Target Logistics Inc (Other) (10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended June 30, 2007 or

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

Commission file number: 0-29754

TARGET LOGISTICS, INC.

(Exact name of registrant as specified in its charter)

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

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

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

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, $0.01 par value		American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None
Title of Class

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes o No x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or other information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer x

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

Yes o No x

The aggregate market value of Common Stock, $.01 par value, held by non-affiliates of the registrant based on the closing sales price of the Common Stock on the American Stock Exchange on December 31, 2006, was $16,360,493.

The number of shares of common stock outstanding as of September 17, 2007 was 18,076,735.

TARGET LOGISTICS, INC.

2007 Annual REPORT ON FORM 10-K

Table of Contents

		Page

PART I

Item 1.	Business	3
Item 1A.	Risk Factors	6
Item 1B.	Unresolved Staff Comments	9
Item 2.	Properties	10
Item 3.	Legal Proceedings	10
Item 4.	Submission of Matters to a Vote of Security Holders	11

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	12
Item 6.	Selected Financial Data	14
Item 7.	Management’s Discussion and Analysis of Financial Conditions and Results of Operations	14
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 8.	Financial Statements and Supplementary Data	19
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	19
Item 9A.	Controls and Procedures	19
Item 9B.	Other Information	19

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	20
Item 11.	Executive Compensation	21
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	24
Item 13.	Certain Relationships, Related Transactions and Director Independence	26
Item 14.	Principal Accountant Fees and Services	26

PART IV

Item 15.	Exhibits and Financial Statement Schedules	28

	Signatures	30

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PART I

ITEM1.

BUSINESS

Background

Target Logistics, Inc. (“we” or “the Company”) provides freight forwarding services and logistics services, through our wholly owned subsidiary, Target Logistic Services, Inc. (“Target”). Our principal executive office is located at 500 Harborview Drive, Third Floor, Baltimore, Maryland 21230, and our telephone number is 410-332-1598. Information about us may be obtained from our website www.targetlogistics.com. Copies of our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, are available free of charge on the website as soon as they are filed with the Securities and Exchange Commission (SEC) through a link to the SEC’s EDGAR reporting system. Simply select the “Investors” menu item, then click on the “SEC Filings” link. The SEC’s EDGAR reporting system can also be accessed directly at www.sec.gov . The Company was incorporated in Delaware in January 1996 as the successor to operations commenced in 1970.

On September 17, 2007 (subsequent to the period covered by this Annual Report), the Company, Mainfreight Limited, a New Zealand corporation (“Mainfreight”), and Saleyards Corp., a Delaware corporation and wholly owned subsidiary of Mainfreight (“Saleyards”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Saleyards will merge with and into Target (the “Merger”), with Target continuing as the surviving corporation and a wholly owned subsidiary of Mainfreight.

Upon consummation of the Merger, each share of our Common Stock, par value $0.01 per share (the “Common Stock”) issued and outstanding immediately prior to the Merger (other than shares of Common Stock with respect to which a demand for appraisal pursuant to the General Corporation Law of the State of Delaware (the “DGCL”) has been properly made, and any shares of Common Stock owned by Mainfreight, Saleyards and any wholly owned subsidiary of Mainfreight) will be canceled and will be converted automatically into the right to receive $2.50 in cash payable to the holder thereof, without interest. Each Share of our Class F Preferred Stock, par value $10.00 per share (the “Class F Stock”) issued and outstanding immediately prior to the Merger (other than shares of Class F Stock with respect to which a demand for appraisal pursuant to the DGCL has been properly made, and any shares of Class F Stock owned by Mainfreight, Saleyards and any wholly owned subsidiary of Mainfreight) will be canceled and will be converted automatically into the right to receive $62.50 in cash (the equivalent of $2.50 per share of Common Stock multiplied by 25, which is the number of shares of Common Stock into which each share of Class F stock may be converted) payable to the holder thereof, without interest.

Under Section 251 of the DGCL, the affirmative vote of the holders of a majority of the voting power of the outstanding shares of the Company’s voting stock is required to approve the Merger Agreement and the Merger. On September 17, 2007, three stockholders that, in the aggregate, are the record owners of 10,978,853 Shares and all of the Class F Shares, representing in the aggregate approximately 66.4% of the outstanding voting power of the Company, executed and delivered to the Company written consents adopting the Merger Agreement and approving the Merger. Accordingly, the Merger has been approved by holders representing approximately 66.4% of the outstanding voting securities of the Company, and no vote or further action of the stockholders of the Company is required to adopt the Merger Agreement or approve the Merger.

The parties have made customary representations, warranties and covenants in the Merger Agreement, including, among others, the Company’s agreement (subject to certain exceptions) (i) to conduct its business in the ordinary course consistent with past practice between the execution of the Merger Agreement and consummation of the Merger, and not to engage in certain kinds of transactions during this period; to (ii) to use its reasonable best efforts to consummate the Merger; and (iii) to not solicit proposals relating to alternative business combination transactions or, subject to certain exceptions, enter into discussions concerning or provide confidential information in connection with alternative business combination transactions. Consummation of the Merger is subject to customary conditions set forth in the Merger Agreement. The Merger Agreement contains certain termination rights for both the Company and Mainfreight, and further provides that, upon termination of the Merger Agreement under specified circumstances, the Company may be required to pay Mainfreight a termination fee of up to $2,115,000.

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Description of Business :

We are a non-asset based third party logistics services company providing time definite and value added supply chain solutions on a global basis to over 3,000 accounts. We have a large network of 34 offices throughout the United States, including exclusive agency relationships in 20 cities. We also have a worldwide agent network with coverage in over 70 countries which allows us to provide logistics services on a global basis. We offer a wide range of domestic shipping and distribution options to meet our customers’ schedules, managing and arranging for the total transport of our customers’ freight from the shippers’ locations to the designated recipients, including the preparation of shipping documents and providing handling, packing and containerization services. We also offer a full range of international logistics services including international air and ocean transportation. We concentrate on cargo shipments weighing more than 50 pounds requiring time specific delivery, and our average shipment weighs approximately 1,700 pounds. Each of our stations is linked in real-time through our proprietary information system, by online communications that speeds the two-way flow of shipment data and related logistics information between origin and destination. All of our services are provided through our Target subsidiary.

We have completed five acquisitions since 2001 and intend to continue seeking additional accretive acquisitions. We believe that our fragmented industry offers opportunity to continue making acquisitions of smaller freight forwarders where we can benefit from redundant expenses and the greater purchasing leverage we have from our much higher freight volumes.

Operations

Movement of Freight. We do not own any airplanes or significant trucking equipment and we rely on independent contractors for the movement of our cargo. At the core of our business model is price and space leverage. We use our large and growing freight volume to obtain price leverage in the form of discounts from our transportation providers. On an annual basis we are able to negotiate discounted prices based on our volumes from the previous year. Due to the high volume of freight in our system, we are often able to obtain shipping leverage in the form of freight space at times when available capacity is limited. On a daily basis, we consolidate shipments of various shippers, originating in a common city and terminating in a common city, increasing our total shipment size to a vendor qualifying us for lower rates due to the higher daily volume. As our freight volumes continue to grow these leverages increase and our consolidations improve. We utilize our expertise to provide forwarding services that are tailored to meet our customers’ requirements. We arrange for transportation of customers’ shipments via commercial airlines, air cargo carriers, steamship lines, and, if delivery schedules permit, we make use of lower cost inter-city truck transportation services. We select the carrier for particular shipments on the basis of cost, delivery time and cargo availability. Additionally, we provide cargo assembly, warehousing and cargo insurance services. Through our advanced data processing system, we can provide, at no additional cost to the customer, value added services such as automatic electronic data interchange, web based shipping and tracking systems, e-mail status notification and customized generated reports.

The rates we charge our customers are based on destination, shipment weight and required delivery time. We offer graduated discounts for shipments with later scheduled delivery times and rates generally decrease in inverse proportion to the increasing weight of shipments.

Information Systems. An important part of our business strategy is to provide accurate and timely information to our management and customers. Accordingly we have invested years of time and millions of dollars in developing our Target Realtime Air Cargo System (“TRACS”) proprietary freight forwarding software. Management is committed to continue the investment of substantial management and financial resources in developing these systems. TRACS is a fully integrated freight forwarding and financial reporting system providing our employees with a (i) full range of tracking and alerting capabilities, (ii) automatic quoting and customer specific revenue calculations, (iii) automatic calculation of transportation costs between shipping points for all transportation providers (iv) centralized invoicing and (v) accurate cost accruals for our transportation expense. The fully integrated real time performance provides us with accurate and timely financial information.

TRACS is also made available to our customers and provides them, at no additional cost, added value with customized information access and reports. Customers can access TRACS via the internet and obtain (i) full tracking of their shipments, (ii) e-mail status notification to them or their customers based on their selection (iii) detailed customized report generating tools to provide the specific information desired by our customers (iv) online booking capability and (v) online tools to simplify preparation of shipping documents.

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International Operations. Our international operations consist of air and ocean freight movements imported to and exported from our Target subsidiary’s network of offices in the United States. During the fiscal year ended June 30, 2007, our international freight forwarding accounted for 32.6% of our operating revenue.

Customers and Marketing

Our principal customers include large manufacturers and distributors of computers and other electronic and high-technology equipment, computer software and wearing apparel. As of June 30, 2007, we had approximately 3,000 accounts.

We market our services through an organization of approximately 47 full-time salespersons and 50 independent sales agents supported by the sales efforts of senior management, and the operations staff in our Target subsidiary’s offices. We strongly promote team selling, wherein the salesperson is able to utilize expertise from other departments in the Company to provide value-added services to gain a specific account. We staff each of our Target subsidiary’s offices with operational employees to provide support for the sales team, develop frequent contact with the customer’s traffic department, and maintain customer service. We believe that it is important to maintain frequent contact with our customers to assure satisfaction and to immediately react to resolve any problem as quickly as possible.

We have and continue to develop expertise in freight movement for the fashion and entertainment media industries. Our fashion services division targets chain retail and department store customers and provides specific expertise in handling fashion-related shipments. The fashion services division specializes in the movement of wearing apparel from manufacturing vendors to their department store customers located throughout the United States. Our Entertainment Media Logistics (EML) service provides logistic solutions to the film, entertainment and broadcast industries.

Many of our customers utilize more than one transportation provider. In soliciting new accounts, we use a strategy of becoming an approved carrier in order to demonstrate the quality and cost-effectiveness of our services. Using this approach, we have advanced our relationships with several of our major customers, from serving as a back-up freight services provider to primary freight forwarder.

Competition

Although there are no weight restrictions on our shipments, we focus primarily on cargo shipments weighing more than 50 pounds and requiring second-day delivery. As a result, we do not directly compete for most of our business with overnight couriers and integrated shippers of principally small parcels, such as United Parcel Service of America, Inc., Federal Express Corporation, DHL Worldwide Express, Inc. and the United States Postal Service. However, some integrated carriers, such as BAX Global, Inc. (a subsidiary of Deutsch Bahn AG), primarily solicit the shipment of heavy cargo in competition with forwarders. Additionally, there is a developing trend among integrated shippers of primarily small parcels to solicit the shipment of heavy cargo.

There is intense competition within the freight forwarding industry. While the industry is highly fragmented, we most often compete with a relatively small number of forwarders who have nationwide networks and the capability to provide a full range of services similar to those we offer. These include EGL, Inc., Pilot Air Freight, Inc. and SEKO Worldwide. There is also competition from passenger and cargo air carriers and trucking companies. On the international side of the business, we compete with forwarders that have a predominantly international focus, such as Exel plc, DHL and Kuehne Nagal International. All of these companies, as well as many other competitors, have substantially greater facilities, resources and financial capabilities than we have. We also face competition from regional and local air freight forwarders, cargo sales agents and brokers, surface freight forwarders and carriers and associations of shippers organized for the purpose of consolidating their members’ shipments to obtain lower freight rates from carriers.

Employees

We and our Target subsidiary had approximately 291 full-time employees as of June 30, 2007. None of these employees are currently covered by a collective bargaining agreement. We have experienced no work stoppages and consider our relations with our employees to be good.

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Regulation

Our freight forwarding business as an indirect air cargo carrier is subject to regulation by the United States Department of Transportation under the Federal Aviation Act, and by the Department of Homeland Security and the Transportation Security Administration (TSA). However, air freight forwarders (including Target) are exempted from most of that Act’s requirements by the Economic Aviation Regulations promulgated thereunder, but must adhere to certain rules, such as security requirements. Our overseas independent agents’ air freight forwarding operations are subject to regulation by the regulatory authorities of the respective foreign jurisdictions. The air freight forwarding industry is subject to regulatory and legislative changes which can affect the economics of the industry by requiring changes in operating practices or influencing the demand for, and the costs of providing, services to customers.

ITEM 1A.

RISK FACTORS

An investment in our Common Stock is subject to risks inherent to our business. The material risks and uncertainties that management believes affect the Company are described below. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair the Company’s business operations.

RISK FACTORS RELATING TO OUR BUSINESS GENERALLY

We face aggressive competition from freight carriers with greater financial resources and with companies that operate in areas that we plan on expanding to in the future.

We face intense competition within the freight industry on a local, regional and national basis. Many of our competitors have much larger facilities and far greater financial resources than ours. In the freight forwarding industry, we compete with a large and diverse group of national freight forwarding concerns, commercial air and ocean carriers and a large number of locally established companies in geographic areas where we do business or intend to do business in the future. The loss of customers, agents or employees to competitors could adversely impact our ability to maintain profitability.

Our failure to comply with, or the costs of complying with, government regulation could negatively affect our results of operation.

Our freight forwarding business as an indirect air cargo carrier is subject to regulation by the United States Department of Transportation (DOT) under the Federal Aviation Act, and by the Department of Homeland Security and the Transportation Security Administration (TSA). Our overseas independent agents’ air freight forwarding operations are subject to regulation by the regulatory authorities of the respective foreign jurisdictions. The air freight forwarding industry is subject to regulatory and legislative changes which can affect the economics of the industry by requiring changes in operating practices or influencing the demand for, and the costs of providing, services to customers. We do not believe that costs of regulatory compliance have had a material adverse impact on our operations to date. However, our failure to comply with any applicable regulations could have an adverse effect. There can be no assurance that the adoption of future regulations would not have a material adverse effect on our business.

We may have to compete with inner-city truckers that have greater goodwill, name, resources and trade recognition than us.

