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 ~~March~~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 incorporation or organization		(I.R.S. Employer Identification No.)
(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 ~~whether~~if the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. ~~(as~~See ~~defined~~definition inof “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. ~~Yes~~ Large accelerated filer o Accelerated Nofiler o Non-Accelerated þ Filer x

AtIndicate ~~May~~by ~~1, 2006,~~check mark whether the ~~number~~registrant ofis ~~shares~~a ~~outstanding~~shell company (as defined in Rule 12b-2 of the ~~registrant’s~~Exchange ~~common~~Act.) ~~stock was~~Yes o No ~~17,886,735.~~þ

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

TABLE OF CONTENTS

Part I - Financial Information			Page
		Page
Item 1.	Financial Statements:
Part I - Financial Information
	Consolidated Balance Sheets, March 31, 2006 (unaudited) and June 30, 2005 (audited)		3
Item 1.	Financial Statements:
	Consolidated Statements of Income for the Three Months Ended March 31, 2006 and 2005 (unaudited)		4
	Consolidated Balance Sheets, December 31, 2006 (unaudited) and June 30, 2006 (audited)	3
	Consolidated Statements of Income for the Nine months Ended March 31, 2006 and 2005 (unaudited)		5
	Consolidated Statements of Income for the Three Months Ended December 31, 2006 and 2005 (unaudited)	4
	Consolidated Statements of Shareholders’ Equity for the Year Ended June 30, 2005 (audited) and the Nine months Ended March 31, 2006 (unaudited)		6
	Consolidated Statements of Income for the Six Months Ended December 31, 2006 and 2005 (unaudited)	5
	Consolidated Statements of Cash Flows for the Nine months Ended March 31, 2006 and 2005 (unaudited)		7
	Consolidated Statements of Shareholders’ Equity for the Year Ended June 30, 2006 (audited)and the Six Months Ended December 31, 2006 (unaudited)	6
	Notes to Unaudited Consolidated Financial Statements		9
	Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2006 and 2005 (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
	Notes to Unaudited Consolidated Financial Statements	9
Item 3.	Quantitative and Qualitative Disclosure about Market Risk		16
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 4.	Controls and Procedures		16
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	16
Part II - Other Information
Item 4.	Controls and Procedures	16
Item 6.	Exhibits		17
Part II - Other Information
	Signatures		18
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

	March 31, 2006			June 30, 2005
	December 31, 2006			June 30, 2006
ASSETS	(unaudited)			(audited)
	(unaudited)			(audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	68,~~056~~164,~~681~~724		$	67,~~525~~015,~~577~~018
Accounts receivable, net of allowance for doubtful accounts of $694,858 and $900,571, respectively		22,643,887			20,934,908
Accounts receivable, net of allowance for doubtful accounts of $615,717 and $503,288, respectively		27,889,227			21,595,301
Deferred income taxes		~~976~~883,~~536~~540			1882,~~034,339~~244
Prepaid expenses and other current assets		~~183~~350,~~462~~074			~~294~~305,~~562~~177
Total current assets		2937,~~860~~287,~~566~~565			2829,~~789~~797,~~386~~740
PROPERTY AND EQUIPMENT, net		2,279,021			337,031
PROPERTY AND EQUIPMENT, NET		2,397,375			2,300,306
OTHER ASSETS		12,~~344~~377,~~859~~890			1,~~747~~279,~~478~~862
GOODWILL, net of accumulated amortization of $3,715,106		11,~~837~~351,~~417~~402			11,~~725~~872,~~823~~973
Total assets	$	4553,~~321~~414,~~863~~232		$	4245,~~599~~250,~~718~~881
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		67,~~190~~800,~~570~~085			56,~~534~~499,~~452~~771
Accrued expenses		23,~~458~~154,~~106~~631			32,~~051~~933,~~871~~536
Accrued transportation expenses		913,~~477~~220,~~386~~090			89,~~960~~952,~~734~~452
Line of credit		46,~~300~~084,~~681~~461			42,~~348~~493,~~649~~787
Deferred purchase price liability		~~207,840~~-			~~757~~207,840
Dividends payable		-62,145			~~109~~60,~~916~~801
Taxes payable		~~855,144~~348			~~154~~678,~~321~~000
Deferred tax liability		5728,~~143~~052			57,143
Lease obligation-current portion		133,171			87,122
Lease obligation - current portion		117,242			131,342
Total current liabilities		2330,~~680~~467,~~041~~054			23,~~062~~014,~~048~~672
LEASE OBLIGATION--LONG-TERM		257,801			36,539
LEASE OBLIGATION -- LONG TERM		225,388			283,772
DEFERRED TAX LIABILITY - LONG TERM		~~285~~119,~~713~~219			~~341~~271,~~372~~427
Total liabilities	$	2430,~~223~~811,~~555~~661		$	23,~~439~~569,~~959~~871
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Preferred stock, $10 par value; 2,500,000 shares authorized,
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
122,946 and 319,946 shares issued and outstanding, respectively		1,229,460			3,199,460
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
Common stock, $.01 par value; 30,000,000 shares authorized,
Paid-in capital		28,404,752			28,289,402
18,621,686 and 16,569,729 shares issued and outstanding, respectively		186,217			165,697
Accumulated deficit		(6,574,953	)		(7,379,264	)
Paid-in capital		28,288,463			26,293,190
Accumulated deficit		(7,961,027	)		(9,853,783	)
Less: Treasury stock, 734,951 shares held at cost		(644,805	)		(644,805	)
Total shareholders’ equity		2122,~~098~~602,~~308~~571			1921,~~159~~681,~~759~~010
Total liabilities and shareholders’ equity	$	4553,~~321~~414,~~863~~232		$	4245,~~599~~250,~~718~~881

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

-3-

TARGET LOGISTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Three months ended March 31,
	Three Months ended December 31,
	2006			2005
Operating revenues	$	3747,~~114~~550,~~144~~567		$	3146,~~394~~704,~~399~~140
Cost of transportation		2533,~~393~~644,~~650~~422			2132,~~010~~497,~~858~~640
Gross profit		1113,~~720~~906,~~494~~145			1014,~~383~~206,~~541~~500
Selling, general and administrative expenses (“SG&A”):
Exclusive Forwarder Commissions - Target subsidiary		3,306,961			3,692,913
Exclusive Forwarder Commissions - Target Subsidiary		4,241,084			4,887,904
SG&A - Target subsidiary		68,~~807~~027,~~242~~904			57,~~840~~016,~~371~~417
SG&A - Corporate		~~333~~297,~~221~~190			~~269~~376,~~478~~348
Depreciation and amortization		~~165~~224,~~888~~692			~~109~~158,~~463~~714
Selling, general and administrative expenses		1012,~~613~~790,~~312~~870			912,~~912~~439,~~225~~383
Operating income		1,~~107~~115,~~182~~275			~~471~~1,~~316~~767,117
Other expense:
Interest expense		(4050,~~611~~865	)		(1043,~~954~~825	)
Income before income taxes		1,~~066~~064,~~571~~410			~~460~~1,~~362~~723,292
Provisions for income taxes		456,929			195,468
Provision for income taxes		474,906			746,978
Net income	$	~~609~~589,~~642~~504		$	~~264~~976,~~894~~314
Income per share attributable to common shareholders:
Preferred stock dividends		62,145			103,902
Basic:	$	0.04		$	0.01
Net income applicable to common stockholders	$	527,359		$	872,412
Diluted:	$	0.03		$	0.01
Income per share attributable to common stockholders:
Basic:	$	0.03		$	0.05
Diluted:	$	0.03		$	0.05
Weighted average shares outstanding:
Basic:		1618,~~692~~076,~~679~~735			1516,~~834~~070,~~445~~811
Diluted:		21,~~490~~480,385			21,~~510~~490,~~082~~385

