**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-K**





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


oTransition
      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.
                Employerof
                incorporation or organization)
            
            Identification
                No.)500
                Harborview Drive, Third Floor, Baltimore, Maryland
            
            21230(Address
                of principal executive offices)
            
            (Zip
                Code)Registrant’s
                telephone number, including area code(410)
                332-1598




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


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




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





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





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


Yes
o No
x





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has been subject to
      such filing requirements for the past 90 days.


Yes
x  No o





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





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


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





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


Yes
o No
x





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





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







**TARGET
      LOGISTICS, INC.**


2007
      Annual REPORT ON FORM 10-K





Table
      of Contents





PagePART
                IItem
                1.
            Business
            3Item
                1A.
            Risk
                Factors
            6Item
                1B.
            Unresolved
                Staff Comments
            9Item
                2.
            Properties
            10Item
                3.
            Legal
                Proceedings
            10Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            11PART
                IIItem
                5.
            Market
                for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            12Item
                6.
            Selected
                Financial Data
            14Item
                7.
            Management’s
                Discussion and Analysis of Financial Conditions and Results of
                Operations
            14Item
                7A.
            Quantitative
                and Qualitative Disclosures About Market Risk
            19Item
                8.
            Financial
                Statements and Supplementary Data
            19Item
                9.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosures
            19Item
                9A.
            Controls
                and Procedures
            19Item
                9B.
            Other
                Information
            19PART
                IIIItem
                10.
            Directors,
                Executive Officers and Corporate Governance
            20Item
                11.
            Executive
                Compensation
            21Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            24Item
                13.
            Certain
                Relationships, Related Transactions and Director
                Independence
            26Item
                14.
            Principal
                Accountant Fees and Services
            26PART
                IVItem
                15.
            Exhibits
                and Financial Statement Schedules
            28Signatures
            30




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          2
          -


**PART
      I**





**ITEM1.**
            **BUSINESS**





**Background**





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





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





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





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




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




-
            3
            -





**Description
      of Business** :





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





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





**Operations**





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





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




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





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


-
          4
          -





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





**Customers
      and Marketing**





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





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





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





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





**Competition**





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





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





**Employees**





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


-
          5
          -





**Regulation**





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





**ITEM
              1A.**
            **RISK
                FACTORS**





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




**RISK
        FACTORS RELATING TO OUR BUSINESS GENERALLY**


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





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





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





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





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





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


-
          6
          -


We
      rely
      on other carriers to provide transportation facilities.





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





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


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


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


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





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





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





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





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





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





***We
      intend to continue expansion through acquisition.***





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





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


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


·
            that
                any expansion opportunities will be available upon reasonable terms.





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





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


·
            potential
                disruption of our ongoing business;


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          7
          -


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


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


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





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





***We
      are dependent upon key officers.***





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





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





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





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





***Substantially
      all of our assets are pledged to secure indebtedness.***





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





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





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


-
          8
          -


**RISK
      FACTORS RELATING TO OUR ARTICLES OF INCORPORATION AND OUR
      STOCK**





***The
      liability of our directors is limited.***





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





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





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





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





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





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





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





***The
      price of our Common Stock has historically been
      volatile.***





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





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





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





**ITEM
              1B.**
            **UNRESOLVED
                STAFF COMMENTS**





Not
      applicable.




-
          9
          -


**ITEM
              2.**
            **PROPERTIES**





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





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





Atlanta,
                Georgia
            Houston,
                TexasCharlotte,
                North Carolina
            Memphis,
                TennesseeChicago,
                Illinois
            Miami,
                FloridaColumbus,
                Ohio
            Newark,
                New JerseyDallas,
                Texas
            Albany,
                New YorkGreensboro,
                North Carolina
            New
                York, New YorkIndianapolis,
                Indiana




**ITEM
              3.**
            **LEGAL
                PROCEEDINGS**





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





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





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





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


-
          10
          -





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





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





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





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





None.




-
          11
          -


**PART
      II**





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





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





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




*Fiscal
                  Year Ended June 30, 2007*First
                  Quarter
              
              
              High
              
              $
              5.45Low
              
              $
              2.10Second
                  Quarter
              
              
              High
              
              $
              3.00Low
              
              $
              2.00Third
                  Quarter
              
              
              High
              
              $
              2.60Low
              
              $
              2.01Fourth
                  Quarter
              
              
              High
              
              $
              2.49Low
              
              $
              1.03*Fiscal
                  Year Ended June 30, 2006*First
                  Quarter
              
              
              High
              
              $
              1.80Low
              
              $
              1.15Second
                  Quarter
              
              
              High
              
              $
              2.80Low
              
              $
              1.05Third
                  Quarter
              
              
              High
              
              $
              3.15Low
              
              $
              2.01Fourth
                  Quarter
              
              
              High
              
              $
              3.60Low
              
              $
              2.00





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




-
          12
          -


**Performance
      Graph**





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











**Total
      Return Analysis**


6/30/2002
            
            6/30/2003
            
            6/30/2004
            
            6/30/2005
            
            6/30/2006
            
            6/30/2007**Target
                Logistics, Inc.**
            
            **$**
            **100.00**
            
            
            **250.00**
            
            
            **300.00**
            
            
            **416.67**
            
            
            **1,183.33**
            
            
            **660.00****Nasdaq
                Stock Market (U.S.)**
            
            **$**
            **100.00**
            
            
            **109.91**
            
            
            **139.04**
            
            
            **141.74**
            
            
            **155.82**
            
            
            **191.32****Peer
                Group**
            
            **$**
            **100.00**
            
            
            **100.30**
            
            
            **143.96**
            
            
            **159.62**
            
            
            **291.29**
            
            
            **254.25**





Source:
      Research Data Group, Inc.