Insofar as inter-city trucking is a portion of our method of freight transport, we compete with a large number of long-haul, medium-haul, truckload and less than truckload carriers, and railroads. While we do not consider ourselves to be competing with traditional small package delivery services such as Federal Express Corporation, United Parcel Service of America, Inc. and DHL Worldwide Express, Inc., in the event that any of these established businesses, with their goodwill, name, resources and trade recognition, decide to further expand into the heavy freight business, such circumstances could have a material adverse effect upon our business.

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We rely on other carriers to provide transportation facilities.

We do not own or operate any trucks, nor do we own or operate any aircraft for the movement of either domestic or international freight. We do not have any present or anticipated future plans to acquire, by lease or otherwise, or own or operate any freight transportation equipment. Our ability to service customers depends on the availability of space on air passenger and cargo airlines and trucking carriers. The quality and timeliness of our freight forwarding services will be dependent upon the services of these independent contractors, over which we have no control.

Our reliance on independent contractors subjects us to risks such as:

shortages of freight space which are most likely to develop around holidays and on routes upon which traffic is especially heavy;

competition with other companies for the availability and utilization of freight space;

fluctuations in the availability of air cargo space on passenger airlines due to changes in the types of aircraft or decreases in the number of passenger airlines serving particular routes at particular times which could occur as a result of economic conditions and other factors beyond our control.

While we have not experienced shortages of freight space in the past, significant shortages of suitable space in the future and associated increases in rates charged by carriers could have a material adverse affect on our future operating results.

Terrorist attacks and other acts of violence or war may affect any market on which our shares trade, the markets in which we operate, our operations and our profitability.

Terrorist acts or acts of war or armed conflict could negatively affect our operations in a number of ways. Primarily, any of these acts could result in increased volatility in or damage to the U.S. and worldwide financial markets and economy and could lead to increased regulatory requirements with respect to the security and safety of freight shipments and transportation. They could also result in a continuation of the current economic uncertainty in the United States and abroad. Acts of terrorism or armed conflict, and the uncertainty caused by such conflicts, could cause an overall reduction in worldwide sales of goods and corresponding shipments of goods. This would have a corresponding negative effect on our operations. Also, terrorist activities similar to the type experienced on September 11, 2001 could result in another halt of trading of securities, which could also have an adverse affect on the trading price of our shares and overall market capitalization.

Our profitability depends on our ability to maintain and grow gross profit margins.

We will be unable to sustain profitability unless we maintain our improved operating results. Management continues to believe that we must focus on increasing revenues and must maintain gross profit margin to continue profitability. While we intend to continue to work on growing revenue by increasing sales, by strategic acquisitions, and by continuing to work on maintaining our Target subsidiary’s gross profit margins by reducing transportation costs, there can be no assurance that we will be able to increase revenues or maintain profitability.

We intend to continue expansion through acquisition.

We have grown through the acquisitions of other freight forwarders and intend to continue our program of business expansion through acquisitions. There can be no assurance that our:

financial condition will be sufficient to support the funding needs of an expansion program;

that acquisitions will be successfully consummated or will enhance profitability; or

that any expansion opportunities will be available upon reasonable terms.

We expect future acquisitions to encounter risks similar to the risks that past acquisitions have had such as:

difficulty in assimilating the operations and personnel of the acquired businesses;

potential disruption of our ongoing business;

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the inability of management to realize the projected operational and financial benefits from the acquisition or to maximize our financial and strategic position through the successful incorporation of acquired personnel and clients;

the maintenance of uniform standards, controls, procedures and policies; and

the impairment of relationships with employees and clients as a result of any integration of new management personnel.

We expect that any future acquisitions could provide for consideration to be paid in cash, stock or a combination of cash and stock. There can be no assurance that any of these acquisitions will be accomplished. If an entity we acquire is not efficiently or completely integrated with us, then our business, financial condition and operating results could be materially adversely affected.

We are dependent upon key officers.

The success of our operations will be largely dependent upon the efforts of Stuart Hettleman, our President and Chief Executive Officer, and Christopher A. Coppersmith, the President of our Target subsidiary. The loss of the services of either Mr. Hettleman or Mr. Coppersmith could have a material adverse effect on our operating results. Currently there is no “key person” life insurance in place for Messrs. Hettleman and Coppersmith.

Economic and other conditions in the markets in which we operate can affect demand for services and results of operations.

Our future operating results are dependent upon the economic environments of the markets in which we operate. Demand for our services could be adversely affected by economic conditions in the industries of our customers. Many of our principal customers are in the fashion, computer and electronics industries. Adverse conditions in any one of these industries or loss of the major customers in such industries could have a material adverse impact upon us. We expect the demand for our services (and consequently our results of operations) to continue to be sensitive to domestic and, increasingly, global economic conditions and other factors beyond our control.

In addition, the transport of freight, both domestically and internationally, is highly competitive and price sensitive. Changes in the volume of freight transported, shippers preferences as to the timing of deliveries as a means to control shipping costs, economic and political conditions, both in the United States and abroad, work stoppages, United States and foreign laws relating to tariffs, trade restrictions, foreign investments and taxation may all have significant impact on our overall business, growth and profitability.

Substantially all of our assets are pledged to secure indebtedness.

Substantially all of our assets are pledged to secure indebtedness. If our secured creditor forecloses upon security interest in our assets, such action would, in all likelihood, result in our inability to continue in business. We may also be required to obtain the consent of our secured creditor in order to complete future financings, and there can be no assurance that consent would be forthcoming.

A substantial portion of our voting stock is controlled by TIA.

TIA, Inc. (“TIA”) beneficially owns approximately 42% of our voting stock. As a result, TIA is in a position to control us through its ability to determine the outcome of elections of our directors and to prevail in matters submitted to a vote of stockholders. While, under Delaware corporate law, a majority stockholder owes certain fiduciary duties to minority stockholders, there may be circumstances in which these different relationships create material conflicts of interest which TIA is under no obligation to resolve in favor of us or other stockholders. Stuart Hettleman, one of our directors and our President, and David E. Swirnow, one of our directors, each owns a non-controlling indirect minority interest in TIA. In addition, Mr. Hettleman is an executive officer of TIA. Our officers and directors owe a fiduciary duty to us and our shareholders to act in our best interest and the best interest of our shareholders.

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RISK FACTORS RELATING TO OUR ARTICLES OF INCORPORATION AND OUR STOCK

The liability of our directors is limited.

Our Articles of Incorporation limit the liability of directors to the maximum extent permitted by Delaware law.

It is unlikely that we will issue dividends on our Common Stock in the foreseeable future.

We have never declared or paid dividends on our Common Stock and do not intend to pay dividends in the foreseeable future. The payment of dividends in the future will be at the discretion of our board of directors.

The exercise of outstanding options and conversion rights will dilute the percentage ownership of our stockholders, and any sales in the public market of shares of our Common Stock underlying such options and conversion rights may adversely affect prevailing market prices for our Common Stock.

As of June 30, 2007, there are outstanding options to purchase an aggregate of 330,000 shares of our Common Stock at per share exercise prices ranging from $0.50 to $1.125. Furthermore, outstanding shares of Class F Preferred Stock may be converted into an aggregate of 3,073,650 shares of our Common Stock at any time. In addition, we may issue additional shares of our Common Stock in respect of dividends paid on outstanding shares of our Class F Preferred Stock. The exercise of such outstanding options and conversion rights will dilute the percentage ownership of our stockholders, and any sales in the public market of shares of our Common Stock underlying such options and conversion rights may adversely affect prevailing market prices for our Common Stock.

Future sales of our Common Stock by existing shareholders could negatively affect the market price of our Common Stock and make it more difficult for us to sell shares of our Common Stock in the future.

Sales of our common stock in the public market, or the perception that such sales could occur, could result in a drop in the market price of our Common Stock and make it more difficult for us to complete future equity financings. We have in effect registration statements under the Securities Act registering shares of Common Stock on behalf of certain selling stockholders. If these stockholders sell large portions of their holdings in a relatively short time, for liquidity or other reasons, the market price of our Common Stock could drop significantly.

The price of our Common Stock has historically been volatile.

The market price of our Common Stock has in the past been, and may in the future continue to be, volatile. A variety of events, including quarter to quarter variations in operating results or news announcements by us or our competitors as well as market conditions in the freight forwarding industry or changes in earnings estimates by securities analysts may cause the market price of our Common Stock to fluctuate significantly. In addition, the stock market in recent months has experienced significant price and volume fluctuations which have particularly affected the market prices of equity securities of many companies and which often have been unrelated to the operating performance of such companies. These market fluctuations may adversely affect the price of our Common Stock.

The issuance of Preferred Stock may have the effect of delaying, deterring or preventing a change in our control.

Pursuant to our Certificate of Incorporation, we have authority to issue 2,500,000 shares of Preferred Stock which may be issued by our board of directors with such preferences, limitations and relative rights as the Board may determine without any vote of the stockholders. As of the date of this Prospectus, 122,946 shares of preferred stock are outstanding. Issuance of additional shares of preferred stock, depending upon the preferences, limitations and relative rights thereof, may have the effect of delaying, deterring or preventing a change in our control.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

Not applicable.

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ITEM 2.

PROPERTIES

As of June 30, 2007, Target leased terminal facilities consisting of office and warehouse space in 14 cities located in the United States, and also utilized 20 offices operated by exclusive agents. These leased facilities range in size from approximately 1,000 square feet to approximately 108,000 square feet and consist of offices and warehouses with loading bays. All of these properties are leased from third parties. Our executive offices are located in Baltimore, Maryland. Target’s headquarters are located within the terminal facility in Los Angeles, California, and consists of approximately 108,000 square feet of floor space leased pursuant to the terms of a lease which expires in September 2015. Management believes that our current Company wide facilities are sufficient for our planned growth.

We have an additional 13 terminal facilities in the following locations:

Atlanta, Georgia	Houston, Texas
Charlotte, North Carolina	Memphis, Tennessee
Chicago, Illinois	Miami, Florida
Columbus, Ohio	Newark, New Jersey
Dallas, Texas	Albany, New York
Greensboro, North Carolina	New York, New York
Indianapolis, Indiana

ITEM 3.

LEGAL PROCEEDINGS

The Company is currently involved in the following litigation, all previously reported, in connection with our Target subsidiary’s DCI acquisition:

On June 5, 2006, Seko Worldwide, LLC (“Seko”) filed a civil action in the United States District Court for the Northern District of Illinois (Case No. 06C3072) against DCI, DCI’s principals, and Target (incorrectly labeled as Target’s subsidiary), seeking a temporary restraining order and permanent injunction enjoining DCI and its principals from doing business with Target in competition with Seko for a specified period of time. Seko based its suit upon the non-competition clause of an Independent Contractor Agreement entered into between DCI, its principals and Seko, whereby DCI agreed to act as an independent contractor at Seko’s John F. Kennedy International Airport station. On June 13, 2006, the court denied Seko’s motion for a temporary restraining order and on June 30, 2007, after an evidentiary hearing, the court denied Seko’s request for injunctive relief. Seko voluntarily dismissed Target from this action on July 27, 2006. Target moved for sanctions against Seko for its failure to allege federal subject matter jurisdiction in its complaint. After the court denied Target’s motion, Target appealed to the United States Court of Appeals for the Seventh Circuit on January 22, 2007. Seko and Target participated in a mediation required by the Seventh Circuit, resulting in a settlement dated June 14, 2007 by which Seko paid Target $6,750, and the appeal was dismissed on July 9, 2007.

On July 31, 2006, Seko filed a civil suit against Target (incorrectly labeled as Target’s subsidiary) in the Circuit Court of Cook County, Illinois (Case No. 06L8015) in three counts, alleging that Target tortiously interfered with DCI’s contractual relationship with Seko, that Target tortiously interfered with Seko’s economic relationships with its customers, and that Target violated certain provisions of New York law with respect to deceptive trade practices. In its complaint, Seko is seeking unspecified damages and to enjoin Target from engaging in business at the Kennedy International Airport station. On August 21, 2007, Target moved to dismiss Seko’s complaint for failure to state a cause of action in any of the three counts. The motion is being briefed. While it is pending, the parties have agreed to defer discovery. We and our counsel believe that Seko’s suit is without merit and we are vigorously defending the suit. In the event of an unfavorable outcome, the amount of any potential loss to us is not yet determinable.

On November 13, 2006, Fast Fleet Systems, Inc. filed a civil suit against Seko, DCI, the principals of DCI, Craig Catalano and Bernard Quandt, the Company and our Target subsidiary in the United States District Court for the District of New Jersey (Case No. 06-1819 (AET)) alleging (i) that Seko and DCI owes the plaintiff in excess of $138,000 for trucking services previously provided to DCI, (ii) fraudulent and slanderous conduct by DCI and Messrs. Catalano and Quandt, and (ii) that the Company and Target has successor liability for all of the obligations of DCI, Catalano and Quandt. Target has filed an answer denying liability. The matter currently is in the discovery phase, with discovery scheduled to conclude by September 15, 2007. We believe that the claims against us are without merit and we are vigorously defending the suit. In the event of an unfavorable outcome, the amount of any potential loss to us is not yet determinable.

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In connection with the DCI acquisition, our Target subsidiary entered into an Independent Contractor Agreement with Cowboy Consulting, LLC, a company owned by DCI’s principals, Craig Catalano and Bernard Quandt, and advanced $450,000 as a loan to Messrs. Catalano and Quandt pursuant to the terms of a promissory note. On March 16, 2007, Target called the loan due to default. On March 19, 2007, Messrs. Catalano and Quandt, and their company, Cowboy Consulting, filed a civil suit against Target in New York State Supreme Court for Nassau County (Case No. 04790/2007) alleging that: (i) Cowboy Consulting is entitled to an additional $387,000 under the terms of the Independent Contractor Agreement; and (ii) Target violated the terms of the Independent Contractor Agreement, which resulted in damages to the plaintiffs in an undetermined amount. On April 11, 2007, Target served its answer denying the allegations and all liability, and counterclaiming that as a result of fraud and breaches by Messrs. Catalano and Quandt of their representations and warranties made in the DCI Asset Purchase Agreement, Target has been damaged in an amount to be proven at trial but no less than $50,000. On or about May 8, 2007, plaintiffs Cowboy Consulting, Catalano and Quandt served an amended complaint, which is substantially identical to the original complaint, and asserts a third cause of action against Target for unjust enrichment in the sum of $4.5 million. Target moved to dismiss the amended complaint on May 25, 2007, and on September 11, 2007, the court granted Target's motion. We and our counsel believe that the claims against us are completely without merit. In the event of an unfavorable outcome, the amount of any potential loss to us is not yet determinable.

