SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
    of 1934 for the fiscal year ended June 30, 2005 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: 0-29754

                             TARGET LOGISTICS, INC.
             (Exact name of registrant as specified in its charter)

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

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

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

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

         Title of Class              Name of Each Exchange on Which Registered
         --------------              -----------------------------------------
               None                                    None

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

                                 Title of Class
                                 --------------
                          Common Stock, $.01 par value

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.   Yes |_| No |X|

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 1, 2005 was $6,686,601.

The number of shares of common stock outstanding as of September 1, 2005 was
15,841,735.

                       DOCUMENTS INCORPORATED BY REFERENCE

To the extent specified, Part III of this Form 10-K incorporates information by
reference to the Registrant's definitive proxy statement for its 2004 Annual
Meeting of Shareholders (to be filed).
<PAGE>

                             TARGET LOGISTICS, INC.
                         2005 ANNUAL REPORT ON FORM 10-K

                                Table of Contents


                                                                            Page
                                                                            ----

                                     PART I

Item 1.  Business                                                              3
Item 2.  Properties                                                            5
Item 3.  Legal Proceedings                                                     5
Item 4.  Submission of Matters to a Vote of Security Holders                   6
         Executive Officers of the Registrant                                  6

                                   PART II

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

                                  PART III

Item 10. Directors and Executive Officers of the Registrant                   15
Item 11. Executive Compensation                                               15
Item 12. Security Ownership of Certain Beneficial Owners and
          Management and Related Stockholder Matters                          15
Item 13. Certain Relationships and Related Transactions                       15
Item 14. Principal Accountant Fees and Services                               16

                                   PART IV

Item 15. Exhibits and Financial Statement Schedules                           17

         Signatures                                                           19


                                      -2-
<PAGE>

                                     PART I


ITEM  1. BUSINESS

Background

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

Description of Business:

      We are a non-asset based third party logistics  services company providing
time  definite and value added supply chain  solutions on a global basis to over
3,200  accounts.  We have a large  network of 33 offices  throughout  the United
States,  including  exclusive agency  relationships in 20 cities. We also have a
worldwide  agent network with  coverage in over 70 countries  which allows us to
provide logistics  services on a global basis. We offer a wide range of domestic
shipping and distribution options to meet our customers' schedules, managing and
arranging for the total  transport of our customers'  freight from the shippers'
locations to the designated  recipients,  including the  preparation of shipping
documents and providing handling, packing and containerization services. We also
offer a full range of international  logistics services including  international
air and ocean  transportation.  We concentrate on cargo shipments  weighing more
than 50 pounds requiring time specific delivery, and our average shipment weighs
approximately  1,400 pounds. Each of our stations is linked in real-time through
our proprietary  information  system, by online  communications  that speeds the
two-way flow of shipment data and related logistics  information  between origin
and destination. All of our services are provided through our Target subsidiary.

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

Operations

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

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


                                      -3-
<PAGE>

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

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

      International Operations.  Our international operations consist of air and
ocean freight  movements  imported to and exported from our Target  subsidiary's
network of offices in the United  States.  During the fiscal year ended June 30,
2005, our international  freight forwarding accounted for 33.4% of our operating
revenue.

Customers and Marketing

      Our principal  customers  include large  manufacturers and distributors of
computers and other electronic and high-technology equipment,  computer software
and wearing apparel. As of June 30, 2005, we had approximately 3,200 accounts.

      We market  our  services  through  an  organization  of  approximately  43
full-time  salespersons  and 45 independent  sales agents supported by the sales
efforts  of  senior   management,   and  the  operations  staff  in  our  Target
subsidiary's offices. We strongly promote team selling,  wherein the salesperson
is able to utilize  expertise  from other  departments in the Company to provide
value-added  services  to gain a specific  account.  We staff each  office  with
operational  employees to provide support for the sales team,  develop  frequent
contact with the customer's traffic  department,  and maintain customer service.
We believe that it is important to maintain  frequent contact with our customers
to assure  satisfaction  and to  immediately  react to  resolve  any  problem as
quickly as possible.

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

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

Competition

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

                                      -4-
<PAGE>

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

Employees

      We and our Target subsidiary had approximately 260 full-time  employees as
of June 30, 2005. None of these employees are currently  covered by a collective
bargaining  agreement.  We have  experienced  no work stoppages and consider our
relations with our employees to be good.

Regulation

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

ITEM 2.  PROPERTIES

      As of June 30, 2005,  Target  leased  terminal  facilities  consisting  of
office and warehouse  space in 13 cities located in the United States,  and also
utilized 20 offices operated by exclusive agents.  These leased facilities range
in size from  approximately  1,000 square feet to  approximately  100,000 square
feet and consist of offices  and  warehouses  with  loading  bays.  All of these
properties are leased from third parties.  Our executive  offices are located in
Baltimore,  Maryland.  Target's  headquarters  are located  within the  terminal
facility in Los  Angeles,  California,  and  consists of  approximately  100,000
square feet of floor space leased pursuant to the terms of a lease which expires
in September 2005.  Effective October 1, 2005, Target's Los Angeles headquarters
and  terminal   facility  will   relocate  to  a  new  facility   consisting  of
approximately 108,000 square feet of floor space leased pursuant to the terms of
a lease which expires on September  2015.  Management  believes that our current
Company wide facilities are sufficient for our planned growth.

      We have an additional 12 terminal facilities in the following locations:

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


ITEM 3.  LEGAL PROCEEDINGS

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

                                      -5-
<PAGE>

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      None.


EXECUTIVE OFFICERS OF THE REGISTRANT

      The following is a listing of our executive  officers as of June 30, 2005.
There are no family  relationships  between any  Directors  and  Officers of the
Company.

NAME                                    AGE      POSITION

Stuart Hettleman....................     55      President and Chief Executive
                                                 Officer

Philip J. Dubato....................     49      Vice President, Chief Financial
                                                 Officer and Secretary

Christopher Coppersmith.............     55      President and Chief Executive
                                                 Officer, Target Logistic
                                                 Services, Inc.

STUART HETTLEMAN has been President,  Chief Executive  Officer and a director of
the Company since  February 7, 1996, and a director and Chairman of Target since
May 8, 1997.

PHILIP J. DUBATO has been Vice President,  Chief Financial Officer and Secretary
of the  Company  since  February  3, 1997 and a director  of the  Company  since
September  18, 1998.  From 1984  through  1996,  Mr.  Dubato was employed by LEP
Profit  International,  Inc., a domestic and  international  freight  forwarder,
where he held successive  positions as Controller,  Chief Financial  Officer and
Executive Vice President.

CHRISTOPHER COPPERSMITH has been President and Chief Executive Officer of Target
Logistic  Services,  Inc.  (acquired by the Company in May 1997) since  November
1996,  and a director of the Company since May 1997.  From 1974 through  October
1996, Mr.  Coppersmith was Executive Vice President and Chief Operating  Officer
of Target Airfreight, Inc.

                                      -6-
<PAGE>

                                     PART II


ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY,  RELATED STOCKHOLDER MATTERS
         AND ISSUER PURCHASES OF EQUITY SECURITIES

      Our  common  stock,  $.01 par value  (the  "Common  Stock")  trades on the
Over-The-Counter (OTC) market under the symbol TARG.

      The  following  table  shows the high and low sales  prices of the  Common
Stock for each of the quarters during the fiscal years  indicated,  as available
through the OTC market.  The quotations  represent prices between dealers and do
not  reflect  the  retailer  markups,  markdowns  or  commissions,  and  may not
represent actual transactions. There have been no dividends declared.


             Fiscal Year Ended June 30, 2005
             First Quarter                          High              $0.90
                                                    Low               $0.62

             Second Quarter                         High              $1.80
                                                    Low               $0.60

             Third Quarter                          High              $1.76
                                                    Low               $0.98

             Fourth Quarter                         High              $1.70
                                                    Low               $1.02
             Fiscal Year Ended June 30, 2004

             First Quarter                          High              $0.75
                                                    Low               $0.20

             Second Quarter                         High              $0.65
                                                    Low               $0.35

             Third Quarter                          High              $0.90
                                                    Low               $0.45

             Fourth Quarter                         High              $0.94
                                                    Low               $0.50



      On September 1, 2005 there were 602  shareholders  of record of our Common
Stock. The closing price of the Common Stock on that date was $1.50 per share.


                                      -7-
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

                             TARGET LOGISTICS, INC.
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                  ------------------------------------------------------------------
                                                     2005          2004           2003          2002          2001
<S>                                               <C>            <C>          <C>           <C>           <C>
Statement  of Operations Data:
    Operating revenue                             $  138,392     $ 126,089    $ 113,381      $  93,484    $   90,143
    Cost of transportation                            93,913        84,802       75,773         63,174        60,912
                                                  ----------     ---------    ---------      ---------    ----------
    Gross profit                                      44,479        41,287       37,608         30,310        29,231
    Selling, general & administrative expenses        41,025        39,526       36,941         29,969        30,655
    Depreciation and Amortization                        600           434         428           1,017           897
                                                  ----------     ----------   ---------      ---------    ----------
    Operating income (loss)                       $    2,854     $   1,327    $     239      $    (676)   $   (2,321)
    Other Income                                          --            --        1,448             --            --
    Net income (loss)                             $    1,561     $     540    $     840      $    (935)   $   (1,772)
    Net income (loss) per common share            $      .08     $     .02    $    0.04      $   (0.10)   $    (0.18)

Balance Sheet Data:
    Total assets                                  $   42,600     $  41,176    $  37,191      $  37,388    $   36,484
    Working capital                                    5,784         4,615          863             57           336
    Current liabilities                               23,005        23,282       21,551         22,293        20,440
    Long-term liabilities                                435            75           61             34            34
    Shareholders' equity                          $   19,160     $  17,818    $  15,579      $  15,061    $   16,010
</TABLE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

Forward-Looking Statements

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

Overview

      We generated  operating  revenues of $138.4 million,  $126.1 million,  and
$113.4  million,  and had net profits of $1.6 million,  $0.5  million,  and $.08
million for the fiscal years ended June 30, 2005, 2004, and 2003,  respectively.
Net income for the year ended June 30, 2003 includes $1,447,699 in non-recurring
reversals of accruals for expenses,  accruals for contingencies and accruals for
accounts payable of previously closed and sold subsidiaries

                                      -8-
<PAGE>

      We had earnings before  interest,  taxes,  depreciation  and  amortization
(EBITDA) of $3,454,132,  $1,760,276,  and $2,114,530, for the fiscal years ended
June 30, 2005, 2004, and 2003,  respectively.  EBITDA,  is a non-GAAP measure of
income and does not include the effects of interest and taxes,  and excludes the
"non-cash" effects of depreciation and amortization on current assets. Companies
have some discretion as to which elements of depreciation  and  amortization are
excluded in the EBITDA calculation.  We exclude all depreciation charges related
to  property,  plant and  equipment,  and all  amortization  charges,  including
amortization of goodwill,  leasehold  improvements and other intangible  assets.
While  management  considers  EBITDA useful in analyzing our results,  it is not
intended to replace any  presentation  included  in our  consolidated  financial
statements.

      For the  fiscal  year  ended  June 30,  2005,  the  revenue  of our Target
subsidiary  increased  by 9.8% when  compared  to the fiscal year ended June 30,
2004.  Target's gross profit margin (i.e.,  gross operating revenue less cost of
transportation  expressed as a percentage of gross operating  revenue) decreased
to 32.1% for the fiscal year ended June 30, 2005 from 32.7% for the prior fiscal
year.  This  decrease is primarily due to increased  international  ocean import
freight  volume which  historically  reflects a lower gross  profit  margin as a
percentage  of sales.  Management  continues  to  believe  that we must focus on
increasing   revenues  and  must  increase   gross  profit  margin  to  maintain
profitability.  Management  intends to  continue  to work on growing  revenue by
increasing sales generated by our currently  employed sales staff and additional
employed  sales  personnel,  sales  generated  by exclusive  forwarders,  and by
strategic acquisitions. Management also intends to continue to work on improving
Target's gross profit margins by reducing transportation costs.

