UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


FORM
10-Q





(Mark One)




x
            Quarterly
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934




For
the quarterly period ended June 30, 2009





or





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




For
the transition period from _____________ to _____________





Commission
file number: 333-113564





WLG
INC.


(Exact
name of registrant as specified in its charter)




Delaware
            20-0262555(State
      or other jurisdiction of
            (IRS
      Employer Identification No.)incorporation
      or organization)




920
East Algonquin Road, Suite 120


Schaumburg,
IL 60173


(Address
of principal executive offices with zip code)





224-653-2800


(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.   x  Yes      o  No





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  o    
Yes       o
     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 (Check one):





Large
      accelerated filero
            Accelerated
      fileroNon-accelerated
      filero (Do
      not check if a smaller reporting company)
            Smaller
      reporting companyx





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





On August
12, 2009, the registrant had 31,400,094 shares of common stock, $0.001 par value
per share, issued and outstanding.










WLG
Inc.





TABLE
OF CONTENTS




Part
      I:
                          
                          Financial
      InformationItem
      1.
                          
                          Financial
      StatementsCondensed
      Consolidated Statements of Operations for the Three and Six Months Ended
      June 30, 2009 and 2008
                          
                          F-1Condensed
      Consolidated Balance Sheets as of June 30, 2009 and December 31,
      2008
                          
                          F-3Condensed
      Consolidated Statements of Cash Flows for the Six Months Ended June 30,
      2009 and 2008
                          
                          F-5Notes
      to Condensed Consolidated Financial Statements
                          
                          F-6Item
      2.
                          
                          Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                          
                          3Item
      3.
                          
                          Quantitative
      and Qualitative Disclosures About Market Risk
                          
                          17Item
      4.
                          
                          Controls
      and Procedures.
                          
                          17Part
      II:
                          
                          Other
      Information
                          
                          18Item
      1.
                          
                          Legal
      Proceedings
                          
                          18Item
      1A.
                          
                          Risk
      Factors
                          
                          18Item
      6.
                          
                          Exhibits
                          
                          18Signatures
                          
                          
                          
                          19




NOTE
REGARDING FORWARD LOOKING STATEMENTS




Certain
statements in this report, including statements in the following discussion, may
constitute forward-looking statements made pursuant to the Safe Harbor
provisions of the Private Securities Litigation Reform Act of 1995. This report
on Form 10-Q contains forward-looking statements concerning WLG Inc. (“WLG,” the
“Company” “we”, “our” or the “Group”) and its future operations, plans and other
matters. Any statements that involve discussions with respect to predictions,
expectations, beliefs, plans, projections, objectives, assumptions or future
events or performance (often, but not always, using phrases such as “expects”,
or “does not expect”, “is expected”, “anticipates“, or “does not anticipate”,
“plans”, “estimates”, or “intends”, or stating that certain actions, events or
results “may”, “could”, “might”, or “will” be taken or occur, or be achieved)
are not statements of historical fact and may be “forward looking
statements.”




The
Company cautions readers regarding certain forward-looking statements in this
document and in all of its communications to shareholders and others, including
press releases, securities filings and all other communications. WLG also
cautions readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. Such forward-looking
statements are based on the beliefs of WLG's management as well as on
assumptions made by and information currently available to WLG at the time such
statements were made. Forward-looking statements are subject to a variety of
risks and uncertainties that could cause actual events or results to differ from
those reflected in the forward-looking statements. Actual results could differ
materially from those projected in the forward-looking statements, as a result
of either the matters set forth or incorporated in this report generally or
certain economic and business factors, some of which may be beyond the control
of WLG. These factors include adverse economic conditions, entry of new and
stronger competitors, inadequate capital, unexpected expenses, failure to gain
or maintain approvals for the sale and expansion of WLG's services in the
jurisdictions where WLG conducts its business, or the failure to capitalize upon
access to new markets and those factors referred to or identified in Item 1A of
our Report on Form 10-K for the year ended December 31, 2008, and in Item 1A of
our Report on Form 10-Q for the three months ended March 31, 2009. WLG
disclaims any obligation subsequently to revise any forward-looking statements
to reflect events or circumstances after the date of such statements or to
reflect the occurrence of anticipated or unanticipated events.











Part
I: Financial Information





Item
1. Financial Statements




WLG
Inc.





Consolidated
Statements of Operations and other comprehensive income


Three and
six months ended June 30, 2009 and 2008


(Dollars
in thousands except share data and per share amounts)





Three months ended
                    June 30,
                  
                  
                  Six months ended
                    June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Notes
                  
                  US$
                  
                  
                  US$
                  
                  
                  US$
                  
                  
                  US$(unaudited)
                  
                  
                  (unaudited)
                  
                  
                  (unaudited)
                  
                  
                  (unaudited)Revenues:Freight
                  
                  
                  
                  
                  15,105
                  
                  
                  
                  35,095
                  
                  
                  
                  30,052
                  
                  
                  
                  67,359Other
      services
                  
                  
                  
                  
                  14,806
                  
                  
                  
                  22,505
                  
                  
                  
                  30,922
                  
                  
                  
                  44,343Total
      revenues
                  
                  
                  
                  
                  29,911
                  
                  
                  
                  57,600
                  
                  
                  
                  60,974
                  
                  
                  
                  111,702Operating
      expensesCost
      of forwarding/ customs
                  
                  
                  
                  
                  (24,271
                  )
                  
                  
                  (50,627
                  )
                  
                  
                  (50,830
                  )
                  
                  
                  (97,992
                  )Selling
      and administrative
                  
                  
                  
                  
                  (5,658
                  )
                  
                  
                  (6,036
                  )
                  
                  
                  (11,010
                  )
                  
                  
                  (12,087
                  )Depreciation
      and amortization
                  
                  
                  
                  
                  (247
                  )
                  
                  
                  (321
                  )
                  
                  
                  (490
                  )
                  
                  
                  (639
                  )Total
      operating expenses
                  
                  
                  
                  
                  (30,176
                  )
                  
                  
                  (56,984
                  )
                  
                  
                  (62,330
                  )
                  
                  
                  (110,718
                  )(Loss)
      Income from operations
                  
                  
                  
                  
                  (265
                  )
                  
                  
                  616
                  
                  
                  
                  (1,356
                  )
                  
                  
                  984Other
      income (expense)Interest
      income
                  
                  
                  
                  
                  -
                  
                  
                  
                  7
                  
                  
                  
                  1
                  
                  
                  
                  22Interest
      expense
                  
                  
                  
                  
                  (142
                  )
                  
                  
                  (195
                  )
                  
                  
                  (302
                  )
                  
                  
                  (439
                  )Other
      income  (expense), net
                  
                  
                  
                  
                  76
                  
                  
                  
                  (26
                  )
                  
                  
                  147
                  
                  
                  
                  (78
                  )(Loss)
      Income before income taxes
                  
                  
                  
                  
                  (331
                  )
                  
                  
                  402
                  
                  
                  
                  (1,510
                  )
                  
                  
                  489Income
      tax (provision) benefit
                  
                  
                  
                  
                  (78
                  )
                  
                  
                  (146
                  )
                  
                  
                  58
                  
                  
                  
                  (227
                  )Net
      (loss) income
                  
                  
                  
                  
                  (409
                  )
                  
                  
                  256
                  
                  
                  
                  (1,452
                  )
                  
                  
                  262Dividends
      on preferred stock
                  
                  
                  
                  
                  (22
                  )
                  
                  
                  (23
                  )
                  
                  
                  (45
                  )
                  
                  
                  (45
                  )(Loss)
      Income applicable to common stock
                  
                  
                  
                  
                  (431
                  )
                  
                  
                  233
                  
                  
                  
                  (1,497
                  )
                  
                  
                  217Other
      comprehensive income, net of taxes:Foreign
      currency translation adjustment
                  
                  
                  
                  
                  215
                  
                  
                  
                  7
                  
                  
                  
                  159
                  
                  
                  
                  80Total
      comprehensive (loss) income
                  
                  
                  
                  
                  (216
                  )
                  
                  
                  240
                  
                  
                  
                  (1,338
                  )
                  
                  
                  297




The
financial statements should be read in conjunction with the accompanying
notes.


F-1





WLG
Inc.





Consolidated
Statements of Operations and other comprehensive income


Three and
six months ended June 30, 2009 and 2008


(Dollars
in thousands except share data and per share amounts)





Net
      (loss) income per share:Basic
      (loss) earnings per share
                
                
                2
                
                
                
                (0.01
                )
                
                
                0.01
                
                
                
                (0.05
                )
                
                
                0.01Diluted
      (loss) earnings per share
                
                
                2
                
                
                
                (0.01
                )
                
                
                0.01
                
                
                
                (0.05
                )
                
                
                0.01Weighted
      average common shares outstandingBasic
                
                
                
                
                
                
                31,400,094
                
                
                
                31,400,094
                
                
                
                31,400,094
                
                
                
                31,400,094Diluted
                
                
                
                
                
                
                31,400,094
                
                
                
                31,400,094
                
                
                
                31,400,094
                
                
                
                31,400,094




The
financial statements should be read in conjunction with the accompanying
notes.


F-2





WLG
Inc.





Consolidated
Balance Sheets


At June
30, 2009 and December 31, 2008


(Dollars
in thousands except share data and per share amounts)





At
                                          June
      30,
                                          2009
                                        
                                        
                                        At
                                          December
      31,
                                          2008Notes
                                        
                                        
                                        US$
                                        
                                        
                                        US$(unaudited)ASSETSCurrent
      assetsCash
      and cash equivalents
                                        
                                        
                                        
                                        
                                        
                                        1,459
                                        
                                        
                                        
                                        2,402Restricted
      cash
                                        
                                        
                                        
                                        
                                        
                                        601
                                        
                                        
                                        
                                        713Trade
      receivables, net of allowance (2009:$830 ; 2008:
      $499)
                                        
                                        
                                        
                                        
                                        
                                        11,836
                                        
                                        
                                        
                                        15,246Deposits,
      prepayments and other current assets
                                        
                                        
                                        
                                        
                                        
                                        1,108
                                        
                                        
                                        
                                        903Prepaid
      tax
                                        
                                        
                                        
                                        
                                        
                                        238
                                        
                                        
                                        
                                        50Total
      current assets
                                        
                                        
                                        
                                        
                                        
                                        15,242
                                        
                                        
                                        
                                        19,314Property,
      plant and equipment, net
                                        
                                        
                                        
                                        
                                        
                                        1,302
                                        
                                        
                                        
                                        1,115Deposits
      and other non-current assets
                                        
                                        
                                        
                                        
                                        
                                        142
                                        
                                        
                                        
                                        142Deferred
      tax assets
                                        
                                        
                                        
                                        
                                        
                                        379
                                        
                                        
                                        
                                        248Intangible
      assets, net
                                        
                                        
                                        
                                        
                                        
                                        3,611
                                        
                                        
                                        
                                        3,931Goodwill
                                        
                                        
                                        
                                        
                                        
                                        9,328
                                        
                                        
                                        
                                        9,328Total
      assets
                                        
                                        
                                        
                                        
                                        
                                        30,004
                                        
                                        
                                        
                                        34,078LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesBank
      overdraft
                                        
                                        
                                        3
                                        
                                        
                                        
                                        543
                                        
                                        
                                        
                                        466Trade
      payables
                                        
                                        
                                        
                                        
                                        
                                        
                                        7,029
                                        
                                        
                                        
                                        8,092Other
      accrued liabilities
                                        
                                        
                                        
                                        
                                        
                                        
                                        2,847
                                        
                                        
                                        
                                        2,702Bank
      loans - maturing within one year
                                        
                                        
                                        3
                                        
                                        
                                        
                                        2,509
                                        
                                        
                                        
                                        3,896Current
      portion of capital lease obligations
                                        
                                        
                                        
                                        
                                        
                                        
                                        75
                                        
                                        
                                        
                                        72Due
      to directors
                                        
                                        
                                        5
                                        
                                        
                                        
                                        633
                                        
                                        
                                        
                                        990Income
      tax payable
                                        
                                        
                                        
                                        
                                        
                                        
                                        67
                                        
                                        
                                        
                                        183Total
      current liabilities
                                        
                                        
                                        
                                        
                                        
                                        
                                        13,703
                                        
                                        
                                        
                                        16,401Non-current
      liabilitiesNon-current
      portion of capital lease obligations
                                        
                                        
                                        
                                        
                                        
                                        
                                        53
                                        
                                        
                                        
                                        91Other
      non-current liabilities
                                        
                                        
                                        
                                        
                                        
                                        
                                        209
                                        
                                        
                                        
                                        216262
                                        
                                        
                                        
                                        307Commitments
      and contingencies
                                        
                                        
                                        4
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Series
      B convertible redeemable preferred stock, $0.001 par value, 1.7 million
      shares authorized and issued (Redemption and liquidation value,
      $1,700)
                                        
                                        
                                        6
                                        
                                        
                                        
                                        1,700
                                        
                                        
                                        
                                        1,700




The
financial statements should be read in conjunction with the accompanying
notes.


F-3





WLG
Inc.





Consolidated
Balance Sheets


At June
30, 2009 and December 31, 2008


(Dollars
in thousands except share data and per share amounts)





At
                        June
      30,
                        2009
                      
                      
                      At
                        December
      31,
                        2008US$
                      
                      
                      US$(unaudited)Stockholders'
      equityPreferred
      stock, $0.001 par value, 5 million sharesauthorized
      and none issued
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      -Series
      A convertible redeemable preferred stock, $0.001 parvalue,
      2.0 million shares authorized and issued(Redemption
      and liquidation value $1,500)
                      
                      
                      
                      
                      
                      2
                      
                      
                      
                      2Common
      stock, $0.001 par value, 55 million sharesauthorized,
      31,400,094 (2008:
      31,400,094) shares issued and outstanding
                      
                      
                      
                      
                      
                      31
                      
                      
                      
                      31Additional
      paid-in capital
                      
                      
                      
                      
                      
                      12,777
                      
                      
                      
                      12,770Statutory
      reserve
                      
                      
                      7
                      
                      
                      
                      124
                      
                      
                      
                      124Accumulated
      other comprehensive loss-
      Foreign currency translation adjustments
                      
                      
                      
                      
                      
                      
                      (64
                      )
                      
                      
                      (223
                      )Retained
      earnings
                      
                      
                      
                      
                      
                      
                      1,469
                      
                      
                      
                      2,966Total
      stockholders' equity
                      
                      
                      
                      
                      
                      
                      14,339
                      
                      
                      
                      15,670Total
      liabilities and stockholders' equity
                      
                      
                      
                      
                      
                      
                      30,004
                      
                      
                      
                      34,078




The
financial statements should be read in conjunction with the accompanying
notes.


