**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 1934 For
      the
      quarterly period ended June 30, 2006


OR


[
       ]  Transition
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934




For
      the
      transition period from _______________ to _______________.




Commission
      File Number:   0-27653





**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
      [
      ]





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 [ ]   Accelerated
      filer [ ]   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
      [
      ]  No
      [X]





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




Common
      Stock: Outstanding as of: **** August
      1,
      2006: 27,634,843 shares





**PACIFIC
      CMA, INC.**





**INDEX
      TO FORM 10-Q**








**Page
                No.****PART
              I.****FINANCIAL
              INFORMATION****Item
                1.**
            **Financial
                Statements**Condensed
                Consolidated Balance Sheets as of June 30, 2006 (Unaudited)
              and
                December 31, 2005 (Restated)
            1Condensed
                Consolidated Statements of Operations for the Three and Six Months
              Ended
                June 30, 2006 and 2005 (Unaudited)
            3Condensed
                Consolidated Statements of Cash Flows for the Six Months
              Ended
                June 30, 2006 and 2005 (Unaudited)
            5Notes
                to Condensed Consolidated Financial Statements (Unaudited)
            7**Item
                2.**
            **Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations**
            29**Item
                3.**
            **Quantitative
                and Qualitative Disclosures About Market Risk**
            53**Item
                4.**
            **Controls
                and Procedures**
            53**PART
                II.****OTHER
                INFORMATION****Item
                1.**
            **Legal
                Proceedings**
            56**Item
                1A.**
            **Risk
                Factors**
            56**Item
                2.**
            **Unregistered
                Sales of Equity Securities and Use of Proceeds**
            60**Item
                3.**
            **Defaults
                Upon Senior Securities**
            60**Item
                4.**
            **Submission
                of Matters to a Vote of Security Holders**
            60**Item
                5.**
            **Other
                Information**
            60**Item
                6.**
            **Exhibits**
            60**SIGNATURES**
            61


2





**PART
      I.**  **FINANCIAL
      INFORMATION**





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





**Pacific
      CMA, Inc.**


**Condensed
      Consolidated Balance Sheets**


**June
      30, 2006 and December 31, 2005**


**Assets**


**2006**
            
            
            **2005****(Unaudited)**
            
            
            **(Restated)****Current
                Assets**Cash
                and cash equivalents
            
            $
            2,647,938
            
            $
            2,018,093Restricted
                cash
            
            
            5,328,460
            
            
            5,761,246Accounts
                and notes receivable, net of allowance for doubtful accounts; 2006
                -
                $203,413; 2005 - $334,014
            
            
            19,419,210
            
            
            17,386,360Refundable
                income taxes
            
            
            -
            
            
            12,897Other
                receivables
            
            
            1,200,372
            
            
            2,476,626Deposits
                and prepaid expenses
            
            
            1,519,643
            
            
            666,976Deferred
                income taxes
            
            
            58,479
            
            
            58,479Total
                current assets
            
            
            30,174,102
            
            
            28,380,677**Property
                and Equipment**,
                net****of
                accumulated depreciation; 2006 - $1,126,709; 2005 - $967,296
            
            
            859,371
            
            
            800,596**Other
                Assets**Goodwill
            
            
            3,755,392
            
            
            3,240,807Intangible
                assets, net of accumulated amortization; 2006 - $2,421,913; 2005
                -
                $2,118,718
            
            
            729,597
            
            
            982,216Deferred
                income tax
            
            
            1,475,263
            
            
            1,212,913Deferred
                financing costs on convertible and non-convertible notes
            
            
            462,013
            
            
            502,480Investment
                deposit
            
            
            850,000
            
            
            100,000Equity
                investment in affiliates
            
            
            1,125,449
            
            
            1,051,6288,397,714
            
            
            7,090,044**Total
                Assets**
            
            $
            39,431,187
            
            $
            36,271,317**Liabilities
                and Stockholders’ Equity****Current
                Liabilities**Notes
                payable - bank and non-convertible notes
            
            $
            6,175,102
            
            $
            4,989,166Current
                maturities of capital lease obligations
            
            
            59,394
            
            
            60,465Accounts
                payable
            
            
            13,770,227
            
            
            11,560,890Accrued
                expenses
            
            
            1,276,859
            
            
            1,301,316Payable-minority
                shareholder
            
            
            114,091
            
            
            150,120Short-term
                loan payable
            
            
            128,076
            
            
            315,325Income
                taxes payable
            
            
            84,300
            
            
            106,003Total
                current liabilities
            
            
            21,608,049
            
            
            18,483,285**Capital
                Lease Obligations**
            
            
            29,578
            
            
            58,969**Convertible
                Note, net**
            
            
            3,470,311
            
            
            3,504,912**Total
                Liabilities**
            
            
            25,107,938
            
            
            22,047,166**Series
                A Preferred Stock**,**net**
            
            
            1,581,607
            
            
            1,325,933**Minority
                Interest**
            
            
            173,271
            
            
            178,789**Stockholders’
                Equity**Common
                stock, no par value; authorized - 100,000,000 shares and
              issued
                - 2006 - 27,293,934 shares and 2005 - 26,412,437 shares
            
            
            4,630,405
            
            
            5,477,953Treasury
                common stock, at cost, 2006 - 41,800 shares; 2005 - 32,900
                shares
            
            
            (32,623
            )
            
            (24,827
            )Warrants
                outstanding
            
            
            1,610,679
            
            
            1,551,403Additional
                paid-in capital
            
            
            5,761,168
            
            
            5,161,850Retained
                earnings
            
            
            583,928
            
            
            1,560,839Accumulated
                other comprehensive income
            
            
            14,814
            
            
            35,897Unearned
                compensation cost
            
            
            -
            
            
            (1,043,686
            )Total
                stockholders’ equity
            
            
            12,568,371
            
            
            12,719,429Total
                stockholders’ equity and liabilities
            
            $
            39,431,187
            
            $
            36,271,317





**See
      Notes to Condensed Consolidated Financial Statements** **2**


3


**Pacific
      CMA, Inc.**


**Condensed
      Consolidated Statements of Operations**


**(Unaudited)**






**Three
                Months Ended**
              **June
                30**
            
            
            **Six
                Months Ended**
              **June
                30****2006**
            
            
            **2005**
            
            
            **2006**
            
            
            **2005****(restated)**
            
            
            
            
            
            **(restated)****Freight
                Forwarding Income**
            
            $
            37,362,565
            
            $
            29,053,425
            
            $
            67,760,271
            
            $
            54,657,970**Operating
                Expenses**Cost
                of forwarding
            
            
            (32,227,839
            )
            
            (24,612,421
            )
            
            (57,950,976
            )
            
            (46,120,548
            )General
                and administrative
            
            
            (4,659,990
            )
            
            (3,691,909
            )
            
            (9,217,541
            )
            
            (7,253,804
            )Depreciation
                and amortization
            
            
            (257,747
            )
            
            (226,938
            )
            
            (504,126
            )
            
            (449,464
            )Stock-based
                compensation cost
            
            
            (34,912
            )
            
            (55,537
            )
            
            (69,824
            )
            
            (156,639
            )(37,180,488
            )
            
            (28,586,805
            )
            
            (67,742,467
            )
            
            (53,980,455
            )**Operating
                Income**
            
            
            182,077
            
            
            466,620
            
            
            17,804
            
            
            677,515**Other
                Income (Expense)**Interest
                and other income
            
            
            106,152
            
            
            41,684
            
            
            208,767
            
            
            76,825Interest
                expense
            
            
            (202,787
            )
            
            (113,212
            )
            
            (389,152
            )
            
            (227,564
            )Convertible
                and non-convertible note amortization of deferred financing
                costs
            
            
            (22,132
            )
            
            -
            
            
            (40,467
            )
            
            -Amortization
                of convertible and non-convertible note discount
            
            
            (14,241
            )
            
            -
            
            
            (24,674
            )
            
            -Equity
                in loss of affiliates
            
            
            (3,934
            )
            
            (14,555
            )
            
            (14,528
            )
            
            (26,356
            )(136,942
            )
            
            (86,083
            )
            
            (260,054
            )
            
            (177,095
            )**Income
                (Loss) Before Income Taxes**
            
            
            45,135
            
            
            380,537
            
            
            (242,250
            )
            
            500,420**Benefit
                for Income Taxes**
            
            
            (33,871
            )
            
            (63,497
            )
            
            (240,997
            )
            
            (129,285
            )**Income
                Before Minority Interest**
            
            
            79,006
            
            
            444,034
            
            
            (1,253
            )
            
            629,705**Minority
                Interest**
            
            
            8,299
            
            
            (9,510
            )
            
            1,909
            
            
            (15,221
            )**Net
                Income**
            
            
            87,305
            
            
            434,524
            
            
            656
            
            
            614,484**Accretion
                of Series A Preferred Stock, net to redemption value and
                dividends**
            
            
            (285,712
            )
            
            (194,386
            )
            
            (977,567
            )
            
            (390,273
            )**Net
                income (loss) attributable to common shareholders**
            
            $
            (198,407
            )
            $
            240,138
            
            $
            (976,911
            )
            $
            224,211**Basic
                Earnings (loss) Per Share attributable to common
                stockholders**
            
            $
            (0.01
            )
            $
            0.01
            
            $
            (0.04
            )
            $
            0.01**Diluted
                Earnings (loss) Per Share attributable to common
                stockholders**
            
            $
            (0.01
            )
            $
            0.01
            
            $
            (0.04
            )
            $
            0.01





**See
      Notes to Condensed Consolidated Financial Statements 3**




4




**Pacific
      CMA, Inc.**


**Condensed
      Consolidated Statements of Cash Flows**


**Six
      Months Ended June 30, 2006 and 2005**


**(Unaudited)**




**2006**
            
            
            **2005****(restated)****Operating
                Activities**Net
                income
            
            $
            656
            
            $
            614,484Items
                not requiring (providing) cashAmortization
                of convertible and non-convertible note discount
            
            
            24,674
            
            
            -Amortization
                of convertible and non-convertible note deferred financial
                costs
            
            
            40,467
            
            
            -Depreciation
                and amortization
            
            
            200,900
            
            
            160,793-Amortization
                of intangibles
            
            
            303,226
            
            
            288,671Gain
                on sale of property and equipment
            
            
            (16,737
            )
            
            (7,229
            )Minority
                interest in income of subsidiaries
            
            
            (1,909
            )
            
            15,221Common
                stock issued for services and employee compensation
            
            
            69,824
            
            
            156,639Share
                of loss of affiliates
            
            
            14,528
            
            
            26,356Provision
                for doubtful accounts
            
            
            7,987
            
            
            10,000Deferred
                income taxes
            
            
            (267,471
            )
            
            (258,524
            )Changes
                inAccounts
                receivable
            
            
            (2,040,837
            )
            
            (2,614,517
            )Accounts
                payable
            
            
            2,209,337
            
            
            1,382,743Accrued
                expenses
            
            
            (24,457
            )
            
            (27,143
            )Income
                taxes refundable/payable
            
            
            (8,806
            )
            
            152,460Other
                assets and liabilities
            
            
            423,588
            
            
            392,608Net
                cash provided by operating activities
            
            
            934,970
            
            
            292,562**Investing
                Activities**Collection
                of loans receivable
            
            
            -
            
            
            1,290Purchase
                of property and equipment
            
            
            (264,638
            )
            
            (243,257
            )Capital
                injection from minority interest
            
            
            38,029
            
            
            -Acquisition
                of subsidiary
            
            
            (597,945
            )
            
            -Acquisition
                of associates
            
            
            (88,160
            )
            
            -Proceeds
                from sale of property and equipment
            
            
            16,737
            
            
            15,552Deposit
                refund from potential equity investment
            
            
            -
            
            
            40,000Deposit
                paid for potential acquisition
            
            
            (750,000
            )
            
            (433,669
            )Net
                cash used in investing activities
            
            
            (1,645,977
            )
            
            (620,084
            )**Financing
                Activities**Net
                change in restricted cash
            
            
            432,786
            
            
            (1,205,224
            )Net
                change in notes payable - bank
            
            
            1,302,137
            
            
            1,432,789Principal
                payments under capital lease obligation
            
            
            (30,155
            )
            
            (35,944
            )Proceeds
                from short-term debt
            
            
            -
            
            
            71,170Principal
                payments on short-term debt
            
            
            (223,278
            )
            
            -Principal
                payments of non-convertible note
            
            
            (116,201
            )
            
            -Repurchase
                of common stock
            
            
            (7,796
            )
            
            -Proceeds
                from exercise of stock option
            
            
            -
            
            
            19,600Net
                cash provided by financing activities
            
            
            1,357,493
            
            
            282,391**Increase
                (Decrease) in Cash and Cash Equivalents**
            
            
            646,486
            
            
            (45,131
            )**Foreign
                Currency Exchange Difference**
            
            
            (16,641
            )
            
            (9,045
            )**Cash
                and Cash Equivalents, Beginning of Period**
            
            
            2,018,093
            
            
            1,538,146**Cash
                and Cash Equivalents, End of Period**
            
            $
            2,647,938
            
            $
            1,483,970


**Supplemental
                Cash Flow Information**Cash
                paid for interest
            
            $
            389,152
            
            $
            227,564Cash
                paid for income taxes
            
            
            38,709
            
            
            25,900Cash
                refunded for income taxes
            
            
            -
            
            
            45,203Capital
                lease obligation incurred for equipment
            
            
            -
            
            
            66,795




**See
      Notes to Condensed Consolidated Financial Statements 4**





5


**Pacific
      CMA, Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


**June
      30, 2006 and 2005**


**(Unaudited)**





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





The
      accompanying condensed consolidated financial statements of Pacific CMA, Inc.
      (the “Company”) and its subsidiaries (the “Group”) as of June 30, 2006 and for
      the six and three months ended June 30, 2006 and 2005 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 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, 2005
      has
      been derived from the audited consolidated balance sheet of the Company as
      of
      that date.


The
      condensed consolidated statements of operations for the six months ended June
      30, 2006 and 2005, and cash flows for the six months ended June 30, 2006 and
      2005 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, 2005 included in the Company’s Form 10-K
      filed on March 31, 2006, except as discussed in note 2.




***Principles
      of Consolidation***





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




***Cash
      Equivalents***





The
      Company considers all liquid investments with original maturities of three
      months or less to be cash equivalents. At June 30, 2006, cash equivalents
      consisted primarily of money market accounts with brokers and certificates
      of
      deposit. At June 30, 2006, the Company’s cash accounts in the United States of
      America exceeded federally insured limits by approximately
      $825,000.




***Restricted
      Cash***





Restricted
      cash consists of fixed deposits, collateral deposits and certificates of deposit
      held by banks providing collateral for overdraft, trust receipts, letters of
      credit and support bank guarantees provided to certain vendors of the Company.
      At June 30, 2006, the restricted cash held for these facilities amounted to
      $4,912,045. The restricted cash also includes cash held in lockbox account
      for
      financing the loan arrangement of Secured Convertible Note and Secured
      Non-Convertible Revolving Note with details discussed in Note 7. As of June
      30,
      2006, the cash held in the lockbox account amounted to $416,415 under the
      compensating balance arrangement.




6


***Registration
      Rights Agreements***





The
      Company has adopted EITF 05-4, *The
      Effect of Liquidated Damages Clause on a Freestanding Financial Instrument
      Subject to Issue No. 00-19,* View
      C ** to
      account for its registration rights agreements. The Company has entered into
      registration rights agreements in association with the issuance of preferred
      stock, debt and warrants. View C of EITF 05-4 takes the position that the
      registration rights should be accounted for separately from the financial
      instrument as the payoff of the financial instruments is not dependent on the
      payoff of the registration rights agreement, and according to DIG K-1,
      registration rights agreements and the financial instruments do not meet the
      combining criteria as they relate to different risks. The Financial Accounting
      Standards Board (Board) has postponed further discussion on EITF 05-4 until
      the
      Board has determined whether or not registration rights agreements are
      derivatives.