Results of Operations

Years ended June 30, 2005 and 2004

      Operating  Revenue.  Operating revenue increased to $138.4 million for the
year ended June 30, 2005 from $126.1 million for the year ended June 30, 2004, a
9.8% increase.  Domestic  revenue  increased by 4.0% to $92,204,367 for the year
ended June 30,  2005 from  $88,621,984  for the prior  fiscal  year,  due to the
movement of larger size shipments. In addition,  international revenue increased
by 23.3% to $46,188,008  for the 2005 fiscal year from  $37,467,077 for the 2004
fiscal year, mainly due to increased international ocean import freight volume.

      Cost of  Transportation.  Cost of  transportation  increased  to  67.9% of
operating  revenue  for the year  ended June 30,  2005 from  67.3% of  operating
revenue for the 2004 fiscal year.  This  increase was primarily due to increased
international  ocean import freight volume which historically  reflects a higher
cost of transportation as a percentage of sales.

      Gross Profit. As a result of the factors described above, gross profit for
the 2005 fiscal year decreased to 32.1% from 32.7% of operating  revenue for the
2004 fiscal year, a 1.8% decrease.

      Selling,  General  and  Administrative  Expenses.   Selling,  general  and
administrative  expenses  decreased to 30.1% of  operating  revenue for the year
ended June 30, 2005 from 31.7% of  operating  revenue for the 2004 fiscal  year.
Within our Target  subsidiary,  selling,  general  and  administration  expenses
(excluding  exclusive  forwarder  commission  expense)  were 17.3% of  operating
revenue  for the 2005 fiscal  year and 18.0% for the 2004  fiscal  year,  a 3.9%
decrease.  This  decrease in selling,  general and  administrative  expense as a
percent of operating  revenue was partially  due to higher  revenue and variable
costs  which did not  increase  at the same rate as sales.  Exclusive  forwarder
commission  expense (which are primarily  commissions to our agents and earn-out
expenses from our acquisitions) was 11.5% and 12.7% of operating revenue for the
2005 and 2004 fiscal  years,  respectively,  a 9.4%  decrease  resulting  from a
reduction in forwarder agent gross profit margin.

      Net Profit.  As a result of the factors discussed above, we realized a net
profit of $1,561,138 for the year ended June 30, 2005,  compared to a net profit
of $540,142 for the year ended June 30, 2004.

Years ended June 30, 2004 and 2003

      Operating  Revenue.  Operating revenue increased to $126.1 million for the
year ended June 30, 2004 from $113.4 million for the year ended June 30, 2003, a
11.2% increase.  Domestic revenue  increased by 6.0% to $88,621,984 for the year
ended June 30,  2004 from  $83,610,134  for the prior  fiscal  year,  due to the
movement of larger size  shipments,  partially  offset by the elimination of our
Target  subsidiary's  consumer  direct  logistics  operation  at the end of last
fiscal  year.  In  addition,   international   revenue  increased  by  25.9%  to
$37,467,077 for the 2004 fiscal year from  $29,771,065 for the 2003 fiscal year,
mainly due to increased international air import freight volume.

                                      -9-
<PAGE>

      Cost of  Transportation.  Cost of  transportation  increased  to  67.3% of
operating  revenue  for the year  ended June 30,  2004 from  66.8% of  operating
revenue for the 2003 fiscal year.  This  increase was primarily due to increased
international  air import  freight volume which  historically  reflects a higher
cost of transportation as a percentage of sales.

      Gross Profit. As a result of the factors described above, gross profit for
the 2004 fiscal year decreased to 32.7% from 33.2% of operating  revenue for the
2003 fiscal year, a 1.5% decrease.

      Selling,  General  and  Administrative  Expenses.   Selling,  general  and
administrative  expenses  decreased to 31.7% of  operating  revenue for the year
ended June 30, 2004 from 33.0% of  operating  revenue for the 2003 fiscal  year.
Within our Target  subsidiary,  selling,  general  and  administration  expenses
(excluding  exclusive  forwarder  commission  expense)  were 18.0% of  operating
revenue  for the 2004 fiscal  year and 18.6% for the 2003  fiscal  year,  a 3.2%
decrease.  Exclusive  forwarder  commission  expense  was  12.7%  and  13.3%  of
operating revenue for the 2004 and 2003 fiscal years, respectively.

      Other Income.  Other income of $1,447,699 for the year ended June 30, 2003
is the result of a non-recurring reversal of accruals for expenses, accruals for
contingencies, and accounts payable of previously closed and sold subsidiaries.

      Net Profit.  For the year ended June 30, 2004, we realized a net profit of
$540,142, compared to a net profit of $839,500 for the year ended June 30, 2003.

Liquidity and Capital Resources

      General.  During the 2005 fiscal  year,  net cash  provided  by  operating
activities  was  $4,548,142.  Cash used in  investing  activities  was  $367,390
representing  capital  expenditures  and  the  ACI  stock  purchase  acquisition
discussed below and in Note 6 to the  consolidated  financial  statements.  Cash
used for financing  activities  was  $3,552,053,  which  primarily  consisted of
repayments under our line of credit.

      Capital  expenditures.  Capital expenditures for the 2005 fiscal year were
$367,390,  representing $243,107 of expenditure for property and equipment,  and
$124,283  (net  of  cash  acquired)  for  the  ACI  stock  purchase  acquisition
($1,000,000 cash payment on date of closing;  plus $40,059 in expenses  relating
to the  acquisition;  less $915,776 of cash  appearing on the Company's  balance
sheet at June 30, 2005 which is due the ACI shareholder's after winding down the
ACI balance  sheet,  payments to be made 30 days after the end of each quarter).
Refer to ACI's stock purchase  acquisition  discussed below and to Note 6 of the
consolidated financial statements.

      Effective October 1, 2005, Target's Los Angeles  headquarters and terminal
facility will relocate to a new facility  consisting  of  approximately  108,000
square feet of floor space leased pursuant to the terms of a lease which expires
on September  2015. In connection with this new facility,  the Company's  Target
subsidiary has a planned capital  expenditure of  approximately  $1.2 million to
build out the facility to meet Target's needs. These leasehold improvements will
be amortized over the ten-year life of the lease.

      GMAC Facility. On May 3, 2004, the Company's Target subsidiary amended its
$10 million  revolving  credit facility  ("GMAC  Facility") with GMAC Commercial
Finance LLC ("GMAC"),  guaranteed by the Company,  for a three-year  term ending
March 31, 2007. Under the new terms of the GMAC Facility,  Target can borrow (i)
the lesser of $13 million or 85% of eligible accounts  receivable for the period
beginning May 3, 2004 through March 31, 2005, and (ii) the lesser of $15 million
or 85% of eligible  accounts  receivable for the period  beginning April 1, 2005
through March 31, 2007. The interest rate of the amended facility,  which can be
adjusted  quarterly,  is either (i) prime  plus  three-quarters  of one  percent
(0.75%), or (ii) upon the achievement of certain financial  milestones (measured
quarterly,),  prime plus one-half of one percent  (0.50%).  The borrowings under
the GMAC  Facility are secured by a first lien on all of the  Company's  and its
subsidiaries' assets. As of June 30, 2005, there were outstanding  borrowings of
$4,348,649  under  the GMAC  Facility  (which  represented  29.8% of the  amount
available  thereunder)  out of a total amount  available for borrowing under the
GMAC Facility of approximately $14,605,614. We entered into the GMAC Facility on
January 16, 1997,  and  subsequently  extended  the  facility for an  additional
three-year  term and on September 20, 2002 for an additional  two-year  term. On
May 3, 2004,  the GMAC Facility was extended for an additional  three-year  term
ending March 31, 2007.

                                      -10-
<PAGE>

      Asset Purchase  Acquisitions.  On February 11, 2002, and October 13, 2002,
our Target subsidiary acquired the assets and certain liabilities of Air America
Freight  Service,  Inc., an Atlanta,  Georgia based  forwarder,  and Cassady Air
Transportation,  Inc., a Columbus, Ohio based forwarder,  respectively,  in each
instance for a combination  of an initial cash payment and an earn out structure
over five years.  The  earn-out  structures  are  strictly  dependent  on future
profits achieved at the location acquired,  and we have no minimum commitment or
obligation.  We do not expect that the  earn-out  payments  will have a material
impact on our liquidity.

      Stock Purchase  Acquisition.  On March 15, 2005, the Company  acquired the
stock of Air Cargo International and Domestic, Inc. ("ACI") for a combination of
(i) $1,000,000  cash payment on date of closing,  (ii) cash payment based on the
ACI shareholder's  equity after winding down the ACI balance sheet, and (iii) an
earn-out  structure based on certain future gross profit  achievements  over the
next five years. Any payments from the earn-out  structure will be considered an
increase to the purchase  price in the period such amount is  determinable.  The
Company has no minimum  commitment or obligation  under the earn-out or the wind
down of the  balance  sheet.  The  Company  does not  expect  that the  earn-out
payments will have a material  impact on its liquidity.  For additional  detail,
please  refer  to Note 6 to our  Notes  to the  Audited  Consolidated  Financial
Statements contained in this Annual Report.

      Working  Capital  Requirements.  The Company's and Target's cash needs are
currently met by the accounts receivable financing facility and cash on hand. As
of June 30, 2005, we had $10,256,965  available  under our $15 million  accounts
receivable  financing  facility  and  approximately   $6,525,577  in  cash  from
operations  and cash on hand.  We believe that our current  financial  resources
will be  sufficient  to finance our  operations  and  obligations  (current  and
long-term liabilities) for the long and short terms. However, our actual working
capital  needs for the long and short terms will depend upon  numerous  factors,
including our operating results,  the cost of increasing the Company's sales and
marketing  activities,  and,  competition,  none of which can be predicted  with
certainty.

Inflation

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

Contractual Obligations and Commitments

      Contractual Obligations and Commitments.  The following table presents, as
of June 30, 2005, our significant fixed and determinable contractual obligations
to third  parties  by payment  date.  Further  discussion  of the nature of each
obligation is included in Note 11 to the consolidated financial statements.

<TABLE>
<CAPTION>
                                                                      Payments Due by Fiscal Year
                                                                            (in thousands)
                                                                                                2010 and
                                                   2006        2007        2008       2009     thereafter      Total
                                                   ----        ----        ----       ----     ----------      -----
<S>                                              <C>         <C>         <C>        <C>          <C>          <C>
Amounts reflected in Balance Sheet:
         Capital lease obligations (1)           $   91      $   35      $    3         --           --       $   129
Other amounts not reflected in Balance Sheet:
         Operating leases (2)                     1,629       1,647       1,528      1,519        6,316        12,639
                                                 ------      ------      ------     ------       ------       -------
                  Total                          $1,720      $1,682      $1,531     $1,519       $6,316       $12,768
                                                 ------      ------      ------     ------       ------       -------
</TABLE>

(1) Capital lease obligations represent principal and interest payments.

(2) Operating   leases   represent   future   minimum   lease   payments   under
    non-cancelable  operating leases  (primarily the rental of premises) at June
    30, 2005. In accordance with accounting principles generally accepted in the
    United States, our operating leases are not recorded in our balance sheet.

