SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2007

For the quarterly period ended June 30, 2007

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to _______________.

For the transition period from _______________ to _______________.

Commission File Number: 0-27653

PACIFIC CMA, INC. (Exact Name of Registrant as Specified in Its Charter)

(Exact Name of Registrant as Specified in Its Charter)

Delaware		84-1475073
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

c/o Airgate International Corp., 153-04, Rockaway Blvd., Jamaica, New York 11434 (Address of Principal Executive Offices) (Zip Code) (212) 247-0049 (Registrant’s Telephone Number, Including Area Code)

(Address of Principal Executive Offices) (Zip Code)

(212) 247-0049

(Registrant’s Telephone Number, Including Area Code)

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

Indicate by check mark whether 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. (Check One)

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 x

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

Common Stock: Outstanding as of: ~~August 13~~November 19, 2007: 28,619,271 shares

PACIFIC CMA, INC.

INDEX TO FORM 10-Q

		Page No.
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2007 (Unaudited) and December 31, 2006 (Audited)			F-1
Condensed Consolidated Balance Sheets as of September 30, 2007 (Unaudited) and December 31, 2006 (Audited)			F-1
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2007 and 2006 (Unaudited)			F-2
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2007 and 2006 (Unaudited)			F-2
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006 (Unaudited)			F-3
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006 (Unaudited)			F-3
Notes to Condensed Consolidated Financial Statements (Unaudited)			F-4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		43
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		3029
Item 4.	Controls and Procedures		3130
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		3231
Item 1A.	~~RiskFactors~~Risk Factors		3332
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		3332
Item 3.	Defaults Upon Senior Securities		3433
Item 4.	Submission of Matters to a Vote of Security Holders		3433
Item 5.	Other Information		3433
Item 6.	Exhibits		3433
SIGNATURES			3534

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

Pacific CMA, Inc.

Condensed Consolidated Balance Sheets

~~June~~September 30, 2007 and December 31, 2006

Assets

	(Unaudited) 2007			2006
Assets
Current Assets
Cash and cash equivalents	$	2,948,562		$	2,783,696
Restricted cash		4,902,857			5,863,185
Accounts and notes receivable, net of allowance for doubtful accounts; 2007 - $1,204,823; 2006 - $680,632		20,613,301			21,445,304
Refundable income taxes		187,584			76,274
Other receivables		545,301			1,076,042
Deposits and prepaid expenses		1,591,286			1,668,086
Total current assets		30,788,891			32,912,587
Property and Equipment , net of accumulated depreciation; 2007 - $1,795,494; 2006 - $1,193,307		1,605,154			1,758,832
Other Assets
Goodwill		4,278,213			3,745,832
Intangible assets, net of accumulated amortization; 2007 - $2,984,506; 2006 - $2,726,137		602,218			410,431
Debt financing costs, net		728,908			403,502
Investment deposit		634,282			955,656
Investment in equity method subsidiaries		893,166			1,168,508
		7,136,787			6,683,929
Total Assets	$	39,530,832		$	41,355,348
Liabilities and Stockholders’ Equity
Current Liabilities
Notes payable - bank and non-convertible note	$	6,265,700		$	6,714,451
Short-term loan payable		4,250,034			2,242,105
Revolving note		5,307,151			-
Current maturities of capital lease obligations		60,317			64,123
Accounts payable		15,293,441			15,076,453
Accrued expenses		2,068,520			1,456,000
Deferred tax liabilities		176,476			74,583
Payable-minority shareholder		143,791			123,893
Income taxes payable		179,790			10,084
Total current liabilities		33,745,220			25,761,692
Capital Lease Obligations		90,575			80,855
Convertible Note , net		-			3,512,811
Total Liabilities		33,835,795			29,355,358
Series A Preferred Stock , net		-			1,633,983
Minority Interest		192,315			175,596
Stockholders’ Equity
Common stock, US$0.001 par value; authorized - 100,000,000 shares and issued - 2007 - 28,619,271 shares and 2006 - 28,597,712 shares		4,915,469			4,805,193
Treasury common stock, at cost, 2007 and 2006 - 41,800 shares		(32,623	)		(32,623	)
Warrants outstanding		1,590,429			1,610,679
Additional paid-in capital		6,659,211			6,659,211
Accumulated deficit		(7,649,000	)		(2,916,121	)
Accumulated other comprehensive income		19,236			64,072
Total stockholders’ equity		5,502,722			10,190,411
Total stockholders’ equity and liabilities	$	39,530,832		$	41,355,348

	(Unaudited) 2007			2006
Current Assets
Cash and cash equivalents	$	799,124		$	2,783,696
Restricted cash		6,935,604			5,863,185
Accounts and notes receivable, net of allowance for doubtful accounts; 2007 - $704,771; 2006 - $680,632		18,847,465			21,445,304
Refundable income taxes		157,887			76,274
Other receivables		689,400			1,076,042
Deposits and prepaid expenses		1,945,938			1,668,086
Total current assets		29,375,418			32,912,587
Property and Equipment, net of accumulated depreciation; 2007 - $1,596,026; 2006 - $1,193,307		1,711,956			1,758,832
Other Assets
Goodwill		4,314,705			3,745,832
Intangible assets, net of accumulated amortization; 2007 - $2,962,756; 2006 - $2,726,137		623,968			410,431
Debt financing costs, net		376,768			403,502
Investment deposit		610,000			955,656
Investment in equity method subsidiaries		1,178,611			1,168,508
		7,104,052			6,683,929
Total Assets	$	38,191,426		$	41,355,348
Liabilities and Stockholders’ Equity
Current Liabilities
Notes payable - bank and non-convertible note	$	7,226,316		$	6,714,451
Short-term loan payable		2,144,147			2,242,105
Revolving note		3,889,590			-
Current maturities of capital lease obligations		66,988			64,123
Accounts payable		12,941,859			15,076,453
Accrued expenses		1,573,278			1,456,000
Deferred tax liabilities		131,044			74,583
Payable-minority shareholder		143,640			123,893
Income taxes payable		111,760			10,084
Total current liabilities		28,228,622			25,761,692
Capital Lease Obligations		106,778			80,855
Convertible Note, net		-			3,512,811
Total Liabilities		28,335,400			29,355,358
Series A Preferred Stock, net		2,084,094			1,633,983
Minority Interest		173,952			175,596
Stockholders’ Equity
Common stock, US$0.001 par value; authorized - 100,000,000 shares and issued - 2007 - 28,619,271 shares and 2006 - 28,597,712 shares		4,880,557			4,805,193
Treasury common stock, at cost, 2007 and 2006 - 41,800 shares		(32,623	)		(32,623	)
Warrants outstanding		1,610,679			1,610,679
Additional paid-in capital		6,659,211			6,659,211
Accumulated deficit		(5,563,597	)		(2,916,121	)
Accumulated other comprehensive income		43,753			64,072
Total stockholders’ equity		7,597,980			10,190,411
Total stockholders’ equity and liabilities	$	38,191,426		$	41,355,348

See Notes to Condensed Consolidated Financial Statements

F-1

Pacific CMA, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Freight Forwarding Income	$	3337,~~402~~549,~~906~~376		$	3745,~~362~~055,~~565~~638		$	66104,~~506~~058,~~193~~410		$	67112,~~760~~815,~~271~~905
Operating Expenses
Cost of forwarding		(2832,~~035~~407,~~696~~477	)		(3239,~~227~~033,~~839~~203	)		(5587,~~425~~834,~~140~~403	)		(5796,~~950~~984,~~976~~176	)
General and administrative		(5,~~190~~846,~~365~~052	)		(4,~~659~~852,~~990~~464	)		(1016,~~861~~708,~~408~~575	)		(914,~~217~~078,~~541~~375	)
Depreciation and amortization		(~~279~~236,~~767~~895	)		(~~257~~269,~~747~~955	)		(~~649~~886,~~819~~724	)		(~~504~~774,~~126~~082	)
Stock-based compensation cost		(34,912	)		(3494,~~912~~159	)		(69104,~~824~~735	)		(69153,~~824~~850	)
		(33,540,740	)		(37,180,488	)		(67,006,191	)		(67,742,467	)
		(38,525,336	)		(44,249,781	)		(110,034,437	)		(111,990,483	)
Operating Income (Loss)		(~~137~~975,~~834~~960	)		~~182~~805,~~077~~857			(~~499~~1,~~998~~476,027	)		17825,~~804~~422
Other Income (Expense)
Interest and other income		71325,~~521~~414			~~106~~102,~~152~~302			~~164~~490,~~879~~293			~~208~~309,~~767~~306
Interest expenses		(~~252~~326,~~625~~156	)		(~~202~~226,~~787~~206	)		(~~518~~845,~~874~~034	)		(~~389~~615,~~152~~358	)
Pre-payment penalty on convertible and non convertible note		(218,219	)		-			(218,219	)		-
Pre-payment penalty on convertible and non- convertible note		-			-			(218,219	)		-
Convertible and non-convertible note amortization of deferred financing costs		~~(366,413~~-	)		(2226,~~132~~677	)		(403,502	)		(4067,~~467~~143	)
Amortization of convertible and non-convertible note discount		~~(456,323~~-	)		(1418,~~241~~400	)		(487,190	)		(2443,~~674~~075	)
Revolving note amortization of deferred financing costs		(46,239	)		-			(46,239	)		-
Warrants redemption		(38,050	)		-			(38,050	)		-
Penalty on warranty early repayment		(250,000	)		-			(250,000	)		-
Revolving note amortization of deferred financing costs		(97,859	)		-			(144,098	)		-

Loss of equity method subsidiaries		~~(38~~14,~~165~~277	)		(36,~~934~~989	)		(5339,~~687~~410	)		(147,~~528~~539	)
		(1,306,463	)		(136,942	)		(1,562,832	)		(260,054	)
		(372,374	)		(161,992	)		(1,935,210	)		(423,809	)
Income (Loss) Before Income Taxes		(1,~~444~~348,~~297~~334	)		45643,~~135~~865			(23,~~062~~411,~~830~~237	)		~~(242~~401,~~250~~613	)
Provision (Benefit) for Income Taxes		51(102,~~415~~727	)		~~(33~~124,~~871~~597	)		60(163,~~573~~300	)		(~~240~~116,~~997~~401	)
Income (Loss) Before Minority Interest		(1,~~495~~451,~~712~~061	)		79519,~~006~~268			(23,~~123~~574,~~403~~537	)		(1518,~~253~~014	)
Minority Interest		15(18,~~519~~364	)		8(26,~~299~~445	)		1(16,~~538~~826	)		1(24,~~909~~535	)
Net Income (Loss)		(1,~~480~~469,~~193~~425	)		87492,~~305~~823			(23,~~121~~591,~~865~~363	)		~~656~~493,479
Accretion of Series A Preferred Stock, net to redemption value and dividends		(~~263~~615,~~731~~906	)		(~~285~~616,~~712~~4225	)		(~~525~~1,~~611~~141,517	)		(~~977~~1,~~567~~593,991	)
Net Loss attributable to common stockholders	$	(12,~~743~~085,~~924~~331	)	$	(~~198~~123,~~407~~602	)	$	(24,~~647~~732,~~476~~880	)	$	(~~976~~1,~~911~~100,512	)
Basic and Diluted Loss Per Share attributable to common stockholders	$	(0.0607	)	$	(0.01	)	$	(0.0917	)	$	(0.04	)
Weighted average number of shares outstanding during the year - basic and diluted		28,619,271			27,~~220~~716,~~569~~471			28,~~604~~610,~~918~~352			2627,~~958~~238,~~499~~656

See Notes to Condensed Consolidated Financial Statements

F-2

Pacific CMA, Inc.

Condensed Consolidated Statements of Cash Flows

~~Six~~Nine Months Ended ~~June~~September 30, 2007 and 2006

(Unaudited)

	2007			2006
Operating Activities
Net (loss) income	$	(23,~~121~~591,~~865~~363	)	$	~~656~~493,479
Items not requiring (providing) cash
Amortization of convertible and non-convertible note discount		487,~~190~~189			2443,~~674~~075
Amortization of convertible and non-convertible note and revolving note deferred financing costs		~~449~~547,~~741~~600			4067,~~467~~143
Depreciation and amortization		~~412~~628,~~982~~137			~~200~~318,~~900~~716
Amortization of intangibles		~~236~~258,~~837~~587			~~303~~455,~~226~~366
Loss (gain) on sale of property and equipment		32			(16,737	)
Other expenses - warrant redemption		38,050			-
Minority interest in income of subsidiaries		(1,538	)		(1,909	)
Loss (gain) on sale of property and equipment		(6,215	)		(16,492	)
Common stock issued for services and employee compensation		69,824			69,824
Minority interest in income of subsidiaries		16,826			24,535
Share of loss of affiliates		53,687			14,528
Common stock issued for services and employee compensation		104,735			153,850
Provision for doubtful accounts		26,116			7,987
Share of loss of affiliates		39,410			7,539
Deferred income taxes		(22,317	)		(267,471	)
Provision for doubtful accounts		526,144			18,122
Deferred income taxes		23,116			(153,770	)
Changes in
Accounts receivable		2378,~~644,510~~647			(25,~~040~~382,~~837~~296	)
Accounts payable		(2124,~~227,073~~509	)		24,~~209~~266,~~337~~311
Accrued expenses		~~109~~605,~~951~~193			~~(24~~371,~~457~~310	)
Income taxes refundable/(payable)		~~407~~638,262			(86,~~806~~144	)
Other assets		~~139~~38,~~511~~740			~~423~~115,~~588~~176
Net cash provided by operating activities		~~257~~857,~~995~~567			~~934~~788,~~970~~208
Investing Activities
Purchase of property and equipment		(~~309~~467,~~748~~859	)		(~~264~~391,~~638~~433	)
Capital injection from minority interest		-			3837,~~029~~968
Deposit refund for potential equity investment		140,000			-
Deposit for potential equity investment		(99,247	)		-
Acquisition of subsidiary		(718,939	)		(597,945	)
Disposal of associate		357,358			-
Acquisition of associates		(53,624	)		(88,160	)
Acquisition of subsidiary		(718,939	)		(624,560	)
Proceeds from sale of property and equipment		-			16,737
Acquisition of associates		(53,624	)		(106,463	)
Deposit returned/(paid) for potential acquistion		345,656			(750,000	)
Proceeds from sale of property and equipment		-			16,492
Net cash used in investing activities		(942,311	)		(1,645,977	)
Deposit returned/(paid) for potential acquistion		214,965			(750,000	)
Net cash used in investing activities		(767,346	)		(1,817,996	)
Financing Activities
Net change in restricted cash		(1960,~~072,419~~328	)		~~432~~420,~~786~~603
Net change in notes payable - bank		~~511~~(448,~~861~~755	)		12,~~302~~023,~~137~~018
Principal payments under capital lease obligation		(27,218	)		(30,155	)
Injection under capital lease obligation		56,006			58,064
Principal payments on short-term debts		(614,066	)		(223,278	)
Principal payments under capital lease obligation		(50,092	)		(46,439	)
Principal payments on short-term debt		(849,398	)		(29,314	)
Principal payments of non-convertible note		(4,000,000	)		(116,201	)
Repurchase of common stock		-			(7,796	)
Proceed from other bank loan		4,405,698			-
Proceeds from other bank loan		8,164,477			-
Loan from minority shareholder		19,~~747~~898			-
Deferred financing costs paid		(~~423~~873,007	)		-
Preferred stock dividend paid		(69,960	)		-
Repurchase of warrants		(58,300	)
Net cash (used in) provided by financing activities		(1,269,364	)		1,357,493
Preferred stock dividend paid		(69,960	)
(Decrease) increase in Cash and Cash Equivalents		(1,953,680	)		646,486
Repurchase of preferred stock		(2,700,000	)		-
Foreign Currency Exchange Difference		(30,892	)		(16,641	)
Net cash (used in) provided by financing activities		151,197			2,301,935
(Decrease) increase in Cash and Cash Equivalents		241,419			1,272,147
Foreign Currency Exchange Difference		(76,553	)		(50,653	)
Cash and Cash Equivalents, Beginning of Period		2,783,696			2,018,093
Cash and Cash Equivalents, End of Period	$	~~799~~2,~~124~~948,562		$	23,~~647~~239,~~938~~587
Supplemental Cash Flow Information
Interest paid	$	~~518~~845,~~874~~034		$	389,152

See Notes to Condensed Consolidated Financial Statements

F-3

Pacific CMA, Inc.