F-4





WLG
Inc.





Consolidated
Statements of Cash Flows


Six
months ended June 30, 2009 and 2008





(Dollars
in thousands except share data and per share amounts)





Six
      months ended
                              June
      30,2009
                            
                            
                            2008US$
                            
                            
                            US$(unaudited)
                            
                            
                            (unaudited)Cash
      flows from operating activities:Net
      (loss) income
                            
                            
                            (1,452
                            )
                            
                            
                            262Adjustments
      to reconcile net (loss) income to net cash provided by operating
      activitiesDepreciation
                            
                            
                            170
                            
                            
                            
                            205Amortization
                            
                            
                            320
                            
                            
                            
                            434Allowance
      for bad debts
                            
                            
                            389
                            
                            
                            
                            99Other
      non-cash items
                            
                            
                            7
                            
                            
                            
                            5Changes
      in working capital:Trade
      receivables
                            
                            
                            3,141
                            
                            
                            
                            818Deposits,
      prepayments and other current assets
                            
                            
                            (205
                            )
                            
                            
                            (67
                            )Trade
      payables
                            
                            
                            (1,063
                            )
                            
                            
                            415Other
      accrued liabilities
                            
                            
                            198
                            
                            
                            
                            (165
                            )Due
      to directors
                            
                            
                            (42
                            )
                            
                            
                            (205
                            )Income
      tax payable
                            
                            
                            (435
                            )
                            
                            
                            (92
                            )Net
      cash provided by operating activities
                            
                            
                            1,028
                            
                            
                            
                            1,709Cash
      flows from investing activities:Acquisitions
      of property, plant and equipment
                            
                            
                            (318
                            )
                            
                            
                            (165
                            )Net
      cash used in investing activities
                            
                            
                            (318
                            )
                            
                            
                            (165
                            )Cash
      flows from financing activities:Restricted
      cash
                            
                            
                            112
                            
                            
                            
                            (63
                            )Bank
      overdraft
                            
                            
                            77
                            
                            
                            
                            177Net
      decrease in short term bank loans
                            
                            
                            (1,387
                            )
                            
                            
                            (2,032
                            )Capital
      lease obligations paid
                            
                            
                            (35
                            )
                            
                            
                            (62
                            )Loans
      (repaid) from directors
                            
                            
                            (375
                            )
                            
                            
                            1,637Dividend
      paid on preferred stock
                            
                            
                            (45
                            )
                            
                            
                            (45
                            )Net
      cash used in financing activities
                            
                            
                            (1,653
                            )
                            
                            
                            (388
                            )Net
      (decrease) increase in cash and cash equivalents
                            
                            
                            (943
                            )
                            
                            
                            1,156Cash
      and cash equivalents at beginning of period
                            
                            
                            2,402
                            
                            
                            
                            1,631Cash
      and cash equivalents at end of period
                            
                            
                            1,459
                            
                            
                            
                            2,787




The
financial statements should be read in conjunction with the accompanying
notes.


F-5


WLG
Inc.





Notes
to the Consolidated Financial Statements


Three and
six months ended June 30, 2009 and 2008





(Dollars
in thousands except share data and per share amounts)





1.
            ORGANIZATION
      AND BASIS OF PRESENTATION





WLG Inc.
(“WLG”, the “Company”, or the “Group”) was incorporated on December 2, 2003,
pursuant to the laws of Delaware in the United States of America, with
authorized and outstanding share capital of 100 million shares of common stock,
par value of $0.001 per share.  All outstanding common stock was issued to
Mr. Christopher Wood (“Mr Wood”).





On
January 8, 2004, WLG changed its name to Wako Logistics Group, Inc.  On the
same date, its authorized number of shares was reduced to 60 million shares, of
which 55 million shares were common stock, and 5 million shares were preferred
stock.





Pursuant
to the Share Exchange Agreements entered into between WLG and Mr. Wood (and his
nominee) on January 18, 2004, WLG consummated a combination with Wako Express
(H.K.) Company Limited (“WEHK”) and Wako Air Express (H.K.) Company Limited
(“WAE”) (collectively, “Operating Subsidiaries”) by the issuance of 20,000,900
shares of WLG common stock to Mr. Wood in exchange for 100% of the
outstanding stock of WEHK and WAE.





After the
share exchanges, WLG became the parent and controlling company of the Operating
Subsidiaries, and Mr. Wood became the controlling shareholder of
WLG.





The
transfer of Mr. Wood’s common stock in the Operating Subsidiaries to WLG
was a reorganization of companies under common control and has been accounted
for effectively as a pooling of interests, and the consolidated financial
statements of the Group have been presented as if the Operating Subsidiaries had
been owned by WLG since the earliest date covered by these financial
statements.





WEHK was
incorporated in Hong Kong on June 4, 1982.  Since its inception, WEHK’s
principal activity has been the provision of sea freight forwarding
services.





WAE was
incorporated in Hong Kong on February 24, 1989, and since that date, WAE’s
principal activity has been the provision of air freight forwarding
services.





In July
and November 2004, the Group established two 100% owned subsidiaries, Wako
Express (China) Co. Ltd. (“WE China”) in the People’s Republic of China (“PRC”)
and Wako Express (China) Co. Limited (“WECCL”) in Hong Kong.  WE China
began business in China in February 2005 as a full-service freight forwarding
company.  WECCL had not commenced business as of June 30,
2009.





On April
1, 2005, WLG completed the acquisition of 100% of the voting interests in Kay
O’Neill (USA) LLC (“KON”), an Illinois limited liability company based in
Chicago, Illinois.  KON also had an office in Detroit, Michigan. KON
changed its name to WLG (USA) LLC (“WLG (USA)”) in June 2005, and, as of the end
of 2006, had discontinued the use of the name KON.  The purchase price for
KON consisted of a $1,000 cash payment and a professional fee of $50.  WLG
(USA) is a non-asset based freight forwarding company and provides freight
forwarding and logistics services to its customers.


F-6





WLG
Inc.





Notes
to the Consolidated Financial Statements


Three and
six months ended June 30, 2009 and 2008





(Dollars
in thousands except share data and per share amounts)





1.
            ORGANIZATION
      AND BASIS OF PRESENTATION
(CONTINUED)





Effective
October 1, 2005, WLG acquired all of the issued and outstanding shares of common
stock of Asean Logistics, Inc. (“ALI”), a California corporation, in exchange
for 250,000 restricted shares of WLG’s common stock.  Concurrent with
the acquisition, WLG, by way of a contribution to capital, transferred all of
the ALI shares to WLG (USA).





ALI was a
non-asset based freight forwarding company and provided freight forwarding
services to its customers, which shipped products primarily between Asia and the
United States.  As of June 30, 2008, all of ALI’s operations had been
combined with those of WLG (USA).





On
November 9, 2005, WLG (Australia) Pty Ltd. (“WLG (Aust)”), a wholly-owned
Australian subsidiary of WLG, completed the acquisition of all the issued and
outstanding common stock of Asean Cargo Services Pty Limited (“Asean”) in
exchange for 3.5 million restricted shares of WLG’s common stock.  An
additional 1.3 million shares of WLG’s restricted common stock were issued to
the sellers of Asean in 2007 in recognition of Asean achieving certain
financial goals during the fifteen-month period ended December 31, 2006.





Founded
in 1984 and based in Sydney, Australia, Asean also has offices in Melbourne and
Brisbane and maintains relationships with cargo agents in all of Australia’s
mainland states.  Asean provides freight forwarding and logistics
services, as well as customs brokerage services, to its customers, most of whom
ship products primarily between Asia and Australia.





In
February 2006, WLG formed two United Kingdom (“UK”) subsidiaries, WLG (UK)
Holdings Limited (“WLG (UK) Holdings”) as a first tier subsidiary and WLG (UK)
Limited (“WLG (UK)”) as a subsidiary of WLG (UK) Holdings.  Effective
September 15, 2006, WLG (UK) acquired for cash the operating assets and assumed
limited liabilities of a division (“UK Division”) of a UK freight forwarding and
logistics company (“UK Co.”). This UK Division, which operated in Manchester,
UK, provided sea and air freight forwarding, customs clearance and warehouse
logistics services, mostly to UK based customers.  These activities are now
carried on by WLG (UK).





On
December 1, 2006, WLG (USA) acquired for cash all of the voting shares of
Mares-Shreve & Associates, Inc. (“MSA”) and its wholly-owned subsidiary, Sea
Systems Ocean Line, Inc., (“Sea Systems”) (collectively, the “MSA Group”).
 MSA, which was incorporated on May 15, 1979, in Washington, provides
freight forwarding and customs brokerage services to its customers.  Sea
Systems, incorporated on February 26, 1991, in Washington, is a non-asset based
freight forwarder and provided air and sea freight forwarding and related
logistics services to its customers.  As of June 30, 2008, all of Sea
Systems’ operations had been combined with those of MSA.  MSA mainly
serves customers that ship products from Asia to the US.





On July
31, 2007, the Group acquired all of the membership interests in World Commerce
Services LLC (“WCS”).  WCS is based in Schaumburg, Illinois, and also has
offices in New York, Los Angeles and San Francisco.  It is a non-asset
based freight forwarding company and provides a full range of logistics and
customs brokerage services to its customers, specializing in freight imports
from Asia, mostly by sea, with an emphasis on imports from
China.


F-7


WLG
Inc.





Notes
to the Consolidated Financial Statements


Three and
six months ended June 30, 2009 and 2008





(Dollars
in thousands except share data and per share amounts)





1.
            ORGANIZATION
      AND BASIS OF PRESENTATION
(CONTINUED)





On
December 7, 2007, the Company filed an amendment to the Company’s Restated
Certificate of Incorporation to change the Company’s name from Wako Logistics
Group, Inc. to WLG Inc., which became effective December 21, 2007.





As of
June 30, 2009, all subsidiaries are wholly-owned and all material intercompany
balances and transactions have been eliminated in consolidation.





The
accompanying financial data as of June 30, 2009, and for the three and six
months ended June 30, 2009 and 2008, have been prepared by the Company without
audit.





Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to such rules
and regulations.  However, the Company believes that the disclosures
herein are adequate to make the information presented not
misleading.  These financial statements should be read in conjunction
with the Company’s audited, consolidated financial statements and notes thereto
for the year ended December 31, 2008.





The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates that affect the
reported amounts of assets, liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities.  Actual results could
differ from these estimates.





The
unaudited, interim consolidated financial statements of the Company have been
prepared in accordance with U.S. generally accepted accounting principles for
interim financial information.  In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position as of June 30, 2009, and results of
operations for the three and six months ended June 30, 2009 and 2008, and cash
flows for the six months ended June 30, 2009 and 2008, have been
made.  The results of operations for the three and six months ended
June 30, 2009 and 2008, are not necessarily indicative of the operating results
for the full year.


F-8





WLG
Inc.





Notes
to the Consolidated Financial Statements


Three and
six months ended June 30, 2009 and 2008





(Dollars
in thousands except share data and per share amounts)





2.
            (LOSS)
      EARNINGS PER SHARE





(Loss)
earnings per share were computed as follows:




Three
      months ended June 30, 2009Loss
                  
                  
                  Weighted
                    average
                    number
      of
                    shares
                  
                  
                  Per
      share
                    amountUS$
                  
                  
                  
                  
                  
                  US$(unaudited)
                  
                  
                  
                  
                  
                  (unaudited)Net
      loss
                  
                  
                  (409
                  )Less
      dividends on Series A convertible redeemable preferred
    stock
                  
                  
                  22
                  
                  
                  
                  2,000,000
                  
                  
                  
                  0.01Basic
      loss per shareNet
      loss attributable to common stockholders
                  
                  
                  (431
                  )
                  
                  
                  31,400,094
                  
                  
                  
                  (0.01
                  )Effect
      of dilutive securitiesEmployee
      stock options (Note
      #)
                  
                  
                  -
                  
                  
                  
                  -Warrants
      (Note
      #)
                  
                  
                  -
                  
                  
                  
                  -Series
      A convertible redeemable preferred stock (Note
#)
                  
                  
                  -
                  
                  
                  
                  -Series
      B convertible redeemable preferred stock (Note
#)
                  
                  
                  -
                  
                  
                  
                  -Diluted
      loss per shareNet
      loss applicable to common stockholders
                  
                  
                  (431
                  )
                  
                  
                  31,400,094
                  
                  
                  
                  (0.01
                  )


F-9


WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2009 and 2008
 (Dollars
in thousands except share data and per share amounts)
 
 2.
              (LOSS)
      EARNINGS PER SHARE (CONTINUED)
  Six
      months ended June 30, 2009Loss
                          
                          
                          Weighted
                            average
                            number
      of
                            shares
                          
                          
                          Per
      share
                            amountUS$
                          
                          
                          
                          
                          
                          US$(unaudited)
                          
                          
                          
                          
                          
                          (unaudited)Net
      loss
                          
                          
                          (1,452
                          )Less
      dividends on Series A convertible redeemable preferred
    stock
                          
                          
                          45
                          
                          
                          
                          2,000,000
                          
                          
                          
                          0.02Basic
      loss per shareNet
      loss applicable to common stockholders
                          
                          
                          (1,497
                          )
                          
                          
                          31,400,094
                          
                          
                          
                          (0.05
                          )Effect
      of dilutive securitiesEmployee
      stock options (Note
      #)
                          
                          
                          -
                          
                          
                          
                          -Warrants
      (Note
      #)
                          
                          
                          -
                          
                          
                          
                          -Series
      A convertible redeemable preferred stock (Note
#)
                          
                          
                          -
                          
                          
                          
                          -Series
      B convertible redeemable preferred stock (Note
#)
                          
                          
                          -
                          
                          
                          
                          -Diluted
      loss per shareNet
      loss applicable to common stockholders
                          
                          
                          (1,497
                          )
                          
                          
                          31,400,094
                          
                          
                          
                          (0.05
                          )
  F-10
  WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2009 and 2008
 (Dollars
in thousands except share data and per share amounts)
 
 2.
              (LOSS)
      EARNINGS PER SHARE (CONTINUED)
 
