- Quarterly Report (10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2008

[   ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from _____ to _____

Commission File Number: 000-33149

TRANSNATIONAL AUTOMOTIVE GROUP, INC.
(Name of small business issuer in its charter)

Nevada	76-0603927
(State or other jurisdiction of	(I.R.S. Employer Identification
Incorporation or organization	No.)

21800 Burbank Blvd., Suite 200, Woodland Hills, CA 91367
(Address of principal executive offices – Zip Code)

[phone]
(Registrant’s telephone number, including area code)

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

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

Large accelerated filer [   ]       Accelerated filer [   ]       Non-accelerated filer [   ]       Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [   ]    No [X]

As of October 20, 2008, the issuer had 51,679,036 shares of common stock outstanding.

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TRANSNATIONAL AUTOMOTIVE GROUP, INC.

FORM 10-Q QUARTERLY REPORT

FOR THE SIX MONTH PERIOD ENDED AUGUST 31, 2008

TABLE OF CONTENTS

Part I	Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets as of August 31, 2008 (Unaudited) and February 29, 2008	3
	Unaudited Consolidated Statements of Operations for three and six month periods ended August 31, 2008 and 2007	4
	Unaudited Consolidated Statements of Cash Flows for the six month periods ended August 31, 2008 and 2007	5
	Notes to Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis or Plan of Operation	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	24
Part II	Other Information	24
Item 1.	Legal Proceedings	24
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	Submission of Matters to a Vote of Security Holders	24
Item 5.	Other Information	24
Item 6.	Exhibits	24

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TRANSNATIONAL AUTOMOTIVE GROUP, INC.
CONSOLIDATED BALANCE SHEETS

		August 31,			February 29,
		2008			2008
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash & cash equivalents	$	273,556		$	578,105
Accounts receivable, net		51,274			-
Other receivables, net		1,753,167			665,693
Prepaid expenses, advances and deposits		278,759			315,133
Inventory, net of reserve for obsolesence		351,817			304,978
Total current assets		2,708,573			1,863,909
PROPERTY, BUSES & EQUIPMENT, net		5,040,504			6,300,415
TOTAL ASSETS	$	7,749,077		$	8,164,324
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	2,535,680		$	2,424,543
Deferred revenue		-			338,440
VAT and custom duty taxes payable to governmental agencies of Cameroon		1,634,292			3,377,287
Due to related parties		1,284,401			831,486
Notes payable, net of debt discount		260,000			110,000
Notes payable to related party, net of debt discount		2,815,000			2,815,000
Accrued interest (including $576,876 and $385,466 to related parties
as of August 31, 2008 and February 29, 2008, respectively)		604,693			403,792
Total current liabilities		9,134,066			10,300,548
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock, $.001 par value; 200,000,000 shares authorized;
51,679,036 and 51,179,036 shares issued and outstanding, respectively		51,679			51,179
Treasury (400,000 shares owned by subsidiary)		(100,000	)		(100,000	)
Additional paid in capital		16,137,286			15,837,786
Accumulated deficit		(17,866,569	)		(18,376,186	)
Other comprehensive gain - foreign currency		392,615			450,997
Total stockholders' deficit		(1,384,989	)		(2,136,224	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	7,749,077		$	8,164,324

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

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TRANSNATIONAL AUTOMOTIVE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

		For the Three Month Periods						For the Six Month Periods
		Ended August 31,						Ended August 31,
		2008			2007			2008			2007
NET REVENUE
Transportation services	$	2,053,217		$	1,510,455		$	3,967,826		$	2,543,465
Government subsidy		1,384,564			512,236			2,169,690			993,424
Other		132,575			111,075			243,071			176,920
Total revenue		3,570,356			2,133,766			6,380,587			3,713,809
COST OF REVENUE - Transportation services		2,488,681			1,916,048			5,041,138			3,088,990
GROSS PROFIT		1,081,675			217,718			1,339,449			624,819
OPERATING EXPENSES
Sales and marketing		17,147			30,084			56,643			103,399
General and administrative		1,092,276			1,227,201			2,263,932			2,412,546
Stock based compensation		-			-			300,000			-
Depreciation and amortization		32,494			25,230			66,441			40,764
Foreign currency exchange gain		-			(109,482	)		-			(166,667	)
TOTAL OPERATING EXPENSES		1,141,917			1,173,033			2,687,016			2,390,042
OPERATING LOSS		(60,242	)		(955,315	)		(1,347,567	)		(1,765,223	)
OTHER (INCOME) EXPENSE
Gain on extinguishment of government debt		(2,057,291	)		-			(2,057,291	)		-
Finance costs from beneficial conversion feature		-			109,704			-			121,982
Finance costs from issuance of warrants		-			430,241			-			950,667
Loss on accident of buses		-			29,837			-			63,274
Interest expense		101,704			266,965			200,901			611,798
Interest income		(45	)		(7,719	)		(794	)		(7,721	)
TOTAL OTHER (INCOME) EXPENSE		(1,955,632	)		829,028			(1,857,184	)		1,740,000
NET INCOME (LOSS)		1,895,390			(1,784,343	)		509,617			(3,505,223	)
COMPREHENSIVE INCOME (LOSS)
Unrealized foreign currency translation gain (loss)		(135,152	)		-			(58,382	)		-
COMPREHENSIVE INCOME (LOSS)	$	1,760,238		$	(1,784,343	)	$	451,235		$	(3,505,223	)
NET INCOME (LOSS) PER SHARE: BASIC	$	0.04		$	(0.04	)	$	0.01		$	(0.09	)
NET INCOME (LOSS) PER SHARE: DILUTIVE	$	0.04		$	(0.04	)	$	0.01		$	(0.09	)
SHARES USED IN PER SHARE CALCULATION:
BASIC		51,679,036			43,100,815			51,439,906			40,288,938
DILUTED		51,679,036			43,100,815			51,439,906			40,288,938

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

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TRANSNATIONAL AUTOMOTIVE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		For the Six Month Periods
		Ended August 31,
		2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	509,617		$	(3,505,223	)
Adjustments to reconcile net income (loss) to net cash used in
operating activities
Gain on extinguishment of debt		(2,057,291	)		-
Non-cash financing costs		-			577,188
Depreciation and amortization expense		1,332,798			774,997
Stock based compensation		300,000			-
Finance costs from beneficial conversion feature		-			121,982
Finance costs from issuance of warrants		-			950,667
Loss on accident of buses		-			63,274
(Increase) decrease in:
Accounts receivable, net		(51,274	)		-
Other receivables, net		(1,167,524	)		(565,317	)
Prepaid expenses, advances and deposits		29,101			(86,818	)
Inventory, net of reserve for obsolescence		(57,512	)		(163,192	)
Increase (decrease) in:
Accounts payable and accrued expenses		369,219			557,619
VAT and custom duty taxes payable to governmental agencies of Cameroon		308,644			-
Deferred revenue		(347,973	)		-
Net cash used in operating activities		(832,195	)		(1,274,823	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, buses and equipment		(171,243	)		(1,629,076	)
Net cash used in investing activities		(171,243	)		(1,629,076	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from related parties		452,915			222,832
Proceeds from issuance of unsecured promissory notes		150,000			1,150,000
Proceeds from issuance of common stock and warrants		-			3,677,500
Proceeds from stock subscriptions		-			550,000
Repayment of obligations under capital lease		-			(800,000	)
Net cash provided by financing activities		602,915			4,800,332
EFFECT OF EXCHANGE RATE ON CASH		95,974			-
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS		(304,549	)		1,896,433
CASH & CASH EQUIVALENTS AT BEGINNING OF YEAR		578,105			-
CASH & CASH EQUIVALENTS AT END OF PERIOD	$	273,556		$	1,896,433
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	$	-		$	-
Cash paid for taxes	$	800		$	-
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND
FINANCING ACTIVITIES
Reclassification of advance deposit on buses to property and equipment	$	-		$	1,680,957
Accrued custom duty/VAT taxes included in capital expenditures	$	-		$	1,311,494
Conversion of convertible debentures and accrued interest to
common stock and additional paid-in capital	$	-		$	1,171,025

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

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TRANSNATIONAL AUTOMOTIVE GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

Transnational Automotive Group, Inc. and its wholly-owned and majority-owned subsidiaries (collectively referred to hereinafter as “the Company” or “TAUG”) are engaged in the development and operations of mass public transportation systems in Cameroon, Africa. The Company’s current operations are comprised of an intra-city bus transit system in the capital city of Yaoundé under the brand name, LeBus, and an inter-city bus transit system between Yaoundé and Douala, known as “LeCar”. The Company’s mission is to become a leading transportation provider in Cameroon and other sub-Saharan African countries through the operations of its urban and rural transportation systems. The Company is in the process of establishing additional inter-city bus lines servicing other metropolitan regions within Cameroon. The Company’s objective is to expand its existing transportation operations in Cameroon and establish, develop and operate mass transit systems in other sub-Saharan African nations.