-
          13
          -


**ITEM
              6.**
            **SELECTED
                FINANCIAL DATA**





**TARGET
      LOGISTICS, INC.**


**(in
      thousands, except per share data)**





2007
            
            2006
            
            2005
            
            2004
            
            2003**Statement
                of Operations Data:**Operating
                revenue
            
            $
            180,025
            
            $
            160,369
            
            $
            138,392
            
            $
            126,089
            
            $
            113,381Cost
                of transportation
            
            
            126,501
            
            
            110,098
            
            
            93,913
            
            
            84,802
            
            
            75,773Gross
                profit
            
            
            53,524
            
            
            50,271
            
            
            44,479
            
            
            41,287
            
            
            37,608Selling,
                general & administrative expenses
            
            
            49,763
            
            
            44,880
            
            
            41,025
            
            
            39,526
            
            
            36,941Depreciation
                and Amortization
            
            
            817
            
            
            616
            
            
            600
            
            
            434
            
            
            428Operating
                income
            
            $
            2,944
            
            $
            4,775
            
            $
            2,854
            
            $
            1,327
            
            $
            239Other
                Income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,448Net
                income
            
            $
            1,629
            
            $
            2,706
            
            $
            1,561
            
            $
            540
            
            $
            840Net
                income per common share
            
            $
            0.08
            
            $
            0.15
            
            $
            0.08
            
            $
            0.02
            
            $
            0.04**Balance
                Sheet Data:**Total
                assets
            
            $
            49,979
            
            $
            45,194
            
            $
            42,600
            
            $
            41,176
            
            $
            37,191Working
                capital
            
            
            7,811
            
            
            6,783
            
            
            5,727
            
            
            4,615
            
            
            863Current
                liabilities
            
            
            26,407
            
            
            22,958
            
            
            23,062
            
            
            23,282
            
            
            21,551Long-term
                liabilities
            
            
            274
            
            
            555
            
            
            378
            
            
            75
            
            
            61Shareholders’
                equity
            
            $
            23,304
            
            $
            21,681
            
            $
            19,160
            
            $
            17,818
            
            $
            15,579





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





**Forward-Looking
      Statements**





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





**Overview**





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


-
          14
          -




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





**Results
      of Operations**





***Years
      ended June 30, 2007 and 2006***





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





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





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





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





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





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


-
          15
          -





***Years
      ended June 30, 2006 and 2005***





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





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





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





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





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





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





**Liquidity
      and Capital Resources**





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





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





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





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


-
          16
          -


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





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





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





**Inflation**





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





**Contractual
      Obligations and Commitments**





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





Payments Due by Fiscal Year
              (in thousands)2008
            
            2009
            
            2010
            
            2011
            
            2012 and
              thereafter
            
            TotalAmounts
                reflected in Balance Sheet:Capital
                lease obligations (1)
            
            $
            128
            
            $
            126
            
            $
            52
            
            
            -
            
            
            -
            
            $
            306Other
                amounts not reflected in Balance Sheet:Operating
                leases (2)
            
            
            2,549
            
            
            2,587
            
            
            2,452
            
            
            2,150
            
            
            2,480
            
            
            12,218Total
            
            $
            2,677
            
            $
            2,713
            
            $
            2,504
            
            $
            2,150
            
            
            2,480
            
            $
            12,524





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


(2)
            Operating
                leases represent future minimum lease payments under non-cancelable
                operating leases (primarily the rental of premises) at June 30, 2007.
                In
                accordance with accounting principles generally accepted in the United
                States, our operating leases are not recorded in our balance
                sheet.




-
          17
          -


**Critical
      Accounting Policies and Estimates**





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





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





**New
      Accounting Pronouncements**




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




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




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




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


-
          18
          -





**ITEM
              7A.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**





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





**ITEM
              8.**
            **FINANCIAL
                STATEMENTS AND SUPPLEMENTARY
                DATA**





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





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





None.





**ITEM
              9A.**
            **CONTROLS
                AND PROCEDURES**





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





**ITEM
              9B.**
            **OTHER
                INFORMATION**





None.




-
          19
          -


**PART
      III**





**ITEM
              10.**
            **DIRECTORS,
                EXECUTIVE OFFICERS AND CORPORATE
                GOVERNANCE**





**Directors
      and Executive Officers**





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





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





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





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





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





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





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





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





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





**Compliance
      with Section 16(a) of the Exchange Act**





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





**Code
      of Ethics**





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


-
          20
          -





**Audit
      Committee**





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





**ITEM
              11.**
            **EXECUTIVE
                COMPENSATION**





**Introduction**





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





**Compensation
      Discussion and Analysis**





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





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





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





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





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


-
          21
          -





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





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





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





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





**Summary
      Compensation Table**





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


**Name and**
                **Principal Position**
              
              **Year**
              
              **Salary**
              
              **Bonus**
              
              **All Other**
                **Compensation**
              
              **Total****(a)**
              ****
              **(b)**
              ****
              **(c)**
              ****
              **(d)**
              ****
              **(i)**
              ****
              **(j)**Stuart
                  Hettleman
              
              2007
              
              $
              180,000
              
              $
              40,073
              
              $
              32,953
              (1)
              $
              253,026*President
                  and Chief**Executive
                  Officer*Philip
                  J. Dubato
              
              2007
              
              $
              169,399
              
              $
              24,044
              
              $
              20,749
              (2)
              $
              214,192*Vice
                  President, Chief**Financial
                  Officer*Christopher
                  A. Coppersmith
              
              2007
              
              $
              211,750
              
              $
              47,209
              
              $
              45,902
              (3)
              $
              304,861*President
                  of Target Logistic*S*ervices,
                  Inc*.*subsidiary*




-
          22
          -




(1)
            Mr.
              Hettleman’s “Other Compensation” consisted of: $4,171 as an employer
              matching contribution to Target Logistic Services, Inc. 401(K) Profit
              Sharing Plan; $6,000 for a car allowance; and $22,782 employee assistance
              program benefits under Target’s sponsored benefits plans available to all
              employees. (2)
            Mr.
                Dubato’s “Other Compensation” consisted of: $3,889 as an employer matching
                contribution to Target Logistic Services, Inc. 401(K) Profit Sharing
                Plan;
                $1,560 for a car allowance; and $15,300 employee assistance program
                benefits under Target’s sponsored benefits plans available to all
                employees.