 Three
      months ended June 30, 2008Income
                        
                        
                        Weighted
                          average
                          number
      of
                          shares
                        
                        
                        Per
      share
                          amountUS$
                        
                        
                        
                        
                        
                        US$(unaudited)
                        
                        
                        
                        
                        
                        (unaudited)Net
      income
                        
                        
                        256Less
      dividends on Series A convertible redeemable preferred
    stock
                        
                        
                        23
                        
                        
                        
                        2,000,000
                        
                        
                        
                        0.01Basic
      earnings per shareNet
      income available to common stockholders
                        
                        
                        233
                        
                        
                        
                        31,400,094
                        
                        
                        
                        0.01Effect
      of dilutive securitiesEmployee
      stock options (Notes
      #)
                        
                        
                        -
                        
                        
                        
                        -Warrants
      (Note
      #)
                        
                        
                        -
                        
                        
                        
                        -Series
      A convertible redeemable preferred stock (Note
#)
                        
                        
                        -
                        
                        
                        
                        -Diluted
      earnings per shareNet
      income available to common stockholders
                        
                        
                        233
                        
                        
                        
                        31,400,094
                        
                        
                        
                        0.01
  F-11




WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2009 and 2008
 (Dollars
in thousands except share data and per share amounts)
  2.
              (LOSS)
      EARNINGS PER SHARE (CONTINUED)
  Six
      months ended June 30, 2008Income
                            
                            
                            Weighted
                              average
                              number
      of
                              shares
                            
                            
                            Per
      share
                              amountUS$
                            
                            
                            
                            
                            
                            US$(unaudited)
                            
                            
                            
                            
                            
                            (unaudited)Net
      income
                            
                            
                            262Less
      dividends on Series A convertible redeemable preferred
    stock
                            
                            
                            45
                            
                            
                            
                            2,000,000
                            
                            
                            
                            0.02Basic
      earnings per shareNet
      income available to common stockholders
                            
                            
                            217
                            
                            
                            
                            31,400,094
                            
                            
                            
                            0.01Effect
      of dilutive securitiesEmployee
      stock options (Notes#)
                            
                            
                            -
                            
                            
                            
                            -Warrants
      (Note
      #)
                            
                            
                            -
                            
                            
                            
                            -Series
      A convertible redeemable preferred stock (Note
#)
                            
                            
                            -
                            
                            
                            
                            -Diluted
      earnings per shareNet
      income available to common stockholders
                            
                            
                            217
                            
                            
                            
                            31,400,094
                            
                            
                            
                            0.01
 #
      :
                For
      the three and six months ended June 30, 2009, common stock was not
      increased by the 2,000,000 shares of Series A convertible redeemable
      preferred stock, the 500,000 shares of common stock issuable to the
      sellers of WCS upon the conversion of the Series A convertible redeemable
      preferred stock, the exercise of the 100,000 outstanding warrants granted
      to a consultant in exchange for services rendered, the exercise of 395,000
      outstanding stock options, and the 2,428,571 shares related to the Series
      B convertible redeemable preferred stock.  For the three and six
      months ended June 30, 2008, common stock was not increased by the
      2,000,000 shares of Series A convertible redeemable preferred stock, the
      500,000 shares of common stock issuable to the sellers of WCS upon the
      conversion of the Series A convertible redeemable preferred stock, the
      exercise of the 100,000 outstanding warrants granted to a consultant in
      exchange for services rendered, or the exercise of 245,000 outstanding
      stock options.  Under an agreement with the sellers of WCS, the
      Company is potentially obligated to issue up to 1,962,506 shares of its
      common stock to them if certain earnings targets are
      achieved.  None of the earnings targets were achieved as of June
      30, 2009 and 2008.  The effect of these conversions would be
      anti-dilutive.
  F-12
  WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2009 and 2008
 (Dollars
in thousands except share data and per share amounts)
  3.
              BANKING
      FACILITIES
 
 The Group
has bank facilities from creditworthy commercial banks as
follows:
 
 At
                      June
      30,
                      2009
                    
                    
                    At
                      December
      31,
                      2008US$
                    
                    
                    US$(unaudited)Facilities
      granted-
      bank guarantees
                    
                    
                    1,150
                    
                    
                    
                    1,074-
      overdraft facility
                    
                    
                    543
                    
                    
                    
                    466-
      revolving credit lines
                    
                    
                    6,218
                    
                    
                    
                    7,261-
      foreign exchange facilities
                    
                    
                    201
                    
                    
                    
                    173-
      lease facilities
                    
                    
                    201
                    
                    
                    
                    173Total
      bank facilities
                    
                    
                    8,313
                    
                    
                    
                    9,147
 
 The terms
of the revolving loan and other bank facilities, including the amounts and
maturity dates, are agreed between the banks and the Group from time to
time.
 
 Bank
guarantees of $544 will expire within one year from June 30, 2009, but may be
renewed, provided the Group makes available the cash required by the banks to
collateralize each guarantee. A bank guarantee of $111 and the overdraft
facility have no expiry dates, but the bank or WLG may terminate either facility
by giving 30 days notice to the other party.  The remaining bank
guarantee of $495 has no fixed expiration date and is cancelable and/or
renewable at the option of the bank.
 
 The
revolving loan facilities mature on various dates as follows: (i) a revolving
credit facility of $3,000 on September 30, 2009 and (ii) a revolving credit
facility of $3,218 is an on-going facility that is subject to review in 2009,
and, by its terms, may be terminated by either the bank or WLG giving 30 days
notice to the other party.
 
 The
revolving credit facilities of $6,218 are secured as follows: (i) $3,000 is
secured by all of the assets of WCS, WLG (USA) and MSA, including their accounts
receivables as well as a guarantee provided by the Group’s parent company, and
(ii) $3,218 is secured by Asean’s accounts receivable and a registered mortgage
charge over the assets of Asean.
 
 WCS’s
revolving credit facility in the face amount of $3,000 requires that WCS comply
with certain covenants, one of which is that WCS must at all times have excess
availability of at least $1,000, which was reduced to $750 in December
2008. In addition, WCS is required at the end of each quarter to be in
compliance with a tangible capital funds covenant, and it was not in compliance
with this covenant at June 30, 2009. The bank has not restricted the use of this
facility because of the covenant violation. This facility, which by its terms
expired on March 31, 2009, was renewed and shall mature on September 30,
2009.  No amounts were charged by the bank or any third parties in
connection with the renewal of this revolving credit facility.  Other
than the following amendments, the terms of the renewed facility are
substantially the same as those of the existing facility that expired on March
31, 2009:
 
 Ÿ
              Maximum
      amount of the credit line was reduced to $3,000 from
    $4,500.
 
 Ÿ
              Interest
      rate was increased to 2% over the prime rate of the bank from the previous
      interest rate which was the bank’s prime
rate.
  The group
is in active discussions with other banks to provide a new facility to replace
the existing credit facility of $3,000, and has requested to have a new facility
in the face amount of $4,000.
 F-13
  WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2009 and 2008
 (Dollars
in thousands except share data and per share amounts)
 
 3.
              BANKING
      FACILITIES (CONTINUED)
 
 Of the
total bank guarantees of $1,150, one in the amount of $544 is collateralized by
cash.  Another bank guarantee of $111 is secured by (i) a letter of
support from the Group’s parent company, and (ii) a registered mortgage
debenture over all of Asean’s assets.   The remaining bank
guarantee of $495 is secured by a fixed and floating charge on all of WLG
(UK)’s  assets and by a guarantee of the Group’s parent
company.
 
 Asean’s
overdraft facility of $543 is secured by (i) a comfort letter from the Group’s
parent company and (ii) a registered mortgage debenture over all of Asean’s
assets.
 
 Asean has
a foreign exchange facility of $201, which at June 30, 2009, had not been
utilized.  Asean has a leasing facility of $201, with $1 outstanding
as of June 30, 2009, and which is secured by the assets under
lease.  In addition, both the foreign exchange and leasing facility
are secured by a comfort letter from the Group’s parent company.  As
of June 30, 2009, the leasing facility carried an interest rate of 7.68% per
annum.   As of June 30, 2009, and December 31, 2008, the weighted
average interest rates of the Group’s short-term bank borrowings were 7.28% and
7.27% per annum, respectively.
 
 At
                      June
      30,
                      2009
                    
                    
                    At
                      December
      31,
                      2008US$
                    
                    
                    US$(unaudited)UtilizedCommitted
      lines-
      bank guarantees
                    
                    
                    1,150
                    
                    
                    
                    1,074-
      overdraft facility
                    
                    
                    543
                    
                    
                    
                    466-
      revolving credit lines
                    
                    
                    2,509
                    
                    
                    
                    3,896-
      lease facilities
                    
                    
                    1
                    
                    
                    
                    2Total
      bank facilities utilized
                    
                    
                    4,203
                    
                    
                    
                    5,438
  F-14
  WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2009 and 2008
 (Dollars
in thousands except share data and per share amounts)
 
 4.
              COMMITMENTS
      AND CONTINGENCIES
 
 Commitments under operating
leases
 The Group
rents office and warehouse space, staff quarters and certain office equipment
under non-cancellable operating leases.  The following table
summarizes these approximate, future minimum lease payments for operating leases
in effect as of June 30, 2009, and December 31, 2008:
 
 At
                      June
      30,
                      2009
                    
                    
                    At
                      December
      31,
                      2008US$
                    
                    
                    US$(unaudited)Within
      one year
                    
                    
                    1,540
                    
                    
                    
                    1,365Over
      one year but not exceeding two years
                    
                    
                    972
                    
                    
                    
                    966Over
      two years but not exceeding three years
                    
                    
                    622
                    
                    
                    
                    567Over
      three years but not exceeding four years
                    
                    
                    443
                    
                    
                    
                    351Over
      four years but not exceeding five years
                    
                    
                    435
                    
                    
                    
                    290Over
      five years
                    
                    
                    1,185
                    
                    
                    
                    1,184Total
      operating lease commitments
                    
                    
                    5,197
                    
                    
                    
                    4,723
 
 The Group
has obligations under various operating lease agreements ranging from three
months to nine years.  Rent expense under operating leases for the six
months ended June 30, 2009 and 2008, was $821 and $965,
respectively.
 
 Cargo
space commitments
 The
Group, in the course of its business, enters into agreements with various air
and ocean freight carriers pursuant to which the Group commits to utilize a
minimum amount of cargo space each year. As of June 30, 2009, and December 31,
2008, the obligations for the minimum amount of such cargo space to be utilized
in the coming 12 months were $2,630 and $2,420, respectively.
 
 Contingencies
– outstanding claims
 The Group
is subject to claims that arise primarily in the ordinary course of
business.  In general, such claims are covered by insurance policies
issued for the Group’s businesses.
 
 As of
June 30, 2009, and December 31, 2008, and subject to the legal proceedings as
described below, the aggregate, outstanding amount of claims was approximately
$165 and $40, respectively.  The Group believes that the ultimate
liability, if any, for all of these claims, both filed and potential, will not
have a material adverse effect on its financial position.
 
 In the
first quarter of 2008, three parties filed legal actions against the Group
totaling about $150. These claims were covered by insurance, except for amounts
equal to or less than the deductible payment required under these policies,
which totaled about $23, and for which a provision was made in
2008.  As of March 31, 2009, all claims from these three parties had
been settled, and the Group paid $23 as its share of the
settlements.
  F-15
  WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2009 and 2008
 (Dollars
in thousands except share data and per share amounts)
 
 4.
              COMMITMENTS
      AND CONTINGENCIES (CONTINUED)
 
 Contingencies
– outstanding claims (Continued)
 
 During
the three months ended March 31, 2009, the Group was notified by several parties
that they would file claims against the Group, unless payment was made to them
for certain cargoes that were allegedly released by the Company without proper
documentation and for which no payments were made by the purchaser of the
goods.  Subsequent to March 31, 2009, two parties did file claims
against the Company.  As of June 30, 2009, the Company had reserved
about $125 for these potential claims, which it believes is a reasonable
estimate of the financial exposure for them.
  WCS has
been named as a third-party defendant in pending proceedings filed in the United
States District Court for the Southern District of New York and the United
States District Court, Central District of California relating to claims arising
out of the derailment of a Union Pacific train at Tyrone, Oklahoma on April 21,
2005.  The total amount of damages sought equals approximately $6,800,
including an unspecified amount for costs of delay, lost profit and lost
revenue.  The Group intends to vigorously defend each of the foregoing
actions.  WCS has been advised by its legal counsel that it has been
named as a third-party defendant for technical reasons and that the likelihood
of any material liability being assigned to WCS is minimal, but subject to the
normal risks of litigation.  Management believes that the disposition
or ultimate resolution of this pending litigation will not have a material
adverse effect on the financial position of the Group.
 
 5.
              RELATED
      PARTY TRANSACTIONS
 
 Name
      and relationship of related partiesName
                    
                    Relationship with the
  GroupChristopher
      Wood (“CW”)
                    
                    Shareholder,
      director and officer of WLGDavid
      Koontz (“DK”)
                    
                    Director
      and officer of WLG and a director of Asean and WLG
  (Aust)Join
      Wing Properties Limited (“JWP”)
                    
                    CW
      is a shareholder and director of
JWP
 
 Details
of related parties
 
 Name
                                      
                                      Principal activities
                                      
                                      OwnershipName
      of owner
                                      
                                      %
      heldJWP
                                      
                                      Leases
      property to CW
                                      
                                      CW
                                      
                                      
                                      100
                                      %
  F-16
  WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2009 and 2008
 (Dollars
in thousands except share data and per share amounts)
 
 5.
              RELATED
      PARTY TRANSACTIONS (CONTINUED)
 
 The
following is a summary of the amounts included in the accompanying balance
sheets:
  At
                June
      30,
                2009
              
              
              At
                December
      31,
                2008US$
              
              
              US$(unaudited)Due
      to directors (Notes)CW
              
              
              633
              
              
              
              615DK
              
              
              -
              
              
              
              375633
              
              
              
              990
 
 Notes:
 
 (i)
              Amounts
      due to directors are unsecured and interest-free, except for a director
      loan of $600 (see note (ii) below) due to CW, which was used (i) as part
      of the consideration to acquire the membership interests of WCS, (ii)
      repay certain bank loans and (iii) as working capital.  The
      directors’ loans carry an interest rate of 12% per annum.  As of
      June 30, 2009, the director loan of $600 is to be repaid by 12 equal
      installments which were to begin on January 31, 2009. The remaining
      balance of $33 has no fixed repayment
term.
 
