**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-Q**


**(Mark
      One)**





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




OR




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




Commission
      File Number:     0-27653




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





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


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





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





Indicate
      by check mark whether the Registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      One)




Large
      accelerated filer o Accelerated filer o Non-accelerated filer x




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





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




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




1




**PACIFIC
      CMA, INC.**





**INDEX
      TO FORM 10-Q**





**Page
                No.****PART
                I.**
            
            
            **FINANCIAL
                INFORMATION****Item
                1.**
            
            
            **Financial
                Statements**Condensed
                Consolidated Balance Sheets as of September 30, 2007
                (Unaudited)
              and
                December 31, 2006 (Audited)
            
            F-1Condensed
                Consolidated Statements of Operations for the Three and Nine
                Months
              Ended
                September 30, 2007 and 2006 (Unaudited)
            
            F-2Condensed
                Consolidated Statements of Cash Flows for the Nine Months
              Ended
                September 30, 2007 and 2006 (Unaudited)
            
            F-3Notes
                to Condensed Consolidated Financial Statements (Unaudited)
            
            F-4**Item
                2.**
            
            
            **Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations**
            
            
            3**Item
                3.**
            
            
            **Quantitative
                and Qualitative Disclosures About Market Risk**
            
            
            29**Item
                4.**
            
            
            **Controls
                and Procedures**
            
            
            30**PART
                II.**
            
            
            **OTHER
                INFORMATION****Item
                1.**
            
            
            **Legal
                Proceedings**
            
            
            31**Item
                1A.**
            
            
            **Risk****Factors**
            
            
            32**Item
                2.**
            
            
            **Unregistered
                Sales of Equity Securities and Use of Proceeds**
            
            
            32**Item
                3.**
            
            
            **Defaults
                Upon Senior Securities**
            
            
            33**Item
                4.**
            
            
            **Submission
                of Matters to a Vote of Security Holders**
            
            
            33**Item
                5.**
            
            
            **Other****Information**
            
            
            33**Item
                6.**
            
            
            **Exhibits**
            
            
            33**SIGNATURES**
            
            
            
            
            
            34




2





**PART
      1.**  **FINANCIAL
      INFORMATION**





**Item
      1.**  **Financial
      Statements**




**Pacific
      CMA, Inc.**




**Condensed
      Consolidated Balance Sheets**


**September
      30, 2007 and December 31, 2006**




**(Unaudited)**
              **2007**
            
            **2006****Assets****Current
                Assets**Cash
                and cash equivalents
            
            $
            2,948,562
            
            $
            2,783,696Restricted
                cash
            
            
            4,902,857
            
            
            5,863,185Accounts
                and notes receivable, net of allowance for doubtful accounts; 2007
                -
                $1,204,823; 2006 - $680,632
            
            
            20,613,301
            
            
            21,445,304Refundable
                income taxes
            
            
            187,584
            
            
            76,274Other
                receivables
            
            
            545,301
            
            
            1,076,042Deposits
                and prepaid expenses
            
            
            1,591,286
            
            
            1,668,086Total
                current assets
            
            
            30,788,891
            
            
            32,912,587**Property
                and Equipment**,
                net of accumulated depreciation; 2007 - $1,795,494; 2006 -
                $1,193,307
            
            
            1,605,154
            
            
            1,758,832**Other
                Assets**Goodwill
            
            
            4,278,213
            
            
            3,745,832Intangible
                assets, net of accumulated amortization; 2007 - $2,984,506; 2006
                -
                $2,726,137
            
            
            602,218
            
            
            410,431Debt
                financing costs, net
            
            
            728,908
            
            
            403,502Investment
                deposit
            
            
            634,282
            
            
            955,656Investment
                in equity method subsidiaries
            
            
            893,166
            
            
            1,168,5087,136,787
            
            
            6,683,929Total
                Assets
            
            $
            39,530,832
            
            $
            41,355,348**Liabilities
                and Stockholders’ Equity****Current
                Liabilities**Notes
                payable - bank and non-convertible note
            
            $
            6,265,700
            
            $
            6,714,451Short-term
                loan payable
            
            
            4,250,034
            
            
            2,242,105Revolving
                note
            
            
            5,307,151
            
            
            -Current
                maturities of capital lease obligations
            
            
            60,317
            
            
            64,123Accounts
                payable
            
            
            15,293,441
            
            
            15,076,453Accrued
                expenses
            
            
            2,068,520
            
            
            1,456,000Deferred
                tax liabilities
            
            
            176,476
            
            
            74,583Payable-minority
                shareholder
            
            
            143,791
            
            
            123,893Income
                taxes payable
            
            
            179,790
            
            
            10,084Total
                current liabilities
            
            
            33,745,220
            
            
            25,761,692**Capital
                Lease Obligations**
            
            
            90,575
            
            
            80,855**Convertible
                Note**,
                net
            
            
            -
            
            
            3,512,811Total
                Liabilities
            
            
            33,835,795
            
            
            29,355,358**Series
                A Preferred Stock**,
                net
            
            
            -
            
            
            1,633,983**Minority
                Interest**
            
            
            192,315
            
            
            175,596**Stockholders’
                Equity**Common
                stock, US$0.001 par value; authorized - 100,000,000 shares
                and
              issued
                - 2007 - 28,619,271 shares and 2006 - 28,597,712 shares
            
            
            4,915,469
            
            
            4,805,193Treasury
                common stock, at cost, 2007 and 2006 - 41,800 shares
            
            
            (32,623
            )
            
            (32,623
            )Warrants
                outstanding
            
            
            1,590,429
            
            
            1,610,679Additional
                paid-in capital
            
            
            6,659,211
            
            
            6,659,211Accumulated
                deficit
            
            
            (7,649,000
            )
            
            (2,916,121
            )Accumulated
                other comprehensive income
            
            
            19,236
            
            
            64,072Total
                stockholders’ equity
            
            
            5,502,722
            
            
            10,190,411Total
                stockholders’ equity and liabilities
            
            $
            39,530,832
            
            $
            41,355,348




*See
      Notes to Condensed Consolidated Financial Statements*




F-1





**Pacific
      CMA, Inc.**




**Condensed
      Consolidated Statements of Operations**


**(Unaudited)**




**Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006****Freight
                Forwarding Income**
            
            $
            37,549,376
            
            $
            45,055,638
            
            $
            104,058,410
            
            $
            112,815,905**Operating
                Expenses**Cost
                of forwarding
            
            
            (32,407,477
            )
            
            (39,033,203
            )
            
            (87,834,403
            )
            
            (96,984,176
            )General
                and administrative
            
            
            (5,846,052
            )
            
            (4,852,464
            )
            
            (16,708,575
            )
            
            (14,078,375
            )Depreciation
                and amortization
            
            
            (236,895
            )
            
            (269,955
            )
            
            (886,724
            )
            
            (774,082
            )Stock-based
                compensation cost
            
            
            (34,912
            )
            