2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
The accompanying unaudited interim consolidated financial statements of Transnational Automotive Group, Inc. and its wholly-owned and majority-owned subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information in accordance with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been reflected therein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year ending February 28, 2009. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended February 29, 2008.

Principles of Consolidation
The consolidated financial statements include the accounts of the Company, LeCar Transportation Corporation, S.A. (“LeCar”), a wholly-owned subsidiary in Cameroon, and Transnational Automotive Group, Cameroon, S.A. (“Taug-C”), a wholly-owned Cameroonian subsidiary, which owns a 66% interest in Transnational Industries – Cameroon, S.A. (“LeBus”). Various Cameroon governmental bodies own the remaining 34% equity interest in LeBus. All material intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“U.S. generally accepted accounting principles”) requires management to make estimates and assumptions that affect the amounts reported in the Company’s consolidated financial statements and accompanying notes and disclosure of contingent assets and liabilities at the date of these consolidated financial statements and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and judgments, which are based on historical and anticipated results and trends and on various other assumptions that the Company believes to be reasonable under the circumstances. By their nature, estimates are subject to an inherent degree of uncertainty and, as such, actual results may differ, and the difference may be material, from the Company’s estimates.

Going Concern
The Company is subject to various risks in connection with the operation of its business including, among other things, (i) losses from operations, (ii) changes in the Company's business strategy, including the inability to execute its strategy due to unanticipated changes in the market, (iii) the Company's lack of liquidity and potential ability to raise additional capital, and (iv) the lack of historical operations necessary to demonstrate the eventual profitability of its business strategy. As of August 31, 2008, the Company has an accumulated deficit of $17,866,569 as well as a working capital deficiency of $6,425,493.

As a result of the aforementioned factors and related uncertainties, there is substantial doubt of the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible effects of recoverability and classification of assets or liabilities, which may result from the inability of the Company to continue as a going concern.

Funding of the Company's working capital deficiency, its current and future anticipated operating losses, and growth of the Company's transportation operations in Cameroon will require continuing capital investment. Historically, the Company has received funding through the issuance of convertible debentures and warrants issued in connection with private placement offerings, the issuance of common stock and subscriptions to acquire common stock, advances received from unsecured promissory note arrangements, and the financing of its acquisition of buses through a capital lease obligation due to a related party. The Company's strategy is to fund its current and future cash requirements through the issuance of additional debt instruments, current and long-term borrowing 6

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TRANSNATIONAL AUTOMOTIVE GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

arrangements and additional equity financing.

The Company has been able to arrange debt facilities and equity financing to date. However, there can be no assurance that sufficient debt or equity financing will continue to be available in the future or that it will be available on terms acceptable to the Company. Failure to obtain sufficient capital to fund current working capital requirements and future capital expenditures necessary to grow the business would materially affect the Company's operations in the short term and expansion strategies. The Company will continue to explore external financing opportunities. Currently, the Company is in negotiations with multiple parties to obtain additional financing, and the Company will continue to explore financing opportunities with additional parties.

Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.

Foreign Currency Translation
All assets and liabilities of foreign operations included in the consolidated financial statements are translated at period-end exchange rates and all accounts in the consolidated statements of operations are translated at the average exchange rate for the reporting period. Stockholders’ equity accounts are translated at historical exchange rates. The reporting currency is the U.S. dollar.

During the year ended February 29, 2008, TAUG’s management determined that the functional currency of the Company was no longer the U.S. dollar, but instead the local currency, the Central African Franc (CFA). In making this determination, the Company considered that the majority of funds used in operations for 2008 were stated and transacted in CFA. Based on the guidance provided in SFAS No. 152, “Foreign Currency Translation”, effective December 1, 2007, translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. As of August 31, 2008, the cumulative translation adjustment of $392,615 is classified as an item of other comprehensive income in the stockholders’ deficit section of the consolidated balance sheet. For the three and six month periods ended August 31, 2008, accumulated other comprehensive loss was $135,152 and $58,382, respectively.

Fair market value of financial instruments
Statement of Financial Accounting Standards No. 107, “Disclosures about the Fair Value of Financial Instruments”, requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statement of financial position for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value.

The carrying amount for current assets and liabilities are not materially different than fair market value because of the short term maturity of these financial instruments.

Other receivables
Other receivables consist primarily of Value Added Taxes (“VAT”) and subsidy receivables due from various agencies of the government of Cameroon. VAT is a tax levied on the exchange of goods and services. The current VAT rate in Cameroon is 19.25% on the selling price of goods and services. Businesses are able to recover VAT on the purchase of goods and services that they buy to make further supplies or services directly or indirectly sold to end-users. Subsidy receivable are amounts due from the government of Cameroon to subsidize the Company’s intra-city bus operations, LeBus.

The Company does not accrue finance or interest charges on outstanding receivable balances. The carrying amount of other receivables is reduced by a valuation allowance that reflects management’s best estimate of the amounts that will not be collected. Management periodically reviews all delinquent accounts receivable balances, if any, and based on an assessment of recoverability, estimates the portion, if any, of the balances that will not be collected.

Other receivables as of August 31, 2008 and February 29, 2008 are comprised of the following:

		(Unaudited) August 31, 2008			February 29, 2008
VAT receivable	$	879,852		$	475,757
Subsidy receivable		671,436			-
Insurance claim receivable		176,966			168,180
Other		24,913			21,756
	$	1,753,167		$	665,693

Supplier concentration
The Company purchases substantially all of its fuel used in operations from Texaco. During the six month period ended August 31, 2008, total purchases of fuel from Texaco were $1,345,058.

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TRANSNATIONAL AUTOMOTIVE GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Inventory
Inventory consists of bus fuel and bus spare parts for internal consumption. All inventory is stated at the lower of cost, utilizing the first-in, first-out method, or market. An obsolescence reserve is estimated for items whose value has been determined to be impaired or whose future utility appears limited. As of August 31, 2008, there was no obsolescence reserve.

The composition of ending inventory as of August 31, 2008 and February 29, 2008 is as follows:

		(Unaudited)
		August 31,			February 29,
		2008			2008
Spare parts	$	320,501		$	260,820
Fuel		31,316			44,158
Total inventory	$	351,817		$	304,978

Property, buses and equipment
Property, buses and equipment is stated at cost and depreciated or amortized using the straight-line method over the estimated useful lives of the assets as follows:

Asset Description	Useful Life (years)
Computer equipment	3
Computer software	3
Furniture and equipment	3 - 5
Buses	3
Automobile equipment	5

Leasehold and building improvements are amortized on the straight-line method over the term of the lease or estimated useful life, whichever is shorter.

Costs for capital assets not yet available for commercial use, if any, are capitalized as construction in progress and will be depreciated once placed into service. Assets classified as “held for future use”, if any, are not depreciated until they are placed in productive service. Costs for repairs and maintenance are expensed as incurred.

Revenue and Expense Recognition
The Company recognizes revenue in accordance with the Securities and Exchange Commissions (“SEC”) Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements” (“SAB 104”) and the American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,” as amended by SOP 98-4 and SOP 98-9.

In June 2006, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 06-03, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation” (EITF 06-03). EITF 06-03 applies to taxes assessed by a governmental authority that are directly imposed on a revenue-producing transaction between a seller and a customer, and states that the presentation of such taxes on either a gross basis (included in revenues and costs) or on a net basis (excluded from revenues) is an accounting policy decision that should be disclosed. Additionally, for such taxes reported on a gross basis, the amount of such taxes should be disclosed in interim and annual financial statements if the amounts are significant. The provisions of EITF 06-03 are effective for interim and annual reporting periods beginning after December 15, 2006. On March 1, 2007, the Company adopted EITF 06-03. The Company collects certain Value Added Taxes (“VAT”) on its ticket sales, which are levied by the government of Cameroon. VAT taxes are accounted for on a gross basis and recorded as revenue. For the three and six month periods ended August 31, 2008, total VAT taxes levied on ticket sales and included in cost of revenue were $368,760 and $716,683, respectively. For the three and six month periods ended August 31, 2007, total VAT taxes levied on ticket sales were $272,296 and $440,115, respectively.

The majority of the Company’s revenues were derived from the sale of tickets for its inter-city and city bus operations. The Company recognizes revenue from the sale of bus tickets when the transportation services have been provided. The Company also generates revenue from cash subsidies provided by agencies of the government of Cameroon (“government subsidies”). Revenue from government subsidies are recognized as revenue when earned and when collection is reasonably assured.