Notes to Condensed Consolidated Financial Statements

~~June~~September 30, 2007 and 2006

(Unaudited)

Note 1:

Basis of Presentation

The accompanying condensed consolidated financial statements of Pacific CMA, Inc. (the “Company”) and its subsidiaries (the “Group”) as of ~~June~~September 30, 2007 and ~~for~~ for the ~~six~~nine and three months ended ~~June~~September 30, 2007 and 2006 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments that are, in the opinion of the Company’s management, necessary to fairly present the financial position, results of operations and cash flows of the Company. Those adjustments consist only of normal recurring adjustments.

The condensed consolidated balance sheet of the Company as of December 31, 2006 has been derived from the audited consolidated balance sheet of the Company as of that date.

The condensed consolidated statements of operations for the ~~six~~nine months ended ~~June~~ September 30, 2007 and 2006, and cash flows for the ~~six~~nine months ended ~~June~~ September 30, 2007 and 2006 are not necessarily indicative of the results that may be expected for the entire year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes thereto for the year ended December 31, 2006 included in the Company’s Form 10-K filed on April 2, 2007.

Principles of Consolidation

The condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Cash Equivalents

F-4

~~The~~Cash Company considers all liquid investments with original maturities of three months or less to be cash equivalents. At June 30, 2007, cash equivalents consisted primarily of money market accounts with brokers and certificates of deposit. At June 30, 2007, the Company’s cash accounts in the United States of America exceeded federally insured limits by approximately $864,817.Equivalents

The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. At September 30, 2007, cash equivalents consisted primarily of money market accounts with brokers and certificates of deposit. At September 30, 2007, the Company’s cash accounts in the United States of America exceeded federally insured limits by approximately $889,466.

Restricted Cash

Restricted cash consists of fixed deposits, collateral deposits and certificates of deposit held by banks providing collateral for overdraft, trust receipts, letters of credit and support bank guarantees provided to certain vendors of the Company. At ~~June~~September 30, 2007, the restricted cash held for these facilities amounted to $64,~~935~~902,~~604~~857. The restricted cash also includes $1371,~~062,677~~075 of cash held in lockbox accounts for financing the loan arrangement of Wells Fargo Bank, National Associates with details discussed in Note 6.

F-5

Pacific CMA, Inc.

Notes to Condensed Consolidated Financial Statements

~~June~~September 30, 2007 and 2006

(Unaudited)

Registration Rights Agreements

The Company ~~has~~ adopted ~~EITF~~as ~~05-4,~~of ~~The~~January ~~Effect~~1, of2007, ~~Liquidated~~FSP ~~Damages~~EITF ~~Clause~~00-19-2, on“Accounting afor ~~Freestanding~~Registration ~~Financial~~Payment ~~Instrument~~Arrangements” ~~Subject to Issue No. 00-19~~(“FSP”), ~~View~~which Caddresses toan ~~account~~issuer’s accounting for ~~its~~ registration ~~rights~~payment ~~agreements~~arrangements. ~~The~~This ~~Company~~FSP ~~has~~specifies ~~entered~~that ~~into~~the ~~registration~~contingent ~~rights~~obligation ~~agreements~~to inmake ~~association~~future ~~with~~payments ~~the~~or ~~issuance~~otherwise ~~of preferred~~transfer ~~stock,~~consideration ~~debt~~under ~~and~~a ~~warrants.~~registration ~~View~~payment Carrangement, ofwhether ~~EITF~~issued ~~05-4~~as ~~takes the position that the~~a ~~registration~~separate ~~rights~~agreement ~~should~~or beincluded ~~accounted~~as ~~for~~a ~~separately~~provision ~~from~~of ~~the~~a financial instrument or ~~instrument~~other agreement, asshould ~~the~~be ~~payoff~~separately ofrecognized ~~the~~and ~~financial~~measured ~~instruments~~in isaccordance ~~not dependent on the~~with ~~payoff~~FASB Statement ofNo. ~~the~~5, ~~registration~~Accounting ~~rights~~for ~~agreement,~~Contingencies. ~~and~~This ~~according~~FSP tofurther ~~DIG~~clarifies ~~K-1,~~that ~~registration~~a financial ~~rights~~instrument ~~agreements~~subject ~~and~~to ~~the~~a ~~financial~~registration ~~instruments~~payment doarrangement ~~not~~should ~~meet the~~be ~~combining~~accounted ~~criteria~~for asin ~~they~~accordance ~~relate~~with toother ~~different~~applicable ~~risks.~~generally ~~The~~accepted ~~Financial Accounting~~accounting ~~Standards~~principles ~~Board~~ (~~Board~~GAAP) ~~has~~without ~~postponed~~regard ~~further~~to ~~discussion~~the oncontingent ~~EITF~~obligation ~~05-4.~~to ~~Since~~transfer ~~the Board~~consideration ~~has~~pursuant ~~not~~to ~~reached a consensus,~~ the ~~Company's~~registration ~~accounting~~payment ~~for~~arrangement. ~~the~~This ~~registration~~FSP had ~~rights~~no impact ~~may~~on ~~change~~our ~~when~~financial ~~the Board reaches a consensus~~statements.

New Accounting Pronouncements

FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,”requires that an enterprise evaluate all tax positions recognized in that enterprise’s financial statements for any uncertainty that the tax positions will not be sustained under examination. The evaluation process is twofold. First, an enterprise must determine whether it is more likely than not that a tax position will be sustained upon examination. Secondly, the enterprise must measure the amount of benefit to recognize in its financial statements for tax positions which meet the more “ likely than not threshold ” . FASB Interpretation No. 48 became effective for fiscal years beginning after December 15, 2006. For the quarter ending ~~June~~September 30, 2007, the Company does not believe there is any uncertainty with respect to the tax positions reflected in its financial statements which would result in a material change in the amount of benefit recognized in the financial statements; therefore, no provision has been made. We recognize accrued interest and ~~has~~penalties related to uncertain tax positions in income tax expense. At ~~been~~January 1, ~~made~~2007, we had no accruals for the ~~adoption~~payment of ~~FASB~~tax ~~Interpretation~~related Nointerest and there were no tax interest or penalties recognized in the statement of operations. 48Our federal and state tax returns are potentially open to examinations for years 2003-2006.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” which provides companies an option to report selected financial assets and liabilities at fair value. SFAS No. 159 requires companies to provide information helping financial statement users to understand the effect of a company’s choice to use fair value on its earnings, as well as to indicate which assets and liabilities a company has chosen to use fair value for on the face of the balance sheet. Additionally, SFAS No. 159 establishes presentation and disclosure requirements designed to simplify comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The statement is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. The Company has not determined the effect, if any, the adoption of this statement will have on its consolidated financial statements.

Liquidity and goodwill impairment

At September 30, 2007, the Company had cash and cash equivalents of $2,948,562 , a net working capital deficit of $2,956,329 and a net loss of $2,085,331. The Company is currently in the process of working with its current and alternate lenders to obtain additional financing to satisfy its current obligations. If additional debt financing is not available , the Company may turn to public markets for further financing. Due to the financial results of our third quarter, we have engaged an independent valuation expert to complete an impairment analysis to determine whether our goodwill is impaired and if so, by how much. This analysis will be completed when we announce our fourth quarter results.

F-6

Pacific CMA, Inc.

Notes to Condensed Consolidated Financial Statements

~~June~~September 30, 2007 and 2006

(Unaudited)

Note 2:

Investment Deposit

At June 30, 2006, the Company entered into a Stock Purchase Agreement with HTL Logistics Limited, a Cayman Island corporation (“HTL”), pursuant to which the Company had agreed to acquire seventy percent (70%) of the outstanding shares of capital stock of HTL. The Company deposited $750,000 with HTL to be applied to the purchase price at the closing of the transaction. On November 8, 2006, both parties decided to cancel this transaction and HTL agreed to refund the deposit. As of ~~June~~September 30, 2007, $~~140~~214,~~000~~965 has been refunded.

Note 3:

Earnings Per Share

The following is a reconciliation of the numerator and denominator of basic and diluted earnings per share:

	(Unaudited) Three Months Ended June 30,
	(Unaudited) Three Months Ended September 30,
	2007								2006
	Loss			Weighted ~~Average Shares~~AverageShares		Per-Share Amount			Loss			Weighted ~~Average Shares~~AverageShares		Per-Share Amount
Net loss attributable to common stockholders	$	(12,~~743~~085,~~924~~331	)						$	(~~198~~123,~~407~~602	)
Basic EPS
Loss attributable to common stockholders		(12,~~743~~085,~~924~~331	)		28,619,271	$	(0.0607	)		(~~198~~123,~~407~~602	)		27,~~220~~716,~~569~~471	$	(0.01	)
Stock options and warrants					-								-
Diluted EPS
Loss attributable to common stockholders	$	(12,~~743~~085,~~924~~331	)		28,619,271	$	(0.0607	)	$	(~~198~~123,~~407~~602	)		27,~~220~~716,~~569~~471	$	(0.01	)

F-7

Common stock equivalents related to warrants, ~~and convertible preferred stock~~ of 4,735,788 and 3,409,091, respectively, are not included in the calculation of dilutive earnings per share for the three months ended ~~June~~September 30, 2007 because they have an anti-dilutive effect.

Common stock equivalents related to warrants, ~~convertible preferred stock and convertible note~~ of 4,735,788, 4,375,000 and 4,499,459, respectively, are not included in the calculation of dilutive earnings per share for the three months ended ~~June~~September 30, 2006 because they have an anti-dilutive effect.

F-8

Pacific CMA, Inc.

Notes to Condensed Consolidated Financial Statements

~~June~~September 30, 2007 and 2006

(Unaudited)

Note 3:

Earnings Per Share (Continued)

	(Unaudited) Six Months Ended June 30,
	(Unaudited) Nine Months Ended September 30,
	2007								2006
	Loss			Weighted Average Shares		Per-Share Amount			Loss			Weighted Average Shares		Per-Share Amount
Net loss attributable to common stockholders	$	(24,~~647~~732,~~476~~880	)						$	(~~976~~1,~~911~~100,512	)
Basic EPS
Loss attributable to common stockholders		(24,~~647~~732,~~476~~880	)		28,~~604~~610,~~918~~352	$	(0.0917	)		(~~976~~1,~~911~~100,512	)		2627,~~958~~238,~~499~~656	$	(0.04	)
Stock options and warrants					-								-
Diluted EPS
Loss attributable to common stockholders	$	(24,~~647~~732,~~476~~880	)		28,~~604~~610,~~918~~352	$	(0.0917	)	$	(~~976~~1,~~911~~100,512	)		2627,~~958~~238,~~499~~656	$	(0.04	)

Common stock equivalents related to warrants ~~and convertible preferred stock~~ of ~~4,735,788~~ ~~and 3~~35,~~409~~428,~~091,~~533.89 ~~respectively,~~ are not included in ~~the calculation~~ ofthe calculation of dilutive earnings per share for the ~~six~~nine months ended ~~June~~ September 30, 2007 because they have an anti-dilutive effect.

Common stock equivalents related to warrants, convertible preferred stock and convertible note of 4,735,788, 4,375,000 and 4,499,459, respectively, are not included in the calculation of dilutive earnings per share for the ~~six~~nine months ended ~~June~~September 30, 2006 because they have an anti-dilutive effect.

F-9

Pacific CMA, Inc.

Notes to Condensed Consolidated Financial Statements

~~June~~September 30, 2007 and 2006

(Unaudited)

Note 4:

Common Stock and Preferred Stock

As of ~~June~~September 30, 2007, the Company’s authorized capital stock was comprised of 100,000,000 shares of common stock, $0.001 par value and 10,000,000 shares of ~~preferred~~ preferred stock, $0.001 par value. As of ~~June~~September 30, 2007 and December 31, 2006, 28,619,271 and 28,597,712 shares of common stock, respectively; ~~and 3,000 shares of~~are ~~preferred stock are~~ outstanding.

The outstanding Series A Preferred Stock is redeemable in 2008. The redeemable amounts and unamortized discounts are as follows:

	June 30, 2007			December 31, 2006
	September 30, 2007			December 31,2006
Redeemable amount	$	~~3,000,000~~-		$	3,000,000
Unamortized discount		~~(915,906~~-	)		(1,366,017	)
Carrying value	$	~~2,084,094~~-		$	1,633,983

~~Accretion~~The Company used approximately $2,950,000 of the ~~additional~~proceeds ~~beneficial~~received ~~conversion~~from ~~feature~~the ~~for~~BHC Financing to purchase the outstanding 3,000 shares of its Series A Preferred ~~Stock~~ ~~was $302,816~~Stock and ~~$427~~937,~~372~~500 ~~during~~of ~~the~~its ~~six~~Common ~~months~~Stock ~~ended~~Purchase ~~June~~Warrants ~~30,~~from ~~2007 and 2006,~~Midsummer ~~respectively~~Investment Limited.

Future amortization of the deferred financing costs, preferred stock discount and beneficial conversion feature is as follows:

July 1, 2007 to December 31, 2007		$	581,227
2008			397,678

In connection with the issuance of the Series A Preferred Stock, the Company incurred $958,951 of financing costs. These costs have been recorded as a discount of the preferred stock and are accreted over the term of the preferred stock. For the six months ended June 30, 2007 and 2006, the Company recognized $74,435 and $138,909 respectively related to the accretion of the Series A Preferred Stock deferred financial cost.

F-10

On or about July 23, 2007, the Company has entered into a Loan and Security Agreement, dated as of July 17, 2007 with BHC Interim Funding II, L.P. (“BHC”). the Company received an additional $3,292,000 in funding, excluding approximately $208,000 in fees, costs and expenses of BHC (the “BHC Financing”).

The Company used approximately $2,950,000 of the proceeds received from the BHC Financing to purchase the outstanding 3,000 shares of its Series A Preferred Stock and 937,500 of its Common Stock Purchase Warrants from Midsummer Investment Limited. As a result of the purchase, the related deferred financing costs, preferred stock discount and a beneficial conversion feature which amounted to $978,905 will be expensed in the third quarter of 2007.

2000 Stock Plan

The Company has a 2000 Stock Plan (“Plan”) to issue stock options and grants pursuant to various agreements with employees, service providers, business associates and others that will have an important business relationship with the Company or its affiliates. The maximum number of shares of the Company’s common stock available for issuance under the Plan is 2,200,000 shares. As of ~~June~~September 30, 2007, the maximum number of shares available for future grants under the ~~Plan~~ Plan was 1,060,135 shares. The options and stock grants vest over an 18-month period.

Treasury Stock

Based on a resolution of the Board of Directors in October 2005, the Company authorized the repurchase of shares of its outstanding Common Stock, in an aggregate amount not to exceed $500,000. As of ~~June~~September 30, 2007, 41,800 shares of common stock at an aggregate cost of $32,623 have been repurchased and reflected at cost as a reduction from stockholders’ equity.

F-11

Pacific CMA, Inc.