            (94,159
            )
            
            (104,735
            )
            
            (153,850
            )(38,525,336
            )
            
            (44,249,781
            )
            
            (110,034,437
            )
            
            (111,990,483
            )**Operating****Income
                (Loss)**
            
            
            (975,960
            )
            
            805,857
            
            
            (1,476,027
            )
            
            825,422**Other
                Income (Expense)**Interest
                and other income
            
            
            325,414
            
            
            102,302
            
            
            490,293
            
            
            309,306Interest
                expenses
            
            
            (326,156
            )
            
            (226,206
            )
            
            (845,034
            )
            
            (615,358
            )Pre-payment
                penalty on convertible and non- convertible note
            
            
            -
            
            
            -
            
            
            (218,219
            )
            
            -Convertible
                and non-convertible note amortization of deferred financing
                costs
            
            
            -
            
            
            (26,677
            )
            
            (403,502
            )
            
            (67,143
            )Amortization
                of convertible and non-convertible note discount
            
            
            -
            
            
            (18,400
            )
            
            (487,190
            )
            
            (43,075
            )Warrants
                redemption
            
            
            (38,050
            )
            
            -
            
            
            (38,050
            )
            
            -Penalty
                on warranty early repayment
            
            
            (250,000
            )
            
            -
            
            
            (250,000
            )
            
            -Revolving
                note amortization of deferred financing costs
            
            
            (97,859
            )
            
            -
            
            
            (144,098
            )
            
            -




Loss
                of equity method subsidiaries
            
            
            14,277
            
            
            6,989
            
            
            (39,410
            )
            
            (7,539
            )(372,374
            )
            
            (161,992
            )
            
            (1,935,210
            )
            
            (423,809
            )**Income
                (Loss) Before Income Taxes**
            
            
            (1,348,334
            )
            
            643,865
            
            
            (3,411,237
            )
            
            401,613**Provision
                (Benefit) for Income Taxes**
            
            
            (102,727
            )
            
            124,597
            
            
            (163,300
            )
            
            (116,401
            )**Income
                (Loss) Before Minority Interest**
            
            
            (1,451,061
            )
            
            519,268
            
            
            (3,574,537
            )
            
            518,014**Minority
                Interest**
            
            
            (18,364
            )
            
            (26,445
            )
            
            (16,826
            )
            
            (24,535
            )**Net****Income
                (Loss)**
            
            
            (1,469,425
            )
            
            492,823
            
            
            (3,591,363
            )
            
            493,479**Accretion
                of Series A Preferred Stock, net to redemption value and
                dividends**
            
            
            (615,906
            )
            
            (616,4225
            )
            
            (1,141,517
            )
            
            (1,593,991
            )**Net
                Loss attributable to common stockholders**
            
            $
            (2,085,331
            )
            $
            (123,602
            )
            $
            (4,732,880
            )
            $
            (1,100,512
            )**Basic****and
                Diluted Loss Per Share attributable to common
                stockholders**
            
            $
            (0.07
            )
            $
            (0.01
            )
            $
            (0.17
            )
            $
            (0.04
            )**Weighted
                average number of shares outstanding during the year -
                basic****and
                diluted**
            
            
            28,619,271
            
            
            27,716,471
            
            
            28,610,352
            
            
            27,238,656




*See
      Notes to Condensed Consolidated Financial Statements*




F-2





**Pacific
      CMA, Inc.**




**Condensed
      Consolidated Statements of Cash Flows**


**Nine
      Months Ended September 30, 2007 and 2006**


**(Unaudited)**




**2007**
            
            **2006****Operating
                Activities**Net
                (loss) income
            
            $
            (3,591,363
            )
            $
            493,479Items
                not requiring (providing) cashAmortization
                of convertible and non-convertible note discount
            
            
            487,189
            
            
            43,075Amortization
                of convertible and non-convertible note and revolving note deferred
                financing costs
            
            
            547,600
            
            
            67,143Depreciation
                and amortization
            
            
            628,137
            
            
            318,716Amortization
                of intangibles
            
            
            258,587
            
            
            455,366Other
                expenses - warrant redemption
            
            
            38,050
            
            
            -Loss
                (gain) on sale of property and equipment
            
            
            (6,215
            )
            
            (16,492
            )Minority
                interest in income of subsidiaries
            
            
            16,826
            
            
            24,535Common
                stock issued for services and employee compensation
            
            
            104,735
            
            
            153,850Share
                of loss of affiliates
            
            
            39,410
            
            
            7,539Provision
                for doubtful accounts
            
            
            526,144
            
            
            18,122Deferred
                income taxes
            
            
            23,116
            
            
            (153,770
            )Changes
                inAccounts
                receivable
            
            
            378,647
            
            
            (5,382,296
            )Accounts
                payable
            
            
            124,509
            
            
            4,266,311Accrued
                expenses
            
            
            605,193
            
            
            371,310Income
                taxes refundable/(payable)
            
            
            638,262
            
            
            6,144Other
                assets
            
            
            38,740
            
            
            115,176Net
                cash provided by operating activities
            
            
            857,567
            
            
            788,208**Investing
                Activities**Purchase
                of property and equipment
            
            
            (467,859
            )
            
            (391,433
            )Capital
                injection from minority interest
            
            
            -
            
            
            37,968Deposit
                for potential equity investment
            
            
            (99,247
            )
            
            -Disposal
                of associate
            
            
            357,358
            
            
            -Acquisition
                of subsidiary
            
            
            (718,939
            )
            
            (624,560
            )Acquisition
                of associates
            
            
            (53,624
            )
            
            (106,463
            )Proceeds
                from sale of property and equipment
            
            
            -
            
            
            16,492Deposit
                returned/(paid) for potential acquistion
            
            
            214,965
            
            
            (750,000
            )Net
                cash used in investing activities
            
            
            (767,346
            )
            
            (1,817,996
            )**Financing
                Activities**Net
                change in restricted cash
            
            
            960,328
            
            
            420,603Net
                change in notes payable - bank
            
            
            (448,755
            )
            
            2,023,018Injection
                under capital lease obligation
            
            
            56,006
            
            
            58,064Principal
                payments under capital lease obligation
            
            
            (50,092
            )
            
            (46,439
            )Principal
                payments on short-term debt
            
            
            (849,398
            )
            
            (29,314
            )Principal
                payments of non-convertible note
            
            
            (4,000,000
            )
            
            (116,201
            )Repurchase
                of common stock
            
            
            -
            
            
            (7,796
            )Proceeds
                from other bank loan
            
            
            8,164,477
            
            
            -Loan
                from minority shareholder
            
            
            19,898
            
            
            -Deferred
                financing costs paid
            
            
            (873,007
            )
            
            -Repurchase
                of warrants
            
            
            (58,300
            )Preferred
                stock dividend paid
            
            
            (69,960
            )Repurchase
                of preferred stock
            
            
            (2,700,000
            )
            