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





**Potential
      Payments upon Termination or Change in Control**





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





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





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


-
          23
          -


**Director
      Compensation**





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





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




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




**Compensation
      Committee Interlocks and Insider Participation**





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





**Compensation
      Committee Report**





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





**COMPENSATION
      COMMITTEE**


Michael
      Barsa


Stephen
      J. Clearman


Brian
      K.
      Coventry





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





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


-
          24
          -


**Certain
      Beneficial Owners**





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




**Common
                  Stock**
              
              **Class
                  F Preferred Stock****Name
                  and Address**
                **of
                  Beneficial Owner**
              
              **Shares**
                **Beneficially**
                **Owned**
              
              **Percent**
                **of
                  Class**
              
              **Shares**
                **Beneficially**
                **Owned**
              
              **Percent**
                **of
                  Class**Wrexham
                  Aviation Corp.(1)
              
              
              8,958,235
              (2)
              
              42.4
              %
              
              122,946
              (2)
              
              100
              %TIA,
                  Inc.Richard
                  A. Swirnow
                112
                  East 25th Street
                Baltimore,
                  Maryland 21218Kinderhook
                  Partners, LP(3)
              
              
              3,334,138
              
              
              18.4
              %
              
              —
              
              
              —Kinderhook
                  GP, LLC
                Stephen
                  J. Clearman
                1
                  Executive Drive, Suite 160
                Fort
                  Lee, New Jersey 07024Christopher
                  A. Coppersmith
              
              
              1,770,130
              
              
              9.8
              %
              
              —
              
              
              —1400
                  Glenn Curtiss Street
                Carson,
                  California 90746





(1)
            Represents
                all of the Shares owned or controlled by TIA, Inc. (“TIA”) and includes
                3,073,650 shares of Common Stock issuable upon conversion by TIA
                of the
                122,946 outstanding shares of Class F Preferred Stock. All of the
                issued
                and outstanding stock of TIA is owned and controlled by Wrexham.
                Swirnow
                Airways Corp. (“Swirnow Airways”) owns 100% of the interests in Wrexham
                Aviation Corp. (“Wrexham”). Richard A. Swirnow is, indirectly, the
                controlling stockholder of Swirnow
                Airways.





(2)
            Stuart
                Hettleman, a Director and President of the Company, is an executive
                officer and non-controlling stockholder of Swirnow Airways and an
                executive officer of Wrexham and TIA. While Mr. Hettleman disclaimsbeneficialownership of all shares of Common Stock and Class F Preferred Stock
                owned
                by TIA and does not share voting and/or investment power over those
                shares, Mr. Hettleman has an indirect interest in 1,441,723 of the
                shares
                of Common Stock owned by TIA, 30,122 of the shares of Class F Preferred
                Stock owned by TIA, and 753,044 of the shares of Common Stock issuable
                upon conversion by TIA of outstanding shares of Class F Preferred
                Stock.
                See footnote (1) above.





(3)
            Includes
                options to purchase 10,000 shares of Common Stock granted to Mr.
                Clearman.
                The balance of the shares are owned directly by Kinderhook Partners,
                LP
                (“KPLP”).Kinderhook
                GP, LLC (“KGP”) is the general partner of KPLP, and Mr. Clearman, a
                director of the Company, is the managing member of KGP. KGP and Mr.
                Clearmanshare
                voting and investment power over the shares owned by KPLP, andown
                a 15.4% and 30.2%, respectively, direct and/or indirect interest
                in KPLP.
                KGP and Mr. Clearman each disclaimsbeneficialownership in the shares owned by KPLP except to the extent of their
                respective pecuniary interests
                therein.





**Management**





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


-
          25
          -





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





(1)
            Includes
                options to purchase 70,000 Shares.


(2)
            See
                “Certain Beneficial Owners” and footnote (3)
                thereunder.


(3)
            Does
                not include shares of Common Stock or Class F Preferred Stock owned
                by
                TIA. See “Certain Beneficial Owners” and footnotes (1) and (2)
                thereunder.





**Equity
      Compensation Plan Information**





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





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





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


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





**ITEM
              13.**
            **CERTAIN
                RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR
                INDEPENDENCE**





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





**ITEM14.**
            **PRINCIPAL
                ACCOUNTANT FEES AND
                SERVICES**





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




-
          26
          -


**Audit
      Fees**





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




**Audit
      Related Fees**





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




**Tax
      Fees**





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





**All
      Other Fees**





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





**Approval
      of Independent Auditor Services and Fees**





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


-
          27
          -




**PART
      IV**


**ITEM
                  15.**
                **EXHIBITS
                    AND FINANCIAL STATEMENT
                    SCHEDULES**





**(a)
              1.**
            **Financial
                Statements**




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




**(a)
              2.**
            **Financial
                Statement Schedules**




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




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





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




Exhibit
                  No.3.1
              
              Certificate
                  of Incorporation of Registrant, as amended (incorporated by reference
                  to
                  Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the
                  Quarter Ended March 31, 2004, File No. 0-29754)3.2
              
              By-Laws
                  of Registrant, as amended (incorporated by reference to Exhibit
                  3.2 to the
                  Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended December
                  31, 1998, File No. 0-29754)4.1
              
              Certificate
                  of Designations with respect to the Registrant’s Class C Preferred Stock
                  (contained in Exhibit 3.1)4.2
              
              Certificate
                  of Designations with respect to the Registrant’s Class F Preferred Stock
                  (contained in Exhibit 3.1)10.1
              
              1996
                  Stock Option Plan (incorporated by reference to Exhibit 10.1 to
                  the
                  Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended March 31,
                  2003, File No. 0-29754)10.2
              
              2005
                  Stock Option Plan (incorporated by reference to Exhibit 10.2 to
                  the
                  Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended December
                  31, 2005, File No. 0-29754)10.3
              
              Credit
                  Agreement, dated as of March 19, 2007 by and between Wells Fargo
                  Bank,
                  National Association, as Lender, and Target Logistic Services,
                  Inc., as
                  Borrower (“Wells Fargo Credit Agreement”) (incorporated by reference to
                  Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the
                  Quarter Ended March 31, 2007, File No. 0-29754)10.4
              
              Revolving
                  Line of Credit Note, dated March 19, 2007, made by Target Logistic
                  Services, Inc. with respect to the Wells Fargo Credit Agreement
                  (incorporated by reference to Exhibit 10.8 to the Registrant’s Quarterly
                  Report on Form 10-Q for the Quarter Ended March 31, 2007, File
                  No.
                  0-29754)10.5
              
              Continuing
                  Security Agreement: Rights to Payment, dated March 19, 2007, entered
                  into
                  by Target Logistic Services, Inc. with respect to the Wells Fargo
                  Credit
                  Agreement (incorporated by reference to Exhibit 10.9 to the Registrant’s
                  Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2007,
                  File
                  No. 0-29754)10.6
              
              Security
                  Agreement: Equipment, dated March 19, 2007, entered into by Target
                  Logistic Services, Inc. with respect to the Wells Fargo Credit
                  Agreement
                  (incorporated by reference to Exhibit 10.10 to the Registrant’s Quarterly
                  Report on Form 10-Q for the Quarter Ended March 31, 2007, File
                  No.
                  0-29754)10.7
              