 (ii)
              On
      July 1, 2008, the Group issued a $600 promissory note to CW, dated July 1,
      2008, (the “Note”) to set forth, among other things, the interest rate and
      repayment terms for $600 that CW had previously loaned to the
      Group.   The Note bears interest at the rate of 12% per
      annum and is repayable in twelve monthly installments of $50, with the
      first installment due on January 31, 2009.  CW has agreed that
      payments due under this note may be deferred on a month to month basis,
      and no principal payments had been made to CW as of June 30,
      2009.   The Note is secured by the Group’s assets and will
      become immediately due and payable upon the earlier to occur of (i) an
      event of default as defined in the Note, (ii) a change in control as
      defined in the Note, (iii) raising not less than $3,000 in new capital,
      and/or (iv) the termination of CW’s
employment.
 
 Additional
details of transactions
 
 Three months ended
                                June 30,
                              
                              
                              Six months ended
                                June 30,2009
                              
                              
                              2008
                              
                              
                              2009
                              
                              
                              2008(unaudited)
                              
                              
                              (unaudited)
                              
                              
                              (unaudited)
                              
                              
                              (unaudited)US$
                              
                              
                              US$
                              
                              
                              US$
                              
                              
                              US$Rental
      paid/payableJWP
                              
                              
                              27
                              
                              
                              
                              27
                              
                              
                              
                              54
                              
                              
                              
                              54
  F-17
  WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2009 and 2008
 (Dollars
in thousands except share data and per share amounts)
 
 5.
              RELATED
      PARTY TRANSACTIONS (CONTINUED)
 
 Summary
of transactions for the six months ended June 30, 2009 and 2008, with
directors/stockholders (unaudited):
 
 CW
                    
                    
                    DK
                    
                    
                    TotalUS$
                    
                    
                    US$
                    
                    
                    US$At
      January 1, 2009
                    
                    
                    615
                    
                    
                    
                    375
                    
                    
                    
                    990Reclassification
      from accrued liabilities
                    
                    
                    60
                    
                    
                    
                    -
                    
                    
                    
                    60Interest
      accrued
                    
                    
                    138
                    
                    
                    
                    13
                    
                    
                    
                    151Interest
      paid
                    
                    
                    (138
                    )
                    
                    
                    (13
                    )
                    
                    
                    (151
                    )Repayment
      of loan
                    
                    
                    -
                    
                    
                    
                    (375
                    )
                    
                    
                    (375
                    )Repayment
      of advance
                    
                    
                    (42
                    )
                    
                    
                    -
                    
                    
                    
                    (42
                    )At
      June 30, 2009
                    
                    
                    633
                    
                    
                    
                    -
                    
                    
                    
                    633At
      January 1, 2008
                    
                    
                    960
                    
                    
                    
                    750
                    
                    
                    
                    1,710Loans
      from directors
                    
                    
                    1,637
                    
                    
                    
                    -
                    
                    
                    
                    1,637Interest
      accrued
                    
                    
                    82
                    
                    
                    
                    45
                    
                    
                    
                    127Interest
      paid
                    
                    
                    (23
                    )
                    
                    
                    (45
                    )
                    
                    
                    (68
                    )Expenses
      paid
                    
                    
                    (264
                    )
                    
                    
                    -
                    
                    
                    
                    (264
                    )Converted
      to redeemable preferred stock
                    
                    
                    (1,700
                    )
                    
                    
                    -
                    
                    
                    
                    (1,700
                    )At
      June 30, 2008
                    
                    
                    692
                    
                    
                    
                    750
                    
                    
                    
                    1,442
 
 Note:
  ·
              Expenses
      include amounts that were either paid directly to or for the benefit of
      CW.
 
 6.
              SERIES
      B CONVERTIBLE REDEEMABLE PREFERRED
STOCK
  On June
30, 2008, the Company entered into a conversion agreement with Christopher Wood,
the Company’s Chief Executive Officer, director and controlling shareholder,
pursuant to which Mr. Wood and the Company agreed to convert $1,700 of
outstanding loans that Mr. Wood had made to the Company into 1.7 million shares
of the Company’s Series B Convertible Redeemable Preferred Stock (“Series B
Preferred Stock”).  In connection therewith, in June 2008, the
Company’s Board of Directors approved the designation of a new series of
preferred stock consisting of 1.7 million shares of authorized, but unissued,
shares of preferred stock designated as Series B Preferred Stock, par value
$0.001.  The Series B Preferred Stock was issued on June 30, 2008. The
Series B Preferred Stock may be converted by the holder at any time into shares
of the Company’s common stock at a conversion price of $0.70 per
share.  The Series B Preferred Stock has a stated, redemption and
liquidation value of $1.00 per share, and shall pay an annual cumulative
dividend equal to 12% of the stated value per share.
  F-18





WLG
Inc.





Notes
to the Consolidated Financial Statements


Three and
six months ended June 30, 2009 and 2008


(Dollars
in thousands except share data and per share amounts)





6.
            SERIES
      B CONVERTIBLE REDEEMABLE PREFERRED STOCK
  (CONTINUED)





The
Company may require a conversion in the event of a change in control of the
Company. Commencing 24 months after the date of issuance of the Series B
Preferred Stock, the Company has the right to redeem all or a portion of the
then outstanding shares of Series B Preferred Stock at a price of $1.00 per
share, subject to adjustment.  In addition, commencing on the earlier
to occur of 24 months after the issuance date, Mr. Wood’s retirement or his
holding less than 50.1% of the outstanding common stock of the Company, Mr. Wood
may cause the Company to redeem any or all of his outstanding shares of Series B
Preferred Stock, at a price of $1.00 per share, subject to
adjustment.





For the
six months ended June 30, 2009, dividends of $102 on the Series B Preferred
Stock were included in interest expense.





7.
            STATUTORY
      RESERVE





WE China
(“the PRC subsidiary”) is a wholly-owned foreign investment enterprise (“WOFIE”)
registered in the PRC.  Under the laws and regulations applicable to a
WOFIE, such enterprises are required to maintain certain statutory reserves for
specific purposes, which include a general reserve, an enterprise development
fund and a staff welfare and bonus fund.  The board of directors of
the PRC subsidiary shall determine on an annual basis the amount to be
transferred to statutory reserves.





Minimum
annual transfers to statutory reserves shall be at least 10% of a WOFIE’s after
tax profit and shall be determined in accordance with the PRC accounting rules
and regulations.  Annual transfers to the general reserve shall
continue until such reserve balance reaches 50% of a WOFIE’s registered
capital.  The general reserve can only be utilized to offset prior
years' losses or as additional paid-in capital.  No distribution of
the remaining general reserve shall be made other than upon liquidation of the
PRC subsidiary.





During
the six months ended June 30, 2009 and 2008, no after tax profits have been
appropriated to the general reserve, as the transfers shall be made at the end
of 2009 and 2008.





8.
            SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW
INFORMATION





Six months ended
                      June 30,2009
                    
                    
                    2008(unaudited)
                    
                    
                    (unaudited)US$
                    
                    
                    US$Cash
      paid for:Interest
      expense
                    
                    
                    302
                    
                    
                    
                    380Income
      taxes
                    
                    
                    190
                    
                    
                    
                    319




F-19




WLG
Inc.





Notes
to the Consolidated Financial Statements


Three and
six months ended June 30, 2009 and 2008


(Dollars
in thousands except share data and per share amounts)





9.
            SHARE-BASED
      PAYMENT





In April
2005, the board and stockholders of the Company approved the Wako Logistics
Group, Inc. 2005 Stock Incentive Plan (the “Plan”).  The Plan, which
is effective until April 19, 2015, provides for awarding stock options, stock
appreciation rights and restricted stock to our officers, employees, directors
and consultants, as well as to officers, employees, directors and consultants
who provide services to any of the Group’s subsidiaries or
affiliates.  The Plan is administered by our board, provided that the
board may appoint a committee to administer the Plan.  At the
inception of the Plan, 4,000,000 shares of common stock were approved for the
issuance of awards under the Plan, which amount shall be automatically increased
(but not decreased) to 20% of the total number of the Company’s shares of common
stock issued and outstanding on January 1st of each year beginning on January 1,
2006.  Based on shares of common stock outstanding as of January 1,
2009, the number of shares reserved under the Plan are
6,280,019.





In
general, stock options awarded under the Plan vest over three years and expire
in a maximum of ten years from their effective dates.  However, the
Plan permits the board to grant options with varying terms, such as changing the
vesting period, the term and/or exercise price.  Once the board, under
provisions of the Plan, grants an option, the Company will estimate the fair
value of the option, and shall recognize compensation expense over the vesting
period of the option.





As of
August 2005, the Company had committed to award 200,000 options to purchase
common stock to one of its officers, and, as of that date, all substantial terms
and conditions for the option were communicated to, and agreed with, the
officer.  As such, the Company established August 2005 as the grant
date for this option.  The board has now formally approved the award
and this option is fully vested.





Effective
January 15, 2007, the board awarded stock options to three employees permitting
them to purchase an aggregate of 20,000 shares of the Company’s common
stock.  The vesting period for the January 2007 options is 3
years.





Effective
January 8, 2008, the board awarded stock options to an employee for the purchase
of 25,000 shares of the Company’s common stock.  The vesting period
for the January 2008 options is 3 years.





Effective
December 1, 2008, the board awarded stock options to an employee for the
purchase of 150,000 shares of Company’s common stock.  The vesting
period for December 2008 options is 2 years.





The
Company accounts for stock-based compensation in accordance with SFAS No.
123(R), Share-Based Payment (revised 2004).  Under SFAS No. 123(R),
the compensation expense related to the fair value of stock options charged to
the unaudited, consolidated statement of operations for the six months ended
June 30, 2009 and 2008, was $7 and $5, respectively.  As of June 30,
2009 and December 31, 2008, the compensation expense related to non-vested
options totaled $14 and $20, and is expected to be recognized over 18 months and
24 months, respectively.  The total intrinsic value of the options
outstanding and options exercisable as of June 30, 2009, and December 31, 2008,
was nil.  No tax benefit was recognized for the stock option expense
recorded for the six months ended June 30, 2009 and 2008.




F-20




WLG
Inc.





Notes
to the Consolidated Financial Statements


Three and
six months ended June 30, 2009 and 2008


(Dollars in thousands except share data and per
share amounts)





9.
            SHARE-BASED
      PAYMENT (CONTINUED)





The
Company estimates the fair value of stock options using the Black-Scholes option
pricing model, with the following assumptions:





Options granted onAugust 1,
                        2005
                      
                      
                      January 15,
                        2007
                      
                      
                      January 8,
                        2008
                      
                      
                      December 1,
                        2008Risk-free
      interest rate per annum
                      
                      
                      4.60
                      %
                      
                      
                      4.60
                      %
                      
                      
                      3.59
                      %
                      
                      
                      0.63
                      %Expected
      life
                      
                      2
      years
                      
                      
                      3
      years
                      
                      
                      3
      years
                      
                      
                      2
      yearsExpected
      volatility(Note #)
                      
                      
                      45.00
                      %
                      
                      
                      57.79
                      %
                      
                      
                      46.00
                      %
                      
                      
                      5.03
                      %Expected
      dividend yield
                      
                      
                      0.00
                      %
                      
                      
                      0.00
                      %
                      
                      
                      0.00
                      %
                      
                      
                      0.00
                      %Post
      vesting terminations
                      
                      No
                      
                      
                      No
                      
                      
                      No
                      
                      
                      NoWeighted
      average grant-date fair value(per share)
                      
                      $
                      0.28
                      
                      
                      $
                      1.22
                      
                      
                      $
                      0.23
                      
                      
                      $
                      0.06





#:
            The
      expected volatility is based on the underlying share price of WLG’s shares
      and a comparison to the volatility of the share price of peer
      companies.





The
following table set forth the outstanding options granted under the
Plan:




Shares
                          
                          
                          Weighted
                            ave.
                            exercise
                            price
                          
                          
                          Weighted ave.
                            remaining
                            contractual
                            term (years)Outstanding
      at April 30, 2005 (inception of Plan)
                          
                          
                          -
                          
                          
                          
                          -Granted
      in 2005
                          
                          
                          200,000
                          
                          
                          
                          1.00Outstanding
      at December 31, 2005
                          
                          
                          200,000
                          
                          
                          
                          1.00
                          
                          
                          
                          9.58Granted
      in 2007
                          
                          
                          20,000
                          
                          
                          
                          2.85Outstanding
      at December 31, 2007
                          
                          
                          220,000
                          
                          
                          
                          1.17
                          
                          
                          
                          7.71Granted
      in 2008
                          
                          
                          175,000Outstanding
      at June 30, 2009
                          
                          
                          395,000
                          
                          
                          
                          0.92
                          
                          
                          
                          7.58Exercisable
      at June 30, 2009
                          
                          
                          262,500
                          
                          
                          
                          1.05
                          
                          
                          
                          6.72




F-21




WLG
Inc.