            -Net
                cash (used in) provided by financing activities
            
            
            151,197
            
            
            2,301,935**(Decrease)
                increase in Cash and Cash Equivalents**
            
            
            241,419
            
            
            1,272,147**Foreign
                Currency Exchange Difference**
            
            
            (76,553
            )
            
            (50,653
            )**Cash
                and Cash Equivalents, Beginning of Period**
            
            
            2,783,696
            
            
            2,018,093**Cash
                and Cash Equivalents, End of Period**
            
            $
            2,948,562
            
            $
            3,239,587**Supplemental
                Cash Flow Information**Interest
                paid
            
            $
            845,034
            
            $
            389,152




*See
      Notes to Condensed Consolidated Financial Statements*




F-3




**Pacific
      CMA, Inc.**





**Notes
      to Condensed Consolidated Financial Statements**


**September
      30, 2007 and 2006**


**(Unaudited)**




**Note 1:**
            **Basis
                of Presentation**




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




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




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




***Principles
      of Consolidation***




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


F-4




***Cash
      Equivalents***




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




***Restricted
      Cash***




Restricted
      cash consists of fixed deposits, collateral deposits and certificates of deposit
      held by banks providing collateral for overdraft, trust receipts, letters of
      credit and support bank guarantees provided to certain vendors of the Company.
      At September 30, 2007, the restricted cash held for these facilities amounted
      to
      $4,902,857. The restricted cash also includes $371,075 of cash held in lockbox
      accounts for financing the loan arrangement of Wells Fargo Bank, National
      Associates with details discussed in Note 6.




F-5




**Pacific
      CMA, Inc.**




**Notes
      to Condensed Consolidated Financial Statements**


**September
      30, 2007 and 2006**


**(Unaudited)**




***Registration
      Rights Agreements***




The
      Company adopted as of January 1, 2007, FSP EITF 00-19-2, “Accounting for
      Registration Payment Arrangements” (“FSP”), which addresses an issuer’s
      accounting for registration payment arrangements. This FSP specifies that the
      contingent obligation to make future payments or otherwise transfer
      consideration under a registration payment arrangement, whether issued as a
      separate agreement or included as a provision of a financial instrument or
      other
      agreement, should be separately recognized and measured in accordance with
      FASB
      Statement No. 5, Accounting for Contingencies. This FSP further clarifies that
      a
      financial instrument subject to a registration payment arrangement should be
      accounted for in accordance with other applicable generally accepted accounting
      principles (GAAP) without regard to the contingent obligation to transfer
      consideration pursuant to the registration payment arrangement. This FSP had
      no
      impact on our financial statements.




***New
      Accounting Pronouncements***




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




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





Liquidity
      and goodwill impairment




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




F-6




**Pacific
      CMA, Inc.**




**Notes
      to Condensed Consolidated Financial Statements**


**September
      30, 2007 and 2006**


**(Unaudited)**




**Note 2:**
            **Investment
                Deposit**




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




**Note 3:**
            **Earnings
                Per Share**




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




**(Unaudited)**
              **Three
                Months Ended September 30,****2007**
            
            **2006****Loss**
            
            **Weighted
                AverageShares**
            
            **Per-Share
                Amount**
            
            **Loss**
            
            **Weighted
                AverageShares**
            
            **Per-Share
                Amount****Net
                loss attributable to common stockholders**
            
            $
            (2,085,331
            )
            
            
            
            
            
            
            $
            (123,602
            )**Basic
                EPS**Loss
                attributable to common stockholders
            
            
            (2,085,331
            )
            
            28,619,271
            
            $
            (0.07
            )
            
            (123,602
            )
            
            27,716,471
            
            $
            (0.01
            )Stock
                options and warrants
            
            
            
            
            
            -
            
            
            
            
            
            
            
            
            -**Diluted
                EPS**Loss
                attributable to common stockholders
            
            $
            (2,085,331
            )
            
            28,619,271
            
            $
            (0.07
            )
            $
            (123,602
            )
            
            27,716,471
            
            $
            (0.01
            )




F-7




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




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




F-8




**Pacific
      CMA, Inc.**




**Notes
      to Condensed Consolidated Financial Statements**


**September
      30, 2007 and 2006**


**(Unaudited)**




**Note 3:**
            **Earnings
                Per Share (Continued)**




**(Unaudited)**
              **Nine
                Months Ended September 30,****2007**
            
            **2006****Loss**
            
            **Weighted
                Average Shares**
            
            **Per-Share
                Amount**
            
            **Loss**
            
            **Weighted
                Average Shares**
            
            **Per-Share
                Amount****Net
                loss attributable to common stockholders**
            
            $
            (4,732,880
            )
            
            
            
            
            
            
            $
            (1,100,512
            )**Basic
                EPS**Loss
                attributable to common stockholders
            
            
            (4,732,880
            )
            
            28,610,352
            
            $
            (0.17
            )
            
            (1,100,512
            )
            
            27,238,656
            
            $
            (0.04
            )Stock
                options and warrants
            
            
            
            
            
            -
            
            
            
            
            
            
            
            
            -**Diluted
                EPS**Loss
                attributable to common stockholders
            
            $
            (4,732,880
            )
            
            28,610,352
            
            $
            (0.17
            )
            $
            (1,100,512
            )
            
            27,238,656
            
            $
            (0.04
            )




Common
      stock equivalents related to warrants of 35,428,533.89 are not included in
      the
      calculation of dilutive earnings per share for the nine months ended September
      30, 2007 because they have an anti-dilutive effect.




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




F-9




**Pacific
      CMA, Inc.**




**Notes
      to Condensed Consolidated Financial Statements**


**September
      30, 2007 and 2006**


**(Unaudited)**




**Note 4:**
            **Common
                Stock and Preferred Stock**




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




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





**September 30,**
              **2007**
            
            **December 31,2006**Redeemable
                amount
            
            $
            -
            
            $
            3,000,000Unamortized
                discount
            
            
            -
            
            
            (1,366,017
            )Carrying
                value
            
            $
            -
            
            $
            1,633,983





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




F-10




***2000***  **Stock
      Plan**




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




***Treasury
      Stock***




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




F-11




**Pacific
      CMA, Inc.**




**Notes
      to Condensed Consolidated Financial Statements**


**September
      30, 2007 and 2006**


**(Unaudited)**





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




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




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




The
      Company has certain banking facilities to finance its working capital. The
      amount available totaled $7,237,174 at September 30, 2007. The facilities accrue
      interest at rates varying with the prime rate in Hong Kong, Hong Kong Interbank
      Offered Rate ( HIBOR ), or the cost of funds rate. As of September 30, 2007,
      these rates ranged between 4.05% - 8.50%. The facilities require annual renewals
      and are collateralized by personal guarantees of two directors and restricted
      cash of approximately $4,492,855. As of September 30, 2007 and December 31,
      2006, amounts outstanding against these facilities were $6,265,700 and
      $6,714,451 respectively. The facilities have no expiration date for which they
      are subjected to banks’ review.