              Continuing
                  Guaranty, dated March 19, 2007, entered into by the Registrant
                  with
                  respect to the Wells Fargo Credit Agreement (incorporated by reference
                  to
                  Exhibit 10.11 to the Registrant’s Quarterly Report on Form 10-Q for the
                  Quarter Ended March 31, 2007, File No.
                  0-29754)
  -
            28
            -
  10.8
              
              Lease
                  Agreement for Los Angeles Facility (incorporated by reference to
                  Exhibit
                  10.9 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter
                  Ended March 31, 2005, File No. 0-29754)14
              
              Code
                  of Business Conduct and Ethics (incorporated by reference to Exhibit
                  14 to
                  the Registrant’s Annual Report on Form 10-K for the Year Ended June 30,
                  2004, File No. 0-29754)21
              
              Subsidiaries
                  of Registrant (incorporated by reference to Exhibit 21 to the Registrant’s
                  Annual Report on Form 10-K for the Year Ended June 30, 2005, File
                  No.
                  0-29754)23
              
              Consent
                  of Stonefield Josephson, Inc.*31.1
              
              Rule
                  15d-14(a) Certification of Chief Executive Officer*31.2
              
              Rule
                  15d-14(a) Certification of Chief Financial Officer*32.1
              
              Section
                  1350 Certifications*99.1
              
              Press
                  Release issued September 19,
                  2007*




*
      Filed
      herewith





-
          29
          -


**SIGNATURES**




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






TARGET
              LOGISTICS, INC.Date:
              September 19, 2007
            By:
            /s/
                Stuart HettlemanStuart
                HettlemanPresident





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




Signature
              
              Title
              
              Date/s/
                  Stuart Hettleman
              
              President,
                  Chief Executive
              
              September
                  19, 2007Stuart
                  Hettleman
              
              Officer
                    and Director/s/
                  Michael Barsa
              
              Director
              
              September
                  19, 2007Michael
                  Barsa/s/
                  Stephen J. Clearman
              
              Director
              
              September
                  19, 2007Stephen
                  J. Clearman/s/
                  Brian K. Coventry
              
              Director
              
              September
                  19, 2007Brian
                  K. Coventry/s/
                  Christopher Coppersmith
              
              Director
              
              September
                  19, 2007Christopher
                  Coppersmith/s/
                  Philip J. Dubato
              
              Vice
                  President, Chief
              
              September
                  19, 2007Philip
                  J. Dubato
              
              Financial
                  Officer,
                Principal
                  Accounting Officer
                and
                  Director/s/
                  David E. Swirnow
              
              Director
              
              September
                  19, 2007David
                  E. Swirnow




-
          30
          -


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





The
      Board
      of Directors


Target
      Logistics, Inc.


Baltimore,
      Maryland





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





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





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




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




/s/
      Stonefield Josephson, Inc.





Los
      Angeles, California


September
        17, 2007




F-1


**TARGET
      LOGISTICS, INC.**


**CONSOLIDATED
      BALANCE SHEETS**




June
                30, 2007
            
            June
                30, 2006**ASSETS**CURRENT
                ASSETS:Cash
                and cash equivalents
            
            $
            6,738,787
            
            $
            7,015,018Accounts
                receivable, net of allowance for doubtful accounts of$914,579
                and $503,288, respectively
            
            
            26,365,397
            
            
            21,595,301Deferred
                income taxes
            
            
            996,881
            
            
            825,101Prepaid
                expenses and other current assets
            
            
            117,594
            
            
            305,177Total
                current assets
            
            
            34,218,659
            
            
            29,740,597PROPERTY
                AND EQUIPMENT, NET
            
            
            2,367,505
            
            
            2,300,306OTHER
                ASSETS
            
            
            2,041,852
            
            
            1,279,862GOODWILL,
                net of accumulated amortization of $3,715,106
            
            
            11,351,402
            
            
            11,872,973Total
                assets
            
            $
            49,979,418
            
            $
            45,193,738**LIABILITIES
                AND SHAREHOLDERS’ EQUITY**CURRENT
                LIABILITIES:Accounts
                payable
            
            
            6,584,283
            
            
            6,499,771Accrued
                expenses
            
            
            2,691,218
            
            
            2,933,536Accrued
                transportation expenses
            
            
            12,691,711
            
            
            9,952,452Line
                of credit
            
            
            4,139,665
            
            
            2,493,787Deferred
                purchase price liability (Note 5)
            
            
            -
            
            
            207,840Dividends
                payable
            
            
            60,968
            
            
            60,801Taxes
                payable
            
            
            125,800
            
            
            678,000Lease
                obligation –
                current
                portion
            
            
            113,713
            
            
            131,342Total
                current liabilities
            
            
            26,407,358
            
            
            22,957,529LEASE
                OBLIGATION —
                LONG TERM
            
            
            163,093
            
            
            283,772DEFERRED
                TAX LIABILITY - LONG TERM
            
            
            105,193
            
            
            271,427Total
                liabilities
            
            $
            26,675,644
            
            $
            23,512,728COMMITMENTS
                AND CONTINGENCIESSHAREHOLDERS’
                EQUITY:Preferred
                Stock, $10 par value; 2,500,000 shares authorized, 122,946shares
                issued and outstanding
            
            
            1,229,460
            
            
            1,229,460Common
                Stock, $.01 par value; 30,000,000 shares authorized,18,811,868
                and 18,621,686 shares issued and outstanding, respectively
            
            
            188,117
            
            
            186,217Additional
                paid-in capital
            
            
            28,404,752
            
            
            28,289,402Accumulated
                deficit
            
            
            (5,873,750
            )
            
            (7,379,264
            )Less:
                 Treasury stock, 734,951 shares held at cost
            
            
            (644,805
            )
            
            (644,805
            )Total
                shareholders’ equity
            
            
            23,303,774
            
            
            21,681,010Total
                liabilities and shareholders’ equity
            
            $
            49,979,418
            
            $
            45,193,738





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





F-2


**TARGET
      LOGISTICS, INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**




Year
                EndedJune
                30, 2007
            
            Year
                EndedJune
                30, 2006
            
            Year
                EndedJune
                30, 2005OPERATING
                REVENUES:
            
            $
            180,024,892
            
            $
            160,368,570
            
            $
            138,392,375COST
                OF TRANSPORTATION:
            
            
            126,500,950
            
            
            110,098,043
            
            
            93,913,264GROSS
                PROFIT:
            