Selling, general and administrative costs are charged to operations as incurred.

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TRANSNATIONAL AUTOMOTIVE GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Earnings (Loss) Per Share
Basic earnings (loss) per common share is computed by dividing net income (loss) available to common stockholders by the weighted-average number of common stock outstanding during the period. Diluted earnings (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock had been issued. The shares issuable upon the exercise of warrants and convertible debentures for the three and six month periods ended August 31, 2007 were anti-dilutive and, therefore, excluded from the calculation of net loss per share. The following potential common shares have been excluded from the computation of diluted net loss per share for the three and six month periods ended August 31, 2007 because the effect would have been anti-dilutive:

		(Unaudited)			(Unaudited)
		Three Months			Six Months
		Ended			Ended
		August 31, 2007			August 31, 2007
Shares to be issued upon conversion of
convertible debentures		5,421,147			5,421,147
Warrants		16,532,416			16,532,416
Total		21,953,563			21,953,563

Income Taxes
The Company follows the liability method of accounting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences of (i) temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, and (ii) operating loss and tax credit carry forwards for tax purposes. Deferred tax assets are reduced by a valuation allowance when, based upon management’s estimates, it is more likely than not that a portion of the deferred tax assets will not be realized in a future period. Income tax expense or benefit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

According to the Provisional Regulations of Cameroon on Income Tax, the income tax rate is 38.5% .

Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), when facts and circumstances indicate that the cost of long-lived assets may be impaired, an evaluation of the recoverability is performed by comparing the carrying value of the assets to the estimated undiscounted future cash flows. If the estimated undiscounted future cash flows are less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value. In addition, the remaining estimated useful life or amortization period for the impaired asset would be reassessed and revised if necessary.

Segment Reporting
SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information”, which superceded SFAS No. 14, “Financial Reporting for Segments of a Business Enterprise”, establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements regarding products and services, geographic areas and major customers. SFAS No. 131 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performances. The Company operates in two segments based on the sources of revenue: intra-city bus revenue, LeBus, and inter-city bus revenue, LeCar (note 9).

Recent accounting pronouncements

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”. This Statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 is effective for the fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Based on current conditions, management does not expect the adoption of SFAS No. 160 to have a significant impact on the Company’s results of operations or financial position.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”. This Statement replaces SFAS No. 141, “Business Combinations”. This Statement retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each

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TRANSNATIONAL AUTOMOTIVE GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

business combination. This Statement also establishes principles and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) will apply prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Management does not expect the adoption of SFAS No. 141(R) to have a significant impact on its financial position or results of operations.

In March 2008, FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Standard also improves transparency about the location and amounts of derivative instruments in an entity’s financial statements; how derivative instruments and related hedged items are accounted for under SFAS No. 133; and how derivative instruments and related hedged items affect its financial position, financial performance, and cash flows. SFAS No. 161 achieves these improvements by requiring disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also provides more information about an entity’s liquidity by requiring disclosure of derivative features that are credit risk-related. Management does not expect this Statement to have an impact on its financial condition or results of operations.

In May of 2008, FASB issued SFASB No.162, “The Hierarchy of Generally Accepted Accounting Principles”. The pronouncement mandates the GAAP hierarchy reside in the accounting literature as opposed to the audit literature. This has the practical impact of elevating FASB Statements of Financial Accounting Concepts in the GAAP hierarchy. This pronouncement will become effective 60 days following SEC approval. The Company does not believe this pronouncement will impact its financial statements.

In May of 2008, FASB issued SFASB No. 163, “Accounting for Financial Guarantee Insurance Contracts-an interpretation of FASB Statement No. 60”. The scope of the statement is limited to financial guarantee insurance (and reinsurance) contracts. The pronouncement is effective for fiscal years beginning after December 31, 2008. The Company does not believe this pronouncement will impact its financial statements.

3. PROPERTY, BUSES & EQUIPMENT

As of August 31, 2008 and February 29, 2008, property, buses, and equipment consist of the following:

		(Unaudited)
		August 31,			February 29,
		2008			2008
Computer equipment	$	88,179		$	59,345
Computer software		47,289			48,512
Furniture and equipment		217,765			206,815
Land		278,987			286,201
Automotive equipment		5,498			5,641
Building improvements		452,562			418,998
Buses used in operations		7,559,395			7,674,632
		8,649,675			8,700,144
Less: accumulated depreciation and amortization		(3,664,003	)		(2,461,980	)
		4,985,672			6,238,164
Construction in progress		54,832			62,251
Total property and equipment	$	5,040,504		$	6,300,415

Depreciation and amortization expense for the three and six month periods ended August 31, 2008 were $662,333 and $1,332,798, respectively, and for the three and six month periods ended August 31, 2007 were $533,920 and $774,997, respectively.

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TRANSNATIONAL AUTOMOTIVE GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. ACCOUNTS PAYABLE & ACCRUED EXPENSES & GOVERNMENT PAYABLES

(A) ACCOUNTS PAYABLE & ACCRUED EXPENSES

As of August 31, 2008 and February 29, 2008, accounts payable and accrued expenses were comprised of the following:

		(Unaudited)
		August 31,			February 29,
		2008			2008
Accounts payable	$	1,706,603		$	1,531,523
Payroll liabilities		71,349			180,878
Accrued expenses		160,407			297,964
Taxes payable to governmental agencies of Cameroon		411,948			224,012
Provision for fines and penalties		185,373			190,166
Total accounts payable and accrued expenses	$	2,535,680		$	2,424,543

(B) VAT AND CUSTOM DUTIES PAYABLE TO GOVERNMENT OF CAMEROON

Since the establishment of TAUG’s intra-city mass transit operations in Cameroon, the Company’s management has been in negotiations with senior Cameroonian government officials to formalize various government subsidy programs to facilitate the operations of the Company’s urban mass transit system, LeBus. Subsidies under negotiations with the government included the Company’s acquisition of city buses subject to custom duty exoneration.

The Company had previously accrued for Value Added Taxes (VAT) and custom duty taxes on the purchase of city buses used in the operations of LeBus. On July 2, 2008, the Company received a formal letter from the Minister of Finance of Cameroon that provided for an exoneration of VAT and custom duty taxes on the Company’s purchase of 47 city buses used in the operations of LeBus. As a result of the formalized exoneration agreement, during the three month period ended August 31, 2008, the Company recognized a gain of $2,057,291, representing a gain on the extinguishment of VAT and custom duty taxes previously accrued on the purchase of the city buses.

As of August 31, 2008 and February 29, 2008, the Company owed $1,634,292 and $3,377,287 in VAT and custom duties payable to the government of Cameroon (“Government”).

5. NOTES PAYABLE

The Company issued various promissory notes payable, which are unsecured, due on demand, and bear interest at rates ranging from 7% to 40% per annum.

• As of August 31, 2008 and February 29, 2008, the Company had $260,000 and $110,000, respectively, outstanding due to various unrelated parties that bear interest at rates ranging from 8% to 10% per annum. The accrued interest on these notes payable as of August 31, 2008 and February 29, 2008 were $27,817 and $18,326, respectively.

• As of August 31, 2008 and February 29, 2008, an aggregate of $2,815,000 was due to related parties (note 7), comprised as follows:

(i)

$2,595,000 was borrowed from Tov Trust (“Tov”), a trust whose trustee is Seid Sadat, the acting chief executive officer, chief financial officer and a director of the Company (note 7). These borrowings were advanced in four separate installments. The first installment of $425,000 was advanced on November 6, 2006 and is unsecured, bearing interest at 10% per annum and was initially due on demand. The second installment of $400,000 was advanced on February 12, 2007. Borrowings under the second advance are unsecured, bearing interest at 40% per annum, and was initially due on May 12, 2007, including unpaid interest. The third installment of $750,000 was advanced on May 30, 2007 and is unsecured, bearing interest at 10% per annum and was initially due on demand. The fourth installment of $1,020,000 was advanced in November 2006 and was initially classified as a convertible debenture under which the trust could convert these debentures into 2,240,143 shares of common stock. The debenture expired in December 2007 and the trustee of Tov did not elect conversion. Borrowings under this $1,020,000 obligation are due on demand and bear interest at 7% per annum. As of August 31, 2008 and February 29, 2008, an aggregate of $2,595,000 of unsecured promissory note obligations were due to Tov. As of August 31, 2008 and February 29, 2008, accrued interest due to Tov

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TRANSNATIONAL AUTOMOTIVE GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

		under these obligations was $550,411 and 374,527, respectively.
	(ii)	In January 2008, an unsecured creditor assigned Seid Sadat $220,000 of outstanding borrowings owed to him by the Company. These amounts represented one-half of an unsecured promissory note obligation owed to this creditor by the Company, which was repaid to this creditor by Mr. Sadat. Borrowings under this related party obligation are unsecured, due on demand and bear interest at 14% per annum. As of August 31, 2008 and February 29, 2008, an aggregate of $220,000 was outstanding under this obligation. As of August 31, 2008 and February 29, 2008, an aggregate of $26,465 and $10,939 of accrued interest was owed to Mr. Sadat under this obligation.