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

-4-

TARGET LOGISTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Nine months ended March 31,
	Six Months ended December 31,
	2006			2005
Operating revenues	$	~~119~~90,~~964~~998,~~069~~629		$	~~101~~82,~~654~~849,~~195~~925
Cost of transportation		8264,~~196~~213,~~489~~040			6956,~~224~~802,~~605~~839
Gross profit		3726,~~767~~785,~~580~~589			3226,~~429~~047,~~590~~086
Selling, general and administrative expenses (“SG&A”):
Exclusive Forwarder Commissions - Target Subsidiary		128,~~092~~481,~~788~~904			118,~~963~~785,~~888~~827
SG&A - Target subsidiary		2015,~~475~~644,~~522~~476			1713,~~308~~668,~~705~~280
SG&A - Corporate		~~997~~572,~~728~~907			~~827~~664,~~390~~507
Depreciation and amortization		~~446~~401,~~724~~075			~~335~~280,~~652~~836
Selling, general and administrative expenses		3425,~~012~~100,~~762~~362			3023,~~435~~399,~~635~~450
Operating income		31,~~754~~685,~~818~~227			12,~~993~~647,~~955~~636
Other expense:
Interest expense		(~~118~~84,~~519~~114	)		(6377,~~807~~908	)
Income before income taxes		31,~~636~~601,~~299~~113			12,~~930~~569,~~148~~728
Provision for income taxes		1734,~~573,265~~657			~~874~~1,~~290~~116,336
Net income	$	2866,~~063,034~~456		$	1,~~055~~453,~~858~~392
Income per share attributable to common shareholders:
Preferred stock dividends		62,145			231,079
Basic:	$	0.12		$	0.05
Net income applicable to common stockholders	$	804,311		$	1,222,313
Diluted:	$	0.10		$	0.05
Income per share attributable to common stockholders:
Basic:	$	0.04		$	0.08
Diluted:	$	0.04		$	0.07
Weighted average shares outstanding:
Basic:		1618,~~203~~027,~~763~~007			15,~~829~~964,~~632~~619
Diluted:		21,~~490~~480,~~361~~385			21,~~489~~490,~~936~~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, ~~2005~~2006 AND THE

~~NINE~~SIX MONTHS ENDED ~~MARCH~~DECEMBER 31, 2006 (UNAUDITED)

	Preferred Stock						Common Stock				Additional Paid in-In		~~Stock~~Treasury ~~Subscription Note~~Stock			~~Treasury Stock~~			Accumulated			~~Accumulated~~
	Shares			Amount			Shares		Amount		Capital		~~Receivable~~Shares			~~Shares~~Amount			~~Amount~~Deficit			~~Deficit~~Total			~~Total~~
Balance, June 30, 2004		320,696		$	3,206,960			16,562,229	$	165,622	$	26,285,765	$	(100,000	)		(734,951	)	$	(644,805	)	$	(11,095,373	)	$	17,818,169
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	)		(~~319~~231,~~548~~079	)		~~(319,548~~	)
Common Stock issued in conjunction with the conversion of Class C Preferred Stock		(~~750~~197,000	)		(71,~~500~~970,000	)		71,~~500~~970,000		7519,700		71,~~425~~950,300		—-			—-			—-			—-			—
Stock subscription note receivable		—			—			—		—		—		100,000			—			—			—			100,000
Stock options exercised		-			-			81,957		820		37,015		-			-			-			37,835
Net income		—			—			—		—		—		—			—			—			1,561,138			1,561,138
Stock options expense		-			-			-		-		8,897		-			-			-			8,897
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
Net income		-			-			-		-		-		-			-			2,705,598			2,705,598
Cash dividends associated with the Class C and F Preferred Stock		—			—			—		—		—		—			—			—			(170,278	)		(170,278	)
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
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		—			—			—			—			—
Cash dividends associated with the Class C and F Preferred Stock		-			-			-		-		-		-			-			(62,145	)		(62,145	)
Stock options exercised		—-			—-			81190,~~957~~000		~~820~~1,900		37115,~~015~~350		—-			—-			—-			—117,250			~~37,835~~
Stock option expense		—			—			—		—		7,958		—			—			—			—			7,958
Net income		-			-			-		-		-		-			-			866,456			866,456
Net income		—			—			—		—		—		—			—			—			2,063,034			2,063,034
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
Balance, March 31, 2006 (unaudited)		122,946		$	1,229,460			18,621,686	$	186,217	$	28,288,463		—			(734,951	)		($644,805	)		($7,961,027	)	$	21,098,308

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

-6-

TARGET LOGISTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine months Ended March 31,
	Six Months Ended December 31,
	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2866,~~063,034~~456		$	1,~~055~~453,~~858~~392
Bad debt expense		~~264~~201,~~884~~241			~~316~~259,~~523~~154
Depreciation and amortization		~~446~~401,~~724~~075			~~335~~280,~~652~~836
Employee Stock option expense		7,958			—
Stock option expense		-			6,833
Decrease in deferred tax asset		57,803			792,681
Increase in deferred tax asset		(1,296	)		57,803
Decrease in deferred tax liability		(55181,~~659~~299	)		—(41,373	)
Services performed pursuant to stock subscription agreement		—			90,000
Adjustments to reconcile net income to net cash provided by (used in) operating activities -
Adjustments to reconcile net income to net cash used in operating activities -
(Increase) in accounts receivable		(6,495,167	)		(5,145,258	)
(Increase) decrease in accounts receivable		(1,973,863	)		2,522,681
Decrease in prepaid expenses and other current assets		255,392			3,811
Decrease (increase) in prepaid expenses and other current assets		111,100			(125,612	)
(Increase) decrease in other assets		(10,442	)		164,842
Decrease in other assets		193,234			80,542
(Increase) in goodwill resulting from earn-out due under ACI acquisition		-			(72,837	)
(Increase) in goodwill resulting from earn-out due under ACI acquisition		(111,594	)		—
Increase in accounts payable and accrued expenses		3,903,555			6,428,500
Increase (decrease) in accounts payable and accrued expenses		1,279,828			(1,130,922	)
Net cash provided by (used in) operating activities		(1,060,485	)		3,395,703
Net cash provided by operating activities		2,283,449			3,937,403
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(1276,~~805,931~~408	)		(761,~~237~~593,917	)
Payment for purchase of ACI, net of cash acquired (Note 8)		(550,000	)		(338,146	)
Asset purchase acquisition - DCI		(69,120	)		-
Net cash used for investing activities		(2,355,931	)		(414,383	)
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		(~~280~~60,~~194~~801	)		(~~271~~154,~~529~~530	)
Stock options exercised		37117,~~835~~250			—12,835
Borrowing from note payable to bank		~~118~~83,~~211~~112,~~629~~915			~~104~~76,~~690~~923,~~599~~700
Repayment of note payable to bank		(~~118~~79,~~259~~522,~~597~~241	)		(~~107~~78,~~975~~270,~~258~~814	)
Payment of lease obligations		(~~106~~77,~~087~~884	)		(4259,~~508~~795	)
Net cash used for financing activities:		(396,414	)		(3,598,696	)
Net cash provided by (used for) financing activities:		3,569,239			(1,548,604	)
Net decrease in cash and cash equivalents		(468,896	)		(75,676	)
Net increase (decrease) in cash and cash equivalents		1,149,706			(296,818	)
CASH AND CASH EQUIVALENTS, beginning of the period		67,~~525~~015,~~577~~018			56,~~896~~525,~~878~~577
CASH AND CASH EQUIVALENTS, end of the period	$	68,~~056~~164,~~681~~724		$	56,~~821~~228,~~202~~759
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for:
Interest	$	~~294~~84,~~213~~146		$	~~189~~87,~~844~~784
Income Taxes	$	~~869~~1,~~084~~434,905		$	30366,~~792~~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:

	Nine months Ended March 31,
	Six Months Ended December 31,
	2006			2005
Conversion of 197,000 and 750 Class C Preferred Shares, respectively		(1,970,000	)		(7,500	)
Conversion of 30,000 Class C Preferred Shares		-			(300,000	)
Issuance of Common Stock for Conversion of 197,000 and 750 Class C Preferred Shares, respectively		1,970,000			7,500
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~~-			—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 ~~March~~December 31, 2006 and their consolidated results of operations and cash flows for the ~~nine~~three and six months ended ~~March~~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~~ Target Logistics, Inc. (the “Company”) Form 10-K for the year ended June 30, ~~2005~~2006.

Note 2 - ~~Use of Estimates~~Acquisitions

InOn ~~the process~~October of2, ~~preparing~~2006, our ~~consolidated~~Target ~~financial~~subsidiary ~~statements,~~acquired ~~management estimates the appropriate carrying value of~~ certain assets ~~and~~of ~~liabilities which are~~Capitaland ~~not readily~~Express, ~~apparent~~Inc. ~~from~~(“Capitaland”), ~~other~~an ~~sources.~~Albany, ~~Management~~New ~~bases~~York ~~its~~based ~~estimates~~freight onforwarder for a ~~historical~~combination ~~experience~~of cash and onan ~~various~~earn ~~assumptions~~out ~~which~~structure ~~are~~over ~~believed~~five ~~to be reasonable under the circumstances~~years. The ~~primary~~earnout structure ~~estimates~~is ~~underlying~~strictly ~~our consolidated~~dependent ~~financial~~on ~~statements~~future ~~include~~profits ~~allowance~~achieved ~~for~~at ~~doubtful~~the ~~accounts,~~location ~~accruals~~acquired, ~~for transportation~~ and ~~other~~the ~~direct~~Company ~~costs,~~has ~~accruals~~no ~~for~~minimum ~~cargo insurance,~~commitment ~~the~~or ~~determination~~obligation. ofThe ~~share~~Company does ~~based~~not ~~compensation~~expect ~~expense,~~that ~~and~~ the ~~classification~~ ofearn ~~net~~out ~~operating~~payments ~~loss~~will ~~and~~have ~~tax~~a ~~credit~~material ~~carry~~impact ~~forwards~~on ~~between~~its ~~current~~overall ~~and~~financial ~~long-term assets~~results.

~~Note~~On 3July 14, -2006, ~~Goodwill~~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.

InOn ~~July~~March ~~2001~~15, 2005 the ~~Financial~~Company ~~Accounting~~acquired ~~Standards~~the ~~Board~~stock of Air Cargo International and Domestic, Inc. (“~~FASB~~ACI”) ~~issued~~for ~~Statement~~a combination of ~~Financial~~ ~~Accounting Standards~~ (~~SFAS~~i) ~~No. 142~~$1,000,000 ~~“Goodwill and~~cash ~~Other~~payment ~~Intangible~~on ~~Assets”,~~date of ~~which requires~~closing, ~~the~~(ii) ~~use~~cash ofpayment abased ~~non-amortization~~on ~~approach~~the toACI ~~account~~shareholder’s ~~for~~equity ~~purchased~~after winding ~~goodwill~~down ~~and~~the ~~certain~~ACI ~~intangibles.~~balance Wesheet, ~~adopted~~and ~~this~~(iii) ~~statement~~an onearn-out ~~July~~structure 1,based ~~2002.~~on certain ~~Under~~future ~~the~~gross ~~non-amortization~~profit ~~approach,~~achievements ~~goodwill~~over ~~and~~the ~~certain~~next ~~intangibles~~five ~~are~~years ~~not~~(the “ACI ~~amortized~~Acquisition”). ~~into~~In ~~results~~accordance ofwith ~~operations,~~the ~~but~~terms ~~instead~~of ~~are~~the ~~reviewed~~ACI ~~for impairment~~Acquisition, certain post ~~written~~closing ~~down~~adjustments ~~and~~were ~~charged~~made toin ~~results~~September of ~~operations~~the ~~only~~current infiscal ~~periods~~year ~~in which~~and included below is the revised purchase price allocation. The adjusted balance ~~recorded~~of intangible ~~value~~assets ofwill ~~goodwill~~be ~~and~~amortized ~~certain~~prospectively ~~intangibles~~over isits ~~more~~remaining ~~than~~useful life of ~~its~~approximately ~~fair~~5 ~~value~~years, 6 months. Any payments from the earn-out structure ~~The~~will ~~last~~be ~~annual~~considered ~~independent~~an ~~valuation~~increase ~~analysis~~to ~~was~~the ~~completed~~purchase price in ~~January~~the ~~2006,~~period such amount ~~and~~is ~~based~~determinable. onThe Company has no minimum commitment or obligation under the earn-out ~~valuation,~~or wethe ~~determined~~wind ~~that~~down of the ~~goodwill~~balance ~~was~~sheet. The Company does not expect ~~impaired~~that the earn-out payments will have a material impact on its liquidity.

The ~~independent~~revised ~~valuation~~purchase ~~analysis~~price allocation is ~~dependent~~as ~~on a discounted seven-year cash flow analysis.~~follows:

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 2006, 7.5% for fiscal 2007 thru 2008 and 4.5% for fiscal 2009 thru 2012; (b) Gross Profit percentage of 32.4% in fiscal 2006 and thereafter; (c) Operating expenses (excluding forwarder commissions) reducing from 16.6% in fiscal 2006, to 16.3% in fiscal 2007, to 16.1% in fiscal 2008, 2009 and 2010, and to 16.0% in fiscal 2011 and 2012; and (d) a 16% 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.