**Note
                2:**
            **Restatement
                of Financial Statements**








We
      have
      restated our consolidated financial statements as of and for the years ended
      December 31, 2005 and 2004 and as of and for the six months ended June 30,
      2005.
      In addition, certain disclosures in Notes 4, 5, and 10 to the consolidated
      financial statements contained in this report have been restated to reflect
      the
      Restatement adjustments. Our restated consolidated financial statements also
      include disclosure of restated unaudited quarterly results for 2005. The
      determination of the restatements was made as a result of a correction of the
      Company’s application of SFAS No. 150, *Accounting
      for Certain Financial Instruments with Characteristics of both Liabilities
      and
      Equity* (SFAS
      150) , in
      accounting for the Company’s Series A Preferred Stock. The Company originally
      accounted for its Series A Convertible Preferred Stock as a liability; however,
      since the preferred stock is convertible, the redemption feature is conditional
      and the Series A Preferred Stock should not be accounted for under SFAS 150.
      The
      Company has reviewed EITF D-98, *Classification
      and Measurement of Redeemable Securities* ,
      and
      determined that the Series A Preferred Stock should be accounted for as
      temporary equity. This reclassification also resulted in the offering costs
      related with the Series A Preferred Stock to be reclassified from other assets
      and netted with the balance that the Series A Preferred Stock was recorded.
      As a
      result of this reclassification, the Company also reversed the expenses recorded
      to other income (expense) and recorded these charges directly to retained
      earnings. In addition, the Company has modified its presentation of earnings
      (loss) per share attributable to common stockholders to present the impact
      of
      the deemed dividend and beneficial conversion feature related to the preferred
      stock. Finally, the Company reversed the tax accounting for the beneficial
      conversion feature and deemed divided that had been recorded related to the
      Series A Preferred Stock.





The
      Company has elected to accrete the discount related to the preferred stock
      over
      the period for the date of issuance to through the Series A Preferred Stock’s
      redemption date using the interest method. The impact of the restatement on
      the
      consolidated balance sheet and statements of operations and cash flows is shown
      in the accompanying tables.




7


The
      following table presents the effect of the Restatement on the consolidated
      balance sheet:




**Year
                Ended December 31, 2005****As
                Previously****Reported**
            
            
            **Adjustments**
            
            
            **As
                Restated**AssetCurrent
                AssetsCash
                and cash equivalents
            
            $
            2,018,093
            
            
            
            
            $
            2,018,093Restricted
                cash
            
            
            5,761,246
            
            
            
            
            
            5,761,246Accounts
                and notes receivable, net ofallowance;
                2005 - $334,014; 2004 - $295,144
            
            
            17,386,360
            
            
            
            
            
            17,386,360Refundable
                income taxes
            
            
            12,897
            
            
            
            
            
            12,897Other
                receivables
            
            
            2,476,626
            
            
            
            
            
            2,476,626Deposits
                and prepaid expenses
            
            
            666,976
            
            
            
            
            
            666,976Current
                portion of loan receivable
            
            
            -
            
            
            
            
            
            -Deferred
                income taxes
            
            
            58,479
            
            
            
            
            
            58,479Total
                current assets
            
            
            28,380,677
            
            
            
            
            
            28,380,677Property
                and Equipment, net
            
            
            800,596
            
            
            
            
            
            800,596Other
                AssetsGoodwill
            
            
            3,240,807
            
            
            
            
            
            3,240,807Intangible
                assets, net
            
            
            982,216
            
            
            
            
            
            982,216Deferred
                income taxes
            
            
            992,115
            
            
            220,798
            
            
            1,212,913Deferred
                financing costs on Series Apreferred
                stock
            
            
            508,035
            
            
            (508,035
            )
            
            -Deferred
                financing costs on minimumborrowing
                and revolving notes
            
            
            502,480
            
            
            
            
            
            502,480Investment
                deposit
            
            
            100,000
            
            
            
            
            
            100,000Equity
                investment in affiliates
            
            
            1,051,628
            
            
            
            
            
            1,051,628Other
            
            
            -
            
            
            
            
            
            -7,377,281
            
            
            
            
            
            7,090,044Total
                Assets
            
            $
            36,558,554
            
            
            
            
            $
            36,271,317


Liabilities
                and Stockholders' EquityCurrent
                LiabilitiesNotes
                payable - bank and revolving note
            
            $
            4,989,166
            
            
            
            
            $
            4,989,166Current
                maturities of capital leaseobligations
            
            
            60,465
            
            
            
            
            
            60,465Accounts
                payable
            
            
            11,560,890
            
            
            
            
            
            11,560,890Payable-minority
                shareholder
            
            
            150,120
            
            
            
            
            
            150,120Accrued
                expenses
            
            
            1,301,316
            
            
            
            
            
            1,301,316Short-term
                loan payable
            
            
            315,325
            
            
            
            
            
            315,325Income
                taxes payable
            
            
            106,003
            
            
            
            
            
            106,003


Total
                current liabilities
            
            
            18,483,285
            
            
            
            
            
            106,003Capital
                Lease Obligations
            
            
            58,969
            
            
            
            
            
            58,969Minimum
                Borrowing Note, net
            
            
            3,504,912
            
            
            
            
            
            3,504,912Series
                A Preferred Stock, net
            
            
            1,833,968
            
            
            (1,833,968
            )
            
            -Total
                Liabilities
            
            
            23,881,134
            
            
            
            
            
            22,047,166Series
                A Preferred Stock, net
            
            
            
            
            
            1,325,933
            
            
            1,325,933Minority
                Interest
            
            
            178,789
            
            
            
            
            
            178,789Stockholders'
                EquityCommon
                stock, authorized - 100,000,000 shares2005
                - 26,412,437 shares and 2004 - 25,124,347 shares
            
            
            5,477,953
            
            
            
            
            
            5,477,,953Treasury
                Common Stock, at cost,2005-32,900
                shares
            
            
            (24,827
            )
            
            
            
            
            (24,827
            )Warrants
                outstanding
            
            
            1,551,403
            
            
            
            
            
            1,551,403Additional
                paid-in capital
            
            
            4,098,214
            
            
            1,063,636
            
            
            5,161,850Retained
                earnings
            
            
            2,403,677
            
            
            (842,838
            )
            
            1560,839Accumulated
                other comprehensive income
            
            
            35,897
            
            
            
            
            
            35,897Unearned
                compensation cost
            
            
            (1,043,686
            )
            
            
            
            
            (1,043,686
            )Total
                stockholders' equity
            
            
            12,498,631
            
            
            
            
            
            12,719,429$
            36,558,554
            
            
            
            
            $
            36,271,317





8


The
      following table presents the effect of the Restatement on the consolidated
      statement of operations




**Year
                Ended December 31, 2005****As
                Previously Reported**
            
            
            **Adjustments**
            
            
            **As
                Restated****Freight
                Forwarding Income**
            
            $
            125,008,642
            
            
            
            
            $
            125,008,642**Operating
                Expenses**Cost
                of forwarding
            
            
            107,012,073
            
            
            
            
            
            107,012,073General
                and administrative
            
            
            16,043,042
            
            
            
            
            
            16,043,042Depreciation
                and amortization
            
            
            938,321
            
            
            
            
            
            938,321Stock-based
                compensation cost
            
            
            267,712
            
            
            
            
            
            267,712**Operating
                Income**
            
            
            124,261,148
            
            
            
            
            
            124,261,148**Operating
                Income (Loss)**
            
            
            747,494
            
            
            
            
            
            747,494**Other
                Income (Expense)**Interest
                and other income
            
            
            173,810
            
            
            
            
            
            173,810Interest
                expense
            
            
            (556,985
            )
            
            
            
            
            (556,985
            )Preferred
                stock dividend and amortizationof
                deferred financing costs
            
            
            (577,830
            )
            
            577,830
            
            
            -Amortization
                of preferred stock discount
            
            
            (274,098
            )
            
            274,098
            
            
            -Preferred
                stock beneficial conversion
            
            
            (540,361
            )
            
            540,361
            
            
            -Minimum
                borrowing note and revolving note
            
            
            
            
            
            
            
            
            -amortization
                of deferred financing costs
            
            
            (44,259
            )
            
            
            
            
            (44,259
            )Amortization
                of minimum borrowing note andrevolving
                note discount
            
            
            (35,923
            )
            
            
            
            
            (35,923
            )Equity
                in loss of affiliates
            
            
            (56,443
            )
            
            
            
            
            (56,443
            )(1,912,089
            )
            
            
            
            
            (519,800
            )Income
                (Loss) Before Income Taxes
            
            
            (1,164,595
            )
            
            
            
            
            227,694Provision
                for Income Taxes (Benefit)
            
            
            (814,882
            )
            
            556,916
            
            
            (257,966
            )Income
                (Loss) Before Minority Interest
            
            
            (349,713
            )
            
            
            
            
            485,660Minority
                Interest
            
            
            (7,557
            )
            
            
            
            
            (7,557
            )Net
                Income (Loss)
            
            $
            (357,270
            )
            
            
            
            
            478,103


**Accretion
                of Series A Preferred Stock, net to redemption
                value**
            
            
            
            
            
            (1,392,289
            )
            
            (1,392,289
            )**Net
                loss attributable to common shareholders**
            
            
            
            
            
            
            
            $
            (914,186
            )**Earnings
                Per Share attributable to common stockholders****-
                Basic**
            
            
            (0.01
            )
            
            
            
            
            (0.04
            )**-
                Diluted**
            
            
            (0.01
            )
            
            
            
            
            (0.04
            )**Weighted
                average number of shares outstanding during the
                period**
            
            
            25,647,328
            
            
            
            
            
            25,647,328**-
                Basic**
            
            
            25,651,628
            
            
            
            
            
            25,651,628**-
                Diluted**







9





The
      following table presents the effect of the Restatement on the consolidated
      statement of operations




**Three
                Months Ended June 30, 2005****As
                Previously Reported**
            
            
            **Adjustments**
            
            
            **As
                Restated****Freight
                Forwarding Income**
            
            $
            29,053,425
            
            
            
            
            $
            29,053,425**Operating
                Expenses**Cost
                of forwarding
            
            
            (24,612,421
            )
            
            
            
            
            (24,612,421
            )General
                and administrative
            
            
            (3,691,909
            )
            
            
            
            
            (3,691,909
            )Depreciation
                and amortization
            
            
            (226,938
            )
            
            
            
            
            (226,938
            )Stock-based
                compensation cost
            
            
            (55,537
            )
            
            
            
            
            (55,537
            )(28,586,805
            )
            
            
            
            
            (28,586,805
            )**Operating
                Income**
            
            
            466,620
            
            
            
            
            
            466,620**Other
                Income (Expense)**Interest
                and other income
            
            
            41,684
            
            
            
            
            
            41,684Interest
                expense
            
            
            (113,212
            )
            
            
            
            
            (113,212
            )Preferred
                stock dividend and amortization of deferred financing
                costs
            
            
            (135,654
            )
            
            135,654
            
            
            -Amortization
                of preferred stock discount
            
            
            (58,732
            )
            
            58,732
            
            
            -Equity
                in loss of affiliates
            
            
            (14,555
            )
            
            
            
            
            (14,555
            )(280,469
            )
            
            
            
            
            (86,083
            )**Income
                Before Income Taxes**
            
            
            186,151
            
            
            
            
            
            380,537**Benefit
                for Income Taxes**
            
            
            (141,251
            )
            
            77,754
            
            
            (63,497
            )**Income
                Before Minority Interest**
            
            
            327,402
            
            
            
            
            
            444,034**Minority
                Interest**
            
            
            (9,510
            )
            
            
            
            
            (9,510
            )**Net
                Income**
            
            $
            317,892
            
            
            
            
            
            434,524**Accretion
                of Series A Preferred Stock, net to redemption
                value**
            
            
            
            
            
            (194,386
            )
            
            (194,386
            )**Net
                income attributable to common shareholders**
            
            
            
            
            
            
            
            $
            240,138**Earnings
                Per Share attributable to common stockholders -**
              **-Basic**
            
            $
            0.01
            
            
            
            
            $
            0.01**-Diluted**
            
            $
            0.01
            
            
            
            
            $
            0.01**Weighted
                average number of shares outstanding during the period**
              **-
                Basic**
            
            
            25,293,611
            
            
            
            
            
            25,293,611**-
                Diluted**
            
            
            25,308,063
            
            
            
            
            
            25,308,063





10


The
      following table presents the effect of the Restatement on the consolidated
      statement of operations




**Six
                Months Ended June 30, 2005****As
                Previously Reported**
            
            
            **Adjustments**
            
            
            **As
                Restated****Freight
                Forwarding Income**
            
            $
            54,657,970
            
            
            
            
            $
            54,657,970**Operating
                Expenses**Cost
                of forwarding
            
            
            (46,120,548
            )
            
            
            
            
            (46,120,548
            )General
                and administrative
            
            
            (7,253,804
            )
            
            
            
            
            (7,253,804
            )Depreciation
                and amortization
            
            
            (449,464
            )
            
            
            
            
            (449,464
            )Stock-based
                compensation cost
            
            
            (156,639
            )
            
            
            
            
            (156,639
            )(53,980,455
            )
            
            
            
            
            (53,980,455
            )**Operating
                Income**
            
            
            677,515
            
            
            
            
            
            677,515**Other
                Income (Expense)**Interest
                and other income
            
            
            76,825
            
            
            
            
            
            76,825Interest
                expense
            
            
            (227,564
            )
            
            
            
            
            (227,564
            )Preferred
                stock dividend and amortization of deferred financing
                costs
            
            
            (272,809
            )
            
            272,809
            
            
            -Amortization
                of preferred stock discount
            
            
            (117,464
            )
            
            117,464
            
            
            -Equity
                in loss of affiliates
            
            
            (26,356
            )
            
            
            
            
            (26,356
            )(567,368
            )
            
            
            
            
            (177,095
            )**Income
                Before Income Taxes**
            
            
            110,147
            
            
            
            
            
            500,420**Benefit
                for Income Taxes**
            
            
            (285,394
            )
            
            156,109
            
            
            (129,285
            )**Income
                Before Minority Interest**
            
            
            395,541
            
            
            
            
            
            629,705**Minority
                Interest**
            
            
            (15,221
            )
            
            
            
            
            (15,221
            )**Net
                Income**
            
            $
            380,320
            
            
            
            
            
            614,484**Accretion
                of Series A Preferred Stock, net to redemption
                value**
            
            
            
            
            
            (390,273
            )
            
            (390,273
            )**Net
                income attributable to common shareholders**
            
            
            
            
            
            
            
            $
            224,211**Earnings
                Per Share attributable to common stockholders**
              **-
                Basic**
            
            $
            0.01
            
            
            
            
            $
            0.01**-
                Diluted**
            
            $
            0.01
            
            
            
            
            $
            0.01**Weighted
                average number of shares outstanding during the period**
              **-
                Basic**
            
            
            25,293,634
            
            
            
            
            
            25,293,634**-
                Diluted**
            
            
            25,305,208
            
            
            
            
            
            25,305,208





11


The
      following table presents the effect of the Restatement on the consolidated
      statement of cash flows:




**December
                31, 2005****As
                Previously**
              **Reported**
            
            
            **Adjustments**
            
            
            **As
                Restated****Operating
                Activities**Net
                income (loss)
            
            $
            (357,270
            )
            $
            835,373
            
            $
            478,103Items
                not requiring (providing) cashAmortization
                of preferred stock discount
            
            
            274,098
            
            
            (274,098
            )
            
            -Preferred
                stock dividend and amortization of deferred financing
                costs
            
            
            577,830
            
            
            (577,830
            )
            
            -Preferred
                stock beneficial conversion
            
            
            540,361
            
            
            (540,361
            )
            
            -Amortization
                of convertible and non-convertible note
            
            
            80,182
            
            
            
            
            
            80,182discount
                and deferred financial costsDepreciation
                and amortization
            
            
            348,496
            
            
            
            
            