6. EQUITY TRANSACTIONS

Common stock

On May 27, 2008, the Company issued 500,000 shares of restricted common stock to an outside consulting firm engaged to assist the Company in raising capital. The Company recognized $300,000 of stock compensation expense in connection with the issuance of these shares.

Warrants

The following schedule presents a summary of the activity of the aggregate number of warrants outstanding for the six month period ended August 31, 2008:

Warrants outstanding		Number of
		Warrants
Outstanding at February 29, 2008		15,692,273
Granted		-
Exercised		-
Cancelled		-
Outstanding at August 31, 2008		15,692,273

Outstanding Warrants						Exercisable Warrants
Range of				Weighted Average		Weighted Average
Exercise				Remaining		Exercise				Average Exercise
Price		Number		Contractual Life		Price		Number		Price
$ 1.50		15,692,273		3.4 years		$ 1.50		15,692,273		$ 1.50

During the six month period ended August 31, 2008, the Company did not receive any proceeds from the exercise of outstanding warrants and did not recognize any expense related to warrants.

7. RELATED PARTY TRANSACTIONS

As of August 31, 2008 and February 29, 2008, an aggregate of $2,595,000 was borrowed from Tov (note 5). These borrowings were advanced in four separate installments. The first installment of $425,000 was advanced on November 6, 2006 and is unsecured, bearing interest at 10% and is due on demand. The second installment of $400,000 was advanced on February 12, 2007. Borrowings under the second advance are unsecured, bearing interest at 40% per annum, and was due on October 31, 2007, including unpaid interest. The third installment of $750,000 was borrowed on May 30, 2007 and is unsecured, bearing interest at 10% per annum and was due on October 31, 2007. The Company is currently negotiating renewal provisions for these obligations with the Trustee of Tov.

The fourth installment of $1,020,000 was advanced in November 2006 and was initially classified as a convertible debenture under which Tov could convert these debentures into 2,240,143 shares of common stock and warrants to purchase 2,240,243 shares of common stock. The debenture expired in December 2007 and the trustee of Tov did not elect conversion. Borrowings under this $1,020,000 obligation are due on demand and bear interest at 7% per annum.

The interest expense for the three and six month periods ended August 31, 2008 under related party obligations due to Tov was

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TRANSNATIONAL AUTOMOTIVE GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

$87,942 and $175,884, respectively. The interest expense for the three and six month periods ended August 31, 2007 under related party obligations due to Tov was $67,807 and $136,554, respectively. As of August 31, 2008 and February 29, 2008, accrued interest due to Tov under these related party obligations was $550,411 and $374,527, respectively.

In January 2008, an unsecured creditor assigned the Company’s chief financial officer, Seid Sadat, $220,000 of outstanding borrowings owed to him by the Company (note 5). These amounts represented one-half of an unsecured promissory note obligation owed to this creditor by the Company, which was repaid to this creditor by Mr. Sadat. Borrowings under this related party obligation are unsecured, due on demand and bear interest at 14% per annum. As of August 31, 2008 and February 29, 2008, an aggregate of $220,000 of principal and $26,465 (August 31, 2008) and $10,939 (February 29, 2008) of accrued interest was outstanding under this obligation. Total interest expense for the three and six month periods ended August 31, 2008 under this related party obligation was $7,763 and $15,527, respectively.

The Company entered into a consulting agreement with Magidoff Sadat & Gilmore, LLP (“MSG”), a professional services firm, pursuant to which MSG agreed to provide services to TAUG including assistance in managerial oversight, internal accounting and financial reporting, and advisory services. The agreement also obligates the Company to reimburse MSG $3,500 per month in shared rent costs. For each of the six month periods ended August 31, 2008 and 2007, the Company was charged an aggregate of $456,901 and $146,500 for these services including $10,500 of shared rent costs, by MSG under this consulting agreement. As of August 31, 2008 and February 29, 2008, $1,272,401 and $815,500 was owed to MSG, which is included in due to related party in the accompanying consolidated balance sheets as of August 31, 2008 and February 29, 2008. Seid Sadat is the managing partner of MSG and also the acting chief executive officer and chief financial officer of the Company.

8. COMMITMENTS AND CONTINGENCIES

Officer Indemnification

Under the organizational documents, the Company’s officers are indemnified against certain liabilities arising out of the performance of their duties to the Company. The Company does not maintain insurance for its directors and officers to insure them against liabilities arising from the performance of their duties required by the positions with the Company. The Company’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Company that have not yet incurred.

Employment Agreements

On July 31, 2007, the Company entered into an employment agreement with the president of the Company’s African operations, S. Lal Karsanbhai. Under the terms of the agreement, the Company agreed to remunerate Mr. Karsanbhai cash compensation of $6,000 per month plus deferred compensation of $4,000 per month payable in stock through the duration of his employment. The Company has accrued $60,000 and $36,000 of deferred compensation owed to Mr. Karsanbhai as of August 31, 2008 and February 29, 2008, respectively, representing deferred compensation payable under this employment agreement through the end of each respective period.

Facility leases used in operations

The Company leases two agency facilities for their inter-city bus operations, LeCar, in the city of Yaoundé, Cameroon and an office building used by LeCar’s corporate, sales and administrative staff under non-cancellable operating lease agreements expiring in various years through 2027. The Company also leases a residential home in Cameroon that is used by its senior management personnel and various automobiles and equipment that are leased on a month-to-month basis.

The future minimum rental payments (exclusive of real estate taxes, maintenance, etc.) under the non-cancellable operating lease commitments are as follows:

Fiscal year ended February 28,
2009	$	153,078
2010		131,964
2011		131,964
2012		131,964
2013		131,964
Thereafter		1,805,781
	$	2,486,715

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TRANSNATIONAL AUTOMOTIVE GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Total rent expense charged to operations for all of our office space and operating facilities for the three and six month periods ended August 31, 2008 were $108,184 and $246,295, respectively. Total rent expense charged to operations for all office and operating facilities for the three and six month periods ended August 31, 2007 were $115,327 and $197,391, respectively.

Loss contingency

The Company’s subsidiary, LeCar, subleases an agency physically located on the premises of a large hotel in Douala under a two year lease term. On May 15, 2007, the Company received notification from the management of the hotel to terminate the lease agreement and vacate the premises. The matter has been referred to legal counsel and is currently in mediation. In the event the cease and desist demand is upheld, the Company would be required to record an impairment charge of approximately $130,000, resulting from the write off construction in progress and other building improvement costs incurred by the Company on its agency facility.

Litigation

On March 19, 2007, one of the Company’s inter-city coach buses was involved in a collision en route between Yaoundé and Douala that resulted in the deaths of two passengers and injuries sustained to the surviving passengers. In accordance with Cameroonian law, the Company’s subsidiary, LeCar, was cited with responsibility for the collision. The Company maintains insurance coverage for damage claims arising from collisions. However, management cannot determine the amount of monetary damages in excess of amounts covered under insurance, if any, that may be awarded to passengers involved in this collision.

On November 8, 2007, the Company’s subsidiary, LeCar Transportation Corporation, S.A. (“LeCar”), was named a defendant in a wrongful termination case involving several disgruntled former employees of the subsidiary who were terminated by the Company during 2007. The plaintiffs are seeking unspecified amounts in compensatory damages, including deferred salary, and punitive damages. Under Cameroonian law, the cases are first investigated by the Labor Board Division and subsequently referred to the higher courts based on the merits of the respective allegations. To date, the cases are still pending review by the Labor Board Division. The Company believes the former employees’ claims are without merit and intends to vigorously defend against the claims brought forth by these suits and to pursue all available legal remedies. The Company has not provided for any loss contingencies, in the event of an unfavorable outcome.

On September 12, 2007, the Company’s subsidiary, Transnational Automotive Group, Cameroon S.A., was named a defendant in a breach of contract claim brought forth by its former ad agency, Nelson Cameroun (“Nelson”). The complaint alleges the Company wrongfully terminated its contract with Nelson prior to its expiration. The plaintiff was seeking damages of $300,000, representing amounts owed by the Company pursuant to the terms of the ad agency contract. The Company filed a counter-suit against Nelson alleging breach of good faith, breach of contract, fraud, misrepresentation, and negligence and breach of fiduciary duty. The Company is seeking unspecified amounts as compensatory damages pursuant to its cross-complaint. The Company has reserved $64,651, representing the entire accounts receivable balance due from Nelson as of February 29, 2008 pursuant to the terms of the ad agency agreement prior to its termination. The Company has not provided for any loss contingencies, in the event of an unfavorable outcome.