                                      -11-
<PAGE>

Critical Accounting Policies

      Our accounting policies are more fully described in Note 2 of the Notes to
the Consolidated Financial Statements, starting on page F-7. As discussed there,
the preparation of financial statements in conformity with accounting principles
generally  accepted  in the  U.S.  requires  management  to make  estimates  and
assumptions  about  future  events  that  affect  the  amounts  reported  in the
financial  statements  and  accompanying  notes.  Since future  events and their
effects  cannot be determined  with absolute  certainty,  the  determination  of
estimates  requires the exercise of judgment.  Actual  results could differ from
those  estimates,   and  such  difference  may  be  material  to  the  financial
statements.   The  most  significant   accounting   estimates  inherent  in  the
preparation of our financial  statements include estimates as to the appropriate
carrying value of certain assets and liabilities  which are not readily apparent
from other  sources,  primarily  allowance for doubtful  accounts,  accruals for
transportation  and other direct costs,  accruals for cargo  insurance,  and the
classification  of net  operating  loss  and tax  credit  carryforwards  between
current and  long-term  assets.  Management  bases its  estimates on  historical
experience and on various  assumptions which are believed to be reasonable under
the  circumstances.  We  reevaluate  these  significant  factors  as  facts  and
circumstances   change.   Historically,   actual   results   have  not  differed
significantly from our estimates.

      During our fiscal  years ended June 30,  1997  through  2001,  we included
reserves for accrued expenses,  accounts payable and  contingencies  relating to
our subsidiaries that were either closed or sold. Following discussions with our
Audit Committee,  independent  auditors and Company counsel,  we determined that
those  reserves were no longer  necessary.  As a result,  during the fiscal year
ended June 30, 2003, we recognized  $1,447,699 of other income.  Had we not made
the  adjustment  during the 2003 fiscal year,  we would have reported a net loss
before taxes of $103,790 for the 2003 fiscal year.

      Our  balance  sheet  includes  an asset in the amount of  $11,725,823  for
purchased goodwill. In accordance with accounting pronouncements,  the amount of
this asset must be reviewed annually for impairment, written down and charged to
results of operations  in the period(s) in which the recorded  value of goodwill
is more than its fair  value.  We  obtained an  independent  valuation  analysis
completed in January 2005,  and based on the valuation,  we determined  that the
goodwill was not  impaired.  Had the  determination  been made that the goodwill
asset was impaired, the value of this asset would have been reduced by an amount
ranging from zero to $11,725,823, and our financial statements would reflect the
reduction.  For additional  description,  please refer to Note 2 to our Notes to
the audited Consolidated Financial Statements contained in this Annual Report.

New Accounting Pronouncements

      In  November  2004,  the FASB  issued SFAS No. 151  "Inventory  Costs,  an
amendment  of ARB No. 43,  Chapter  4". The  amendments  made by  Statement  151
clarify that abnormal amounts of idle facility expense, freight, handling costs,
and wasted materials  (spoilage) should be recognized as current-period  charges
and require the allocation of fixed  production  overheads to inventory based on
the normal capacity of the production facilities.  The guidance is effective for
inventory  costs  incurred  during fiscal years  beginning  after June 15, 2005.
Earlier  application  is permitted for inventory  costs  incurred  during fiscal
years beginning after November 23, 2004. This  pronouncement will not affect the
Company as the Company does not engage in these types of transactions.

      In December 2004,  the FASB issued SFAS No.153,  "Exchanges of Nonmonetary
Assets,  an  amendment  of  APB  Opinion  No.  29,  Accounting  for  Nonmonetary
Transactions."  The amendments  made by Statement 153 are based on the principle
that exchanges of nonmonetary  assets should be measured based on the fair value
of the assets exchanged.  Further, the amendments eliminate the narrow exception
for  nonmonetary  exchanges of similar  productive  assets and replace it with a
broader  exception  for  exchanges  of  nonmonetary  assets  that  do  not  have
commercial substance. Previously, Opinion 29 required that the accounting for an
exchange of a productive  asset for a similar  productive asset or an equivalent
interest in the same or similar productive asset should be based on the recorded
amount of the asset relinquished.  Opinion 29 provided an exception to its basic
measurement  principle (fair value) for exchanges of similar  productive assets.
The Statement is effective for nonmonetary  asset exchanges  occurring in fiscal
periods  beginning  after June 15, 2005.  Earlier  application  is permitted for
nonmonetary asset exchanges occurring in fiscal periods beginning after the date
of issuance.  The pronouncement  will not affect the Company as the Company does
not engage in these types of transactions.

                                      -12-
<PAGE>

      In December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
Payment".  Statement 123(R) will provide  investors and other users of financial
statements  with more complete and neutral  financial  information  by requiring
that the  compensation  cost relating to  share-based  payment  transactions  be
recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability  instruments issued.  Statement 123(R) covers a
wide range of share-based  compensation  arrangements  including  share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. Statement 123(R) replaces FASB Statement No. 123,
Accounting  for  Stock-Based  Compensation,  and  supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. Statement 123, as originally issued in
1995,  established  as preferable a  fair-value-based  method of accounting  for
share-based  payment  transactions  with  employees.   However,  that  Statement
permitted entities the option of continuing to apply the guidance in Opinion 25,
as long as the footnotes to financial statements disclosed what net income would
have been had the preferable  fair-value-based method been used. Public entities
filing as small business  issuers will be required to apply Statement  123(R) as
of the first interim or annual  reporting  period that begins after December 15,
2005.  The Company has evaluated the impact of the adoption of SFAS 123(R),  and
does not believe the impact will be significant to the Company's overall results
of operations or financial position.

      In  December  2004,  the  FASB  issued  two  Staff  Positions,  FSP  109-1
"Accounting  for Income  Taxes" to the tax  deduction on  "Qualified  Production
Activities  Provided by the  American  Job  Creation  Act of 2004",  and FSP FAS
109-2, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision  with the  American  Jobs  Creation  Act of  2004."  Neither  of these
pronouncements  had an effect on the Company as the Company does not participate
in the related activities.

      In March 2005, the staff of the SEC issued Staff  Accounting  Bulletin No.
107 ("SAB  107").  The  interpretations  in SAB 107  express  views of the staff
regarding  the  interaction  between  SFAS  123(R)  and  certain  SEC  rules and
regulations and provide the staff's views regarding the valuation of share-based
payment  arrangements  for public  companies.  In  particular  SAB 107  provides
guidance related to share-based  payment  transactions  with  nonemployees,  the
transition from public entity status,  valuation methods (including  assumptions
such as expected  volatility  and expected  term),  the  accounting  for certain
redeemable financial  instruments issued under share-based payment arrangements,
the  classification  of  compensation  expense,   non-GAAP  financial  measures,
first-time  adoption  of SFAS  123(R) in an interim  period,  capitalization  of
compensation cost related to share-based  payment  arrangements,  the accounting
for income tax effects of share-based payment arrangements upon adoption of SFAS
123(R),  the  modification  of employee  share options prior to adoption of SFAS
123(R) and  disclosures in  Management's  Discussion and Analysis  subsequent to
adoption of SFAS 123(R).

      In May 2005, the FASB issued SFAS No. 154,  "Accounting  Changes and Error
Corrections"  which  replaces  Accounting   Principles  Board  Opinions  No.  20
"Accounting  Changes" and SFAS No. 3, "Reporting  Accounting  Changes in Interim
Financial  Statements-An  Amendment  of APB Opinion  No. 28." SFAS 154  provides
guidance on the  accounting  for and reporting of  accounting  changes and error
corrections. It establishes retrospective application, or the latest practicable
date, as the required method for reporting a change in accounting  principle and
the reporting of a correction of an error.  SFAS 154 is effective for accounting
changes and  corrections of errors made in fiscal years beginning after December
15, 2005 and is  required  to be adopted by the Company in the first  quarter of
2006.

      On December  23,  2003,  the FASB issued FASB  Statement  No. 132 (Revised
2003),   "Employers'   Disclosures  about  Pensions  and  Other   Postretirement
Benefits".  This standard increases the existing GAAP disclosure requirements by
requiring  more details about  pension plan assets,  benefit  obligations,  cash
flows,  benefit  costs and related  information.  Companies  will be required to
segregate  plan assets by category,  such as debt,  equity and real estate,  and
provide certain  expected rates of return and other  informational  disclosures.
Statement 132R also requires  companies to disclose  various elements of pension
and  postretirement  benefit costs in  interim-period  financial  statements for
quarters  beginning  after  December 15, 2003.  The new standard  provides  that
companies with foreign plans may defer certain disclosures associated with those
plans until fiscal years ending after June 15, 2004. Finally,  like the original
Statement 132, the FASB permits reduced disclosures for nonpublic entities,  and
many  of the  additional  disclosures  required  of  nonpublic  entities  may be
deferred  until fiscal years ending after June 15, 2004. To assist  companies in
understanding  the new rules and their  purpose,  the FASB has also  issued FASB
Statement No. 132 (Revised  2003),  "Employers'  Disclosures  about Pensions and
Other Postretirement  Benefits,  Frequently Asked Questions".  In addition, FASB
Staff Position (FSP) FAS 106-1,  "Accounting and Disclosure Requirements Related
to the Medicare  Prescription Drug,  Improvement and Modernization Act of 2003",
addresses  certain  situations  with  respect to  employers  which  provide  for
prescription  drug  coverage as part of their  benefit  plans.  The FSP requires
additional  disclosures  beyond that  required by  Statement  132(R) and permits
companies  to  reflect  the  provisions  in FSP FAS 106-1 in  calendar  year-end
financial  statements in certain  situations.  FSP FAS 106-2, which has the same
title as FSP FAS 106-1,  supersedes FSP FAS 106-1 upon its effective  date. This
pronouncement  will not affect the  Company  as the  Company  does not engage in
these types of transactions.

                                      -13-
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Our  principal  financial  instrument  is  long-term  debt  under the GMAC
Facility which provides for an interest rate, that can be adjusted quarterly, of
either (i) prime plus  three-quarters  of one percent (0.75%),  or (ii) upon the
achievement of certain financial  milestones  (measured  quarterly),  prime plus
one-half  of one  percent  (0.50%).  We are  affected  by market  risk  exposure
primarily  through  the effect of changes in interest  rates on amounts  payable
under the GMAC Facility.  A significant  rise in the prime rate could materially
adversely affect our business, financial condition and results of operations. At
June 30, 2005, an aggregate principal amount of $4,348,649 was outstanding under
the GMAC  Facility  bearing  interest  at an annual rate of 6.5%.  If  principal
amounts  outstanding  under the GMAC Credit  Facility  remained at this year-end
level  for  an  entire  year  and  the  prime  rate   increased  or   decreased,
respectively, by 0.5%, we would pay or save, respectively, an additional $21,743
in interest in that year. We do not utilize derivative financial  instruments to
hedge against changes in interest rates or for any other purpose.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURES

      None.


ITEM 9A. CONTROLS AND PROCEDURES

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


ITEM 9B. OTHER INFORMATION

      None.


                                      -14-
<PAGE>

                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The  information  with respect to the identity and business  experience of
the  directors  of the Company and their  remuneration  set forth in the section
captioned "Election of Directors" in the Company's definitive Proxy Statement to
be filed  pursuant to  Regulation  14A and issued in  conjunction  with the 2005
Annual Meeting of Stockholders (the "Proxy Statement") is incorporated herein by
reference.  The information with respect to the identity and business experience
of  executive  officers of the Company is set forth in Part I of this Form 10-K.
The  information  with respect to the Company's  Audit Committee is incorporated
herein by reference to the section  captioned  "Meetings  and  Committees of the
Board of  Directors" in the Proxy  Statement.  The  information  with respect to
compliance  with Section  16(a) of the Exchange  Act is  incorporated  herein by
reference  to the  section  captioned  "Compliance  With  Section  16(a)  of the
Exchange  Act" in the Proxy  Statement.  The  information  with  respect  to the
Company's  Code of Ethics is  incorporated  herein by  reference  to the section
captioned "Code of Ethics" in the Proxy Statement.