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

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 $11,837,417.

Note 4 - Per Share Data

Basic income per share is calculated by dividing net income attributable to common shareholders 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 shareholders by the weighted average number of common shares outstanding, adjusted for potentially dilutive securities.

-9-

TARGET LOGISTICS, INC. AND SUBSIDIARIES

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

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

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

~~There~~As ~~were outstanding options to purchase 595,000 and 706,957 shares of common stock~~a ~~for~~result ~~the~~of ~~nine~~these ~~months ended March 31~~adjustments, ~~2006 and 2005, respectively. Options to purchase 75,000 and 75,000 were not included in~~ the ~~computation~~ACI ofshareholders ~~diluted EPS for~~repaid ~~the nine months ended March 31~~$55,924 ~~2006~~to ~~and 2005, respectively, because~~ the ~~exercise~~ ~~prices of those options were greater than the average market price~~Company ~~of the~~on ~~common~~November ~~shares~~28, ~~and thus are anti-dilutive~~2006. ~~The options were still outstanding at the end of the period.~~

Note 53 - ~~Share~~Use ~~Based~~of ~~Compensation~~ Estimates

In ~~December 2004,~~ the ~~Financial Accounting Standards Board (“FASB”) issued SFAS No.~~ ~~123R,~~process ~~“Share Based Payment: An Amendment~~ of ~~FASB~~preparing ~~Statements~~our ~~No. 123 and 95” (“SFAS 123R”). This statement requires that the cost resulting from all share based payment transactions be recognized in the Company’s~~ consolidated financial ~~statements. In~~ ~~addition~~statements, ~~in March 2005~~ the ~~Securities and Exchange~~Company ~~Commission~~estimates ~~(“SEC”)~~the ~~released~~appropriate ~~SEC~~carrying ~~Staff~~value ~~Accounting~~of ~~Bulletin~~certain ~~No.~~assets ~~107,~~and ~~“Share-Based~~liabilities ~~Payment”~~which ~~(“SAB~~ ~~107”).~~are ~~SAB~~not ~~107~~readily ~~provides~~apparent ~~the~~from ~~SEC~~other ~~staff’s~~sources. ~~position~~Management ~~regarding~~bases ~~the~~its ~~application of~~estimates ~~SFAS~~on historical ~~123R~~experience and ~~certain~~on ~~SEC~~various ~~rules~~assumptions ~~and~~which ~~regulations,~~are ~~and~~believed ~~also~~to ~~provides the staff’s~~be ~~views~~reasonable ~~regarding~~under the ~~valuation~~circumstances. ofThe ~~share~~primary ~~based~~estimates ~~payment~~underlying ~~arrangements for public~~our ~~companies. Generally,~~consolidated ~~the~~financial ~~approach~~statements ininclude ~~SFAS~~allowance ~~123R~~for isdoubtful ~~similar to the approach~~accounts, ~~described~~accruals infor ~~SFAS~~transportation ~~123.~~and ~~However,~~other ~~SFAS~~direct ~~123R~~costs, ~~requires~~accruals ~~all~~for ~~share-based payments~~cargo ~~to employees~~insurance, ~~including~~and ~~grants of employee stock options, to be recognized in~~ the ~~statement~~ classification of ~~operations~~tax ~~based~~credit oncarry ~~their~~forwards ~~fair~~between ~~values. Pro forma disclosure of~~current ~~fair value~~and ~~recognition,~~long-term ~~as prescribed under SFAS 123, is no longer an alternative~~assets.

~~Effective~~Note ~~July~~4 1, 2005, the Company adopted the fair value measurement provisions of SFAS 123R and accordingly has 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 the company’s case, the employee stock option plan) is to be recognized in the financial statements. For the nine months ending March 31, 2006, the Company has recognized as expense 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. Under the modified-prospective-transition method, results for the prior periods have not been restated.Goodwill

~~Prior~~In toJuly ~~July 1~~2001, ~~2005,~~ the ~~Company~~Financial ~~accounted~~Accounting ~~for~~Standards ~~its~~Board ~~employee~~(“FASB”) ~~stock~~issued ~~option~~Statement ~~plan in~~of ~~accordance~~Financial ~~with the provisions of~~ Accounting ~~Principles~~Standards ~~Board~~ (~~“APB”~~SFAS) ~~Opinion~~ No. 25142, “~~Accounting~~Goodwill ~~for~~and ~~Stock~~Other ~~Issued~~Intangible ~~to Employees~~Assets”, ~~and~~which ~~related~~requires ~~interpretations.~~the ~~Compensation~~use ~~expense~~of ~~relating~~a non-amortization approach to ~~employee~~account ~~stock~~for ~~options~~purchased isgoodwill ~~recorded~~and ~~only~~certain ~~if,~~intangibles. onWe ~~the~~adopted ~~date~~this ofstatement ~~grant,~~on ~~the~~July ~~fair~~1, ~~value of the underlying~~2002. ~~stock~~Under ~~exceeds~~ the ~~exercise~~non-amortization ~~price.~~approach, ~~The~~goodwill ~~Company~~and ~~adopted~~certain ~~the~~intangibles ~~disclosure-only~~are not ~~requirements~~amortized ofinto ~~SFAS~~results ~~No.~~of ~~123~~operations, ~~“Accounting for~~but ~~Stock-Based~~instead ~~Compensation”, and SFAS~~are ~~No.~~reviewed ~~148, “Accounting~~ for ~~Stock-Based Compensation - Transition and Disclosure”~~impairment, ~~which allows~~written ~~entities~~down toand ~~continue~~charged to ~~apply~~results ~~the provisions~~ of ~~APB~~operations ~~Opinion~~only ~~No.~~in 25periods ~~for~~in which ~~transactions~~the recorded ~~with~~value ~~employees~~of goodwill and ~~provide~~certain ~~pro~~intangibles ~~forma~~is ~~net~~more ~~income~~than ~~and~~its ~~pro~~fair ~~forma~~value. ~~earnings~~The ~~per~~last ~~share~~annual ~~disclosures~~independent ~~for~~valuation ~~employee~~analysis ~~stock~~was ~~options~~completed asin ifJanuary ~~the fair value~~2007, and based ~~method~~on ofthe ~~accounting~~valuation, inwe ~~SFAS~~determined ~~No.~~that ~~123~~the ~~had~~goodwill ~~been~~was ~~applied to these~~not ~~transactions~~impaired.