Notes to Condensed Consolidated Financial Statements

~~June~~September 30, 2007 and 2006

(Unaudited)

Note 5: Notes Payable -– Bank and Non-Convertible Notes

Short-term borrowings and weighted average interest rates at ~~June~~September 30, 2007 and ~~December~~ December 31, 2006, were:

	June 30, 2007					December 31, 2006
	September 30, 2007					December 31, 2006
	Weighted Average Interest Rate			Amount		Weighted Average Interest Rate			Amount
Notes payable - bank and non-convertible note		6.47	%	$	7,226,316		7.56	%	$	6,714,451
Notes payable – bank and non-convertible note		6.76	%	$	6,265,700		7.56	%	$	6,714,451

The Company has certain banking facilities to finance its working capital. The ~~facilities~~amount available totaled ~~approximately~~ $97,~~551~~237,~~752~~174 at ~~June~~September 30, 2007. The facilities accrue interest at rates varying with the prime rate in Hong Kong, Hong Kong Interbank Offered Rate ( HIBOR ), or the cost of funds rate. As of ~~June~~ September 30, 2007, these rates ranged between 4.1605% - 8.2550%. The facilities require annual renewals and are collateralized by personal guarantees of two directors and restricted cash of approximately $54,~~834~~492,~~180~~855. As of ~~June~~September 30, 2007 and December 31, 2006, amounts outstanding against these facilities were $76,~~226~~265,~~316~~700 and ~~and~~ $6,714,451 respectively. The facilities have no expiration date for which they ~~they~~ are subjected to banks’ review.

F-12

Pacific CMA, Inc.

Notes to Condensed Consolidated Financial Statements

~~June~~September 30, 2007 and 2006

(Unaudited)

Note 6:

Revolving Note

Effective April 6, 2007, the “Company completed a financing transaction with Wells Fargo Bank, National Associates (“Wells Fargo”) pursuant to the terms of a Credit and Security Agreement (the "“C&S Agreement"”), by and between the Company, certain of the Company’s United States subsidiaries and Wells Fargo. Pursuant to the C&S Agreement, the Company issued to Wells Fargo a revolving note in the principal amount of $10 million (the “Note”).

On that date, the Company received initial funding under the Financing of approximately $2,947,000, excluding fees and costs in the amount of $50,000 payable to Wells Fargo, in connection with the Financing. ~~This~~The ~~initial~~interest ~~funding~~rate ~~was~~on ~~used~~the toNote ~~pay~~is Wells ~~all~~Fargo’s ofprime ~~the~~rate ~~Company’s~~plus ~~payment~~three-quarters ~~obligations~~of ~~under~~one ~~its~~percent, ~~financing~~or ~~arrangements~~prime ~~with~~rate, plus ~~Laurus~~0. 75%.

The ~~interest~~Note is ~~rate~~secured by a first priority lien on the ~~Note~~assets isof ~~Wells~~the ~~Fargo’s~~Company ~~prime~~and ~~rate~~the Subsidiaries. ~~plus~~It ~~three-quarters~~is payable on demand. As a part of ~~one~~granting the first ~~percent~~priority lien on its assets, orthe ~~prime~~Company ~~rate~~and the Subsidiaries entered into security and collateral pledge agreements (the “Collateral Agreements”), ~~plus~~with Wells 0Fargo, pursuant to which the Subsidiaries’ assets and capital stock (or equivalent) was pledged as security for the loan from Wells Fargo.~~75%.~~

~~The~~This ~~Note is~~initial ~~secured~~funding bywas aused ~~first~~to ~~priority~~pay ~~lien~~all ~~on the assets~~ of the Company’s ~~and~~payment ~~the~~obligations under ~~Subsidiaries.~~its Itfinancing isarrangements ~~payable~~with ~~on demand~~Laurus. As a ~~part~~result, ~~of granting~~ the ~~first~~outstanding balance ~~priority~~of the ~~lien~~borrowings onof ~~its assets~~$2,724,128 ~~the~~was ~~Company~~repaid ~~and~~with ~~the~~$218,219 ~~Subsidiaries~~a ~~entered~~pre-payment ~~into~~penalty. ~~security~~As a ~~and~~result ~~collateral~~of ~~pledge~~the ~~agreements~~pre-payment, (of the ~~"Collateral~~Laurus ~~Agreements")~~debt, ~~with~~the outstanding amount of ~~Wells Fargo~~$366,413 ~~pursuant~~of tounamortized ~~which~~deferred ~~the~~finance ~~Subsidiaries’~~costs ~~assets~~ and ~~capital~~$456,232 ~~stock~~of ~~(or~~unamortized ~~equivalent)~~discount ~~was~~related ~~pledged~~to asthe ~~security~~financing ~~for~~were ~~the~~written ~~loan~~off ~~from~~at ~~Wells~~April ~~Fargo~~6, 2007.

~~This~~In ~~initial~~July 2007, pursuant to a Loan and Security Agreement with BHC, Airgate International, Inc. (NY), the Company, Airgate International Corporation (Chicago), Paradigm International, Inc., Pacific CMA International, LLC, the Company’s three other U.S. Subsidiaries (the “Other U.S. Subsidiaries”) and AGI Logistics (Hong Kong), Ltd., a Hong Kong subsidiary of the Company (“AGI”), the Company received an additional $3,292,000 in funding, ~~was~~excluding approximately $208,000 in fees, costs and expenses of BHC (the “BHC Financing”). Proceeds of $2,950,000 received from the BHC Financing were used to ~~pay~~repurchase ~~all~~3,000 shares of the Company’s ~~payment~~Series ~~obligations~~A ~~under~~Preferred Stock and 937,500 common stock ~~its~~purchase ~~financing~~warrants ~~arrangements~~from ~~with~~Midsummer ~~Laurus~~Investment Limited (“Midsummer”). AsBHC received a ~~result,~~Term Note in the ~~outstanding~~principal ~~balance~~amount of $3,500,000 bearing interest at the rate of 12% per year. The Loan and Security Agreement provides for additional ~~the~~potential ~~borrowings~~funding of up to $21,~~724~~500,~~128~~000. ~~was~~The ~~repaid~~Term ~~with~~Note ~~$218,219~~matures aon ~~pre-payment~~July ~~penalty~~16, 2009. The outstanding balance as of September 30, 2007 was $3,500,000.

As a result of the pre-payment, the outstanding amount of $366,413 of unamortized deferred finance costs and $456,232 of unamortized discount related to the financing were written off at April 6, 2007.

Note 7: Income taxes

F-13

~~During the~~Note ~~year~~7: ~~ended~~Income December 31, 2006, the Company recorded a full valuation allowance of its deferred tax assets related to its United States operations. No income tax benefit has been recorded in the statement of operations related to the operations in the United States for the three and six months ended June 30, 2007 as the Company has continued to provide for a full valuation allowance for its United States operations.taxes

During the year ended December 31, 2006, the Company recorded a full valuation allowance of its deferred tax assets related to its United States operations. No income tax benefit has been recorded in the statement of operations related to the operations in the United States for the three and nine months ended September 30, 2007 as the Company has continued to provide for a full valuation allowance for its United States operations.

Note 8:

Related Party Transactions

As of ~~June~~September 30, 2007 and December 31, 2006, the Company had a payable to a ~~minority~~ minority shareholder of a subsidiary of $143,~~640~~791 and $123,893, respectively. The ~~payable~~ payable accrues interest at 3% per annum, is unsecured and has no fixed payment terms.

F-14

Pacific CMA, Inc.

Notes to Condensed Consolidated Financial Statements

~~June~~September 30, 2007 and 2006

(Unaudited)

Note 9:

Segment of the Business

Business Segments

The Company operates two business segments. Those segments are air forwarding and sea forwarding services. The accounting policies adopted by the Company for segment reporting are described in the summary of significant accounting policies in the Company’s Form 10-K filed for the year ended December 31, 2006.

The following table summarized the Company’s operations as of and for the three months ended ~~June~~September 30, 2007 and 2006 analyzed into air and sea forwarding services:

	Air Forwarding						Sea Forwarding						Total
	(Unaudited)						(Unaudited)						(Unaudited)
	2007			2006			2007			2006			2007			2006
Revenues	$	1720,~~249~~968,~~609~~955		$	2326,~~877~~771,~~368~~763		$	16,~~153~~583,~~297~~262		$	1318,~~485~~283,~~197~~875		$	3337,~~402~~552,~~906~~217		$	3745,~~362~~055,~~565~~638
Cost of forwarding		(1319,~~968~~087,~~454~~511	)		(2023,~~535~~109,~~984~~357	)		(1413,~~067~~321,~~242~~752	)		(1115,~~691~~923,~~855~~846	)		(2832,~~035~~409,~~696~~263	)		(3239,~~227~~033,~~839~~203	)
Depreciation and amortization		(79292,~~021~~579	)		(~~154~~159,~~234~~284	)		~~(200~~55,~~746~~675	)		(~~103~~110,~~513~~671	)		(~~279~~236,~~767~~904	)		(~~257~~269,~~747~~955	)
Interest income		2812,~~249~~018			~~26,448~~16			324,462			511			2836,~~252~~480			~~26,453~~27
Interest expense		(74391,~~653~~826	)		(6274,~~185~~549	)		~~(177~~65,~~972~~666	)		(~~563~~637	)		(~~252~~326,~~625~~160	)		(6275,~~748~~186	)
Other segment expenses attributable to segment		(1,~~253~~114,~~063~~342	)		(1,~~148~~678,~~493~~278	)		(1538,~~434,558~~459	)		(~~658~~879,~~351~~549	)		(21,~~687~~652,~~621~~801	)		(12,~~806~~557,~~844~~827	)
Segment income	$	194,~~902,667~~715		$	21,~~002~~750,~~920~~311		$	~~272~~2,~~782~~868,854		$	1,~~030~~369,~~920~~183			2,~~175~~963,~~449~~569			3,~~033~~119,~~840~~494
Net other unallocated expenses														(34,~~671~~414,~~161~~630	)		(2,~~954~~600,~~834~~226	)
Minority interest														15(18,~~519~~364	)		(826,~~299~~445	)
Net loss													$	(1,~~480~~469,~~193~~425	)	$	(87492,~~305~~823	)
Goodwill	$	21,~~876~~391,~~735~~043		$	2,863,~~169~~366		$	12,~~437~~887,~~970~~170		$	~~892~~898,~~223~~763		$	4,~~314~~278,~~705~~213		$	3,~~755~~762,~~392~~129
Intangible assets		~~329~~7,~~011~~082			~~570~~454,~~155~~851			~~294~~595,~~957~~136			~~159~~122,~~442~~676			~~623~~602,~~968~~218			~~729~~577,~~597~~527
Other assets		1921,~~155~~349,~~651~~538			2425,~~631~~474,~~408~~758			1413,~~097~~702,~~102~~372			1013,~~314~~688,~~790~~947			3335,~~252~~051,~~753~~910			3439,~~946~~163,~~198~~705
Total assets	$	22,~~361~~747,~~397~~663		$	28,~~064~~792,~~732~~975		$	1517,~~830~~184,~~029~~678		$	1114,~~366~~710,~~455~~386		$	3839,~~191~~932,~~426~~341		$	3943,~~431~~503,~~187~~361

F-15

Pacific CMA, Inc.

Notes to Condensed Consolidated Financial Statements

~~June~~September 30, 2007 and 2006

(Unaudited)

The following table summarized the Company’s operations as of and for the ~~six months~~nine months ended ~~June~~September 30, 2007 and 2006 analyzed into air and sea forwarding services:

	Air Forwarding						Sea Forwarding						Total
	(Unaudited)						(Unaudited)						(Unaudited)
	2007			2006			2007			2006			2007			2006
Revenues	$	3455,~~775~~744,~~047~~002		$	4370,~~755~~543,~~509~~346		$	3148,~~731~~314,~~146~~408		$	2442,~~004~~272,~~762~~559		$	66104,~~506~~058,~~193~~410		$	67112,~~760~~815,~~271~~905
Cost of forwarding		(2746,~~690~~777,~~125~~636	)		(3760,~~103~~232,~~944~~867	)		(2741,~~735~~056,~~015~~767	)		(2036,~~847~~751,~~032~~309	)		(5587,~~425~~834,~~140~~403	)		(5796,~~950~~984,~~976~~176	)
Depreciation and amortization		(~~268~~561,~~592~~171	)		(~~306~~465,~~114~~862	)		(~~381~~325,~~227~~552	)		(~~198~~308,~~012~~220	)		(~~649~~886,~~819~~723	)		(~~504~~774,~~126~~082	)
Interest income		6375,~~767~~785			~~60,608~~7			724,469			615			63100,~~774~~254			~~60,614~~22
Interest expense		(~~163~~554,~~129~~955	)		(~~124~~198,~~254~~538	)		(~~355~~290,~~745~~079	)		(1,~~091~~416	)		(~~518~~845,~~874~~034	)		(~~125~~199,~~345~~954	)
Other segment expenses attributable to segment		(23,~~850~~964,~~043~~385	)		(24,~~380~~897,~~604~~259	)		(23,~~523~~061,~~378~~837	)		(12,~~250~~604,~~211~~401	)		(57,~~373~~026,~~421~~222	)		(37,~~630~~501,~~815~~660	)
Segment income	$	3,~~866~~961,~~925~~640		$	34,~~901~~748,~~201~~827		$	~~735~~3,~~788~~604,642		$	12,~~708~~607,~~422~~228			47,~~602~~566,~~713~~282			57,~~609~~356,~~623~~055
Net other unallocated expenses														(611,~~726~~140,~~116~~819	)		(56,~~610~~838,~~876~~041	)
Minority interest														1(16,~~538~~826	)		1(24,~~909~~535	)
Net (loss)/income													$	(23,~~121~~591,~~865~~363	)	$	~~656~~493,479
Goodwill	$	21,~~876~~391,~~735~~043		$	2,863,~~169~~366		$	12,~~437~~887,~~970~~170		$	~~892~~898,~~223~~763		$	4,~~314~~278,~~705~~213		$	23,~~740~~762,~~508~~129
Intangible assets		~~329~~7,~~011~~082			~~570~~454,~~155~~851			~~294~~595,~~957~~136			~~159~~122,~~442~~676			~~623~~602,~~968~~218			1577,~~069,143~~527
Other assets		1921,~~155~~349,~~651~~538			2425,~~631~~474,~~408~~758			1413,~~097~~702,~~102~~909			1013,~~314~~688,~~790~~947			3335,~~252~~052,~~753~~447			3139,~~129~~163,~~110~~705
Total assets	$	22,~~361~~747,~~397~~663		$	28,~~064~~792,~~732~~975		$	1517,~~830~~185,~~029~~215		$	1114,~~366~~710,~~455~~386		$	3839,~~191~~932,~~426~~878		$	3443,~~938~~503,~~761~~361

F-16

Pacific CMA, Inc.