F-12




**Pacific
      CMA, Inc.**




**Notes
      to Condensed Consolidated Financial Statements**


**September
      30, 2007 and 2006**


**(Unaudited)**




**Note 6:**
            ******Revolving
                Note**




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




On
      that
      date, the Company received initial funding under the Financing of approximately
      $2,947,000, excluding fees and costs in the amount of $50,000 payable to Wells
      Fargo, in connection with the Financing. The interest rate on the Note is Wells
      Fargo’s prime rate plus three-quarters of one percent, or prime rate, plus
      0.75%.




The
      Note
      is secured by a first priority lien on the assets of the Company and the
      Subsidiaries. It is payable on demand. As a part of granting the first
      priority lien on its assets, the Company and the Subsidiaries entered into
      security and collateral pledge agreements (the “Collateral Agreements”), with
      Wells Fargo, pursuant to which the Subsidiaries’ assets and capital stock (or
      equivalent) was pledged as security for the loan from Wells Fargo.




This
      initial funding was used to pay all of the Company’s payment obligations under
      its financing arrangements with Laurus. As a result, the outstanding balance
      of
      the borrowings of $2,724,128 was repaid with $218,219 a pre-payment penalty.
      As
      a result of the pre-payment, of the Laurus debt, the outstanding amount of
      $366,413 of unamortized deferred finance costs and $456,232 of unamortized
      discount related to the financing were written off at April 6,
      2007.





In
      July
      2007, pursuant to a Loan and Security Agreement with BHC, Airgate International,
      Inc. (NY), the Company, Airgate International Corporation (Chicago), Paradigm
      International, Inc., Pacific CMA International, LLC, the Company’s three other
      U.S. Subsidiaries (the “Other U.S. Subsidiaries”) and AGI Logistics (Hong Kong),
      Ltd., a Hong Kong subsidiary of the Company (“AGI”), the Company received an
      additional $3,292,000 in funding, excluding approximately $208,000 in fees,
      costs and expenses of BHC (the “BHC Financing”). Proceeds
      of $2,950,000 received from the BHC Financing were used to repurchase 3,000
      shares of the Company’s Series A Preferred Stock and 937,500 common stock
      purchase warrants from Midsummer Investment Limited (“Midsummer”). BHC received
      a Term Note in the principal amount of $3,500,000 bearing interest at the rate
      of 12% per year. The Loan and Security Agreement provides for additional
      potential funding of up to $1,500,000. The Term Note matures on July 16, 2009.
      The outstanding balance as of September 30, 2007 was $3,500,000.




F-13




**Note 7:**
            ******Income
                taxes**




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




**Note 8:**
            ******Related
                Party Transactions**




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




F-14




**Pacific
      CMA, Inc.**




**Notes
      to Condensed Consolidated Financial Statements**


**September
      30, 2007 and 2006**


**(Unaudited)**




**Note 9:**
            **Segment of the Business**




***Business
      Segments***




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




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





**Air Forwarding**
            
            **Sea Forwarding**
            
            **Total****(Unaudited)**
            
            **(Unaudited)**
            
            **(Unaudited)****2007**
            
            **2006**
            
            **2007**
            
            **2006**
            
            **2007**
            
            **2006**Revenues
            
            $
            20,968,955
            
            $
            26,771,763
            
            $
            16,583,262
            
            $
            18,283,875
            
            $
            37,552,217
            
            $
            45,055,638Cost
                of forwarding
            
            
            (19,087,511
            )
            
            (23,109,357
            )
            
            (13,321,752
            )
            
            (15,923,846
            )
            
            (32,409,263
            )
            
            (39,033,203
            )Depreciation
                and amortization
            
            
            (292,579
            )
            
            (159,284
            )
            
            55,675
            
            
            (110,671
            )
            
            (236,904
            )
            
            (269,955
            )Interest
                income
            
            
            12,018
            
            
            16
            
            
            24,462
            
            
            11
            
            
            36,480
            
            
            27Interest
                expense
            
            
            (391,826
            )
            
            (74,549
            )
            
            65,666
            
            
            (637
            )
            
            (326,160
            )
            
            (75,186
            )Other
                segment expenses attributable to segment
            
            
            (1,114,342
            )
            
            (1,678,278
            )
            
            (538,459
            )
            
            (879,549
            )
            
            (1,652,801
            )
            
            (2,557,827
            )Segment
                income
            
            $
            94,715
            
            $
            1,750,311
            
            $
            2,868,854
            
            $
            1,369,183
            
            
            2,963,569
            
            
            3,119,494Net
                other unallocated expenses
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (4,414,630
            )
            
            (2,600,226
            )Minority
                interest
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (18,364
            )
            
            (26,445
            )Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (1,469,425
            )
            $
            (492,823
            )Goodwill
            
            $
            1,391,043
            
            $
            2,863,366
            
            $
            2,887,170
            
            $
            898,763
            
            $
            4,278,213
            
            $
            3,762,129Intangible
                assets
            
            
            7,082
            
            
            454,851
            
            
            595,136
            
            
            122,676
            
            
            602,218
            
            
            577,527Other
                assets
            
            
            21,349,538
            
            
            25,474,758
            
            
            13,702,372
            
            
            13,688,947
            
            
            35,051,910
            
            
            39,163,705Total
                assets
            
            $
            22,747,663
            
            $
            28,792,975
            
            $
            17,184,678
            
            $
            14,710,386
            
            $
            39,932,341
            
            $
            43,503,361




F-15





**Pacific
      CMA, Inc.**




**Notes
      to Condensed Consolidated Financial Statements**


**September
      30, 2007 and 2006**


**(Unaudited)**




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




**Air Forwarding**
            
            **Sea Forwarding**
            
            **Total****(Unaudited)**
            
            **(Unaudited)**
            
            **(Unaudited)****2007**
            
            **2006**
            
            **2007**
            
            **2006**
            
            **2007**
            
            **2006**Revenues
            
            $
            55,744,002
            
            $
            70,543,346
            
            $
            48,314,408
            
            $
            42,272,559
            
            $
            104,058,410
            
            $
            112,815,905Cost
                of forwarding
            
            
            (46,777,636
            )
            
            (60,232,867
            )
            
            (41,056,767
            )
            
            (36,751,309
            )
            
            (87,834,403
            )
            
            (96,984,176
            )Depreciation
                and amortization
            
            
            (561,171
            )
            
            (465,862
            )
            
            (325,552
            )
            
            (308,220
            )
            
            (886,723
            )
            
            (774,082
            )Interest
                income
            
            
            75,785
            
            
            7
            
            
            24,469
            
            
            15
            
            
            100,254
            
            
            22Interest
                expense
            
            
            (554,955
            )
            