On April 10, 2007, Target sued Messrs. Catalano and Quandt to enforce collection of all amounts due under the promissory note, by filing a motion for summary judgment on the promissory note in New York State Supreme Court for Nassau County (Case No. 05926/2007). We believe that Messrs. Catalano and Quandt do not have any defenses to enforcement of the promissory note. Messrs. Catalano and Quandt have filed a motion to consolidate Target’s action with the action filed by them and Cowboy Consulting, and the Company has vigorously objected to the motion.

From time to time, our Target subsidiary is involved in legal matters or named as a defendant in legal actions arising from normal operations, or is presented with claims for damages arising out of its actions. Management believes that these matters will not have a material adverse effect on our financial statements.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

ITEM 5.

MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Prior to June 15, 2006, our Common Stock traded on the Over-The-Counter (OTC) market under the symbol TARG. On June 15, 2006, the Common Stock began trading on the American Stock Exchange under the symbol TLG.

The following table sets forth the high and low prices for the Common Stock for each full quarterly period during the fiscal years indicated. With respect to periods through the third quarter of the fiscal year ended June 30, 2007, the prices reflect the high and low bid prices as available through the OTC market and represent prices between dealers and do not reflect the retailer markups, markdowns or commissions, and may not represent actual transactions. Beginning with the third quarter of the fiscal year ended June 30, 2007, the prices reflect the high and low sales prices as reported by the American Stock Exchange.

Fiscal Year Ended June 30, 2007

First Quarter	High	$	5.45
	Low	$	2.10

Second Quarter	High	$	3.00
	Low	$	2.00

Third Quarter	High	$	2.60
	Low	$	2.01

Fourth Quarter	High	$	2.49
	Low	$	1.03
Fiscal Year Ended June 30, 2006

First Quarter	High	$	1.80
	Low	$	1.15

Second Quarter	High	$	2.80
	Low	$	1.05

Third Quarter	High	$	3.15
	Low	$	2.01

Fourth Quarter	High	$	3.60
	Low	$	2.00

On September 13, 2007 there were 1,304 shareholders of record of our Common Stock. The closing price of the Common Stock on that date was $1.83 per share.

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Performance Graph

The following graph compares the cumulative total shareholder return on the Company’s Shares for the period June 30, 2002 through June 30, 2007 with the cumulative total return for the same period for the NASDAQ Composite (U.S.) Index and a peer group index comprised of: EGL, Inc., Stonepath Group, Inc., UTi Worldwide Inc., CH Robinson Worldwide, Inc., Expeditors International of Washington, Inc., Pacer International, Inc., CON-Way, Inc., and Janel World Trade, Ltd. Dividend reinvestment has been assumed and, with respect to the companies in the peer group, the returns of each company have been weighted to reflect its stock market capitalization relative to that of the other companies in the group.

Total Return Analysis

6/30/2002

6/30/2003

6/30/2004

6/30/2005

6/30/2006

6/30/2007

Target Logistics, Inc.

100.00

250.00

300.00

416.67

1,183.33

660.00

Nasdaq Stock Market (U.S.)

100.00

109.91

139.04

141.74

155.82

191.32

Peer Group

100.00

100.30

143.96

159.62

291.29

254.25

Source: Research Data Group, Inc.

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ITEM 6.

SELECTED FINANCIAL DATA

TARGET LOGISTICS, INC.

(in thousands, except per share data)

	2007		2006		2005		2004		2003
Statement of Operations Data:
Operating revenue	$	180,025	$	160,369	$	138,392	$	126,089	$	113,381
Cost of transportation		126,501		110,098		93,913		84,802		75,773
Gross profit		53,524		50,271		44,479		41,287		37,608
Selling, general & administrative expenses		49,763		44,880		41,025		39,526		36,941
Depreciation and Amortization		817		616		600		434		428
Operating income	$	2,944	$	4,775	$	2,854	$	1,327	$	239
Other Income		-		-		-		-		1,448
Net income	$	1,629	$	2,706	$	1,561	$	540	$	840
Net income per common share	$	0.08	$	0.15	$	0.08	$	0.02	$	0.04

Balance Sheet Data:
Total assets	$	49,979	$	45,194	$	42,600	$	41,176	$	37,191
Working capital		7,811		6,783		5,727		4,615		863
Current liabilities		26,407		22,958		23,062		23,282		21,551
Long-term liabilities		274		555		378		75		61
Shareholders’ equity	$	23,304	$	21,681	$	19,160	$	17,818	$	15,579

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

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

Overview

We generated operating revenues of $180.0 million, $160.4 million, and $138.4 million, and had net profits of $1.6 million, $2.7 million, and $1.6 million for the fiscal years ended June 30, 2007, 2006, and 2005, respectively. The Company’s revenue includes both domestic and international freight movements. Domestic freight movements originate and terminate within the United States, and never leave the United States. International freight movements are freight movements that have a point of origin or destination outside of the United States. International freight movements historically reflect a higher cost of transportation as a percentage of revenue than domestic freight movements. This is due to the higher cost of transportation associated with the movement of international freight including handling and other fees paid to overseas agents. As a result, international freight movements historically produce a lower gross profit margin than domestic freight movements.

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For the fiscal year ended June 30, 2007, the revenue of our Target subsidiary increased by 12.3% when compared to the fiscal year ended June 30, 2006. Target’s gross profit margin ( i.e. , gross operating revenue less cost of transportation expressed as a percentage of gross operating revenue) decreased to 29.7% for the fiscal year ended June 30, 2007 from 31.3% for the prior fiscal year. The decrease is primarily due to a reduction in domestic gross profit margins due to (i) the handling of lower gross profit margin domestic shipments at our New York station resulting from the DCI acquisition, and (ii) the movement of less domestic premium services during the fiscal year ended June 30, 2007, than in the fiscal year ended June 30, 2006. Since the July 2006 DCI acquisition, our New York station’s profitability has been negatively impacted, and management has been working with the station to improve its performance. As a result of the continuing losses at the New York station during the third quarter of the current fiscal year, management initiated a major restructuring of the New York station and expects the station to return to profitability in the near future. Ma nagement continues to believe that we must focus on increasing revenues and must increase gross profit margin to maintain profitability. Management intends to continue to work on growing revenue by increasing sales through expanding our sales force, increasing sales generated by the Company’s employed sales personnel and sales generated by exclusive forwarders, and strategic acquisitions. Management also intends to continue to work on improving Target’s gross profit margins by reducing transportation costs.

Results of Operations

Years ended June 30, 2007 and 2006

Operating Revenue. Operating revenue increased to $180.0 million for the year ended June 30, 2007 from $160.4 million for the year ended June 30, 2006, a 12.3% increase. The Company’s operating revenue consists of domestic freight revenue and international freight revenue. Domestic revenue increased by 13.0% to $122,120,923 for the year ended June 30, 2007 from $108,037,189 for the year ended June 30, 2006. This increase is due to the DCI and Capitaland acquisitions and internal sales growth. International revenue increased by 10.6% to $57,903,969 for the year ended June 30, 2007 from $52,331,381 for the year ended June 30, 2006, primarily due to the Capitaland acquisition.

Cost of Transportation. Cost of transportation increased to 70.3% of operating revenue for the year ended June 30, 2007, from 68.7% of operating revenue for the year ended June 30, 2006. This increase was primarily due to an increase in domestic transportation costs as a percentage of sales due to (i) the handling of higher cost domestic shipments, as a percentage of sale, as a result of the DCI acquisition, and (ii) the movement of less domestic premium services during the year ended June 30, 2007 than the year ended June 30, 2006.

Gross Profit . As a result of the factors described above, gross profit margin for the year ended June 30, 2007 decreased to 29.7% from 31.3% of operating revenue for the corresponding 2006 period, a 5.1% decrease.

Selling, General and Administrative Expenses . Selling, general and administrative expenses decreased to 28.1% of operating revenue for the year ended June 30, 2007 from 28.4% of operating revenue for the year ended June 30, 2006. Within our Target subsidiary, selling, general and administration expenses (excluding exclusive forwarder commission expenses) were 18.3% of operating revenue for the year ended June 30, 2007 and 17.2% for the year ended June 30, 2006, a 6.4% increase primarily as a result of the DCI and Capitaland acquisitions. Exclusive forwarder commission expenses (which are primarily commissions to our agents and earn-out expenses from our acquisitions) were 8.8% and 9.9% of operating revenue for the year ended June 30, 2007 and 2006, respectively, a 11.1% decrease resulting from a reduction in forwarder agent freight volume as a percentage of Target’s overall freight volume and lower earnout expenses from our acquisitions.

Effective Tax Rate. The effective income tax rate for the year ended June 30, 2007 was 42.2% compared to 41.8% for the year ended June 30, 2006. The change in the effective tax rate is due to changes in the components of the deferred income tax provision when compared to the prior year.

Net Profit. For the fiscal year ended June 30, 2007, the Company realized a net profit of $1,628,627, compared to a net profit of $2,705,598 for the fiscal year ended June 30, 2006, a 39.8% decrease.

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Years ended June 30, 2006 and 2005

Operating Revenue. Operating revenue increased to $160.4 million for the year ended June 30, 2006 from $138.4 million for the year ended June 30, 2005, a 15.9% increase. Domestic revenue increased by 17.2% to $108,037,189 for the year ended June 30, 2006 from $92,204,367 for the prior fiscal year, due to the acquisition by the Company (the “ACI Acquisition”) of the stock of Air Cargo International and Domestic, Inc. (“ACI”) and internal sales growth. In addition, international revenue increased by 13.3% to $52,331,381 for the 2006 fiscal year from $46,188,008 for the 2005 fiscal year, mainly due to increased international freight volume.

Cost of Transportation. Cost of transportation increased to 68.7% of operating revenue for the year ended June 30, 2006 from 67.9% of operating revenue for the 2005 fiscal year. This increase was primarily due to the movement of less domestic premium services in the year ended June 30, 2006 than in the prior fiscal year.

Gross Profit . As a result of the factors described above, gross profit for the 2006 fiscal year decreased to 31.3% from 32.1% of operating revenue for the 2005 fiscal year, a 2.5% decrease.

Selling, General and Administrative Expenses . Selling, general and administrative expenses decreased to 28.4% of operating revenue for the year ended June 30, 2006 from 30.1% of operating revenue for the 2005 fiscal year. Within our Target subsidiary, selling, general and administration expenses (excluding exclusive forwarder commission expense) were 17.2% of operating revenue for the 2006 fiscal year and 17.3% for the 2005 fiscal year, a 0.6% decrease. Exclusive forwarder commission expense (which are primarily commissions to our agents and earn-out expenses from our acquisitions) was 9.9% and 11.5% of operating revenue for the 2006 and 2005 fiscal years, respectively, a 13.9% decrease resulting from a reduction in forwarder agent freight volume as a percentage of Target’s overall freight volume.

Effective Tax Rate . The effective income tax rate for the fiscal year ended June 30, 2006 was 41.8% compared to 43.6% for the fiscal year ended June 30, 2005. The change in the effective tax rate is due to changes in the components of the deferred income tax provision when compared to the prior year.

Net Profit. As a result of the factors discussed above, we realized a net profit of $2,705,598 for the year ended June 30, 2006, compared to a net profit of $1,561,138 for the year ended June 30, 2005, a 73.3% increase.

Liquidity and Capital Resources

General. Our ability to satisfy our debt obligations, fund working capital and make capital expenditures depends upon future performance, which is subject to general economic conditions, competition and other factors, some of which are beyond our control. If we achieve significant near-term revenue growth, we may experience a need for increased working capital financing as a result of the difference between our collection cycles and the timing of our payments to vendors. Also, as a non-asset based freight forwarder, we do not have a need for significant capital expenditure.

Cash flows from operating activities . During the 2007 fiscal year, net cash used in operating activities was $227,898. For the corresponding period of the 2006 fiscal year, net cash provided by operating activities was $5,145,611. When compared to the prior year the decrease in cash flows from operating activities is primarily due to an increase in accounts receivable and a decrease in net income.

Cash flows from investing activities . During the 2007 fiscal year, cash used for investing activities was $1,544,807 representing capital expenditures for the purchase of property, equipment and leasehold improvements, and payments made pursuant to the terms of the Capitaland and DCI asset purchase acquisitions .

Cash flows from financing activities . During the 2007 fiscal year, c ash provided by financing activities was $1,496,474, which primarily consisted of $1,645,878 of net borrowings under our line of credit and $117,250 from the exercise of stock options less $122,946 of dividends associated with the Class F Preferred Stock and $143,708 of payments under lease obligations.

- 16 -

Capital expenditures. Capital expenditures for the 2007 fiscal year were $1,544,807, representing capital expenditures of (i) $462,167 primarily for property, equipment, and leasehold improvements, and (ii) $1,082,640 for the Capitaland and DCI asset purchase acquisitions.

Wells Fargo Facility. On March 19, 2007, the Company’s Target subsidiary entered into a $20 million revolving line of credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”). The new credit facility (the “Wells Fargo Facility”) replaces Target’s previous $15 million line of credit with GMAC Commercial Finance LLC. Under the Wells Fargo Facility, Target may borrow up to $20 million limited to 80% of its aggregate outstanding eligible accounts receivable. If borrowings do not exceed $5 million, then the facility is not restricted by eligible accounts receivable. Target may select a prime rate or LIBOR based interest rate. Interest on the Wells Fargo Facility will be adjusted quarterly based on the ratio of Target’s total liabilities to tangible net worth, and will range from 0.5% below Wells Fargo’s prime rate to Wells Fargo’s prime rate, or from LIBOR plus 1.25% to LIBOR plus 1.75%. Target’s obligations under the Wells Fargo Facility are secured by all of the assets of Target, and are guaranteed by the Company. The Wells Fargo Facility will expire on March 1, 2010. As of June 30, 2007, there were outstanding borrowings of $4,139,665 under the Wells Fargo Facility (which represented 28.0% of the amount available thereunder) out of a total amount available for borrowing under the Wells Fargo Facility of approximately $14,764,890, net of a standby letter of credit issued by Wells Fargo in the amount of $136,668.