Notes to Condensed Consolidated Financial Statements

~~June~~September 30, 2007 and 2006

(Unaudited)

Geographical Segments

The table below summarized the Group’s revenues analyzed into geographical locations:

Three Months Ended

~~Six~~Nine Months Ended

June 30,

September 30,

2007

2006

2007

2006

Revenues

* IATA Area 1

6,~~795~~537,~~310~~069

54,~~435~~354,~~540~~106

1319,~~056~~637,~~364~~806

813,~~868~~222,~~459~~562

* IATA Area 2

79,~~879~~651,~~537~~326

68,~~265~~330,~~814~~136

1525,~~569~~191,~~658~~828

1220,~~067~~397,~~751~~887

* IATA Area 3

1821,~~728~~360,~~059~~981

2532,~~661~~371,~~211~~396

3759,~~880~~228,~~171~~775

4679,~~824~~195,~~061~~456

Total

3337,~~402~~549,~~906~~376

3745,~~362~~055,~~565~~638

66104,~~506~~058,~~193~~409

67112,~~760~~815,~~271~~905

(Unaudited)

As of June 30, 2007

As of June 30, 2006

As of September 30, 2007

As of September 30, 2006

Trade Receivables

Other Assets (Including Goodwill)

Total Assets

Trade Receivables

Other Assets (Including Goodwill)

Total Assets

Assets

*IATA Area 1

6,~~699~~529,~~917~~971

43,~~329~~934,~~364~~088

1110,~~029~~464,~~281~~059

911,~~538~~094,~~889~~224

89,~~413~~073,~~148~~543

1720,~~952~~167,~~037~~767

*IATA Area 2

3,~~798~~491,~~387~~660

8,810

3,~~807~~500,~~197~~470

3,~~005~~975,~~510~~986

-(31,583

)

3,~~005~~944,~~510~~403

*IATA Area 3

811,~~349~~091,~~161~~680

1514,~~005~~974,~~786~~623

2326,~~354~~066,~~948~~303

7,~~129~~680,~~080~~324

11,~~344~~710,~~560~~867

1819,~~473~~391,~~640~~191

Total

1821,~~847~~113,~~465~~311

1918,~~343~~917,~~960~~521

3840,~~191~~030,~~426~~832

1922,~~673~~750,~~479~~534

1920,~~757~~752,~~708~~827

3943,~~431~~503,~~187~~361

F-17

*	IATA Area 1 comprises all of the North and South American Continent and adjacent islands, Greenland, Bermuda, West Indies and the islands of the Caribbean Sea, the Hawaiian Islands (including Midway and Palamyra).

*	IATA Area 2 comprises all of Europe (including the European part of the Russian Federation) and the adjacent islands, Iceland, the Azores, all of Africa and the adjacent islands, Ascension Island, that part of Asia lying west of and including Iran.

*	IATA Area 3 comprises all of Asia and the adjacent islands, except that portion included in IATA Area 2, all of the East Indies, Australia, New Zealand and the adjacent islands, the islands of the Pacific Ocean, except those included in IATA Area 1.

F-18

Pacific CMA, Inc.

Notes to Condensed Consolidated Financial Statements

~~June~~September 30, 2007 and 2006

(Unaudited)

Note 10:

Investment in Equity Method Subsidiaries

Investment in equity method subsidiaries relates to ownership of Shanghai Air Cargo Ground Handling Services Ltd. (“Shanghai Air Cargo”), Vantage Point Services Limited (“Vantage Point”), Careship International Transportation Ltd. (“Careship International”), Careship Aviation Limited (“Careship Aviation”) and AGI Logistics (Vietnam) Limited (“AGI Logistics (Vietnam)”) for 35%, 40%, 46.92%, 20% and 49%, respectively. Shanghai Air Cargo began operations in April 2004 and the interest in Vantage Point, Careship International and Careship Aviation was acquired by the Company in October 2004, January 2005 and July 2006, respectively. Financial results of operations of the affiliates during the three and ~~six~~nine months ended ~~June~~September 30, 2007 are summarized below:

	Three months ended June 30, 2007
	Three months ended September 30, 2007
	Shanghai Air Cargo		Vantage Point		Careship International			Careship Aviation			AGI Logistics (Vietnam)
Net Sales	$	-	$	7275,~~822~~693	$	9570,~~346~~516		$	-3,871,527		$	-548,467
Cost of Sales		-		6468,~~761~~104		5834,~~601~~731			-3,733,195			-491,802
Gross Profit		-		87,~~061~~590		3635,~~744~~786			-138,332			-56,665
Net Income (Loss)		-		36,~~612~~440		(1037,~~191~~552	)		~~(166~~83,~~918~~188	)		-31,141
Equity in Loss of Affiliates		-		-		(417,~~782~~620	)		~~(33~~16,~~383~~638	)		-15,259

	Six months ended June 30, 2007
	Nine months ended September 30, 2007
	Shanghai Air Cargo		Vantage Point			Careship International			Careship Aviation			AGI Logistics (Vietnam)
Net Sales		-	$	~~122~~198,~~613~~307		$	~~161~~231,~~024~~541		$	-3,871,527		$	-548,467
Cost of Sales		-		~~118~~186,~~188~~292			87122,~~667~~398			-3,733,195			-491,802
Gross Profit		-		412,~~425~~015			73109,~~357~~143			-138,332			-56,665
Net Loss		-		(1610,~~916~~476	)		(3875,~~001~~553	)		(~~179~~96,~~288~~099	)		-31,141
Equity in Loss of Affiliates		-		-			(1735,~~830~~449	)		(3519,~~857~~220	)		-15,259

F-19

The Company invested $846,847 in its 46.92% interest in Careship International which amount was $792,453 in excess of the underlying equity in net assets of the investee in January 2005. This excess was allocated to an intangible asset of $555,278 and the balance of $237,175 to goodwill. The intangible asset related to an exclusive right to conduct business which was granted to Careship International by the government of the Peoples Republic of China for a term of ten years. The intangible is being amortized over the term of the exclusive right. The amortization expense is reflected in the loss of equity method subsidiaries and amounted to $12,979 and $25,958 for the three and six months ended June 30, 2007.

Shanghai Air Cargo Ground Handling Services Ltd ceased its business in the first quarter of 2007. Shanghai Air Cargo iswas dissolved in the ~~process~~third ofquarter ~~dissolving~~of 2007.

The Company invested $53,624 in its 49% interest in AGI Logistics (Vietnam) Limited. AGI Logistics Vietnam is incorporated in Vietnam; it ~~did~~commenced ~~not commence~~ business from asthe third quarter of ~~June 30,~~ 2007.

F-20

Pacific CMA, Inc.

Notes to Condensed Consolidated Financial Statements

~~June~~September 30, 2007 and 2006

(Unaudited)

Note 11:

Business Acquisitions

On January 2, 2007, the Company completed the acquisition of 100% of the equity of Parco Shipping Co., Ltd. (“Parco”) for $1,031,620. Parco is a non-asset based logistics services company based in Hong Kong, which handles both air and ocean shipments between Hong Kong and mainland China. Goodwill and intangible assets of $568,790 and $450,156, respectively, were recognized in this transaction.

The above transaction was recorded using the purchase method of accounting. The results of operations are included in the consolidated financial statement since the date of acquisition. Assets and liabilities were recorded based on fair values. The purchase price in excess of net identified tangible and intangible assets acquired is accounted in accordance to FASB Statement No. 141. The acquisition of Parco was is immaterial to the Company ~~as its total assets value is less than 1% of the Company’s total assets value~~ at the date of acquisition.

Note 12: Subsequent Event

Subsequent to the quarter ended June 30, 2007. On or about July 23, 2007, pursuant to a Loan and Security Agreement, dated as of July 17, 2007. with BHC Interim Funding II, L.P. (“BHC”), Airgate International Corporation, Airgate International Corporation (Chicago), Paradigm International, Inc., Pacific CMA International, LLC, the Company’s three other U.S. Subsidiaries (the “Other U.S. Subsidiaries”) and AGI Logistics (Hong Kong), Ltd., a Hong Kong subsidiary of the Company (“AGI”), the Company received an additional $3,292,000 in funding, excluding approximately $208,000 in fees, costs and expenses of BHC (the “BHC Financing”).

The Company used $2,950,000 from the BHC Financing to repurchase 3,000 shares of the Company’s Series A Preferred Stock and 937,500 common stock purchase warrants from Midsummer Investment Limited (“Midsummer”). The stated value of 3,000 shares of the Company’s Series A Preferred Stock is $3,000,000 and they had a current redemption value of $3,300,000.

F-21

BHC received a Term Note in the principal amount of $3,500,000 bearing interest at the rate of 12% per year. The Loan and Security Agreement provides for additional potential funding of up to $1,500,000. The Term Note matures on July 16, 2009. The Company, its U.S. Subsidiaries and AGI entered into pledge agreements with BHC, pursuant to which the U.S. Subsidiaries’ and AGI’s capital stock or membership interests, as the case may be, were pledged as security for the loan from BHC. The Company, each Other U.S. Subsidiary, AGI and Mr. Alfred Lam, the Company’s Chairman and Chief Executive Officer, also executed Guarantees in favor or BHC.

Wells Fargo, BHC, Airgate International Corporation, the Company, its Other U.S. Subsidiaries and Mr. Lam entered into a Subordination and Intercreditor Agreement (the “SIA”). Among other things, BHC agreed in the SIA that its security interests, liens, pledges or encumbrances upon the assets of the Company, Airgate International Corporation and the Other U.S. Subsidiaries would be subordinate to those of Wells Fargo.

The Credit and Security Agreement with Wells Fargo and/or the Loan and Security Agreement with BHC contains certain restrictive covenants and affirmative covenants that require, among other things, the Company to meet certain levels of financial performance, maintain a fixed charge coverage ratio, maintain a minimum level of net worth, net book worth, income, and not exceed certain levels of indebtedness.

The Company used approximately $2,950,000 of the proceeds received from the BHC Financing described in Item 1.01 above to purchase 3,000 shares of its Series A Preferred Stock and 937,500 of its Common Stock Purchase Warrants from Midsummer Investment Limited.

The financing with Wells Fargo and BHC was completed to replace the Company’s previous lenders which required the Company to maintain an active trading status in a principal stock market such as AMEX, and the Company believes that terms of these agreements are more favorable than the previous lendings.

F-22

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

Special Note of Caution Regarding Forward-Looking Statements

Certain statements in this report, including statements in the following discussion, which are not statements of historical fact, are what are known as "“forward-looking statements,"” which are basically statements about the future. For that reason, these statements involve risk and uncertainty since no one can accurately predict the future. Words such as "“plans,"” "“intends,"” "“hopes,"” "“seeks,"” "“anticipates,"” "“expects,"” and the like, often identify such forward-looking statements, but are not the only indication that a statement is a forward-looking statement. Such forward-looking statements include statements concerning our plans and objectives with respect to the present and future operations of the Company, and statements, which express or imply that such present and future operations will, or may, produce revenues, income or profits. Numerous factors and future events could cause the Company to change such plans and objectives, or fail to successfully implement such plans or achieve such objectives, or cause such present and future operations to fail to produce revenues, income or profits. Therefore, the reader is advised that the following discussion should be considered in light of the discussion of risks and other factors contained in this report on Form 10-Q and in the Company'’s other filings with the SEC including, but not limited to, its Annual Report on Form 10-K. No statements contained in the following discussion should be construed as a guarantee or assurance of future performance or future results.

These forward-looking statements are based largely on our current expectations, assumptions, plans, estimates, judgments and projections about our business and our industry, and they involve inherent risks and uncertainties. Although we believe that these forward-looking statements are based upon reasonable estimates, judgments and assumptions, we can give no assurance that our expectations will in fact occur or that our estimates, judgments or assumptions will be correct, and we caution that actual results may differ materially and adversely from those in the forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, contingencies and other factors that could cause our or our industry'’s actual results, level of activity, performance or achievement to differ materially from those discussed in or implied by any forward-looking statements made by or on behalf of us and could cause our financial condition, results of operations or cash flows to be materially adversely affected. Accordingly, investors and all others are cautioned not to place undue reliance on such forward-looking statements.

Potential risks, uncertainties, and other factors which could cause the Company'’s financial performance or results of operations to differ materially from current expectations or such forward-looking statements include, but are not limited to:

· International economic and political risks, over which we have little or no control; · Challenges posed by competing in a changing international environment; · Political uncertainty in Hong Kong and China making it difficult to develop any long range planning; · Relations between the United States and China remaining stable;

~~· Challenges posed by competing in a changing international environment;~~3

· ~~Political~~The ~~uncertainty~~Chinese ingovernment ~~Hong~~could ~~Kong~~change its policies toward private enterprises or expropriate private enterprises; · The lack of adequate remedies and impartiality under China’s ~~making~~legal itsystem ~~difficult~~may adversely impact our ability to ~~develop~~do ~~any~~business ~~long~~and ~~range~~enforce ~~planning~~our agreements with third parties; · Fluctuations in exchange rates; · Our dependence on third parties for equipment and services; · Competition from our own cargo agents; · Having seasonal business that causes fluctuations in our results of operations and financial condition; · A lack of ongoing contractual relationships with our customers; · Taking on significant credit risks in the operation of our business as East Coast U.S. freight forwarders expect us to offer thirty days credit from the time of cargo delivery; · Our inventory of shipping space is subject to the significant risk that we may not be able to “fill” the space while having contracted for that space; and · Our insurance may not be sufficient to cover losses or damages to the freight we ship or for consequential damages for a shipment of hazardous materials.

·Many of these ~~Relations~~factors ~~between~~are beyond our control, and you should read carefully the ~~United~~factors described ~~States~~in “Risk Factors” in our filings (including this Form 10-Q, our Forms 10-K and ~~China~~our ~~remaining~~other ~~stable;~~periodic filings) with the SEC for a description of some, but not all, risks, uncertainties and contingencies. These forward-looking statements speak only as of the date of this document. We do not undertake any obligation to update or revise any of these forward-looking statements to reflect events or circumstances occurring after the date of this document or to reflect the occurrence of unanticipated events. Any forward-looking statements are not guarantees of future performance.

· The Chinese government could change its policies toward private enterprises or expropriate private enterprises;

· The lack of adequate remedies and impartiality under China's legal system may adversely impact our ability to do business and enforce our agreements with third parties;

· Fluctuations in exchange rates;

· Our dependence on third parties for equipment and services;

· Competition from our own cargo agents;

· Having seasonal business that causes fluctuations in our results of operations and financial condition;

· A lack of ongoing contractual relationships with our customers;

· Taking on significant credit risks in the operation of our business as East Coast U.S. freight forwarders expect us to offer thirty days credit from the time of cargo delivery;

· Our inventory of shipping space is subject to the significant risk that we may not be able to "fill" the space while having contracted for that space; and

· Our insurance may not be sufficient to cover losses or damages to the freight we ship or for consequential damages for a shipment of hazardous materials.

Many of these factors are beyond our control, and you should read carefully the factors described in "Risk Factors" in our filings (including this Form 10-Q, our Forms 10-K and our other periodic filings) with the SEC for a description of some, but not all, risks, uncertainties and contingencies. These forward-looking statements speak only as of the date of this document. We do not undertake any obligation to update or revise any of these forward-looking statements to reflect events or circumstances occurring after the date of this document or to reflect the occurrence of unanticipated events. Any forward-looking statements are not guarantees of future performance.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management'’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require management to make certain estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, based on historical experience, and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The following critical accounting policies rely upon assumptions, judgments and estimates and were used in the preparation of our consolidated financial statements:

RECOGNITION OF COST OF FORWARDING

The billing of cost of forwarding is usually delayed. As a result, we must estimate the cost of purchased transportation and services, and accrue an amount on a load-by-load basis in a manner that is consistent with revenue recognition. Such estimate is based on past trends, and on the judgment of management. Historically, upon completion of the payment cycle (receipt and payment of transportation bills), the actual aggregate transportation costs are not materially different than the accrual. However, in any case in which the actual cost varies significantly from the accrual, a revision to the accrual would be required.

ACCOUNTING FOR INCOME TAXES

In preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions where we operate. This process involves estimating actual current tax exposure, together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our condensed consolidated balance sheet. We are required to assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent that we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance, we must include an expense within the tax provision of the consolidated statement of income in each period in which the allowance is increased.

Significant judgment is required in determining the provision for income taxes, deferred tax assets and liabilities, and any valuation allowance, against our deferred tax assets. In the event that actual results differ from these estimates or the estimates are adjusted in future periods, then we may need to establish an additional valuation allowance, which could materially impact our financial position and results of operations.

If the realization of the deferred tax assets in the future is considered more likely than not, an adjustment to the deferred tax assets would increase net income in the period such determination is made. The establishment of the valuation allowance for the full amount for our US deferred tax assets aggregating $2,137,000 during the fourth quarter of 2006 does not impair our ability to use the deferred tax assets upon achieving profitability. Our federal and state net operating loss carry-forwards do not expire for the next 13 to 20 years.

