2006.

-11-

Note 8 - Segment Information

The Company’s revenue includes both domestic and international freight movements. Domestic freight movements originate and terminate within the United States, and never leave the United States. International freight movements are either exports from the United States or imports to the United States. A reconciliation of the Company’s domestic and international segment revenues and gross profits for the three and six months ended December 31, 2006 and 2005 is as follows:

	Three Months Ending December 31,				Six Months Ending December 31,
	2006		2005		2006		2005

Domestic revenue	$	32,547,223	$	29,661,566	$	61,701,995	$	55,464,656
International revenue		15,003,344		17,042,574		29,296,634		27,385,269
Total revenue	$	47,550,567	$	46,704,140	$	90,998,629	$	82,849,925

Domestic gross profit	$	11,315,190	$	11,265,476	$	21,639,841	$	20,963,237
International gross profit		2,590,955		2,941,024		5,145,748		5,083,849
Total gross profit	$	13,906,145	$	14,206,500	$	26,785,589	$	26,047,086

Note 9 - Recent Accounting Pronouncements

In July 2006, the FASB issued FASB Interpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes”, an interpretation of FASB Statement 109. FIN 48 prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction. FIN 48 is effective for fiscal years beginning after December 15, 2006. If there are changes in net assets as a result of application of FIN 48, these will be accounted for as an adjustment to retained earnings. The Company is currently assessing the impact of FIN 48 on its consolidated financial position and results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS No. 157 establishes a common definition for fair value to be applied to US GAAP guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS No. 157 on its consolidated financial position and results of operations.

In September 2006, the SEC staff issued Staff Accounting Bulletin (SAB) 108 “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”. SAB 108 requires that public companies utilize a dual-approach to assessing the quantitative effects of financial misstatements. This dual approach includes both an income statement focused assessment and a balance sheet focused assessment. The guidance in SAB 108 must be applied to annual financial statements for fiscal years ending after November 15, 2006. The Company is currently assessing the impact of adopting SAB 108 but does not expect that it will have an effect on our consolidated financial position or results of operations.

-12-

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As used throughout this Report, “we,” “our,” “the Company” and similar words refers to Target Logistics, Inc.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain forward-looking statements reflecting our current expectations with respect to our operations, performance, financial condition, and other developments. These forward-looking statements may generally be identified by the use of the words “may”, “will”, “believes”, “should”, “expects”, “anticipates”, “estimates”, and similar expressions. These statements are necessarily estimates reflecting management’s best judgment based upon current information and involve a number of risks and uncertainties. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and readers are advised that various factors could affect our financial performance and could cause our actual results for future periods to differ materially from those anticipated or projected. While it is impossible to identify all such factors, such factors include, but are not limited to, those risks identified in our periodic reports filed with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K.

OVERVIEW

We generated operating revenues of $160.4 million, $138.4 million, and $126.1 million, and had net profits of $2.7 million, $1.6 million, and $0.5 million, for the fiscal years ended June 30, 2006, 2005 and 2004, respectively. We had earnings before interest, taxes, depreciation and amortization (EBITDA) of approximately $5,391,621, $3,454,132 and $1,760,276, for the fiscal years ended June 30, 2006, 2005, and 2004 respectively. EBITDA is a non-GAAP measure of income and does not include the effects of interest and taxes, and excludes the “non-cash” effects of depreciation and amortization on current assets. Companies have some discretion as to which elements of depreciation and amortization are excluded in the EBITDA calculation. We exclude all depreciation charges related to property, plant and equipment, and all amortization charges, including amortization of goodwill, leasehold improvements and other intangible assets. While management considers EBITDA useful in analyzing the Company’s results, it is not intended to replace any presentation included in the Company’s consolidated financial statements.

For the six months ended December 31, 2006, the revenue of our Target subsidiary increased by 9.8%, when compared to the prior year’s corresponding period. Target’s gross profit margin (i.e., gross operating revenues less cost of transportation expressed as a percentage of gross operating revenue) for the six months ended December 31, 2006 decreased to 29.4% from 31.4% for the six months ended December 31, 2005. The decrease is primarily due to a reduction in domestic gross profit margins due to (i) the handling of lower gross profit margin domestic shipments at our New York station resulting from the DCI acquisition, and (ii) the movement of less domestic premium services during the six months ended December 31, 2006 than the six months ended December 31, 2005. Since the July 2006 DCI acquisition, our New York station’s profitability has been negatively impacted, and management has been working with the station to improve its performance. Management believes that the New York station’s most recent monthly results indicate a return to profitability and are cautiously optimistic that the New York station will become a positive contributor in the near future. Management continues to believe that we must focus on increasing revenues and must increase gross profit margin to maintain profitability. Management intends to continue to work on growing revenue by increasing sales through expanding our sales force, increasing sales generated by the Company’s employed sales personnel and sales generated by exclusive forwarders, and strategic acquisitions. Management also intends to continue to work on improving Target’s gross profit margins by reducing transportation costs.