On May 29, 2008, the Company was named a defendant in a lawsuit filed by one of its shareholders.  The plaintiff alleges he was due 3.15 million shares from a consulting contract, that the 3.15 million shares were issued and wrongfully transferred to others.  The Company contends that the shares were issued as part of a plan to restructure the company that was later abandoned.  The plaintiff has made demand upon the Company to reinstate and recognize his ownership of these 3.15 million allegedly cancelled shares.  Additionally, the plaintiff is seeking damages equal to the fair market value of the 3.15 million shares.  The Company's management is currently evaluating the impact of this claim, if any, on its operations.  The Company's management believes the plaintiff's claims are without merit and intends to vigorously defend against the claims brought forth by this lawsuit.  The Company has not provided for any loss contingencies, in the event of an unfavorable outcome.

On June 23, 2008, the Company was named a defendant by a shareholder and former director of the Company. The complaint alleges the Company failed to transfer and register two million shares of the Company’s common stock to the plaintiff, who asserts the shares were assigned to him by Parker Transnational Industries, L.L.C., an entity previously owned and controlled by the Company’s founder and former chief executive officer. The plaintiff is seeking unspecified damages and conveyance of the two million shares of the Company’s common stock that is allegedly owned by the plaintiff. The Company believes the lawsuit is without merit and intends to vigorously defend against it. The case is currently in discovery and a trial date has not been set. The Company’s management cannot reasonably estimate the liability, if any, related to this claim, or the likelihood of an unfavorable settlement. Accordingly, no liability related to this contingency is accrued in the consolidated balance sheet as of August 31, 2008.

The Company is involved in various other legal claims and assessments. Management believes that these actions, either individually

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TRANSNATIONAL AUTOMOTIVE GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

or in the aggregate, will not have a material adverse effect on the Company’s results of operations or financial condition.

9. SEGMENT REPORTING

The Company operates in two segments based on the sources of revenue: inter-city bus revenue, LeBus, and coach buses, LeCar. The following table depicts the segment information by revenue source:

		LeBus			LeCar			Corporate
Three Month Period Ended August 31, 2008		(intra-city)			(inter-city)			and Other			Consolidated
Net revenue from unaffiliated customers	$	2,132,175		$	1,438,181		$	-		$	3,570,356
Cost of revenue	$	1,453,688		$	1,034,993		$	-		$	2,488,681
Operating expenses (excluding depreciation)	$	320,883		$	300,569		$	487,971		$	1,109,423
Depreciation	$	13,652		$	16,648		$	2,194		$	32,494
Interest expense	$	-		$	-		$	101,704		$	101,704
Income tax expense	$	-		$	-		$	-		$	-
Gain on extinguishment of debt	$	(2,057,291	)	$			$	-		$	(2,057,291	)
Net income (loss)	$	2,401,243		$	85,971		$	(591,824	)	$	1,895,390
Segment assets	$	5,235,670		$	2,163,598		$	349,809		$	7,749,077

		LeBus			LeCar			Corporate
Three Month Period Ended August 31, 2007		(intra-city)			(inter-city)			and Other			Consolidated
Net revenue from unaffiliated customers	$	1,084,365		$	1,049,401		$	-		$	2,133,766
Cost of revenue	$	967,032		$	949,016		$	-		$	1,916,048
Operating expenses (excluding depreciation)	$	297,689		$	306,686		$	543,428		$	1,147,803
Depreciation	$	8,699		$	15,031		$	1,500		$	25,230
Interest expense	$	-		$	-		$	266,965		$	266,965
Income tax expense	$	-		$	-		$	-		$	-
Gain on extinguishment of debt	$	-		$	-		$	-		$	-
Net loss	$	(190,975	)	$	(252,452	)	$	(1,340,916	)	$	(1,784,343	)
Segment assets	$	5,731,069		$	2,281,236		$	1,874,352		$	9,886,657

		LeBus			LeCar			Corporate
Six Month Period Ended August 31, 2008		(intra-city)			(inter-city)			and Other			Consolidated
Net revenue from unaffiliated customers	$	3,685,780		$	2,694,807		$	-		$	6,380,587
Cost of revenue	$	2,973,728		$	2,067,410		$	-		$	5,041,138
Operating expenses (excluding depreciation)	$	816,632		$	734,276		$	1,069,667		$	2,620,575
Depreciation	$	24,100		$	35,794		$	6,547		$	66,441
Interest expense	$	-		$	-		$	200,901		$	200,901
Income tax expense	$	-		$	-		$	800		$	800
Gain on extinguishment of debt	$	(2,057,291	)	$	-		$	-		$	(2,057,291	)
Net income (loss)	$	1,928,611		$	(142,673	)	$	(1,276,321	)	$	509,617
Segment assets	$	5,235,670		$	2,163,598		$	349,809		$	7,749,077
Capital expenditures	$	101,197		$	65,141		$	4,905		$	171,243

		LeBus			LeCar			Corporate
Six Month Period Ended August 31, 2007		(intra-city)			(inter-city)			and Other			Consolidated
Net revenue from unaffiliated customers	$	1,796,021		$	1,917,788		$	-		$	3,713,809
Cost of revenue	$	1,405,808		$	1,683,182		$	-		$	3,088,990
Operating expenses (excluding depreciation)	$	584,230		$	759,636		$	1,005,412		$	2,349,278
Depreciation	$	16,413		$	21,351		$	3,000		$	40,764
Interest expense	$	-		$	-		$	611,798		$	611,798
Income tax expense	$	-		$	-		$	800		$	800
Net loss	$	(230,558	)	$	(623,403	)	$	(2,651,262	)	$	(3,505,223	)
Segment assets	$	5,731,069		$	2,281,236		$	1,874,352		$	9,886,657
Capital expenditures	$	801,198		$	827,590		$	288		$	1,629,076

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ITEM 2.         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related footnotes for the fiscal year ended February 29, 2008 included in our Annual Report on Form 10-K. The discussion of results, causes and trends should not be construed to imply any conclusion that such results or trends will necessarily continue in the future.

Overview

We are a public transportation company headquartered in Los Angeles, California with operating entities in Cameroon. Our current business efforts focus on establishing and operating mass bus transit systems in the two major cities in Cameroon: Yaoundé, the capital city of Cameroon, and Douala, the largest city and economic capital of Cameroon. We have partnered with the government of Cameroon to establish these mass transit systems. Our mission is to become a leading transportation provider in Cameroon and other sub-Saharan African countries through the operations of our urban and rural transportation systems. Our current operations are comprised of providing inter-city bus transportation services between the cities of Yaoundé and Douala and city bus services in Yaoundé.

Urban bus operations (“LeBus”)

On October 12, 2005, we signed an agreement with the Government of Cameroon for TAUG to establish and exclusively manage the urban bus systems in Cameroon, starting with the country’s two major cities: the capital city of Yaoundé and the leading population and commercial center, Douala. Since the signing of the October 2005 agreement, we established a wholly-owned subsidiary, Transnational Automotive Group – Cameroon, SA (“TAUG-C”), headquartered in Yaoundé. TAUG-C, through its majority owned intra-city transportation operational company, Transnational Industries – Cameroon, S.A., known as “LeBus” officially commenced urban bus operations in Yaoundé on September 25, 2006. Our urban transportation system is currently comprised of 47 city buses, which serve six bus lines in Yaoundé.

Inter-city bus operations (“LeCar”)

LeCar is the brand name given to the Company’s inter-city coach bus operations in Cameroon. On December 8, 2006, we formed a wholly-owned subsidiary, LeCar Transportation Corporation, S.A. (”LeCar”).

On December 18, 2006, LeCar officially launched its inter-city operations, transporting passengers between the capital city of Yaoundé and Douala. LeCar has experienced a significant increase in ridership and ticket revenue since the launch of its operations. With a current fleet of 15 coach buses, LeCar is currently transporting approximately 30,000 passengers monthly and generating approximately $400,000 – 450,000 in monthly revenues from its inter-city bus operations.

Like LeBus, LeCar has received excellent support from the media and from Cameroon’s citizens, as indicated in the noteworthy success of the launch of operations. LeCar has also impressed Cameroon government leaders for its reliability and quality of service, and enjoys the support of the nation’s highest officials. Once LeCar firmly establishes its Yaoundé-Douala service, we plan to expand our inter-city lines to other population centers throughout the rest of the country and sub-region.