            (198,538
            )
            
            (290,079
            )
            
            (1,416
            )
            
            (845,034
            )
            
            (199,954
            )Other
                segment expenses attributable to segment
            
            
            (3,964,385
            )
            
            (4,897,259
            )
            
            (3,061,837
            )
            
            (2,604,401
            )
            
            (7,026,222
            )
            
            (7,501,660
            )Segment
                income
            
            $
            3,961,640
            
            $
            4,748,827
            
            $
            3,604,642
            
            $
            2,607,228
            
            
            7,566,282
            
            
            7,356,055Net
                other unallocated expenses
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (11,140,819
            )
            
            (6,838,041
            )Minority
                interest
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (16,826
            )
            
            (24,535
            )Net
                (loss)/income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (3,591,363
            )
            $
            493,479Goodwill
            
            $
            1,391,043
            
            $
            2,863,366
            
            $
            2,887,170
            
            $
            898,763
            
            $
            4,278,213
            
            $
            3,762,129Intangible
                assets
            
            
            7,082
            
            
            454,851
            
            
            595,136
            
            
            122,676
            
            
            602,218
            
            
            577,527Other
                assets
            
            
            21,349,538
            
            
            25,474,758
            
            
            13,702,909
            
            
            13,688,947
            
            
            35,052,447
            
            
            39,163,705Total
                assets
            
            $
            22,747,663
            
            $
            28,792,975
            
            $
            17,185,215
            
            $
            14,710,386
            
            $
            39,932,878
            
            $
            43,503,361




F-16





**Pacific
      CMA, Inc.**




**Notes
      to Condensed Consolidated Financial Statements**


**September
      30, 2007 and 2006**


**(Unaudited)**





***Geographical
      Segments***




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




**Three Months Ended**
            
            **Nine Months Ended****September 30,**
            
            **September 30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Revenues*
                IATA Area 1
            
            $
            6,537,069
            
            $
            4,354,106
            
            $
            19,637,806
            
            $
            13,222,562*
                IATA Area 2
            
            
            9,651,326
            
            
            8,330,136
            
            
            25,191,828
            
            
            20,397,887*
                IATA Area 3
            
            
            21,360,981
            
            
            32,371,396
            
            
            59,228,775
            
            
            79,195,456Total
            
            $
            37,549,376
            
            $
            45,055,638
            
            $
            104,058,409
            
            $
            112,815,905




**(Unaudited)**
            
            **(Unaudited)****As of September 30, 2007**
            
            **As of September 30, 2006****Trade**
              **Receivables**
            
            **Other Assets**
              **(Including**
              **Goodwill)**
            
            **Total**
              **Assets**
            
            **Trade**
              **Receivables**
            
            **Other Assets**
              **(Including**
              **Goodwill)**
            
            **Total**
              **Assets**Assets*IATA
                Area 1
            
            $
            6,529,971
            
            $
            3,934,088
            
            $
            10,464,059
            
            $
            11,094,224
            
            $
            9,073,543
            
            $
            20,167,767*IATA
                Area 2
            
            
            3,491,660
            
            
            8,810
            
            
            3,500,470
            
            
            3,975,986
            
            
            (31,583
            )
            
            3,944,403*IATA
                Area 3
            
            
            11,091,680
            
            
            14,974,623
            
            
            26,066,303
            
            
            7,680,324
            
            
            11,710,867
            
            
            19,391,191Total
            
            $
            21,113,311
            
            $
            18,917,521
            
            $
            40,030,832
            
            $
            22,750,534
            
            $
            20,752,827
            
            $
            43,503,361




F-17




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




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




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




F-18




**Pacific
      CMA, Inc.**




**Notes
      to Condensed Consolidated Financial Statements**


**September
      30, 2007 and 2006**


**(Unaudited)**




**Note 10:**
            ******Investment
                in Equity Method
                Subsidiaries**




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





**Three months ended**
                **September 30, 2007****Shanghai Air**
                **Cargo**
              
              **Vantage**
                **Point**
              
              **Careship**
                **International**
              
              **Careship**
                **Aviation**
              
              **AGI Logistics**
                **(Vietnam)**Net
                  Sales
              
              $
              -
              
              $
              75,693
              
              $
              70,516
              
              $
              3,871,527
              
              $
              548,467Cost
                  of Sales
              
              
              -
              
              
              68,104
              
              
              34,731
              
              
              3,733,195
              
              
              491,802Gross
                  Profit
              
              
              -
              
              
              7,590
              
              
              35,786
              
              
              138,332
              
              
              56,665Net
                  Income (Loss)
              
              
              -
              
              
              6,440
              
              
              (37,552
              )
              
              83,188
              
              
              31,141Equity
                  in Loss of Affiliates
              
              
              -
              
              
              -
              
              
              (17,620
              )
              
              16,638
              
              
              15,259




**Nine
                    months ended**
                  **September
                    30, 2007****Shanghai Air**
                  **Cargo**
                
                **Vantage**
                  **Point**
                
                **Careship**
                  **International**
                
                **Careship**
                  **Aviation**
                
                **AGI Logistics**
                  **(Vietnam)**Net
                    Sales
                
                
                -
                
                $
                198,307
                
                $
                231,541
                
                $
                3,871,527
                
                $
                548,467Cost
                    of Sales
                
                
                -
                
                
                186,292
                
                
                122,398
                
                
                3,733,195
                
                
                491,802Gross
                    Profit
                
                
                -
                
                
                12,015
                
                
                109,143
                
                
                138,332
                
                
                56,665Net
                    Loss
                
                
                -
                
                
                (10,476
                )
                
                (75,553
                )
                
                (96,099
                )
                
                31,141Equity
                    in Loss of Affiliates
                
                
                -
                
                
                -
                
                
                (35,449
                )
                
                (19,220
                )
                
                15,259




F-19




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




Shanghai
      Air Cargo Ground Handling Services Ltd ceased its business in the first quarter
      of 2007. Shanghai Air Cargo was dissolved in the third quarter of
      2007.




The
      Company invested $53,624 in its 49% interest in AGI Logistics (Vietnam) Limited.
      AGI Logistics Vietnam is incorporated in Vietnam; it commenced business from
      the
      third quarter of 2007.




F-20




**Pacific
      CMA, Inc.**




**Notes
      to Condensed Consolidated Financial Statements**


**September
      30, 2007 and 2006**


**(Unaudited)**




**Note 11:**
            ******Business
                Acquisitions**




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




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




F-21




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





Special
      Note of Caution Regarding Forward-Looking Statements





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




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





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





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




3


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




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





CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES





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




4


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





**RECOGNITION
      OF COST OF FORWARDING**





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





**ACCOUNTING
      FOR INCOME TAXES**





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





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





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




5


**VALUING
      LONG-LIVED ASSETS, INTANGIBLES AND GOODWILL**





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





**·**
            Significant
                under-performance relative to expected historical or projected future
                operating results;**·**
            Significant
                changes in the manner of our use of the acquired assets or the strategy
                for our overall business; and**·**
            Significant
                negative economic trends.