RESULTS OF OPERATIONS

Three months ended December 31, 2006 and 2005

Operating Revenue. Operating revenue increased to $47.6 million for the three months ended December 31, 2006 from $46.7 million for the three months ended December 31, 2005, a 1.8% increase. The Company’s operating revenue consists of domestic freight revenue and international freight revenue. Domestic revenue increased by 9.7% to $32,547,223 from $29,661,566 for the three months ended December 31, 2005. This increase is due to the DCI and Capitaland acquisitions and internal sales growth. International revenue decreased by 12.0% to $15,003,344 for the three months ended December 31, 2006 from $17,042,574 for the three months ended December 31, 2005, primarily due to decreased international import freight volume.

-13-

Cost of Transportation. Cost of transportation increased to 70.8% of operating revenue for the three months ended December 31, 2006 from 69.6% of operating revenue for the three months ended December 31, 2005. This increase was primarily due to an increase in domestic transportation costs as a percentage of sale due to (i) the handling of higher cost domestic shipments, as a percentage of sales, as a result of the DCI acquisition, and (ii) the movement of less domestic premium services during the three months ended December 31, 2006 than in the three months ended December 31, 2005.

Gross Profit Margin. As a result of the factors described above, gross profit margin for the three months ended December 31, 2006 decreased to 29.2% from 30.4% of operating revenue for the three months ended December 31, 2005, a 4.0% decrease.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to 26.9% of operating revenue for the three months ended December 31, 2006 from 26.6% of operating revenue for the three months ended December 31, 2005. Within our Target subsidiary, selling, general and administration expenses (excluding exclusive forwarder commission expense) were 16.9% of operating revenue for the three months ended December 31, 2006 and 15.0% for the three months ended December 31, 2005, a 12.7% increase, primarily as a result of the DCI and Capitaland acquisitions. Exclusive forwarder commission expenses (which are primarily commissions to our agents and earn-out expenses from our acquisitions) were 8.9% and 10.5% of operating revenue for the three months ended December 31, 2006 and 2005, respectively, a 15.2% decrease resulting from a reduction in forwarder agent freight volume.

Net Profit. For the three months ended December 31, 2006, we realized a net profit of $589,504, compared to a net profit of $976,314 for the three months ended December 31, 2005, a 39.6% decrease.

Effective Tax Rate. The effective income tax rate for the six months ended December 31, 2006 was 44.6% compared to 43.4% for the six months ended December 31, 2005. The change in the effective tax rate is due to changes in the components of the deferred income tax provision when compared to the prior year.

Six Months ended December 31, 2006 and 2005

Operating Revenue. Operating revenue increased to $91.0 million for the six months ended December 31, 2006 from $82.8 million for the six months ended December 31, 2005, a 9.8% increase. The Company’s operating revenue consists of domestic freight revenue and international freight revenue. Domestic revenue increased by 11.2% to $61,701,995 for the 2006 period from $55,464,656 for the six months ended December 31, 2005. This increase is due to the DCI and Capitaland acquisitions and internal sales growth. International revenue increased by 7.0% to $29,296,634 for the six months ended December 31, 2006 from $27,385,269 for the six months ended December 31, 2005, primarily due to the Capitaland acquisition.

Cost of Transportation. Cost of transportation increased to 70.6% of operating revenue for the six months ended December 31, 2006 from 68.6% of operating revenue for the six months ended December 31, 2005. This increase was primarily due to an increase in domestic transportation costs as a percentage of sales due to (i) the handling of higher cost domestic shipments, as a percentage of sale, as a result of the DCI acquisition, and (ii) the movement of less domestic premium services during the six months ended December 31, 2006 than the six months ended December 31, 2005.

Gross Profit Margin. As a result of the factors described above, gross profit margin for the six months ended December 31, 2006 decreased to 29.4% from 31.4% of operating revenue for the six months ended December 31, 2005, a 6.4% decrease.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to 27.6% of operating revenue for the six months ended December 31, 2006 from 28.2% of operating revenue for the six months ended December 31, 2005. Within our Target subsidiary, selling, general and administration expenses (excluding exclusive forwarder commission expenses) were 17.2% of operating revenue for the six months ended December 31, 2006 and 16.5% for the six months ended December 31, 2005, a 4.2% increase, primarily as a result of the DCI and Capitaland acquisitions. Exclusive forwarder commission expenses (which are primarily commissions to our agents and earn-out expenses from our acquisitions) were 9.3% and 10.6% of operating revenue for the six months ended December 31, 2006 and 2005, respectively, an 12.3% decrease resulting from a reduction in forwarder agent freight volume.