ITEM 11. EXECUTIVE COMPENSATION

      The information  required by this item is incorporated herein by reference
to the sections captioned "Director  Compensation" and "Executive  Compensation"
in the Proxy Statement.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

      Equity  Compensation  Plan  Information.   The  following  table  provides
information,  as of June 30, 2005, with respect to all compensation arrangements
maintained by the Company under which shares of Common Stock may be issued:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Plan Category                        Number of securities     Weighted-average exercise      Number of securities
                                       to be issued upon        price of outstanding        remaining available for
                                          exercise of           options, warrants and        future issuance under
                                     outstanding options,              rights              equity compensation plans
                                      warrants and rights                                    (excluding securities
                                                                                           reflected in column (a))
----------------------------------------------------------------------------------------------------------------------
                                              (a)                        (b)                          (c)
----------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                          <C>                         <C>
Equity compensation plans
approved by security holders               686,957*                     $1.16                       820,000
----------------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders                     0                        0                            0
----------------------------------------------------------------------------------------------------------------------
              Total                        686,957*                     $1.16                       820,000
----------------------------------------------------------------------------------------------------------------------
</TABLE>

      * Of this amount,  680,000 shares are issuable pursuant to options granted
under the  Company's  1996 Stock  Option  Plan,  and 6,957  shares are  issuable
pursuant to options  otherwise  granted  prior to the Company's  initial  public
offering in 1996.

      The  balance  of the  information  required  by this item is  incorporated
herein  by  reference  to the  sections  captioned  "Beneficial  Ownership"  and
"Information Regarding Share Ownership of Management" in the Proxy Statement.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information  required by this item is incorporated herein by reference
to the section captioned "Transactions with Management" in the Proxy Statement.

                                      -15-
<PAGE>

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      The information  required by this item is incorporated herein by reference
to  the  section  captioned   "Independent  Public  Accountants"  in  the  Proxy
Statement.



                                      -16-
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)  1.  Financial Statements

                                                                            Page
Report of Registered Independent Public Accounting Firm                     F-1
Consolidated Balance Sheets as of June 30, 2005 and 2004                    F-2
Consolidated Statements of Operations for the Years Ended
   June 30, 2005, 2004, and 2003                                            F-3
Consolidated Statements of Shareholders' Equity for the
   Years Ended June 30, 2005, 2004, and 2003                                F-4
Consolidated Statements of Cash Flows for the Years Ended
   June 30, 2005, 2004, and 2003                                            F-5
Notes to Consolidated Financial Statements                                  F-7

(a)  2.  Financial Statement Schedules

Schedule II - Schedule of Valuation and Qualifying Accounts                 S-1

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

(a) 3. Exhibits required to be filed by Item 601 of Regulation S-K

Exhibit
No.
--------

3.1         Certificate of Incorporation of Registrant, as amended (incorporated
            by reference to Exhibit 3.1 to the Registrant's  Quarterly Report on
            Form 10-Q for the Quarter Ended March 31, 2004, File No. 0-29754)

3.2         By-Laws of  Registrant,  as amended  (incorporated  by  reference to
            Exhibit 3.2 to the  Registrant's  Quarterly  Report on Form 10-Q for
            the Quarter Ended December 31, 1998, File No. 0-29754)

4.1         Certificate of Designations with respect to the Registrant's Class C
            Preferred Stock (contained in Exhibit 3.1)

4.2         Certificate of Designations with respect to the Registrant's Class F
            Preferred Stock (contained in Exhibit 3.1)

10.1        1996 Stock Option Plan (incorporated by reference to Exhibit 10.1 to
            the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended
            March 31, 2003, File No. 0-29754)

10.2        Restated and Amended  Accounts  Receivable  Management  and Security
            Agreement,  dated as of July 13, 1998 by and between GMAC Commercial
            Credit  LLC,  as Lender,  and Target  Logistic  Services,  Inc.,  as
            Borrower,   and  guaranteed  by  the  Registrant   ("GMAC   Facility
            Agreement")  (incorporated  by  reference  to  Exhibit  10.2  to the
            Registrant's  Annual  Report on Form 10-K for the Fiscal  Year Ended
            June 30, 1999, File No. 0-29754)

10.3        Letter amendment to GMAC Facility Agreement,  dated January 25, 2001
            (incorporated  by  reference  to  Exhibit  10.3 to the  Registrant's
            Quarterly  Report on Form 10-Q for the Quarter  Ended  December  31,
            2000, File No. 0-29754)

10.4        Amendment  to GMAC  Facility  Agreement,  dated  September  20, 2002
            (incorporated  by  reference  to  Exhibit  10.4 to the  Registrant's
            Annual  Report on Form 10-K for the Fiscal Year Ended June 30, 2002,
            File No. 0-29754)

10.5        Amendment  to GMAC  Facility  Agreement,  dated  February  12,  2003
            (incorporated  by  reference  to  Exhibit  10.4 to the  Registrant's
            Quarterly  Report on Form 10-Q for the Quarter Ended March 31, 2003,
            File No. 0-29754)

10.6        Amendment   to  GMAC   Facility   Agreement,   dated   May  3,  2004
            (incorporated  by  reference  to  Exhibit  10.6 to the  Registrant's
            Quarterly  Report on Form 10-Q for the Quarter Ended March 31, 2004,
            File No. 0-29754)

10.7(P)     Lease Agreement for Los  Angeles Facility (incorporated by reference
            to  Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for
            the Year Ended June 30, 1997, File No. 0-29754)

10.8        Amendment to Lease Agreement for Los Angeles Facility  (incorporated
            by reference to Exhibit 10.9 to the  Registrant's  Annual  Report on
            Form 10-K for the Year Ended June 30, 2002, File No. 0-29754)

                                      -17-
<PAGE>

10.9        Lease  Agreement  for  new Los  Angeles  Facility,  to be  effective
            approximately  October 1, 2005  incorporated by reference to Exhibit
            10.9 to the  Registrant's  Quarterly  Report  on Form  10-Q  for the
            Quarter Ended March 31, 2005, File No. 0-29754)

14          Code of Business  Conduct and Ethics  (incorporated  by reference to
            Exhibit 14 to the  Registrant's  Annual  Report on Form 10-K for the
            Year Ended June 30, 2004, File No. 0-29754)

21          Subsidiaries of Registrant*

23          Consent of Stonefield Josephson, Inc.*

31.1        Rule 15d-14(a) Certification of Chief Executive Officer*

31.2        Rule 15d-14(a) Certification of Chief Financial Officer*

32.1        Section 1350 Certifications*

99.1        Press Release issued September 8, 2005*

* Filed herewith


                                      -18-
<PAGE>

                                   SIGNATURES

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


                                         TARGET LOGISTICS, INC.



Date:  September 8, 2005                 By:  /s/ Stuart Hettleman
                                            ------------------------------------
                                            Stuart Hettleman
                                            President


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

Signature                        Title                        Date
---------                        -----                        ----

 /s/ Stuart Hettleman            President, Chief Executive   September 8, 2005
------------------------------   Officer and Director
Stuart Hettleman


 /s/ Michael Barsa               Director                     September 8, 2005
------------------------------
Michael Barsa


 /s/ Stephen J. Clearman         Director                     September 8, 2005
------------------------------
Stephen J. Clearman


 /s/ Brian K. Coventry           Director                     September 8, 2005
------------------------------
Brian K. Coventry


 /s/ Christopher Coppersmith     Director                     September 8, 2005
------------------------------
Christopher Coppersmith


 /s/ Philip J. Dubato            Vice President, Chief        September 8, 2005
------------------------------   Financial Officer,
Philip J. Dubato                 Principal Accounting
                                 Officer and Director



                                      -19-
<PAGE>

             REPORT OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM


The Board of Directors
Target Logistics, Inc.
Baltimore, Maryland

We have audited the consolidated balance sheets of Target Logistics, Inc. (a
Delaware corporation) and subsidiaries, as of June 30, 2005 and 2004, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended June 30, 2005. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Target Logistics, Inc. and
subsidiaries, as of June 30, 2005 and 2004, and the results of its operations
and their consolidated cash flows for each of the three years in the period
ended June 30, 2005, in conformity with accounting principles generally accepted
in the United States of America.

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




/s/ Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS

Santa Monica, California
August 2, 2005


                                      F-1
<PAGE>

                             TARGET LOGISTICS, INC.
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                     ASSETS                                        June 30, 2005      June 30, 2004
                                                                                   -------------      -------------
<S>                                                                                <C>                <C>
CURRENT ASSETS:
Cash and cash equivalents                                                          $ 6,525,577        $ 5,896,878
Accounts receivable, net of allowance for doubtful accounts of
   $900,571 and $989,974, respectively                                              20,934,908         20,505,947
Deferred income taxes                                                                1,034,339          1,394,000
Prepaid expenses and other current assets                                              294,562            100,348
                                                                                   -----------        -----------
                                 Total current assets                               28,789,386         27,897,173
PROPERTY AND EQUIPMENT, NET                                                            337,031            386,138
OTHER ASSETS                                                                         1,747,478            977,700
DEFERRED INCOME TAXES                                                                       --            674,658
GOODWILL, net of accumulated amortization of $3,715,106                             11,725,823         11,239,917
                                                                                   -----------        -----------
                                 Total assets                                      $42,599,718        $41,175,586
                                                                                   ===========        ===========

                      LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable                                                                     5,534,452        $ 4,492,664
Accrued expenses                                                                     3,051,871          1,814,628
Accrued transportation expenses                                                      8,960,734          9,214,874
Line of credit                                                                       4,348,649          7,572,116
Deferred purchase price liability (Note 6)                                             757,840                  -
Dividends payable                                                                      109,916            110,472
Taxes payable                                                                          154,321             20,520
Lease obligation - current portion                                                      87,122             57,193
                                                                                   -----------        -----------
                                 Total current liabilities                          23,004,905         23,282,467
LEASE OBLIGATION -- LONG TERM                                                           36,539             74,950
DEFERRED TAX LIABILITY -- LONG TERM                                                    398,515                 --
                                                                                   -----------        -----------
                                 Total liabilities                                 $23,439,959        $23,357,417
                                                                                   -----------        -----------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Preferred Stock, $10 par value; 2,500,000 shares authorized, 319,946
   and 320,696 shares issued and outstanding, respectively                           3,199,460          3,206,960
Common Stock, $.01 par value; 30,000,000 shares authorized,
   16,569,729 and 16,562,229 shares issued and outstanding, respectively               165,697            165,622
Paid-in capital                                                                     26,293,190         26,285,765
Stock subscription note receivable                                                          --           (100,000)
Accumulated deficit                                                                 (9,853,783)       (11,095,373)
Less:  Treasury stock, 734,951 shares held at cost                                    (644,805)           644,805)
                                                                                   -----------        -----------
                                 Total shareholders' equity                         19,159,759         17,818,169
                                                                                    ----------        -----------
                                 Total liabilities and shareholders' equity        $42,599,718        $41,175,586
                                                                                   ===========        ===========
</TABLE>

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


                                      F-2
<PAGE>

                             TARGET LOGISTICS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                 Year Ended        Year Ended         Year Ended
                                                               June 30, 2005     June 30, 2004      June 30, 2003
                                                               --------------    -------------      -------------
<S>                                                             <C>                <C>                <C>
        OPERATING REVENUES:                                     $138,392,375       $126,089,061       $113,381,199

        COST OF TRANSPORTATION:                                   93,913,264         84,801,806         75,773,354
                                                                ------------       ------------       ------------

        GROSS PROFIT:                                             44,479,111         41,287,255         37,607,845
                                                                ------------       -------------      ------------

        SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
        ("SG&A"):
        SG&A - Target subsidiary                                  24,002,255         22,673,868         21,037,460
        SG&A - Target subsidiary
        (Exclusive forwarder commissions)                         15,920,706         16,019,795         15,119,649
        SG&A - Corporate                                           1,102,018            833,316            783,905
        Depreciation and amortization                                600,155            433,544            428,031
                                                                ------------      -------------       ------------
          Selling, general and administrative expenses            41,625,134         39,960,523         37,369,045
                                                                ------------      -------------       ------------

        Operating income                                           2,853,977          1,326,732            238,800

        OTHER INCOME (EXPENSE):
        Interest (expense)                                           (85,717)          (346,517)          (342,590)
        Other income                                                      --                 --          1,447,699
                                                                ------------      -------------       ------------