VALUING LONG-LIVED ASSETS, INTANGIBLES AND GOODWILL

We assess the impairment of identifiable long-lived assets purchased, intangible assets and goodwill whenever events or changes in circumstances indicate that the carrying amount may be impaired. Factors that we consider when evaluating for possible impairment include the following:

·	Significant under-performance relative to expected historical or projected future operating results;

·	Significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and

·	Significant negative economic trends.

When determining whether the carrying value of long-lived assets and goodwill is impaired based upon the existence of one or more of the above factors, we determine the existence of impairment by comparison of the carrying amount of the asset to expected future cash flows to be generated by the asset. If such assets are considered impaired, the impairment is measured as the amount by which the carrying value of the assets exceeds their fair values. As of ~~June~~ September 30, 2007, goodwill totaled approximately $4.32 million, other intangible assets amounted to approximately $~~623~~602,000 and our long-lived assets, ~~consisting~~ consisting primarily of net property, plant and equipment, totaled approximately $1.7 6 million.

Due to the financial results of our third quarter, we have engaged an independent valuation expert to complete an impairment analysis to determine whether our goodwill is impaired and if so, by how much. This analysis will be completed when we announce our fourth quarter results.

ACCOUNTS AND NOTES RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable are stated at the amount billed to customers. The Company provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. The allowance is provided for accounts with a significant pattern of uncollectibility based on historical experience and management’s evaluation of accounts receivable. Accounts receivable are ordinarily due 30 days after the issuance of the invoice. The Company does not accrue interest on past due receivables.

OVERVIEW

The Company does not carry on any business activities by itself. Instead, through its subsidiaries and associated companies, it provides supply chain management solutions, contract logistics services and international freight forwarding services. The Company’s current business was formed from a base of two freight forwarders, AGI Logistics (HK) Ltd. (“AGI”) and Airgate International Corp. (“Airgate”) which were acquired in 2000 and 2002, respectively, and the business is managed from our principal support group offices in New York and Hong Kong.

The Company'’s wholly owned subsidiary AGI was established in August 1998 and operates an integrated logistics and freight forwarding business which is based in Hong Kong. The principal services are provided by AGI and its own subsidiaries (wholly owned and majority owned) and its associated (those companies that it holds a minority equity position) companies. At June 30, 2007, AGI wholly-owned subsidiaries included Careship International Transportation Limited (formerly known as Shenzhen Careship International Transportation Ltd.) ("“HK Careship"”), Pacific CMA Limited (formerly known as AGI China Limited), WCL Global Logistics Limited (“WCL”) and Parco Shipping Co. Ltd. (“Parco”) which were acquired by AGI in 2000, 2002, 2006 and 2007, respectively. The majority owned subsidiaries included AIO Global Logistics Limited (62%) and SDA Forwarding Co. Limited (51%). AGI also has investments in equity method subsidiaries: ~~Shanghai Air Cargo Ground Handling Services Ltd (“Shanghai Air Cargo”),~~ Vantage Point Services Limited (“Vantage Point”), Careship International Transportation Ltd. (“Careship International”), Careship Aviation Limited (“Careship Aviation”) and AGI Logistics (Vietnam) Limited of ~~35%~~, 40%, 46.92%, 20% and 49% of their total equity, respectively.

Airgate, a privately held New York based freight forwarder that was established in 1995, was acquired on April 30, 2002. Airgate is a non-asset based logistics services company which primarily handles the air and ocean import shipments from the Far East and Southwest Asia to the U.S.

Paradigm, a privately held freight forwarder was acquired on April 30, 2004. Paradigm is a non-asset based logistics services company which primarily handles the air and ocean import shipments from Asia to the U.S. Paradigm’s office in Los Angeles was opened in 2005.

In addition, the Company completed the acquisition of Parco Shipping Co., Ltd. (“Parco”) for $1,031,620 on January 2, 2007. Parco is a non-asset based logistics services company based in Hong Kong, which handles both air and ocean shipments between Hong Kong and mainland China. Goodwill and intangible assets of $568,790 and $450,156, respectively, were recognized in this transaction.

OVERALL RESULTS

Freight forwarders are compensated on a transactional basis for the movement of goods and provision of related services to their customers. Therefore, our revenue is derived from our freight forwarding services based upon the rates that we charge our customers for the movement of their freight from origin to destination. The carrier'’s contract is with us, not with our customers. We are responsible for the payment of the carrier'’s charges and we are legally responsible for the shipment of the goods. We are responsible for any claims for damage to the goods while in transit. In most cases, we receive reimbursement from the carriers for any claims. Since many shippers do not carry insurance sufficient to cover all losses, we also carry insurance to cover any unreimbursed claims for goods lost or destroyed in the event of a total loss. Gross revenue represents the total dollar value of services we sell to our customers. Our costs of transportation, products and handling include the direct cost of transportation, including tracking, rail, ocean, air and other costs. We commit to pay for space with shippers prior to receiving committed orders from our customers. We act principally as a service provider to add value and expertise in the procurement and execution of these services for our customers. Therefore, our gross profits (gross revenues less the direct costs of transportation, products, and handling) are indicative of our ability to source, add value and resell services and products that are provided by third parties.

The majority of our transactions are denominated in Hong Kong dollars or United States dollars. The risk due to exchange rate fluctuation is negligible so long as the Hong Kong dollar remains "“pegged"” to the United States dollar. Sales are made on credit, generally thirty days, or on a cash basis. We have a credit control policy, that our employees have been instructed to follow by checking or obtaining the credit reference of new customers. The credit records of our customers are reviewed by senior staff. A chief executive officer of the Company’s respective subsidiaries must give his/her prior approval for orders in excess of a pre-determined amount. We, on the other hand, receive credit on a short-term basis, generally thirty days, from airlines and shipping lines. In the United States, we generally have to pay vendors immediately.

THREE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 2006

Total revenue for the three months ended September 30, 2007 decreased approximately 17% compared with the three months ended September 30, 2006, from $45,055,638 in 2006 to $37,549,376 in 2007. The decrease in revenue was primarily the result of decrease in airfreight traffic between US and Asia Pacific.

Revenue derived from the operations of AGI and its subsidiaries (“AGI Group”) increased approximately 7% during the three months ended September 30, 2007 as compared with the same period of 2006. The significant growth of AGI Group was the result of the following factors:

·	The business of WCL in Guangzhou PRC matured after a year in development; and

·	Improvements in the agency network which enabled the Company to secure new freight business.

The revenue of Airgate represented approximately 42% of our total revenue for the three months ended September 30, 2007. Airgate focuses its operations on the import of goods from the Far East and deconsolidation of cargo. Revenue derived from the operations of Airgate decreased approximately 40% for the three months ended September 30, 2007 when compared with the same period of 2006. The decrease is the result of an unexpected decrease in airfreight traffic between US and Asia Pacific areas during the third quarter of 2007. Starting from the first quarter of 2007, Airgate ceased its business relationships with certain customers with low profit margin and lower credit worthiness..

Total revenue derived from Paradigm and AGI Singapore amounted to approximately $5.57 million, for the three monhs ended September 30, 2007, which represents approximately 15% of total revenue of the Group.. Increased 3% comparing to the same period of 2006.

When compared with the three months ended September 30, 2006, the cost of freight forwarding for the same period of 2007 decreased approximately 17%, from $39,033,203 in 2006 to $32,407,477 in 2007. The decrease in costs was primarily the result of the corresponding decreases in Airgate’s revenue.

~~THREE~~Gross ~~MONTHS~~profit ~~ENDED~~margin ~~JUNE~~(freight forwarding income less cost of forwarding) for the three months ended September 30, increased from approximately 13.37% in 2006 to approximately 13.69% for the same period in 2007. ~~COMPARED~~The ~~WITH~~increase ~~THREE~~in ~~MONTHS~~gross ~~ENDED~~profit margin ~~JUNE~~is 30the result of our enhanced controls of freight costs, focusing on ~~2006~~higher margin sales as well as passing through fuel surcharges to our customers. Our increase was tempered by lower margin airfreight revenue for some Airgate customers.

~~Total~~Net ~~revenue~~loss attributable to common stockholders for the three months ended ~~June~~September ~~30,~~30th increased ~~2007 decreased~~ approximately 111182% ~~compared~~, ~~with~~from ~~the three months ended June 30~~$123,603 in 2006, ~~from~~to $372,~~362~~085,~~565~~331 in ~~2006~~2007. toThe ~~$33,402,906~~increase in ~~2007.~~net ~~The~~loss was mainly due to the decrease in ~~revenue~~margins ~~was~~& ~~primarily~~SGA and the significant ~~result~~increase ofin general and administrative costs, interest expenses, ~~decrease~~pre-payment inpenalty ~~airfreight~~on ~~traffic~~convertible ~~between~~and USnon-convertible note, and ~~Asia~~write ~~Pacific~~offs of unamortized deferred financing costs and discounts on the convertible and non-convertible notes. Details of expense fluctuations will be discussed in the sections "Operating expenses" and "Non-operating expenses" respectively.

Revenue derived from the operations of AGI and its subsidiaries (“AGI Group”) increased approximately 14% during the three months ended June 30, 2007 as compared with the same period of 2006. The significant growth of AGI Group was the result of the following factors:

· The business of WCL in Guangzhou PRC matured after a year in development; · Improvements in the agency network which enabled the Company to secure new freight business; and · The inclusion of the revenue of Parco $640,412 after its acquisition on January 2, 2007.

The revenue of Airgate represented approximately 47% of our total revenue for the three months ended June 30, 2007. Airgate focuses its operations on the import of goods from the Far East and deconsolidation of cargo. Revenue derived from the operations of Airgate decreased approximately 23% for the three months ended June 30, 2007 when compared with the same period of 2006. The decrease is the result of an unexpected decrease in airfreight traffic between US and Asia Pacific areas during the second quarter of 2007. Starting from the first quarter of 2007, Airgate ceased its business relationships with certain customers with low profit margin and lower credit worthiness..

Total revenue derived from Paradigm and AGI Singapore amounted to approximately $4.32 million, which represents approximately 13% of total revenue of the Group.

When compared with the three months ended June 30, 2006, the cost of freight forwarding for the same period of 2007 decreased approximately 13%, from $32,227,839 in 2006 to $28,035,696 in 2007. The decrease in costs was primarily the result of the corresponding decreases in Airgate’s revenue.

Gross profit margin (freight forwarding income less cost of forwarding) for the three months ended June 30 increased from approximately $5,134,726 or 13.74% in 2006 to approximately $5,367,210 or 16.07% for the same period in 2007. The increase in gross profit margin is the result of our enhanced controls of freight costs, focusing on higher margin sales as well as passing through fuel surcharges to our customers.

Net loss attributable to common stockholders for the three months ended June 30th increased approximately 779%, from $198,407 in 2006 to $1,743,924 in 2007. The increase in net loss was mainly due to the significant increase in general and administrative costs, interest expenses, pre-payment penalty on convertible and non-convertible note, and write offs of unamortized deferred financing costs and discounts on the convertible and non-convertible notes. Details of expense fluctuations will be discussed in the sections "Operating expenses" and "Non-operating expenses" respectively.

BUSINESS SEGMENT OPERATING RESULTS

The results of operations for each segment are as follows:

AIR FREIGHT OPERATIONS: Revenue from airfreight operations decreased approximately 2821%, from $2326,~~877~~771,~~368~~763 for the three months ended ~~June~~September 30, 2006 to $1720,~~249~~968,~~609~~955 for the same period of ~~2007.~~ 2007. Airfreight revenue for international operations (that includes AGI Group ~~and~~ and AGI Singapore) was $1112,~~011~~743,~~848~~217, while airfreight revenue for domestic ~~operations~~ operations (that includes Airgate and Paradigm) was $87,~~579~~415,~~428~~406, and offsetting inter-company transactions totaled $2810,~~341,667~~331. The volume of airfreight decreased ~~decreased~~ for the three months ended ~~June~~September 30, 2007, when compared with the same period of 2006. The decrease was primarily due to the decrease in airfreight traffic between US and Asia Pacific countries as a result of increasing prices for aviation fuel. Customers shifted their shipments from airfreight to seafreight. Airgate has also ceased doing business with some lower credit worthy customers during the ~~second~~third quarter of 2007 in order to reduce credit risk and improve the cash flow.

Costs for the airfreight forwarding operations decreased approximately 3217%, from $2023,~~535~~109,~~984~~357 for the three months ended ~~June~~September 30, 2006 to $1319,~~968~~087,~~454~~511 for ~~the~~ ~~same~~the same period of 2007. Airfreight cost attributable to foreign operations was $910,~~378~~611,~~046~~750, while airfreight cost attributable to domestic operations was $67,~~846~~700,~~411~~473, and offsetting inter-company costs were $2775,~~256,003~~288. The airfreight cost decrease during the three months ended ~~June~~September 30, 2007 was due to corresponding revenue decrease. Gross profit margin ~~increased~~decreased from approximately 1413.07% for the three months ended ~~June~~September 30, 2006 to approximately 198.0 9% for the same period of 2007. The ~~increase~~decrease in gross profit was due to the ~~cessation~~business ~~of business~~ with some low poor margin customers.

Total segment overhead attributable to the airfreight operation decreased by approximately 34%, from $1,678,278 for the three months ended September 30, 2006 to $1,114,342 for the same period of 2007, as a result of increased concentration on seafreight. Details regarding the increase in overhead expenses are discussed below in "Operating Expenses".

Overall, net segment income for the airfreight operation decreased by approximately 95% from $1,750,311 for the three months ended September 30, 2006 to $94,715 for the same period of 2007. The decrease in net segment income was mainly the result of a decrease in segment revenue.

SEA FREIGHT OPERATION: Revenue from sea freight operations decreased approximately 9%, from $18,283,875 for the three months ended September 30, 2006 to $16,583,262 for the same period of 2007. Sea freight revenue for international operations was $7,127,733, while sea freight revenue for domestic operations was $12,494,433, and offsetting inter-company transactions were $3,038,904. The decrease in revenue was partially due to the contribution from the decrease in quantity of freight consolidation by Airgate Chicago. New customers in Europe and our agents in India, Japan and Turkey introducing more customers into our network, which led to greater revenue from the Shanghai market in 2007.

Costs for the sea freight forwarding operation increased approximately 16%, from $15,923,846 for the three months ended September 30, 2006 to $13,321,752 for the same period of 2007. Sea freight costs attributable to foreign operations were $6,322,621, while costs attributable to domestic operations were $10,002,993, and inter-company costs were $3,003,862. However, the gross profit margin increased from approximately 12.9% for the three months ended September 30, 2006 to approximately 19.7% for the same period of 2007. As a result of increased revenues, overall gross profits increased approximately 6.76%, to $3,261,510 for the three months ended September 30, 2007 when compared to the corresponding period in 2006.

Total segment overhead attributable to the ~~airfreight~~sea freight operation ~~increased by~~decreased approximately 339%, from $1879,~~338,464~~549 for the three months ended ~~June~~September 30, 2006 to $538,459 for the same period of 2007. Overall net income for the sea freight operation increased approximately 52%, from $1,~~378~~369,~~488~~183 for the three months ended September 30, 2006 to $2,868,854 for the same period of 2007,. asThe aincrease in net segment income was mainly the result of increased ~~increases~~air incosts ~~salaries~~causing ~~and sales~~customers ~~commissions~~to concentrate on seafreight. Details regarding the ~~increase~~decrease in overhead expenses are discussed below in "“Operating Expenses"”.

Overall, net segment income for the airfreight operation decreased by approximately 5% from $2,002,920 for the three months ended June 30, 2006 to $1,902,667 for the same period of 2007. The decrease in net segment income was mainly the result of an increase in segment overhead and decrease in segment revenue.