Notes
to the Consolidated Financial Statements
 Three and six
months ended June 30, 2009 and 2008





10.
            SEGMENTS
      OF THE BUSINESS





(a)
            Business
      segments





The Group
operates mainly in three business segments, being the provision of (i) air
forwarding, (ii) sea forwarding and (iii) customs brokerage
services.  The Group’s operations by air, sea and customs brokerage
services are summarized in the following table:





(i)
            During
      the three months ended June 30, 2009 and 2008
  (unaudited)





Air forwarding
                                  
                                  
                                  Sea forwarding
                                  
                                  
                                  Customs brokerage
                                  
                                  
                                  TotalThree months ended June 30
                                  
                                  
                                  Three months ended June 30
                                  
                                  
                                  Three months ended June 30
                                  
                                  
                                  Three months ended June 302009
                                  
                                  
                                  2008
                                  
                                  
                                  2009
                                  
                                  
                                  2008
                                  
                                  
                                  2009
                                  
                                  
                                  2008
                                  
                                  
                                  2009
                                  
                                  
                                  2008US$
                                  
                                  
                                  US$
                                  
                                  
                                  US$
                                  
                                  
                                  US$
                                  
                                  
                                  US$
                                  
                                  
                                  US$
                                  
                                  
                                  US$
                                  
                                  
                                  US$Revenue
                                  
                                  
                                  4,922
                                  
                                  
                                  
                                  11,510
                                  
                                  
                                  
                                  14,130
                                  
                                  
                                  
                                  27,679
                                  
                                  
                                  
                                  10,859
                                  
                                  
                                  
                                  18,411
                                  
                                  
                                  
                                  29,911
                                  
                                  
                                  
                                  57,600Costs
      of forwarding/customs
                                  
                                  
                                  (3,747
                                  )
                                  
                                  
                                  (9,752
                                  )
                                  
                                  
                                  (10,610
                                  )
                                  
                                  
                                  (23,647
                                  )
                                  
                                  
                                  (9,914
                                  )
                                  
                                  
                                  (17,228
                                  )
                                  
                                  
                                  (24,271
                                  )
                                  
                                  
                                  (50,627
                                  )Depreciation
                                  
                                  
                                  (15
                                  )
                                  
                                  
                                  (18
                                  )
                                  
                                  
                                  (53
                                  )
                                  
                                  
                                  (63
                                  )
                                  
                                  
                                  (20
                                  )
                                  
                                  
                                  (23
                                  )
                                  
                                  
                                  (88
                                  )
                                  
                                  
                                  (104
                                  )Interest
      income
                                  
                                  
                                  -
                                  
                                  
                                  
                                  2
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  4
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  7Interest
      expense
                                  
                                  
                                  (18
                                  )
                                  
                                  
                                  (20
                                  )
                                  
                                  
                                  (26
                                  )
                                  
                                  
                                  (55
                                  )
                                  
                                  
                                  (26
                                  )
                                  
                                  
                                  (38
                                  )
                                  
                                  
                                  (70
                                  )
                                  
                                  
                                  (113
                                  )Other segment
      income
                                  
                                  
                                  19
                                  
                                  
                                  
                                  (18
                                  )
                                  
                                  
                                  62
                                  
                                  
                                  
                                  (11
                                  )
                                  
                                  
                                  (5
                                  )
                                  
                                  
                                  3
                                  
                                  
                                  
                                  76
                                  
                                  
                                  
                                  (26
                                  )Other
      segment expenses
                                  
                                  
                                  (1,075
                                  )
                                  
                                  
                                  (1,307
                                  )
                                  
                                  
                                  (3,186
                                  )
                                  
                                  
                                  (3,388
                                  )
                                  
                                  
                                  (1,068
                                  )
                                  
                                  
                                  (1,177
                                  )
                                  
                                  
                                  (5,329
                                  )
                                  
                                  
                                  (5,872
                                  )Taxation
                                  
                                  
                                  (18
                                  )
                                  
                                  
                                  (48
                                  )
                                  
                                  
                                  (69
                                  )
                                  
                                  
                                  (111
                                  )
                                  
                                  
                                  9
                                  
                                  
                                  
                                  (7
                                  )
                                  
                                  
                                  (78
                                  )
                                  
                                  
                                  (166
                                  )Segment
      income (loss)
                                  
                                  
                                  68
                                  
                                  
                                  
                                  349
                                  
                                  
                                  
                                  248
                                  
                                  
                                  
                                  408
                                  
                                  
                                  
                                  (165
                                  )
                                  
                                  
                                  (58
                                  )
                                  
                                  
                                  151
                                  
                                  
                                  
                                  699Unallocated
      parent company  expenses
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (560
                                  )
                                  
                                  
                                  (443
                                  )Net
      (loss) income
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (409
                                  )
                                  
                                  
                                  256Property,
      plant and equipment – additions
                                  
                                  
                                  14
                                  
                                  
                                  
                                  8
                                  
                                  
                                  
                                  127
                                  
                                  
                                  
                                  24
                                  
                                  
                                  
                                  77
                                  
                                  
                                  
                                  7
                                  
                                  
                                  
                                  218
                                  
                                  
                                  
                                  39




F-22




WLG
Inc.





Notes
to the Consolidated Financial Statements
 Three and six
months ended June 30, 2009 and 2008





10.
            SEGMENTS
      OF THE BUSINESS (CONTINUED)





(ii)
            During
      the six months ended June 30, 2009 and 2008
  (unaudited)




Air forwarding
                        
                        
                        Sea forwarding
                        
                        
                        Customs brokerage
                        
                        
                        TotalSix months ended June 30
                        
                        
                        Six months ended June 30
                        
                        
                        Six months ended June 30
                        
                        
                        Six months ended June 302009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008US$
                        
                        
                        US$
                        
                        
                        US$
                        
                        
                        US$
                        
                        
                        US$
                        
                        
                        US$
                        
                        
                        US$
                        
                        
                        US$Revenue
                        
                        
                        9,454
                        
                        
                        
                        21,002
                        
                        
                        
                        28,607
                        
                        
                        
                        56,740
                        
                        
                        
                        22,913
                        
                        
                        
                        33,960
                        
                        
                        
                        60,974
                        
                        
                        
                        111,702Costs
      of forwarding/customs
                        
                        
                        (7,307
                        )
                        
                        
                        (17,725
                        )
                        
                        
                        (22,243
                        )
                        
                        
                        (48,715
                        )
                        
                        
                        (21,280
                        )
                        
                        
                        (31,552
                        )
                        
                        
                        (50,830
                        )
                        
                        
                        (97,992
                        )Depreciation
                        
                        
                        (27
                        )
                        
                        
                        (34
                        )
                        
                        
                        (105
                        )
                        
                        
                        (126
                        )
                        
                        
                        (38
                        )
                        
                        
                        (45
                        )
                        
                        
                        (170
                        )
                        
                        
                        (205
                        )Interest
      income
                        
                        
                        -
                        
                        
                        
                        6
                        
                        
                        
                        1
                        
                        
                        
                        12
                        
                        
                        
                        -
                        
                        
                        
                        4
                        
                        
                        
                        1
                        
                        
                        
                        22Interest
      expense
                        
                        
                        (32
                        )
                        
                        
                        (49
                        )
                        
                        
                        (68
                        )
                        
                        
                        (170
                        )
                        
                        
                        (51
                        )
                        
                        
                        (93
                        )
                        
                        
                        (151
                        )
                        
                        
                        (312
                        )Other
      segment income
                        
                        
                        32
                        
                        
                        
                        (24
                        )
                        
                        
                        121
                        
                        
                        
                        (49
                        )
                        
                        
                        (6
                        )
                        
                        
                        (6
                        )
                        
                        
                        147
                        
                        
                        
                        (79
                        )Other
      segment expenses
                        
                        
                        (1,994
                        )
                        
                        
                        (2,505
                        )
                        
                        
                        (6,299
                        )
                        
                        
                        (6,908
                        )
                        
                        
                        (2,030
                        )
                        
                        
                        (2,364
                        )
                        
                        
                        (10,323
                        )
                        
                        
                        (11,777
                        )Taxation
                        
                        
                        19
                        
                        
                        
                        (75
                        )
                        
                        
                        (18
                        )
                        
                        
                        (175
                        )
                        
                        
                        57
                        
                        
                        
                        (11
                        )
                        
                        
                        58
                        
                        
                        
                        (261
                        )Segment
      income (loss)
                        
                        
                        145
                        
                        
                        
                        596
                        
                        
                        
                        (4
                        )
                        
                        
                        609
                        
                        
                        
                        (435
                        )
                        
                        
                        (107
                        )
                        
                        
                        (294
                        )
                        
                        
                        1,098Unallocated
      parent company expenses
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (1,158
                        )
                        
                        
                        (836
                        )Net
      (loss) income
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (1,452
                        )
                        
                        
                        262Property,
      plant and equipment – additions
                        
                        
                        43
                        
                        
                        
                        34
                        
                        
                        
                        188
                        
                        
                        
                        83
                        
                        
                        
                        87
                        
                        
                        
                        48
                        
                        
                        
                        318
                        
                        
                        
                        165





(iii)
            As
      of June 30, 2009 and December 31,
2008




Air forwarding
              
              
              Sea forwarding
              
              
              Customs brokerage
              
              
              TotalAt June 30,
                2009
              
              
              At December 31,
                2008
              
              
              At June 30,
                2009
              
              
              At December
                31, 2008
              
              
              At June 30,
                2009
              
              
              At December
                31, 2008
              
              
              At June 30,
                2009
              
              
              At December
                31, 2008US$
              
              
              US$
              
              
              US$
              
              
              US$
              
              
              US$
              
              
              US$
              
              
              US$
              
              
              US$(unaudited)
              
              
              
              
              
              (unaudited)
              
              
              
              
              
              (unaudited)
              
              
              
              
              
              (unaudited)Segment
      assets
              
              
              3,810
              
              
              
              4,965
              
              
              
              8,028
              
              
              
              10,530
              
              
              
              5,195
              
              
              
              5,240
              
              
              
              17,033
              
              
              
              20,735Unallocated
      assets
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              12,971
              
              
              
              13,343Total
      assets
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              30,004
              
              
              
              34,078




F-23




WLG
Inc.





Notes
to the Consolidated Financial Statements
 Three and six
months ended June 30, 2009 and 2008





10.
            SEGMENTS
      OF THE BUSINESS (CONTINUED)





(b)
            The
      table below summarizes the percentage of the Group’s revenues during the
      three months and six months ended June 30, 2009 and 2008, analyzed by
      geographical locations:





Three months ended
                          June 30,
                        
                        
                        Six months ended
                          June 30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008(unaudited)
                        
                        
                        (unaudited)
                        
                        
                        (unaudited)
                        
                        
                        (unaudited)%
                        
                        
                        %
                        
                        
                        %
                        
                        
                        %RevenuesAmericas
                        
                        
                        35
                        
                        
                        
                        47
                        
                        
                        
                        37
                        
                        
                        
                        47Asia
      and others
                        
                        
                        23
                        
                        
                        
                        23
                        
                        
                        
                        22
                        
                        
                        
                        22Australia
                        
                        
                        34
                        
                        
                        
                        22
                        
                        
                        
                        32
                        
                        
                        
                        23Europe
                        
                        
                        8
                        
                        
                        
                        8
                        
                        
                        
                        9
                        
                        
                        
                        8100
                        
                        
                        
                        100
                        
                        
                        
                        100
                        
                        
                        
                        100





(c)
            The
      Group made no sales during the three months and six months ended June 30,
      2009 and 2008, which qualified as sales to a major customer (defined as a
      customer where sales to it represent 10% or more of total
      revenues).




F-24




WLG
Inc.





Notes
to the Consolidated Financial Statements
 Three and six
months ended June 30, 2009 and 2008







11.
              FAIR
      VALUE DISCLOSURES
 
 Effective
January 1, 2008, we adopted SFAS No. 157, Fair Value Measurements, (“SFAS
No. 157”) which requires disclosures about our assets and liabilities that are
measured at fair value. Further information about such assets and liabilities is
presented below. We began to apply the provisions of SFAS No. 157 to
non-financial assets and liabilities beginning January 1, 2009, in
accordance with FASB Staff Position No. 157-2, “Effective Date of FASB
Statement No. 157”.
 
 Our
assets and liabilities recorded at fair value have been categorized based upon a
fair value hierarchy in accordance with SFAS No. 157. Level 1 inputs utilize
quoted prices in active markets for identical assets or liabilities. Level 2
inputs are based on other observable market data, such as quoted prices for
similar assets and liabilities, and inputs other than quoted prices that are
observable, such as interest rates and yield curves. Level 3 inputs are
developed from unobservable data reflecting our own assumptions, and include
situations where there is little or no market activity for the asset or
liability.
 
 Certain
assets such as property, plant and equipment, intangible assets and goodwill are
measured at fair value on an annual basis. The fair values of these assets were
determined using unobservable inputs (Level 3).
 
 The
carrying value of cash and cash equivalents, restricted cash, trade receivables,
deposits, prepayments and other current assets, prepaid tax, trade payables,
other accrued liabilities, amounts due to directors, bank overdraft and bank
loans contained in the consolidated balance sheet approximates fair
value.


12.
            RECENT
      ACCOUNTING PRONOUNCEMENTS





In
December 2007, the FASB issued SFAS No. 141 (Revised), Business
Combinations.  SFAS No. 141(R) improves the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial reports about a business combination
and requires an acquirer to recognize the assets acquired, the liabilities
assumed, and any non-controlling interest in the acquiree at the acquisition
date, measured at their fair values as of that date.  This Statement
applies 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.  The adoption of this Statement did not have
a material impact on the Company’s financial position or results of
operations.  The Company will be required to expense costs related to
acquisitions after December 31, 2008, if any.





In
December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements.  SFAS No. 160 amends ARB 51 to
establish accounting and reporting standards for the non-controlling interest in
a subsidiary and for the deconsolidation of a subsidiary and clarifies that a
non-controlling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements.  This Statement is effective for fiscal years
beginning on or after December 15, 2008.  The adoption of this
Statement did not have a material impact on the Company’s financial position or
results of operations.





In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities, an Amendment of FASB Statement No. 133.  SFAS No.
161 amends SFAS No. 133 and requires entities to enhance their disclosures about
(a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under SFAS No. 133 and
its related interpretations, and (c) how derivative instruments and related
hedged items affect an entity’s financial position, financial performance, and
cash flows.  SFAS No. 161 is effective for fiscal years beginning on
or after November 15, 2008.  The adoption of SFAS No. 161 did not have
a material impact on the Company’s financial position or results of
operations





In
February 2008, the FASB issued FASB Staff Position (“FSP”) 157-2, Effective Date
of FASB Statement No. 157 (“FSP 157-2”), which delays the effective date of SFAS
No. 157 for all nonfinancial assets and nonfinancial liabilities, except for
items that are recognized or disclosed at fair value in the financial statements
on a recurring basis (at least annually), until 2009.  The Group is
currently evaluating the inputs and techniques used in these measurements,
including items such as impairment assessments of goodwill and intangible assets
impairment testing.  The Group adopted SFAS No. 157 for non-financial
assets and non-financial liabilities effective January 1, 2009.  The
adoption of SFAS No. 157-2 did not have a material impact on the Group’s results
of operations, financial position, and cash flows.





In June
2008, the FASB issued EITF Issue No. 08-4, "Transition Guidance for Conforming
Changes to Issue No. 98-5" ("EITF No. 08-4").  The objective of EITF
No. 08-4 is to provide transition guidance for conforming changes made to EITF
No. 98-5, "Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios", that result from EITF
No. 00-27 "Application of Issue No. 98-5 to Certain Convertible Instruments",
and SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity".  This Issue is
effective for financial statements issued for fiscal years ending after December
15, 2008, with early application permitted. The adoption of EITF No. 08-4 is not
expected to have a material impact on the Company’s financial position or
results of operations.