            
            53,523,942
            
            
            50,270,527
            
            
            44,479,111SELLING,
                GENERAL AND ADMINISTRATIVE EXPENSES (“SG&A”):SG&A
                - Target subsidiary
            
            
            32,876,495
            
            
            27,620,391
            
            
            24,002,255SG&A
                - Target subsidiary(Exclusive
                forwarder commissions)
            
            
            15,857,497
            
            
            15,874,335
            
            
            15,920,706SG&A
                –
                Corporate
            
            
            1,028,876
            
            
            1,384,180
            
            
            1,102,018Depreciation
                and amortization
            
            
            816,647
            
            
            616,310
            
            
            600,155Selling,
                general and administrative expenses
            
            
            50,579,515
            
            
            45,495,216
            
            
            41,625,134Operating
                income
            
            
            2,944,427
            
            
            4,775,311
            
            
            2,853,977OTHER
                EXPENSE:Interest
                expense
            
            
            (129,078
            )
            
            (126,516
            )
            
            (85,717
            )Income
                before income taxes
            
            
            2,815,349
            
            
            4,648,795
            
            
            2,768,260Provision
                for income taxes
            
            
            1,186,722
            
            
            1,943,197
            
            
            1,207,122Net
                income
            
            $
            1,628,627
            
            $
            2,705,598
            
            $
            1,561,138Preferred
                stock dividends
            
            
            123,113
            
            
            231,079
            
            
            319,548Net
                income applicable to common shareholders
            
            $
            1,505,514
            
            $
            2,474,519
            
            $
            1,241,590Income
                per share attributable to common shareholders:Basic
            
            $
            0.08
            
            $
            0.15
            
            $
            0.08Diluted
            
            $
            0.08
            
            $
            0.13
            
            $
            0.07Weighted
                average shares outstanding:Basic
            
            
            18,051,667
            
            
            16,223,353
            
            
            15,830,915Diluted
            
            
            21,480,385
            
            
            21,490,369
            
            
            21,489,990




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




F-3


**TARGET
      LOGISTICS, INC.**


**CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS’ EQUITY**


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




Preferred Stock
              
              Common Stock
              
              AdditionalPaid-In
              
              StockSubscriptionNote
              
              Treasury Stock
              
              AccumulatedShares
              
              Amount
              
              Shares
              
              Amount
              
              Capital
              
              Receivable
              
              Shares
              
              Amount
              
              Deficit
              
              TotalBalance,
                  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
              )
              $
              17,818,169Cash
                  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
              
              
              -
              
              
              -
              
              
              -
              
              
              100,000Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,561,138
              
              
              1,561,138Balance,
                  June 30, 2005
              
              
              319,946
              
              $
              3,199,460
              
              
              16,569,729
              
              $
              165,697
              
              $
              26,293,190
              
              
              -
              
              
              (734,951
              )
              $
              (644,805
              )
              $
              (9,853,783
              )
              $
              19,159,759Cash
                  dividends associated with the Class C and F Preferred
                  Stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (231,079
              )
              
              (231,079
              )Common
                  Stock issued in conjunction with the conversion of Class C Preferred
                  Stock
              
              
              (197,000
              )
              
              (1,970,000
              )
              
              1,970,000
              
              
              19,700
              
              
              1,950,300
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Stock
                  options exercised
              
              
              -
              
              
              -
              
              
              81,957
              
              
              820
              
              
              37,015
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              37,835Stock
                  option expense
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              8,897
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              8,897Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,705,598
              
              
              2,705,598Balance,
                  June 30, 2006
              
              
              122,946
              
              $
              1,229,460
              
              
              18,621,686
              
              $
              186,217
              
              $
              28,289,402
              
              
              -
              
              
              (734,951
              )
              $
              (644,805
              )
              $
              (7,379,264
              )
              $
              21,681,010Cash
                  dividends associated with the Class F Preferred Stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (123,113
              )
              
              (123,113
              )Stock
                  options exercised
              
              
              -
              
              
              -
              
              
              190,000
              
              
              1,900
              
              
              115,350
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              117,250Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,628,627
              
              
              1,628,627Balance,
                  June 30, 2007
              
              
              122,946
              
              $
              1,229,460
              
              
              18,811,686
              
              $
              188,117
              
              $
              28,404,752
              
              
              -
              
              
              (734,951
              )
              $
              (644,805
              )
              $
              (5,873,750
              )
              $
              23,303,774





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





F-4


**TARGET
      LOGISTICS, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





Year
                Ended
              June
                30, 2007
            
            Year
                Ended
              June
                30, 2006
            
            Year
                Ended
              June
                30, 2005CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            
            1,628,627
            
            $
            2,705,598
            
            $
            1,561,138Bad
                debt expense
            
            
            666,084
            
            
            220,154
            
            
            409,679Depreciation
                and amortization
            
            
            816,647
            
            
            616,310
            
            
            600,155Decrease
                in deferred tax liability
            
            
            (166,234
            )
            
            (69,945
            )
            
            -(Increase)
                decrease in deferred tax asset
            
            
            (171,780
            )
            
            152,095
            
            
            1,047,120Employee
                stock option expense
            
            
            -
            
            
            8,897
            
            
            -Services
                performed pursuant to stock subscription agreement
            
            
            -
            
            
            -
            
            
            100,000Adjustments
                to reconcile net income to net cash usedin
                operating activities(Increase)
                in accounts receivable
            
            
            (5,436,180
            )
            
            (880,547
            )
            
            (805,964
            )Decrease
                (increase) in prepaid expenses and other current assets
            
            
            487,872
            
            
            (10,615
            )
            
            4,142Decrease
                (increase) in other assets
            
            
            125,653
            
            
            188,433
            
            
            (137,852
            )(Increase)
                in goodwill resulting from earn-out due under ACI
                Acquisition
            
            
            -
            
            
            (147,150
            )
            
            -Increase
                in accounts payable and accrued expenses
            
            
            1,821,413
            
            
            2,362,381
            
            
            1,769,724Net
                cash (used for) provided by operating activities
            
            
            (
                227,898
            )
            
            5,145,611
            
            
            4,548,142CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchases
                of property and equipment
            
            
            (462,167
            )
            
            (1,858,298
            )
            
            (243,107
            )Asset
                purchase acquisition - DCI
            
            
            (
                69,120
            )
            
            -
            
            
            -Asset
                purchase acquisition - Capitaland
            
            
            (1,013,520
            )
            