            348,496Amortization
                of intangibles
            
            
            589,825
            
            
            
            
            
            589,825Gain
                on sale of property and equipment
            
            
            (5,186
            )
            
            
            
            
            (5,186
            )Minority
                interest in income of subsidiaries
            
            
            7,557
            
            
            
            
            
            7,557Common
                stock issued for services and employee compensation
            
            
            267,712
            
            
            
            
            
            267,712Share
                of loss of affiliates
            
            
            56,443
            
            
            
            
            
            56,443Provision
                for doubtful accounts
            
            
            145,325
            
            
            
            
            
            145,325Deferred
                income taxes
            
            
            (1,140,770
            )
            
            556,916
            
            
            (583,854
            )Changes
                inAccounts
                receivable
            
            
            (3,479,378
            )
            
            
            
            
            (3,479,378
            )Accounts
                payable
            
            
            1,447,358
            
            
            
            
            
            1,447,358Accrued
                expenses
            
            
            156,835
            
            
            
            
            
            156,835Income
                taxes refundable/payable
            
            
            (84,164
            )
            
            
            
            
            (84,164
            )Other
                assets and liabilities
            
            
            267,112
            
            
            
            
            
            267,112Net
                cash provided by (used in) operating activities
            
            
            (307,634
            )
            
            
            
            
            (307,634
            )**Investing
                Activities**Collection
                of loans receivable
            
            
            48,594
            
            
            
            
            
            48,594Purchase
                of property and equipment
            
            
            (425,560
            )
            
            
            
            
            (425,560
            )Proceeds
                from sale of property and equipment
            
            
            15,679
            
            
            
            
            
            15,679Deposit
                refund from potential equity investment
            
            
            90,000
            
            
            
            
            
            90,000Acquisition
                of subsidiary
            
            
            (674,606
            )
            
            
            
            
            (674,606
            )Net
                cash used in investing activities
            
            
            (945,893
            )
            
            
            
            
            (945,893
            )**Financing
                Activities**Net
                change in restricted cash
            
            
            (673,158
            )
            
            
            
            
            (673,158
            )Net
                change in notes payable - bank
            
            
            693,559
            
            
            
            
            
            693,559Principal
                payments under capital lease obligation
            
            
            (74,772
            )
            
            
            
            
            (74,772
            )Proceeds
                from short-term debt
            
            
            72,058
            
            
            
            
            
            72,058Principal
                payments in business bank loan
            
            
            (2,500,000
            )
            
            
            
            
            (2,500,000
            )Principal
                payments in other loan
            
            
            (60,753
            )
            
            
            
            
            (60,753
            )Proceeds
                from other loan
            
            
            561,072
            
            
            
            
            
            561,072Repurchase
                of common stock
            
            
            (24,827
            )
            
            
            
            
            (24,827
            )Proceeds
                from exercise of stock option
            
            
            19,600
            
            
            
            
            
            19,600Net
                change in revolving note
            
            
            (1,863,798
            )
            
            
            
            
            (1,863,798
            )Proceeds
                from minimum borrowing note and revolving note
            
            
            6,122,224
            
            
            
            
            
            6,122,224Deferred
                financing cash paid
            
            
            (546,738
            )
            
            
            
            
            (576,738
            )Net
                cash provided by financing activities
            
            
            1,724,467
            
            
            
            
            
            1,724,467**Increase
                (Decrease) in Cash and Cash Equivalents**
            
            
            470,940
            
            
            
            
            
            470,940**Foreign
                Currency Exchange Difference**
            
            
            9,007
            
            
            
            
            
            9,007**Cash
                and Cash Equivalents, Beginning of Period**
            
            
            1,538,146
            
            
            
            
            
            1,538,146**Cash
                and Cash Equivalents, End of Period**
            
            $
            2,018,093
            
            
            
            
            $
            2,018,093




12


**Note
                3:**
            **Investment
                Deposit**





At
      June
      30, 2006, the Company had deposited $100,000 with a potential acquisition target
      in the United States. The Company has a signed letter of intent with the target.
      The estimated purchase price is $1,000,000 to $1,500,000.


Also,
      at
      March 31, 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 for a purchase price consisting of (i) $1,330,000 and
      (ii)
      2,800,000 shares of the Company’s restricted Common Stock. The Company was also
      granted an option to purchase the remaining thirty percent (30%) of HTL’s
      outstanding shares of capital stock, which may be exercised by the Company’s
      paying (i) $570,000 and (ii) depending upon certain factors, up to an additional
      2,200,000 shares of Common Stock. In addition, the Company has agreed to issue
      to HTL's shareholders, for the years ended December 31, 2006, 2007 and 2008,
      a
      total of up to 750,000 additional shares of Common Stock per year, based on
      HTL's net profits for those years, and provided that such net profits are equal
      to or greater than $500,000, with respect to each of those years. The Company
      has deposited $750,000 with HTL to be applied to the purchase price at the
      closing of the transaction. HTL is a holding company which owns a series of
      operating subsidiaries in the freight forwarding business throughout India
      and
      Sri Lanka. The Stock Purchase Agreement originally required a closing of the
      transactions not later than July 1, 2006. that date has been extended until
      October 31, 2006. The Company has not obtained equity financing required to
      close this transaction.. The Company intends to seek debt financing for the
      acquisition of HTL.







13


**Pacific
      CMA, Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


**June
      30, 2006 and 2005**


**(Unaudited)**








**Note
                4:**
            **Earnings
                Per Share**





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




**Three
                Months Ended June 30****2006**
            **2005****Loss**
            
            
            **Shares**
            
            
            **Per-Share****Amount**
            
            
            **Income**
            
            
            **Shares**
            
            
            **Per-Share****Amount****(Restated)**
            
            
            
            
            
            **(Restated)****Net
                Income (loss) attributable to common stockholders**
            
            $
            (198,407
            )
            
            
            
            
            
            
            $
            240,138**Basic
                EPS**Income
                (loss) attributable to
              common
                stockholders
            
            $
            (198,407
            )
            
            27,220,569
            
            $
            (0.01
            )
            $
            240,138
            
            
            25,293,611
            
            $
            0.01Stock
                options and warrants
            
            
            
            
            
            -
            
            
            
            
            
            
            
            
            14,452**Diluted
                EPS**Income
                (loss) attributable to common stockholders and assumed
                conversions
            
            $
            (198,407
            )
            
            27,220,569
            
            $
            (0.01
            )
            $
            240,138
            
            
            25,308,063
            
            $
            0.01





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




Common
      stock equivalents related to warrants and convertible preferred stock of
      2,785,788 and 3,472,222, respectively, are not included in the calculation
      of
      dilutive earnings per share for the three months ended June 30, 2005 because
      they have an anti-dilutive effect.








14




**Pacific
      CMA, Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


**June
      30, 2006 and 2005**


**(Unaudited)**








**Note
                4:**
            **Earnings
                Per Share (Continued)**








**Six
                Months Ended June 30****2006**
            **2005****Loss**
            
            
            **Shares**
            
            
            **Per-Share****Amount**
            
            
            **Income**
            
            
            **Shares**
            
            
            **Per-Share****Amount****(Restated)**
            
            
            
            
            
            **(Restated)****Net
                Income (loss) attributable to common stockholders**
            
            $
            (976,911
            )
            
            
            
            
            
            
            $
            224,211**Basic
                EPS**Income
                (loss) attributable to common stockholders
            
            $
            (976,911
            )
            
            26,958,499
            
            $
            (0.04
            )
            $
            224,211
            
            
            25,293,634
            
            $
            0.01Stock
                options and warrants
            
            
            
            
            
            -
            
            
            
            
            
            
            
            
            11,573**Diluted
                EPS**Income
                (loss) attributable to common stockholders and assumed
                conversions
            
            $
            (976,911
            )
            
            26,958,499
            
            $
            (0.04
            )
            $
            224,211
            
            $
            25,305,207
            
            $
            0.01





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




Common
      stock equivalents related to warrants and convertible preferred stock of
      2,785,788 and 3,472,222, respectively, are not included in the calculation
      of
      dilutive earnings per share for the six months ended June 30, 2005 because
      they
      have an anti-dilutive effect.








**Note
                5:**
            **Common
                Stock and Preferred Stock**





As
      of
      June 30, 2006, 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 the same date, the Company’s issued
      capital stock was comprised of 27,293,934 shares of common stock and 5,000
      shares of preferred stock; 27,293,934 shares of common stock and 3,850 shares
      of
      preferred stock are outstanding.


15


**Pacific
      CMA, Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


**June
      30, 2006 and 2005**


**(Unaudited)**








***Preferred
      Stock***





On
      April
      14, 2004, the Company sold to two institutional investors $3,000,000 of its
      Series A Preferred Stock and issued warrants to purchase 937,500 shares of
      common stock, at per share exercise prices of $1.76 for 468,750 shares and
      $2.00
      for 468,750 shares. These warrants expire seven years from date of
      issuance.




On
      May 6,
      2004, the Company sold to an institutional investor $2,000,000 of its Series
      A
      Preferred Stock and issued warrants to purchase an additional 625,000 shares
      of
      common stock at per share exercise prices of $1.76 for 312,500 shares and $2.00
      for 312,500 shares. These warrants expire seven years from
      issuance.




The
      Series A Preferred Stock has 10,000,000 shares authorized and 5,000 shares
      issued with a stated value of $1,000 per share. The stated value of Series
      A
      Preferred Stock is convertible into shares of Common Stock at a conversion
      price
      of $1.44 per common share and pays a cumulative annual dividend equal to six
      (6%) percent of the stated value, which at the option of the Company, subject
      to
      certain conditions, may be paid in shares of Common Stock. The Series A
      Preferred Stock is mandatory redeemable four years from issuance. This preferred
      stock is non-voting.




On
      August
      4, 2005, the Company completed a financing transaction described in note 8
      “Convertible and Non-Convertible Notes (the Notes)”. The Notes contain a
      conversion feature whereby the Notes can be converted to common stock. The
      conversion price of the first $3,750,000 is convertible at $0.88 per share
      and
      the balance is convertible at $1.05. Pursuant to the antidilution provisions
      of
      Series A Convertible Preferred Stock, and the Common Stock Purchase Warrants
      issued to the purchasers of the Company’s Series A Convertible Preferred Stock,
      the conversion price of the Series A Convertible Preferred Stock and
      the exercise price of the Purchases Warrants, has been adjusted to $0.88 per
      common share accordingly. In accordance with EITF 00-27 and EITF 05-8, the
      intrinsic value of the additional beneficial conversion option of $2,659,091
      was
      recorded as unamortized discount on the preferred stock and to additional
      stockholders’ equity (as restated) on the date of conversion price resetting.
      The additional unamortized discount is amortized to expense using the effective
      interest method over the mandatory redemption term of the Series A Preferred
      Stock. As a result, $153,388 was expensed as amortization from the additional
      beneficial conversion for Series A Preferred Stock during the second quarter
      of
      2006.





One
      of
      the institutional investors converted shares of the Series A Preferred Stock
      into shares of Common Stock at a conversion price of $0.88 per share on the
      following dates:




**Date
                of conversion**
            
            
            **Number
                of Series A Preferred Stock converted**August
                16, 2005
            
            
            250November
                10, 2005
            
            
            300January
                25, 2006
            
            
            300March
                30, 2006
            
            
            300Total
                converted
            
            
            1,150




16





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




**June
                30,**
              **2006**
            
            
            **December
                31,****2005****(Restated)**Redeemable
                amount
            
            $
            3,850,000
            
            $
            4,450,000Unamortized
                discount
            
            
            (2,268,393
            )
            
            (3,124,067
            )Carrying
                value
            
            $
            1,581,607
            
            $
            1,325,933








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




July
                1, 2006 to December 31, 2006
            
            $
            509,3552007
            
            
            1,241,7462008
            
            
            517,292












17


**Pacific
      CMA, Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


**June
      30, 2006 and 2005**


**(Unaudited)**








***Stock
      Based Compensation***





The
      Company has a 2000 Stock Plan (“Plan”) to issue stock options and grants
      pursuant to various agreements with employees, service providers, business
      associates and others that will have an important business relationship with
      the
      Company or its affiliates. The maximum number of shares of the Company’s common
      stock available for issuance under the Plan is 2,200,000 shares. As of June
      30,
      2006, the maximum number of shares available for future grants under the Plan
      was 1,025,442 shares. The options and stock grants vest over an 18-month period.
      As of June 30, 2006, there is no options or grants outstanding or issued under
      this plan.




From
      time
      to time, the Company has issued other restricted stock grants that are being
      recognized as compensation expense ratably over the vesting period on a straight
      line basis. As of June 30, 2006 there were 900,000 grant shares unvested with
      unearned compensation of $973,863. Compensation expense recognized during the
      three and the six months ended June 30, 2006 was $34,912 and $69,824,
      respectively




The
      Company, effective January 1, 2006, adopted Statement of Financial Accounting
      Standards No. 123R (FAS 123R), "Share-Based Payments" using the modified
      prospective application method for transition. Accordingly, prior year amounts
      have not been restated.  The transition did not have a material effect on
      earnings for the three and six months ended June 30, 2006.




Previously,
      the unearned compensation related to restricted stock grants was recorded as
      a
      contra equity account.  Under the provisions of FAS 123R, paragraph 74,
      this unearned compensation is now recorded against the common stock and continue
      to be amortized. This reclassification is reflected in the balances of common
      stock as of June 30, 2006.




Certain
      other disclosures required under FAS 123R and SAB107 have not been made as
      they
      are not material.





***Treasury
      Stock***





Based
      on
      a resolution of the Board of Directors in October 2005, the Company authorized
      the repurchase of shares of its outstanding Common Stock, in an aggregate amount
      not to exceed $500,000. As of June 30, 2006, 41,800 shares of common stock
      totaling $32,623 have been repurchased and reflected at cost as a reduction
      from
      stockholders’ equity.





**Note
          6:** **Pledge
          of Assets**





As
      of
      June 30, 2006 and December 31, 2005, the Company had pledged restricted cash
      deposits of $5,328,460 and $5,761,246, respectively.





18


**Note
      7:**  **Notes
      Payable - Bank and Secured Non-Convertible Revolving Note**





Short-term
      borrowings and weighted average interest rates at June 30, 2006 and December
      31,
      2005, were:




**June
                30, 2006**
            
            **December
                31, 2005****Weighted
                Average Interest**
              **Rate**
            
            
            **Amount**
            
            
            **Weighted
                Average Interest**
              **Rate**
            
            
            **Amount**Bank
                Overdraft and Trust Receipts
            
            
            7.56
            %
            $
            6,175,102
            
            
            7.26
            %
            $
            4,872,965Non-Convertible
                Note (see Note 7)
            
            
            —
            
            
            —
            
            
            8.25
            %
            
            116,2017.56
            %
            $
            6,175,102
            
            
            7.29
            %
            $
            4,989,166





The
      Company has certain banking facilities to finance its working capital. The
      facilities available totaled approximately $9,652,510 at June 30, 2006. The
      facilities accrue interest at rates varying with the prime rate in Hong Kong,
      Hong Kong Interbank Offered Rate (HIBOR), or the cost of funds rate. As of
      June
      30, 2006, these rates ranged between 4.05% - 9.25%. The facilities require
      annual renewals and are collateralized by personal guarantees of two directors
      and restricted cash have been utilized approximately $6,175,102 as of June
      30,
      2006. As of June 30, 2006 and December 31, 2005, amounts outstanding against
      these facilities were $6,175,102 and $4,872,965, respectively.