SEA FREIGHT OPERATION: Revenue from sea freight operations increased approximately 20%, from $13,485,197 for the three months ended June 30, 2006 to $16,153,297 for the same period of 2007. Sea freight revenue for international operations was $6,068,568, while sea freight revenue for domestic operations was $10,219,357, and offsetting inter-company transactions were $134,628. The increase in revenue was partially due to the contribution from the new branch offices of HK Careship in China, and the increase in quantity of freight consolidation by Airgate Chicago. New customers in Europe and our agents in India, Japan and Turkey introducing more customers into our network, which led to greater revenue from the Shanghai market in 2007.

Costs for the sea freight forwarding operation increased approximately 20%, from $11,691,855 for the three months ended June 30, 2006 to $14,067,242 for the same period of 2007. Sea freight costs attributable to foreign operations were $5,097,414, while costs attributable to domestic operations were $9,190,119, and inter-company costs were $220,291. However, the gross profit margin decreased slightly from approximately 13.3% for the three months ended June 30, 2006 to approximately 12.9% for the same period of 2007. As a result of increased revenues, overall gross profits increased approximately 16%, to $2,086,055 for the three months ended June 30, 2007 when compared to the corresponding period in 2007.

Total segment overhead attributable to the sea freight operation increased approximately 138%, from $762,422 for the three months ended June 30, 2006 to $1,813,273 for the same period of 2007. Overall net income for the sea freight operation decreased approximately 74%, from $1,030,920 for the three months ended June 30, 2006 to $272,782 for the same period of 2007. The decrease in net segment income was mainly the result of more resources being allocated to seafreight operations in 2007. Details regarding the increase in overhead expenses are discussed below in “Operating Expenses”.

OPERATING EXPENSES

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses increased approximately 1110%, from $4,~~659~~852,~~990~~464 for the three months ended ~~June~~September 30, 2006 to $5,~~190~~846,~~365~~052 for the same period of 2007. There was a significant incremental increase in expenses for the following items for the three months ended ~~June~~September 30, 2007: ~~sales commissions,~~ rent and rates, as well as salaries and allowance. As the Company has been continuously growing and in in order to cope with future growth, our staff planning needs called for the hiring ~~hiring~~ of additional staff throughout our offices during 2006 and 2007.

Sales commission: Sales commission ~~increased~~decreased approximately 2311% from $~~678~~774,~~886~~629 for the three months ended ~~June~~September 30, 2006 to $~~836~~688,~~314~~057 for the same period of 2007; ~~the~~ ~~increase~~the decrease is a result of ~~increase~~decrease in business ~~generated by a top salesman who is entitled to a higher commission rate for his business~~.

Rent and Rates: Rent and rates increased approximately 9710%, from $~~211~~296,~~376~~595 for the three months ended ~~June~~September 30, 2006 to $~~418~~327,~~091~~222 for the same period of 2007. The ~~increase~~ increase was due to the new leases for the expansion of the office spaces in ~~our HK,~~ ~~PRC~~our HK, PRC and Los Angeles offices during the last half of 2006 in order to ~~cope with~~support the growth of these subsidiaries.

Salaries and allowance: Salaries and allowance increased approximately 913% from $2,~~116~~147,~~268~~ 041 for the three months ended ~~June~~September 30, 2006 to $2,~~311~~417,~~977~~211 for the same period of 2007. This increase was the result of the addition of approximately 40 staff persons during 2006 and the first half of 2007 in order to keep pace with our expansion in Asia Pacific countries.

STOCK-BASED COMPENSATION COST

13Stock-based compensation cost remained the same at $34,912 for the three months ended September 30, 2006 and the same period of 2007.

Stock-based compensation cost remained the same at $34,912 for the three months ended June 30, 2006 and the same period of 2007.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization increased approximately 812% from $~~257~~269,~~747~~955 for the three months ended ~~June~~September 30, 2006 to $~~279~~236,~~767~~905 for the same period of 2007. The increase ~~was~~ was mainly attributable to purchases of additional fixture and furniture and ~~office~~ office equipment for the new offices in Los Angeles and Hong Kong during 2006 ~~and~~ and 2007.

Amortization arises from intangible customer relationship assets recorded in conjunction with the acquisitions of Airgate on April 30, 2002, Paradigm on April 30, 2004, WCL on July 1, 2005 and May 1, 2006, and Parco on January 2, 2007. These intangible assets are amortized on a straight-line basis over a period of five to eight years. During the three months ended ~~June~~September 30, 2007 and 2006, the ~~amortization~~ amortization expense attributable to these assets was $70,752 and $151,104, ~~respectively,~~ respectively, an decrease of $80,352.

NON OPERATING INCOME AND EXPENSES

INTEREST AND OTHER INCOME

Interest and other income ~~decreased~~increased from $~~106,152~~27 for the three months ended ~~June~~September 30, 2006 to $71426,~~521~~519 for the same period of 2007. ~~This decrease is mainly due to the write off of long outstanding payables of approximately $45,000 in the book of Paradigm Global Logistics during the second quarter of 2006.~~

INTEREST EXPENSE

Interest expense increased from $~~202~~75,~~787~~186 for the three months ended ~~June~~September 30, 2006 to $~~252~~326,~~625~~160 due to the additional financing from BHC for the same period of 2007. The increase in interest expense is primarily due to the increase in interest rate during 2006 and the increase in notes payable from banking facilities.

PRE-PAYMENT PENALTY ON CONVERTIBLE AND NON-CONVERTIBAL NOTE

During April 2007, the Company fully repaid the convertible and non-convertible note. A pre-payment penalty of $218,219 which is equal to 8% on the outstanding balance of convertible and non-convertible notes was paid to Laurus Master Fund, Ltd ( “ Laurus ” ).

1413

CONVERTIBLE NOTE AND NON-CONVERTIBLE NOTE AMORTIZATION OF DEFERRED FINANCING COST

The deferred financing costs related to Convertible Note and Non-Convertible Note is amortized over their term to maturity, which is three years. A total of $~~366,413~~Nil and $2226,~~132~~677 was expensed for the three months ended ~~June~~September 30, 2007 and 2006, respectively. The ~~increase~~decrease in expense was the result of the early repayment, during the second quarter of 2007, of the notes resulting in the outstanding amount of the deferred financing costs related to the notes being expensed.

AMORTIZATION OF CONVERTIBLE NOTE AND NON-CONVERTIBLE NOTE DISCOUNT

This discount is amortized ratably over the term of the Convertible Note and Non-Convertible Note, which is three years. A total of $~~456,323~~Nil and $1418,~~241~~ 400 of the discount was amortized into expense for the three months ended ~~June~~September 30, 2007 and 2006, respectively. The ~~increase~~decrease in expense was the result of the early repayment of the notes. The increase was also due to the effective interest rate method being used to calculate the expenses. The expense becomes larger when amortized deferred financial cost and loan balance becomes larger.

REVOLVING NOTE AMORTIZATION OF DEFERRED FINANCING COSTS

On April 6, ~~207~~2007, the Company completed a financing transaction with Wells Fargo Bank, National Associates. The deferred financing costs related to this revolving note are amortized over the term of the note, which is two years. A total of $4697,~~239~~859 was expensed for the three months ended ~~June~~September 30, 2007.

ACCRETION OF SERIES A PREFERRED STOCK, NET TO REDEMPTION VALUE AND DIVIDENDS

Accretion of Series A Preferred Stock and Dividends was $~~263~~615,~~731~~905 and $~~285~~616,~~712~~425 for the three months ended ~~June~~September 30, 2007 and 2006, respectively. The decrease is primarily related to the conversion of 1,450 shares of preferred stock into common stock during 2006, and the deferred costs related to those shares were expensed immediately after redemptions.

1514

~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2007 COMPARED WITH ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2006

OVERALL RESULTS

Total revenue for the ~~six~~nine months ended ~~June~~September 30, 2007 decreased approximately ~~1.88%~~ 7.76% compared with the ~~six~~nine months ended ~~June~~September 30, 2006, from $67112,~~760~~815,~~271~~ 905 in 2006 to $66104,~~506~~058,~~193~~410 in 2007. The decrease in revenue was primarily the result of the scaling down of Paradigm International Inc.’s operations in Miami which began in the third quarter of 2006. It is also the result of reduced ~~airfreight~~ airfreight transportation between Asia Pacific countries and the US, asand Airgate ~~has altered its tactics to~~ focus on higher profit margin business which will result in enhanced cashflow.

Revenue derived from the operations of AGI increased approximately 1411% during the ~~six~~nine months ended ~~June~~September 30, 2007 as compared with 2006. The significant growth of ~~AGI~~of AGI was the result of the following factors:

l An increase in the routed freight traffic from the existing agency partners; l Improvements in the agency network which enabled AGI to secure new freight business; l The business of WCL in Guangzhou PRC matured after a year in development; and l The inclusion of the results of Parco after the acquisition on January 2, 2007.

lThe revenue ~~Improvements~~of inAirgate represented approximately 47% of our total revenue for the nine ~~agency~~months ~~network~~ended ~~which~~September ~~enabled~~30, ~~AGI~~2007. Airgate focuses its operations on the import of goods from the Far East and deconsolidation of cargo. Revenue derived from the operations of Airgate decrease by 24% from 63,790,477 to ~~secure~~48,434,900 for the ~~new~~nine ~~freight~~months ~~business;~~ended September 30, 2007 when compared with the same period of 2006. The decrease was primarily due to the decrease in airfreight traffic between US and Asia Pacific countries.

lTotal revenue ~~The~~derived ~~business~~from Paradigm and AGI Singapore for the nine months ended September 30, 2007 amounted to approximately $14 million, which represents approximately 14% of ~~WCL~~total inrevenue ~~Guangzhou~~of ~~PRC~~the ~~matured~~Pacific ~~after~~CMA. aIncreased ~~year~~2% inwhen comparing ~~development;~~with the same period of 2006.

~~l The inclusion of the results of Parco after the acquisition on January 2, 2007.~~15

~~The~~When ~~revenue~~compared ofwith ~~Airgate~~2006, ~~represented~~the ~~approximately~~cost ~~49%~~ of ~~our~~forwarding ~~total revenue~~ for the ~~six~~ nine months ended ~~June~~ September 30, 2007. ~~Airgate focuses its operations on the import of goods from the Far East and deconsolidation of cargo. Revenue derived from the operations of Airgate~~ decreased approximately 129.43%, ~~for~~from ~~the~~$96,984,176 ~~six~~in ~~months~~2006 ~~ended~~to $87,834,404 ~~June 30,~~in 2007 ~~when compared with the same period of 2006~~. The decrease in costs was primarily due to ~~the decrease in airfreight traffic between US and Asia Pacific countries.~~a corresponding ~~Airgate~~decrease ~~has also ceased doing business with some lower credit worthy customers during the second quarter of 2007~~ in ~~order to reduce credit risk and improve the cash flow~~revenue.

~~Total~~Gross ~~revenue~~profit ~~derived~~margin ~~from Paradigm and AGI Singapore~~ for the ~~six~~nine months ended ~~June~~ September 30, 2007 ~~amounted~~increased, to from approximately $814.6803% ~~million,~~in ~~which~~2006 ~~represents~~to ~~approximately 13~~15.59% ofin ~~total~~2007 and gross profit (revenue minus cost of forwarding) for the ~~Pacific~~nine ~~CMA~~months ended September 30, 2007 increased 2.48%, from $15,831,729 in 2006, to $16,224,006 in 2007.

16Net loss for the nine months ended September 30, 2007 increased approximately 726%, from net income of $493,479 in 2006, to a net loss of $(3,591,363) in 2007. The increase in net loss was mainly due to the significant increases in general and administrative expenses. Details of expense fluctuations will be discussed in the sections "Operating expenses".

~~When~~Net ~~compared~~loss attributable ~~with~~to ~~2006,~~common ~~the~~shareholders ~~cost of forwarding~~ for the ~~six~~nine months ended ~~June~~September 30, 2007 increased ~~decreased~~ approximately ~~4.56~~284%, from a net loss of $571,~~950~~100,~~976~~512 in 2006 to a net loss of $554,~~425~~732,~~140~~ 880 in 2007. The ~~decrease~~increase in ~~costs~~net loss attributable to common shareholders was ~~primarily~~ mainly due to ~~a corresponding~~the decrease in operating income and significant ~~decrease~~increases in ~~revenue~~interest expense, pre-payment penalty on convertible and non-convertible note, and the write off of unamortized deferred financing costs and discounts on the convertible and non-convertible note. Details of expense fluctuations will be discussed in the section “Non Operating Income and Expenses”.

Gross profit margin for the six months ended June 30, 2007 increased, from approximately 14.47% in 2006 to 16.66% in 2007 and gross profit (revenue minus cost of forwarding) for the six months ended June 30, 2007 increased 13%, from $9,809,295 in 2006, to $11,081,053 in 2007.

Net loss for the six months ended June 30, 2007 increased approximately 324%, from net income of $656 in 2006, to a net loss of $2,121,865 in 2007. The increase in net loss was mainly due to the significant increases in general and administrative expenses. Details of expense fluctuations will be discussed in the sections "Operating expenses".

Net loss attributable to common shareholders for the six months ended June 30, 2007 increased approximately 171%, from a net loss of $976,911 in 2006 to a net loss of $2,647,476 in 2007. The increase in net loss attributable to common shareholders was mainly due to the significant increases in interest expense, pre-payment penalty on convertible and non-convertible note, and the write off of unamortized deferred financing costs and discounts on the convertible and non-convertible note. Details of expense fluctuations will be discussed in the section “Non Operating Income and Expenses”.

BUSINESS SEGMENT OPERATING RESULTS

The results of operations for each segment are as follows:

AIRFREIGHT OPERATIONS: Revenue from airfreight operations decreased approximately 21%, from $4370,~~755~~543,~~509~~346 infor the ~~first~~nine ~~half~~months ofended September 30, 2006 to $3455,~~775~~744,~~047~~002 in the same period of 2007. Airfreight revenue for foreign operations (which includes AGI Group and AGI Singapore) was $2134,~~381~~124,~~291~~507, while airfreight revenue for domestic operations (which includes Airgate and Paradigm) was $1725,~~796~~212,~~839~~245, and ~~offsetting~~ offsetting inter-company transactions totaled $43,~~403~~592,~~083~~750. The decrease was primarily due to (i) the decrease in volume of airfreight ~~reduced~~ in the ~~second~~third quarter of 2007 compared with 2006 (ii) the scaling down of Paradigm International Inc.’s operations in Miami during the third quarter of 2006 and (iii) Airgate has also ceased doing business with some lower credit ~~wothiness~~worthy customers during the second and third quarter of 2007 in order to reduce our credit risk and improve our cash flow.

Costs for airfreight forwarding operations decreased approximately 22%, from $60,232,867 for the nine months ended Spetember 30, 2006 to $46,777,636 in the same period of 2007. Airfreight cost attributable to foreign operations was $28,620,951, while airfreight cost attributable to domestic operations was $21,749,436 and offsetting inter-company costs were $3,592,751. The airfreight cost decrease in 2007 was due to the corresponding decrease in revenue from airfreight forwarding. However, increased fuel surcharges have been passed on to customers during 2007, gross profit margin increased from approximately 14.62% in 2006 to approximately 16.08% in 2007. Despite the decrease in revenue, overall gross profits increased approximately 1.4% to $8,966,366.

Total segment overhead attributable to the airfreight operations decreased by approximately 19%, from $4,897,259 for the nine months ended September 30, 2006 to $3,964,385 in the same period of 2007, as a result of greater resources being allocated to seafreight operations. Details regarding the decrease in overhead expenses are discussed below in "Non Operating Income and Expenses".

Overall, net segment income for the airfreight operation decreased by approximately 17% from $4,748,827 for the nine months ended September 30, 2006 to $3,961,640 in the same period of 2007. The decrease in net income was mainly the result of decrease in revenue.