The ~~following~~independent ~~table~~valuation ~~illustrates~~analysis ~~the~~is ~~effect~~substantially dependent on ~~net~~three ~~income and earnings per share~~separate ~~if compensation~~analyses: ~~expense~~(1) ~~had~~discounted ~~been~~seven-year ~~determined~~cash ~~for~~flow ~~fixed~~analysis, ~~plan~~(2) ~~awards~~comparable ~~based on an~~public ~~estimate~~company ofanalysis, ~~fair~~and ~~value~~(3) ofcomparable ~~the~~transaction ~~option at the date of grant consistent with SFAS No~~analysis. ~~123, “Accounting for Stock Based Compensation,” as amended.~~

	Nine months ended
	3/31/06		3/31/05
Net income as reported	$	2,063,034	$	1,055,858
Total stock-based employee compensation expense included in the determination of net income, net of tax effect (SFAS No. 123R)		7,958		—
Total stock-based employee compensation expense determined using a fair value based method for fixed plan awards, net of tax effect (SFAS No. 123)		—		(45,000	)
Pro forma net income		N/A	$	1,010,858
Basic earnings per share	$	0.12	$	0.05
Pro forma basic earnings per share		N/A	$	0.05
Diluted earnings per share	$	0.10	$	0.05
Pro forma diluted earnings per share		N/A	$	0.05

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 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-

~~TARGET~~Note ~~LOGISTICS,~~ 5 ~~INC.~~- ~~AND~~Per ~~SUBSIDIARIES~~Share Data

~~NOTES~~Basic TO income ~~UNAUDITED~~per ~~CONSOLIDATED~~share ~~FINANCIAL~~is ~~STATEMENTS~~calculated by dividing net income attributable to common ~~(CONT~~ 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.

~~The~~There ~~fair value~~were ofoutstanding options ~~was~~to ~~estimated~~purchase at330,000 ~~the~~and ~~grant date using a Black-Scholes option pricing model~~655,000 ~~which~~shares ~~requires the input~~ of ~~subjective~~common ~~assumptions. No options~~stock ~~were~~for ~~granted~~the ~~during~~three ~~the~~and ~~nine~~six months ended ~~March~~December 31, 2006 and ~~there were 110~~2005,~~000~~ respectively. ~~options~~Options ~~granted~~to ~~during~~purchase ~~the nine months ended March 31~~75,000 ~~2005.~~were ~~Weighted~~not ~~average assumptions~~included ~~used~~ in the ~~valuation~~computation ~~model include risk-free interest rates~~ of diluted ~~4.35%~~EPS for ~~and~~the ~~4.29%;~~three and ~~expected~~six ~~stock~~months ~~price~~ended ~~volatility~~December of31, ~~368.23%~~2005, ~~and~~because ~~270.47%~~the exercise ~~in 2006~~prices ~~and~~of ~~2005,~~those ~~respectively;~~options ~~and,~~were ~~dividend~~greater ~~yields~~than ofthe ~~0.00%;~~average ~~and,~~market ~~expected~~price ~~lives~~ of ~~options~~the ofcommon shares, ~~10 years~~and inthus ~~2006~~were ~~and 2005~~anti-dilutive.

OnNote ~~November~~6 ~~30,~~- ~~2005, the Company’s shareholders approved the Company’s 2005~~ Stock ~~Option~~-Based ~~Plan. The new Plan replaces the Company’s 1996 Stock Option Plan which will expire in June 2006. Under the new Plan, 1,500,000 shares of Common Stock are reserved for issuance.~~Compensation

~~Note~~Effective 6July 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 ~~Stock~~have adopted the modified prospective application method. Under ~~Options~~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, 2005		686,957	$	0.04 - 6.00	$	1.16
Outstanding at June 30, 2006		520,000	$	0.50 - $1.125	$	0.59
Granted		—-		—-		—-
Exercised		81190,~~957~~000	$	0.0450 - 0$1.50125	$	0.4662
Forfeited (by terminated employee)		10,000	$	0.50	$	0.50
Forfeited		-		-		-
Cancelled		—-		—-		—-
Outstanding at March 31, 2006		595,000	$	0.50 - 6.00	$	1.27
Outstanding at December 31, 2006		330,000	$	0.50 - $1.125	$	0.58
Exercisable at March 31, 2006		586,000	$	0.50 - 6.00	$	1.28
Exercisable at December 31, 2006		330,000	$	0.50 - $1.125	$	0.58

There were 81190,~~957~~000 stock options exercised for $37117,~~835~~250 during the ~~nine~~six months ended ~~March~~December 31, 2006.

Note 7 - Reclassifications

Certain amounts in the fiscal year 2005 consolidated financial statements have been reclassified to conform with the fiscal year 2006 presentation.

Note 8 - Stock Purchase Acquisition

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 achievement over the next five years. 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.

Note 9 - 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 nine months ended March 31, 2006 and 2005 is as follows:

-11-

~~TARGET~~Note ~~LOGISTICS,~~ 8 ~~INC.~~- ~~AND~~Segment ~~SUBSIDIARIES~~Information

~~NOTES~~The TO Company’s ~~UNAUDITED~~revenue ~~CONSOLIDATED~~includes ~~FINANCIAL~~both ~~STATEMENTS~~domestic and international freight movements. ~~(CONT~~ 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 Ended March 31,

Nine Months Ended March 31,

Three Months Ending December 31,

Six Months Ending December 31,

2006

2005

2006

2005

Domestic revenue

2532,~~031~~547,~~494~~223

2029,~~964~~661,~~477~~566

8061,~~496~~701,~~150~~995

6655,~~484~~464,~~839~~656

International revenue

1215,~~082~~003,~~650~~344

1017,~~429~~042,~~922~~574

3929,~~467~~296,~~919~~634

3527,~~169~~385,~~356~~269

Total revenue

3747,~~114~~550,~~144~~567

3146,~~394~~704,~~399~~140

~~119~~90,~~964~~998,~~069~~629

~~101~~82,~~654~~849,~~195~~925

Domestic gross profit

911,~~374~~315,~~868~~190

811,~~230~~265,~~811~~476

3021,~~338~~639,~~105~~841

2520,~~729~~963,~~487~~237

International gross profit

2,~~345~~590,~~626~~955

2,~~152~~941,~~730~~024

75,~~429~~145,~~475~~748

65,~~700~~083,~~103~~849

Total gross profit

1113,~~720~~906,~~494~~145

1014,~~383~~206,~~541~~500

3726,~~767~~785,~~580~~589

3226,~~429~~047,~~590~~086

Note 109 - Recent Accounting Pronouncements

In ~~June~~July ~~2005~~2006, the ~~Emerging~~FASB ~~Issues~~issued ~~Task~~FASB ~~Force~~Interpretation (~~EITF~~FIN) ~~reached~~No. ~~a consensus on Issue 05-6~~48, “~~Determining~~Accounting ~~the~~for ~~Amortization~~Uncertainty ~~Period~~in ~~for~~Income ~~Leasehold Improvements~~Taxes”, an ~~which requires~~interpretation ~~that~~of ~~leasehold~~FASB ~~improvements~~Statement ~~acquired~~109. inFIN a48 ~~business~~prescribes ~~combination~~a orcomprehensive model ~~purchased~~for ~~subsequent~~recognizing, tomeasuring, ~~the~~presenting ~~inception~~and ofdisclosing ain ~~lease be amortized over~~ the ~~lesser~~financial ~~of the~~statements ~~useful~~tax ~~life~~positions oftaken ~~the assets~~ or aexpected ~~term~~to ~~that~~be ~~includes~~taken ~~renewals~~on ~~that~~a ~~are~~tax return, ~~reasonably~~including ~~assured~~a atdecision ~~the~~whether ~~date~~to offile ~~the~~or ~~business~~not ~~combination~~to orfile ~~purchase.~~in ~~EITF~~a particular ~~05-6~~jurisdiction. FIN 48 is effective for ~~periods~~fiscal years beginning after ~~July 1~~December 15, ~~2005~~ 2006. ~~The~~If ~~Company~~there ~~does~~are changes in net assets as a result of application of FIN ~~not~~48, ~~expect~~these ~~the~~will ~~provisions~~be ofaccounted ~~this~~for ~~consensus~~as an adjustment to ~~have~~retained ~~any~~earnings. The Company is currently assessing the impact of FIN 48 on its consolidated financial position, and results of operations ~~or cash flows~~.