F-25




WLG
Inc.





Notes
to the Consolidated Financial Statements
 Three and six
months ended June 30, 2009 and 2008





12.
            RECENT
      ACCOUNTING PRONOUNCEMENTS
(CONTINUED)





In June
2008, the FASB issued EITF Issue No. 07-5, “Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF No.
07-5”).  EITF No. 07-5 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years.  Early application is not
permitted.  Paragraph 11(a) of SFAS No. 133, "Accounting for
Derivatives and Hedging Activities" ("SFAS No. 133"), specifies that a contract
that would otherwise meet the definition of a derivative but is both (a) indexed
to the Company's own stock and (b) classified in stockholders' equity in the
statement of financial position would not be considered a derivative financial
instrument.  EITF No.07-5 provides a new two-step model to be applied
in determining whether a financial instrument or an embedded feature is indexed
to an issuer's own stock and thus able to qualify for the SFAS No. 133 paragraph
11(a) scope exception.  The adoption of EITF No.07-5 did not
have a material impact on the Group’s results of operations or financial
position.





In May
2009, the FASB issued SFAS No. 165, “Subsequent Events”, which established
general accounting standards and disclosure for subsequent
events.  The Company adopted SFAS No.165 during the second quarter of
2009.  In accordance with SFAS No. 165, the Company has evaluated
subsequent events through the date the financial statements were issued, which
was on August 14, 2009.




In April
2009, the FASB issued three related FASB Staff Positions (“FSP”): (i) FSP SFAS
No. 115-2 and SFAS No. 124-2, “Recognition of Presentation of
Other-Than-Temporary Impairments” (“FSP SFAS No. 115-2 and SFAS No.
124-2”), (ii) FSP SFAS No. 107-1 and Accounting Principles Board Opinion (“APB”)
No. 28-1, “Interim Disclosures
about Fair Value of Financial Instruments” (“FSP SFAS No. 107-1 and APB
No. 28-1”), and (iii) FSP SFAS No. 157-4, “Determining the Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly” (“FSP SFAS
No. 157-4), which are effective for interim and annual reporting periods ending
after June 15, 2009. FSP SFAS No. 115-2 and SFAS No. 124-2 amend the
other-than-temporary impairment guidance in the GAAP for debt securities to
modify the requirement for recognizing other-than-temporary impairments, change
the existing impairment model, and modify the presentation and frequency of
related disclosures. FSP SFAS No. 107-1 and APB No. 28-1 require disclosures
about fair value of financial instruments for interim reporting periods as well
as in annual financial statements. FSP SFAS No. 157-4 provides additional
guidance for estimating fair value in accordance with SFAS No. 157, “Fair Value
Measurements” (“SFAS No 157”). The impact on the adoption of the three
related FSPs related only to the disclosures of the Company’s financial
instruments and has no material impact on the consolidated financial position or
results of operations. The disclosure requirements of SFAS No. 157 are presented
in note 11 to the consolidated financial statements.
  In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of
Financial Assets - an amendment of FASB Statement No. 140” (“SFAS No.
166”). SFAS No. 166 amends the de-recognition accounting and disclosure guidance
relating to SFAS No. 140. SFAS No. 166 eliminates the exemption from
consolidation for qualifying special-purpose entity “(QSPE”), it also requires a
transferor to evaluate all existing QSPE to determine whether it must be
consolidated in accordance with SFAS No. 166. SFAS No. 166 is effective for
financial asset transfers occurring after the beginning of an entity’s first
fiscal year that begins after November 15, 2009. The management believes that
the adoption of SFAS No. 166 in future periods will not have a material impact
on the consolidated financial position or results of operations.
  In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation
No. 46(R)” (“SFAS No. 167”), which amends FASB Interpretation No. 46
(revised December 2003) to address the elimination of the concept of a
qualifying special purpose entity. SFAS No. 167 also replaces the
quantitative-based risks and rewards calculation for determining which
enterprise has a controlling financial interest in a variable interest entity
with an approach focused on identifying which enterprise has the power to direct
the activities of a variable interest entity and the obligation to absorb losses
of the entity or the right to receive benefits from the entity. Additionally,
SFAS No. 167 provides more timely and useful information about an enterprise’s
involvement with a variable interest entity. SFAS No. 167 is effective for
fiscal years beginning after November 15, 2009. The management believes that the
adoption of SFAS No. 167 in future periods will not have a material impact on
the consolidated financial position or results of operations.




In June
2009, the FASB issued SFAS No. 168 - The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles- a replacement of
FASB Statement No. 162. SFAS No. 168 establishes the FASB Accounting Standards
Codification as the single source of authoritative US generally accepted
accounting principles recognized by the FASB to be applied to nongovernmental
entities. SFAS No. 168 is effective for financial statements issued for interim
and annual periods ending after September 15, 2009.  The adoption of
SFAS No. 168 will not have an impact on the Company’s financial position,
results of operations or cash flows.





F-26




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





General





WLG Inc.
(“WLG,” the “Company,” or the “Group”) is an international, non-asset based
logistics company that provides air and ocean freight forwarding, contract
logistics, customs brokerage and other supply chain management services to its
customers from its offices in Hong Kong, the People's Republic of China (“PRC”
or “China”), Australia, the United States (“US”), the United Kingdom (“UK”) and
through a worldwide network of independent cargo agents.





WLG's
business is conducted by its operating subsidiaries, which, as of June 30, 2009,
included the following entities: Wako Express (HK) Co. Ltd. (“WEHK”), Wako Air
Express (HK) Co. Ltd. (“WAE”), Wako Express (China) Co. Ltd. (“WE China”), WLG
(USA) LLC (“WLG (USA)”) (formerly dba “Kay O'Neill”), Mares-Shreve &
Associates, Inc. (“MSA”), Asean Cargo Services Pty Limited (“Asean”), WLG (UK)
Limited (“WLG (UK)”) and World Commerce Services, LLC, (“WCS”).





WLG was
incorporated in Delaware on December 2, 2003, under the name Wako Logistics,
Inc., and in January 2004, changed its name to Wako Logistics Group, Inc. In
December 2007, we changed its name to WLG Inc.  Under our certificate
of incorporation, we were initially authorized to issue 100 million shares of
common stock, par value $0.001 per share.  On the date of our first
name change, we reduced the number of authorized shares to 60 million, of which
55 million shares were designated as common stock, and 5 million shares were
designated as blank check preferred stock.   Immediately
following the formation of WLG, Mr. Christopher Wood (“Mr. Wood”) became its
sole shareholder.





Pursuant
to certain Share Exchange Agreements entered into on January 18, 2004, between
us and Mr. Wood (and his nominee), we consummated a combination with WEHK
and WAE by issuing 20,000,900 shares of our common stock in exchange for 100% of
the outstanding shares of common stock of WEHK and WAE.  After these
share exchanges, WEHK and WAE became wholly-owned subsidiaries of
WLG.  Following this transaction, Mr. Wood owned all 20,001,000 shares
of our common stock then issued and outstanding.





WEHK was
incorporated in Hong Kong on September 4, 1982, and carries on the business of
arranging sea freight shipments, both export and import, for its customers
between Hong Kong and the rest of the world, with a concentration, historically,
on the Asian-Australian trade lanes, and, more recently, on the trade lanes
running from Asia to the US and Europe.




WAE was
incorporated in Hong Kong on February 24, 1989.  Its business is
dedicated to handling air freight shipments, both export and import, between
Hong Kong and the rest of the world, particularly to Australia, but also to the
US and Europe.





All of
our Asian operations have been conducted through our two Hong Kong based
subsidiaries since January 18, 2004, (the date we acquired WEHK and WAE) and
through WE China, following the commencement of business by it in February
2005.




On April
1, 2005, we completed the acquisition of all of the voting interests in Kay
O'Neill (USA) LLC, an Illinois limited liability company.  Kay O'Neill
operated a US based logistics business, which primarily served US customers by
providing services similar to those offered by the Group in Asia and
elsewhere.  At the time of the acquisition, Kay O'Neill had only one
office in the US, which was in Des Plaines, Illinois.  As part of the
process of creating brand identity for the Group in the United States, Kay
O'Neill, on June 29, 2005, changed its name to WLG (USA) LLC and began
immediately to operate as WLG (USA).   In June of 2005, WLG (USA)
opened an office in Taylor, Michigan.





Pursuant
to the Closer Economic Partnership Agreement (“CEPA”) signed in September 2003,
between Hong Kong and the PRC, Hong Kong incorporated companies were granted the
right to establish wholly-owned enterprises in China to provide a full-range of
logistics services.  In July 2004, our Hong Kong subsidiary, WEHK
which qualified under the provisions of the CEPA, formed WE China, a
wholly-owned subsidiary in the PRC.  WE China began operations in
February 2005, and now provides freight forwarding services for air and sea
exports and imports between China and the rest of the world.  WE China
has nine offices in China, including offices in what we believe are four of
China's most important commercial centers: Beijing; Shanghai; Shenzhen and
Guangzhou.




3




Effective
October 1, 2005, WLG acquired all of the voting stock of ALI, a company
incorporated in September 1999 in California.  At the date of
acquisition, ALI was based in Torrance, California.  ALI was a
non-asset based freight forwarding company and provided traditional
freight-forwarding services to its customers for shipments between Asia and the
United States.  As of June 30, 2008, all of ALI’s operations had been
combined with those of WLG (USA).  Prior to the acquisition, WLG and
ALI worked closely together pursuant to the terms of an agency
agreement.




On
November 9, 2005, WLG, through a newly formed and wholly-owned Australian
subsidiary, WLG (Australia) Pty Ltd. (“WLG Aust”), completed the acquisition of
all of the issued and outstanding common stock of Asean, a non-asset based
freight forwarding and logistics company.  Incorporated in March 1984
and based in Sydney, Australia, Asean also has offices in Melbourne and Brisbane
and maintains agency relationships with other freight and logistics companies in
all of Australia's mainland states.  Asean provides a full range of
transportation, logistics and customs brokerage services to its customers, with
an emphasis on shipments in the Asian-Australian trade lanes.  Prior
to WLG's acquisition of Asean, both companies had worked closely with each other
for over 20 years, providing transportation and logistics services to the
customers of the other through an agency agreement.





In
February 2006, WLG formed two United Kingdom (“UK”) subsidiaries, WLG (UK)
Holdings as a first tier subsidiary and WLG (UK) as a second tier subsidiary, to
make acquisitions and conduct business in the UK.  Effective September
15, 2006, WLG (UK) acquired the operating assets and assumed limited liabilities
of a division (“UK Division”) of a UK freight forwarding and logistics company
(“UK Co.”).  At the date of this acquisition, UK Co. was in bankruptcy
proceedings in the United Kingdom.  As such, WLG (UK) purchased for
cash the operating assets of UK Division on an “as is” and “where is”
basis. This UK Division, which operated in Manchester, UK, provided sea and
air freight forwarding and warehouse logistics services, mostly to UK based
customers.  These activities are now carried on by WLG
(UK).   Prior to this acquisition, the Group and UK Co. had
worked together in a limited capacity on several mutual customers.





On
December 1, 2006, we acquired all of the voting shares of MSA and its
wholly-owned subsidiary, Sea Systems, (“MSA Group”). MSA, which was incorporated
on May 15, 1979, in Washington, provides customs brokerage and freight
forwarding services to its customers.  Sea Systems, incorporated on
February 26, 1991, in Washington, is a non-asset based freight forwarder and
provided air and sea freight forwarding and related logistics services to its
customers.  The MSA Group mainly serves customers that ship products
from Asia to the West Coast of the U.S. for onward shipment to locations
throughout the country.   Historically, the business of the MSA
Group had been more focused on its customs brokerage practice rather than on its
freight forwarding operations.  Prior to its acquisition by WLG, the
MSA Group and WLG had not worked together.  As of the end of 2008, all
of the activities of Sea Systems had been assumed by MSA.





Effective
July 31, 2007, WLG acquired all of the membership interests of WCS in exchange
for WLG common stock and cash.  WCS, incorporated in Illinois in
January 2004, is the successor to a company of the same name, which began
business in 1976.  Like its predecessor, WCS is a non-asset based
freight forwarding company and provides a full range of air and sea freight
forwarding, logistics and customs brokerage services.  It serves a
wide range of customers that primarily import products by sea from Asia, with a
heavy emphasis on shipments from China.  In addition to its head
office in Schaumburg, Illinois, WCS has offices in Long Island, New
York,  and two offices in California located in Los Angeles and San
Francisco.  Prior to the acquisition, the Group and WCS had not worked
together.




With the
exception of performing administrative, oversight and regulatory tasks, no other
business activities are carried on by the parent company, WLG Inc.


4





Overview





We are a
global, non-asset based freight forwarder providing supply chain logistics
services, including freight forwarding, customs brokerage and Value Added
Services (“VAS”) to our customers.  We do not own or operate any
transportation assets such as aircraft, ships, trucks, river barges or
railroads.  Instead, we contract with companies that own and operate
commercial transportation assets of all types as a means of providing both
regional and international freight forwarding services to our
customers.





As part
of the services we perform, we coordinate the storage of raw materials,
supplies, components and finished goods and arrange their shipment by air, sea,
river, rail and road from and to most major production, trading and consumer
locations throughout the world.  Historically, the Group has
concentrated on freight shipments originating in Asia, and mostly in Hong Kong
and China for shipment to Australia and, to a lesser extent, to
Europe.  However, with the recent acquisitions in the US, the Group is
now focusing more of its attention on the US market.





Our
revenues are generated from the air, sea and local freight transportation
services that we arrange, customs brokerage services we perform and the VAS we
provide such as scanning, pick and pack, price ticketing and warehousing of
goods.  We believe that our customers benefit from the extensive
experience we have in arranging the transportation of freight, performing
customs clearance services and providing VAS in the many countries in which we
operate and in which we maintain agency relationships.  For our
freight forwarding business, our experience allows us to focus on large cargo
shipments, because these types of shipments normally require the use of advanced
tracking systems and access to sophisticated logistical networks in many
countries, which we have established over the past 25 years.