**Note
          8:** **Convertible
          and Non-Convertible Notes**





Effective
      August 4, 2005, the Company completed a financing transaction with Laurus Master
      Fund, Ltd. ("Laurus") pursuant to the terms of a Security Agreement (the
      "Security Agreement"), dated as of July 29,2005, by and among the Company,
      certain of the Company's United States subsidiaries (the "Subsidiaries"), and
      Laurus (the "Financing"). Pursuant to the Security Agreement, the Company issued
      and sold to Laurus (i) a Secured Convertible Minimum Borrowing Note (the
      "Minimum Borrowing Note") in the principal amount of $4 million, which is
      convertible into shares of the Company's common stock, par value $0.001 per
      share (the "Common Stock"), and (ii) a Secured Revolving Note (the "Revolving
      Note," and, together with the Minimum Borrowing Note, the "Notes"), which Notes
      are in the aggregate principal amount of $7.5 million. The Revolving Note also
      is convertible into shares of Common Stock. The Company also issued to Laurus
      a
      warrant (the "Warrant") to purchase, at any time prior to July 29, 2012, up
      to
      1,500,000 shares of Common Stock at a purchase price of $1.00 per share, subject
      to adjustments. The issuance of the Notes and the Warrant were completed in
      a
      private placement pursuant to an exemption from registration under Section
      4(2)
      of the Securities Act of 1933, as amended.




The
      Notes
      are due on July 29, 2008 The interest rate on the Notes is equal to the greater
      of (i) six percent (6%), and (ii) the prime rate plus one percent (1)%. The
      interest rate may be adjusted downward depending on (i) whether the Company
      has
      registered the shares of Common Stock underlying the Minimum Borrowing Note,
      and
      the Warrant, and (ii) the price of the Common Stock.




Effective
      May 2, 2006, the Company completed the restructuring of its outstanding $7.5
      million credit facility (the “Laurus Credit Facility”) with Laurus. The
      conversion feature of the Laurus Credit Facility has been limited to the
      conversion of the secured convertible note (the “Convertible Note”) in the
      maximum principal amount of $4 million, which is convertible into shares of
      the
      Common Stock at fixed conversion rate of $0.88 per share with respect to the
      first $3,750,000 and $1.05 per share with respect to the remaining $250,000.
      The
      Company issued an additional warrant to Laurus providing Laurus the right to
      purchase up to additional 350,000 shares of Common Stock at an exercise price
      of
      0.88 per share.




As
      of
      June 30, 2006, the outstanding balance of the Convertible and non-convertible
      Notes, net of discount, is $3,470,311 and the unamortized discount is
      $529,689.





19


**Pacific
      CMA, Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


**June
      30, 2006 and 2005**


**(Unaudited)**








**Note
                9:**
            **Related
                Party Transactions**





As
      of
      June 30, 2006 and December 31, 2005, the Company had a payable to a minority
      shareholder of a subsidiary of
      $114,091 and $150,120 respectively. The
      payable accrues interest at 3% per annum, is unsecured and has no fixed payment
      terms.




**Note
                10:**
            **Segment
                of the Business**





**Business
      Segments**





The
      Company operates mainly in 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, 2005.


The
      following table summarized the Company’s operations for the three months ended
      June 30, 2006 and 2005 analyzed into air and sea forwarding
      services:




**Air
                Forwarding**
            **Sea
                Forwarding**
            **Total****2006**
            
            
            **2005**
            
            
            **2006**
            
            
            **2005**
            
            
            **2006**
            
            
            **2005****(Restated)**
            
            
            
            
            
            **(Restated)**
            
            
            
            
            
            **(Restated)**Revenue
            
            $
            23,877,368
            
            $
            18,318,712
            
            $
            13,485,197
            
            $
            10,734,713
            
            $
            37,362,565
            
            $
            29,053,425Cost
                of forwarding
            
            
            (20,535,984
            )
            
            (15,103,215
            )
            
            (11,691,855
            )
            
            (9,509,206
            )
            
            (32,227,839
            )
            
            (24,612,421
            )Depreciation
                and amortization
            
            
            (154,234
            )
            
            (139,822
            )
            
            (103,513
            )
            
            (49,519
            )
            
            (257,747
            )
            
            (189,341
            )Interest
                income
            
            
            26,448
            
            
            -
            
            
            5
            
            
            -
            
            
            26,453
            
            
            -Interest
                expense
            
            
            (62,185
            )
            
            (47,671
            )
            
            (563
            )
            
            (9,940
            )
            
            (62,748
            )
            
            (57,611
            )Other
                segment expenses attributable to
              segment
            
            
            (1,148,493
            )
            
            (875,788
            )
            
            (658,351
            )
            
            (509,750
            )
            
            (1,806,844
            )
            
            (1,385,538
            )Segment
                income
            
            $
            2,002,920
            
            $
            2,152,216
            
            $
            1,030,920
            
            $
            656,298
            
            
            3,033,840
            
            
            2,808,514Net
                other unallocated expenses
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,954,834
            )
            
            (2,364,480
            )Minority
                interest
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            8,299
            
            
            (9,510
            )Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            87,305
            
            $
            434,524Goodwill
            
            $
            2,863,169
            
            $
            2,069,566
            
            $
            892,223
            
            $
            670,942
            
            $
            3,755,392
            
            $
            2,740,508Intangible
                assets
            
            
            570,155
            
            
            804,110
            
            
            159,442
            
            
            265,033
            
            
            729,597
            
            
            1,069,143Other
                assets
            
            
            24,631,408
            
            
            21,459,988
            
            
            10,314,790
            
            
            9,669,122
            
            
            34,946,198
            
            
            31,129,110Total
                assets
            
            $
            28,064,732
            
            $
            24,333,664
            
            $
            11,366,455
            
            $
            10,605,097
            
            $
            39,431,187
            
            $
            34,938,761






20





**Pacific
      CMA, Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


**June
      30, 2006 and 2005**


**(Unaudited)**








The
      following table summarized the Company’s operations for the six months ended
      June 30, 2006 and 2005 analyzed into air and sea forwarding
      services:




**Air
                Forwarding**
            
            **Sea
                Forwarding**
            
            **Total****2006**
            
            **2005**
            
            **2006**
            
            **2005**
            
            **2006**
            
            **2005****(Restated)**
            
            
            
            
            
            **(Restated)**
            
            
            
            
            
            **(Restated)**Revenue
            
            $
            43,755,509
            
            $
            34,037,613
            
            $
            24,004,762
            
            $
            20,620,357
            
            $
            67,760,271
            
            $
            54,657,970Cost
                of forwarding
            
            
            (37,103,944
            )
            
            (27,967,252
            )
            
            (20,847,032
            )
            
            (18,153,296
            )
            
            (57,950,976
            )
            
            (46,120,548
            )Depreciation
                and amortization
            
            
            (306,114
            )
            
            (275,941
            )
            
            (198,012
            )
            
            (98,558
            )
            
            (504,126
            )
            
            (374,499
            )Interest
                income
            
            
            60,608
            
            
            -
            
            
            6
            
            
            -
            
            
            60,614
            
            
            -Interest
                expense
            
            
            (124,254
            )
            
            (95,852
            )
            
            (1,091
            )
            
            (18,374
            )
            
            (125,345
            )
            
            (114,226
            )Other
                segment expenses attributable to
              segment
            
            
            (2,380,604
            )
            
            (1,836,129
            )
            
            (1,250,211
            )
            
            (1,045,143
            )
            
            (3,630,815
            )
            
            (2,881,272
            )Segment
                income
            
            $
            3,901,201
            
            $
            3,862,439
            
            $
            1,708,422
            
            $
            1,304,986
            
            
            5,609,623
            
            
            5,167,425Net
                other unallocated expenses
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (5,610,876
            )
            
            (4,537,720
            )Minority
                interest
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,909
            
            
            (15,221
            )Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            656
            
            $
            614,484Goodwill
            
            $
            2,863,169
            
            $
            2,069,566
            
            $
            892,223
            
            $
            670,942
            
            $
            3,755,392
            
            $
            2,740,508Intangible
                assets
            
            
            570,155
            
            
            804,110
            
            
            159,442
            
            
            265,033
            
            
            729,597
            
            
            1,069,143Other
                assets
            
            
            24,631,408
            
            
            21,459,988
            
            
            10,314,790
            
            
            9,669,122
            
            
            34,946,198
            
            
            31,129,110Total
                assets
            
            $
            28,064,732
            
            $
            24,333,664
            
            $
            11,366,455
            
            $
            10,605,097
            
            $
            39,431,187
            
            $
            34,,938,761




***Geographical
      Segments***





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




**Three
                Months Ended**
              **June
                30**
            **Six
                Months Ended**
              **June
                30****2006**
            
            
            **2005**
            
            
            **2006**
            
            
            **2005**Revenue*
                IATA Area 1
            
            $
            5,435,540
            
            $
            4,873,672
            
            $
            8,868,459
            
            $
            8,962,925*
                IATA Area 2
            
            
            6,265,814
            
            
            6,502,169
            
            
            12,067,751
            
            
            12,659,833*
                IATA Area 3
            
            
            25,661,211
            
            
            17,677,584
            
            
            46,824,061
            
            
            33,035,212Total
            
            $
            37,362,565
            
            $
            29,053,425
            
            $
            67,760,271
            
            $
            54,657,970







21





**Pacific
      CMA, Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


**June
      30, 2006 and 2005**


**(Unaudited)**








**As
                of June 30, 2006**
            **As
                of June 30, 2005****Trade****Receivables**
            
            
            **Other
                Assets (Including****Goodwill)**
            
            
            **Total**
              **Assets**
            
            
            **Trade****Receivables**
            
            
            **Other
                Assets (Including****Goodwill)**
            
            
            **Total**
              **Assets****(Restated)**
            
            
            **(Restated)**Assets*IATA
                Area 1
            
            $
            9,538,889
            
            $
            8,413,148
            
            $
            17,952,037
            
            $
            8,861,427
            
            $
            8,055,970
            
            $
            16,917,397*IATA
                Area 2
            
            
            3,005,510
            
            
            —
            
            
            3,005,510
            
            
            2,730,131
            
            
            —
            
            
            2,730,131*IATA
                Area 3
            
            
            7,129,080
            
            
            11,344,560
            
            
            18,473,640
            
            
            4,493,790
            
            
            10,797,443
            
            
            15,291,233Total
            
            $
            19,673,479
            
            $
            19,757,708
            
            $
            39,431,187
            
            $
            16,085,348
            
            $
            18,853,413
            
            $
            34,938,761





*
            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.





**Note
                11:**
            **Concentrations**





The
      Company had sales to a major customer (deferred as major customer who sales
      represent 10% or more of total sales). Sales to this customer as a percentage
      of
      total sales is as follows:




**Three
                Months Ended**
              **June
                30**
            **Six
                Months Ended**
              **June
                30****Major
                Customer**
            
            
            **2006**
            
            
            **2005**
            
            
            **2006**
            
            
            **2005**A
            
            
            11
            %
            
            8
            %
            
            9
            %
            
            8
            %










22


**Pacific
      CMA, Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


**June
      30, 2006 and 2005**


**(Unaudited)**








**Note
                12:**
            **Equity
                Investment in Affiliates**





Equity
      investment in affiliates relates to ownership of Shanghai Air Cargo Ground
      Handling Services Ltd. (“Shanghai Air Cargo”), Vantage Point Services Limited
      (“Vantage Point”) and Careship International Transportation Ltd. (“Careship
      International”) for 35%, 40% and 46.92%, respectively. Shanghai Air Cargo began
      operations in April 2004 and the interest in Vantage Point and Careship
      International was acquired by the Company in October 2004 and January 2005,
      respectively. Financial results of operations of the affiliates during the
      three
      and six months ended June 30, 2006 are summarized below:





**Three
                months ended**
              **June
                30, 2006**
            **Six
                months ended**
              **June
                30, 2006****Shanghai
                Air****Cargo**
            
            
            **Vantage****Point**
            
            
            **Careship****International**
            
            
            **Shanghai
                Air****Cargo**
            
            
            **Vantage****Point**
            
            
            **Careship****International**Net
                Sales
            
            $
            389,965
            
            $
            185,445
            
            $
            113,451
            
            $
            686,842
            
            $
            377,043
            
            $
            126,230Cost
                of Sales
            
            
            292,397
            
            
            178,704
            
            
            80,908
            
            
            528,136
            
            
            329,554
            
            
            89,127Gross
                Profit
            
            
            97,568
            
            
            6,741
            
            
            32,543
            
            
            158,706
            
            
            47,489
            
            
            37,104Net
                Income (Loss)
            
            
            41,653
            
            
            (39,479
            )
            
            5,816
            
            
            54,958
            
            
            (42,448
            )
            
            (22,815
            )Equity
                in Income (Loss) of Affiliates
            
            
            14,578
            
            
            (15,792
            )
            
            2,729
            
            
            19,235
            
            
            (16,979
            )
            
            (10,705
            )





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. This excess was allocated to an intangible asset of $535,558 and
      the
      balance of $256,895 to goodwill. The intangible asset related to an exclusive
      right to do business 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 equity in income (loss) of affiliates and amounted to $13,096
      and $13,728 for the three and six months ended June 30, 2006 respectively.
      The
      goodwill is not amortized under Statement No. 142 but rather the investment
      is
      analyzed for impairment under the requirements of Opinion No. 18.





**Note
                13:**
            **Business
                Acquisitions**





At
      February 28, 2006, the Company acquired the balance of 49% of the outstanding
      stock of WCL Global Logistics Ltd. ("WCL") for $597,945 and in turn WCL became
      a
      wholly owned subsidiary of the Company. WCL is a non-asset based logistics
      services company based in Hong Kong. It also has a branch office in Guangzhou,
      PRC, which handles both air and ocean shipments all over the World. Goodwill
      and
      intangible assets of $514,586 and $50,646, 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 Company
      will
      finalize the purchase accounting for this transaction during the fourth quarter
      of 2006.







23


**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;


·
            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;




24






·
            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 our Forms 10-K and
      registration statements) with the Securities and Exchange Commission (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.





RESTATEMENT





We
      have
      restated our consolidated financial statements as of and for the years ended
      December 31, 2005 and 2004 and as of and for the six months ended June 30,
      2005.
      The determination of the restatements was made as a result of a correction
      of
      the Company’s application of SFAS No. 150, *Accounting
      for Certain Financial Instruments with Characteristics of both Liabilities
      and
      Equity* (SFAS
      150) , in
      accounting for the Company’s Series A Preferred Stock. The Company originally
      accounted for its Series A Convertible Preferred Stock as a liability; however,
      since the preferred stock is convertible, the redemption feature is conditional
      and the Series A Preferred Stock should not be accounted for under SFAS 150.
      The
      Company has reviewed EITF D-98, *Classification
      and Measurement of Redeemable Securities* ,
      and
      determined that the Series A Preferred Stock should be accounted for as
      temporary equity. This reclassification also resulted in the offering costs
      related with the Series A Preferred Stock to be reclassified from other assets
      and netted with the balance that the Series A Preferred Stock was recorded.
      As a
      result of this reclassification, the Company also reversed the expenses recorded
      to other income (expense) and recorded these charges directly to retained
      earnings. In addition, the Company has modified its presentation of earnings
      (loss) per share attributable to common stockholders to present the impact
      of
      the deemed dividend and beneficial conversion feature related to the preferred
      stock. Finally, the Company reversed the tax accounting for the beneficial
      conversion feature and deemed divided that had been recorded related to the
      Series A Preferred Stock.





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.





25


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 condensed 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
      must then 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 condensed consolidated statements of operations 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. Based on our current financial projections,
      we currently believe that we will realize 100% of our deferred tax
      assets.





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.




26





When
      determining whether the carrying value of long-lived assets and goodwill is
      impaired based upon the existence of one or more of the above factors, we
      determine the existence of impairment by comparison of the carrying amount
      of
      the asset to expected future cash flows to be generated by the asset. If such
      assets are considered impaired, the impairment is measured as the amount by
      which the carrying value of the assets exceeds their fair values. As of June
      30,
      2006, goodwill totaled $3,755,393, other intangible assets amounted to
      $729,597 and our long-lived assets, consisting primarily of net property,
      plant and equipment, totaled $859,371.