-14-

Net Profit. For the six months ended December 31, 2006, we realized a net profit of $866,456, compared to a net profit of $1,453,392 for the six months ended December 31, 2005, a 40.4% decrease.

Effective Tax Rate. The effective income tax rate for the six months ended December 31, 2006 was 45.9% compared to 43.4% for the six months ended December 31, 2005. The change in the effective tax rate is due to changes in the components of the deferred income tax provision when compared to the prior year.

LIQUIDITY AND CAPITAL RESOURCES

General. During the six months ended December 31, 2006, net cash used in operating activities was $1,060,485. Cash used for investing activities was $1,359,048, representing capital expenditures for property, equipment and leasehold improvements and the asset purchase acquisitions of Capitaland and DCI. Cash provided by financing activities was $3,569,239, which primarily consisted of borrowings under our line of credit.

Capital expenditures. Capital expenditures for the six months ended December 31, 2006 were $1,359,048, representing capital expenditures of (i) $276,408 primarily for property, equipment and leasehold improvements, and (ii) $1,082,640 for the Capitaland and DCI asset purchase acquisitions.

GMAC Facility. Since 1997, the Company’s Target subsidiary has maintained its revolving credit facility (“GMAC Facility”) with GMAC Commercial Finance LLC (“GMAC”), guaranteed by the Company. Under the terms of the GMAC Facility, Target can borrow (i) the lesser of $13 million or 85% of eligible accounts receivable for the period beginning May 3, 2004 through December 31, 2006, and (ii) the lesser of $15 million or 85% of eligible accounts receivable for the period beginning April 1, 2005 through March 31, 2007. The interest rate of the facility, which can be adjusted quarterly, is either (i) prime plus three-quarters of one percent (0.75%), or (ii) upon the achievement of certain financial milestones (measured quarterly), prime plus one-half of one percent (0.50%). The borrowings under the GMAC Facility are secured by a first lien on all of the Company’s and its subsidiaries’ assets. As of December 31, 2006, there were outstanding borrowings of $6,084,461 under the GMAC Facility (which represented 40.9% of the amount available thereunder) out of a total amount available for borrowing under the GMAC Facility of approximately $14,863,332, net of a standby letter of credit issued by GMAC in the amount of $136,668. The GMAC Facility currently expires on March 31, 2007. The Company has reviewed its options with respect to extending or replacing the GMAC Facility and is currently negotiating a replacement credit facility with a different lender on terms more favorable than the terms of the existing GMAC Facility, to be effective upon the expiration of the GMAC Facility. In the event these negotiations are unsuccessful, the Company is highly confident that the GMAC Facility will be renewed or replaced.

Working Capital Requirements. The Company’s and Target’s cash needs are currently met by the GMAC Facility and cash on hand. As of December 31, 2006, the Company had $8,778,871 available under its $15 million GMAC Facility and $8,164,724 in cash from operations and cash on hand. We believe that our current financial resources will be sufficient to finance our operations and obligations (current and long-term liabilities) for the long and short terms. However, our actual working capital needs for the long and short terms will depend upon numerous factors, including our operating results, the cost of increasing the Company’s sales and marketing activities, and competition, none of which can be predicted with certainty.

CRITICAL ACCOUNTING POLICIESAND ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Since future events and their effects cannot be determined with absolute certainty, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and such difference may be material to the financial statements. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources, primarily allowance for doubtful accounts, accruals for transportation and other direct costs, accruals for cargo insurance, and the classification of net operating loss and tax credit carryforwards between current and long-term assets. Management bases its estimates on historical experience and on various assumptions which are believed to be reasonable under the circumstances. We reevaluate these significant factors as facts and circumstances change. Historically, actual results have not differed significantly from our estimates. These accounting policies are described at relevant sections in this discussion and analysis and in the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2006.

-15-

Our balance sheet includes an asset in the amount of $11,351,402 for purchased goodwill. In accordance with accounting pronouncements, the amount of this asset must be reviewed annually for impairment, written down and charged to results of operations in the period(s) in which the recorded value of goodwill is more than its fair value. We obtained an independent valuation analysis completed in January 2007, and based on the valuation, we determined that the goodwill was not impaired. Had the determination been made that the goodwill asset was impaired, the value of this asset would have been reduced by an amount ranging from zero to $11,351,402, and our financial statements would reflect the reduction. For additional description, please refer to Note 4 to the Company’s Notes to the unaudited Consolidated Financial Statements contained in this Quarterly Report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

We maintain a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed by the Company in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and is accumulated and communicated to management in a timely manner. Our Chief Executive Officer and Chief Financial Officer have evaluated this system of disclosure controls and procedures as of the end of the period covered by this quarterly report, and believe that the system is effective. There have been no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