In ~~May 2005~~September 2006, the FASB issued SFAS No.~~154~~ 157, “~~Accounting~~Fair ~~Changes~~Value ~~and Error Corrections~~Measurements” ~~(“SFAS 154”) which replaces Accounting Principles Board Opinions No~~. ~~20 “Accounting~~ ~~Changes”~~SFAS ~~and~~ ~~SFAS~~ No. 3,157 ~~“Reporting Accounting~~establishes ~~Changes~~a incommon ~~Interim~~definition ~~Financial~~for ~~Statements~~fair -value Anto ~~Amendment~~be ofapplied ~~APB~~to ~~Opinion~~US ~~No. 28.”~~GAAP ~~SFAS~~ ~~154 provides~~ guidance onrequiring ~~the~~use ~~accounting for and reporting~~ of ~~accounting~~fair ~~changes and~~value, ~~error corrections. It~~ establishes ~~retrospective~~a ~~application,~~framework for ~~the latest~~measuring ~~practicable date, as the required method for reporting a change in accounting~~fair ~~principle~~value, and ~~the~~expands ~~reporting~~disclosure ofabout asuch ~~correction~~fair ofvalue ~~an error~~measurements. SFAS ~~154~~ No. 157 is effective for ~~accounting changes and corrections of errors made in~~ fiscal years beginning after ~~December~~November 15, ~~2005~~2007. The Company is currently ~~does~~assessing ~~not expect~~ the ~~adoption~~impact of SFAS ~~154 to have~~No. ~~any~~157 ~~impact~~ on its ~~financial~~consolidated financial position, and results of operations ~~or cash flows~~.

In ~~February~~September 2006, the ~~FASB~~SEC ~~decided~~staff toissued ~~move~~Staff ~~forward~~Accounting ~~with~~Bulletin ~~the~~(SAB) ~~issuance of a final~~108 ~~FSP FAS 123R-4~~ “~~Classification~~Considering ~~of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon~~ the ~~Occurrence~~Effects of aPrior ~~Contingent~~Year ~~Event”. The guidance~~Misstatements inwhen ~~FSP~~Quantifying ~~FAS~~Misstatements ~~123R-4 amends paragraphs 32 and A229 of FASB Statement~~in ~~No. 123R~~Current toYear ~~incorporate~~Financial ~~the concept articulated in footnote 16 of FAS 123R~~Statements”. ~~That~~ ~~is,~~SAB a108 ~~cash~~requires ~~settlement feature~~ that ~~can~~public becompanies ~~exercised~~utilize ~~only upon the occurrence of~~ a ~~contingent~~ event that is outside the employees control does not meet the condition in paragraphs 32 and A229 until it becomes probable that the event will occur. Originally under FAS 123R, a provision in a sharedual-~~based~~approach ~~payment plan that required an entity~~ to ~~settle~~assessing ~~outstanding options in cash upon~~ the ~~occurrence~~quantitative effects of ~~any~~financial ~~contingent event required classification and accounting for the share based payment as a liability~~misstatements. This ~~caused~~dual anapproach ~~issue under certain~~includes ~~awards~~both ~~that~~an ~~require~~income orstatement ~~permit,~~focused atassessment ~~the~~and ~~holders election, cash settlement of the option or similar instrument upon (~~a) abalance ~~change~~sheet ~~in control or other liquidity~~focused ~~event of the entity or (b) death or disability of the holder~~assessment. With this new FSP, these types of cash settlement features will not require liability accounting so long as the feature can be exercised only upon the occurrence of a contingent event that is outside the employees control (such as an initial public offering) until it becomes probable that event will occur. The guidance in ~~this~~SAB ~~FSP~~108 ~~shall~~ must be applied ~~upon initial adoption of Statement 123(R). An entity that adopted Statement 123(R) prior~~ to ~~the~~annual ~~issuance of the FSP shall apply the guidance~~financial ~~in the~~statements ~~FSP~~for infiscal ~~the~~years ~~first~~ending ~~reporting period beginning~~ after ~~February~~November 15, 2006. ~~Early application~~The ofCompany ~~FSP FAS 123R-4~~ is ~~permitted in periods for which financial~~ ~~statements~~currently ~~have~~assessing ~~not~~the ~~yet~~impact ~~been~~of ~~issued.~~adopting ~~The~~SAB ~~Company~~108 but does not expect that ~~this~~ ~~new~~it ~~FSP~~ will have ~~any~~an ~~impact~~effect ~~upon~~on ~~its~~our consolidated financial position, or results of ~~operations~~ ~~or cash flows~~operations.

-12-

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

~~When~~As used inthroughout this ~~discussion and elsewhere in this Form 10-Q~~Report, ~~the words or phrases~~ “~~will likely result~~we,” “~~are expected to~~our,” “~~will~~the ~~continue,~~Company” ~~“is~~and ~~anticipated,” “estimate,” “project” or~~ similar ~~expressions~~words ~~are~~refers ~~intended~~ to ~~identify~~ ~~“forward-looking statements” within the meaning of the Private Securities~~ ~~Litigation~~Target ~~Reform Act of 1995~~Logistics, ~~and reflect our current expectations with respect to our operations, performance, financial condition, and other developments~~Inc. Such statements are necessarily estimates reflecting our 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 cause our actual results for future periods to differ materially from those anticipated or projected. While it is impossible to identify all such factors, they include (i) our ability to increase operating revenue, improve gross profit margins and reduce selling, general and administrative costs, (ii) competitive practices in the industries in which we compete, (iii) our dependence on current management, (iv) the impact of current and future laws and governmental regulations affecting the transportation industry in general and our operations in particular, (v) general economic conditions, and (vi) other factors which may be identified from time to time in our Securities and Exchange Commission (SEC) filings and other public announcements. We do not undertake and specifically disclaim any obligation to update any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