As
      required by SFAS No. 142, "Goodwill and other Intangible Assets," goodwill
      and
      other intangible assets with indefinite lives are no longer amortized, but
      rather are to be tested at least annually for impairment. This pronouncement
      also requires that intangible assets with definite lives be amortized over
      their
      respective lives to their estimated residual value and reviewed for impairment
      in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal
      of
      Long-Lived Assets". During the period from 2002 to the second quarter of 2006,
      we acquired the below companies and recorded goodwill and intangibles associated
      with these acquisitions. It is summarized as follows:





**Date
                of Acquisition**
            
            
            **Name
                of Company Acquired**
            
            
            **Goodwill**
              **(recorded
                at the time of acquisition)**
            
            
            **Intangible
                assets**
              **(customer
                relationships)**
            
            
            **Intangible
                (Company logo, domain name, networks and customer
                relationships)**
            
            
            **Intangible
                assets**
              **(business
                license)**April
                30, 2002
            
            
            Airgate
                International Corp.
            
            $
            2.68
                million
            
            $
            2.86
                million
            
            
            
            
            $
            -April
                1, 2004
            
            
            Shanghai
                Air Cargo Ground Handling Services Ltd.
            
            $
            36,493
            
            $
            -
            
            
            
            
            $
            -April
                30, 2004
            
            
            Paradigm
                Int’l Inc.
            
            $
            20,248
            
            $
            26,708
            
            
            
            
            $
            -January
                1, 2005
            
            
            Careship
                International Transportation Ltd.
            
            $
            350,617
            
            $
            -
            
            
            
            
            $
            535,558July
                1, 2005
            
            
            WCL
                Global Logistics Ltd. (51%)
            
            $
            408,160
            
            $
            199,214
            
            
            
            
            $
            -October
                24, 2005
            
            
            AIO
                Global Logistics, Ltd.
            
            $
            92,138
            
            $
            -
            
            
            
            
            $
            -November
                24, 2005
            
            
            Seabridge
                International Pte. Ltd.
            
            $
            -
            
            $
            -
            
            $
            15,012
            
            $
            -February
                28, 2006
            
            
            WCL
                Global Logistics Ltd. (49%)
            
            $
            514,586
            
            $
            50,646
            
            
            
            
            $
            -





The
      acquisitions of Airgate International Corporation (“Airgate”), Paradigm
      International Inc. (“Paradigm”), WCL Global Logistics Ltd. (“WCL”), AIO Global
      Logistics Limited (“AIO”) and Seabridge International Pte. Ltd. (“Seabridge)
      were recorded using the purchase method of accounting in accordance with SFAS
      No. 141. We allocated the purchase price to the assets, liabilities, intangibles
      and goodwill acquired, based on the fair value at the date of acquisition.
      The
      results of operations of each company since the date of acquisition, and its
      financial condition as of each balance sheet date are reflected in our condensed
      consolidated financial statements. All significant inter-company balances and
      transactions have been eliminated in consolidation.




27




The
      acquisition of Shanghai Air Cargo Ground Handling Services Ltd. and Careship
      International Transportation Ltd. were recorded under the equity method of
      accounting in accordance with APB Opinion No. 18 *"* The
      Equity Method of Accounting for Investment in Common Stock". As such the
      financial statements will show one line item on the balance sheet, “Equity
      investment in Affiliates” and one line item on the statement of operations,
“Equity Income in Affiliates”. Again, the purchase prices were allocated to the
      assets, liabilities, intangibles and goodwill acquired, based on the fair value
      at the date of acquisition.





The
      intangible customer relationship assets of Airgate and Paradigm are amortized
      over a period of five years while WCL is eight years. The business license
      under
      Careship International Transportation Ltd. are amortized over a period of 10.25
      years. Goodwill acquired in business combinations is not amortized, but rather
      is tested annually for impairment in accordance with SFAS No. 142. An equity
      investment in an investee including any goodwill therein is tested for
      impairment under APB Opinion No. 18.





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.
      Accounts receivable are ordinarily due 30 days after the issuance of the
      invoice. Accounts past due more than 120 days are considered delinquent.
      Delinquent receivables are written off based on individual credit evaluation
      and
      specific circumstances of the customer.





Notes
      receivable are stated at their outstanding principal amount, net of an allowance
      for uncollectible notes. The Company provides an allowance for uncollectible
      notes, which is based upon a review of outstanding receivables, historical
      collection information and existing economic conditions. Outstanding notes
      accrue interest based on the terms of the respective note agreements. A note
      receivable is considered delinquent when the debtor has missed three or more
      payments. At that time, the note is placed on non-accrual status and interest
      accrual ceases and does not resume until the note is no longer classified as
      delinquent. Delinquent notes are written off based on individual credit
      evaluation and specific circumstances of the borrower.





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 Logistics (HK) Ltd. ("AGI"), operates
      an
      integrated logistics and freight forwarding business which is based in Hong
      Kong. The principal services provided by AGI are air freight forwarding, ocean
      freight forwarding, and warehousing which primarily handles the delivery of
      goods from China and Hong Kong to overseas countries, mainly the Far East region
      and the United States. In the Far East region, Mainland China is the target
      market for AGI to expand.





28


The
      business of AGI was first established in August 1998 and now consists of its
      own
      operations, as well as those of its subsidiaries and associated companies.
      At
      March 31, 2006, AGI wholly-owned subsidiaries included Shenzhen Careship
      International Transportation Ltd. ("HK Careship"), AGI China Limited and WCL
      Global Logistics Limited (“WCL”) which were acquired by AGI in 2000, 2002 and
      2006, respectively, while the majority owned subsidiary included AIO Global
      Logistics Limited (51%). AGI also has equity investments in affiliates: Shanghai
      Air Cargo Ground Handling Services Ltd (“Shanghai Air Cargo”), Vantage Point
      Services Limited (“Vantage Point”) and Careship International Transportation
      Ltd. (“Careship International”) of 35%, 40% and 46.92% of their total equity,
      respectively.





In
      April
      2004, Shanghai Air Cargo, that is 35% owned by the Company, commenced its
      operation. Shanghai Air Cargo is located in Pudong International Airport,
      Shanghai, PRC, and is responsible for the ground handling of air cargo in the
      airport.





In
      October 2004, the Company acquired 40% of the outstanding stock of Vantage
      Point. Vantage Point is also a non-asset based logistics services company based
      in Hong Kong, which handles both air and ocean shipments all over the
      world.





On
      January 1, 2005, the Company acquired 46.92% of the outstanding stock of
      Careship International. Careship International is located in Shenzhen PRC and
      is
      approved to operate international freight forwarding business by the Ministry
      of
      Foreign Trade and Economic Cooperation of the People’s Republic of China.





The
      following discussion, concerning the results of operations, liquidity and
      capital resources of the Company, is based solely upon the business operations
      that are carried on by the Company's subsidiaries from January 1 to March 31,
      2006 and the same period of 2005.





On
      July
      1, 2005, the Company acquired 51% of the outstanding stock of WCL. WCL is a
      non-asset based logistics services company based in Hong Kong. It also has
      a
      branch office in Guangzhou, PRC, which handles both air and ocean shipments
      all
      over the world. On February 28, 2006, AGI acquired the remaining 49% of the
      outstanding stock of WCL and as a result, WCL became a wholly-owned subsidiary
      of AGI.





On
      October 24, 2005, the Company formed a new entity in Hong Kong, AIO Global
      Logistics Ltd (“AIO”), to acquire certain assets of All In One Global Logistics
      Ltd (“All In One”). The Company holds 51% of the outstanding shares of AIO. The
      shareholders of All In One hold the other 49%. The principle activities of
      AIO
      are providing warehouse management and freight forwarding services in Hong
      Kong.





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. Pacific CMA International, LLC, a Colorado
      limited liability company that is wholly owned by the Company, acquired 81%
      of
      the issued and outstanding common stock of Airgate. In September 2002, Airgate
      commenced additional operations in Chicago. On July 29, 2005, Pacific CMA
      International, LLC increased its ownership from 81% to 99.11% in a pro rata
      rights offering of Airgate’s common stock. In the offering, Airgate offered
      2,025 newly issued shares of its common stock, at a price of $100 per share.
      Pacific CMA International, LLC purchased its pro-rata number of shares and
      the
      minority interest did not purchase any shares. As a result, Pacific CMA
      International, LLC ownership percentage in Airgate increased.





29


On
      April
      30, 2004, the Company completed the acquisition of Paradigm International Inc.
      (“Paradigm Int’l”).. It primarily handles air and ocean shipments in Latin
      America. In July 2004, Paradigm Int’l commenced additional operations in Los
      Angeles, California and it does business under the name Paradigm Global
      Logistics (“Paradigm Global”)





On
      July
      1, 2004, the Company acquired 60% of the outstanding stock of AGI Freight
      Singapore Pte Ltd. ("AGI Singapore"). AGI Singapore is a non-asset based
      logistics services company based in Singapore, that handles both air and ocean
      shipments all over the world.





On
      November 24, 2005, the Company’s subsidiary, AGI Singapore, purchased all rights
      to the business name, logo, domain name, websites, activities, networks,
      customers and contacts of Seabridge Freight International Pte. Limited from
      an
      individual third party to formed a new company called Seabridge International
      Pte Limited. The purchase agreement required the sellers and their associates
      not to engage in any form of business objectives or activities similar to and
      related to the business of Seabridge Freight International Pte. Limited for
      a
      period of 3 years from the date of the purchase. The agreement also requests
      the
      termination of the registration of Seabridge Freight International Pte. Limited
      from the Registry of the Accounting & Corporate Regulatory Authority in
      Singapore.





The
      following is the significant new development occurring during the six months
      ended June 30, 2006:





·
            Acquisition
                of the remaining 49% of the outstanding common stock of WCL Global
                Logistics Ltd to make it a wholly owned subsidiary for the Company
                on
                February 28, 2006





RESULTS
      OF OPERATIONS





THREE
      MONTHS ENDED JUNE 30, 2006 COMPARED WITH THREE MONTHS ENDED JUNE 30,
      2005





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.





30


Total
      revenue for the three months ended June 30, 2006 increased approximately 29%
      compared with the three months ended June 30, 2005, from $29,053,425 in 2005
      to
      $37,362,565 in 2006. The increase in revenue was primarily the result of the
      organic growth of AGI, Shenzhen Careship and Airgate, in addition to the
      inclusion of the results of WCL after its acquisition in July 2005.





Revenue
      derived from the operations of AGI increased approximately 25% during the three
      months ended June 30, 2006 as compared with 2005. The significant organic growth
      of AGI was the result of the following factors:





·
            An
                increase in the routed freight traffic from the existing agency
                partners;


·
            Improvements
                in the agency network which enabled AGI to secure new freight
                business;


·
            The
                inclusion of the results of WCL after the acquisition on July 1,
                2005.





The
      revenue of Airgate represented approximately 55% of our total revenue for the
      three months ended June 30, 2006. Airgate focuses its operations on the import
      of goods from the Far East and deconsolidation of cargo. Revenue derived from
      the operations of Airgate increased approximately 16% for the three months
      ended
      June 30, 2006 when compared with the same period of 2005. The increase is the
      result of the effort of Airgate’s staff.





Total
      revenue derived from Paradigm and AGI Singapore for the three months ended
      June
      30, 2006 amounted to approximately $4.53 million, which represents approximately
      12% of total revenue of the Pacific CMA





When
      compared with 2005, the cost of forwarding for the three months ended June
      30,
      2006 increased approximately 31%, from $24,612,421 in 2005 to $32,227,839 in
      2006. The increase in costs was primarily the result of the organic growth
      of
      the Company and the acquisition of WCL in July 2005.





Gross
      profit margin for the three months ended June 30, 2006 decreased, from
      approximately 15.29% in 2005 to 13.74% in 2006 and gross profit (revenue minus
      cost of forwarding) for the three months ended June 30, 2005 increased 16%,
      from
      $4,441,004 in 2005, to $5,134,726 in 2006.





Net
      income for the three months ended June 30, 2006 decreased approximately 80%,
      from $434,524 in 2005, to $87,305 in 2006. The decrease in net income 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
      income (loss) attributable to common shareholders for the three months ended
      June 30, 2006 decreased approximately 183%, from net income of $240,138 in
      2005
      to net loss of $198,407 in 2006. The decrease in net income (loss) attributable
      to common shareholders was mainly due to the significant increases in
      amortization of the Convertible and Non-convertible Note discount and their
      deferred financing costs. Details of expense fluctuations will be discussed
      in
      the section “Accretion Of Series A Preferred Stock, Net To Redemption
      Value”.





31





BUSINESS
      SEGMENT OPERATING RESULTS





The
      results of operations for each segment are as follows:





AIRFREIGHT
      OPERATIONS: Revenue from airfreight operations increased approximately 30%,
      from
      $18,318,712 in the second quarter of 2005 to $23,877,368 in the same period
      of
      2006. Airfreight revenue for foreign operations (that includes AGI Group and
      AGI
      Singapore) was $10,204,899, while airfreight revenue for domestic operations
      (that includes Airgate and Paradigm) was $14,845,798, and offsetting
      inter-company transactions totaled $1,173,329. The volume of airfreight improved
      in 2006 compared with 2005. The increase was primarily due to (i) an increase
      in
      routing orders from Asia to the United States as a result of new customers
      and
      agents in India, Japan and Turkey who joined the Pacific CMA during 2005, (ii)
      the maturing of businesses for HK Careship, Paradigm Global Logistics and AGI
      Singapore; and (iii) WCL and AIO joining the Company in July 2005 and November
      2005 respectively.





Costs
      for
      the airfreight forwarding operations increased approximately 36%, from
      $15,103,215 in the second quarter of 2005 to $20,535,984 in the same period
      of
      2006. Airfreight cost attributable to foreign operations was $8,808,444, while
      airfreight cost attributable to domestic operations was $12,915,476, and
      offsetting inter-company costs were $1,187,936. The airfreight cost increase
      in
      2006 was due to the collection of airline surcharges for security, advance
      cargo
      manifest and fuel. Also, due to the increase in fuel surcharge that cannot
      be
      totally passed on to customers, gross profit margin decreased from approximately
      17.55% in 2005 to approximately 14 % in 2006. Despite the decreased in gross
      profit margin, overall gross profits increased approximately 4% to
      $3,341,384.





Total
      segment overhead attributable to the airfreight operation increased by
      approximately 26%, from $1,063,281 in the second quarter of 2005 to $1,338,464
      in the same period of 2006, as a result of greater resources being allocated
      to
      airfreight operations. Details regarding the increase in overhead expenses
      are
      discussed below in "- Non Operating Income and Expenses".





Overall,
      net segment income for the airfreight operation decreased by approximately
      7%
      from $2,152,216 in the second quarter of 2005 to $2,002,920 in the same period
      of 2006. The decrease in net income was mainly due to the significant increases
      in fuel charge; also, some clients have been shifted to seafreight
      forwarding.





SEA
      FREIGHT OPERATION: Revenue from sea freight operations increased approximately
      26% to $13,485,197 in the second quarter of 2006 from $10,734,713 in the same
      period of 2005. Sea freight revenue for foreign operations was $4,528,071,
      while
      sea freight revenue for domestic operations was $9,346,732, and offsetting
      inter-company transactions were $389,606. The increase in revenue was due to
      the
      contribution from the new branch offices of Shenzhen Careship in China and
      the
      increase in quantity of freight consolidation by Airgate Chicago.




The
      increase in revenue for 2006 from 2005 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 2006. There was also an
      increment in the quantity of freight consolidation in Chicago.





32


Costs
      for
      the sea freight forwarding operation increased approximately 23%, from
      $9,509,206 in the second quarter of 2005 to $11,691,855 in the same period
      of
      2006. Sea freight costs attributable to foreign operations were $3,672,034,
      while costs attributable to domestic operations were $8,394,820, and
      inter-company costs were $374,999. The gross profit margin was quite constant,
      approximately 11.42% in 2005 to approximately 13.30% in 2006. As a result of
      increased revenues, overall gross profits increased approximately 46%, to
      $1,793,342.