Freight
Forwarding and Value Added Services





Due to
the volume of shipments we arrange, we are generally able to negotiate buy rates
for transportation services that are lower than the rates our customers could
negotiate directly with transportation providers.   Often, the
shipping rates we negotiate may reflect the volumes of freight that we arrange
to have shipped.  As a result, our customers, by having us arrange
their freight shipments, may benefit from lower rates, and we, in turn, benefit
by increasing our revenues and operating profits.





A
significant portion of the expenses for our freight business is variable and
relate directly to the amounts and volumes of shipments we
book.  Direct transportation costs are our largest variable
expense.  Personnel costs represent the second largest expense for our
freight operations.   Over time, we have gained the experience
necessary to allow us to project our staffing needs based on the number of
customer orders we fulfill.  .Nonetheless, staff costs are less
flexible than other variable costs so that, in the short term, we may not be
able to adjust our staff levels for unexpected peaks and downturns in our
business.





We derive
a significant portion of our air freight revenues from the consolidation of
cargo from a number of customers.  In this segment of our business, we
always seek to combine a mix of light and heavy cargo in order to optimize the
ratios of weight and cubic capacity for all air freight
shipments.   n general, this improves our profitability on these
shipments.





In order
to ensure that we are able to maintain an “inventory” of cargo space on air
carriers, we frequently commit to use a minimum amount of space with certain
airlines prior to receiving orders from our customers.  To the extent
we do not use such space, we incur a liability to the airlines.  In
the normal course of our business, we seek to minimize the risk of loss from
these minimum volume contracts with the airlines by carefully gauging customer
demand, and by entering into arrangements with other freight forwarders whereby
they take and pay for the excess cargo space that we are unable to
fill.  However, we do not have the ability to require our customers to
ship minimum amounts, and, as such, we are not able to pass this risk on to our
customers.





We also
have contracts with ocean shipping lines pursuant to which the shipping lines
undertake to provide us a certain amount of container space at agreed
rates.  Under the normal operating practices of this industry, ocean
lines often do not charge freight forwarders for space they are unable to
utilize.  However, if an ocean shipping line did choose to enforce the
stated terms of these contracts, we would incur a liability to the extent we did
not use the allocated space under a particular contract or sell it to another
freight forwarder.




5




As part
of our freight forwarding business, we often provide VAS services to our
customers.  The provision of VAS continues to be a necessary and
important part of our business and may cover a wide range of supply chain
services.   As an example, we may provide some or all of the
following VAS to our customers: pick and scan; pick and pack; co-packing; bar
code printing; labeling and price tagging at both the carton and item
levels.  At the carton level, each carton remains unopened, which
makes this a simpler service.  At the item level, each individual item
may, as in the case of apparel, be processed by size and color, which requires
advanced information technology capabilities.




The VAS
that we provide may also involve receiving goods from one or multiple factories
on behalf of a customer - often an overseas retail buyer - and warehousing such
goods prior to packing the goods in individual containers for shipment to the
customer's distribution centers or retail outlets.  Goods are often
shipped “store ready”, meaning they are sorted and price-tagged, ready for sale
in each retail location.  As noted in the past, we see the demand for
VAS increasing because a large portion of a retailer's higher labor and storage
costs may be “exported” to lower-cost locations, such as China, thus bypassing
costly de-consolidation and distribution centers in the customer's home
country.  With the economic downturn that began in 2008, the need for
our customers to seek low-cost logistics and distributions services is expected
to grow.  Thus performing these services for a customer at the point
of shipment in the country of manufacture may provide a more efficient and less
costly means for it to store and distribute its products. Performance of VAS
relies on the application of a wide range of information technologies, and
requires an ability to receive, process and provide shipping and inventory
information from and to our customers on a time-sensitive basis. Our billings
for VAS vary with the type of services performed, but they are often based on a
per-piece count measured by the actual number of units we store and prepare for
shipment.





Customs
Brokerage Operations





We have
customs brokerage practices in our offices in Sydney, Australia, Manchester,
England, Seattle, Washington, Long Beach, California and Schaumburg,
Illinois.  In each location, we acquired an existing
business.  Customs brokerage services are performed both for freight
and brokerage customers as well as for brokerage only
customers.  While the complexity of customs services may vary from one
jurisdiction to another based on the specific governmental regulations of each
country, the nature of the services are similar worldwide.  In
general, customs brokerage services include preparing all documentation required
for the clearance of goods through customs and the collection of funds for the
payment of import duties to the appropriate governmental agencies.  In
addition, as part of our customs work, we often provide ancillary services which
could include assistance with customs examinations, advice on duty rates and
regulations and the local delivery of goods.





As part
of our customs practice, we may be required, because of competitive pressures,
to advance funds on behalf of our clients to pay the duty on their import
shipments.  These advances represent a considerable use of cash and do
carry a credit risk for us.  For this reason, we maintain stringent
checks on the creditworthiness of all brokerage customers.  Normally,
countries have electronic payment procedures which allow the importer to make
payments directly to the government customs agency, and we have implemented
programs to encourage and assist our customers to use these payment
facilities.  If our customers do remit customs duties directly to the
respective governmental agency, we benefit by not providing cash, as well as
avoiding the credit risk on the cash advances we might otherwise
provide.





Brokerage
margins are generally less than the margins we earn from our freight-forwarding
and VAS operations.  However, operating a brokerage practice gives us
a competitive advantage in some locations and a level playing field in others,
which helps us to attract and retain more profitable freight forwarding
customers.





Generally,
billings for customs brokerage services are based on the number of freight
clearances we perform for a particular customer and may often include the costs
and mark-up for ancillary services such as arranging for the local delivery of
goods and the preparation, pick-up and delivery of documentation for such
shipments.  The amounts we bill are normally similar to what other
brokerage companies charge in a specific geographical area.  Personnel
costs are the largest expense for this segment of our business. Lastly, because
this part of our business tends to be stable and recurring, we are able to
estimate with a fair degree of certainty what our personnel needs are for this
service to our customers.




6




Global
Agency Network





WLG
maintains a wide network of independent cargo agents in many cities around the
world.  All of our arrangements with these agents are on a
non-exclusive basis.  And, under these arrangements, none of the
agents is authorized to make commitments or to execute any contracts on our
behalf.  In most cases, the fees earned for transporting a shipment
from the point of origin to the point of destination are shared 50:50 with our
overseas agents.  In some cases, billings to and from out agents may
include additional charges for other transportation and logistics
services.





We work
with over 300 overseas agents worldwide, many of whom that have offices in
strategic cities in Europe, North and South America, Africa and the Middle
East.  As a result, we may be represented by more than one agent in
many cities, and we do not generally need to rely on a single agent in any one
city.




In
addition to performing freight forwarding support services for us, these agents
are an important sales and marketing resource.  By relying on these
agents to help us obtain new business and market our services, we may be able to
expand our global activities without the costs typically associated with the
ownership and maintenance of company-owned offices.  Given the
importance of overseas cargo agents to our business, we think it is critical
that senior management be involved on a regular basis to maintain and strengthen
these working relationships.  Our mutual goal is to provide and
receive increased business through our network of cargo
agents.  Lastly, our costs to retain these agency relationships are
nominal, and mostly include only management time and travel
costs.  However, because we normally have to split the fees with these
cargo agents, the profit we earn per job is less than what we may earn if our
own offices handled both the import and export sides of a shipping
transaction.  In addition, it is more difficult to ensure the same
level of service to a customer when part of a shipment is handled by an
independent agent.




Results
of Operations





THREE
MONTHS ENDED JUNE 30, 2009 COMPARED WITH THREE MONTHS ENDED JUNE 30,
2008.




Results
of Operations





Our
revenues for the three months ended June 30, 2009, continued to be adversely
affected by the economic downturn that began in 2008.  Not only did we
book less business for the three months ended June 30, 2009, than we did for the
same period in 2008, but shipping rates worldwide fell by significant amounts,
which further reduced our top-line revenues.  Falling rates did not
necessarily impact our profitability, but the declining volumes of cargos
shipped by our customers did  negatively affect our
profitability.




Total
revenues for the three months ended June 30, 2009, decreased by about $27.69
million, or 48%, compared with the same period in 2008, down from approximately
$57.60 million to $29.91 million.  Our Hong Kong operations reported
decreased revenues of $4.53 million.  Revenues from our China offices
fell by $1.77 million.  Our US operations reported a combined decrease
in revenues of $16.56 million.  Of this total decrease, about $1.50
million is from WLG (USA), $1.67 million from MSA and $13.39
million from WCS.  Lastly, Asean’s revenues declined by $2.43
million, and WLG (UK)’s revenues fell by $2.40 million.




Gross
profit decreased from $6.97 million for the three months ended June 30, 2008, to
$5.64 million for the same period in 2009, for a decrease of $1.33 million or
19%, primarily due to a decline in the volume of freight shipped by our
customers.





The
Group's gross margin increased from 12.1% for the three months ended June 30,
2008, to 18.9% for the same period in 2009. The increase in our gross margin is
due to several factors, including reductions in fuel surcharges levied by the
various airlines and shipping lines and more favorable rates for cargo
space.  Falling shipping rates have the effect of reducing our gross
revenues and increasing our gross margin.  This occurs because the
direct shipping charges, which are passed on to the customer, result in lower
gross revenues, but, in many cases, leave us with the ability to bill the same
net amount for our services, regardless of the rates charged by shipping lines
and air carriers.





7




Total
operating expenses decreased to about $5.90 million for the three months ended
June 30, 2009, as compared to approximately $6.36 million incurred for the same
period in 2008, for a decrease of $0.46 million.  In anticipation
of reduced cargo volumes, we took a number of steps to reduce our overhead
costs, including freezing salaries and making headcount reductions throughout
the Group.   For the three months ended June 30, 2009, salaries
and related personnel costs decreased by about $0.25 million, or 6%, from $4.19
million to $3.94 million.  Other selling and administrative costs
decreased by approximately 7% from $1.85 million to $1.72 million, which, when
combined with the decrease in personnel costs, resulted in a total reduction of
approximately $0.38 million in operating costs, not including amortization and
depreciation.  However, our operating expenses increased in this
period due to a new operation that was started in May 2009 in New
York.  For the period through June 30, 2009, we incurred about $0.21
million of costs to support this new business.  Amortization and
depreciation expenses decreased from $0.32 million to $0.25 million, or about
22%.  Most of this decrease relates to amortization expense of
intangible assets.  There was no amortization for MSA for the three
months ended June 30, 2009, because the cost basis of MSA’s intangible assets
was written down to zero at the end of 2008.  In addition, the
amortization expense recorded by WLG (USA) and WLG (UK), decreased because of an
extension in the useful lives of their intangible assets.  SeeOther Operating Expenses
below.




After the
provision for income taxes, the Group recorded a net loss of $0.41 million for
the three months ended June 30, 2009, compared to net income of $0.26 million
for the same period in 2008.  Hong Kong and China’s operations
reported a combined net income of $0.37 million for the three months ended June
30, 2009, compared with net income of $0.50 million for the same period in 2008,
for a decrease of approximately $0.13 million.  Our US operations
incurred a net loss of $0.30 million for the three months ended June 30, 2009,
compared to a net income of $0.16 million for the same period in
2008.  Specifically, WLG (USA) and MSA reported net incomes of $58,000
and $50,000, respectively, while WCS posted a net loss of $0.41 million, all for
the three months ended June 30, 2009, compared to net income of $32,000, $95,000
and $34,000, respectively, for the same period in 2008.  Our US
operations were also impacted by the start-up of an operation in New York in May
2009, which increased our US loss by about $0.13 million.  Asean
reported a net income of $0.13 million for the three months ended June 30, 2009,
compared to net income of $32,000 for the same period in 2008.  WLG
(UK) reported a net loss of $46,000 for this period, which included a charge of
about $82,000 for severance pay, compared to net income of $8,000 for the
three months ended June 30, 2008. The parent company’s loss increased by
about $0.12 million for the three months ended June 30, 2009, compared to the
same period last year. During this same period in 2008, all costs for two
officers were charged to operations.  In 2009, because of a
realignment of responsibilities, the salaries of these two officers, which
totaled about $0.16 million, were charged to the parent company.





Segment
Information





Air freight
operations:  Revenues from our air freight operations decreased
from $11.51 million for the three months ended June 30, 2008, to about $4.92
million for the same period in 2009, for a decline of $6.59
million.  Most of the decrease is attributable to our Hong Kong and
China operations, which experienced a drop in revenues of $3.67 million and
$1.83 million, respectively.  Revenues fell because of a lack of
demand for products at destination and a reluctance of customers to incur the
higher per unit costs to ship their goods by air.  The remaining
subsidiaries reported a decrease in their air freight revenues of about $1.09
million.




Cost of
sales for our air freight operations decreased from $9.75 million for the three
months ended June 30, 2008, to $3.75 million for the same period in 2009, mainly
as a result of a decline in the volumes of cargo shipped and reduced freight
charges.





The
Group’s gross profit margin for its air freight business increased from 15.3%
for the three months ended June 30, 2008, to 23.9% for the same period in
2009.   Most of this increase is due to lower fuel surcharges and
to a decline in cargo rates charged by the airlines for the three months ended
June 30, 2009, compared to the same period in 2008.





Segment
overhead for our air freight operations decreased by approximately $0.30
million, from $1.41 million for the three months ended June 30, 2008, to $1.11
million for the same period in 2009.


8


Net
segment income for our air freight operations is approximately $68,000 for the
three months ended June 30, 2009, compared to net income of $0.35 million for
the same period in 2008, for a decrease of $0.28 million.  Our Hong
Kong and China air freight operations reported net incomes of approximately
$0.15 million and $37,000 for the three months ended June 30, 2009,
respectively, compared to net incomes of approximately $0.29 million and
$39,000, respectively, for the same period in 2008, for a combined decrease of
$0.14 million.  In addition, Asean, WLG (UK) and WCS reported net
losses of $67,000, $39,000 and $18,000, respectively, compared to net incomes of
$2,000, $6,000 and $1,000, respectively, for the same period in
2008.  WLG (USA) posted a net income of $3,000 for the three months
ended June 30, 2009, compared to a net income of $9,000 for the same period in
2008.