SEA FREIGHT OPERATION: Revenue from sea freight operations increased approximately 12% to $48,314,408 for the nine months ended September 30, 2007 from $42,272,559 in the same period of 2006. Sea freight revenue for foreign operations was $18,505,666, while sea freight revenue for domestic operations was $33,228,249, and offsetting inter-company transactions were $3,419,507. The increase in revenue was due to the contribution from the new branch offices of Shenzhen Careship in China. It was also due to the shifting of airfreight to seafreight by certain of our customers.

The increase in revenue for 2007 from 2006 was due to revenues derived from new customers in European countries. In addition, our agents in India, Japan and Turkey introduced more customers into our network, which led to greater revenue from the Shanghai market in the first quarter of 2007.

Costs for ~~airfreight~~the sea freight forwarding ~~operations~~operation ~~decreased~~increased approximately 2512%, from $3736,~~103~~751,~~944 in~~309 for the ~~first~~nine ~~half~~months ofended September 30, 2006 to $2741,~~690~~056,~~125~~767 in the same period of 2007. ~~Airfreight cost~~Sea freight costs attributable to foreign operations ~~was~~ were $1815,~~009~~782,~~201~~333, while ~~airfreight~~costs ~~cost~~ attributable to domestic operations ~~was~~were $1428,~~048~~693,~~963~~ 941, and ~~offsetting~~ inter-company costs were $43,~~368~~419,~~039~~507. The ~~airfreight~~gross ~~cost~~profit ~~decrease~~margin ~~in 2007 was due to the~~increased ~~corresponding decrease in revenue~~ from ~~airfreight forwarding. However~~, ~~increased~~ ~~fuel surcharges have been passed on to customers during 2007, gross profit margin increased from~~ approximately 1513.20 06% in 2006 to approximately 2015.3702% in 2007. As a result of increased ~~the increase in gross profit margin~~revenues, overall gross profits increased approximately ~~6.5~~2%, to $7,~~084~~257,~~922~~641.

Total segment overhead attributable to the ~~airfreight~~sea ~~operations~~freight ~~increased~~operation byincreased approximately 1718%, from $2,~~750~~604,~~364~~401 infor the ~~first~~nine ~~half~~months ofended ~~2006~~September 30, 2006 to $3.061,~~217,997~~ 837 in the same period of 2007, as a result of greater resources being allocated to ~~airfreight~~ sea freight operations. Details regarding the increase in overhead ~~expenses~~ expenses are discussed below in "Non Operating Income and Expenses". Overall net income for the sea freight operation increased approximately 38%, from $2,607,228 for the nine months ended September 30, 2006 to $3,604,642 in the same period of 2007. The increase in net segment income was mainly the result of increased air costs causing customers to concentrate on seafreight.

Overall, net segment income for the airfreight operation slightly decreased by approximately 1% from $3,901,201 in the first half of 2006 to $3,866,925 in the same period of 2007. The decrease in net income was mainly the result of decrease in revenue.

SEA FREIGHT OPERATION: Revenue from sea freight operations increased approximately 32% to $31,731,146 in the first half of 2007 from $24,004,762 in the same period of 2006. During the first half of 2007, sea freight revenue for foreign operations was $11,377,933, while sea freight revenue for domestic operations was $20,733,816, and offsetting inter-company transactions were $380,603. The increase in revenue was due to the contribution from the new branch offices of Shenzhen Careship in China. It was also due to the shifting of airfreight to seafreight by certain of our customers.

Costs for the sea freight forwarding operation increased approximately 33%, from $20,847,032 in the first half of 2006 to $27,735,015 in the same period of 2007. Sea freight costs attributable to foreign operations were $9,459,712, while costs attributable to domestic operations were $18,690,948, and inter-company costs were $415,645. The gross profit margin declined from, approximately 13.15% in 2006 to approximately 12.60% in 2007. As a result of increased revenues, overall gross profits increased approximately 26.55%, to $3,996,131.

Total segment overhead attributable to the sea freight operation increased approximately 124.96%, from $1,449,308 in the first half of 2006 to $3,260,343 in the same period of 2007. Overall net income for the sea freight operation decreased approximately 56.93%, from $1,708,422 in the first half of 2006 to $735,788 in the same period of 2007. The decrease in net segment income was mainly the result of the greater resources being allocated to seafreight operations in 2007.

OPERATING EXPENSES

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses increased approximately 1815%, from $914,~~217~~078,~~541~~375 for the ~~six~~ nine months ended ~~June~~September 30, 2006 to $1016,~~861~~708,~~408~~574 for the same period ~~of 2007.~~ ~~There~~of 2007. There was a significant incremental increase in expenses for the following ~~items~~ items for the ~~six~~nine months ended ~~June~~September 30, 2007: sales commissions, rent and rates, as well as salaries and allowance. As the Company has been continuously growing and in order to cope with future growth, our staff planning needs called for the hiring of additional staff throughout our offices during 2006 and 2007.

Sales commission: Sales commission increased approximately 4322% from $12,~~264~~037,~~671~~566 for the ~~six~~nine months ended ~~June~~September 30, 2006 to $12,~~802~~490,~~636~~693 for the same period of 2007; ~~the~~ the increase is a result of increase in business generated by a leading salesman who received a higher commission rate for his high profit margin business.

Rent and Rates: Rent and rates increased approximately 9561%, from $~~434~~730,~~030~~625 for the ~~six~~nine months ended ~~June~~September 30, 2006 to $~~847~~1,~~235~~174,519 for the same period of 2007. The ~~increase~~ increase was due to the new leases for the expansion of the office spaces in ~~our HK,~~ ~~PRC~~our HK, PRC and Los Angeles offices during the last half of 2006 in order to cope ~~with~~ with the growth of these subsidiaries.

1918

Salaries and allowance: Salaries and allowance increased approximately 9% from $46,~~219~~366,~~586~~626 for the ~~three~~nine months ended ~~June~~September 30, 2006 to $47,~~608~~026,~~820~~222 for the same period of 2007. This increase was the result of the addition of approximately 40 staff persons during 2006 and ~~the first half of 2007~~ in order to keep pace with our expansion in ~~expansion~~2007.

STOCK-BASED COMPENSATION COST

Stock-based compensation cost ~~remained~~increased ~~the~~approximately ~~same~~32% atfrom $69153,~~824~~850 for the ~~six~~nine months ~~ended June~~ ended September 30, 2006 ~~and~~to $104,735 for the same period of 2007.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization increased approximately 2914% from $~~504~~774,~~126~~082 for the ~~six~~nine months ended ~~June~~September 30, 2006 to $~~649~~886,~~819~~724 for the same period of 2007. The increase ~~was~~ was mainly attributable to purchases of additional fixture and furniture and ~~office~~ office equipment for the new offices in Los Angeles and Hong Kong during 2006 ~~and~~ and 2007.

Amortization arises from intangible customer relationship assets recorded in conjunction with the acquisitions of Airgate on April 30, 2002, Paradigm on April 30, 2004, WCL on July 1, 2005 and May 1, 2006, and Parco on January 2, 2007. These intangible assets are amortized on a straight-line basis over a period of five to eight years. During ~~first~~the ~~half~~nine ofmonths ended September 30, 2007 and 2006, the amortization expense attributable to these assets was $~~236~~258,~~837~~586 and $~~303~~455,~~227~~366, respectively, a decrease of $~~66,390~~196.780.

NON OPERATING INCOME AND EXPENSES

INTEREST AND OTHER INCOME

Interest and other income ~~decreased~~increased from $~~208,767~~22 for the ~~six~~nine months ended ~~June~~September 30, 2006 to $~~164~~490,~~879~~293 for the same period of 2007. This ~~decrease~~increase is mainly due to the ~~writte~~increase ~~off of long outstanding payables of approximately $45,000~~ in the ~~book of Paradigm~~amount ~~Global Logistics during the second quarter~~ of ~~2006.~~bank ~~There~~pledge isdeposits nosecuring ~~such~~additional banking ~~write off during the first half of 2007~~facilities.

INTEREST EXPENSE

20Interest expense increased from $199,954 for the nine months ended September 30, 2006 to $845,034 for the same period of 2007. The increase in interest expense is primarily due to the increase in interest rates during the nine months ended September 30, 2007 and the increase in notes payable from banking facilities.

Interest expense increased from $389,152 for the six months ended June 30, 2006 to $518,874 for the same period of 2007. The increase in interest expense is primarily due to the increase in interest rates during second half of 2006 and the increase in notes payable from banking facilities.

PRE-PAYMENT PENALTY ON CONVERTIBLE AND NON-CONVERTIBAL NOTE

CONVERTIBLE NOTE AND NON-CONVERTIBLE NOTE AMORTIZATION OF DEFERRED FINANCING COST

The deferred financing costs related to Convertible Note and Non-Convertible Note is amortized over their term to maturity, which is three years. AIt ~~total~~remained ~~of $403,502~~the ~~and~~same at $4067,~~467~~143 ~~was expensed~~ for the ~~first~~nine ~~half~~months ofended ~~2007~~September ~~and~~30, 2006, ~~respectively. The increase~~and ~~in expense was~~ the ~~result~~same ~~of the early repayment of the notes resulting~~period ~~in the outstanding amount~~ of ~~the deferred financing costs relate to the notes being expensed~~2007.

AMORTIZATION OF CONVERTIBLE NOTE AND NON-CONVERTIBLE NOTE DISCOUNT

This discount is amortized ratably over the term of the Convertible Note and Non-Convertible Note, which is three years. A total of $487,190 and $2443,~~674~~074 of the discount was amortized into expense for the ~~six~~nine months ended ~~June~~ September 30, ~~2007~~ 2007 and 2006, respectively. The increase in expense was the result of the early repayment of the notes resulting in the outstanding amount of the deferred financing costs relate to the notes are written off. The increase was also due to the effective interest rate method being used to calculate the expenses. The expense becomes larger when amortized deferred financial cost and loan balance becomes larger.

REVOLVING NOTE AMORTIZATION OF DEFERRED FINANCING COSTS

On April 6, 2007, the Company completed a financing transaction with Wells Fargo Bank, National Associates ( “ Wells Fargo ” ). The deferred financing costs related to this revolving note are amortized over the term of the note, which is two years. A total of $4692,~~239~~312 was expensed for the ~~six~~nine months ended ~~June~~September 30, 2007

2120

ACCRETION OF SERIES A PREFERRED STOCK, NET TO REDEMPTION VALUE AND DIVIDENDS

Accretion of Series A Preferred Stock and Dividends was $~~525~~450,~~611~~ 111 and $ 977,567 for the ~~six~~nine months ended ~~June~~September 30, 2007 and 2006, respectively. The decrease is ~~primarily~~ primarily related to the conversion of 1,450 shares of preferred stock into common stock during 2006, and the deferred costs related to those shares were ~~expensed~~ expensed immediately after redemptions.

LIQUIDITY AND CAPITAL RESOURCES

We provided approximately $~~257~~857,~~995~~567 and $~~934~~788,~~970~~208 of cash from operating activities for the ~~six~~nine months ended ~~June~~September 30, 2007 and 2006, respectively. This ~~decrease~~ increase in cash from operations was mainly attributable to the larger net loss in 2007, amortization of convertible and non-convertiable note discount and its ~~deferred~~ deferred financing cost.

Net cash used in investing activities was $~~942~~(767,~~311~~346) and $(1,~~645~~817,~~977~~996) for the three ~~months~~ months ended ~~June~~September 30, 2007 and 2006, respectively. During the ~~six~~nine months ~~ended June~~ ended September 30, 2007, we used $~~309~~467,~~748~~859 to purchase equipment to improve our office facilities and used $718,939 for acquisition of Parco. We received a partial refund, $140,000 of our deposit from an equity investment that we ultimately declined.

Net cash used in financing activities was $1151,~~269,364~~197 and $12,~~357~~301,~~493~~935 for the three months ended ~~June~~September 30, 2007 and 2006, respectively. During the ~~six~~nine months ended ~~June~~ September 30, 2007, we made principal payments under capital lease obligations and repayment of profit tax loan and short-term loan of $2750,~~218~~092 and $~~614~~849,~~066~~398, ~~respectively.~~ respectively. During the ~~second~~third quarter of 2007, we repaid the convertible and non-convertible note of $4 millions while have proceed of revolving loan from two commercial banks for $4,405,698. With our lockbox arrangement with Wells Fargo and the banking facilitates with other banks our restricted cash increased $1960,~~072,419~~328. Moreover, $69,906 was used to pay dividends on preferred stock and net ~~proceeds~~ proceeds from note payable in bank were $511,861.

Working capital was $1(2,~~146~~956,~~796~~329) (inclusive of restricted cash of approximately $64.9. million) and $5,863,185 (inclusive of restricted cash of approximately $5.9 million) as of ~~June~~September 30, 2007 and December 31, 2006, respectively. WeThe decrease ~~believe~~in working capital is due to $1,026,343 was used for acquisition of 100% of common stock of Parco Shipping Company Limited, $53,624 was used for acquisition of 49% of outstanding common stock of AGI Logistics (Vietnam) Limited. We believe that we will be able to rely on cash flow from operations for short-term liquidity, and also believe that we have adequate liquidity to satisfy our material commitments for the twelve months following ~~June 30, 2007. Subsequent~~September ~~to the quarter ended June~~ 30, 2007. On July 17, 2007, the Company entered into a Loan and Security Agreement, with BHC Interim Funding II, L.P. (“BHC”), The Company received an additional $3,292,000 in funding, excluding approximately $208,000 in fees, costs and expenses of BHC (the “BHC Financing”).

2221

The $2,950,000 received from the BHC Financing was used to repurchase 3,000 shares of the Company’s Series A Preferred Stock and 937,500 common stock purchase warrants from Midsummer Investment Limited (“Midsummer”). The stated value of 3,000 shares of the Company’s Series A Preferred Stock is $3,000,000 and they had a current redemption value of $3,300,000.

We intend to continue our expansion plans through a mixture of organic growth and acquisitions. Future acquisitions will focus on companies that serve as freight forwarders in key markets or offer services (such as customs brokerage) that complement our existing services. We intend to achieve organic growth through the establishment of new branch offices in Latin America, joint ventures in the PRC and through a major marketing campaign through the Indian subcontinent, including India, Sri Lanka and Bangladesh. In order to achieve this goal, we will be required to raise a certain amount of capital. To a certain extent, these activities will have a significant impact on both liquidity and capital resources.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENT

We have entered into various contractual obligations, which are summarized as follows:

Payments Due by Period

~~Payments Due by Period~~

Contractual Obligations

Total

~~Total~~

Less than 1 year

~~Less than 1 year~~

1-3 years

~~1-3 years~~

4-5 years

~~4-5 years~~

Capital Lease Obligations

~~173~~150,~~766~~893

6660,~~988~~318

~~106~~90,~~778~~575

--—

Operating Leases

32,~~426~~765,~~011~~710

21,~~313~~472,~~649~~920

1,~~109~~291,~~798~~102

21,~~564~~688

Cargo Space Commitments

1,537,600

--—

2322

We have entered into various lease commitments for office premises and warehouses in the United States, Hong Kong, Singapore and China.

We have entered into written agreements with various sea and airfreight carriers committing to take up a guaranteed minimum amount of cargo space each year.