Total
      segment overhead attributable to the sea freight operation increased
      approximately 34%, from $569,209 in the second quarter of 2005 to $762,422
      in
      the same period of 2006. Overall net income for the sea freight operation
      increased approximately 57%, from $656,298 in the second quarter of 2005 to
      $1,030,920 in the same period of 2006. The increase in net income was mainly
      the
      result of the organic growth of AGI and Airgate.





OPERATING
      EXPENSES





GENERAL
      AND ADMINISTRATIVE EXPENSES





General
      and administrative expenses increased approximately 26%, to $4,659,990 in the
      second quarter of 2006 from $3,691,909 in 2005. There was a significant
      incremental increase in expenses for the following items in this quarter:
      consultancy fee, overseas traveling, legal and professional fees, as well as
      salaries and allowance. As the Company has been continuously growing and in
      order to cope with the growth in 2006, our staff planning needs called for
      the
      hiring of additional staff throughout our offices in the fourth quarter of
      2005.





Consultancy
      fee: Expenses related to consultancy increased approximately 57%, from $68,290
      in 2005 to $106,957 in 2006. The increase in consultancy fee was due to the
      Company sought more consulting advice relating to freight shipments and for
      assistance in developing our expanding network of agents and offices.





Overseas
      traveling: Expenses related to overseas traveling increased approximately 49%,
      from $92,054 in 2005 to $137,369 in 2006. The increase in travel expenses was
      due to costs attributable to an increased number of trips to Mainland China,
      Japan, South East Asia and European countries to promote our freight
      business.





Salaries
      and allowance: Salaries and allowance increased approximately 35% from
      $1,567,877 in 2005 to $2,116,268 in 2006. This increase was the result of the
      addition of approximately 45 staff persons during the first quarter of 2006
      in
      order to keep pace with our growth.





STOCK-BASED
      COMPENSATION COST





Stock-based
      compensation cost decreased approximately 37% from $55,537 in the second quarter
      of 2005 to $34,912 in the same period of 2006. The decrease in compensation
      cost
      was primarily due to part of the stock based compensation cost in the first
      quarter of 2005 being fully amortized in the year 2005. Details of stock grants
      and cancellations are as follows:





On
      or
      about November 7, 2003, we entered into four service agreements with three
      employees and an independent sales representative. Under the terms of the
      agreements, as amended in March 2004, we granted these employees and the sales
      representative an aggregate of 1,950,000 shares of our common stock.
      Compensation cost is measured at the grant date based on the estimated fair




33




value
      of
      the securities. It is recognized as an expense over the service period required
      under the service agreements with those parties. The unearned portion of the
      compensation cost related to employees is recorded in equity as unearned
      compensation cost, while the unearned portion of compensation cost related
      to
      the independent sales representative is recorded as a prepaid asset. Effective
      January 1, 2006 under the provisions of FASB Statement No. 123 (revised 2004),
      paragraph 74, the unearned compensation was reclassified against common stock
      and will continue to be amortized. The shares are restricted as they have not
      been registered with the SEC. The agreements with the employees, as amended,
      required two of them to continue to provide services to us from January 1,
      2004
      through December 31, 2013 and one of them to provide services to us from January
      1, 2004 through December 31, 2008. The agreement with the sales representative
      required him to provide services to us from January 1, 2004 through December
      31,
      2005. However, in December 2004, one of the employees resigned and, by mutual
      agreement, she surrendered her 850,000 shares. The independent sales
      representative agreed to surrender his 200,000 shares in exchange for $50,000
      in
      cash, payable during his two year service agreement expiring at December 2005.
      The surrenders occurred in 2004 and the 850,000 shares and 200,000 shares were
      physically cancelled in early 2005 and early 2006, respectively. The service
      agreement related compensation costs were reversed during the fourth quarter
      of
      2004.





In
      March
      2004, we granted an employee 100,000 shares of common stock. The shares were
      registered with the SEC by filing a Form S-8 Registration Statement on March
      29,
      2004. On September 11, 2004, this employee resigned from the position of
      Director but agreed to continue to act as an independent consultant for British
      market development. The employee continued to provide services to the Company
      through December 31, 2005. Compensation cost is measured at the grant date
      based
      on the estimated fair value on the date of grant. The compensation cost is
      recognized as expense over the service period required under the agreement.
      The
      unearned portion of the compensation cost is recorded in equity as unearned
      compensation. The compensation cost has been fully amortized in
      2005.





DEPRECIATION
      AND AMORTIZATION





Depreciation
      and amortization increased approximately 14% from $226,938 in the second of
      2005
      to $257,747 in the same period of 2006. The increase was mainly attributable
      to
      purchases of additional computer hardware and software for the enhancement
      of
      new logistics system at AGI Logistics Hong Kong Ltd.





Amortization
      arises from intangible customer relationship assets recorded in conjunction
      with
      the acquisitions of Airgate on April 30, 2002, Paradigm on April 30, 2004 and
      WCL on July 1, 2005 (51%) and February 28, 2006 (49%). These intangible assets
      are amortized on a straight-line basis over a period of five to eight years.
      During the three months ended June 30, 2006 and 2005, the amortization expense
      attributable to this asset was $152,139 and $144,335, respectively, an increase
      of $7,804.





NON
      OPERATING INCOME AND EXPENSES





INTEREST
      AND OTHER INCOME





Interest
      and other income increased from $41,684 in the second quarter of 2005 to
      $106,152 in the same period of 2006. This increase is mainly due to the rising
      interest rates and the increase in the amount of bank pledge deposits securing
      additional banking facilities.





34


INTEREST
      EXPENSE





Interest
      expense increased from $113,212 in the second quarter of 2005 to $202,787 in
      the
      same period of 2006. The increase in interest expense is primarily due to an
      increase in short-term working capital financing and the increases in interest
      rates during the second quarter of 2006 as compared to the second quarter of
      2005.





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





The
      relative fair value of the deferred finance costs attributable to the detachable
      stock warrants of $53,261 was debited to the additional equity in warrants
      outstanding and credited against the deferred financing cost. The deferred
      financing costs related to Convertible Note and Non-Convertible Note are
      amortized over their term to maturity, which is three years. A total of $22,132
      was expensed during the second quarter of 2006.





AMORTIZATION
      OF CONVERTIBLE NOTE AND NON-CONVERTIBLE NOTE DISCOUNT





In
      accordance with APB Opinion 14 "Accounting for Convertible Debt" and "Debts
      Issued with Stock Purchase Warrants", the Convertible Note, Non-Convertible
      Note
      and the detachable stock warrants were recorded at their relative fair values
      with the value of the warrants recorded as additional equity in warrants
      outstanding. The fair value of the warrants was determined based on an internal
      valuation by the Company using Black Scholes Option Pricing Model with an amount
      of $531,011 being record. Effectively, the Convertible Note and Non-Convertible
      Note were recorded at a discount of $371,675 and $159,336 respectively. This
      discount is amortized ratably over the term of the Convertible Note and
      Non-Convertible Note which is three years. During the second quarter of 2006,
      $14,241 of this discount was amortized into expense.





ACCRETION
      OF SERIES A PREFERRED STOCK, NET TO REDEMPTION VALUE





During
        April and May 2004, the Company sold to two institutional investors $5,000,000
        stated value of its Series A Preferred Stock and issued warrants to purchase
        1,562,500 shares of common stock at an exercise price of $1.76 and 781,250
        shares at $2.00 per share. As previously discussed, the Company has restated
        its
        financial statements for the accounting for this transaction. The initial
        discount on the Series A Preferred stock is being accreted from date of issuance
        to its redemption date, which is four years. A total of $73,935 and $118,553
        reduced the amount of net income (loss) attributable to common stockholders
        during the second quarter of 2006 and 2005, respectively. Dividends amounting
        to
        $58,392 and $75,833 were paid in shares of common stock in the second quarter
        of
        2006 and 2005, respectively.





Subsequent
      to the Series A Preferred Stock financing, the Company completed debt financing
      with Laurus Master Fund, Ltd. (“Laurus”) on August 4, 2005. As the result of
      this financing the conversion price of the Series A Convertible Preferred Stock
      and the exercise price fo the Common Stock Purchase Warrants issued to the
      purchasers of the Company's Series A Convertible Preferred Stock was adjusted
      to
      $0.88 per common share. In accordance with EITF 00-27 and EITF 05-8, the
      intrinsic value of the additional beneficial conversion option of $2,659,091
      was
      recorded as and discount to the Series A Preferred Stock. The additional
      unamortized discount is amortized to reduced the amount of net income (loss)
      attributable to common stockholders using the effective interest method over
      the
      remaining life of Series A Preferred Stock. As a result, a total of $153,388
      was
      included to reduced the amount of net income (loss) attributable to common
      stockholders during the second quarter ended June 30, 2006.





35


One
      of
      the institutional investors converted 300 shares of the Series A Preferred
      Stock
      on both January 25 and March 30, 2006 (an aggregate of 600 shares) into shares
      of Common Stock at a conversion price of $0.88 per share, respectively. As
      a
      result, the Company has written off a pro-rata share of the unamortized discount
      originally booked and the discount for additional beneficial conversion on
      the
      Series A Preferred Stock to reduced the amount of net income (loss) attributable
      to common stockholders of $63,897, $271,764 and $65,278, respectively, on the
      date of conversion.






36


One
      of
      the institutional investors converted 300 shares of the Series A Preferred
      Stock
      on both January 25 and March 30, 2006 (an aggregate of 600 shares) into shares
      of Common Stock at a conversion price of $0.88 per share, respectively. As
      a
      result, the Company has written off a pro-rata share of the unamortized debt
      discount for warrants, unamortized debt discount for additional beneficial
      conversion and unamortized deferred financing costs on the Series A Preferred
      Stock to expense of $63,897, $271,764 and $65,278, respectively, on the date
      of
      conversion.





All
      of
      these expenses were classed as Accretion of Series A Preferred Stock, Net to
      Redemption Value after restatement.








SIX
      MONTHS ENDED JUNE 30, 2006 COMPARED WITH SIX MONTHS ENDED JUNE 30,
      2005





OVERALL
      RESULTS





Total
      revenue for the six months ended June 30, 2006 increased approximately 24%
      compared with the six months ended June 30, 2005, from $54,657,970 in 2005
      to
      $67,760,271 in 2006. The increase in revenue was primarily the result of the
      organic growth of AGI, Shenzhen Careship and Airgate, in addition to the
      inclusion of the results of WCL after the acquisition in July 2005.





Revenue
      derived from the operations of AGI increased approximately 28% during the six
      months ended June 30, 2006 as compared with 2005. The significant organic growth
      of AGI was the result of the following factors:





·
            An
                increase in the routed freight traffic from the existing agency
                partners;


·
            Improvements
                in the agency network which enabled AGI to secure new freight
                business;


·
            The
                inclusion of the results of WCL after the acquisition on July 1,
                2005.





The
      revenue of Airgate represented approximately 55% of our total revenue for the
      six months ended June 30, 2006. Airgate focuses its operations on the import
      of
      goods from the Far East and deconsolidation of cargo. Revenue derived from
      the
      operations of Airgate increased approximately 10% for the six months ended
      June
      30, 2006 when compared with the same period of 2005. The increase is the result
      of the effort of Airgate’s staff.





Total
      revenue derived from Paradigm and AGI Singapore for the six months ended June
      30, 2006 amounted to approximately $8.49 million, which represents approximately
      13% of total revenue of the Pacific CMA.





When
      compared with 2005, the cost of forwarding for the six months ended June 30,
      2006 increased approximately 26%, from $46,120,548 in 2005 to $57,950,976 in
      2006. The increase in costs was primarily the result of the organic growth
      of
      the Company and the acquisition of WCL in July 2005.





37


Gross
      profit margin for the six months ended June 30, 2006 was decreased, from
      approximately 15.62% in 2005 to 14.47% in 2006 and gross profit (revenue minus
      cost of forwarding) for the six months ended June 30, 2006 increased 15%, from
      $8,537,422 in 2005, to $9,809,295 in 2006.





Net
      income for the six months ended June 30, 2006 decreased approximately 100%,
      from
      $614,484 in 2005, to $656 in 2006. The decrease in net income 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
      income (loss) attributable to common shareholders for the six months ended
      June
      30, 2006 decreased approximately 536%, from net income of $224,211 in 2005
      to
      net loss of $976,911 in 2006. The decrease in net income (loss) attributable
      to
      common shareholders was mainly due to the significant increases in amortization
      of the Convertible and Non-convertible Note discount and their deferred
      financing costs. Details of expense fluctuations will be discussed in the
      section “Accretion Of Series A Preferred Stock, Net To Redemption
      Value”.





BUSINESS
      SEGMENT OPERATING RESULTS





The
      results of operations for each segment are as follows:





AIRFREIGHT
      OPERATIONS: Revenue from airfreight operations increased approximately 29%,
      from
      $34,037,613 in the first half of 2005 to $43,755,509 in the same period of
      2006.
      Airfreight revenue for foreign operations (that includes AGI Group and AGI
      Singapore) was $20,308,293, while airfreight revenue for domestic operations
      (that includes Airgate and Paradigm) was $26,881,894, and offsetting
      inter-company transactions totaled $3,434,678. The volume of airfreight improved
      in 2006 compared with 2005. The increase was primarily due to (i) an increase
      in
      routing orders from Asia to the United States as a result of new customers
      and
      agents in India, Japan and Turkey who joined the Pacific CMA **** during
      2005, (ii) the maturing of businesses for HK Careship, Paradigm Global Logistics
      and AGI Singapore; and (iii) WCL and AIO joining the Company in July 2005 and
      November 2005 respectively.





Costs
      for
      the airfreight forwarding operations increased approximately 33%, from
      $27,967,252 in the first half of 2005 to $37,103,944 in the same period of
      2006.
      Airfreight cost attributable to foreign operations was $17,432,896, while
      airfreight cost attributable to domestic operations was $23,105,726, and
      offsetting inter-company costs were $3,434,678. The airfreight cost increase
      in
      2006 was due to the collection of airline surcharges for security, advance
      cargo
      manifest and fuel. Also, due to the increase in fuel surcharge that cannot
      be
      totally passed on to customers, gross profit margin decreased from approximately
      17.83% in 2005 to approximately 15.20 % in 2006. Despite the decreased in gross
      profit margin, overall gross profits increased approximately 10% to
      $6,651,565.





Total
      segment overhead attributable to the airfreight operation increased by
      approximately 25%, from $2,207,922 in the first half of 2005 to $2,750,364
      in
      the same period of 2006, as a result of greater resources being allocated to
      airfreight operations. Details regarding the increase in overhead expenses
      are
      discussed below in "- Non Operating Income and Expenses".





Overall,
      net segment income for the airfreight operation slightly increased by
      approximately 1% from $3,862,439 in the first half of 2005 to $3,901,201 in
      the
      same period of 2006. The increase in net income was mainly the result of our
      organic growth as well as the inclusion of WCL and AIO operating results which
      were acquired in July and November 2005 respectively.





38


SEA
      FREIGHT OPERATION: Revenue from sea freight operations increased approximately
      16% to $24,004,762 in the first half of 2006 from $20,620,357 in the same period
      of 2005. Sea freight revenue for foreign operations was $7,762,991, while sea
      freight revenue for domestic operations was $16,945,797, and offsetting
      inter-company transactions were $704,026. The increase in revenue was due to
      the
      contribution from the new branch offices of Shenzhen Careship in China and
      the
      increase in quantity of freight consolidation by Airgate Chicago.


The
      increase in revenue for 2006 from 2005 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 2006. There was also an
      increment in the quantity of freight consolidation in Chicago.





Costs
      for
      the sea freight forwarding operation increased approximately 15%, from
      $18,153,296 in the first half of 2005 to $20,847,032 in the same period of
      2006.
      Sea freight costs attributable to foreign operations were $6,252,078, while
      costs attributable to domestic operations were $15,298,980, and inter-company
      costs were $704,026. The gross profit margin was quite constant, approximately
      11.96% in 2005 to approximately 13.15% in 2006. As a result of increased
      revenues, overall gross profits increased approximately 28%, to
      $3,157,730.