            -
            
            
            -Payment
                for purchase of ACI, net of cash acquired (Note 6)
            
            
            -
            
            
            (550,000
            )
            
            (124,283
            )Net
                cash used for investing activities
            
            
            (1,544,807
            )
            
            (2,408,298
            
            
            (367,390
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Dividends
                paid
            
            
            (122,946
            )
            
            (280,194
            )
            
            (320,104
            )Stock
                options exercised
            
            
            117,250
            
            
            37,835
            
            
            -Net
                borrowing (repayment) from line of credit
            
            
            1,645,878
            
            
            (1,854,862
            )
            
            (3,223,467
            )Payment
                of lease obligations
            
            
            (143,708
            )
            
            (150,651
            )
            
            (8,482
            )Net
                cash provided by (used for) financing activities
            
            
            1,496,474
            
            
            (2,247,872
            )
            
            (3,552,053
            )Net
                (decrease) increase in cash and cash equivalents
            
            
            (276,231
            )
            
            489,441
            
            
            628,699CASH
                AND CASH EQUIVALENTS, beginning of year
            
            $
            7,015,018
            
            
            6,525,577
            
            
            5,896,878CASH
                AND CASH EQUIVALENTS, end of year
            
            $
            6,738,787
            
            $
            7,015,018
            
            $
            6,525,577SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:Cash
                paid during the year for:Interest
            
            $
            229,848
            
            $
            173,942
            
            $
            258,348Income
                taxes
            
            
            1,640,985
            
            $
            1,337,320
            
            $
            30,792





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




F-5


**TARGET
      LOGISTICS, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS —
      (Continued)**





SUPPLEMENTAL
      SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:





Year Ended
              June 30, 2007
            
            Year Ended
              June 30, 2006
            
            Year Ended
              June 30, 2005Conversion
                of 197,000 and 750 Class C Preferred Shares, respectively
            
            
            -
            
            $
            (1,970,000
            )
            $
            (7,500
            )Issuance
                of Common Stock for Conversion of 197,000 and 750 Class C Preferred
                Shares, respectively
            
            
            -
            
            $
            1,970,000
            
            $
            7,500Purchase
                of property and equipment under capital lease obligations
            
            
            -
            
            $
            442,104
            
            
            -Accrued
                purchase price liability - ACI
            
            
            -
            
            
            -
            
            $
            757,840Deferred
                tax liability - ACI
            
            
            -
            
            
            -
            
            $
            400,000





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





F-6




**TARGET
        LOGISTICS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **YEAR
        ENDED JUNE 30, 2007**
  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 34 cities throughout the
      United States. The Company was incorporated in Delaware in January 1996 as
      the
      successor to operations commenced in 1970. On March 15, 2005, the Company
      acquired the stock of Air Cargo International and Domestic, Inc. (“ACI”). Refer
      to Note 6 for a further description of the ACI Acquisition.




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





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




2.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES





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





F-7




**TARGET
        LOGISTICS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)**
 **YEAR
        ENDED JUNE 30, 2007**




*Principles
      of Consolidation*





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





*Use
      of Estimates*





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





*Property
      and Equipment*





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





*Accounting
      for Long-Lived Assets*





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





*Goodwill*





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





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





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





F-8


**TARGET
          LOGISTICS, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)**
 **YEAR
          ENDED JUNE 30, 2007**


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





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





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





*Allowance
      for Doubtful Accounts*





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





*Income
      Taxes*





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





*Share
      Based Compensation*





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





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





F-9


**TARGET
          LOGISTICS, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)**
 **YEAR
          ENDED JUNE 30, 2007**


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




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





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





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





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





*Revenue
      Recognition*





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





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




F-10


**TARGET
          LOGISTICS, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)**
 **YEAR
          ENDED JUNE 30, 2007**


*Cash
      and Cash Equivalents*





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





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





*Per
      Share Data*





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





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





*Fair
      Value of Financial Instruments*





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





*Foreign
      Currency Transactions*





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





*Reclassifications*





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





*Recent
      Accounting Pronouncements*




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




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




F-11


**TARGET
          LOGISTICS, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)**
 **YEAR
          ENDED JUNE 30, 2007**


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




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





3.
            STOCK
                OPTION PLAN





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





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





Year Ended June 30, 2007
            
            Year Ended June 30, 2006
            
            Year Ended June 30, 2005Shares
            
            WeightedAverageExercisePrice
            
            Shares
            
            WeightedAverageExercisePrice
            
            Shares
            
            WeightedAverageExercisePriceOutstanding
                at beginning of year
            
            
            520,000
            
            $
            0.59
            
            
            686,957
            
            $
            1.16
            
            
            596,957
            
            $
            1.22Granted
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            110,000
            
            $
            0.75Exercised
            
            
            190,000
            
            $
            0.62
            
            
            81,957
            
            $
            0.05-0.50
            
            
            -
            
            
            -Forfeited
            
            
            -
            
            
            -
            
            
            10,000
            
            
            0.50
            
            
            20,000
            
            $
            0.50Cancelled
            
            
            -
            
            
            -
            
            
            75,000
            
            
            6.00
            
            
            -
            
            
            -Outstanding
                at end of year
            
            
            330,000
            
            $
            0.58
            
            
            520,000
            
            $
            0.59
            
            
            686,957
            
            $
            1.16Exercisable
                at end of year
            
            
            330,000
            
            $
            0.58
            
            
            520,000
            
            $
            0.59
            
            
            657,957
            
            $
            1.19





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





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




F-12


**TARGET
          LOGISTICS, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)**
 **YEAR
          ENDED JUNE 30, 2007**


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




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





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





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





Options
                Outstanding
            
            
            
            Options
                ExercisableExercise
                Prices
            
            NumberOutstandingat
                6/30/07
            
            Weighted AverageRemainingContractual Life
            
            WeightedAverageExercise Price
            
            NumberExercisableat 6/30/07
            
            WeightedAverageExercise Price$0.50
                - $0.50
            
            
            250,000
            
            
            3.00
            
            $
            0.50
            
            
            250,000
            
            $
            0.50$0.75
                - $1.125
            
            
            80,000
            
            
            3.60
            
            $
            0.81
            
            
            80,000
            
            $
            0.81$0.50
                - $1.125
            
            
            330,000
            
            
            3.30
            
            $
            0.58
            
            
            330,000
            
            $
            0.58





4.
            PROPERTY
                AND EQUIPMENT, NET





June
                30, 2007
            
            June
                30, 2006Property
                and Equipment consists of the following:Furniture
                and fixtures
            