Critical Accounting Policies

Use of estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the accompanying consolidated financial statements and related footnotes. On an ongoing basis, we evaluate our estimates and judgments, which are based on historical and anticipated results and trends and on various other assumptions that we believe to be reasonable under the circumstances. By their nature, estimates are subject to an inherent degree of uncertainty and, as such, actual results may differ from our estimates, and the difference could be material from these estimates.

Revenue and expense recognition

The majority of our revenue is derived from the sale of tickets for our inter-city and city bus operations. We recognize revenue from the sale of bus tickets when the transportation services have been provided. We also generate revenue for our city bus operations from subsidies provided by the government of Cameroon. Revenue from government subsidies is recognized as revenue when earned and when collection is reasonably assured. Selling, general and administrative costs are charged to operations as incurred.

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Depreciation and amortization expense

Property, buses and equipment are stated at cost and depreciated or amortized using the straight-line method over the estimated useful lives of the assets, ranging from 3 to 5 years. Costs for capital assets not yet available for commercial use, if any, have been capitalized as construction in progress and will be depreciated in accordance with our depreciation policies governing the underlying asset class. Assets classified as “held for future use”, if any, are not depreciated until they are placed in productive service.

Impairment of long lived assets

We review long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows are less than the carrying value of the long-lived assets, the carrying value is reduced to the estimated fair value as measured by the discounted cash flows.

Income taxes

We follow the asset and liability method of accounting for income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences of (i) temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements, and (ii) operating loss and tax credit carry forwards for tax purposes. Deferred tax assets are reduced by a valuation allowance when, based upon management’s estimates, it is more likely than not that a portion of the deferred tax assets will not be realized in a future period. Income tax expense or benefit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

Deferred taxes have not been recognized on undistributed profits or losses of foreign subsidiaries since we consider these temporary differences to be essentially permanent in nature. Deferred taxes will be recognized when it becomes apparent that the temporary differences will reverse in the foreseeable future. It is not practicable to determine the amount of the unrecognized deferred tax assets or liabilities.

Income taxes for our operations in Cameroon are provided for at rates applicable under Cameroonian law. In addition to income taxes on earnings, our subsidiaries’ operations in Cameroon are also subject to value-added taxes based on revenue plus various other taxes that are not predicated on income. We recognize these tax obligations in the period incurred.

Financing, warrants and amortization of warrants and fair value determination

We have traditionally financed our operations through the issuance of secured capital lease obligations and unsecured promissory notes payable. Additionally, we have issued debt instruments that are convertible into our common stock, at conversion rates at or below the fair market value of our common stock at the time of conversion, and typically include the issuance of warrants. We have recorded debt discounts in connection with these financing transactions in accordance with Emerging Issues Task Force No. 98-5 and 00-27. Accordingly, we recognize the beneficial conversion feature embedded in the financing instruments and the fair value of the related warrants on the balance sheet as debt discount. The debt discount associated with the warrants is amortized over the life of the underlying security. The debt discount associated with the beneficial conversion feature of the convertible debt instruments is charged to operations at the date the respective convertible debt instrument is issued.

Stock purchase agreements

The funding of operations has also included the issuance and subscriptions of common stock. Proceeds received from the issuance of our common stock are reflected as additions to common stock and additional paid-in capital. Proceeds received from the subscription of common stock are reflected as additions to subscribed capital.

Recent accounting pronouncements

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”. This Statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 is effective for the fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Based on current conditions, management does not expect the adoption of SFAS No. 160 to have a significant impact on the Company’s results of operations or financial position.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”. This Statement replaces SFAS No. 141, “Business Combinations”. This Statement retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement also establishes principles and requirements for how the acquirer: a) recognizes and measures

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in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) will apply prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Management does not expect the adoption of SFAS No. 141(R) to have a significant impact on its financial position or results of operations.

In March 2008, FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Standard also improves transparency about the location and amounts of derivative instruments in an entity’s financial statements; how derivative instruments and related hedged items are accounted for under SFAS No. 133; and how derivative instruments and related hedged items affect its financial position, financial performance, and cash flows. SFAS No. 161 achieves these improvements by requiring disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also provides more information about an entity’s liquidity by requiring disclosure of derivative features that are credit risk-related. Management does not expect this Statement to have an impact on its financial condition or results of operations.

In May of 2008, FSAB issued SFASB No.162, “The Hierarchy of Generally Accepted Accounting Principles”. The pronouncement mandates the GAAP hierarchy reside in the accounting literature as opposed to the audit literature. This has the practical impact of elevating FASB Statements of Financial Accounting Concepts in the GAAP hierarchy. This pronouncement will become effective 60 days following SEC approval. Management does not believe this pronouncement will impact its financial statements.

In May of 2008, FASB issued SFASB No. 163, “Accounting for Financial Guarantee Insurance Contracts-an interpretation of FASB Statement No. 60”. The scope of the statement is limited to financial guarantee insurance (and reinsurance) contracts. The pronouncement is effective for fiscal years beginning after December 31, 2008. Management does not believe this pronouncement will impact its financial statements.

RESULTS OF OPERATIONS

Revenue

The following table presents revenue by category:

		Three Month Periods Ended						Percentage			Six Month Periods Ended						Percentage
		August 31,						Increase/			August 31,						Increase/
		2008			2007			Decrease			2008			2007			Decrease
Transportation services	$	2,053,217		$	1,510,455			36%		$	3,967,826		$	2,543,465			56%
Government subsidy		1,384,564			512,236			170%			2,169,690			993,424			118%
Other		132,575			111,075			19%			243,071			176,920			37%
Total revenue	$	3,570,356		$	2,133,766			67%		$	6,380,587		$	3,713,809			72%

Total revenue increased $1,436,590 or 67% for the three month period ended August 31, 2008 as compared to the three month period ended August 31, 2007 and increased $2,666,778 or 72% for the six month period ended August 31, 2008 as compared to the six month period August 31, 2007. The increase in revenue over the prior year was attributed to the addition of 30 city buses and an increase in government subsidies received in the current three and six month periods compared to the prior year. Ancillary revenue is primarily comprised of food and beverage sales and postage and mail services provided on our inter-city bus lines. We have 47 city buses and 15 coach buses in operations during the current year.

During the three and six month periods ended August 31, 2008, we recognized $1,384,564 and $2,169,690, respectively, of subsidy revenue from the government of Cameroon for our city bus operations, LeBus. The government of Cameroon is a 34% shareholder in LeBus. Revenue from government subsidies are comprised of cash received from the government of Cameroon to help fund the operating costs of our city bus operations. We recognize revenue from government subsidies when the services have been performed and when collection is reasonably assured. While we have not negotiated a formalized subsidy program with the Cameroonian government, the amount of cash subsidies recognized as revenue for the three and six month periods ended August 31, 2008 were based on specified cash subsidies requested by management. The increase in government subsidies over the prior year three and six month periods is attributed to an increase of the number of city buses and bus lines in operations during the current three and six month periods compared to the prior year. The increase in our bus fleet and bus lines have enabled us to negotiate a significantly greater average monthly subsidy in the current year three and six month periods compared to the prior year. We are actively working with high-ranking government officials to formalize a subsidy agreement with the government for our city bus operations.

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Although we anticipate that revenue from ticket sales and government subsidies will continue to grow, our future revenue growth is subject to fluctuations and is dependent to a significant degree upon the following factors: (i) the expansion of our bus fleet to expand our current bus lines and the development of new mass transit systems both, within and outside of Cameroon; (ii) seasonal factors in the demand for inter-city and intra-city bus transportation within the cities of Yaoundé and Douala; and (iii) our success in negotiating with the government of Cameroon for increases in government subsidies to fund our city bus operations.

Cost of revenue

Cost of revenue is comprised primarily of fuel costs, cost of food and beverage sales, direct payroll, value-added taxes on ticket sales, insurance, repairs and maintenance of buses, depreciation expense on buses, and other ancillary costs. Cost of revenue for the three month period ended August 31, 2008 was $2,488,681, or approximately 70% of revenue compared to $1,916,048, or approximately 90% of revenue for the three month period ended August 31, 2007. Cost of revenue for the six month period ended August 31, 2008 was $5,041,138, or approximately 79% of revenue compared to $3,088,990, or approximately 63% of revenue for the six month period ended August 31, 2007.