-16-

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As previously reported, in connection with our Target subsidiary’s DCI acquisition, on June 5, 2006 Seko Worldwide, LLC (“Seko”) filed a civil action in the United States District Court for the Northern District of Illinois (Case No. 06C3072) against DCI, DCI’s principals, and our Target subsidiary, seeking a temporary restraining order and permanent injunction against the proposed sale of certain assets by DCI to Target. Prior to the transaction, DCI acted as an independent agent in Seko’s freight forwarding system serving the John F. Kennedy International Airport area. In connection with that relationship, DCI had entered into certain agreements with Seko which Seko claimed contained restrictive covenants which prohibited the asset sale to Target. On June 30, 2006, following a hearing, the court denied Seko’s requested relief. This action has been dismissed, and Target has filed a motion seeking attorneys fees from Seko. The court denied Target’s motion, and the denial has been appealed to the United States Court of Appeals for the Seventh Circuit.

Also in connection with the DCI acquisition, on November 13, 2006, Fast Fleet Systems, Inc. filed a civil suit against Seko, DCI, the principals of DCI, Craig Catalano and Bernard Quandt, the Company and our Target subsidiary in the United States District Court for the District of New Jersey (Case No. 06-1819 (FLW)) alleging (i) that Seko and DCI owes the plaintiff in excess of $138,000 for trucking services previously provided to DCI, (ii) fraudulent and slanderous conduct by DCI and Messrs. Catalano and Quandt, and (ii) that the Company and Target has successor liability for all of the obligations of DCI, Catalano and Quandt. Target has filed an answer denying liability, and a motion to stay the court proceedings pending the outcome of litigation involving certain of the parties in New York State Supreme Court for Queens County. We and our counsel believe that the claims against us are without merit and we are vigorously defending the suit. In the event of an unfavorable outcome, the amount of any potential loss to us is not yet determinable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On November 28, 2006, the Company held its Annual Meeting of Shareholders. The only matter submitted to the shareholders for a vote was the election of directors.

The nominees submitted for election as directors were Michael Barsa, Stephen J. Clearman, Christopher A. Coppersmith, Brian K. Coventry, Philip J. Dubato, Stuart Hettleman and David E. Swirnow. At least 17,244,559 shares of Common Stock and 122,946 shares of Class F Preferred Stock were voted in favor of each nominee, and no more than 38,275 shares of Common Stock were voted to withhold approval of any director. As a result, Messrs, Barsa, Clearman, Coppersmith, Coventry, Dubato, Hettleman and Swirnow were elected to serve as directors until the next annual meeting of shareholders of the Company and until their successors are duly elected and qualified.

ITEM 6. EXHIBITS

Exhibit No.

3.1

Certificate of Incorporation of Registrant, as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2004, File No. 0-29754)

3.2

By-Laws of Registrant, as amended (incorporated by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended December 31, 1998, File No. 0-29754)

4.1

Certificate of Designations with respect to the Registrant’s Class C Preferred Stock (contained in Exhibit 3.1)

4.2

Certificate of Designations with respect to the Registrant’s Class F Preferred Stock (contained in Exhibit 3.1)

10.1

1996 Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2003, File No. 0-29754)

10.2

2005 Stock Option Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended December 31, 2005, File No. 0-29754)

10.3

Restated and Amended Accounts Receivable Management and Security Agreement, dated as of July 13, 1998 by and between GMAC Commercial Credit LLC, as Lender, and Target Logistic Services, Inc., as Borrower, and guaranteed by the Registrant (“GMAC Facility Agreement”) (incorporated by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K for the Fiscal Year Ended June 30, 1999, File No. 0-29754)

-17-

10.4

Letter amendment to GMAC Facility Agreement, dated January 25, 2001 (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended December 31, 2000, File No. 0-29754)

10.5

Amendment to GMAC Facility Agreement, dated September 20, 2002 (incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the Fiscal Year Ended June 30, 2002, File No. 0-29754)

10.6

Amendment to GMAC Facility Agreement, dated February 12, 2003 (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2003, File No. 0-29754)

10.7

Amendment to GMAC Facility Agreement, dated May 3, 2004 (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2004, File No. 0-29754)

10.8

Lease Agreement for Los Angeles Facility (incorporated by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2005, File No. 0-29754)

31.1

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

31.2

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

32.1

Section 1350 Certifications

99.1

Press Release dated February 1, 2007

-18-

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 undersigned thereunto duly authorized.


Dated: February 1, 2007	TARGET LOGISTICS, INC. Registrant

		/s/ Stuart Hettleman
		President, Chief Executive Officer



		/s/ Philip J. Dubato
		Vice President, Chief Financial Officer

-19-

TARGET LOGISTICS INC 10-Q