When
      determining whether the carrying value of long-lived assets and goodwill is
      impaired based upon the existence of one or more of the above factors, we
      determine the existence of impairment by comparison of the carrying amount
      of
      the asset to expected future cash flows to be generated by the asset. If such
      assets are considered impaired, the impairment is measured as the amount by
      which the carrying value of the assets exceeds their fair values. As of
      September 30, 2007, goodwill totaled approximately $4.2 million, other
      intangible assets amounted to approximately $602,000 and our long-lived assets,
      consisting primarily of net property, plant and equipment, totaled approximately
      $1.6 million.





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





**ACCOUNTS
      AND NOTES RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS**





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




6




**OVERVIEW**





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





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





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




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




7


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





**OVERALL
      RESULTS**





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





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




8


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





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





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





·
            The business of WCL in Guangzhou PRC matured after a year in development;
                and·
            Improvements in the agency network which enabled the Company to secure
                new
                freight business.





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




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





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




9


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





Net
      loss
      attributable to common stockholders for the three months ended September 30th
      increased approximately 1182%, from $123,603 in 2006 to $2,085,331 in 2007.
      The
      increase in net loss was mainly due to the decrease in margins & SGA and the
      significant increase in general and administrative costs, interest expenses,
      pre-payment penalty on convertible and non-convertible note, and write offs
      of
      unamortized deferred financing costs and discounts on the convertible and
      non-convertible notes. Details of expense fluctuations will be discussed in
      the
      sections "Operating expenses" and "Non-operating expenses" respectively.





**BUSINESS
      SEGMENT OPERATING RESULTS**





The
      results of operations for each segment are as follows:





**AIR
      FREIGHT OPERATIONS:** Revenue
      from airfreight operations decreased approximately 21%, from $26,771,763 for
      the
      three months ended September 30, 2006 to $20,968,955 for the same period of
      2007. Airfreight revenue for international operations (that includes AGI Group
      and AGI Singapore) was $12,743,217, while airfreight revenue for domestic
      operations (that includes Airgate and Paradigm) was $7,415,406, and offsetting
      inter-company transactions totaled $810,331. The volume of airfreight decreased
      for the three months ended September 30, 2007, when compared with the same
      period of 2006. The decrease was primarily due to the decrease in airfreight
      traffic between US and Asia Pacific countries as a result of
      increasing prices for aviation fuel. Customers shifted their shipments
      from airfreight to seafreight. Airgate has also ceased doing business with
      some
      lower credit worthy customers during the third quarter of 2007 in order to
      reduce credit risk and improve the cash flow.





Costs
      for
      the airfreight forwarding operations decreased approximately 17%, from
      $23,109,357 for the three months ended September 30, 2006 to $19,087,511 for
      the
      same period of 2007. Airfreight cost attributable to foreign operations was
      $10,611,750, while airfreight cost attributable to domestic operations was
      $7,700,473, and offsetting inter-company costs were $775,288. The airfreight
      cost decrease during the three months ended September 30, 2007 was due to
      corresponding revenue decrease. Gross profit margin decreased from approximately
      13.7% for the three months ended September 30, 2006 to approximately 8.9% for
      the same period of 2007. The decrease in gross profit was due to the business
      with some low poor margin customers.




10




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





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




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





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





11




Total
      segment overhead attributable to the sea freight operation decreased
      approximately 39%, from $879,549 for the three months ended September 30, 2006
      to $538,459 for the same period of 2007. Overall net income for the sea freight
      operation increased approximately 52%, from $1,369,183 for the three months
      ended September 30, 2006 to $2,868,854 for the same period of 2007. The increase
      in net segment income was mainly the result of  increased air costs causing
      customers to concentrate on seafreight. Details regarding the decrease in
      overhead expenses are discussed below in “Operating Expenses”.





**OPERATING
      EXPENSES**





**GENERAL
      AND ADMINISTRATIVE EXPENSES**





General
      and administrative expenses increased approximately 10%, from $4,852,464 for
      the
      three months ended September 30, 2006 to $5,846,052 for the same period of
      2007.
      There was a significant incremental increase in expenses for the following
      items
      for the three months ended September 30, 2007: rent and rates, as well as
      salaries and allowance. As the Company has been continuously growing and in
      order to cope with future growth, our staff planning needs called for the hiring
      of additional staff throughout our offices during 2006 and 2007.





Sales
      commission: Sales commission decreased approximately 11% from $774,629 for
      the
      three months ended September 30, 2006 to $688,057 for the same period of 2007;
      the decrease is a result of decrease in business.





Rent
      and
      Rates: Rent and rates increased approximately 10%, from $296,595 for the three
      months ended September 30, 2006 to $327,222 for the same period of 2007. The
      increase was due to the new leases for the expansion of the office spaces in
      our
      HK, PRC and Los Angeles offices during the last half of 2006 in order to support
      the growth of these subsidiaries.





Salaries
      and allowance: Salaries and allowance increased approximately 13% from
      $2,147,041 for the three months ended September 30, 2006 to $2,417,211 for
      the
      same period of 2007. This increase was the result of the addition of
      approximately 40 staff persons during 2006 and the first half of 2007 in order
      to keep pace with our expansion in Asia Pacific countries.




12




**STOCK-BASED
      COMPENSATION COST**




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




**DEPRECIATION
      AND AMORTIZATION**





Depreciation
      and amortization increased approximately 12% from $269,955 for the three months
      ended September 30, 2006 to $236,905 for the same period of 2007. The increase
      was mainly attributable to purchases of additional fixture and furniture and
      office equipment for the new offices in Los Angeles and Hong Kong during 2006
      and 2007.





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





**NON
      OPERATING INCOME AND EXPENSES**





**INTEREST
      AND OTHER INCOME**





Interest
      and other income increased from $27 for the three months ended September 30,
      2006 to $426,519 for the same period of 2007.





**INTEREST
      EXPENSE**





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





**PRE-PAYMENT
      PENALTY ON CONVERTIBLE AND NON-CONVERTIBAL NOTE**





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





13




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





The
      deferred financing costs related to Convertible Note and Non-Convertible Note
      is
      amortized over their term to maturity, which is three years. A total of $Nil
      and
      $26,677 was expensed for the three months ended September 30, 2007 and 2006,
      respectively. The decrease in expense was the result of the early repayment,
      during the second quarter of 2007, of the notes resulting in the outstanding
      amount of the deferred financing costs related to the notes being
      expensed.





**AMORTIZATION
      OF CONVERTIBLE NOTE AND NON-CONVERTIBLE NOTE DISCOUNT**





This
      discount is amortized ratably over the term of the Convertible Note and
      Non-Convertible Note, which is three years. A total of $Nil and $18,400 of
      the
      discount was amortized into expense for the three months ended September 30,
      2007 and 2006, respectively. The decrease in expense was the result of the
      early
      repayment of the notes.