The increase in cost of revenue during the current three and six month periods compared to the prior year is attributed to the expansion of our bus fleet primarily due to the addition of 30 city buses, which were placed in operation in June 2007. Cost of revenue as a percentage of total revenue declined compared to the prior year. The decline in cost of revenue as a percentage of total revenue is due to several factors: 1) an increase in government subsidies compared to the prior year, resulting in a greater total revenue base compared to the prior year; 2) favorable economies of scale due to the expansion of our bus fleet; 3) and an increase in gross margins provided from ancillary revenue during the current three and six month periods. Ancillary revenue includes food/beverage sales and revenue generated from postal services.

		Three Month Periods Ended						Percentage			Six Month Periods Ended						Percentage
		August 31,						Increase/			August 31,						Increase/
		2008			2007			Decrease			2008			2007			Decrease
Compensation expenses	$	500,013		$	301,373			66%		$	1,004,584		$	513,272			96%
Cost of food and beverage sales		34,258			51,309			-33%			67,975			102,710			-34%
Fuel expense		619,581			565,034			10%			1,325,243			910,066			46%
Insurance		97,245			75,482			29%			202,742			150,802			34%
Maintenance and repairs		226,126			63,429			257%			427,036			117,249			264%
Depreciation and amortization		629,839			508,690			24%			1,266,357			734,233			72%
Value added taxes on ticket sales
included in revenue		368,760			272,296			35%			716,683			440,115			63%
Other		12,859			78,435			-84%			30,518			120,543			-75%
Total cost of revenue	$	2,488,681		$	1,916,048			30%		$	5,041,138		$	3,088,990			63%

	% of Revenue				Increase/Decrease		% of Revenue				Increase/Decrease
	Three Month Periods Ended				in % of		Six Month Periods Ended				in % of
	August 31,				Revenue		August 31,				Revenue
	2008		2007		2008 vs. 2007		2008		2007		2008 vs 2007
Compensation expenses	14%		14%		0%		16%		14%		2%
Cost of food and beverage sales	1%		2%		-1%		1%		3%		-2%
Fuel expense	17%		26%		-9%		21%		24%		-3%
Insurance	3%		4%		-1%		3%		4%		-1%
Maintenance and repairs	6%		3%		3%		7%		3%		4%
Depreciation and amortization	18%		24%		-6%		20%		20%		0%
Value added taxes on ticket sales
included in revenue	10%		13%		-3%		11%		12%		-1%
Other	1%		4%		-3%		0%		3%		-3%
Total cost of revenue	70%		90%		-20%		79%		83%		-4%

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Operating expenses

Operating expenses were as follows:

		Three Month Periods Ended						Percentage			Six Month Periods Ended						Percentage
		August 31,						Increase/			August 31,						Increase/
		2008			2007			Decrease			2008			2007			Decrease
Sales and marketing	$	17,147		$	30,084			-43%		$	56,643		$	103,399			-45%
General and administrative		1,092,276			1,227,201			-11%			2,263,932			2,412,546			-6%
Stock based compensation		-			-			-			300,000			-			-
Depreciation and amortization		32,494			25,230			29%			66,441			40,764			63%
Foreign currency translation gain		-			(109,482	)		-100%			-			(166,667	)		-100%
Total operating expenses	$	1,141,917		$	1,173,033			-3%		$	2,687,016		$	2,390,042			12%

Sales and marketing : Sales and marketing expense consist primarily of advertising expenditures, promotional expenditures and fees to marketing and public relations firms. Sales and marketing expense decreased by $12,937 for the three month period ended August 31, 2008 as compared to the three month period ended August 31, 2007 and decreased by $46,756 for the six month period ended August 31, 2008 as compared to the six month period ended August 31, 2007. The decline in sales and marketing costs over the prior year is primarily attributed to: 1) the termination of our contract with our former ad agency; and 2) certain non-recurring marketing and advertising expenditures incurred in the prior year for the pre-launch and start of our inter-city and city bus operations, which commenced in 2007.

General and administrative: General and administrative expenses are comprised of office and administration expenditures, professional and consulting fees, corporate and administrative payroll and related payroll taxes, rent and travel costs. General and administrative expenses decreased by $134,925 and $148,614 for the three and six month periods ended August 31, 2008 as compared to the three and six month periods ended August 31, 2007, respectively. The decline in general and administrative expenses is attributed to:

• A decline in legal and professional fees compared to the prior year. Legal and professional costs in the prior year were primarily related to the establishment of our operations and the legal formation of our Cameroonian subsidiaries.

• A decline in corporate overhead costs primarily driven by a significant reduction in corporate and administrative salaries due to the resignation of our former chief executive officer in March 2008 and the elimination of certain administrative management positions at LeBus and LeCar. In an effort to reduce the administrative costs of our subsidiaries’ operations in Cameroon, we eliminated the general manager and other administrative positions at LeBus and LeCar, which contributed to the reduction of administrative overhead costs of these subsidiaries.

Stock based compensation: On May 27, 2008, we issued 500,000 shares of common stock to an outside consulting firm engaged to assist the Company in raising capital. We recognized $300,000 of compensation expense in connection with the issuance of these shares during the three month period ended May 31, 2008.

Depreciation and amortization: Depreciation and amortization expense increased by 29% and 63% for the three and six month periods ended August 31, 2008 as compared to the three and six month periods ended August 31, 2007, respectively. The increase in depreciation and amortization expense charged to operations is attributed to an increase in depreciable assets, including office furniture and equipment, computer equipment and software, automotive equipment and building improvements that were purchased in connection with the commencement of operations and build out of our operating facilities in Cameroon.

Foreign currency translation gain : Prior to December 1, 2007, we considered the U.S. dollar to be our functional currency given that, through December 1, 2007, the majority of all funds used in operations were funded in U.S. dollar. In determining the Company’s functional currency in the prior year, we considered various factors and economic indicators including: 1) The majority of the our operating expenses through November 30, 2007 were denominated in U.S. currency, 2) our acquisition financing of the buses used in operations were denominated in U.S. currency; and 3) the cash flows generated by our subsidiaries’ operations were not sufficient to service our existing debt obligations without cash infusions from the U.S. Parent Company. Accordingly, through November 30, 2007, accumulated exchange rate adjustments resulting from the process of translating the Company’s financial statements expressed in foreign currencies into U.S. dollars were reflected as income or loss in the accompanying consolidated statements of operations.

During the fourth quarter of our prior year, we determined that our functional currency was no longer the U.S. dollar, but instead the local currency, the Central African Franc (“CFA”). In making this determination, we considered that the majority of funds used in operations for the current year were stated and transacted in CFA. As such, based on the guidance provided in SFAS No. 152, “Foreign Currency Translation”, effective December 1, 2007, translation adjustments resulting from the process of translating the

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local currency financial statements into U.S. dollars are included in determining comprehensive income.

The decline in foreign currency exchange gain from $109,482 and $166,667 for the three and six month periods ended August 31, 2008 as compared to the prior year three and six month periods, respectively, was attributed to the change in our functional currency from the US dollar to the Cameroonian Franc in the current year. During the current year, translation rate adjustments are reflected as a component of stockholders’ equity and comprehensive income in the accompanying consolidated financial statements.

Other income and expense

		Three Month Periods Ended						Percentage			Six Month Periods Ended						Percentage
		August 31,						Increase/			August 31,						Increase/
		2008			2007			Decrease			2008			2007			Decrease
Gain on extinguishment of debt	$	(2,057,291	)	$	-			-		$	(2,057,291	)	$	-			-
Finance costs from beneficial
conversion feature		-			109,704			-100%			-			121,982			-100%
Finance costs from issuance of
warrants		-			430,241			-100%			-			950,667			-100%
Loss on impairment of fixed assets		-			29,837			-100%			-			63,274			100%
Interest expense		101,704			266,965			-62%			200,901			611,798			-67%
Interest income		(45	)		(7,719	)		-99%			(794	)		(7,721	)		-90%
Total other (income) expense	$	(1,955,632	)	$	829,028			-336%		$	(1,857,184	)	$	1,740,000			-207%

Other income and expenses are comprised primarily of finance costs associated with funding our operating activities and a gain recognized during the three month period ended August 31, 2008 on the extinguishment of debt.

On July 2, 2008, the Company received a formal letter from the Minister of Finance of Cameroon that provided for an exoneration of VAT and custom duty taxes on the Company’s purchase of 47 city buses used in the operations of LeBus. As a result of the formalized exoneration agreement, during the three month period ended August 31, 2008, the Company recognized a gain of $2,057,291, representing a gain on the extinguishment of VAT and custom duty taxes previously accrued on the purchase of the city buses.

In connection with private placement offerings to accredited investors, we raised an aggregate of $3,638,500 from the issuance of 7% convertible debentures with attached warrants. The debentures were convertible into shares of our common stock at an exercise price of .4464 per share. Finance costs from the amortization of deferred financing costs from the issuance of warrants were $430,241 and $950,667 for the three and six month periods ended August 31, 2007. The warrants were amortized over a period of one year from the date of issue, representing the term of the underlying debt instrument. During the current three and six month periods ended August 31, 2008, there were no unamortized deferred finance costs, resulting in no amortization of warrants.