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 $~~138~~160.4 million, $~~126~~138.14 million, and $~~113~~126.41 million, and had net profits of $12.67 million, $01.56 million, and $0.85 million, for the fiscal years ended June 30, ~~2005~~2006, ~~2004~~2005 and ~~2003~~2004, respectively. Net income for the year ended June 30, 2003 includes $1,447,699 in non-recurring reversal of accruals for expenses, accruals for contingencies, and accruals for accounts payable of previously closed and sold subsidiaries. We had earnings before interest, taxes, depreciation and amortization (EBITDA) of of approximately $5,391,621, $3,454,132, and $1,760,276 ~~and $2~~,~~114,530~~ for the fiscal years ended June 30, 2006, 2005, ~~2004,~~ and ~~2003~~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 ~~nine~~ six months ended ~~March~~December 31, 2006, the revenue of our Target subsidiary ~~increased~~ increased by 189.08%, 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 ~~nine~~six months ended ~~March~~December 31, 2006 decreased to 31 29.54% from 31.94% for the ~~nine~~six months ended ~~March~~December 31, 2005. The decrease is primarily due to ~~decreased~~a reduction in domestic gross profit margins ondue ~~both~~to ~~international~~(i) the handling ~~and~~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 ~~freight~~services ~~movements~~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 ~~increase~~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 ~~March~~December 31, 2006 and 2005

Operating Revenue. Operating revenue increased to $3747.16 million for the three months ended ~~March~~ December 31, 2006 from $3146.47 million for the three months ended ~~March~~December 31, 2005, a 181.28% increase. The Company’s operating revenue consists of domestic freight revenue ~~and~~ and international freight revenue. Domestic revenue increased by 199.47% to $2532,~~031~~547,~~494~~223 from $2029,~~964~~661,~~477~~566 for the three months ended ~~March~~December 31, 2005. This increase is due to the ~~ACI~~DCI ~~Acquisition~~and Capitaland acquisitions and internal sales growth. International revenue ~~increased~~decreased by 1512.80% to $1215,~~082~~003,~~650~~344 for the three months ended ~~March~~ December 31, 2006 from $1017,~~429~~042,~~922~~574 for the three months ended December ~~March~~ 31, 2005, primarily due to ~~increased~~decreased international ~~freight~~import freight volume.

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Cost of Transportation. Cost of transportation increased to 6870.48% of operating revenue for the three months ended ~~March~~December 31, 2006 from 6669.96% of operating revenue for the three months ~~ended~~ ~~March~~ ended December 31, 2005. This increase was primarily due to ~~(i)~~ an increase in ~~international~~ domestic ~~freight~~transportation costs as a percentage of ~~sales,~~sale ~~and~~due to (iii) athe handling of higher ~~than~~cost domestic shipments, as a percentage of sales, as a result of ~~usual~~ the ~~level~~DCI acquisition, and (ii) the movement of less domestic premium services in during the three months ~~ending~~ended ~~March~~December 31, ~~2005~~ ~~which~~2006 ~~was~~than ~~not repeated~~ in the three months ended ~~March~~ December 31, ~~2006~~ 2005.

Gross Profit Margin. As a result of the factors described above, gross profit margin for the three months ended ~~March~~December 31, 2006 decreased to 3129.62% from 3330.14% of operating revenue for the three months ended ~~March~~December 31, 2005, a 4.50% decrease.

Selling, General and Administrative Expenses. Selling, general and administrative expenses ~~decreased~~increased to 2826.69% of operating revenue for the three months ended ~~March~~December 31, 2006 from 3126.6% of operating revenue for the three months ended ~~March~~December 31, 2005. Within our Target subsidiary, selling, general and administration expenses (excluding exclusive ~~forwarder~~ forwarder commission ~~expenses~~expense) were 1816.39% of operating revenue for the three months ended ~~March~~ December 31, 2006 and 1815.60% for the three months ended ~~March~~ December 31, 2005, a 112.67% increase, primarily as a result of the DCI and Capitaland ~~decrease~~ acquisitions. Exclusive forwarder commission expenses (which are primarily commissions to our agents and earn-out expenses from our acquisitions) ~~were~~ were 8.9% and 1110.85% of operating revenue for the three months ended ~~March~~December 31, 2006 and 2005, respectively, a 2415.62% decrease resulting from a reduction in forwarder agent freight volume ~~as a percentage of Target’s overall freight volume and a reduction in forwarder agent gross profit margin~~.

~~Effective~~Net ~~Tax Rate~~ Profit. ~~The~~For ~~effective income tax rate for~~ the three months ended ~~March~~December 31, 2006, ~~was~~we ~~42.8% compared~~realized toa ~~42.5%~~net ~~for~~profit ~~the~~of ~~three months ended March 31~~$589, ~~2005. The change in~~504, ~~the effective~~ compared ~~tax~~to ~~rate~~a isnet ~~due~~profit toof ~~changes~~$976,314 infor the ~~components~~three ofmonths ~~the~~ended ~~deferred income~~December ~~tax~~ 31, 2005, ~~provision~~a ~~when~~39.6% ~~compared to the prior year~~decrease.

~~Net~~Effective ~~Profit~~ Tax Rate. ~~For~~The effective income tax rate for the ~~three~~ six months ended ~~March~~December 31, 2006, wewas 44.6% compared ~~realized~~to a43.4% ~~net~~for ~~profit~~the ofsix ~~$609~~months ended December 31,~~642,~~ 2005. The change ~~compared~~ in tothe effective atax ~~net~~rate ~~profit~~is ofdue ~~$264,894~~to ~~for~~changes in the ~~three~~components ~~months~~of ~~ended~~the ~~March~~deferred income tax ~~31,~~provision ~~2005, a~~when ~~130.2%~~compared ~~increase.~~to the prior year.

~~Nine~~Six ~~months~~ Months ended ~~March~~December 31, 2006 and 2005

Operating Revenue. Operating revenue increased to $~~120~~91.0 million for the ~~nine~~six months ended ~~March~~December 31, 2006 from $~~101~~82.78 million for the ~~nine~~six months ended ~~March~~December 31, 2005, a 189.08% increase. The Company’s operating revenue consists of domestic freight revenue and international freight revenue. Domestic revenue increased by 2111.12% to $8061,~~496~~701,~~150~~995 for the ~~nine~~2006 ~~months~~period ~~ended March 31, 2006~~ from $6655,~~484~~464,~~839~~656 for the ~~nine~~six months ended December ~~March~~ 31, 2005. This increase is due to the ~~ACI~~DCI ~~Acquisition~~and Capitaland acquisitions and internal sales growth. International revenue increased by 127.20% to $3929,~~467~~296,~~919~~634 for the ~~nine~~six months ended ~~March~~December 31, 2006 from $3527,~~169~~385,~~356~~ 269 for the six ~~nine~~ months ended ~~March~~December 31, 2005, primarily due to ~~increased international~~the ~~freight volume~~Capitaland acquisition.

Cost of Transportation. Cost of transportation increased to 6870.56% of operating revenue for the ~~nine~~six ~~month period~~months ended December ~~March~~ 31, 2006, from 68.16% of operating revenue for the ~~nine~~six ~~month~~months ~~period~~ ended December ~~March~~ 31, 2005. This increase was primarily due to an increase in domestic transportation costs as a percentage of sales due to (i) the ~~movement~~handling of higher cost ~~more~~domestic shipments, as a percentage of sale, as a result of the DCI acquisition, and (ii) the movement of less domestic premium services in during the six ~~nine~~ months ~~ending~~ended ~~March~~December 31, ~~2005~~2006 than in the ~~nine~~ six months ended ~~March~~December 31, ~~2006~~ 2005.