            
            774,582
            
            $
            542,011Furniture
                and fixtures - Capital Lease
            
            
            671,014
            
            
            671,014Computer
                Equipment
            
            
            594,967
            
            
            460,090Computer
                Equipment - Capital Lease
            
            
            623,134
            
            
            623,134Computer
                Software
            
            
            583,271
            
            
            492,232Leasehold
                Improvements
            
            
            1,620,829
            
            
            1,598,852Vehicles
            
            
            33,945
            
            
            2,5004,901,742
            
            
            4,389,833Less:
                Accumulated depreciation and amortization (a)
            
            
            (2,534,237
            )
            
            (2,089,527
            )2,367,505
            
            $
            2,300,306





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





5.
            ACQUISITIONS





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





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




F-13


**TARGET
          LOGISTICS, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)**
 **YEAR
          ENDED JUNE 30, 2007**


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





The
      revised purchase price allocation is as follows:




Purchase
                  Price:Cash
                  paid on closing date
              
              $
              1,000,000Estimated
                  additional cash payment to be paid based upon final ACI shareholder
                  equity
                  after wind down of balance sheet
              
              
              757,840Purchase
                  price adjustment
              
              
              (400,000
              )Expenses
                  related to acquisition: legal and accounting
              
              
              40,059Total
                  adjusted purchase price
              
              $
              1,397,899Assets
                  Purchased:Cash
              
              $
              686,795Accounts
                  receivable
              
              
              1,644,756Prepaid
                  expenses and other current assets
              
              
              221,464Property
                  and equipment, net
              
              
              26,065Intangible
                  assets:Customer
                  relationships/non-compete agreements
              
              
              925,906Total
                  assets purchased
              
              $
              3,504,986Less
                  Liabilities Assumed:Accounts
                  payable
              
              
              (913,604
              )Accrued
                  expenses
              
              
              (953,483
              )Deferred
                  tax liabilities
              
              
              (240,000
              )Total
                  liabilities assumed
              
              $
              (2,107,087
              )




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





6.
              OTHER
                  ASSETS





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





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




F-14


**TARGET
          LOGISTICS, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)**
 **YEAR
          ENDED JUNE 30, 2007**


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


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


(d)
            Represents
                outstanding security deposits under lease
                obligations.





7.
            DEBT





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





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





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





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





8.
            SHAREHOLDERS’
                EQUITY




*Preferred
      Stock*




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




F-15


**TARGET
          LOGISTICS, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)**
 **YEAR
          ENDED JUNE 30, 2007**


Class C (b)
            
            Class F (c)
            
            TotalBalance
                at June 30, 2004
            
            
            197,750
            
            
            122,946
            
            
            320,696Issuances
            
            
            -
            
            
            -
            
            
            -Conversions
            
            
            (750
            )
            
            -
            
            
            (750
            )Balance
                at June 30, 2005
            
            
            197,000
            
            
            122,946
            
            
            319,946Issuances
            
            
            -
            
            
            -
            
            
            -Conversions
            
            
            (197,000
            )
            
            -
            
            
            (197,000
            )Balance
                at June 30, 2006
            
            
            -
            
            
            122,946
            
            
            122,946Issuances
            
            
            -
            
            
            -
            
            
            -Conversions
            
            
            -
            
            
            -
            
            
            -Balance
                at June 30, 2007
            
            
            -
            
            
            122,946
            
            
            122,946





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





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





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





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





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





9.
            COMMITMENTS
                AND CONTINGENCIES





*Leases*





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




F-16


**TARGET
          LOGISTICS, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)**
 **YEAR
          ENDED JUNE 30, 2007**


YEAR
                ENDING
            
            CAPITAL LEASES
            
            OPERATING LEASES2008
            
            
            128,291
            
            
            2,548,9872009
            
            
            125,753
            
            
            2,587,0832010
            
            
            45,382
            
            
            2,451,5572011
            
            
            -
            
            
            2,150,0902012
                and thereafter
            
            
            -
            
            
            2,480,604Total
                minimum lease payments
            
            $
            299,426
            
            $
            12,218,321Less
                - Amount representing interest
            
            
            (22,620
            )$
            276,806





*Employment
      Agreements*





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




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




*Litigation*





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





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





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





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




F-17


**TARGET
          LOGISTICS, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)**
 **YEAR
          ENDED JUNE 30, 2007**


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





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





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





10.
            SEGMENT
                INFORMATION





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




F-18


**TARGET
          LOGISTICS, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)**
 **YEAR
          ENDED JUNE 30, 2007**


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





June 30, 2007
            
            June 30, 2006
            
            June 30, 2005Domestic
                revenue
            
            $
            122,120,923
            
            $
            108,037,189
            
            $
            92,204,367International
                revenue
            
            
            57,903,969
            
            
            52,331,381
            
            
            46,188,008Total
                revenue
            
            $
            180,024,892
            
            $
            160,368,570
            
            $
            138,392,375Domestic
                gross profit
            
            $
            42,889,245
            
            $
            40,373,628
            
            $
            35,678,665International
                gross profit
            
            
            10,634,697
            
            
            9,896,899
            
            
            8,800,446Total
                gross profit
            
            $
            53,523,942
            
            $
            50,270,527
            
            $
            44,479,111Domestic
                accounts receivable
            
            $
            25,967,543
            
            $
            21,119,742
            
            $
            20,594,076International
                accounts receivable
            
            
            1,312,433
            
            
            978,847
            
            
            1,241,403Less:
                allowance for doubtful accounts
            
            
            (914,579
            )
            
            (503,288
            )
            
            (900,571
            )Accounts
                receivable, net ofallowance
                for doubtful accounts
            
            $
            26,365,397
            
            $
            21,595,301
            
            $
            20,934,908





11.
            INCOME
                TAXES





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





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





Year
                EndedJune 30, 2007
            
            Year
                EndedJune 30, 2006
            
            Year
                Ended
              June 30, 2005(In
                thousands)Current:State
            
            
            286
            
            $
            407
            
            $
            160Federal
            
            
            1,239
            
            
            1,454
            
            
            -Deferred:State
            
            
            (139
            )
            
            -
            
            
            -Federal
            
            
            (199
            )
            