Finance costs in connection with the beneficial conversion feature of convertible debentures were $109,704 and $121,982 for the three and six month periods ended August 31, 2007. There were no finance costs incurred during the three and six month periods ended August 31, 2008 from the beneficial conversion feature of convertible debentures.

We incurred $101,704 and $200,901 of interest expense on unsecured promissory note obligations during the three and six month periods ended August 31, 2008, respectively. This compares to $266,965 and $611,798 of interest costs on unsecured promissory note and a capital lease obligation during the three and six month periods ended August 31, 2007, respectively. The decline in interest expense during the current year is primarily attributed to:

• The conversion of the convertible debentures into common stock in the prior year.
• A reduction in interest costs on $660,000 of unsecured promissory note obligations that were repaid in the prior year.
• Principal payments of $600,000 on a capital lease obligation in the prior year period, resulting in a corresponding decline in interest costs on this debt obligation.

Net income (loss)

Our net income for the three and six months ended August 31, 2008 of $1,895,390 and $509,617, respectively, was primarily attributed to the recognition of a $2,057,291 gain on extinguishment of debt during the three month period ended August 31, 2008. Excluding the impact of the gain, our net loss for the three and six month periods ended August 31, 2008 were $161,901 and $1,547,674, respectively. This compares to a net loss for the three and six month periods ended August 31, 2007 of $1,784,343 and $3,505,223, respectively. The decrease in our net loss before the effects of the gain on extinguishment of debt was primarily attributed to the following:

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• A significant increase in gross profit from operations compared to the prior year. The increase in gross profit over the prior year was attributed to a substantial increase in revenue from government subsidies and an increase in gross profit margins on operations due to the expansion of our bus lines and resulting economies of scale.

• The reduction in our corporate overhead costs compared to the previous year, resulting in a decline in our overall general and administrative costs during the current year quarter compared to prior year.

• A decrease in our financing costs during the current year compared to prior year.

LIQUIDITY AND CAPITAL RESOURCES

As of August 31, 2008, we had cash and cash equivalents of $273,556 compared to cash and cash equivalents of $1,896,433 as of August 31, 2007, representing a decrease in our cash and cash equivalents of $1,622,877. The decrease in our cash balances compared to the prior year was primarily attributed to $4,227,500 of cash provided from the issuance of common stock and warrants in the prior year.

		August 31,						Increase/
		2008			2007			(Decrease)
Working capital
Current assets	$	2,708,573		$	3,007,556		$	(298,983	)
Current liabilities		9,134,066			10,282,356			(1,148,290	)
Working capital deficit	$	(6,425,493	)	$	(7,274,800	)	$	849,307

		Six Month Periods Ended
		August 31,						Increase/
		2008			2007			(Decrease)
Cash flows used in operating activities	$	(832,195	)	$	(1,274,823	)	$	442,628
Cash flows used in investing activities		(171,243	)		(1,629,076	)		1,457,833
Cash flows provided by financing activities		602,915			4,800,332			(4,197,417	)
Effect of exchange rate on cash		95,974			-			95,974
Net increase (decrease) in cash and cash equivalents	$	(304,549	)	$	1,896,433		$	(2,200,982	)

Cash flows from operating activities

During the six month period ended August 31, 2008, cash flows used in operating activities decreased by $442,628 to $832,195 as compared to $1,274,823 for the six month period ended August 31, 2007. The decrease in cash flows used in operating activities compared to the prior year period is primarily due net income of $509,617 during the current period compared to a net loss of $3,505,223 in the prior period and offset by non-cash items including a $2,057,291 gain on extinguishment of debt during the current year and non-cash financing costs in the prior year period.

Cash flows from investing activities

Cash flows used in investing activities were $171,243 and $1,629,076 for the six month periods ended August 31, 2008 and 2007, respectively. The $1,457,833 decrease in cash flows used in investing activities during the current year is primarily due to cash disbursements for the acquisition of 30 additional city buses used in operations during the prior year. During the current year, there were no acquisitions of buses in operations.

Cash flows from financing activities

Net cash provided by financing activities for the six month period ended August 31, 2008 decreased by $4,197,417 from $602,915 in the current year compared to $4,800,332 in the previous year period. The decrease in cash provided by financing activities was primarily attributed to a $1,000,000 decrease in cash provided from the issuance of unsecured promissory notes, a $3,677,500 decrease in cash provided from the issuance of common stock and warrants from private placement offerings, and a $550,000 decrease in cash provided from stock subscriptions, and offset by the repayment of $800,000 of obligations under a capital lease in the prior year.

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Going concern

The consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared assuming that we will continue as a going concern, however, there can be no assurance that we will be able to do so. Our recurring losses and difficulty in generating sufficient cash flow to meet our obligations and sustain our operations raise substantial doubt about our ability to continue as a going concern, and our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We have an accumulated deficit of $17,866,569 as of August 31, 2008 as well as a significant working capital deficit. Our future operating success is dependent on our ability to generate positive cash flows from our bus operations in Cameroon. Our ability to generate positive cash flows is predicated on achieving certain economies of scale in our business, which will involve the acquisition of additional buses for our operations and additional capital investment in infrastructure, employee training and other resources for our growth. In order to achieve this goal, we will need to raise a significant amount of capital for the acquisition of additional buses and related costs. Funding of our working capital deficit, current and future operating losses, and growth of the Company’s transportation operations in Cameroon and other countries will require continuing capital investment. Historically, we have received funding through the issuance of convertible debentures and warrants to acquire common stock issued in connection with private placement offerings, the issuance of common stock and subscriptions to acquire common stock, advances received under unsecured promissory note obligations, and the financing of the acquisition of our buses through a capital lease obligation due to a related party trust. Our strategy is to fund our current and anticipated future cash requirements through the issuance of additional convertible debt instruments, common stock warrants, unsecured borrowing arrangements, and equity financing.

We have been able to arrange debt facilities and equity financing to date. There can be no assurance that sufficient debt or equity financing will continue to be available in the future or that it will be available on terms acceptable to the Company. Failure to obtain sufficient capital to fund current working capital requirements and future capital expenditures necessary to grow the business would materially affect our operations in the short term and expansion strategies. Currently, we are in negotiations with multiple parties to obtain additional financing, and the Company will continue to explore financing opportunities with additional parties.

As a result of the aforementioned factors and related uncertainties, there is substantial doubt of the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible effects of recoverability and classification of assets or classification of liabilities, which may result from the inability of the Company to continue as a going concern.

FORWARD LOOKING STATEMENTS

This Report on Form 10-Q (this “Report”) contains certain “forward-looking statements” and information relating to Transnational Automotive Group, Inc. and its wholly-owned and majority-owned subsidiaries (“TAUG”) that are based on the beliefs and assumptions made by TAUG’s management, as well as on information currently available to the management. Words such as “may”, “will”, “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, and “should”, and variations of these words and similar expressions, are intended to identify these forward-looking statements. These forward-looking statements in this Report reflect the current views of TAUG with respect to possible future events and financial performance. Such forward-looking statements involve risks and uncertainties. We wish to caution you that our actual results may differ significantly from the results we discuss in our forward-looking statements. We discuss some of the risks and uncertainties under the caption “Risk Factors” in Item 1 in this Report and in our various other filings with the Securities and Exchange Commission. Our forward-looking statements speak only as of the date of this document and the Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements to reflect events or circumstances that occur after that date. You are advised, however, to consult any further disclosures the Company makes on related subjects as may be detailed in the Company’s other filings made from time to time with the Securities and Exchange Commission. The safe harbor provisions of the Private Securities Reform Act of 1995 are not available to the Company.

ITEM 3.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

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ITEM 4.         CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Our acting Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of our disclosure control and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report on form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of August 31, 2008.

(b) Limitations on Controls Changes

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. There was no change in our internal control over financial reporting during the quarter ended May 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements as defined in Item 303(c) of Regulation S-B.

PART II - OTHER INFORMATION

ITEM 1.        LEGAL PROCEEDINGS

No change since previous filing.

ITEM 2.        UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3.        DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5.        OTHER INFORMATION

None

ITEM 6.        EXHIBITS

31.1	Certification of Chief Executive Officer pursuant under Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on October 20, 2008.

TRANSNATIONAL AUTOMOTIVE GROUP, INC.

 

By:	/s/ Seid Sadat
	Name: Seid Sadat
	Title: Acting Chief Executive Officer and Chief Financial Officer

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