        Income (loss) before income taxes                          2,768,260            980,215          1,343,909
        Provision (benefit) for income taxes                       1,207,122            440,073            504,409
                                                                ------------      -------------       ------------
        Net income                                              $  1,561,138      $     540,142       $    839,500
                                                                ============      =============       ============

        Income per share attributable to common shareholders:
             Basic                                                     $0.08              $0.02              $0.04
                                                                       =====              =====              =====
             Diluted                                                   $0.07              $0.03              $0.04
                                                                       =====              =====              =====

        Weighted average shares outstanding:
             Basic                                                15,830,915         12,815,859         12,179,002
                                                                  ==========         ==========         ==========
             Diluted                                              21,489,990         18,622,651         20,673,589
                                                                  ==========         ==========         ==========
</TABLE>


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


                                      F-3
<PAGE>

                             TARGET LOGISTICS, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                FOR THE YEARS ENDED JUNE 30, 2005, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                              Stock
                                                               Additional  Subscription
                         Preferred Stock      Common Stock       Paid-In       Note        Treasury Stock        Accumulated
                         ---------------      ------------                                --------------
                       Shares    Amount    Shares    Amount     Capital   Receivable  Shares     Amount      Deficit      Total
                       ------    ------    ------    ------     -------   ----------  ------     ------      -------      -----
<S>                    <C>     <C>        <C>        <C>      <C>          <C>       <C>       <C>        <C>           <C>
Balance,
 June 30, 2002         320,696 $3,206,960 12,913,953 $129,139 $24,202,248         -- (734,951) $(644,805) $(11,833,013) $15,060,529

Cash dividends
 associated with
 the Class A and C
 Preferred Stock            --         --         --       --          --         --       --         --      (320,697)    (320,697)

Net income                  --         --         --       --          --         --       --         --       839,500      839,500
                       ------- ---------- ---------- -------- ----------- ---------- --------  ---------  ------------  -----------
Balance,
 June 30,  2003        320,696 $3,206,960 12,913,953 $129,139 $24,202,248         -- (734,951) $(644,805) $(11,314,210) $15,579,332
Cash dividends
 associated with
 the Class A, C and
 F Preferred Stock          --         --         --       --          --         --       --         --      (321,305)    (321,305)

Common Stock issued
 in conjunction
 with a private
 placement                  --         --  3,448,276   34,483   1,965,517         --       --         --            --    2,000,000

Common Stock issued
 pursuant to
 Subscription
 Agreement                  --         --    200,000    2,000     118,000         --       --         --            --      120,000

Stock subscription
 note receivable            --         --         --       --          --   (100,000)      --         --            --     (100,000)

Net income                  --         --         --       --          --         --       --         --       540,142      540,142
                       ------- ---------- ---------- -------- ----------- ---------- --------  ---------  ------------  -----------

Balance,
 June 30, 2004         320,696 $3,206,960 16,562,229 $165,622 $26,285,765  $(100,000)(734,951) $(644,805) $(11,095,373) $17,818,169
Cash dividends
 associated with the
 Class C and F
 Preferred Stock            --         --         --       --          --         --       --         --      (319,548)    (319,548)

Common Stock issued
 in conjunction
 with the conversion
 of Class C
 Preferred Stock          (750)    (7,500)     7,500       75       7,425         --       --         --            --           --

Stock subscription
 note receivable            --         --         --       --          --    100,000       --         --            --      100,000

Net income                  --         --         --       --          --         --       --         --     1,561,138    1,561,138
                       ------- ---------- ---------- -------- ----------- ---------- --------  ---------  ------------  ------------

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

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


                                      F-4
<PAGE>

                             TARGET LOGISTICS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                        Year Ended         Year Ended          Year Ended
                                                                       June 30, 2005      June 30, 2004      June 30, 2003
                                                                       -------------      -------------      -------------
<S>                                                                    <C>                <C>                 <C>
    CASH FLOWS FROM OPERATING ACTIVITIES:
      Net income                                                       $  1,561,138       $    540,142            839,500
      Bad debt expense                                                      409,679            941,791            702,446
      Depreciation and amortization                                         600,155            433,544            428,031
      Deferred income tax                                                 1,047,120            360,933            504,409
      Services performed pursuant to stock subscription agreement           100,000             20,000                 --
      Adjustments to reconcile net income (loss) to net cash used
         in operating activities-
         (Increase) decrease in accounts receivable                        (805,964)        (3,847,016)        (1,199,069)
         Decrease (increase) in prepaid expenses and other current            4,142             45,981            164,214
         assets
         (Decrease) increase  in other assets                              (137,852)           113,830           (179,142)
         Increase (decrease) in accounts payable and accrued              1,769,724          1,583,514         (2,209,574)
         expenses
                                                                       ------------       ------------       ------------

             Net cash provided by (used for) operating activities         4,548,142            192,719           (945,185)
                                                                       ------------       ------------       ------------

    CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of property and equipment                                  (243,107)          (135,569)          (265,160)
      Asset Purchase Acquisitions (Note 5)                                                                       (240,942)
                                                                                 --                 --
      Payment for purchase of ACI, net of cash acquired (Note 6)           (124,283)                                   --
                                                                       ------------       ------------       ------------
                                                                                                    --
              Net cash used for investing activities                       (367,390)          (135,569)          (506,102)
                                                                       -------------      ------------       ------------

    CASH FLOWS FROM FINANCING ACTIVITIES:
      Proceeds from Private Placement                                            --          2,000,000                 --
      Dividends paid                                                       (320,104)          (321,103)          (320,697)
      Borrowing from line of credit                                     139,317,134        118,933,320        113,843,212
      Repayment of line of credit                                      (142,540,601)      (118,816,403)      (112,381,488)
      (Payment)  proceeds of lease obligations                               (8,482)            44,869            (23,710)
                                                                       ------------       ------------       ------------
             Net cash (used for)  provided by financing activities       (3,552,053)         1,840,683          1,117,317
                                                                       ------------       ------------       ------------

             Net increase/(decrease) in cash and cash equivalents           628,699          1,897,833           (333,970)

    CASH AND CASH EQUIVALENTS, beginning of year                          5,896,878          3,999,045          4,333,015
                                                                       ------------       ------------       ------------
    CASH AND CASH EQUIVALENTS, end of year                             $  6,525,577       $  5,896,878       $  3,999,045
                                                                       ============       ============       ============

    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Cash paid during the year for:
      Interest                                                         $    258,348       $    385,823       $    412,334
      Income taxes                                                     $     30,792       $    148,120       $      3,740
</TABLE>


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

                                      F-5
<PAGE>

                             TARGET LOGISTICS, INC.
              CONSOLIDATED STATEMENTS OF CASH FLOWS -- (Continued)

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

<TABLE>
<CAPTION>
                                                                                    Year Ended        Year Ended       Year Ended
                                                                                   June 30, 2005    June 30, 2004     June 30, 2003
                                                                                   -------------    -------------     -------------
<S>                                                                                  <C>
Accrued purchase price liability - ACI                                               $757,840                 --               --

Deferred tax liability - ACI                                                         $400,000                 --               --

Conversion of 750 Class C Preferred Shares                                           $ (7,500)                --               --

Issuance of Common Stock for Conversion of 750 Class C Preferred Shares              $     75                 --               --

Issuance of 200,000 shares of Common Stock pursuant to Subscription Agreement              --           $120,000               --
</TABLE>







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


                                      F-6
<PAGE>

                             TARGET LOGISTICS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                            YEAR ENDED JUNE 30, 2005


1.    BUSINESS

Target Logistics,  Inc.  ("Company")  provides freight  forwarding  services and
logistics  services,  through  its  wholly  owned  subsidiary,  Target  Logistic
Services,  Inc.  ("Target").  The  Company has a network of offices in 33 cities
throughout  the United  States.  The  Company  was  incorporated  in Delaware in
January 1996 as the  successor  to  operations  commenced in 1970.  On March 15,
2005, the Company  acquired the stock of Air Cargo  International  and Domestic,
Inc. ("ACI"). Refer to Note 6 for a further description of the ACI acquisition.

The  Company's  freight  forwarding  services  involve  arranging  for the total
transport of customers'  freight from the shipper's  location to the  designated
recipients, including the preparation of shipping documents and the providing of
handling,  packing and  containerization  services.  The Company concentrates on
cargo shipments  weighing more than 50 pounds requiring time definite  delivery,
and has an average shipment  weighing  approximately  1,400 pounds.  The Company
also assembles bulk cargo and arranges for insurance.  The Company has a network
of offices in 33 cities throughout the United States, including exclusive agency
relationships in 20 cities.  The Company has  international  freight  forwarding
operations  with a  worldwide  agent  network  providing  coverage  in  over  70
countries.  The Company has developed several niches including fashion services,
the distribution of materials for the entertainment  industry,  and an expertise
in material supply logistics to manufacturing concerns.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Principles of Consolidation

For the fiscal year ended June 30, 2005, the consolidated  financial  statements
include  the  accounts  of  the  Company,   Target,   ACI,  and  other  inactive
subsidiaries.   For  the  fiscal  years  ended  June  30,  2004  and  2003,  the
consolidated  financial statements include the accounts of the Company,  Target,
and other  inactive  subsidiaries.  All  significant  intercompany  balances and
transactions have been eliminated upon consolidation.

Use of Estimates

In the process of preparing its consolidated  financial statements,  the Company
estimates the appropriate carrying value of certain assets and liabilities which
are not readily  apparent from other sources.  Management bases its estimates on
historical  experience  and on  various  assumptions  which are  believed  to be
reasonable  under  the  circumstances.  The  primary  estimates  underlying  the
Company's  consolidated  financial  statements  include  allowance  for doubtful
accounts, accruals for transportation and other direct costs, accruals for cargo
insurance,  and the classification of NOL and tax credit  carryforwards  between
current and long-term assets.

Property and Equipment

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


                                      F-7
<PAGE>

                             TARGET LOGISTICS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                            YEAR ENDED JUNE 30, 2005

Accounting for Long-Lived Assets

The Company accounts for long-lived  assets in accordance with the provisions of
Statement of Financial  Accounting  Standards ("SFAS") No. 144,  "Accounting for
the  Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed
Of." This statement establishes financial accounting and reporting standards for
the  impairment or disposal of long-lived  assets.  The statement  requires that
long-lived  assets be  reviewed  for  impairment  whenever  events or changes in
circumstances indicate that its carrying amount may be not be recoverable and is
measured by a  comparison  of the  carrying  amount of an asset to  undiscounted
future net cash flows  expected to be  generated  by the asset.  If the carrying
amount of an asset  exceeds its estimated  future  undiscounted  cash flows,  an
impairment  charge is recognized for the amount by which the carrying  amount of
the asset exceeds the fair value of the asset.  SFAS No. 144 requires  companies
to separately  report  discontinued  operations  and extends that reporting to a
component of an entity that either has been  disposed of (by sales,  abandonment
or in a distribution to owners) or is classified as held for sale.  Assets to be
disclosed  are reported at the lower of the  carrying  amount or fair value less
costs to sell. The Company adopted SFAS No. 144 on July 1, 2002.  Management has
performed  a  review  of all  long-lived  assets  and  has  determined  that  no
impairment of the respective carrying value has occurred as of June 30, 2005.

Goodwill

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

In July 2001,  the FASB  issued  SFAS No. 142,  "Goodwill  and Other  Intangible
Assets",  which requires the use of a  non-amortization  approach to account for
purchased goodwill and certain  intangibles.  The Company adopted this statement
on July 1, 2002.  Under the  non-amortization  approach,  goodwill  and  certain
intangibles  are not  amortized  into  results of  operations,  but  instead are
reviewed for impairment,  written down and charged to results of operations only
in periods in which the recorded  value of goodwill and certain  intangibles  is
more than its fair value. The Company obtained an independent valuation analysis
completed in January 2005,  and based on the valuation,  the Company  determined
that the goodwill was not impaired.