2423

As of ~~June~~September 30, 2007, our commercial commitments may be summarized as follows:

		Total Amounts		Amount of Commitment Less than		Expiration Per Period
Other Commercial Commitments	Total AmountsCommitted		Amount ofCommitment Less than1 year		Expiration PerPeriod1-3 years
Other Commercial Commitments		Committed		1 year		1-3 years
	$		$		$
		$		$		$
Bank Overdraft and Invoice Trust Receipt		6,265,700		6,265,700		—
Bank Overdraft and Invoice Trust Receipt		7,226,316		7,226,316		--
Guarantees by bank		1,225,384		1,225,384		—
Guarantees by bank		1,225,384		1,225,384		--
Revolving notes		3,105,340		3,105,340		—
Revolving notes		3,889,590		3,889,590		--
Payable - minority shareholders		143,791		143,791		—
Payable - minority shareholders		143,640		143,640		--

As of ~~June~~September 30, 2007, to finance our working capital, our available banking ~~facilities~~ facilities were $97,~~551~~237,~~752~~174 with creditworthy commercial banks in Hong Kong. As of that date, the total amount of bank credit facilities utilized was $76,~~226~~265,~~316~~700. This was made up of (i) $3,~~917~~137,~~412~~391 of overdrafts; (ii) $3,~~308~~128,~~904~~ 309 of invoice trust receipts. Moreover, we had a borrowing facility with Wells Fargo totaling $10 millions. As of ~~June~~September 30, 2007, the total amount outstanding under this credit facility was $3,~~889~~105,~~590~~340.

The interest payment of bank overdraft and invoice trust receipt were $396,983 for the period of nine month ended September 2007. Increased 23% comparing to the same period of 2006, due to the increase of using of short term financing.

While the banks are not obligated to advance any further funds to us, we believe that absent any significant downtrend in business, these sources of credit will continue to be available to us.

Effective April 6, 2007, the Company completed a financing transaction with Wells Fargo pursuant to the terms of the C&S Agreement, by and between the Company, certain of the Company’s United States subsidiaries (the “Subsidiaries”), and Wells Fargo (the “Well Fargo Financing”). Pursuant to the C&S Agreement, the Company issued to Wells Fargo a revolving note in the principal amount of $10 million (the “Note”).

On that date, the Company received initial funding under the Wells Fargo Financing of approximately $2,947,000, excluding fees and costs in the amount of $50,000 payable to Wells Fargo, in connection with the Wells Fargo Financing. This initial funding was used to pay all of the Company’s payment obligations under its financing arrangements with Laurus.

The interest rate on the Note is Wells Fargo’s prime rate, plus 0.75%. Prime at ~~June~~ September 30, 2007 was 8.25%.

2524

OUTLOOK

We believe the following factors may have a positive impact on our future results of operation and our financial conditions:

CHINA'S INCREASED EXPORTS

According to the report on China’s 2006 Economic, Social Development Plan issued by official Chinese News Agency Xinhua, China’s economic growth was fast but steady. China’s GDP for the year 2006 reached 20.94 trillion yuan, up 10.7 percent from the year before. Economic development became more stable, and the development of service industries related to business and production such as logistics, banking, insurance and information services was accelerated.

The report states that vigorous efforts were made to change the pattern of growth of China’s foreign trade. The country’s export and import volume reached US$1.76 trillion in 2006, up 23.8 percent from the year before. Because the current international environment should remain favorable overall and domestic enterprises and their products are becoming more competitive, growth in exports should remain strong. There should be a reasonable increase in the scale of imports as a result of the end of the transition period for China’s WTO entry coupled with policies to encourage imports and the service trade, which should hold down the excessive rate of increase in the trade surplus to a certain extent.

The report also estimates that government revenue for the year 2007 will total 4.4065 trillion yuan, with GDP increasing by about 8%. GDP growth has hovered around 10% or slightly higher in recent years.

As a result, the rising trading power of China has been especially important for transportation companies. With extensive operational centers based in Hong Kong and South China, management believes the Company is well positioned to take advantage of this rapid growth in trade.

CLOSER ECONOMIC PARTNERSHIP

We have updated our research on the effects of CPEA since it became operational, and certain of the following information was extracted from the Trade and Industry Department, The Government of HKSAR Press Release “The CEPA benefits Hong Kong economy” on January 5, 2006.

The Closer Economic Partnership Arrangement ("CEPA") that was signed on June 29, 2003, originally focused on stimulating and enhancing Hong Kong's economic recovery. After that, Six Annexes to CEPA Main Text, Supplement to CEPA (CEPA II) and Supplement II to CEPA (CEPA III) were subsequently signed on September 23, 2003, October 27, 2004 and October 18, 2005, respectively. In theory, CEPA significantly lowers the barriers for Hong Kong enterprises to tap the Mainland China market. Now in its third year of operation, CEPA fostered closer economic co-operation between the Mainland and Hong Kong and contributed to the long-term economic development in both places.

Under the CEPA, Hong Kong companies are permitted to set up wholly owned enterprises in Mainland China to provide logistics services and related consultancy services for ordinary road freight, and to engage in the management and operation of logistics services through electronic means. It permits freight forwarding agents to operate in Mainland China on a wholly owned basis a full two years ahead of China's WTO entrance timetable, and will permit such agents to enjoy national treatment in respect of the minimum registered capital requirement.

CEPA III, signed in October 2005, just came into effect on January 1, 2006, provides tariff-free access for all products of Hong Kong origin (except prohibited articles) imported into the Mainland upon applications by local manufacturers and upon CEPA rules of origin being met and agreed upon. On trade in services, taking the three phases of CEPA together, the Mainland has agreed to provide preferential treatment to Hong Kong service suppliers in 27 service areas. Twenty three liberalization measures spread across 10 service areas, including distribution and transport, became effective on January 1, 2006 under CEPA III.

In reviewing its operations in the past two years, CEPA has been implemented smoothly since its inception. More than 10,000 applications for Certificate of Origin under CEPA (CO(CEPA)), with a total export value exceeding HK$3.5 billion (around US$449 million) have been issued. The products concerned range from textiles and clothing and foods to pharmaceutical, plastics and plastics products. The amount of CO(CEPA) issued and the value of CEPA exports in 2005 both recorded more than a 100% increase compared with 2004 after a wide range of products including food and beverages were granted zero-tariff preference under CEPA II.

2726

Through our Hong Kong-based AGI Logistics (HK) Ltd and Careship International Transportation Limited, we believe we can enjoy "first mover" advantage; that is, we believe that our Hong Kong-based subsidiaries can benefit from CEPA because we have experience in doing business in, and we believe that we are knowledgeable in the PRC regulations and business practices. We believe that our existing offices in Hong Kong and Mainland China can also respond quicker than other U.S. freight forwarders to ongoing developments in China.

OUTSOURCING OF NON-CORE ACTIVITIES

Companies are increasingly outsourcing freight forwarding, warehousing and other supply chain activities so that they may focus on their respective core competencies. Companies are increasingly turning to freight forwarders, and logistics and supply chain management providers, to manage their purchase orders and assure timely delivery of products at a lower cost and at greater efficiency than if the function was undertaken directly.

GLOBALIZATION OF TRADE

As barriers to international trade are gradually reduced, international trade will similarly increase. In addition, companies are increasingly sourcing for supplies and raw materials from the most competitive suppliers throughout the world. This form of sourcing would generally also lead to increased volumes of trade.

INCREASED NEED FOR TIME-DEFINITE DELIVERY

The demand for just-in-time and other time definite delivery has increased as a result of the globalization of manufacturing, greater implementation of demand-driven supply chains, the shortening of product cycles and the increasing value of individual shipments.

Companies are decreasing the number of freight forwarders and supply chain management providers with which they interact so that they work with providers who are more familiar with their requirements, processes and procedures, and who can function as long-term partners. As such, freight forwarders that are globally integrated and are able to provide a full complement of services, including pick-up and delivery, shipment via air, sea and land, warehousing and distribution and customs brokerage, are well positioned to gain from this shift.

2827

The following is a list of significant new developments occurring since December 31, 2006:

In April 2007, we completed a financing transaction with Wells Fargo pursuant to the terms of the C&S Agreement, by and between the Company, certain of the Company’s United States subsidiaries, and Wells Fargo (the “Wells Fargo Financing”). Pursuant to the C&S Agreement, the Company issued to Wells Fargo a revolving note in the principal amount of $10 million (the “Note”) representing the maximum amount that the Company may be advanced pursuant to the terms of the C&S Agreement. The Company received approximately $2,950,000 as an initial advance under the Wells Fargo Financing that was used to pay the Company’s indebtedness to Laurus.

In July 2007, pursuant to a Loan and Security Agreement with BHC, Airgate International, Inc. (NY), the Company, Airgate International Corporation (Chicago), Paradigm International, Inc., Pacific CMA International, LLC, the Company’s three other U.S. Subsidiaries (the “Other U.S. Subsidiaries”) and AGI Logistics (Hong Kong), Ltd., a Hong Kong subsidiary of the Company (“AGI”), the Company received an additional $3,292,000 in funding, excluding approximately $208,000 in fees, costs and expenses of BHC (the “BHC Financing”). The $2,950,000 received from the BHC Financing was used to repurchase 3,000 shares of the Company’s Series A Preferred Stock and 937,500 common stock purchase warrants from Midsummer Investment Limited (“Midsummer”). BHC received a Term Note in the principal amount of $3,500,000 bearing interest at the rate of 12% per year. The Loan and Security Agreement provides for additional potential funding of up to $1,500,000. The Term Note matures on July 16, 2009.

In late 2006, the staff of the American Stock Exchange (the “AMEX”) advised that they had determined to proceed with the filing of an application with the SEC to strike our common stock from listing and registration on the AMEX, based upon assertions of alleged events relating to our initial listing application. We deny the AMEX’s allegation. However, resisting these allegations drew management’s time and attention away from our business and the fees of the Company’s counsel and experts continued to mount. As a result, we decided to voluntarily delist our securities from the AMEX and the delist letter was withdrawn.

· Subsequent to the quarter ended June 30, 2007. On July 17, 2007, the Company entered into the BHC Financing, The Company received an additional $3,292,000 in funding, excluding approximately $208,000 in fees, costs and expenses of BHC. The $2,950,000 received from the BHC Financing was used to repurchase 3,000 shares of the Company’s Series A Preferred Stock and 937,500 common stock purchase warrants from Midsummer Investment Limited (“Midsummer”). The stated value of 3,000 shares of the Company’s Series A Preferred Stock is $3,000,000 and they had a current redemption value of $3,300,000.28

Item 3. Quantitative And Qualitative Disclosure About Market Risk

The Company is exposed to market risk in the ordinary course of its business. These risks are primarily related to foreign exchange risk and changes in short-term interest rates. The potential impact of the Company's exposure to these risks is presented below:

FOREIGN EXCHANGE RISK

The Company conducts business in many different countries and currencies. The Company's business often results in revenue billings issued in a country and currency, which differs from that where the expenses related to the service are incurred. This brings a market risk to the Company's earnings. Foreign exchange rate sensitivity analysis can be quantified by estimating the impact on the Company’s earnings as a result of hypothetical change in the value of the U.S. Dollar, the Company's functional currency, relative to the other currencies in which the Company transacts business. As one of the major subsidiaries uses the Hong Kong Dollar (HKD), which has been linked to the U.S. Dollar at a rate of HKD 7.80 to USD 1.00, as its functional currency, there has been no material change in the Company's foreign exchange risk exposure. However, if HKD was unlinked to the US Dollar, an average 10% weakening of the U.S. Dollar, throughout the period ended June 30, 2007, would have had the effect of raising operating income approximately $22,000. An average 10% strengthening of the U.S. Dollar, for the same period would have had the effect of reducing operating income by approximately $19,000. The Company currently does not utilize any the derivative financial instruments or hedging transactions to manage foreign currency risk.

INTEREST RATE RISK

The Company does not currently utilize derivative financial instruments to hedge against changes in interest rates. At June 30, 2007, the Company had cash and cash equivalents and restricted cash of $7.7 million and short-term borrowings of $13.2 million, all subject to variable short-term interest rates. A hypothetical change in the interest rate of 10% would have an insignificant impact on the Company's earnings. In management’s view, there has been no material change in Company's market risk exposure between December 31, 2006 and June 30, 2007.

Item 4. Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act), as of the end of the period covered by this quarterly report. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, errors, and instances of fraud, if any, have been or will be detected. The inherent limitations include, among other things, the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls and procedures also can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or employee override of the controls and procedures. The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls and procedures may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. If and when management learns that any control or procedure is not being properly implemented, (a) it immediately reviews our controls and procedures to determine whether they are appropriate to accomplish the control objective and, if necessary, modifies and improves our controls and procedures to assure compliance with our control objectives, (b) it takes immediate action to cause our controls and procedures to be strictly adhered to, (c) it immediately informs all relevant managers of the requirement to adhere to such controls, as well as all relevant personnel throughout our organization, and (d) it implements in our training program specific emphasis on such controls and procedures to assure compliance with such controls and procedures. The development, modification, improvement, implementation and evaluation of our systems of controls and procedures is a continuous project that requires changes and modifications to them to remedy deficiencies, to improve training, and to improve implementation in order to assure the achievement of our overall control objectives.

3130

Virchow, Krause and Company, LLP (“VK”), our independent auditors, advised our management and Audit Committee that during the course of the 2006 audit, material weaknesses in internal control were noted relating to an insufficient review of our allowance for doubtful accounts.

Based on discussions with our auditors, we recognized a need to enhance procedures. In 2006, we provided an additional reserve on our accounts receivable and corrected the material weaknesses by enhancing review procedures in the first quarter of 2007.

Consequently, taking into account the issues and corrective measures described above, based upon the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer have concluded that, subject to the limitations noted above, our disclosure controls and procedures as of June 30, 2007 were effective to ensure that material information relating to us and our consolidated subsidiaries is made known to them by others within those entities to allow timely decisions regarding required disclosures.

Except for the corrective measures referred to above, there have been no other changes in our internal controls, or in other factors that could significantly effect internal controls, subsequent to the date the Chief Executive Officer and the Chief Financial Officer completed their evaluation.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

3231

In the matter of Grant Peck and Dean Sessions v. Pacific CMA, Inc. , Messrs. Peck and Sessions each currently own 128,438 restricted shares in the ~~Company~~ Company (the “P&S Shares”). They commenced an action against the Company for declaratory judgment seeking a judicial determination of their right to sell the P&S Shares pursuant to the exemption set forth in Section 4(1) of the Securities Act of 1933, as amended (the “Act”). Following a bench trial in May 2007, the court found in our favor. The plaintiffs have appealed the court’s decision.

Item 1A. Risk Factors

It may be difficult to effect transactions in our stock as we have been delisted from AMEX.

As our common stock has been delisted from the AMEX, since our delisting from the AMEX, our shares are eligible to trade in the “Pink Sheets ”. Any trading in the “ Pink Sheets ” may be volatile and may provide only limited liquidity. Unexpected decline in airfreight traffic between Asia Pacific and the United States.

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

None

3332

Item 3. Defaults Upon Senior Securities

None

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

During our Annual Meeting of Stockholders held on June 29, 2007, all of our directors were reelected by the vote of at least 87% of all our issued and outstanding shares of common stockNone. Alfred Lam, Scott Turner, Louisa Chan, Kwong Sang Liu, Kenneth Chik and Chung Leung Yu were reelected to our Board of Directors. Also at that meeting, our shareholders, representing approximately 88% of all of our issued and outstanding shares of common stock, ratified the appointment of our auditors, Virchow Krause, Company, LLP, for our fiscal year to end December 31, 2007.

Item 5. Other Information

None

Item 6. Exhibits

(a)

Exhibits (filed herewith)

31.1

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)).

31.2

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)).

32.1

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(b)).

32.2

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(b)).

3433

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.

	PACIFIC CMA, INC.
Date: August 14, 2007	By:	/s/ Alfred Lam
Date: November 14, 2007	By:	/s/ Alfred Lam
		Name: Alfred Lam Title: Chairman of the Board of Directors (Principal Executive Officer)

Date: August 14, 2007	By:	/s/ Anita Chan
Date: November 14, 2007	By:	/s/ Anita Chan
		Name: Anita Chan Title: Chief Financial Officer (Principal Financial and Accounting Officer)

3534

Filing Compare · PACIFIC CMA INC