Working Capital Requirements. The Company’s and Target’s cash needs are currently met by the Wells Fargo Facility and cash on hand. As of June 30, 2007, the Company had $10,625,225 available under its $20 million Wells Fargo Facility and $6,738,787 in cash from operations, cash on hand, and cash balances associated with the stock purchase acquisition. We believe that our current financial resources will be sufficient to finance our operations and obligations (current and long-term liabilities) for the long and short terms. However, our actual working capital needs for the long and short terms will depend upon numerous factors, including our operating results, the cost of increasing the Company’s sales and marketing activities, competition, and the availability of a revolving credit facility, none of which can be predicted with certainty.

Inflation

We do not believe that the relatively moderate rates of inflation in the United States in recent years have had a significant effect on our operations.

Contractual Obligations and Commitments

Contractual Obligations and Commitments. The following table presents, as of June 30, 2007, our significant fixed and determinable contractual obligations to third parties by payment date. Further discussion of the nature of each obligation is included in Note 10 to the consolidated financial statements.

	Payments Due by Fiscal Year (in thousands)
	2008		2009		2010		201 1		2012 and thereafter		Total
Amounts reflected in Balance Sheet:
Capital lease obligations (1)	$	128	$	126	$	52		-		-	$	306
Other amounts not reflected in Balance Sheet:
Operating leases (2)		2,549		2,587		2,452		2,150		2,480		12,218
Total	$	2,677	$	2,713	$	2,504	$	2,150		2,480	$	12,524

(1)

Capital lease obligations represent principal and interest payments.

(2)

Operating leases represent future minimum lease payments under non-cancelable operating leases (primarily the rental of premises) at June 30, 2007. In accordance with accounting principles generally accepted in the United States, our operating leases are not recorded in our balance sheet.

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Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Since future events and their effects cannot be determined with absolute certainty, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and such difference may be material to the financial statements. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources, primarily allowance for doubtful accounts, accruals for transportation and other direct costs, accruals for cargo insurance, the determination of share based compensation expense, and deferred income taxes. Management bases its estimates on historical experience and on various assumptions which are believed to be reasonable under the circumstances. We reevaluate these significant factors as facts and circumstances change. Historically, actual results have not differed significantly from our estimates. These accounting policies are more fully described in Note 3 of the Notes to the Consolidated Financial Statements, starting on page F-7.

Our balance sheet includes an asset in the amount of $11,351,402 for purchased goodwill. In accordance with accounting pronouncements, the amount of this asset must be reviewed annually for impairment, written down and charged to results of operations in the period(s) in which the recorded value of goodwill is more than its fair value. We obtained an independent valuation analysis completed in January 2007, and based on the valuation, we determined that the goodwill was not impaired. Had the determination been made that the goodwill asset was impaired, the value of this asset would have been reduced by an amount ranging from zero to $11,351,402, and our financial statements would reflect the reduction. For additional description, please refer to Note 3 to our Notes to the audited Consolidated Financial Statements contained in this Annual Report.

New Accounting Pronouncements

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

In September 2006, the FASB issued SFAS No. 157, “ Fair Value Measurements ”. SFAS No. 157 establishes a common definition for fair value to be applied to US GAAP guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS No. 157 but does not expect that it will have an effect on our consolidated financial position or results of operations.

In February 2007, FASB issued FAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115” (“FAS 159”). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. FAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting FAS 159 on its financial statements.

The FASB is currently working on amendments to the existing accounting standards governing asset transfers and fair value measurements in business combinations and impairment tests. Upon completion of these standards, the Company will need to reevaluate its accounting and disclosures. Due to the ongoing deliberations of the standard setters, the Company is unable to accurately determine the effect of future amendments or proposals at this time.

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ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our principal financial instrument is long-term debt under the Wells Fargo Facility which provides for an interest rate that can be adjusted quarterly on the ratio of Target’s total liabilities to tangible net worth, and will range from 0.5% below Wells Fargo’s prime rate to Wells Fargo’s prime rate, or from LIBOR plus 1.25% to LIBOR plus 1.75%. We are affected by market risk exposure primarily through the effect of changes in interest rates on amounts payable under the Wells Fargo Facility. A significant rise in the prime rate could materially adversely affect our business, financial condition and results of operations. At June 30, 2007, an aggregate principal amount of $4,139,665 was outstanding under the Wells Fargo Facility bearing interest at an annual rate of 8.0%. If principal amounts outstanding under the Wells Fargo Facility remained at this year-end level for an entire year and the prime rate increased or decreased, respectively, by 0.5%, we would pay or save, respectively, an additional $20,698 in interest in that year. We do not utilize derivative financial instruments to hedge against changes in interest rates or for any other purpose.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data required by this Item 8 are included in our Consolidated Financial Statements and set forth in the pages indicated in Item 15(a) of this Annual Report.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

ITEM 9A.

CONTROLS AND PROCEDURES

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

ITEM 9B.

OTHER INFORMATION

None.

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PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

Each of our directors, other than Messrs. Coppersmith, Dubato and Hettleman, has been determined by the Board to be “independent” as defined in Section 121A of the American Stock Exchange (Amex) Company Guide. There are no known arrangements or understandings between any director or nominee for director of the Company and any other person pursuant to which such director or nominee has been selected as a director or nominee.

Presented below is certain information concerning the directors and executive officers. The term of office of each director expires at the next annual meeting of the Company’s stockholders or when their successors are duly elected and qualify. Unless otherwise stated, all individuals have held the positions indicated for at least the past five years.

Michael Barsa , age 62, is a p rivate investor and has been a director of the Company since 1996.

Stephen J. Clearman , age 56, is Managing General Partner and co-founder of Kinderhook Partners, GP, as well as Geocapital Partners, a venture capital firm based in Fort Lee, New Jersey. Mr. Clearman was elected as a director pursuant to the terms of the April 2004 Subscription Agreement between the Company and Kinderhook Partners. Mr. Clearman currently serves on the boards of several privately-held companies and has been a director of the Company since 2004.

Christopher Coppersmith , age 57, is President of the Company’s Target Logistic Services, Inc. subsidiary and has been a director of the Company since 1997.

Brian K. Coventry , age 42, has been a Partner of Emerald Investments Inc. since July 2006, and from July 2006 through April 2007 was Executive Vice President of the firm. From June 2004 through April 2006 he was Managing Director based in the New York office of Lempert Brothers International USA, Inc., and from January 2003 through May 2004 he was Manager, Corporate Finance Group, in the New York office of Strasbourger Pearson Tulcin Wolff Inc, a New York Stock Exchange Member Firm. From September 2001 through December 2003, Mr. Coventry was a private investor. From November 2000 through August 2001, he served as Vice President, Private Capital, JMP Securities, in New York. Mr. Coventry has been a director of the Company since 1996.

Philip J. Dubato , age 51, has been Vice President and Chief Financial Officer, Secretary and Treasurer of the Company since February 1997 and a director of the Company since 1998.

Stuart Hettleman , age 57, has been President and Chief Executive Officer and a director of the Company since February 1996.

David E. Swirnow , age 49, has been president of Swirnow Building Systems (an importer and regional and national marketer of specialty construction products) since 1991. Mr. Swirnow has been a director of the Company since 2006.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that the Company’s directors and executive officers and each person who owns more than 10% of the Company’s Shares, file with the Securities and Exchange Commission in a timely manner an initial report of beneficial ownership and subsequent reports of changes in beneficial ownership of the Shares. To the Company’s knowledge, all reports required to be so filed with respect to transactions during the fiscal year ended June 30, 2007 have been filed on a timely basis.

Code of Ethics

The Company has adopted a Code of Business Conduct and Ethics that is designed to promote the highest standards of ethical conduct by the Company’s directors, executive officers and employees. The Company will furnish, without charge, a copy of its Code of Business Conduct and Ethics to each shareholder who forwards a written request to the Secretary, Target Logistics, Inc., 500 Harborview Drive, Third Floor, Baltimore, Maryland 21230.

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Audit Committee

The Company’s Audit Committee is appointed by the Board to assist the Board in its duty to oversee the Company’s accounting, financial reporting and internal control functions and the audit of the Company’s financial statements. The Committee’s responsibilities include, among others, direct responsibility for hiring, firing, overseeing the work of and determining the compensation for the Company’s independent auditors, who report directly to the Audit Committee. The members of the Audit Committee are Messrs. Barsa, Coventry and Swirnow, none of whom is an employee of the Company and each of whom is independent under existing Amex and Securities and Exchange Commission (SEC) requirements. The Board has examined the definition of “audit committee financial expert” as set forth in applicable rules of the Securities and Exchange Commission (SEC) and determined that Mr. Barsa satisfies this definition. Accordingly, Mr. Barsa has been designated by the Board as the Company’s audit committee financial expert.

ITEM 11.

EXECUTIVE COMPENSATION

Introduction

The individuals who served as the Company’s Chief Executive Officer and Chief Financial Officer during the fiscal year ended June 30, 2007 as well as two of the Company’s most highly compensated employees whose total compensation during the fiscal year exceeded $100,000 (listed in the Summary Compensation Table below), are referred to in the following discussion as the “named executive officers”. The following compensation discussion and analysis, executive compensation tables and related narrative describe the compensation awarded to, earned by or paid to the named executive officers for services provided to the Company during the fiscal year ended June 30, 2007.

Compensation Discussion and Analysis

Compensation Committee . The Company’s Compensation Committee determines the appropriateness of compensation levels pertaining to the named executive officers.

Philosophy, Goals and Objectives of Executive Compensation . The overall goal of the Committee is the establishment of compensation policies designed to attract, motivate, reward and retain qualified executives and employees who will foster a team orientation toward the achievement of company-wide business objectives and execute the Company’s strategic goals, thereby increasing the value created for shareholders.

The Committee employs a mix of long and short-term incentives in its compensation program designed to motivate and reward the Company’s executive officers for their contributions to shareholder value and the achievement of business objectives. The Company compensates the named executive officers through a combination of base salary, bonuses and retirement benefits. The Compensation Committee’s compensation philosophy with respect to the named executive officers includes the following general elements: (1) providing overall compensation within a market competitive range, and (2) rewarding achievement of Company financial performance objectives as well as individual managerial effectiveness. The Committee did not engage a compensation consultant during its fiscal year ended June 30, 2007.

Base Salary. The primary component of compensation of the Company’s executives is base salary which is set by the Committee annually.

The base salary levels of the named executive officers in fiscal 2007 were established based upon: (i) the individual’s particular background and circumstances, including experience and skills, (ii) the Company’s knowledge of competitive factors within the industry in which it operates, (iii) the job responsibilities of the individual, (iv) the Company’s expectations as to the performance and contribution of the individual and the Committee’s judgment as to the individual’s potential future value to the Company, (v) prior year salary levels, (vi) length of service, and (vii) with respect to the base salary for the Company’s Chief Financial Officer, the Chief Executive Officer makes recommendations to the Compensation Committee based upon the profitability of the Company.

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The base salary of the named executive officers is intended to provide a competitive base level of pay for the services they provide. The Company believes that the fixed base annual salary levels of the named executive officers helps the Company retain qualified executives and provide a measure of income stability for the named executive officers that may lessen potential pressures to take possibly excessive risks to achieve performance measures under incentive compensation arrangements.

Bonus. All of the named executive officers are eligible for a bonus. In addition, certain officers who are viewed as having an opportunity to directly and substantially contribute to achievement of our short-term objectives are eligible to receive bonus compensation. Bonuses reward the named executive officers for achieving Company financial performance objectives and for demonstrating individual leadership. The Board believes that by providing a positive incentive and cash rewards, bonuses play an integral role in motivating and retaining qualified executives. A compensation structure of base salary and bonus opportunity for named executive officers generally represents a reasonable combination of fixed salary compared to variable incentive pay opportunity and reflects the Company’s goal of retaining and motivating the named executive officers. The Company’s fiscal 2006 results were considered in of determining the level of the bonus awards paid to executives for fiscal 2007.

Equity Incentives. The Company uses grants of stock options to its key employees to more closely align the interests of such employees and officers with the interests of its shareholders. The Board believes that this policy created an incentive for key employees to maximize shareholder value, primarily through growth and return on invested capital. The amount and nature of prior awards are generally considered in determining any new equity incentive awards, although other factors, such as the need to retain experienced managers, are also considered. For the fiscal year ended June 30, 2007, and prior years, stock options have been issued to employees as recommended by the Chief Executive Officer and approved by the Compensation Committee. No options were granted to named executive officers in fiscal 2007, and no options are currently issued to any of the named executive officers.

The C o mpany has a defined contribution profit sharing plan covering eligible employees. The Plan is voluntary with respect to participation and is subject to the provisions of ERISA. The plan provides for participant contributions of up to 15% of annual compensation, as defined by the plan. The Company contributes an amount equal to 50% of the participant’s first 5% of contributions. The Company may contribute an additional amount from its profits as authorized by the Board of Directors. The Company made no additional contributions in 2007. Participants in the plan are vested over five years from hire date in the Company’s contributions, plus actual earnings thereon. The Company’s 2007 contributions to the plan on behalf of named executive officers are included in the “All Other Compensation” column in the “Summary Compensation Table” below.

Summary Compensation Table

The following table sets forth information regarding the total compensation paid or earned by the named executive officers for the fiscal year ended June 30, 2007:

Name and Principal Position	Year	Salary		Bonus		All Other Compensation			Total
(a)	(b)	(c)		(d)		(i)			(j)
Stuart Hettleman	2007	$	180,000	$	40,073	$	32,953	⁽¹⁾	$	253,026
President and Chief
Executive Officer

Philip J. Dubato	2007	$	169,399	$	24,044	$	20,749	⁽²⁾	$	214,192
Vice President, Chief
Financial Officer

Christopher A. Coppersmith	2007	$	211,750	$	47,209	$	45,902	⁽³⁾	$	304,861
President of Target Logistic
S ervices, Inc . subsidiary

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(1)

Mr. Hettleman’s “Other Compensation” consisted of: $4,171 as an employer matching contribution to Target Logistic Services, Inc. 401(K) Profit Sharing Plan; $6,000 for a car allowance; and $22,782 employee assistance program benefits under Target’s sponsored benefits plans available to all employees.

(2)	Mr. Dubato’s “Other Compensation” consisted of: $3,889 as an employer matching contribution to Target Logistic Services, Inc. 401(K) Profit Sharing Plan; $1,560 for a car allowance; and $15,300 employee assistance program benefits under Target’s sponsored benefits plans available to all employees.

(3)

Mr. Coppersmith’s “Other Compensation” consisted of: $5,625 as an employer matching contribution to Target Logistic Services, Inc. 401(K) Profit Sharing Plan; $18,000 for a car allowance; and $18,929 employee assistance program benefits under Target’s sponsored benefits plans available to all employees and $3,348 for country club dues.