            82
            
            
            1,047Net
                income tax expense
            
            
            1,187
            
            $
            1,943
            
            $
            1,207




F-19


**TARGET
          LOGISTICS, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)**
 **YEAR
          ENDED JUNE 30, 2007**
  A
        reconciliation of income taxes between the statutory and effective tax rates
        on
        income before income taxes is as follows:




Year
                Ended
              June
                30, 2007
            
            Year
                Ended
              June
                30, 2006
            
            Year
                Ended
              June
                30, 2005(In
                thousands)Income
                tax (benefit) expense at U.S. statutory rate
            
            
            957
            
            $
            1,581
            
            $
            941Valuation
                Allowance
            
            
            -
            
            
            -
            
            
            45State
                tax (net of federal benefit)
            
            
            42
            
            
            259
            
            
            160Non-deductible
                expenses
            
            
            188
            
            
            103
            
            
            61$
            1,187
            
            $
            1,943
            
            $
            1,207





The
      components of deferred income taxes are as follows:




Year
                Ended
              June
                30, 2007
            
            Year
                Ended
              June
                30, 2006(In
                thousands)NOLs
            
            $
            2,344
            
            $
            2,344Accrued
                amounts and other
            
            
            703
            
            
            720Acquired
                customer relationships/non-compete agreements
            
            
            (97
            )
            
            (329
            )2,735
            
            
            2,735Depreciation
                and amortization
            
            
            92
            
            
            1633,236
            
            
            2,898Valuation
                allowance
            
            
            (2,344
            )
            
            (2,344
            )$
            892
            
            $
            554




F-20


**TARGET
          LOGISTICS, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)**
 **YEAR
          ENDED JUNE 30, 2007**


12.
            QUARTERLY
                FINANCIAL DATA SCHEDULE (unaudited)





Year Ended
              June 30, 200709/30/06
            
            12/31/06
            
            03/31/07
            
            06/30/07
            
            Fiscal
                YearOperating
                revenue
            
            $
            43,448,062
            
            $
            47,550,567
            
            $
            43,727,756
            
            $
            45,298,507
            
            $
            180,024,892Cost
                of transportation
            
            
            30,568,618
            
            
            33,644,422
            
            
            30,552,567
            
            
            31,735,343
            
            
            126,500,950Gross
                profit
            
            
            12,879,444
            
            
            13,906,145
            
            
            13,175,189
            
            
            13,563,164
            
            
            53,523,942Selling,
                general & administrativeexpense
            
            
            12,309,492
            
            
            12,790,870
            
            
            12,561,206
            
            
            12,917,947
            
            
            50,579,515Interest
                (expense)
            
            
            (33,249
            )
            
            (50,865
            )
            
            (34,177
            )
            
            (10,787
            )
            
            (129,078
            )Provision
                for income taxes
            
            
            259,751
            
            
            474,906
            
            
            239,656
            
            
            212,409
            
            
            1,186,722Net
                income (loss)
            
            $
            276,952
            
            $
            589,504
            
            $
            340,150
            
            $
            422,021
            
            $
            1,628,627Income
                (loss) per shareattributable
                to common shareholders:Basic
            
            $
            .0.02
            
            $
            0.03
            
            $
            0.02
            
            $
            0.02
            
            $
            0.08Diluted
            
            $
            .0.01
            
            $
            0.03
            
            $
            0.02
            
            $
            0.02
            
            $
            0.08Weighted
                average shares outstanding:Basic
            
            
            17,977,278
            
            
            18,076,735
            
            
            18,076,735
            
            
            18,076,735
            
            
            18,051,667Diluted
            
            
            21,480,385
            
            
            21,480,385
            
            
            21,480,385
            
            
            21,480,385
            
            
            21,480,385




Year
                Ended
              June 30, 200609/30/05
            
            12/31/05
            
            03/31/06
            
            06/30/06
            
            Fiscal
                YearOperating
                revenue
            
            $
            36,145,785
            
            $
            46,704,140
            
            $
            37,114,144
            
            $
            40,404,501
            
            $
            160,368,570Cost
                of transportation
            
            
            24,305,199
            
            
            32,497,640
            
            
            25,393,650
            
            
            27,901,554
            
            
            110,098,043Gross
                profit
            
            
            11,840,586
            
            
            14,206,500
            
            
            11,720,494
            
            
            12,502,947
            
            
            50,270,527Selling,
                general & administrativeexpense
            
            
            10,960,067
            
            
            12,439,383
            
            
            10,613,312
            
            
            11,482,454
            
            
            45,495,216Interest
                (expense)
            
            
            (34,083
            )
            
            (43,825
            )
            
            (40,611
            )
            
            (7,997
            )
            
            (126,516
            )Provision
                for income taxes
            
            
            369,358
            
            
            746,978
            
            
            456,929
            
            
            369,932
            
            
            1,943,197Net
                income (loss)
            
            $
            477,078
            
            $
            976,314
            
            
            609,642
            
            $
            642,564
            
            $
            2,705,598Income
                (loss) per share
              attributable
                to common shareholders:Basic
            
            $
            0.03
            
            $
            0.05
            
            $
            0.04
            
            $
            0.03
            
            $
            0.15Diluted
            
            $
            0.02
            
            $
            0.05
            
            $
            0.03
            
            $
            0.03
            
            $
            0.13Weighted
                average shares outstanding:Basic
            
            
            15,858,427
            
            
            16,070,811
            
            
            16,692,679
            
            
            17,886,735
            
            
            16,223,353Diluted
            
            
            21,470,288
            
            
            21,490,385
            
            
            21,490,385
            
            
            21,490,385
            
            
            21,490,369




F-21




SCHEDULE
      II





SCHEDULE
      OF VALUATION AND QUALIFYING ACCOUNTS


(in
      thousands)





Balance
                atBeginningof
                Year
            
            Charged
                toCosts andExpenses
            
            Charged
                toOtherAccounts
            
            Deductions
            
            Balance
                atEnd
                of YearFor
                the fiscal year ended June 30, 2005Allowance
                for doubtful accounts
            
            $
            990
            
            $
            410
            
            $
            -
            
            $
            (499
            )
            $
            901For
                the fiscal year ended June 30, 2006Allowance
                for doubtful accounts
            
            $
            901
            
            $
            220
            
            $
            -
            
            $
            (618
            )
            $
            503For
                the fiscal year ended June 30, 2007Allowance
                for doubtful accounts
            
            $
            503
            
            $
            666
            
            $
            -
            
            $
            (254
            )
            $
            915




S-1