Gross Profit Margin. As a result of the factors described above, gross profit margin for the ~~nine month~~six ~~period~~ months ended ~~March~~December 31, 2006 decreased to 3129.54% from 31.94% of operating revenue for the ~~corresponding~~six ~~2005~~months ~~period~~ended December 31, 2005, a 16.34% decrease.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to 2827.46% of operating revenue for the ~~nine~~six months ended ~~March~~December 31, 2006 from 2928.92% of operating ~~revenue~~ revenue for the ~~three~~six months ended ~~March~~December 31, 2005. Within our Target subsidiary, selling, general and administration expenses (excluding exclusive ~~forwarder~~ forwarder commission expenses) were 17.12% of operating revenue for the ~~nine~~ six months ended ~~March~~ December 31, 2006 and 1716.05% for the ~~nine~~six months ended ~~March~~ December 31, 2005, a 04.62% 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~~ 10 were 9.13% and 1110.86% of operating revenue for the ~~nine~~six months ended ~~March~~December 31, 2006 and 2005, respectively, aan 1412.43% decrease resulting from a reduction in forwarder agent freight volume.

Effective Tax Rate. The effective income tax rate for the nine months ended March 31, 2006 was 43.3% compared to 45.3% for the nine months ended March 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.

Net Profit. For the nine months ended March 31, 2006, the Company realized a net profit of $2,063,034, compared to a net profit of $1,055,858 for the nine months ended March 31, 2005, a 95.4% increase.

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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 ~~nine~~six months ended ~~March~~December 31, 2006, net cash ~~provided~~used byin operating activities was $21,~~283~~060,~~449~~485. Cash used for investing activities was $21,~~355~~359,~~931~~048, representing capital expenditures ~~and~~for ~~payments~~property, ~~made~~equipment ~~pursuant~~and toleasehold improvements and the asset ~~terms~~purchase acquisitions of ~~the~~Capitaland ~~ACI Acquisition~~and DCI. Cash ~~used~~ ~~for~~provided ~~financing~~by financing activities was $~~396~~3,~~414~~569,239, which primarily consisted of ~~dividends~~borrowings ~~and~~under ~~payments~~ our line ~~under~~of ~~lease obligations~~credit.

Capital expenditures. Capital expenditures for the ~~nine~~six months ended ~~March~~December 31, 2006 were $21,~~355~~359,~~931~~048, representing ~~(i)~~ capital expenditures of (i) $1276,~~805,931~~408 primarily for property, equipment, and leasehold improvements ~~at the Target subsidiary’s new Los Angeles headquarters and terminal facility~~, and (ii) a $~~550~~1,~~000~~082,640 ~~deferred~~for ~~payment made~~the ~~pursuant~~ Capitaland toand ~~the~~DCI ~~terms~~asset ofpurchase ~~the ACI Acquisition~~acquisitions.

GMAC Facility. ~~On May~~ Since 3 1997, ~~2004,~~ the Company’s Target subsidiary ~~amended~~has maintained its ~~January 1997 $15 million~~ revolving credit facility (“GMAC Facility”) with GMAC Commercial Finance LLC (“GMAC”), guaranteed by the Company~~, and extended the GMAC Facility for a three-year term ending March 31, 2007~~. 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, ~~2005~~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 ~~March~~December 31, 2006, there were outstanding borrowings of $46,~~300~~084,~~681~~461 under the GMAC Facility (which represented 3140.59% 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 $13136,~~655~~668. The GMAC Facility currently expires on March 31,~~105~~ 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.

~~Stock~~Working ~~Purchase~~ Capital ~~Acquisition~~Requirements. The On Company’s and Target’s cash needs are currently met by the GMAC Facility and ~~March~~ cash 15on hand. As of December 31, ~~2005~~2006, the Company ~~acquired~~had ~~the~~$8,778,871 ~~stock~~available under ofits ~~Air~~$15 ~~Cargo~~million ~~International~~GMAC Facility and ~~Domestic~~ $8,164,724 ~~Inc.~~in ~~for~~cash afrom ~~combination of~~ operations and cash, aon ~~deferred~~hand. ~~payment~~We ~~based~~believe onthat ~~the~~our ~~ACI shareholder’s~~current ~~equity~~financial ~~after~~resources ~~winding~~will ~~down~~be ~~the~~sufficient to ~~ACI~~finance ~~balance~~our ~~sheet,~~operations and anobligations ~~earn~~(current and long-~~out~~term liabilities) ~~structure~~ for ~~based~~the onlong ~~future~~and ~~gross~~short ~~profit~~terms. ~~achievement~~However, ~~over~~our ~~the~~actual ~~next~~working ~~five~~capital ~~years.~~needs ~~The~~ for the ~~Company~~ long ~~has~~and noshort ~~minimum~~terms ~~commitment~~will ordepend ~~obligation~~upon ~~under~~numerous ~~the~~factors, ~~earn-out~~including orour ~~the wind~~operating ~~down~~ results, of the ~~balance~~cost ~~sheet.~~of ~~The~~increasing the Company’s ~~does~~sales ~~not~~and ~~expect~~marketing ~~that the earn-out~~activities, ~~payments~~ and ~~will~~competition, ~~have~~none aof ~~material~~which ~~impact~~can onbe ~~its~~predicted ~~liquidity~~with certainty.

~~Working~~CRITICAL ~~Capital Requirements. The~~ ACCOUNTING ~~Company’s and Target’s cash needs are currently met by the GMAC Facility and~~ POLICIESAND cash on hand. As of March 31, 2006, the Company had $9,354,424 available under its $15 million GMAC Facility and $6,056,681 in cash from operations, cash on hand, and cash balances associated with the stock purchase acquisition. 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, competition, and the availability of a revolving credit facility, none of which can be predicted with certainty. ESTIMATES

~~Critical~~Management’s ~~Accounting~~ Discussion ~~Policies~~and Analysis of Financial Condition and ~~Estimates~~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.

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, the determination of share based compensation expense, 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, 2005.

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Our balance sheet includes an asset in the amount of $11,~~837~~351,~~417~~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~~ more than its fair value. ~~The~~We ~~last~~obtained an independent ~~annual~~ valuation analysis ~~was~~ completed in January ~~2005~~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,~~837~~351,~~417~~402, and our financial statements would reflect the reduction. For additional description, please refer to Note 34 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.

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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)

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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 ~~new~~ 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 ~~May~~February 31, ~~2006~~2007

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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: May 3, 2006
Dated: February 1, 2007	TARGET LOGISTICS, INC. Registrant
	TARGET LOGISTICS, INC. Registrant
		/s/ Stuart Hettleman
		President, Chief Executive Officer



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

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Filing Compare · TARGET LOGISTICS INC