Potential Payments upon Termination or Change in Control

On September 17, 2007, Mr. Hettleman and Mr. Dubato each entered into a change in control agreement with the Company. Under the terms of the respective agreements, if, within the period beginning on the occurrence of a change in control and ending six months following such change in control, either individual’s employment with the Company terminates for any reason whatsoever, including, without limitation, resignation, then he will receive a one time lump sum payment, payable within 60 days following termination, and will be entitled to Company paid medical and dental insurance for three years following his termination of employment. The lump sum payment for Mr. Hettleman is $400,000, and the lump sum payment for Mr. Dubato is $300,000.

Under the terms of the respective agreements, a change of control is defined as (i) any party (other than the Company or a party which currently owns more than 20% of voting securities of the Company), is or becomes the direct or indirect beneficial owner (not including any securities acquired directly from Target), of 25% or more of Target’s then outstanding voting securities; (ii) the following individuals cease for any reason to constitute a majority of the number of directors then serving on the Board: individuals who, on the date hereof, were members of the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the stockholders was approved or recommended by a vote of at least two-thirds of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; (iii) there is consummated a merger or consolidation of the Company with any other entity, or the Company issues voting securities in connection with a merger or consolidation of any direct or indirect subsidiary of the Company with any other corporation, other than (a) a merger or consolidation that would result in the holders of voting securities outstanding immediately prior thereto continuing to own (either by such voting securities remaining outstanding or by such voting securities being converted into voting securities of the surviving or parent entity) more than 50% of the Company’s then outstanding voting securities or 50% of the combined voting power of such surviving or parent entity outstanding immediately after such merger or consolidation or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person, directly or indirectly, acquired 25% or more of the Company’s then outstanding voting securities (not including any securities acquired directly from the Company); or (iv) the consummation of a plan of complete liquidation of the Company or the consummation of an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets (or any transaction having a similar effect), other than a sale or disposition by the Company of all or substantially all of its assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned directly or indirectly by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.

As a condition precedent to and in consideration of the receipt of the payments and benefits under each agreement, Mr. Hettleman and Mr. Dubato have each agreed to maintain the confidentiality of all Target proprietary information. Furthermore, Mr. Hettleman has agreed not to solicit Target employees or customers for a period of 36 months, and Mr. Dubato has agreed not to solicit Target employees or customers for a period of 24 months. In addition, Mr. Hettleman may not compete with Target for a period of 24 months following termination of employment, and Mr. Dubato may not compete with Target for a period of six months following termination of employment. In addition, each individual is required to release all claims against the Company as a condition to the receipt of the benefits under his respective agreement.

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Director Compensation

During the Company’s fiscal year ended June 30, 2007, those directors who were employed by the Company received no additional compensation for serving as a director. Directors are eligible to participate in the Company’s 2005 Stock Option Plan. During the Company’s fiscal year ended June 30, 2007, no options were granted to directors, and each of Messrs. Barsa, Clearman, Coventry and Swirnow was paid an outside director’s fee of $10,000, meeting fees of $5,000 and committee fees of $2,000. In addition, Mr. Barsa received a fee of $10,000 for chairing the Audit Committee and Mr. Coventry received a fee of $10,000 for chairing the Compensation Committee.

The following table summarizes the compensation paid to directors for the fiscal year ended June 30, 2007:

Name	Fees Earned or Paid in Cash		Total
(a)	(b)		(h)
Michael Barsa	$	27,000	$	27,000
Stephen J. Clearman	$	17,000	$	17,000
Christopher Coppersmith		—		—
Brian K. Coventry	$	27,000	$	27,000
Philip J. Dubato		—		—
Stuart Hettleman		—		—
David E. Swirnow	$	17,000	$	17,000

Compensation Committee Interlocks and Insider Participation

The Board’s Compensation Committee consists of Messrs. Barsa, Clearman and Coventry, none of whom is an officer or employee of the Company or an officer or employee of any company for which any officer of the Company serves as a member of the compensation committee or board member. Prior to 1997, Mr. Barsa was an employee, Vice President and Secretary of the Company.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on the review and discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Proxy Statement.

COMPENSATION COMMITTEE

Michael Barsa

Stephen J. Clearman

Brian K. Coventry

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following tables set forth information concerning beneficial ownership of shares of Common Stock and shares of Class F Preferred Stock outstanding as of September 17, 2007. For purposes of calculating beneficial ownership, Rule 13d-3 of the Securities Exchange Act of 1934 requires inclusion of shares of Common Stock and shares of Class F Preferred Stock that may be acquired within sixty days of the stated date. Unless otherwise indicated in the footnotes to a table, beneficial ownership of shares represents sole voting and investment power with respect to those shares.

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Certain Beneficial Owners

The following table reflects the names and addresses of the only persons known to the Company to be the beneficial owners of 5% or more of the Common Stock and Class F Preferred Stock outstanding as of September 17, 2007:

	Common Stock						Class F Preferred Stock
Name and Address of Beneficial Owner	Shares Beneficially Owned			Percent of Class			Shares Beneficially Owned			Percent of Class

Wrexham Aviation Corp. ⁽¹⁾		8,958,235	⁽²⁾		42.4	%		122,946	⁽²⁾		100	%
TIA, Inc.
Richard A. Swirnow 112 East 25th Street Baltimore, Maryland 21218

Kinderhook Partners, LP ⁽³⁾		3,334,138			18.4	%		—			—
Kinderhook GP, LLC Stephen J. Clearman 1 Executive Drive, Suite 160 Fort Lee, New Jersey 07024

Christopher A. Coppersmith		1,770,130			9.8	%		—			—
1400 Glenn Curtiss Street Carson, California 90746

(1)

Represents all of the Shares owned or controlled by TIA, Inc. (“TIA”) and includes 3,073,650 shares of Common Stock issuable upon conversion by TIA of the 122,946 outstanding shares of Class F Preferred Stock. All of the issued and outstanding stock of TIA is owned and controlled by Wrexham. Swirnow Airways Corp. (“Swirnow Airways”) owns 100% of the interests in Wrexham Aviation Corp. (“Wrexham”). Richard A. Swirnow is, indirectly, the controlling stockholder of Swirnow Airways.

(2)

Stuart Hettleman, a Director and President of the Company, is an executive officer and non-controlling stockholder of Swirnow Airways and an executive officer of Wrexham and TIA. While Mr. Hettleman disclaims beneficial ownership of all shares of Common Stock and Class F Preferred Stock owned by TIA and does not share voting and/or investment power over those shares, Mr. Hettleman has an indirect interest in 1,441,723 of the shares of Common Stock owned by TIA, 30,122 of the shares of Class F Preferred Stock owned by TIA, and 753,044 of the shares of Common Stock issuable upon conversion by TIA of outstanding shares of Class F Preferred Stock. See footnote (1) above.

(3)

Includes options to purchase 10,000 shares of Common Stock granted to Mr. Clearman. The balance of the shares are owned directly by Kinderhook Partners, LP (“KPLP”). Kinderhook GP, LLC (“KGP”) is the general partner of KPLP, and Mr. Clearman, a director of the Company, is the managing member of KGP. KGP and Mr. Clearman share voting and investment power over the shares owned by KPLP, and own a 15.4% and 30.2%, respectively, direct and/or indirect interest in KPLP. KGP and Mr. Clearman each disclaims beneficial ownership in the shares owned by KPLP except to the extent of their respective pecuniary interests therein.

Management

The following table sets forth information with respect to the beneficial ownership of (i) each executive officer of the Company named in the Summary Compensation Table included elsewhere in this Annual Report, (iii) each current director, and (iv) all directors and executive officers of the Company as a group. Except as set forth in footnote (4) to this table, none of the individuals listed below have any interest in Class F Shares. An asterisk (*) indicates ownership of less than 1%.

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Name of Beneficial Owner	Shares Beneficially Owned		Percent of Class
Michael Barsa ⁽¹⁾		351,010		1.9	%
Stephen J. Clearman ⁽²⁾		3,334,138		18.4	%
Christopher A. Coppersmith		1,770,130		9.8	%
Brian K. Coventry		0			*
Philip J. Dubato		0			*
Stuart Hettleman ⁽³⁾		25,000			*
David E. Swirnow		25,000			*
All directors and executive officers as a group (7 persons) ^(1)(2)(3)		5,505,278		30.5	%

(1)

Includes options to purchase 70,000 Shares.

(2)

See “Certain Beneficial Owners” and footnote (3) thereunder.

(3)

Does not include shares of Common Stock or Class F Preferred Stock owned by TIA. See “Certain Beneficial Owners” and footnotes (1) and (2) thereunder.

Equity Compensation Plan Information

The following table provides information, as of June 30, 2007, with respect to all compensation arrangements maintained by the Company under which shares of Common Stock may be issued:

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights			Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)			(b)		(c)
Equity compensation plans approved by security holders		330,000	*	$	0.58		1,500,000	**
Equity compensation plans not approved by security holders		0			0		0
Total		330,000	*	$	0.58		1,500,000	**

* Shares are issuable pursuant to options granted under the Company’s 1996 Stock Option Plan.

** Represents shares available for issuance under the Company’s 2005 Stock Option Plan.

ITEM 13.

CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Pursuant to its written charter, the Audit Committee of the Board of Directors of the Company reviews all transactions with related persons that are required to be disclosed under applicable regulation. During the fiscal year ended June 30, 2007, there were no transactions with related persons which are required to be disclosed.

ITEM14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The firm of Stonefield Josephson, Inc. (the “Auditor”) has served as the Company’s independent public accountants since 2002. The following is a description of the fees billed to the Company by the Auditor during the fiscal years ended June 30, 2007 and 2006:

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Audit Fees

Audit fees include fees paid by the Company to the Auditor in connection with the annual audit of the Company’s consolidated financial statements, and review of the Company’s interim financial statements. Audit fees also include fees for services performed by the Auditor that are closely related to the audit and in many cases could only be provided by the Auditor. Such services include consents related to SEC and other regulatory filings. The aggregate fees billed to the Company by the Auditor for audit services rendered to the Company for the years ended June 30, 2007 and 2006 totaled $104,810 and $94,025, respectively.

Audit Related Fees

Audit related services include due diligence services related to accounting consultations, internal control reviews, and employee benefit plan audits. The Auditor did not bill any fees to the Company for audit related services rendered to the Company for the years ended June 30, 2007 and 2006.

Tax Fees

Tax fees include corporate tax compliance, counsel and advisory services. The aggregate fees billed to the Company by the Auditor for the tax related services rendered to the Company for the years ended June 30, 2007 and 2006 totaled $44,860 and $36,584, respectively.

All Other Fees

There were no other services provided by the Auditor to the Company in either year.

Approval of Independent Auditor Services and Fees

The Company’s Audit Committee reviews all fees charged by the Company’s independent auditors, and actively monitors the relationship between audit and non-audit services provided. The Audit Committee must pre-approve all audit and non-audit services provided by the Company’s independent auditors and fees charged.

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PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) 1.

Financial Statements

		Page
Report of Registered Independent Public Accounting Firm		F-1
Consolidated Balance Sheets as of June 30, 2007 and 2006		F-2
Consolidated Statements of Operations for the Years Ended June 30, 2007, 2006, and 2005		F-3
Consolidated Statements of Shareholders’ Equity for the Years Ended June 30, 2007, 2006, and 2005		F-4
Consolidated Statements of Cash Flows for the Years Ended June 30, 2007, 2006, and 2005		F-5
Notes to Consolidated Financial Statements		F-7

(a) 2.

Financial Statement Schedules

Schedule II - Schedule of Valuation and Qualifying Accounts

S-1

All other schedules are omitted because they are not applicable, are not required, or because the required information is included in the consolidated financial statements or notes thereto.

(a) 3.

Exhibits required to be filed by Item 601 of Regulation S-K

Exhibit No.
3.1		Certificate of Incorporation of Registrant, as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2004, File No. 0-29754)
3.2		By-Laws of Registrant, as amended (incorporated by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended December 31, 1998, File No. 0-29754)
4.1		Certificate of Designations with respect to the Registrant’s Class C Preferred Stock (contained in Exhibit 3.1)
4.2		Certificate of Designations with respect to the Registrant’s Class F Preferred Stock (contained in Exhibit 3.1)
10.1		1996 Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2003, File No. 0-29754)
10.2		2005 Stock Option Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended December 31, 2005, File No. 0-29754)
10.3		Credit Agreement, dated as of March 19, 2007 by and between Wells Fargo Bank, National Association, as Lender, and Target Logistic Services, Inc., as Borrower (“Wells Fargo Credit Agreement”) (incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2007, File No. 0-29754)
10.4		Revolving Line of Credit Note, dated March 19, 2007, made by Target Logistic Services, Inc. with respect to the Wells Fargo Credit Agreement (incorporated by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2007, File No. 0-29754)
10.5		Continuing Security Agreement: Rights to Payment, dated March 19, 2007, entered into by Target Logistic Services, Inc. with respect to the Wells Fargo Credit Agreement (incorporated by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2007, File No. 0-29754)
10.6		Security Agreement: Equipment, dated March 19, 2007, entered into by Target Logistic Services, Inc. with respect to the Wells Fargo Credit Agreement (incorporated by reference to Exhibit 10.10 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2007, File No. 0-29754)
10.7		Continuing Guaranty, dated March 19, 2007, entered into by the Registrant with respect to the Wells Fargo Credit Agreement (incorporated by reference to Exhibit 10.11 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2007, File No. 0-29754)

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10.8		Lease Agreement for Los Angeles Facility (incorporated by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2005, File No. 0-29754)
14		Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14 to the Registrant’s Annual Report on Form 10-K for the Year Ended June 30, 2004, File No. 0-29754)
21		Subsidiaries of Registrant (incorporated by reference to Exhibit 21 to the Registrant’s Annual Report on Form 10-K for the Year Ended June 30, 2005, File No. 0-29754)
23		Consent of Stonefield Josephson, Inc.*
31.1		Rule 15d-14(a) Certification of Chief Executive Officer*
31.2		Rule 15d-14(a) Certification of Chief Financial Officer*
32.1		Section 1350 Certifications*
99.1		Press Release issued September 19, 2007*

* Filed herewith

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.

		TARGET LOGISTICS, INC.