Total
      segment overhead attributable to the sea freight operation increased
      approximately 25%, from $1,162,075 in the first half of 2005 to $1,449,308
      in
      the same period of 2006. Overall net income for the sea freight operation
      increased approximately 31%, from $1,304,986 in the first half of 2005 to
      $1,708,422 in the same period of 2006. The increase in net income was mainly
      the
      result of the organic growth of AGI and Airgate.





OPERATING
      EXPENSES





GENERAL
      AND ADMINISTRATIVE EXPENSES





General
      and administrative expenses increased approximately 27%, to $9,217,541 in the
      first half of 2006 from $7,253,804 in 2005. There was a significant incremental
      increase in expenses for the following items in this first half of 2006:
      consultancy fee, overseas traveling, legal and professional fees, as well as
      salaries and allowance. As the Company has been continuously growing and in
      order to cope with the growth in 2006, our staff planning needs called for
      the
      hiring of additional staff throughout our offices in the fourth quarter of
      2005.





Consultancy
      fee: Expenses related to consultancy increased approximately 97%, from $117,830
      in 2005 to $231,719 in 2006. The increase in consultancy fee was due to the
      Company sought more consulting advice relating to freight shipments and for
      assistance in developing our expanding network of agents and offices.





Overseas
      traveling: Expenses related to overseas traveling increased approximately 75%,
      from $148,207 in 2005 to $259,836 in 2006. The increase in travel expenses
      was
      due to costs attributable to an increased number of trips to Mainland China,
      Japan, South East Asia and European countries to promote our freight
      business.





39


Salaries
      and allowance: Salaries and allowance increased approximately 31% from
      $3,224,470 in 2005 to $4,219,586 in 2006. This increase was the result of the
      addition of approximately 53 staff persons during the six months ending June
      30,
      2006 needed to keep pace with our growth.





STOCK-BASED
      COMPENSATION COST





Stock-based
      compensation cost decreased approximately 55% from $156,639 in the first half
      of
      2005 to $69,824 in the same period of 2006. The decrease in compensation cost
      was primarily due to part of the stock based compensation cost in the first
      quarter of 2005 being fully amortized in the year 2005. Details of stock grants
      and cancellations are as follows:





On
      or
      about November 7, 2003, we entered into four service agreements with three
      employees and an independent sales representative. Under the terms of the
      agreements, as amended in March 2004, we granted these employees and the sales
      representative an aggregate of 1,950,000 shares of our common stock.
      Compensation cost is measured at the grant date based on the estimated fair
      value of the securities. It is recognized as an expense over the service period
      required under the service agreements with those parties. The unearned portion
      of the compensation cost related to employees is recorded in equity as unearned
      compensation cost, while the unearned portion of compensation cost related
      to
      the independent sales representative is recorded as a prepaid asset. Effective
      January 1, 2006 under the provisions of FASB Statement No. 123 (revised 2004),
      paragraph 74, the unearned compensation was reclassified against common stock
      and will continue to be amortized. The shares are restricted as they have not
      been registered with the SEC. The agreements with the employees, as amended,
      required two of them to continue to provide services to us from January 1,
      2004
      through December 31, 2013 and one of them to provide services to us from January
      1, 2004 through December 31, 2008. The agreement with the sales representative
      required him to provide services to us from January 1, 2004 through December
      31,
      2005. However, in December 2004, one of the employees resigned and, by mutual
      agreement, she surrendered her 850,000 shares. The independent sales
      representative agreed to surrender his 200,000 shares in exchange for $50,000
      in
      cash, payable during his two year service agreement expiring at December 2005.
      The surrenders occurred in 2004 and the 850,000 shares and 200,000 shares were
      physically cancelled in early 2005 and early 2006, respectively. The service
      agreement related compensation costs were reversed during the fourth quarter
      of
      2004.





In
      March
      2004, we granted an employee 100,000 shares of common stock. The shares were
      registered with the SEC by filing a Form S-8 Registration Statement on March
      29,
      2004. On September 11, 2004, this employee resigned from the position of
      Director but agreed to continue to act as an independent consultant for British
      market development. The employee continued to provide services to the Company
      through December 31, 2005. Compensation cost is measured at the grant date
      based
      on the estimated fair value on the date of grant. The compensation cost is
      recognized as expense over the service period required under the agreement.
      The
      unearned portion of the compensation cost is recorded in equity as unearned
      compensation. The compensation cost has been fully amortized in
      2005





DEPRECIATION
      AND AMORTIZATION





Depreciation
      and amortization increased approximately 12% from $449,464 in the first half
      of
      2005 to $504,126 in the same period of 2006. The increase was mainly
      attributable to purchases of additional computer hardware and software for
      the
      enhancement of new logistics system at AGI Logistics Hong Kong Ltd.





40


Amortization
      arises from intangible customer relationship assets recorded in conjunction
      with
      the acquisitions of Airgate on April 30, 2002, Paradigm on April 30, 2004 and
      WCL on July 1, 2005 (51%) and February 28, 2006 (49%). These intangible assets
      are amortized on a straight-line basis over a period of five to eight years.
      During the six months ended June 30, 2006 and 2005, the amortization expense
      attributable to this asset was $303,227 and $288,671, respectively, an increase
      of $14,556.





NON
      OPERATING INCOME AND EXPENSES





INTEREST
      AND OTHER INCOME





Interest
      and other income increased from $76,825 in the first half of 2005 to $208,767
      in
      the same period of 2006. This increase is mainly due to the rising interest
      rates and the increase in the amount of bank pledge deposits securing additional
      banking facilities.





INTEREST
      EXPENSE





Interest
      expense increased from $227,564 in the first half of 2005 to $389,152 in the
      same period of 2006. The increase in interest expense is primarily due to an
      increase in short-term working capital financing and the increases in interest
      rates during the first half of 2006 as compared to the first half of
      2005.





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





The
      relative fair value of the deferred finance costs attributable to the detachable
      stock warrants of $53,261 was debited to the additional equity in warrants
      outstanding and credited against the deferred financing cost. The deferred
      financing costs related to Convertible Note and Non-Convertible Note are
      amortized over their term to maturity, which is three years. A total of $40,467
      was expensed during the first half of 2006.





AMORTIZATION
      OF CONVERTIBLE NOTE AND NON-CONVERTIBLE NOTE DISCOUNT





In
      accordance with APB Opinion 14 "Accounting for Convertible Debt" and "Debts
      Issued with Stock Purchase Warrants", the Convertible Note, Non-Convertible
      Note
      and the detachable stock warrants were recorded at their relative fair values
      with the value of the warrants recorded as additional equity in warrants
      outstanding. The fair value of the warrants was determined based on an internal
      valuation by the Company using Black Scholes Option Pricing Model with an amount
      of $531,011 being record. Effectively, the Convertible Note and Non-Convertible
      Note were recorded at a discount of $371,675 and $159,336 respectively. This
      discount is amortized ratably over the term of the Minimum Borrowing Note and
      Revolving Note which is three years. During the first half of 2006, $24,764
      of
      this discount was amortized into expense.





41





ACCRETION
      OF SERIES A PREFERRED STOCK, NET TO REDEMPTION VALUE




During
      April and May 2004, the Company sold to two institutional investors $5,000,000
      stated value of its Series A Preferred Stock and issued warrants to purchase
      1,562,500 shares of common stock at an exercise price of $1.76 and 781,250
      shares at $2.00 per share. As previously discussed, the Company has restated
      its
      financial statements for the accounting for this transaction. The initial
      discount on the Series A Preferred stock is being accreted from date of issuance
      to its redemption date, which is four years. A total of $274,914 and $236,385
      reduced the amount of net income (loss) attributable to common stockholders
      during the first half of 2006 and 2005, respectively. Dividends amounting to
      $121,892 and $153,888 were paid in shares of common stock in the first half
      of
      2006 and 2005, respectively.





Subsequent
      to the Series A Preferred Stock financing, the Company completed debt financing
      with Laurus Master Fund, Ltd. (“Laurus”) on August 4, 2005. As the result of
      this financing the conversion price of the Series A Convertible Preferred Stock
      and the exercise price fo the Common Stock Purchase Warrants issued to the
      purchasers of the Company's Series A Convertible Preferred Stock was adjusted
      to
      $0.88 per common share. In accordance with EITF 00-27 and EITF 05-8, the
      intrinsic value of the additional beneficial conversion option of $2,659,091
      was
      recorded as and discount to the Series A Preferred Stock. The additional
      unamortized discount is amortized to reduced the amount of net income (loss)
      attributable to common stockholders using the effective interest method over
      the
      remaining life of Series A Preferred Stock. As a result, a total of $580,761
      was
      included to reduced the amount of net income (loss) attributable to common
      stockholders during the first half of 2006.





One
      of
      the institutional investors converted 300 shares of the Series A Preferred
      Stock
      on both January 25 and March 30, 2006 (an aggregate of 600 shares) into shares
      of Common Stock at a conversion price of $0.88 per share, respectively. As
      a
      result, the Company has written off a pro-rata share of the unamortized discount
      originally booked and the discount for additional beneficial conversion on
      the
      Series A Preferred Stock to reduced the amount of net income (loss) attributable
      to common stockholders of $63,897, $271,764 and $65,278, respectively, on the
      date of conversion.




42




RISK
      FACTORS AFFECTING COMPANY OPERATIONS





The
      Company's ability to provide service to its customers is highly dependent on
      good working relationships with a variety of entities such as airlines,
      steamship carriers and governmental agencies.





Unlike
      other U.S. logistics companies, the Company bears a significant amount of
      inventory risk. We pay for the guarantees we put up to the carriers, even if
      we
      do not have any customer cargo to fill the space. We are not able to ask our
      clients to make these guarantees and, accordingly, we assume all of the
      risks.





The
      Company has freight forwarders liability insurance that covers it against claims
      from clients. We take responsibility for the cargo, and we are responsible
      for
      its safe delivery. Therefore, we can be held responsible and incur losses if
      anything goes wrong.





Changes
      in governmental deregulation efforts, regulations governing the Company's
      products, and/or the international trade and tariff environment could all affect
      the Company's business in unpredictable ways.





43


Management
      believes the Company's business has not been significantly or adversely affected
      by inflation in the past. Historically, the Company has generally been
      successful in passing cost increases on to its customers by means of price
      increases. However, competitive market place conditions could impede the
      Company's ability to pass on future cost increases to customers and could erode
      the Company's operating margins.





The
      Company continues to assess and improve financial controls, and has negotiated
      successfully with its banks to get credit facilities for future financial
      needs.





Additional
      risks and uncertainties include, but are not limited to, the
      following:





·
            Governmental
                deregulation efforts, regulations governing the Company's products
                and/or
                the international trade and tariff environment adversely affecting
                our
                ability to provide services to
                customers;


·
            Competitive
                marketplace conditions impeding the ability of the Company to pass
                future
                cost increases to customers;


·
            Dependence
                of the Company on international trade resulting from favorable worldwide
                economic conditions;


·
            Dependence
                of the Company on retention and addition of significant
                customers;


·
            The
                ability to recruit and retain skilled employees in a tight labor
                market;


·
            The
                ability of the Company to develop and implement information systems
                to
                keep pace with the increasing complexity and growth of the Company's
                business;


·
            The
                trend of the increasing price of oil has led airlines to charge additional
                fuel surcharges passed onto shippers and consignees, increasing the
                Company’s shipping costs, that, in turn, results in a reduction in our
                customers’ shipping incentive and increasing our rate of order
                cancellation; and


·
            The
                World Health Organization received reports of the deadly H5N1 Avian
                influenza virus in various countries with some cases being reported
                of
                human infection with the H5N1 Avian influenza virus. As the deadly
                H5N1
                virus can be carried by migratory birds and could spread globally,
                the
                Company’s operations could be adversely effected by Avian influenza if a
                human outbreak occurs.





LIQUIDITY
      AND CAPITAL RESOURCES





We
      generated approximately $935,000 and $293,000 of cash from operating activities
      for the six months ended June 30, 2006 and 2005, respectively. This increase
      in
      cash from operations was mainly attributable to decrease in other receivables
      and the increase in accounts payable.





Net
      cash
      used in investing activities was $1,645,976 and $620,084 for the six months
      ended June 30, 2006 and 2005, respectively. We used $264,638 to acquire plant
      and equipment to improve our office facilities, and at the same time, we
      received $16,738 from the sales of property and equipment. We used $597,945
      and
      $88,160 for the acquisition of subsidiaries and associates, respectively. We
      also paid $750,000 as a deposit for a business acquisition.





Net
      cash
      provided by financing activities was $1,357,493 and $282,391 for the six months
      ended June 30, 2006 and 2005, respectively. We made principal payment under
      capital lease obligations, short term debt and non-convertible note of $30,155,
      $223,278 and $116,201, respectively. Restricted cash deposits that was pledged
      to the banks was decreased by $432,786. Note payable to the banks increased
      by
      $1,302,137 during the six months ended June 30, 2006, and we used $7,796 for
      the
      repurchase of our common stock.





44


Working
      capital was $8,566,053 (inclusive of restricted cash of approximately $5.3
      million) and $9,897,392 (inclusive of restricted cash of approximately $5.8
      million) as of June 30, 2006 and December 31, 2005 respectively. The decrease
      in
      workings capital is due to $597,945 was used for acquisition of 49% of common
      stock of WCL Global Logistics Limited and $750,000 was used as investment
      deposit of HTL. **** We
      believe that we will be able to rely on cash flow from operations for short-term
      liquidity, and also believe that we have adequate liquidity to satisfy our
      material commitments for the twelve months following June 30, 2006. We also
      believe that we can obtain additional liquidity through further negotiation
      of
      short-term loans from banks to satisfy our short-term funding needs, if
      any.





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 COMMITMENTS





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




**Payments
                Due by Period****Contractual
                Obligations**
            
            **Total**
            
            **Less
                than 1 year**
            **1-3
                years**
            **4
                - 5 years**
            **Thereafter**$
            
            $
            $
            $
            $Capital
                lease Obligations
            
            88,972
            
            59,394
            29,578
            -
            -Operating
                Leases
            
            3,613,153
            
            1,317,840
            1,880,582
            414,731
            -Cargo
                Space Commitments
            
            3,453,868
            
            3,453,868
            -
            -
            -Series
                A Preferred Stock
              and
                Cumulative Dividends
            
            3,722,910
            
            234,208
            3,488,702
            -
            -





We
      have
      capital lease obligations of $88,972 as of June 30, 2006, of which $59,394
      is
      repayable within one year, and $29,578 is repayable after one
      year.





We
      also
      entered into various lease commitments for office premises and warehouses in
      the
      United States, Hong Kong, Mainland China and Singapore. The total outstanding
      lease commitments under non-cancelable operating leases are $3,613,153 as of
      June 30, 2006. As of June 30, 2006, the current portion of these commitments
      of
      $1,317,840 is payable within one year.





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.
      As
      of June 30, 2006, the amount outstanding for such commitments to be entered
      into
      in 2006 was approximately $3.5 million.





As
      of
      June 30, 2006, our commercial commitments may be summarized as
      follows:





45


**Other
                Commercial Commitments**
            
            
            **Total
                Amounts Committed**
            
            **Amount
                of Commitment Expiration Per Period****Less
                than 1 year**
            
            
            **1-3
                years**Overdraft
            
            $
            2,660,213
            
            $
            2,660,213
            
            
            -Invoice
                Trust Receipt
            
            
            3,514,889
            
            
            3,514,889
            
            
            -Guarantees
                by bank
            
            
            728,925
            
            
            728,925
            
            
            -Convertible
                Notes, net of discounts of $388,379
            
            
            3,611,621
            
            
            
            
            
            3,611,621Payable
                - minority shareholder
            
            
            114,091
            
            
            114,091
            
            
            -





As
      of
      June 30, 2006, to finance our working capital, our available banking facilities
      were approximately $10,134,955 obtained from creditworthy commercial banks
      in
      Hong Kong. As of that date, the total amount of bank credit facilities utilized
      was $6,175,102. This was made up of (i) $2,660,213 of overdrafts; (ii)
      $3,514,889 of invoice trust receipts. Moreover, we have a borrowing facility
      with Laurus, subject to certain requirements. The total available amount of
      the
      credit facility is $4,000,000. As of June 30, 2006, the total amount outstanding
      for the credit facility, net of discount is $3,611,621, which is the convertible
      note.