**REVOLVING
      NOTE AMORTIZATION OF DEFERRED FINANCING COSTS**





On
      April
      6, 2007, the Company completed a financing transaction with Wells Fargo Bank,
      National Associates. The deferred financing costs related to this revolving
      note
      are amortized over the term of the note, which is two years. A total of $97,859
      was expensed for the three months ended September 30, 2007.




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





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




14




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





OVERALL
      RESULTS





Total
      revenue for the nine months ended September 30, 2007 decreased approximately
      7.76% compared with the nine months ended September 30, 2006, from $112,815,905
      in 2006 to $104,058,410 in 2007. The decrease in revenue was primarily the
      result of the scaling down of Paradigm International Inc.’s operations in Miami
      which began in the third quarter of 2006. It is also the result of reduced
      airfreight transportation between Asia Pacific countries and the US and Airgate
      focus on higher profit margin business which will result in enhanced
      cashflow.





Revenue
      derived from the operations of AGI increased approximately 11% during the nine
      months ended September 30, 2007 as compared with 2006. The significant growth
      of
      AGI was the result of the following factors:





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





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





Total
      revenue derived from Paradigm and AGI Singapore for the nine months ended
      September 30, 2007 amounted to approximately $14 million, which represents
      approximately 14% of total revenue of the Pacific CMA. Increased 2% when
      comparing with the same period of 2006.




15




When
      compared with 2006, the cost of forwarding for the nine months ended September
      30, 2007 decreased approximately 9.43%, from $96,984,176 in 2006 to $87,834,404
      in 2007. The decrease in costs was primarily due to a corresponding
      decrease in revenue.





Gross
      profit margin for the nine months ended September 30, 2007 increased, from
      approximately 14.03% in 2006 to 15.59% in 2007 and gross profit (revenue minus
      cost of forwarding) for the nine months ended September 30, 2007 increased
      2.48%, from $15,831,729 in 2006, to $16,224,006 in 2007.





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





Net
      loss
      attributable to common shareholders for the nine months ended September 30,
      2007
      increased approximately 284%, from a net loss of $1,100,512 in 2006 to a net
      loss of $4,732,880 in 2007. The increase in net loss attributable to common
      shareholders was mainly due to the decrease in operating income and significant
      increases in interest expense, pre-payment penalty on convertible and
      non-convertible note, and the write off of unamortized deferred financing costs
      and discounts on the convertible and non-convertible note. Details of expense
      fluctuations will be discussed in the section “Non Operating Income and
      Expenses”.





BUSINESS
      SEGMENT OPERATING RESULTS





The
      results of operations for each segment are as follows:





AIRFREIGHT
      OPERATIONS: Revenue from airfreight operations decreased approximately 21%,
      from
      $70,543,346 for the nine months ended September 30, 2006 to $55,744,002 in
      the
      same period of 2007. Airfreight revenue for foreign operations (which includes
      AGI Group and AGI Singapore) was $34,124,507, while airfreight revenue for
      domestic operations (which includes Airgate and Paradigm) was $25,212,245,
      and
      offsetting inter-company transactions totaled $3,592,750. The decrease was
      primarily due to (i) the decrease in volume of airfreight in the third quarter
      of 2007 compared with 2006 (ii) the scaling down of Paradigm International
      Inc.’s operations in Miami during the third quarter of 2006 and (iii) Airgate
      has also ceased doing business with some lower credit worthy customers during
      the second and third quarter of 2007 in order to reduce our credit risk and
      improve our cash flow.





16




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





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





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





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




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




17




Costs
      for
      the sea freight forwarding operation increased approximately 12%, from
      $36,751,309 for the nine months ended September 30, 2006 to $41,056,767 in
      the
      same period of 2007. Sea freight costs attributable to foreign operations were
      $15,782,333, while costs attributable to domestic operations were $28,693,941,
      and inter-company costs were $3,419,507. The gross profit margin increased
      from,
      approximately 13.06% in 2006 to approximately 15.02% in 2007. As a result of
      increased revenues, overall gross profits increased approximately 2%, to
      $7,257,641.





Total
      segment overhead attributable to the sea freight operation increased
      approximately 18%, from $2,604,401 for the nine months ended September 30,
      2006
      to $3.061,837 in the same period of 2007 as a result of greater resources being
      allocated to sea freight operations. Details regarding the increase in overhead
      expenses are discussed below in "Non Operating Income and Expenses". Overall
      net
      income for the sea freight operation increased approximately 38%, from
      $2,607,228 for the nine months ended September 30, 2006 to $3,604,642 in the
      same period of 2007. The increase in net segment income was mainly the result
      of
      increased air costs causing customers to concentrate on seafreight.





**OPERATING
      EXPENSES**





**GENERAL
      AND ADMINISTRATIVE EXPENSES**





General
      and administrative expenses increased approximately 15%, from $14,078,375 for
      the nine months ended September 30, 2006 to $16,708,574 for the same period
      of
      2007. There was a significant incremental increase in expenses for the following
      items for the nine months ended September 30, 2007: sales commissions, rent
      and
      rates, as well as salaries and allowance. As the Company has been continuously
      growing and in order to cope with future growth, our staff planning needs called
      for the hiring of additional staff throughout our offices during 2006 and
      2007.





Sales
      commission: Sales commission increased approximately 22% from $2,037,566 for
      the
      nine months ended September 30, 2006 to $2,490,693 for the same period of 2007;
      the increase is a result of increase in business generated by a leading salesman
      who received a higher commission rate for his high profit margin
      business.





Rent
      and
      Rates: Rent and rates increased approximately 61%, from $730,625 for the nine
      months ended September 30, 2006 to $1,174,519 for the same period of 2007.
      The
      increase was due to the new leases for the expansion of the office spaces in
      our
      HK, PRC and Los Angeles offices during the last half of 2006 in order to cope
      with the growth of these subsidiaries.




18




Salaries
      and allowance: Salaries and allowance increased approximately 9% from $6,366,626
      for the nine months ended September 30, 2006 to $7,026,222 for the same period
      of 2007. This increase was the result of the addition of approximately 40 staff
      persons during 2006 and in order to keep pace with our expansion in
      2007.




**STOCK-BASED
      COMPENSATION COST**





Stock-based
      compensation cost increased approximately 32% from $153,850 for the nine months
      ended September 30, 2006 to $104,735 for the same period of 2007 .




**DEPRECIATION
      AND AMORTIZATION**





Depreciation
      and amortization increased approximately 14% from $774,082 for the nine months
      ended September 30, 2006 to $886,724 for the same period of 2007. The increase
      was mainly attributable to purchases of additional fixture and furniture and
      office equipment for the new offices in Los Angeles and Hong Kong during 2006
      and 2007.