Date: September 19, 2007	By:	/s/ Stuart Hettleman
		Stuart Hettleman
		President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Stuart Hettleman	President, Chief Executive	September 19, 2007
Stuart Hettleman	Officer and Director

/s/ Michael Barsa	Director	September 19, 2007
Michael Barsa

/s/ Stephen J. Clearman	Director	September 19, 2007
Stephen J. Clearman

/s/ Brian K. Coventry	Director	September 19, 2007
Brian K. Coventry

/s/ Christopher Coppersmith	Director	September 19, 2007
Christopher Coppersmith

/s/ Philip J. Dubato	Vice President, Chief	September 19, 2007
Philip J. Dubato	Financial Officer, Principal Accounting Officer and Director

/s/ David E. Swirnow	Director	September 19, 2007
David E. Swirnow

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Target Logistics, Inc.

Baltimore, Maryland

We have audited the consolidated balance sheets of Target Logistics, Inc. (a Delaware corporation) and subsidiaries, as of June 30, 2007 and 2006, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended June 30, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Target Logistics, Inc. and subsidiaries, as of June 30, 2007 and 2006, and the results of its operations and their consolidated cash flows for each of the three years in the period ended June 30, 2007, in conformity with accounting principles generally accepted in the United States of America.

Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule listed in the index of financial statements is presented for purposes of complying with the Securities and Exchange Commission’s rules and are not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.

/s/ Stonefield Josephson, Inc.

Los Angeles, California

September 17, 2007

F-1

TARGET LOGISTICS, INC.

CONSOLIDATED BALANCE SHEETS

	June 30, 2007			June 30, 2006
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	6,738,787		$	7,015,018
Accounts receivable, net of allowance for doubtful accounts of $914,579 and $503,288, respectively		26,365,397			21,595,301
Deferred income taxes		996,881			825,101
Prepaid expenses and other current assets		117,594			305,177
Total current assets		34,218,659			29,740,597
PROPERTY AND EQUIPMENT, NET		2,367,505			2,300,306
OTHER ASSETS		2,041,852			1,279,862
GOODWILL, net of accumulated amortization of $3,715,106		11,351,402			11,872,973
Total assets	$	49,979,418		$	45,193,738

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		6,584,283			6,499,771
Accrued expenses		2,691,218			2,933,536
Accrued transportation expenses		12,691,711			9,952,452
Line of credit		4,139,665			2,493,787
Deferred purchase price liability (Note 5)		-			207,840
Dividends payable		60,968			60,801
Taxes payable		125,800			678,000
Lease obligation – current portion		113,713			131,342
Total current liabilities		26,407,358			22,957,529
LEASE OBLIGATION — LONG TERM		163,093			283,772
DEFERRED TAX LIABILITY - LONG TERM		105,193			271,427
Total liabilities	$	26,675,644		$	23,512,728

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS’ EQUITY:
Preferred Stock, $10 par value; 2,500,000 shares authorized, 122,946 shares issued and outstanding		1,229,460			1,229,460
Common Stock, $.01 par value; 30,000,000 shares authorized, 18,811,868 and 18,621,686 shares issued and outstanding, respectively		188,117			186,217
Additional paid-in capital		28,404,752			28,289,402
Accumulated deficit		(5,873,750	)		(7,379,264	)
Less: Treasury stock, 734,951 shares held at cost		(644,805	)		(644,805	)
Total shareholders’ equity		23,303,774			21,681,010
Total liabilities and shareholders’ equity	$	49,979,418		$	45,193,738

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

F-2

TARGET LOGISTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended June 30, 2007			Year Ended June 30, 2006			Year Ended June 30, 2005

OPERATING REVENUES:	$	180,024,892		$	160,368,570		$	138,392,375

COST OF TRANSPORTATION:		126,500,950			110,098,043			93,913,264

GROSS PROFIT:		53,523,942			50,270,527			44,479,111

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (“SG&A”):
SG&A - Target subsidiary		32,876,495			27,620,391			24,002,255
SG&A - Target subsidiary (Exclusive forwarder commissions)		15,857,497			15,874,335			15,920,706
SG&A – Corporate		1,028,876			1,384,180			1,102,018
Depreciation and amortization		816,647			616,310			600,155
Selling, general and administrative expenses		50,579,515			45,495,216			41,625,134

Operating income		2,944,427			4,775,311			2,853,977

OTHER EXPENSE:
Interest expense		(129,078	)		(126,516	)		(85,717	)

Income before income taxes		2,815,349			4,648,795			2,768,260
Provision for income taxes		1,186,722			1,943,197			1,207,122
Net income	$	1,628,627		$	2,705,598		$	1,561,138

Preferred stock dividends		123,113			231,079			319,548
Net income applicable to common shareholders	$	1,505,514		$	2,474,519		$	1,241,590
Income per share attributable to common shareholders:
Basic	$	0.08		$	0.15		$	0.08
Diluted	$	0.08		$	0.13		$	0.07

Weighted average shares outstanding:
Basic		18,051,667			16,223,353			15,830,915
Diluted		21,480,385			21,490,369			21,489,990

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

F-3

TARGET LOGISTICS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED JUNE 30, 2007, 2006 AND 2005

	Preferred Stock						Common Stock				Additional Paid-In		Stock Subscription Note			Treasury Stock						Accumulated
	Shares			Amount			Shares		Amount		Capital		Receivable			Shares			Amount			Deficit			Total

Balance, June 30, 2004		320,696		$	3,206,960			16,562,229	$	165,622	$	26,285,765	$	(100,000	)		(734,951	)	$	(644,805	)	$	(11,095,373	)	$	17,818,169

Cash dividends associated with the Class C and F Preferred Stock		-			-			-		-		-		-			-			-			(319,548	)		(319,548	)
Common Stock issued in conjunction with the conversion of Class C Preferred Stock		(750	)		(7,500	)		7,500		75		7,425		-			-			-			-			-
Stock subscription note receivable		-			-			-		-		-		100,000			-			-			-			100,000
Net income		-			-			-		-		-		-			-			-			1,561,138			1,561,138

Balance, June 30, 2005		319,946		$	3,199,460			16,569,729	$	165,697	$	26,293,190		-			(734,951	)	$	(644,805	)	$	(9,853,783	)	$	19,159,759

Cash dividends associated with the Class C and F Preferred Stock		-			-			-		-		-		-			-			-			(231,079	)		(231,079	)
Common Stock issued in conjunction with the conversion of Class C Preferred Stock		(197,000	)		(1,970,000	)		1,970,000		19,700		1,950,300		-			-			-			-			-
Stock options exercised		-			-			81,957		820		37,015		-			-			-			-			37,835
Stock option expense		-			-			-		-		8,897		-			-			-			-			8,897
Net income		-			-			-		-		-		-			-			-			2,705,598			2,705,598

Balance, June 30, 2006		122,946		$	1,229,460			18,621,686	$	186,217	$	28,289,402		-			(734,951	)	$	(644,805	)	$	(7,379,264	)	$	21,681,010

Cash dividends associated with the Class F Preferred Stock		-			-			-		-		-		-			-			-			(123,113	)		(123,113	)
Stock options exercised		-			-			190,000		1,900		115,350		-			-			-			-			117,250
Net income		-			-			-		-		-		-			-			-			1,628,627			1,628,627

Balance, June 30, 2007		122,946		$	1,229,460			18,811,686	$	188,117	$	28,404,752		-			(734,951	)	$	(644,805	)	$	(5,873,750	)	$	23,303,774

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

F-4

TARGET LOGISTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended June 30, 2007			Year Ended June 30, 2006			Year Ended June 30, 2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		1,628,627		$	2,705,598		$	1,561,138
Bad debt expense		666,084			220,154			409,679
Depreciation and amortization		816,647			616,310			600,155
Decrease in deferred tax liability		(166,234	)		(69,945	)		-
(Increase) decrease in deferred tax asset		(171,780	)		152,095			1,047,120
Employee stock option expense		-			8,897			-
Services performed pursuant to stock subscription agreement		-			-			100,000
Adjustments to reconcile net income to net cash used in operating activities
(Increase) in accounts receivable		(5,436,180	)		(880,547	)		(805,964	)
Decrease (increase) in prepaid expenses and other current assets		487,872			(10,615	)		4,142
Decrease (increase) in other assets		125,653			188,433			(137,852	)
(Increase) in goodwill resulting from earn-out due under ACI Acquisition		-			(147,150	)		-
Increase in accounts payable and accrued expenses		1,821,413			2,362,381			1,769,724
Net cash (used for) provided by operating activities		( 227,898	)		5,145,611			4,548,142

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(462,167	)		(1,858,298	)		(243,107	)
Asset purchase acquisition - DCI		( 69,120	)		-			-
Asset purchase acquisition - Capitaland		(1,013,520	)		-			-
Payment for purchase of ACI, net of cash acquired (Note 6)		-			(550,000	)		(124,283	)
Net cash used for investing activities		(1,544,807	)		(2,408,298			(367,390	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid		(122,946	)		(280,194	)		(320,104	)
Stock options exercised		117,250			37,835			-
Net borrowing (repayment) from line of credit		1,645,878			(1,854,862	)		(3,223,467	)
Payment of lease obligations		(143,708	)		(150,651	)		(8,482	)
Net cash provided by (used for) financing activities		1,496,474			(2,247,872	)		(3,552,053	)

Net (decrease) increase in cash and cash equivalents		(276,231	)		489,441			628,699

CASH AND CASH EQUIVALENTS, beginning of year	$	7,015,018			6,525,577			5,896,878
CASH AND CASH EQUIVALENTS, end of year	$	6,738,787		$	7,015,018		$	6,525,577

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest	$	229,848		$	173,942		$	258,348
Income taxes		1,640,985		$	1,337,320		$	30,792

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

F-5

TARGET LOGISTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

	Year Ended June 30, 2007		Year Ended June 30, 2006			Year Ended June 30, 2005

Conversion of 197,000 and 750 Class C Preferred Shares, respectively		-	$	(1,970,000	)	$	(7,500	)

Issuance of Common Stock for Conversion of 197,000 and 750 Class C Preferred Shares, respectively		-	$	1,970,000		$	7,500

Purchase of property and equipment under capital lease obligations		-	$	442,104			-

Accrued purchase price liability - ACI		-		-		$	757,840

Deferred tax liability - ACI		-		-		$	400,000

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

F-6

TARGET LOGISTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED JUNE 30, 2007

BUSINESS

Target Logistics, Inc. (“Company”) provides freight forwarding services and logistics services, through its wholly owned subsidiary, Target Logistic Services, Inc. (“Target”). The Company has a network of offices in 34 cities throughout the United States. The Company was incorporated in Delaware in January 1996 as the successor to operations commenced in 1970. On March 15, 2005, the Company acquired the stock of Air Cargo International and Domestic, Inc. (“ACI”). Refer to Note 6 for a further description of the ACI Acquisition.

The Company’s freight forwarding services involve arranging for the total transport of customers’ freight from the shipper’s location to the designated recipients, including the preparation of shipping documents and the providing of handling, packing and containerization services. The Company concentrates on cargo shipments weighing more than 50 pounds requiring time definite delivery, and has an average shipment weighing approximately 1,700 pounds. The Company also assembles bulk cargo and arranges for insurance. The Company has a network of offices in 34 cities throughout the United States, including exclusive agency relationships in 20 cities. The Company has international freight forwarding operations with a worldwide agent network providing coverage in over 70 countries. The Company has developed several niches including fashion services, the distribution of materials for the entertainment industry, and an expertise in material supply logistics to manufacturing concerns.

On September 17, 2007 (subsequent to the close of the Company’s June 30, 2007 fiscal year), the Company, Mainfreight Limited, a New Zealand corporation (“Mainfreight”), and Saleyards Corp., a Delaware corporation and wholly owned subsidiary of Mainfreight (“Saleyards”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Saleyards will merge with and into Target (the “Merger”), with Target continuing as the surviving corporation and a wholly owned subsidiary of Mainfreight. Upon consummation of the Merger, each share of our Common Stock, par value $0.01 per share (the “Common Stock”) issued and outstanding immediately prior to the Merger (other than shares of Common Stock with respect to which a demand for appraisal pursuant to the General Corporation Law of the State of Delaware (the “DGCL”) has been properly made, and any shares of Common Stock owned by Mainfreight, Saleyards and any wholly owned subsidiary of Mainfreight) will be canceled and will be converted automatically into the right to receive $2.50 in cash payable to the holder thereof, without interest. Each Share of our Class F Preferred Stock, par value $10.00 per share (the “Class F Stock”) issued and outstanding immediately prior to the Merger (other than shares of Class F Stock with respect to which a demand for appraisal pursuant to the DGCL has been properly made, and any shares of Class F Stock owned by Mainfreight, Saleyards and any wholly owned subsidiary of Mainfreight) will be canceled and will be converted automatically into the right to receive $62.50 in cash (the equivalent of $2.50 per share of Common Stock multiplied by 25, which is the number of shares of Common Stock into which each share of Class F stock may be converted) payable to the holder thereof, without interest. Under Section 251 of the DGCL, the affirmative vote of the holders of a majority of the voting power of the outstanding shares of the Company’s voting stock is required to approve the Merger Agreement and the Merger. On September 17, 2007, three stockholders that, in the aggregate, are the record owners of 10,978,853 Shares and all of the Class F Shares, representing in the aggregate approximately 66.4% of the outstanding voting power of the Company, executed and delivered to the Company written consents adopting the Merger Agreement and approving the Merger. Accordingly, the Merger has been approved by holders representing approximately 66.4% of the outstanding voting securities of the Company, and no vote or further action of the stockholders of the Company is required to adopt the Merger Agreement or approve the Merger. The parties have made customary representations, warranties and covenants in the Merger Agreement, including, among others, the Company’s agreement (subject to certain exceptions) (i) to conduct its business in the ordinary course consistent with past practice between the execution of the Merger Agreement and consummation of the Merger, and not to engage in certain kinds of transactions during this period; to (ii) to use its reasonable best efforts to consummate the Merger; and (iii) to not solicit proposals relating to alternative business combination transactions or, subject to certain exceptions, enter into discussions concerning or provide confidential information in connection with alternative business combination transactions. Consummation of the Merger is subject to customary conditions set forth in the Merger Agreement. The Merger Agreement contains certain termination rights for both the Company and Mainfreight, and further provides that, upon termination of the Merger Agreement under specified circumstances, the Company may be required to pay Mainfreight a termination fee of up to $2,115,000.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies of the Company, as summarized below, are in conformity with generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

F-7

TARGET LOGISTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

YEAR ENDED JUNE 30, 2007

Principles of Consolidation

For the fiscal year ended June 30, 2007, 2006 and 2005, the consolidated financial statements include the accounts of the Company, Target, ACI, and other inactive subsidiaries. All significant intercompany balances and transactions have been eliminated upon consolidation.