The independent  valuation analysis is dependent on a discounted seven-year cash
flow analysis.

The discounted cash flow analysis is dependent on the Company's  Target Logistic
Services,  Inc. ("Target")  subsidiary  achieving certain future results.  These
include the following major assumptions:  (a) Revenue growth of 10.0% for fiscal
2005,  7.5% for fiscal  2006 thru 2007 and 4.5% for fiscal  2008 thru 2011;  (b)
Gross Profit percentage  increasing from 32.0% in fiscal 2005 to 32.2% in fiscal
2006, to 32.4% in fiscal 2007 and thereafter;  (c) Operating expenses (excluding
forwarder  commissions) reducing from 16.2% in fiscal 2005 and 2006, to 16.1% in
fiscal 2007,  2008 and 2009, and to 16.0% in fiscal 2010 and 2011; and (d) a 16%
discount rate. While management believes that these are achievable, any downward
variation in these major  assumptions  or in any other portion of the discounted
cash flow analysis could negatively impact the overall valuation analysis.

The Company performs an annual valuation analysis. Based on the results of these
annual valuation analyses,  the Company's financial results could be impacted by
impairment of goodwill,  which could result in periodic write-downs ranging from
zero to $11,725,823.

Refer  to  Note 6 for a  discussion  of the  goodwill  associated  with  the ACI
acquisition.

Income Taxes

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

                                      F-8
<PAGE>

                             TARGET LOGISTICS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                            YEAR ENDED JUNE 30, 2005

Stock Options

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

The  Company  accounts  for  non-employee  stock-based  awards in which goods or
services are the consideration  received for the equity instruments issued based
on the fair value of the consideration  received or the fair value of the equity
instrument issued, whichever is more readily determinable.

The Company accounts for equity-based  awards granted to employees and directors
under APB Opinion No. 25 under which no  compensation  cost has been  recognized
for stock options  granted at market value (Note 3). Had  compensation  cost for
these stock options been determined  consistent with SFAS No. 123, the Company's
net income (loss) per share would have been decreased to the following pro forma
amounts:

<TABLE>
<CAPTION>
                                                      Year Ended            Year Ended           Year Ended
                                                     June 30, 2005        June 30, 2004         June 30, 2003
                                                     -------------        -------------         -------------
<S>                                                    <C>                     <C>                  <C>
    Net income (loss):
                            As Reported                $1,561,138              $540,142             $839,500
                            Pro Forma                  $1,507,739              $520,782             $820,140

    Basic EPS:
                            As Reported                     $0.08                 $0.02                $0.04
                            Pro Forma                       $0.08                 $0.02                $0.04

    Diluted EPS:
                            As Reported                     $0.07                 $0.03                $0.04
                            Pro Forma                       $0.07                 $0.03                $0.04
</TABLE>

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

Revenue Recognition

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

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

                                      F-9
<PAGE>

                             TARGET LOGISTICS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                            YEAR ENDED JUNE 30, 2005

Cash and Cash Equivalents

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

Per Share Data

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

Options to purchase 75,000, 95,000, and 590,000,  shares of common stock for the
years ended June 30, 2005, 2004 and 2003, respectively, were not included in the
computation  of diluted EPS because the  exercise  prices of those  options were
greater  than the  average  market  price of the  common  shares,  thus they are
anti-dilutive. The options were still outstanding at the end of the period.

Fair Value of Financial Instruments

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

Foreign Currency Transactions

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

Reclassifications

Certain amounts in the 2003 and 2004 consolidated financial statements have been
reclassified to conform with the 2005 presentation.

Recent Accounting Pronouncements

      In  November  2004,  the FASB  issued SFAS No. 151  "Inventory  Costs,  an
amendment  of ARB No. 43,  Chapter  4". The  amendments  made by  Statement  151
clarify that abnormal amounts of idle facility expense, freight, handling costs,
and wasted materials  (spoilage) should be recognized as current-period  charges
and require the allocation of fixed  production  overheads to inventory based on
the normal capacity of the production facilities.  The guidance is effective for
inventory  costs  incurred  during fiscal years  beginning  after June 15, 2005.
Earlier  application  is permitted for inventory  costs  incurred  during fiscal
years beginning after November 23, 2004. This  pronouncement will not affect the
Company as the Company does not engage in these types of transactions.

      In December 2004,  the FASB issued SFAS No.153,  "Exchanges of Nonmonetary
Assets,  an  amendment  of  APB  Opinion  No.  29,  Accounting  for  Nonmonetary
Transactions."  The amendments  made by Statement 153 are based on the principle
that exchanges of nonmonetary  assets should be measured based on the fair value
of the assets exchanged.  Further, the amendments eliminate the narrow exception
for  nonmonetary  exchanges of similar  productive  assets and replace it with a
broader  exception  for  exchanges  of  nonmonetary  assets  that  do  not  have
commercial substance. Previously, Opinion 29 required that the accounting for an
exchange of a productive  asset for a similar  productive asset or an equivalent
interest in the same or similar productive asset should be based on the recorded
amount of the asset relinquished.  Opinion 29 provided an exception to its basic
measurement  principle (fair value) for exchanges of similar  productive assets.
The Statement is effective for nonmonetary  asset exchanges  occurring in fiscal
periods  beginning  after June 15, 2005.  Earlier  application  is permitted for
nonmonetary asset exchanges occurring in fiscal periods beginning after the date
of issuance.  The pronouncement  will not affect the Company as the Company does
not engage in these types of transactions.

                                      F-10
<PAGE>

                             TARGET LOGISTICS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                            YEAR ENDED JUNE 30, 2005

      In December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
Payment".  Statement 123(R) will provide  investors and other users of financial
statements  with more complete and neutral  financial  information  by requiring
that the  compensation  cost relating to  share-based  payment  transactions  be
recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability  instruments issued.  Statement 123(R) covers a
wide range of share-based  compensation  arrangements  including  share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. Statement 123(R) replaces FASB Statement No. 123,
Accounting  for  Stock-Based  Compensation,  and  supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. Statement 123, as originally issued in
1995,  established  as preferable a  fair-value-based  method of accounting  for
share-based  payment  transactions  with  employees.   However,  that  Statement
permitted entities the option of continuing to apply the guidance in Opinion 25,
as long as the footnotes to financial statements disclosed what net income would
have been had the preferable  fair-value-based method been used. Public entities
filing as small business  issuers will be required to apply Statement  123(R) as
of the first interim or annual  reporting  period that begins after December 15,
2005.  The Company has evaluated the impact of the adoption of SFAS 123(R),  and
does not believe the impact will be significant to the Company's overall results
of operations or financial position.

      In  December  2004,  the  FASB  issued  two  Staff  Positions,  FSP  109-1
"Accounting  for Income  Taxes" to the tax  deduction on  "Qualified  Production
Activities  Provided by the  American  Job  Creation  Act of 2004",  and FSP FAS
109-2, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision  with the  American  Jobs  Creation  Act of  2004."  Neither  of these
pronouncements  had an effect on the Company as the Company does not participate
in the related activities.

      In March 2005, the staff of the SEC issued Staff  Accounting  Bulletin No.
107 ("SAB  107").  The  interpretations  in SAB 107  express  views of the staff
regarding  the  interaction  between  SFAS  123(R)  and  certain  SEC  rules and
regulations and provide the staff's views regarding the valuation of share-based
payment  arrangements  for public  companies.  In  particular  SAB 107  provides
guidance related to share-based  payment  transactions  with  nonemployees,  the
transition from public entity status,  valuation methods (including  assumptions
such as expected  volatility  and expected  term),  the  accounting  for certain
redeemable financial  instruments issued under share-based payment arrangements,
the  classification  of  compensation  expense,   non-GAAP  financial  measures,
first-time  adoption  of SFAS  123(R) in an interim  period,  capitalization  of
compensation cost related to share-based  payment  arrangements,  the accounting
for income tax effects of share-based payment arrangements upon adoption of SFAS
123(R),  the  modification  of employee  share options prior to adoption of SFAS
123(R) and  disclosures in  Management's  Discussion and Analysis  subsequent to
adoption of SFAS 123(R).

      In May 2005, the FASB issued SFAS No. 154,  "Accounting  Changes and Error
Corrections"  which  replaces  Accounting   Principles  Board  Opinions  No.  20
"Accounting  Changes" and SFAS No. 3, "Reporting  Accounting  Changes in Interim
Financial  Statements-An  Amendment  of APB Opinion  No. 28." SFAS 154  provides
guidance on the  accounting  for and reporting of  accounting  changes and error
corrections. It establishes retrospective application, or the latest practicable
date, as the required method for reporting a change in accounting  principle and
the reporting of a correction of an error.  SFAS 154 is effective for accounting
changes and  corrections of errors made in fiscal years beginning after December
15, 2005 and is  required  to be adopted by the Company in the first  quarter of
2006.

                                      F-11
<PAGE>

                             TARGET LOGISTICS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                            YEAR ENDED JUNE 30, 2005

      On December  23,  2003,  the FASB issued FASB  Statement  No. 132 (Revised
2003),   "Employers'   Disclosures  about  Pensions  and  Other   Postretirement
Benefits".  This standard increases the existing GAAP disclosure requirements by
requiring  more details about  pension plan assets,  benefit  obligations,  cash
flows,  benefit  costs and related  information.  Companies  will be required to
segregate  plan assets by category,  such as debt,  equity and real estate,  and
provide certain  expected rates of return and other  informational  disclosures.
Statement 132R also requires  companies to disclose  various elements of pension
and  postretirement  benefit costs in  interim-period  financial  statements for
quarters  beginning  after  December 15, 2003.  The new standard  provides  that
companies with foreign plans may defer certain disclosures associated with those
plans until fiscal years ending after June 15, 2004. Finally,  like the original
Statement 132, the FASB permits reduced disclosures for nonpublic entities,  and
many  of the  additional  disclosures  required  of  nonpublic  entities  may be
deferred  until fiscal years ending after June 15, 2004. To assist  companies in
understanding  the new rules and their  purpose,  the FASB has also  issued FASB
Statement No. 132 (Revised  2003),  "Employers'  Disclosures  about Pensions and
Other Postretirement  Benefits,  Frequently Asked Questions".  In addition, FASB
Staff Position (FSP) FAS 106-1,  "Accounting and Disclosure Requirements Related
to the Medicare  Prescription Drug,  Improvement and Modernization Act of 2003",
addresses  certain  situations  with  respect to  employers  which  provide  for
prescription  drug  coverage as part of their  benefit  plans.  The FSP requires
additional  disclosures  beyond that  required by  Statement  132(R) and permits
companies  to  reflect  the  provisions  in FSP FAS 106-1 in  calendar  year-end
financial  statements in certain  situations.  FSP FAS 106-2, which has the same
title as FSP FAS 106-1,  supersedes FSP FAS 106-1 upon its effective  date. This
pronouncement  will not affect the  Company  as the  Company  does not engage in
these types of transactions.

3. STOCK OPTION PLAN

In June 1996,  the Board of  Directors  of the  Company  adopted  the  Amertranz
Worldwide  Holding  Corp.  1996  Stock  Option  Plan  ("1996  Plan"),  which was
subsequently approved by shareholders.  The 1996 Plan authorizes the granting of
awards, the exercise of which would allow up to an aggregate of 1,000,000 shares
of the Company's common stock to be acquired by the holders of said awards.  The
awards can take the form of incentive  stock  options  ("ISOs") or  nonqualified
stock options ("NSOs") and may be granted to key employees,  officers, directors
and  consultants.  Any plan participant who is granted an Incentive Stock Option
and possesses  more than 10% of the voting  rights of the Company's  outstanding
common  stock must be granted an option  price at least 110% of the fair  market
value on the date of grant and the option  must be  exercised  within five years
from the date of grant.  Under the 1996 Plan, stock options have been granted to
employees and directors for terms of up to 10 years at exercise  prices  ranging
from $.10 to $6.00 and are  exercisable in whole or in part at stated times from
the date of grant up to ten  years  from the date of  grant.  At June 30,  2005,
657,957 stock options granted to employees and directors were exercisable.