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




**NON
      OPERATING INCOME AND EXPENSES**





**INTEREST
      AND OTHER INCOME**





Interest
      and other income increased from $22 for the nine months ended September 30,
      2006
      to $490,293 for the same period of 2007. This increase is mainly due to the
      increase in the amount of bank pledge deposits securing additional banking
      facilities.




19




**INTEREST
      EXPENSE**




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





**PRE-PAYMENT
      PENALTY ON CONVERTIBLE AND NON-CONVERTIBAL NOTE**





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





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





The
      deferred financing costs related to Convertible Note and Non-Convertible Note
      is
      amortized over their term to maturity, which is three years. It remained the
      same at $67,143 for the nine months ended September 30, 2006 and the same period
      of 2007.





**AMORTIZATION
      OF CONVERTIBLE NOTE AND NON-CONVERTIBLE NOTE DISCOUNT**





This
      discount is amortized ratably over the term of the Convertible Note and
      Non-Convertible Note, which is three years. A total of $487,190 and $43,074
      of
      the discount was amortized into expense for the nine months ended September
      30,
      2007 and 2006, respectively. The increase in expense was the result of the
      early
      repayment of the notes resulting in the outstanding amount of the deferred
      financing costs relate to the notes are written off. The increase was also
      due
      to the effective interest rate method being used to calculate the expenses.
      The
      expense becomes larger when amortized deferred financial cost and loan balance
      becomes larger.





**REVOLVING
      NOTE AMORTIZATION OF DEFERRED FINANCING COSTS**





On
      April
      6, 2007, the Company completed a financing transaction with Wells Fargo Bank,
      National Associates ( “ Wells Fargo ” ). The deferred financing costs related to
      this revolving note are amortized over the term of the note, which is two years.
      A total of $92,312 was expensed for the nine months ended September 30,
      2007




20




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





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





**LIQUIDITY
      AND CAPITAL RESOURCES**





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





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





Net
      cash
      used in financing activities was $151,197 and $2,301,935 for the three months
      ended September 30, 2007 and 2006, respectively. During the nine months ended
      September 30, 2007, we made principal payments under capital lease obligations
      and repayment of profit tax loan and short-term loan of $50,092 and $849,398,
      respectively. During the third quarter of 2007, we repaid the convertible and
      non-convertible note of $4 millions while have proceed of revolving loan from
      two commercial banks for $4,405,698. With our lockbox arrangement with Wells
      Fargo and the banking facilitates with other banks our restricted cash increased
      $960,328. Moreover, $69,906 was used to pay dividends on preferred stock and
      net
      proceeds from note payable in bank were $511,861.





Working
      capital was $(2,956,329) (inclusive of restricted cash of approximately $4.9.
      million) and $5,863,185 (inclusive of restricted cash of approximately $5.9
      million) as of September 30, 2007 and December 31, 2006, respectively. The
      decrease in working capital is due to $1,026,343 was used for acquisition of
      100% of common stock of Parco Shipping Company Limited, $53,624 was used for
      acquisition of 49% of outstanding common stock of AGI Logistics (Vietnam)
      Limited. We believe that we will be able to rely on cash flow from operations
      for short-term liquidity, and also believe that we have adequate liquidity
      to
      satisfy our material commitments for the twelve months following September
      30,
      2007. On July 17, 2007, the Company entered into a Loan and Security Agreement,
      with BHC Interim Funding II, L.P. (“BHC”), The Company received an additional
      $3,292,000 in funding, excluding approximately $208,000 in fees, costs and
      expenses of BHC (the “BHC Financing”).




21




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





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





**CONTRACTUAL
      OBLIGATIONS AND COMMERCIAL COMMITMENT**





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




Payments Due by PeriodContractual
                Obligations
            
            Total
            
            Less than 1 year
            
            1-3 years
            
            4-5 years$
            
            $
            
            $
            
            $Capital
                Lease Obligations
            
            
            150,893
            
            
            60,318
            
            
            90,575
            
            
            —Operating
                Leases
            
            
            2,765,710
            
            
            1,472,920
            
            
            1,291,102
            
            
            1,688Cargo
                Space Commitments
            
            
            1,537,600
            
            
            1,537,600
            
            
            —
            
            
            —




22




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





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




23




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





Other
                Commercial Commitments
            
            Total AmountsCommitted
            
            Amount ofCommitment
                Less than1 year
            
            Expiration PerPeriod1-3 years$
            
            $
            
            $Bank
                Overdraft and Invoice Trust Receipt
            
            
            6,265,700
            
            
            6,265,700
            
            
            —Guarantees
                by bank
            
            
            1,225,384
            
            
            1,225,384
            
            
            —Revolving
                notes
            
            
            3,105,340
            
            
            3,105,340
            
            
            —Payable
                - minority shareholders
            
            
            143,791
            
            
            143,791
            
            
            —




As
      of
      September 30, 2007, to finance our working capital, our available banking
      facilities were $7,237,174 with creditworthy commercial banks in Hong Kong.
      As
      of that date, the total amount of bank credit facilities utilized was
      $6,265,700. This was made up of (i) $3,137,391 of overdrafts; (ii) $3,128,309
      of
      invoice trust receipts. Moreover, we had a borrowing facility with Wells Fargo
      totaling $10 millions. As of September 30, 2007, the total amount outstanding
      under this credit facility was $3,105,340.





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




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





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





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




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




24




**OUTLOOK**





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





**CHINA'S
      INCREASED EXPORTS**





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





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





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





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




25




**CLOSER
      ECONOMIC PARTNERSHIP**




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





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





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





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




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




26




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





**OUTSOURCING
      OF NON-CORE ACTIVITIES**





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





**GLOBALIZATION
      OF TRADE**





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





**INCREASED
      NEED FOR TIME-DEFINITE DELIVERY**





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





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




27




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





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





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





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





28





**Item
      3.**  **Quantitative
      And Qualitative Disclosure About Market Risk**





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





FOREIGN
      EXCHANGE RISK





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




29




INTEREST
      RATE RISK




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




**Item
      4.**  **Controls
      and Procedures**





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




30




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





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





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





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





**PART
      II**





**OTHER
      INFORMATION**




**Item
      1.**  **Legal
      Proceedings**





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




31




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





Item
      1A. **Risk
      Factors**





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





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





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




None




32





**Item
      3.**  **Defaults
      Upon Senior Securities**





None




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




None.





**Item
      5.**  **Other
      Information**





None





**Item
      6.**  ****  **Exhibits**





(a)
            *Exhibits
                (filed herewith)*





31.1
            Certification
                of the Chief Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002 (Rule
                13a-14(a)).





31.2
            Certification
                of the Chief Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002 (Rule
                13a-14(a)).





32.1
            Certification
                of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                (Rule
                13a-14(b)).





32.2
            Certification
                of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                (Rule
                13a-14(b)).




33





**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned, thereunto
      duly authorized.




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




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




34