Use of Estimates

In the process of preparing its consolidated financial statements, the Company estimates the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. Management bases its estimates on historical experience and on various assumptions which are believed to be reasonable under the circumstances. The primary estimates underlying the Company’s consolidated financial statements include allowance for doubtful accounts, accruals for transportation and other direct costs, accruals for cargo insurance, the determination of shared based compensation expense, and deferred income taxes.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed under the straight-line method over estimated useful lives ranging from 3 to 8 years. Assets under capital leases are depreciated over the shorter of the estimated useful life of the asset or the lease term. The Company utilizes a half-year convention for assets in the year of acquisition and disposal. Leasehold improvements are amortized using the straight-line method over the shorter of the life of the asset or the remaining lease term.

Accounting for Long-Lived Assets

The Company accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144, “ Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of .” This statement establishes financial accounting and reporting standards for the impairment or disposal of long-lived assets. The statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that its carrying amount may be not be recoverable and is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. SFAS No. 144 requires companies to separately report discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sales, abandonment or in a distribution to owners) or is classified as held for sale. Assets to be disclosed are reported at the lower of the carrying amount or fair value less costs to sell. Management has performed a review of all long-lived assets and has determined that no impairment of the respective carrying value has occurred as of June 30, 2007.

Goodwill

Goodwill represents the excess of cost over net assets acquired and was amortized on a straight-line basis over 25 years.

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

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

F-8

TARGET LOGISTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

YEAR ENDED JUNE 30, 2007

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

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

The decrease in goodwill for the fiscal year ended June 30, 2007 is attributable to the post closing adjustment under the ACI Acquisition. Refer to Note 5 for a discussion of the goodwill associated with the ACI acquisition.

Allowance for Doubtful Accounts

The Company, on a regular basis, reviews the outstanding balances owed by its customers and establishes a minimum allowance for doubtful accounts for any balances that are 90 days or more past due based on the invoice date. The Company also reviews its accounts receivable by customer and, based on the review, additional reserves may be added to the allowance for doubtful accounts, if in the opinion of management the collection of such debt is impaired. In addition, balances less than 90 days past due are reserved based on the Company’s recent bad debt experience.

Income Taxes

The Company accounts for income taxes under SFAS No. 109, “ Accounting for Income Taxes ”. Under SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets or liabilities of a change in tax rates is recognized in the period that the tax change occurs.

Share Based Compensation

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, “Share Based Payment: An Amendment of FASB Statements No. 123 (“SFAS 123R”). This statement requires that the cost resulting from all share based payment transactions be recognized in the Company’s consolidated financial statements. In addition, in March 2005 the Securities and Exchange Commission (“SEC”) released SEC Staff Accounting Bulletin No. 107, “Share-Based Payment” (“SAB 107”). SAB 107 provides the SEC staff’s position regarding the application of SFAS 123R and certain SEC rules and regulations, and also provides the staff’s views regarding the valuation of share based payment arrangements for public companies. Generally, the approach in SFAS 123R is similar to the approach described in SFAS 123. However, SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their fair values. Pro forma disclosure of fair value recognition, as prescribed under SFAS 123, is no longer an alternative.

Effective July 1, 2005, the Company adopted the fair value measurement provisions of SFAS 123R and accordingly has adopted the modified prospective application method. Under the provisions of FASB Statement No. 123(R) the compensation cost relating to share-based payment transactions (in the company’s case, the employee stock option plan) is to be recognized in the financial statements. For the year ending June 30, 2007, the Company has recognized as expense outstanding, unvested employee stock options over the remaining vesting period that remained on such options based on the fair value at the date the employee stock options were granted. Under the modified-prospective-transition method, results for the prior periods have not been restated.

F-9

TARGET LOGISTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

YEAR ENDED JUNE 30, 2007

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

The following table illustrates the effect on net income and earnings per share if compensation expense had been determined for fixed plan awards based on an estimate of fair value of the option at the date of grant consistent with SFAS No. 123, “Accounting for Stock Based Compensation,” as amended.

	Year Ended June 30, 2007		Year Ended June 30, 2006		Year Ended June 30, 2005
Net income as reported	$	1,628,627	$	2,705,598	$	1,561,138
Total stock-based employee compensation expense included in the determination of net income, net of tax effect (SFAS No. 123R)		-		5,338		N/A
Total stock-based employee compensation expense determined using a fair value based method for fixed plan awards, net of tax effect (SFAS No. 123)		-		-		(53,399	)
Pro forma net income		N/A		N/A	$	1,507,739
Basic earnings per share	$	0.08	$	0.15	$	0.08
Pro forma basic earnings per share		N/A		N/A	$	0.08
Diluted earnings per share	$	0.08	$	0.13	$	0.07
Pro forma diluted earnings per share		N/A		N/A	$	0.07

The effects of applying SFAS No. 123 in the 2005 pro forma are not indicative of future amounts as additional awards in future years are anticipated.

On November 30, 2005, the Company’s shareholders approved the Company’s 2005 Stock Option Plan. The new Plan replaces the Company’s 1996 Stock Option Plan which expired in June 2006. Under the new Plan, 1,500,000 shares of Common Stock are reserved for issuance.

Revenue Recognition

In accordance with EITF 91-9 “ Revenue and Expense Recognition for Freight Services in Process ”, revenue from freight forwarding is recognized upon completed delivery of goods, and direct expenses associated with the cost of transportation are accrued concurrently. Ongoing provision is made for doubtful receivables, discounts, returns and allowances.

The Company recognizes revenue on a gross basis, in accordance with Emerging Issues Task Force (EITF) 99-19, “Reporting Revenue Gross versus Net”, as a result of the following: Target is the primary obligor responsible for providing the service desired by the customer and is responsible for fulfillment, including the acceptability of the service(s) ordered or purchased by the customer. The prices charged by Target to its customers are set by Target in its sole discretion and Target is not required to obtain approval or consent from any other party in establishing its prices. Target has multiple suppliers for the services it sells to a customer and Target has the absolute and complete discretion and right to select the supplier that will provide the product(s) or service(s) ordered by a customer, including changing the supplier on a shipment by shipment basis. Target, in most cases, does determine the nature, type, characteristics, and specifications of the service(s) ordered by the customer. Target assumes credit risk for the amount billed to the customer.

F-10

TARGET LOGISTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

YEAR ENDED JUNE 30, 2007

Cash and Cash Equivalents

The Company considers all highly liquid investments that are not held as collateral, and which are purchased with an original maturity of three months or less, to be cash equivalents.

The Company maintains cash balances at various financial institutions. Deposits not exceeding $100,000 for each institution are insured by the Federal Deposit Insurance Corporation. At June 30, 2007 and June 30, 2006, the Company had uninsured cash and cash equivalents of $6,323,685 and $6,250,905, respectively.

Per Share Data

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

Options to purchase 75,000 shares of common stock for the year ended June 30, 2005 were not included in the computation of diluted EPS because the exercise prices of those options were greater than the average market price of the common shares, thus they were anti-dilutive.

Fair Value of Financial Instruments

Cash equivalents are reflected at cost which approximate their fair values. The fair value of notes and loans payable outstanding is estimated by discounting the future cash flows using the current rates offered by lenders for similar borrowings with similar credit ratings. The carrying amounts of the accounts receivable and debt approximate their fair value.

Foreign Currency Transactions

In the normal course of business the Company has accounts receivable and accounts payable that are transacted in foreign currencies. The Company accounts for transaction differences in accordance with Statement of Financial Accounting Standard Number 52, “ Foreign Currency Translation ”, and accounts for the gains or losses in operations. For all periods presented, these amounts were immaterial to the Company’s operations.

Reclassifications

Certain amounts in the 2005 and 2006 consolidated financial statements have been reclassified to conform with the 2007 presentation.

Recent Accounting Pronouncements

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

F-11

TARGET LOGISTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

YEAR ENDED JUNE 30, 2007

In February 2007, FASB issued FAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115” ("FAS 159"). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. FAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting FAS 159 on its financial statements.

The FASB is currently working on amendments to the existing accounting standards governing asset transfers and fair value measurements in business combinations and impairment tests, among other issues. Upon completion of these standards, the Company will need to reevaluate its accounting and disclosures. Due to the ongoing deliberations of the standard setters, the Company is unable to accurately determine the effect of future amendments or proposals at this time.

3.	STOCK OPTION PLAN

On November 30, 2005, the Company’s shareholders approved the Company’s 2005 Stock Option Plan (“2005 Plan). The 2005 Plan replaces the Company’s 1996 Stock Option Plan (“1996 Plan”), which expired in June 2006. The 2005 Plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 1,500,000 shares of the Company’s common stock to be acquired by the holders of said awards. The 1996 Plan, which is now expired, authorized the granting of awards, the exercise of which would allow up to an aggregate of 1,000,000 shares of the Company’s common stock to be acquired by the holders of said awards. For both the 2005 Plan and the 1996 Plan the awards can take the form of incentive stock options (“ISOs”) or nonqualified stock options (“NSOs”) and may be granted to key employees, officers, directors and consultants. Any plan participant who is granted an Incentive Stock Option and possesses more than 10% of the voting rights of the Company’s outstanding common stock must be granted an option price at least 110% of the fair market value on the date of grant and the option must be exercised within five years from the date of grant. Under the 2005 Plan, no stock options have been granted. Under the 1996 Plan, stock options have been granted to employees and directors for terms of up to 10 years at exercise prices ranging from $.50 to $1.125 and are exercisable in whole or in part at stated times from the date of grant up to ten years from the date of grant. At June 30, 2007, 330,000 stock options granted to employees and directors were exercisable under the 1996 Plan.

The following table reflects activity under the plan for the three-year period ended June 30, 2007:

	Year Ended June 30, 2007				Year Ended June 30, 2006				Year Ended June 30, 2005
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at beginning of year		520,000	$	0.59		686,957	$	1.16		596,957	$	1.22
Granted		-		-		-		-		110,000	$	0.75
Exercised		190,000	$	0.62		81,957	$	0.05-0.50		-		-
Forfeited		-		-		10,000		0.50		20,000	$	0.50
Cancelled		-		-		75,000		6.00		-		-

Outstanding at end of year		330,000	$	0.58		520,000	$	0.59		686,957	$	1.16
Exercisable at end of year		330,000	$	0.58		520,000	$	0.59		657,957	$	1.19

There were 190,000 stock options exercised for $117,250 during the year ended June 30, 2007.

No stock options were granted during 2007 and 2006. The per share weighted average fair value of stock options granted during 2005 was $0.75.

F-12

TARGET LOGISTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

YEAR ENDED JUNE 30, 2007

The fair value of each stock option grant is estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	2005
Risk-Free Interest Rates		4.67	%
Expected Lives		5
Expected Volatility		270	%
Expected Dividend Yields		0.00	%

No stock options were granted during 2007 and 2006 so the Black-Scholes information has not been presented.

The following table summarizes information about stock options outstanding at June 30, 2007:

	Options Outstanding						Options Exercisable
Exercise Prices	Number Outstanding at 6/30/07		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable at 6/30/07		Weighted Average Exercise Price
$0.50 - $0.50		250,000		3.00	$	0.50		250,000	$	0.50
$0.75 - $1.125		80,000		3.60	$	0.81		80,000	$	0.81
$0.50 - $1.125		330,000		3.30	$	0.58		330,000	$	0.58

4.	PROPERTY AND EQUIPMENT, NET

	June 30, 2007			June 30, 2006
Property and Equipment consists of the following:
Furniture and fixtures		774,582		$	542,011
Furniture and fixtures - Capital Lease		671,014			671,014
Computer Equipment		594,967			460,090
Computer Equipment - Capital Lease		623,134			623,134
Computer Software		583,271			492,232
Leasehold Improvements		1,620,829			1,598,852
Vehicles		33,945			2,500
		4,901,742			4,389,833
Less: Accumulated depreciation and amortization (a)		(2,534,237	)		(2,089,527	)
		2,367,505		$	2,300,306

(a)

Includes accumulated depreciation and amortization of capital lease assets of $896,083 and $795,844 for the year ended June 30, 2007 and 2006, respectively.

5.	ACQUISITIONS

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

On July 14, 2006, our Target subsidiary acquired certain assets of Discovery Cargo, Inc. (“DCI”), a Queens, New York based freight forwarder for a cash payment. In conjunction with the acquisition, our Target subsidiary entered into a consulting agreement with the principals of DCI and advanced them $450,000 as a loan repayable over three years beginning October 15, 2006 at an interest rate equal to the prime plus one percent (1.0%). On March 16, 2007, the Company called the loan as the loan was in default due to non-payment. Refer to the litigation section of Note 10, below. As of June 30, 2007, there was $406,788 due under this loan and this amount is reflected in accounts receivable as the Company believes that the entire balance is collectible.

F-13

TARGET LOGISTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

YEAR ENDED JUNE 30, 2007

On March 15, 2005 the Company acquired the stock of Air Cargo International and Domestic, Inc. (“ACI”) for a combination of (i) $1,000,000 cash payment on date of closing, (ii) cash payment based on the ACI shareholder’s equity after winding down the ACI balance sheet, and (iii) an earn-out structure based on certain future gross profit achievements over the next five years (the “ACI Acquisition”). In accordance with the terms of the ACI Acquisition, certain post closing adjustments were made in September 2006 and included below is the revised purchase price allocation. The adjusted balance of intangible assets will be amortized prospectively over its remaining useful life of approximately 5 years, 6 months. Any payments from the earn-out structure will be considered an increase to the purchase price in the period such amount is determinable. The Company has no minimum commitment or obligation under the earn-out or the wind down of the balance sheet. The Company does not expect that the earn-out payments will have a material impact on its liquidity.

The revised purchase price allocation is as follows:

Purchase Price :

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

Assets Purchased :

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

Less Liabilities Assumed :

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

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

6.	OTHER ASSETS

	June 30, 2007		June 30, 2006
Asset purchase acquisitions (a)	$	936,676	$	127,461
Stock purchase acquisition (b)		678,571		821,427
Note receivable (c)		170,501		185,502
Security deposits (d)		256,104		145,472
Total	$	2,041,852	$	1,279,862

(a)	Represents the remaining amortization associated with asset purchase acquisitions.