Prior to the adoption of the 1996 Plan,  there were 224,399  options  granted to
purchase  common stock at exercise  prices ranging from $0.048 to $0.408.  These
options were granted pursuant to the terms of the Asset Exchange  Agreement.  At
each of June 30, 2005,  2004 and 2003,  6,957 of these options were  outstanding
and exercisable.

The following table reflects  activity under the plan for the three-year  period
ended June 30, 2005:

<TABLE>
<CAPTION>
                                       Year Ended June 30, 2005 Year Ended June 30, 2004    Year Ended June 30, 2003
                                       ------------------------ ------------------------    ------------------------
                                                   Weighted                  Weighted                     Weighted
                                                    Average                   Average                     Average
                                        Shares     Exercise      Shares      Exercise      Shares      Exercise Price
                                                     Price                     Price
<S>                                     <C>            <C>        <C>            <C>        <C>                 <C>
Outstanding at beginning of year        596,957        1.22       596,957        1.22       576,957             1.22
Granted                                 110,000        0.75            --          --        20,000             0.50
Exercised                                    --          --            --          --            --               --
Forfeited (by terminated employee)       20,000        0.50            --          --            --               --
Cancelled                                    --          --            --          --            --               --

Outstanding at end of year              686,957        1.16       596,957        1.22       596,957             1.22
Exercisable at end of year              657,957        1.19       522,957        1.32       437,957             1.48
</TABLE>

The per share weighted  average fair value of stock options  granted during 2005
and 2003 were $0.75 and  $0.20,  respectively.  No stock  options  were  granted
during 2004.

                                      F-12
<PAGE>

                             TARGET LOGISTICS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                            YEAR ENDED JUNE 30, 2005

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

                                                2005               2003
                                                ----               ----
          Risk-Free Interest Rates             4.67%               4.05%
          Expected Lives                          5                  5
          Expected Volatility                   270%                477%
          Expected Dividend Yields             0.00%               0.00%

No stock options were granted during 2004 so the  Black-Scholes  information has
not been presented.

The following table summarizes  information  about stock options  outstanding at
June 30, 2005:

<TABLE>
<CAPTION>
                              Options Outstanding                                    Options Exercisable
                          -------------------------------                       -----------------------------
                             Number      Weighted Average      Weighted           Number           Weighted
                          Outstanding        Remaining          Average         Exercisable        Average
Exercise Prices           at 6/30/05     Contractual Life    Exercise Price     at 6/30/05        at 6/30/05
---------------           -----------    ----------------    --------------     -----------       ----------
<C>     <C>                 <C>                <C>                <C>             <C>                 <C>
$0.04 - $1.13               611,957            5.89               $0.57           582,957             $0.58
$4.00 - $6.00                75,000            1.00               $6.00            75,000             $6.00
                            -------                                               -------
$0.04 - $6.00               686,957            5.40               $1.16           657,957             $1.19
                            =======                                               =======
</TABLE>

4. PROPERTY AND EQUIPMENT, NET

<TABLE>
<CAPTION>
                                                       June 30, 2005   June 30, 2004
                                                       -------------   -------------
<S>                                                     <C>             <C>
   Property and Equipment consists of the following:
      Furniture and fixtures                            $  936,320      $  888,419
      Furniture and fixtures - Capital Lease               257,713         153,173
      Computer Equipment                                   420,668         374,083
      Computer Equipment - Capital Lease                   623,134         623,134
      Computer Software                                    462,125         438,339
      Leasehold Improvements                               404,179         386,176
      Vehicles                                               2,500           2,500
                                                        ----------      ----------
                                                         3,106,639       2,865,824
      Less:  Accumulated depreciation and
             amortization (a)                           (2,769,608)     (2,479,686)
                                                        ----------      ----------
                                                        $  337,031      $  386,138
                                                        ==========      ==========
</TABLE>

(a) Includes  accumulated  depreciation and amortization of capital lease assets
    of  $700,395  and  $608,688  for the  year  ended  June 30,  2005 and  2004,
    respectively.

5.  ASSET PURCHASE ACQUISITIONS

On October 13, 2002,  the Company's  Target  subsidiary  acquired the assets and
certain liabilities of Cassady Air Transportation,  Inc., a Columbus, Ohio based
forwarder for a combination of an initial cash payment and an earn out structure
over five years.

On February 11, 2002, the company's  Target  subsidiary  acquired the assets and
certain  liabilities of Air America Freight Service,  Inc., an Atlanta,  Georgia
based  forwarder  for a  combination  of an initial cash payment and an earn out
structure over five years.

The earn-out structures are strictly dependent on future profits achieved at the
location acquired, and the Company has no minimum commitment or obligation.  The
Company does not expect that the earn-out  payments will have a material  impact
on its overall financial results.

                                      F-13
<PAGE>

                             TARGET LOGISTICS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                            YEAR ENDED JUNE 30, 2005

6. STOCK PURCHASE ACQUISITION

On March 15, 2005 the Company acquired the stock of Air Cargo  International and
Domestic,  Inc. ("ACI") for a combination of (i) $1,000,000 cash payment on date
of  closing,  (ii) cash  payment  based on the ACI  shareholder's  equity  after
winding down the ACI balance  sheet,  and (iii) an earn-out  structure  based on
certain future gross profit  achievements over the next five years. Any payments
from the earn-out structure will be considered an increase to the purchase price
in the period such amount is determinable. The Company has no minimum commitment
or  obligation  under the  earn-out or the wind down of the balance  sheet.  The
Company does not expect that the earn-out  payments will have a material  impact
on its liquidity.

The purchase price has been allocated as follows:

<TABLE>
<CAPTION>
         Purchase Price:
<S>                                                                                                 <C>
         Cash paid on closing date                                                                  $1,000,000
         Estimated additional cash payment to be paid based upon final ACI
           shareholder equity after wind down of balance sheet                                         757,840
         Expenses related to acquisition:  legal and accounting                                         40,059
                                                                                                    ----------
         Total purchase price                                                                       $1,797,899
                                                                                                    ----------

         Assets Purchased:

         Cash                                                                                         $686,795
         Accounts receivable                                                                         1,644,756
         Prepaid expenses and other current assets                                                     221,464
         Property and equipment, net                                                                    26,065
         Intangible assets:
           Customer relationships/non-compete agreements                                             1,000,000
         Goodwill                                                                                      485,906
                                                                                                    ----------
            Total assets purchased                                                                  $4,064,986
                                                                                                    ----------

         Less Liabilities Assumed:

         Accounts payable                                                                             (913,604)
         Accrued expenses                                                                             (953,483)
         Deferred tax liabilities                                                                     (400,000)
                                                                                                   ------------
           Total liabilities assumed                                                               $(2,267,087)
                                                                                                   ------------
</TABLE>

The  combination is being accounted for as a purchase as defined by Statement of
Financial  Accounting  Standards  No.  141,  Business  Combinations.  The  final
allocation of the excess  purchase price over net tangible assets was determined
based on management's  internal  valuation of the assets  purchased.  The values
assigned to intangible assets, aside from goodwill, are subject to amortization.
The  intangible  assets  were  assigned  the  following  lives for  amortization
purposes:

             Intangible Assets                                    Life in Years
             -----------------                                    -------------
             Customer relationships/non-compete agreements             7.0


Goodwill was not assigned a life and will be tested for impairment as defined by
Statement of Financial  Accounting  Standards No. 144, Accounting for Impairment
of Disposal of Long Lived Assets.

Pro forma results as if the  acquisition had taken place at the beginning of the
period have not been  presented  because they would not be materially  different
than the historical statements.

                                      F-14
<PAGE>

                             TARGET LOGISTICS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                            YEAR ENDED JUNE 30, 2005

7. OTHER ASSETS

<TABLE>
<CAPTION>
                                                 June 30, 2005                June 30, 2004
                                                 -------------                -------------
<S>                                              <C>                             <C>
Asset purchase acquisitions (a)                  $  263,793                      $528,878
Stock purchase acquisition (b)                      964,286                            --
Note receivable (c)                                 200,000                       200,000
Note receivable from overseas agent(d)                   --                       116,744
Security deposits (e)                               319,399                       132,078
                                                 ----------                      --------

  Total                                          $1,747,478                      $977,700
                                                 ----------                      --------
</TABLE>

(a)  Represents  the  remaining  amortization  associated  with  asset  purchase
     acquisitions (refer to Note 5).
(b)  Represents the remaining  amortization of intangible assets associated with
     the ACI stock purchase acquisition (refer to Note 6).
(c)  Represents a note  receivable  due from an independent  sales  organization
     representing  the  Company's  Target  subsidiary.  The note  receivable  is
     subject to interest at the prime rate with principal  repayments  made once
     the monthly  commission  payments  earned exceed an  established  threshold
     defined  in  the  agreement   between  Target  and  the  independent  sales
     organization,  upon  termination of the agreement,  or upon the sale of the
     rights under the agreement to Target.
(d)  Represents a note receivable due from an overseas  agent,  net of a $95,422
     reserve.  The note is  subject to  interest  at a rate of 7.0% and is for a
     four-year term. At June 30, 2005, $124,705, which is reflected as a current
     asset on the Company's Balance Sheet,  remains  outstanding under this note
     receivable.
(e)  Represents outstanding security deposits under lease obligations.

8.   DEBT

As of June 30, 2005 and 2004, long-term and short-term debt consisted of the
following:

                                         June 30, 2005           June 30, 2004
                                         -------------           -------------
         Asset-based financing             $4,348,649              $7,572,116
                                           ==========              ==========

During the years ended June 30, 2005 and 2004, the Company's  Target  subsidiary
("Borrower") maintained an Accounts Receivable Management and Security Agreement
with GMAC  Commercial  Credit LLC  ("GMAC")  whereby  the  Borrower  can receive
advances  of up to  85% of the  net  amounts  of  eligible  accounts  receivable
outstanding to a maximum of $13,000,000  since May 3, 2004 and $10,000,000 prior
to that date. Since May 3, 2004, the credit line ("GMAC Facility") is subject to
interest  at a rate of  either  (i) prime  plus  three-quarters  of one  percent
(0.75%), or (ii) upon the achievement of certain financial  milestones (measured
quarterly), prime plus one-half of one percent (0.50%), and prior to May 3, 2004
at a rate of prime plus one percent (1.0%). The prevailing prime rate as defined
by GMAC was 4.0% as of June 30, 2005 and 2004. Under the GMAC Facility and prior
to May 3, 2004, the interest rate could not be less than 5.0% per annum (and not
less than 6.0% prior to  September  20,  2002).  At June 30, 2005 and 2004,  the
outstanding  balance on the GMAC Facility was $4,348,649  and  $7,572,116  which
represented 30% and 60% of the approximate $14,605,614 and $12,723,945 available
thereunder, respectively. At June 30, 2005, the remaining amount available under
the GMAC Facility was approximately $10,256,965. GMAC has a security interest in
all present and future  accounts  receivable,  machinery and equipment and other
assets of the Borrower and the GMAC Facility is  guaranteed by the Company.  The
GMAC Facility expires on March 31, 2007.