OUTLOOK





As
      a
      result of the global economic growth, we believe the following factors may
      have
      a positive impact on our future results of operation and our financial
      conditions:





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.





46


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 operation 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
      (approximately 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.





Through
      our Hong Kong-based AGI Logistics (HK) Ltd, Shenzhen Careship Transportation
      Ltd, WCL Global Logistics Ltd, AIO Global Logistics Ltd as well as Pacific
      CMA
      Ltd (formerly known as AGI China Ltd), 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 might work 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.





47


**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, 2006, would have had the effect of raising
      operating income approximately $52,000. An average 10% strengthening of the
      U.S.
      Dollar, for the same period would have had the effect of reducing operating
      income by approximately $64,000. The Company currently does not utilize any
      the
      derivative financial instruments or hedging transactions to manage foreign
      currency risk.





INTEREST
      RATE RISK





The
      Company does not currently utilize derivative financial instruments to hedge
      against changes in interest rates. At June 30, 2006, the Company had cash and
      cash equivalents and restricted cash of $8 million and short-term borrowings
      of
      $6 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 June 30, 2005 and June 30,
      2006.





**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




48




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.





BKD,
      LLP
      (“BKD”), our former independent auditors, advised our management and Audit
      Committee that during the course of their audit of our financial statements
      as
      of and at December 31, 2005, that they noted material weaknesses in our internal
      controls as follows: insufficient review of allowance for doubtful accounts;
      lack of documented second review and approval of journal entries; and our former
      Chief Financial Officer not being sufficiently active.





Based
      upon the evaluation of our disclosure controls and procedures, our Chief
      Executive Officer and our new Chief Financial Officer have concluded that,
      subject to the limitations noted above, our disclosure controls and procedures
      as of June 30, 2006 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.





After
      discussing advice with our new auditors, we recognized the need for additional
      documentation of second reviews and in some cases, enhanced procedures. Since
      then, we have been correcting the material weaknesses in internal control.
      Corrective measures include regular credit review of outstanding receivables,
      increase manpower on debts collections, separation of duties and improve
      documentation second review and approval of journal entries. Moreover, we have
      replaced our chief financial officer during the quarter ended June 30, 2006
      as
      our prior independent accountants advised that our former chief financial
      officer was not actively involved in the detailed financial aspects of our
      business during fiscal year 2005. The new Chief Financial Officer, John
      Mazarella, has reviewed all the accounts receivable of our Operating Divisions
      as of June 30, 2006 and has indicated to senior management what accounts may
      need further discussion, and has reviewed the procedures with the heads of
      our
      Operating Divisions to insure that adequate provisions have been provided.





This
      will
      be a continuing process and will lead to increased controls where necessary.
      In
      addition, he has reviewed all expense and journal entries and will report to
      the
      Audit Committee any corrective action needed, if appropriate. Changes and
      additional controls will be considered on an ongoing basis as we anticipate
      our
      new Chief Financial Officer will be most pro-active.







49





**PART
      II**





**OTHER
      INFORMATION**





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





Reference
      is made to our Annual Report on Form 10-K for our fiscal year ended December
      31,
      2005 (the “Annual Report”), Part I, Item 3: “Legal Proceedings.”





**Item
      1A.**  **Risk
      Factors**





Background




On
      April
      26, 2006, the Company entered into a Stock Purchase Agreement (the “SPA”) with
      HTL Logistics Limited, a Cayman Islands corporation (“HTL”). HTL
      is a
      holding company which owns a series of operating subsidiaries in the freight
      forwarding business, with offices in Sri Lanka, India, Pakistan, Bangladesh,
      Dubai, Mauritius, Madagascar and Nepal. The SPA initially provided for a closing
      on or before July 1, 2006, that has been extended until October 31, 2006 and
      is
      subject to the Company’s obtaining equity financing. However, the Company has
      been seeking debt financing, having been unable to secure equity financing
      on
      terms commercially reasonable to the Company. There can be no assurance that
      debt financing will be secured on terms commercially reasonable to the Company
      or the proposed acquisition of HTL will be successfully completed substantially
      on the terms and conditions set forth below, or at all.





Pursuant
      to the SPA, the Company has agreed to acquire seventy (70%) percent of the
      outstanding shares of capital stock of HTL for a purchase price of $1,330,000
      and 2,800,000 restricted shares of the Company’s common stock (the “Proposed
      Acquisition”). The Company has also been granted an option to purchase the
      remaining thirty (30%) percent of HTL’s outstanding shares of capital stock in
      consideration of $570,000 and restricted shares of our common stock determined
      as follows: If the option is exercised within (a) twelve, (b) twenty-four,
      and
      (c) thirty-six months from the closing of the Proposed Acquisition, the number
      of restricted shares will be (a) 1,320,000, (b) 1,440,000, and (c) 1,800,000
      or
      2,200,000, based upon a Trigger Amount of HLT and its subsidiaries being met,
      respectively.





The
      “Trigger Amount” is $500,000 for any year and is the audited, consolidated net
      profit, after taxes, of HTL and its subsidiaries for such year prepared in
      accordance with generally accepted accounting principles in the United States
      and Regulation S-X promulgated under the Securities Act of 1933, as
      amended,.





In
      addition, the Company has agreed to issue to HTL’s shareholders up to a maximum
      of 750,000 shares of restricted Common Stock per year, for each of 2006, 2007
      and 2008, if that Trigger Amount is exceeded during each of those years. If
      the
      Trigger Amount is exceeded, the aggregate number of shares of restricted Common
      Stock issuable to HTL’s shareholder for each year is determined by multiplying
      the Trigger Amount for the applicable year by 0.45, subject to the limitations
      described above.





50


HTL’s
      financial statements have not been audited and were not prepared in accordance
      with U.S. GAAP, such financial information may be subject to adjustments when
      audited, which could result in changes to the transaction.





**IN
      THE EVENT THE COMPANY ACQUIRES HTL, THE FOLLOWING RISK FACTORS ARE
      APPLICABLE:**




*1.*  *Taxation
      in India.* During
      any period of time that the Company owns HTL, it may receive dividends or the
      distribution of profits from any of HTL’s subsidiaries in India via the issuance
      of bonus shares, after all Indian taxes are paid and HTL pays a dividend tax
      to
      India. The recipient of the dividend or the bonus shares currently is not taxed
      on these distributions. In the event PAM were to acquire and dispose of an
      Indian subsidiary of HTL, the Indian tax does not exceed twenty (20%) percent
      and, if paid, PAM may be able to offset any Indian taxation against its United
      States taxes. Unless there are changes in the tax laws in India, no adverse
      material tax impact to PAM is foreseen as a consequence of an acquisition of
      HTL.




2.  *Need
      for financial controls complying with U.S. law and compliance with U.S.
      GAAP.* HTL has
      not been required to establish and maintain internal financial controls as
      a
      United States public company would be required to do and its financial controls
      may need to be brought into compliance with the Sarbanes Oxley Act (‘SOX”) with
      a significant delay and at a substantial cost. Alternatively, non-compliance
      with SOX may result in the AMEX delisting PAM’s securities, sanctions for the
      filing of late reports and prohibit market makers from making a market in PAM
      securities. The accounts of Indian companies are prepared in accordance with
      Indian Standard GAAP and would have to be reconciled to U.S. GAAP and may result
      in substantial additional expense to the Company.





3 *.*  *Auditing
      deadlines.* If we
      were to acquire HTL and were unable to timely obtain an audit of HTL’s audit
      financial statements, we would not be in compliance with the SEC’s filing
      requirements that would result in many adverse consequences, including, but
      not
      limited to, administrative sanctions, AMEX delisting, the inability to use
      “short” form registration statements for selling securityholders and the Company
      being required to file “full” registration statements, the inability to have
      registration statements remain or declared effective, resulting in the
      imposition of contract defaults, penalties and accelerated repayment
      requirements on the Company of its Series A Preferred Stock and the financing
      received from Laurus).





51


4 *.*  *Wage
      increases in India may reduce HTL’s profit margin.* If
      the
      HTL acquisition is completed. A significant cost will be HTL’s salaries and
      related benefits of operations staff and other employees. Wage costs in India
      have historically been significantly lower than wage cost in the United States
      for comparably skilled professionals. However, because of rapid economic growth
      in India and increased competition for skilled employees in India, wages for
      comparably skilled employees in India are increasing at a faster rate than
      in
      the United States. In addition, as the U.S. dollar declines in value against
      the
      Indian rupee, wages in the United States will decrease relative to wages in
      India. We may need to increase the levels of employee compensation more rapidly
      than in HTL’s past to remain competitive in attracting and retaining the quality
      and number of employees that our business requires. Wage increases in the long
      term may reduce HTL’s profit margins. Additionally, because substantially all of
      HTL’s employees are based in India and paid in Indian rupee, while its revenues
      are primarily in U.S. dollars, an HTL employee costs as a percentage of revenues
      may increase or decrease significantly if the exchange rates among the Indian
      rupee and the U.S. dollar fluctuates significantly.





5 *.*  *Potential
      negative effect of transfer-pricing regulations.* U.S. and
      Indian transfer-pricing regulations require that any international transaction
      involving associated enterprises be at an arm’s length price. Transactions among
      our subsidiaries, including HTL, if acquired, and us may be considered such
      transactions. If the applicable income tax authorities review any of HTL’s tax
      returns and determine that the transfer price we applied was not appropriate,
      HTL may incur increased tax liability, including accrued interest and penalties,
      which would cause HTL’s tax expense to increase, possibly materially, thereby
      reducing HTL’s profitability and cash flows.




6.  *A
      substantial portion of HTL’s assets and operations are located in India and HTL
      is subject to regulatory economic and political uncertainties.* In
      the
      early 1990’s, India experienced significant inflation, low growth in gross
      domestic product and shortages of foreign currency reserves. The Indian
      government, however, has exercised and continues to exercise significant
      influence over many aspects of the Indian economy. India’s government has
      provided significant tax incentives and relaxed certain regulatory restrictions
      in order to encourage foreign investment in specified sectors of the economy.
      Certain of those programs, which have benefited HTL include tax holidays,
      liberalized import and export duties and preferential rules on foreign
      investment and repatriation. We cannot assure you that these liberal policies
      will continue. The Government of India is considering introducing a reservation
      policy to the private sector in India, pursuant to which all private sector
      companies in India, would be required to reserve a certain percentage of jobs
      for the economically underprivileged population. If this policy is adopted,
      HTL’s ability to hire employees of its choice may be negatively affected due to
      restrictions on its pool of potential employees and competition for these
      professionals.




Furthermore,
      the rate of economic liberalization could change, and specific laws and policies
      affecting technology companies, foreign investment, currency exchange rates
      and
      other matters affecting HTL could also change. In the past decade, the
      Government of India has changed several times. The current Indian government
      is
      a coalition of many parties, some of which do not want to continue India’s
      current economic policies. Various factors, including collapse of the present
      coalition government due to the withdrawal of support of coalition members,
      could trigger significant changes in India’s economic liberalization and
      deregulation policies, disrupt business and economic conditions in India
      generally and HTL’s business in particular. HTL’s financial performance may be
      adversely affected by changes in inflation, exchange rates and controls,
      interest rates, Government of India policies (including taxation policies),
      social stability or other political or diplomatic developments affecting India
      in the future.





52


*7.*  *Terrorist
      attacks and other acts of violence involving India could adversely affect HTL’s
      business, results of operations, financial conditions and cash
      flows* .
      Terrorist attacks and other acts of violence or war, including those involving
      India, could adversely affect HTL’s business, results of operations, financial
      condition and cash flows. South Asia has, from time to time, experienced
      instances of civil unrest and hostilities among neighboring countries, including
      India, Pakistan and China and within India itself. In recent years there have
      been several instances of military confrontations along the Indo-Pakistani
      border. There continues to be a potential for hostilities between India and
      Pakistan due to recent terrorist activities, troop mobilizations along the
      border and the geographical climate along the border. Such political tensions
      could create a perception that there is a risk of disruption of services
      provided by India companies, which could have a material adverse affect on
      HTL’s
      market for its services. Furthermore, if India were to become engaged in armed
      hostilities, particularly hostilities that were protracted or involved the
      threat or use of nuclear weapons, HTL might not be able to continue to
      operate.





*8.*  *India
      is vulnerable to natural disasters that could severely disrupt the normal
      operation of HTL’s business and adversely affect HTL’s business, results of
      operation, financial condition and cash flows.* India
      is
      susceptible to natural disasters, including typhoons, tsunamis, floods and
      earthquakes. HTL has facilities and employees located in India. If HTL’s
      facilities are damaged by a typhoon, tsunamis, floods and earthquakes or other
      natural disaster, HTL’s operation and its ability to provide service, clients
      could be interrupted or delayed significantly. Insurance coverage may not be
      sufficient to cover HTL’s potential losses and disaster management facilities in
      India may not be adequate. In addition, clients may terminate their contracts
      with HTL if it cannot resume providing services quickly enough. As a result,
      a
      natural disaster in India could have a material adverse affect on HTL’s
      business, results of operation, financial condition and cash flows.





*9.*  *Currency
      fluctuations among the Indian rupee and the U.S. dollar could have a material
      affect on HTL’s results of operations.* The
      exchange rate among the Indian rupee and the U.S. dollar have changed
      substantially in recent years and may fluctuate substantially in the future.
      The
      average Indian rupee/U.S. dollar exchange rate in 2005 was approximately 44.0
      representing depreciation of 2.9% compared to the average exchange rate for
      2004. The average Indian rupee/pound sterling exchange rate in 2005 was
      approximately 80.2 representing depreciation of 3.4% compared to the average
      rate in 2004. Although HTL takes steps to hedge a substantial portion of its
      India rupee-U.S. dollar foreign currency exposures, its results of operations
      may be adversely affected if the Indian rupee fluctuates significantly against
      the U.S. dollar or its hedging strategy is unsuccessful.





10 *.*  *If
      more stringent labor laws become applicable to HTL, HTL’s profitability may be
      adversely affected* India
      has
      stringent labor legislation that protects the interests of workers, including
      legislation that sets forth detailed procedures for dispute resolution and
      employee removal and legislation that imposes financial obligations on employers
      upon retrenchment. In addition, HTL is subject to certain industry standards
      regarding our employees, particularly with regard to overtime and transportation
      of employees. If these labor laws or industry standards become more stringent
      or
      more strictly enforced, it may become difficult for HTL to maintain flexible
      human resource policies, discharge employee or downsize, any of which could
      have
      a material adverse affect on HTL’s business, results of operations, financial
      conditions and cash flows.





53


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





See
      the
      Company’s Report on Form 8-K filed on May 5, 2006, with the SEC.





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





None





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





On
      May
      23, 2006, the Company held its annual meeting of stockholders. See the Company’s
      Schedule 14A filed with the SEC on April 24, 2006 and Report on Form 8-K filed
      with the SEC on May 25, 2006.





I **tem
      5.** **Other
      Information**





None





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





(a)
            *Exhibits
                (filed herewith)*





5.2
            Opinion
                of India Counsel, including Counsel’s
                Consent.





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)).







54


**SIGNATURES**





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


**PACIFIC
                  CMA, INC.**Date:
                  August 21, 2006
              By:
              /s/Alfred
                LamName:
              Alfred
                    LamTitle:
              Chairman
                    of the Board of Directors(Principal
                  Executive Officer)


Date:
                August 21, 2006
            By:
            /s/John
                MazarellaName:
            John
                MazarellaTitle:
            Chief
                Financial Officer(Principal
                Financial and AccountingOfficer)











55