F-14

TARGET LOGISTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

YEAR ENDED JUNE 30, 2007

(b)	Represents the remaining amortization of intangible assets (customer relationships and non-compete agreements) associated with the ACI stock purchase acquisition (refer to Note 5).

(c)

Represents a note receivable due from an independent sales organization representing the Company’s Target subsidiary. The note receivable is subject to interest at the prime rate with principal repayments made once the monthly commission payments earned exceed an established threshold defined in the agreement between Target and the independent sales organization, upon termination of the agreement, or upon the sale of the rights under the agreement to Target.

(d)	Represents outstanding security deposits under lease obligations.

DEBT

As of June 30, 2007 and 2006, short-term debt consisted of the following:

		June 30, 2007			June 30, 2006
Asset-based financing, Line of Credit		$	4,139,665		$	2,493,787

On March 19, 2007, the Company’s Target subsidiary entered into a $20 million revolving line of credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”). The new credit facility (the “Wells Fargo Facility”) replaces Target’s previous $15 million line of credit with GMAC Commercial Finance LLC. Under the Wells Fargo Facility, Target may borrow up to $20 million limited to 80% of its aggregate outstanding eligible accounts receivable. If borrowings do not exceed $5 million, then the facility is not restricted by eligible accounts receivable. Target may select a prime rate or LIBOR based interest rate. Interest on the Wells Fargo Facility will be adjusted quarterly based on the ratio of Target’s total liabilities to tangible net worth, and will range from 0.5% below Wells Fargo’s prime rate to Wells Fargo’s prime rate, or from LIBOR plus 1.25% to LIBOR plus 1.75%. Target’s obligations under the Wells Fargo Facility are secured by all of the assets of Target, and are guaranteed by the Company. The Wells Fargo Facility will expire on March 1, 2010. As of June 30, 2007, there were outstanding borrowings of $4,139,665 under the Wells Fargo Facility (which represented 28.0% of the amount available thereunder) out of a total amount available for borrowing under the Wells Fargo Facility of approximately $14,764,840, net of a standby letter of credit issued by Wells Fargo in the amount of $136,668.

Prior to March 19, 2007 and during the years ended June 30, 2007 and 2006, the Company’s Target subsidiary (“Borrower”) maintained an Accounts Receivable Management and Security Agreement with GMAC Commercial Credit LLC (“GMAC”) whereby the Borrower could receive advances of up to 85% of the net amounts of eligible accounts receivable outstanding to a maximum of $15 million since April 1, 2005, $13 million since May 3, 2004 and $10 million prior to that date. Since May 3, 2004, the credit line (“GMAC Facility”) was subject to interest at a rate of either (i) prime plus three-quarters of one percent (0.75%), or (ii) upon the achievement of certain financial milestones (measured quarterly), prime plus one-half of one percent (0.50%), and prior to May 3, 2004 at a rate of prime plus one percent (1.0%). The prevailing prime rate as defined by GMAC was 8.25% as of June 30, 2006. Under the GMAC Facility and prior to May 3, 2004, the interest rate could not be less than 5.0% per annum (and not less than 6.0% prior to September 20, 2002). The GMAC Facility was replaced with the Wells Fargo facility on March 19, 2007.

8.	SHAREHOLDERS’ EQUITY

Preferred Stock

As of June 30, 2007, the authorized preferred stock of the Company is 2,500,000 shares. As of June 30, 2007, 122,946 shares of preferred stock are outstanding as follows:

F-15

TARGET LOGISTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

YEAR ENDED JUNE 30, 2007

	Class C (b)			Class F (c)		Total
Balance at June 30, 2004		197,750			122,946		320,696
Issuances		-			-		-
Conversions		(750	)		-		(750	)

Balance at June 30, 2005		197,000			122,946		319,946
Issuances		-			-		-
Conversions		(197,000	)		-		(197,000	)

Balance at June 30, 2006		-			122,946		122,946
Issuances		-			-		-
Conversions		-			-		-

Balance at June 30, 2007		-			122,946		122,946

(a) Class C Preferred Stock. On June 13, 1997, the Company issued 257,500 shares of Class C, non-voting, cumulative, convertible preferred stock with a par value of $10.00 upon completion of a $2,575,000 private placement of equity securities to individual investors (the “Private Placement”).

The Class C Preferred Stock will pay cumulative cash dividends at an annual rate of $1.00 per share payable the last day of each calendar quarter in cash or, at the option of the Company, in shares of common stock provided a registration statement with respect to the underlying shares of common stock is in effect. The Company is prohibited from paying any dividends on common stock or Class A Preferred Stock unless all required Class C Preferred Stock dividends have been paid. Each share of Class C Preferred Stock may be converted at any time, at the option of the holder, into 10 shares of common stock.

Subject to the conversion rights, the Company may redeem the Class C Preferred Stock at any time, upon 30 days written notice, for $10.00 per share plus all accrued and unpaid dividends through the date of redemption if (i) a registration statement registering the resale of the shares of common stock issuable upon conversion of all the then outstanding shares of Class C Preferred Stock is current and effective and (ii) the last sale price of the common stock has been at least $2.50 on all 20 of the trading days ending on the third date prior to the date on which notice of redemption is given.

There were 197,000 shares of Class C Preferred Stock, converted into the Company’s Common Stock during fiscal year ending June 30, 2006.

(c) Class F Preferred Stock. On April 23, 2004, the Company issued 122,946 shares of Class F, voting, cumulative, convertible preferred stock with a par value of $10.00 in exchange for 122,946 Class A preferred shares. Each share of Class F Preferred Stock is entitled to 25 votes. The Class F Preferred Stock will pay cumulative cash dividends at an annual rate of $1.00 per share in cash or, at the option of the Company, in shares of Class F Preferred Stock, at the rate of $10.00 per share. The Company is prohibited from paying any cash dividends on common stock unless all required Class F Preferred Stock dividends have been paid. Each share of Class F Preferred Stock may be converted at any time, at the option of the holder, into 25 shares of common stock. Class F Preferred Stock holders are entitled to a liquidation preference of $10.00 per share plus all accrued and unpaid dividends.

9.	COMMITMENTS AND CONTINGENCIES

Leases

As of June 30, 2007, future minimum lease payments for capital leases and operating leases relating to equipment and rental premises are as follows:

F-16

TARGET LOGISTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

YEAR ENDED JUNE 30, 2007

YEAR ENDING	CAPITAL LEASES			OPERATING LEASES

2008		128,291			2,548,987
2009		125,753			2,587,083
2010		45,382			2,451,557
2011		-			2,150,090
2012 and thereafter		-			2,480,604

Total minimum lease payments	$	299,426		$	12,218,321
Less - Amount representing interest		(22,620	)
	$	276,806

Employment Agreements

The Company has employment agreements with certain employees expiring at various times through June 30, 2010. Such agreements provide for minimum salary levels and for incentive bonuses which are payable if specified management goals are attained. The aggregate commitment for future salaries at June 30, 2007, excluding bonuses, was approximately $2,015,000.

Litigation

The Company is currently involved in the following litigation, all previously reported, in connection with our Target subsidiary’s DCI acquisition:

On June 5, 2006, Seko Worldwide, LLC (“Seko”) filed a civil action in the United States District Court for the Northern District of Illinois (Case No. 06C3072) against DCI, DCI’s principals, and Target (incorrectly labeled as Target’s subsidiary), seeking a temporary restraining order and permanent injunction enjoining DCI and its principals from doing business with Target in competition with Seko for a specified period of time. Seko based its suit upon the non-competition clause of an Independent Contractor Agreement entered into between DCI, its principals and Seko, whereby DCI agreed to act as an independent contractor at Seko’s John F. Kennedy International Airport station. On June 13, 2006, the court denied Seko’s motion for a temporary restraining order and on June 30, 2007, after an evidentiary hearing, the court denied Seko’s request for injunctive relief. Seko voluntarily dismissed Target from this action on July 27, 2006. Target moved for sanctions against Seko for its failure to allege federal subject matter jurisdiction in its complaint. After the court denied Target’s motion, Target appealed to the United States Court of Appeals for the Seventh Circuit on January 22, 2007. Seko and Target participated in a mediation required by the Seventh Circuit, resulting in a settlement by which Seko paid Target $6,750.00 to dismiss the appeal.

F-17

TARGET LOGISTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

YEAR ENDED JUNE 30, 2007

10.	SEGMENT INFORMATION

The Company’s revenue includes both domestic and international freight movements. Domestic freight movements originate and terminate within the United States, and never leave the United States. International freight movements are either exports from the United States or imports to the United States. With regard to international freight movements, the accounts receivable can be due from either a domestic debtor or from one of the Company’s Target subsidiary’s international agents (an international debtor).

F-18

TARGET LOGISTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

YEAR ENDED JUNE 30, 2007

A reconciliation of the Company’s domestic and international segment revenues, gross profit, and accounts receivable for the years ended June 30, 2007, 2006 and 2005 is as follows:

	June 30, 2007			June 30, 2006			June 30, 2005

Domestic revenue	$	122,120,923		$	108,037,189		$	92,204,367
International revenue		57,903,969			52,331,381			46,188,008
Total revenue	$	180,024,892		$	160,368,570		$	138,392,375

Domestic gross profit	$	42,889,245		$	40,373,628		$	35,678,665
International gross profit		10,634,697			9,896,899			8,800,446
Total gross profit	$	53,523,942		$	50,270,527		$	44,479,111

Domestic accounts receivable	$	25,967,543		$	21,119,742		$	20,594,076
International accounts receivable		1,312,433			978,847			1,241,403
Less: allowance for doubtful accounts		(914,579	)		(503,288	)		(900,571	)
Accounts receivable, net of allowance for doubtful accounts	$	26,365,397		$	21,595,301		$	20,934,908

11.	INCOME TAXES

The Company has tax net operating loss carryforwards of approximately $6.4 million that expire from 2010 through 2022. Use of some of the losses is restricted due to a prior ownership change under certain provisions of the Internal Revenue Code. Certain net operating loss carryforwards for the State of California were suspended for the years ending June 30, 2005 and 2006.

The components of current and deferred income tax expense (benefit) are as follows:

	Year Ended June 30, 2007			Year Ended June 30, 2006		Year Ended June 30, 2005
(In thousands)
Current:
State		286		$	407	$	160
Federal		1,239			1,454		-

Deferred:
State		(139	)		-		-
Federal		(199	)		82		1,047

Net income tax expense		1,187		$	1,943	$	1,207

F-19

TARGET LOGISTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

YEAR ENDED JUNE 30, 2007

A reconciliation of income taxes between the statutory and effective tax rates on income before income taxes is as follows:

	Year Ended June 30, 2007		Year Ended June 30, 2006		Year Ended June 30, 2005
(In thousands)
Income tax (benefit) expense at U.S. statutory rate		957	$	1,581	$	941

Valuation Allowance		-		-		45

State tax (net of federal benefit)		42		259		160

Non-deductible expenses		188		103		61

	$	1,187	$	1,943	$	1,207

The components of deferred income taxes are as follows:

	Year Ended June 30, 2007			Year Ended June 30, 2006
(In thousands)
NOLs	$	2,344		$	2,344
Accrued amounts and other		703			720
Acquired customer relationships/non-compete agreements		(97	)		(329	)
		2,735			2,735

Depreciation and amortization		92			163
		3,236			2,898

Valuation allowance		(2,344	)		(2,344	)
	$	892		$	554

F-20

TARGET LOGISTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

YEAR ENDED JUNE 30, 2007

12.	QUARTERLY FINANCIAL DATA SCHEDULE (unaudited)

							Year Ended June 30, 2007
	09/30/06			12/31/06			03/31/07			06/30/07			Fiscal Year

Operating revenue	$	43,448,062		$	47,550,567		$	43,727,756		$	45,298,507		$	180,024,892
Cost of transportation		30,568,618			33,644,422			30,552,567			31,735,343			126,500,950
Gross profit		12,879,444			13,906,145			13,175,189			13,563,164			53,523,942
Selling, general & administrative expense		12,309,492			12,790,870			12,561,206			12,917,947			50,579,515
Interest (expense)		(33,249	)		(50,865	)		(34,177	)		(10,787	)		(129,078	)
Provision for income taxes		259,751			474,906			239,656			212,409			1,186,722
Net income (loss)	$	276,952		$	589,504		$	340,150		$	422,021		$	1,628,627

Income (loss) per share attributable to common shareholders:
Basic	$	.0.02		$	0.03		$	0.02		$	0.02		$	0.08
Diluted	$	.0.01		$	0.03		$	0.02		$	0.02		$	0.08
Weighted average shares outstanding:
Basic		17,977,278			18,076,735			18,076,735			18,076,735			18,051,667
Diluted		21,480,385			21,480,385			21,480,385			21,480,385			21,480,385

							Year Ended June 30, 2006
	09/30/05			12/31/05			03/31/06			06/30/06			Fiscal Year

Operating revenue	$	36,145,785		$	46,704,140		$	37,114,144		$	40,404,501		$	160,368,570
Cost of transportation		24,305,199			32,497,640			25,393,650			27,901,554			110,098,043
Gross profit		11,840,586			14,206,500			11,720,494			12,502,947			50,270,527
Selling, general & administrative expense		10,960,067			12,439,383			10,613,312			11,482,454			45,495,216
Interest (expense)		(34,083	)		(43,825	)		(40,611	)		(7,997	)		(126,516	)
Provision for income taxes		369,358			746,978			456,929			369,932			1,943,197
Net income (loss)	$	477,078		$	976,314			609,642		$	642,564		$	2,705,598
Income (loss) per share attributable to common shareholders:
Basic	$	0.03		$	0.05		$	0.04		$	0.03		$	0.15
Diluted	$	0.02		$	0.05		$	0.03		$	0.03		$	0.13
Weighted average shares outstanding:
Basic		15,858,427			16,070,811			16,692,679			17,886,735			16,223,353
Diluted		21,470,288			21,490,385			21,490,385			21,490,385			21,490,369

F-21

SCHEDULE II

SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS

(in thousands)

	Balance at Beginning of Year		Charged to Costs and Expenses		Charged to Other Accounts		Deductions			Balance at End of Year

For the fiscal year ended June 30, 2005

Allowance for doubtful accounts	$	990	$	410	$	-	$	(499	)	$	901

For the fiscal year ended June 30, 2006

Allowance for doubtful accounts	$	901	$	220	$	-	$	(618	)	$	503

For the fiscal year ended June 30, 2007

Allowance for doubtful accounts	$	503	$	666	$	-	$	(254	)	$	915