9. SHAREHOLDERS' EQUITY

Preferred Stock

As of June 30, 2005, the authorized  preferred stock of the Company is 2,500,000
shares.  As of June 30, 2005,  319,946 shares of preferred stock are outstanding
as follows:

                                      F-15
<PAGE>

                             TARGET LOGISTICS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                            YEAR ENDED JUNE 30, 2005

<TABLE>
<CAPTION>
                                            Class A (a)      Class C (b)      Class F (c)          Total
                                            -----------      -----------      -----------          -----
<S>                                           <C>              <C>               <C>             <C>
          Balance at June 30, 2002            122,946          197,750                            320,696
               Issuances                           --               --                --                -
               Conversions                         --               --                --                -
                                             --------          -------           -------         --------

          Balance at June 30, 2003            122,946          197,750                --          320,696
               Issuances                           --               --           122,946          122,946
               Conversions                   (122,946)              --                --         (122,946)
                                             --------          -------           -------         --------

          Balance at June 30, 2004                 --          197,750           122,946          320,696

               Issuances                           --               --
               Conversions                         --              750                --              750
                                             --------          -------           -------         --------

          Balance at June 30, 2005                 --          197,000           122,946          319,946
                                             ========          =======           =======          =======
</TABLE>

(a) Class A Preferred  Stock. On July 3, 1996, the Company issued 200,000 shares
of Class A, non-voting, cumulative, convertible preferred stock with a par value
of $10.00 in exchange for a paydown of $2,000,000 on the $10,000,000  promissory
note.

The Class A Preferred Stock will pay cumulative cash dividends at an annual rate
of $1.00 per share in cash or, at the option of the Company,  in shares of Class
A Preferred  Stock,  at the rate of $10.00 per share.  The Company is prohibited
from paying any cash  dividends  on common  stock  unless all  required  Class A
Preferred  Stock dividends have been paid. Each share of Class A Preferred Stock
may be converted at any time, at the option of the holder,  into common stock at
a conversion  price (subject to adjustment) of the lower of (i) $6.00 per share,
or (ii) 80% of the  average  of the  closing  bid and  asked  price per share of
Common Stock on the day prior to the conversion  date.  Class A Preferred  Stock
holders are entitled to a  liquidation  preference  of $10.00 per share plus all
accrued and unpaid dividends.

On April 23,  2004,  all  outstanding  shares of Class A  Preferred  Stock  were
exchanged for 122,946 shares of Class F Preferred Stock.

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

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

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

                                      F-16
<PAGE>

                             TARGET LOGISTICS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                            YEAR ENDED JUNE 30, 2005

There were 750 shares of Class C Preferred  Stock  converted  into the Company's
Common  Stock  during  fiscal year ending June 30, 2005 and no shares of Class C
Preferred Stock were converted during fiscal year ending June 30, 2004.

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

10. OTHER INCOME

Other income of  $1,447,699  for the year ended June 30, 2003 is the result of a
non-recurring reversal of accruals for expenses, accruals for contingencies, and
accounts payable of previously closed and sold subsidiaries.

11. COMMITMENTS AND CONTINGENCIES

Leases

As of June 30,  2005,  future  minimum  lease  payments  for capital  leases and
operating leases relating to equipment and rental premises are as follows:

<TABLE>
<CAPTION>
                 YEAR ENDING                               CAPITAL LEASES           OPERATING LEASES
                 -----------                               --------------           ----------------
<S>                  <C>                                       <C>                    <C>
                     2006                                      91,388                 $1,629,182
                     2007                                      35,058                  1,647,126
                     2008                                       2,538                  1,527,866
                     2009                                          --                  1,519,446
                     2010 and thereafter                           --                  6,315,601
                                                             --------                  ---------

          Total minimum lease payments                        128,984                 $12,639,221
                                                                                      ===========
          Less - Amount representing interest                  (5,323)
                                                             --------
                                                             $123,661
</TABLE>

Employment Agreements

The Company has employment agreements with certain employees expiring at various
times through June 30, 2008. Such  agreements  provide for minimum salary levels
and for incentive  bonuses which are payable if specified  management  goals are
attained.  The  aggregate  commitment  for  future  salaries  at June 30,  2005,
excluding bonuses, was approximately $2,000,000.

Litigation

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

                                      F-17
<PAGE>

                             TARGET LOGISTICS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                            YEAR ENDED JUNE 30, 2005

12. SEGMENT INFORMATION

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

A reconciliation of the Company's  domestic and international  segment revenues,
gross profit,  and accounts  receivable for the years ended June 30, 2005,  2004
and 2003 is as follows:

<TABLE>
<CAPTION>
                                                    June 30, 2005            June 30, 2004      June 30, 2003
                                                    -------------            -------------      -------------
<S>                                                   <C>                  <C>                   <C>
      Domestic revenue                                $92,204,367           $88,621,984           $83,610,134
      International revenue                            46,188,008            37,467,077            29,771,065
                                                     ------------          ------------          ------------
                Total revenue                        $138,392,375          $126,089,061          $113,381,199
                                                     ------------          ------------          ------------

      Domestic gross profit                           $35,678,665           $33,504,353           $30,671,475
      International gross profit                        8,800,446             7,782,902             6,936,370
                                                     ------------          ------------          ------------
                Total gross profit                    $44,479,111           $41,287,255           $37,607,845
                                                     ------------          ------------          ------------

      Domestic accounts receivable                    $20,594,076           $20,050,781           $17,405,562
      International accounts receivable                 1,241,403             1,445,140             1,077,292
      Less: allowance for doubtful accounts              (900,571)             (989,974)             (882,132)
                                                     ------------          ------------          ------------
               Accounts receivable, net of
               allowance for doubtful accounts        $20,934,908           $20,505,947           $17,600,722
                                                     ------------          ------------          ------------
</TABLE>



                                      F-18
<PAGE>

                             TARGET LOGISTICS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                            YEAR ENDED JUNE 30, 2005

13. INCOME TAXES

The Company has tax net  operating  loss  carryforwards  of  approximately  $6.9
million  that  expire  from  2010  through  2022.  Use of some of the  losses is
restricted  due to a prior  ownership  change under  certain  provisions  of the
Internal Revenue Code. Certain net operating loss carryforwards for the State of
California were suspended for the years ending June 30, 2003 and 2004.

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

                                   Year Ended       Year Ended      Year Ended
                                  June 30, 2005   June 30, 2004    June 30, 2003
                                  -------------   -------------    -------------
     (In thousands)
     Current:
     State                            $ 160            $ 80             $ --
     Federal                             --              --               --

     Deferred:
     State                               --              --               --
     Federal                          1,047             360              504
                                     ------            ----             ----

     Net income tax expense          $1,207            $440             $504
                                     ------            ----             ----

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

<TABLE>
<CAPTION>
                                                                   Year Ended         Year Ended         Year Ended
                                                                 June 30, 2005      June 30, 2004      June 30, 2003
                                                                 -------------      -------------      -------------
(In thousands)
<S>                                                                  <C>                 <C>                <C>
Income tax (benefit) expense at U.S. statutory rate                  $  941               $333              $457

Non-deductible goodwill                                                  --                 --                --

Valuation Allowance                                                      45                 --               302

State tax (net of federal benefit)                                      160                 80                --

Non-deductible expenses                                                  61                 27              (255)
                                                                     ------               ----              ----

                                                                     $1,207               $440              $504
                                                                     ======               ====              ====
</TABLE>

The components of deferred income taxes are as follows:

<TABLE>
<CAPTION>
                                                                       Year Ended                  Year Ended
                                                                      June 30, 2005               June 30, 2004
                                                                      -------------               -------------
(In thousands)
<S>                                                                      <C>                          <C>
NOLs                                                                      $2,344                      $3,330
Tax credits                                                                  306                         304
Accrued amounts and other                                                    786                         732
Acquired customer relationships/non-compete agreements                      (386)                         --
                                                                         -------                      ------
                                                                           3,050                       4,366

Depreciation                                                                  34                          56
Amortization                                                                (104)                        (54)
                                                                         -------                      ------
                                                                           2,980                       4,368

Valuation allowance                                                       (2,344)                     (2,299)
                                                                         -------                      ------
                                                                         $   636                      $2,069
                                                                         =======                      ======
</TABLE>

                                      F-19
<PAGE>

                             TARGET LOGISTICS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                            YEAR ENDED JUNE 30, 2005

14. QUARTERLY FINANCIAL DATA SCHEDULE (unaudited)

<TABLE>
<CAPTION>
                                                                          Year Ended
                                                                         June 30, 2005
                                                                         -------------
                                            09/30/04        12/31/04        03/31/05        06/30/05      Fiscal Year
                                            --------        --------        --------        --------      -----------
<S>                                         <C>            <C>             <C>             <C>            <C>
Operating revenue                           $33,036,577    $37,223,219     $31,394,399     $36,738,180    $138,392,375
Cost of transportation                       22,687,132     25,526,615      21,010,858      24,688,659      93,913,264
                                            -----------    -----------     -----------     -----------    ------------
Gross profit                                 10,349,445     11,696,604      10,383,541      12,049,521      44,479,111
Selling, general & administrative
   expense                                    9,849,509     10,673,901       9,912,225      11,189,499      41,625,134
Interest (expense)                              (38,516)       (14,337)        (10,954)        (21,910)        (85,717)
Provision for income taxes                      215,697        463,125         195,468         332,832       1,207,122
                                            -----------    -----------     -----------     -----------    ------------
Net income (loss)                           $   245,723    $   545,241     $   264,894     $   505,280    $  1,561,138
                                            ===========    ===========     ===========     ===========    ============

Income (loss) per share
attributable to common shareholders:
                  Basic                         $0.01           $0.03           $0.01           $0.03          $0.08
                                                =====           =====           =====           =====          =====
                  Diluted                       $0.01           $0.03           $0.01           $0.02          $0.07
                                                =====           =====           =====           =====          =====
Weighted average shares outstanding:
                   Basic                   15,827,278       15,827,278      15,834,445      15,834,778     15,830,915
                                           ==========      ===========      ==========      ==========     ==========
                   Diluted                 21,469,959       21,469,959      21,510,082      21,490,100     21,489,990
                                           ==========      ===========      ==========      ==========     ==========

                                                                         Year Ended
                                                                        June 30, 2004
                                                                        -------------
                                            09/30/03        12/31/03        03/31/04        06/30/04     Fiscal Year
                                            --------        --------        --------        --------     -----------
Operating revenue                          $28,588,156     $33,033,922    $31,257,287      33,209,696   $126,089,061
Cost of transportation                      18,820,734      22,092,400     21,244,830      22,643,842     84,801,806
                                           -----------     -----------     ----------      ----------   ------------
Gross profit                                 9,767,422      10,941,522     10,012,457      10,565,854     41,287,255
Selling, general & administrative
   expense                                   9,584,651      10,570,142      9,684,267      10,121,463     39,960,523
Interest (expense)                             (90,084)        (92,332)       (96,323)        (67,778)      (346,517)
Provision for income taxes                      44,326         125,146        116,886         153,715        440,073
                                           -----------     -----------    -----------      ----------   ------------
Net income (loss)                               48,361         153,902        114,981         222,898        540,142
                                           ===========     ===========    ===========      ==========   ===========


Income (loss) per share
attributable to common shareholders:

                  Basic                             --              --           $0.01          $0.01           $0.02
                                           ===========     ===========    ============     ==========   =============

                  Diluted                           --           $0.01           $0.01          $0.01           $0.03
                                           ===========     ===========    ============     ==========   =============
Weighted average shares outstanding:
                   Basic                    12,179,002      12,179,002      12,179,002     14,740,427      12,815,859
                                           ===========     ===========    ============     ==========   =============

                   Diluted                  19,717,041      18,027,931      16,792,303     19,947,208      18,622,651
                                           ===========     ===========    ============     ==========   =============
</TABLE>


                                      F-20
<PAGE>

                                                                     SCHEDULE II

                  SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                      Balance at    Charged to     Charged to
                                                      Beginning      Costs and       Other                      Balance at
                                                       of Year       Expenses       Accounts     Deductions    End of Year
                                                       --------      --------       --------     ----------    -----------
<S>                                                    <C>            <C>             <C>          <C>            <C>
For the fiscal year ended June 30, 2003

  Allowance for doubtful accounts                      $    995       $   702         $   --       $  (815)       $  882
                                                       ========       =======         ======       =======        ======


For the fiscal year ended June 30, 2004

  Allowance for doubtful accounts                      $    882       $   942         $   --       $  (834)      $   990
                                                       =========      ========        ======       =======       =======

For the fiscal year ended June 30, 2005

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

</TABLE>



                                      S-1