Sea freight
operations:  Revenues from our sea freight operations decreased
from approximately $27.68 million for the three months ended June 30, 2008, to
$14.13 million for the same period in 2009, for a decrease of $13.55
million.  WE China reported an increase in revenues of about $59,000,
from approximately $2.13 million for the three months ended June 30, 2008, to
$2.19 million for the same period in 2009.  All of our other operating
subsidiaries reported declines in their sea freight revenues.  For the
three months ended June 30, 2009, WEHK, WLG (USA), MSA, WCS, Asean and WLG (UK)
reported revenues of $1.59 million, $1.07 million, $0.91 million, $4.72 million,
$2.64 million and $1.01 million, respectively, compared to $2.44 million, $2.22
million, $2.56 million, $12.03 million, $4.48 million and $1.82 million,
respectively, for the same period in 2008.   Mostly, the decline
in revenues resulted from less cargo shipped and falling shipping
rates.





Cost of
sales for our sea freight operations decreased from $23.65 million for the three
months ended June 30, 2008, to $10.61 million for the same period in 2009, as a
result of the decreases in cargo shipped and shipping rates.




The
Group’s gross profit margin increased from approximately 14.6% for the three
months ended June 30, 2008, to 24.9% for the same period in
2009.  Gross margins tend to rise in periods of falling shipping rates
because the amount we earn  is compared to lower direct shipping
charges from the ocean carriers. All  direct shipping costs are
recharged to our customers.




Total
segment overhead attributable to our sea freight business decreased by $0.35
million, or 10%, from approximately $3.62 million for the three months ended
June 30, 2008, to $3.27 million for the same period in 2009.  Most of
this reduction is due to decreases in legal and professional fees, travel and
entertainment expenses and personnel costs, which included the reallocation of
certain payroll costs from this segment to the parent company.




Net
segment income for our sea freight operations is approximately $0.25 million for
the three months ended June 30, 2009, compared to net income of $0.41 million
for the same period in 2008.  WEHK and WE China reported net incomes
of $0.13 million and $39,000, respectively, for the three months ended June 30,
2008, which compares to $82,000 and $0.10 million for this period in
2009.  WCS reported a net loss of $0.32 million for the three months
ended June 30, 2009, compared to net income of $21,000 for the same period in
2008.  Asean, WLG (USA), MSA and WLG (UK) reported net incomes of
$0.29 million, $55,000, $47,000 and $2,000, respectively, for the three months
ended June 30, 2009, compared to net incomes of $29,000, $24,000, $89,000 and
$77,000, respectively, for the same period in 2008.





Customs brokerage
services:  Asean, MSA, WLG (UK) and WCS each have a division
that provides customs brokerage services.  For the three months ended
June 30, 2009, revenues from customs brokerage services totaled approximately
$10.86 million, compared to $18.41 million for the same period in 2008, for a
decrease of about $7.55 million.  Some of the decline in revenues is
due to the US companies paying less duty on behalf of their customers and
assisting them to use procedures that allow them to make direct payments of
import duties to the government on credit terms.  Direct and
administrative costs for this segment totaled about $11.03 million, producing a
net loss of $0.17 million for the three months ended June 30, 2009, compared to
a net loss of $58,000 for the same period in 2008.  Most of the loss
is attributable to Asean and WCS, which reported net losses of $87,000 and
$70,000, respectively, for the three months ended June 30, 2009, compared to net
incomes of $2,000 and $12,000 for the same period in 2008.  MSA’s net
income in this segment is approximately $3,000, which compares to a net income
of about $6,000 for the three months ended June 30, 2008.  WLG (UK)
reduced its net loss by $67,000, from $76,000 for the three months ended June
30, 2008, to a net loss of $9,000 for this period in 2009.


9


Other
Operating Expenses





Salaries
and allowances




Salaries
and related expenses decreased by $0.25 million, or 6%, from $4.19 million for
the three months ended June 30, 2008, to $3.94 million for the same period in
2009.  Salary expense decreased mainly due to reductions in staff in
our Hong Kong, US and UK operations.




Rent




Rent
expense for our facilities decreased by 6% from $0.48 million for the three
months ended June 30, 2008, to $0.45 million for the same period in 2009, for an
overall decrease of $0.03 million.  Rent expense of WLG (USA)
decreased by $14,000 because the lease for its Chicago office expired at the end
of September 2008, and was not renewed.  Shortly after the acquisition
of WCS, all of WLG (USA)’s Chicago operations were moved to WCS’s Chicago
office.  In addition, Asean and WLG (UK) reported a decrease in rental
expense of $22,000 and $29,000, respectively, because of a weakening in their
local currencies.  WE China’s rent expense increased by $12,000
following a move to a larger warehouse facility in Shanghai at the beginning of
2009.





Other
selling and administrative expenses





Other
SG&A expense for the three months ended June 30, 2009, totaled about $1.27
million, compared to $1.37 million for the same period in 2008, for a decrease
of $0.10 million.  This decline is attributable to cost control
measures taken by the Group in 2008.  Late in 2008, we took steps to
reduce and/or contain our general overhead costs and these steps included
cutting back on many expenses, including overseas travel, entertainment, and
legal and professional fees.





Depreciation
and Amortization




Depreciation
expense for property, plant and equipment decreased to $88,000 for the three
months ended June 30, 2009, compared to $104,000 for the same period in 2008,
for a decrease of $16,000.





Amortization
expense is attributable to the customer lists acquired in the acquisitions of
WLG (USA), Asean, WLG (UK), the MSA Group and WCS.  In connection with
the acquisition of WLG (USA), we recorded a customer list asset of $0.51
million, which is now being amortized on a straight-line basis over 4
years.  Asean's customer list was valued at $1.56 million and is being
amortized on a straight-line basis over 8 years.  WLG (UK)'s customer
list was valued at $0.83 million and is being amortized over 5
years.  A cost of $1.55 million was assigned to the MSA Group customer
list, which was being amortized over 10-years.  In 2007 and 2008, the
carrying cost of MSA’s customer list was reduced by $0.60 million and $0.80
million, respectively, due to MSA not achieving certain earnings targets, and
pursuant to an agreement with MSA’s former shareholders by which they gave up
their rights to receive additional proceeds for the sale of their
shares.  As of the end of 2008, MSA's customer list was fully
amortized due to prior amortization and the reductions of $0.60 million and
$0.80 million described above.  WCS’s customer list was valued at
$2.84 million and is being amortized over 9 years.  It is the Group's
policy to periodically review the estimated useful lives of its intangible
assets to ensure that the rate of amortization is consistent with the expected
pattern of economic benefits from the intangible assets.  This review
as of December 31, 2008, indicated that the remaining useful lives for the
intangible assets of WLG (USA) and WLG (UK) were 4 years and 5 years,
respectively.  Due to this review, the useful lives of the intangible
assets of WLG (USA) and WLG (UK) were extended from 1.25 years to 4 years and
from 3 years to 5 years, respectively, effective from January 1,
2009.  For the three months ended June 30, 2009, amortization expense
totaled $0.16 million, and is attributable to WLG (USA), Asean, WLG (UK) and WCS
in the approximate amounts of $8,000, $49,000, $24,000 and $79,000,
respectively.  Amortization expense for the three months ended June
30, 2008 was $0.22 million and related to WLG (USA), Asean, WLG (UK), the MSA
Group and WCS in the approximate amounts of $26,000, $49,000, $42,000, $22,000
and $79,000, respectively.


10


Interest
Expense




Interest
expense declined from $0.20 million for the three months ended June 30, 2008, to
$0.14 million for this same period in 2009, for a decrease of $0.06
million.  Asean and WCS’s interest expense fell by $42,000 and
$9,000, respectively, mainly as a result of a decrease in their bank
borrowings.  The Group incurred interest expense of about $69,000 for
a director’s loan of $0.60 million and $1.7 million of Series B Preferred
Stock.  Under US GAAP rules, the dividends on the Series B Preferred
Stock are reported as interest expense.  Interest expense of $4,000 is
for a loan from another director, which was fully repaid as of June 30,
2009.  All director loans and the Series B Preferred Stock carry an
interest rate of 12% per annum.




Other
income/expense





Other
income for the three months ended June 30, 2009, totaled $76,000, compared to
other expense of $26,000 for the same period in 2008, for an improvement of
$0.10 million.  The change from year to year is primarily due to
foreign exchange losses during the three months ended June 30, 2008, and to
miscellaneous items of other income and exchange gains attributable to the three
months ended June 30, 2009.




Provision
for Income Taxes





The
provision for income taxes decreased from $0.15 million for the three months
ended June 30, 2008, to $78,000 for the same period in 2009.  Income
tax of $75,000 was provided on the net income of $0.39 million attributable to
our Hong Kong, China and Australian operations, for an effective tax rate of
19%.  The US operations of WLG (USA), MSA and WCS are included in a US
consolidated federal income tax return with the Group's parent company, and,
together, these companies reported a consolidated pre-tax loss of approximately
$0.64 million.   No tax benefit was recorded for the US losses.
State income taxes of about $3,000 were provided for our US
operations.  WLG (UK) had a pre-tax loss of $87,000 and no tax benefit
was provided for the loss.  After giving effect to all losses and to
amortization and other expenses for which no income tax deduction is allowed,
the Group recorded a provision for taxation of $78,000 on its pre-tax loss of
$0.33 million.





SIX
MONTHS ENDED JUNE 30, 2009 COMPARED WITH SIX MONTHS ENDED JUNE 30,
2008.




Results
of Operations





Our
revenues for the six months ended June 30, 2009, were adversely affected by the
economic downturn that began in 2008 and which continued for the first half of
2009.  Falling demand and declining shipping rates in the markets that
we serve meant that we booked less business and recorded lower revenues in the
first half of 2009 than we did in the same period for last year.  Falling
rates did not necessarily impact our profitability, but the declining volumes of
cargos shipped by our customers did have a material effect on our
earnings.




Total
revenues for the six months ended June 30, 2009, decreased by about $50.73
million, or 45%, compared with the same period in 2008, from approximately
$111.70 million to $60.97 million.  Our Hong Kong operations reported
decreased revenues of $8.33 million.  Revenues from our China offices
fell by $3.58 million.  Our US operations reported a combined decrease
in revenues of $30.10 million.  Of this total decrease, about $2.74
million is from WLG (USA), $2.98 million from MSA and $24.38 million from
WCS.  Lastly, Asean’s revenues declined by $5.64 million, and WLG
(UK)’s revenues fell by $3.08 million.




Gross
profit decreased from $13.71 million for the six months ended June 30, 2008, to
$10.14 million for the same period in 2009, for a decrease of $3.57 million, or
about 26%, primarily due to a decline in the volume of freight shipped by
our customers.





The
Group's gross margin increased from 12.3% for the six months ended June 30,
2008, to 16.6% for the same period in 2009.  The increase in our gross
margin is due to several factors, including reductions in fuel surcharges levied
by the various air and shipping lines and lower rates for cargo
space.  Falling shipping rates have the effect of reducing our gross
revenues and increasing our gross margin.  This occurs because the
direct shipping charges, which are passed on to the customer, result in lower
gross revenues, which are then measured against our fees, Normally, our fees do
not fall by the same proportion as the drop in direct shipping
costs.


11


Total
operating expenses decreased to about $11.50 million for the first half of 2009,
as compared to approximately $12.73 million incurred for the same period in
2008, for a decrease of $1.23 million.  In face of reduced volumes and
falling demand, we adopted a number of measures to reduce our overhead costs,
including freezing salaries and making reductions in force throughout the
Group.  For the six months ended June 30, 2009, salaries and related
personnel costs decreased by about $0.60 million, or 7%, from $8.28 million to
$7.68 million.  Other selling and administrative costs decreased by
approximately 13% from $3.81 million to $3.33 million, which, when combined with
the decrease in personnel costs, resulted in a total reduction of approximately
$1.08 million in operating costs, not including amortization and
depreciation.  However, the reduction in costs on a year to year basis
would have been even greater except for higher bad debts experienced during the
first six months in 2009 compared to the same period in 2008.  Total
bad debt expense in the first six months of 2009 was about $0.38 million
compared to just under $0.10 million in 2008.  This increase in bad
debts resulted from several of our customers that were forced to file for
bankruptcy.  We did tighten our credit policies in 2009, but these
actions were not enough to prevent us from suffering higher credit losses.
In addition, we incurred about $0.21 million in operating costs for an operation
that we commenced during the second quarter in New York. Amortization and
depreciation expenses decreased from $0.64 million to $0.49 million, or about
23%.  Most of this decrease relates to amortization expense of
intangible assets.  There was no amortization for MSA for the six
months ended June 30, 2009, because the cost basis of MSA’s intangible assets
was written down to zero as of the end of 2008.  In addition, the
amortization expense recorded by WLG (USA) and WLG (UK), decreased because of an
extension in the useful lives of the intangible assets of each
company.  SeeOther Operating
Expenses  below.




After the
provision for income taxes, the Group recorded a net loss of $1.45 million for
the first half of 2009, compared to net income of $0.26 million for the same
period in 2008.  Hong Kong and China’s operations reported a combined
net income of $0.71 million for the six months ended June 30, 2009, compared
with net income of $1.01 million for the same period in 2008, for a decrease of
approximately $0.30 million.  Our US operations recorded a combined
net loss of $0.80 million for the six months ended June 30, 2009, compared to a
net income of $0.16 million for the same period in 2008.  WLG (USA),
MSA and WCS reported net income of $0.16 million, net loss of $27,000 and net
loss of $0.94 million, respectively, for the six months ended June 30, 2009,
compared to net loss of $20,000, net income of $0.14 million and net income of
$37,000, respectively, for the same period in 2008.  In addition,
Asean reported a net loss of $0.20 million for the six months ended June 30,
2009, compared to net income of $0.11 million for the same period in
2008.  Asean’s net loss is mainly due to provisions for doubtful debts
of approximately $0.22 million and $0.12 million for certain cargo claims
related to one of these three customers during the first half of
2009.  WLG (UK) reported a net loss of $4,000 for the six months ended
June 30, 2009, compared to a net loss of $0.17 million for the same period in
2008.  All of WLG (UK)’s loss is attributable to an $82,000 severance
payment made to a senior employee in April 2009; and to about $36,000 paid to
this employee in the first quarter of 2009.  The parent company’s loss
increased by about $0.32 million for the six months ended June 30, 2009,
compared to the same period last year.  Beginning in 2009, because of
a realignment of responsibilities, the salaries and related costs for two
officers, which totaled about $0.33 million, were charged to Group overhead. In
2008, all costs for these two officers were charged to operations.




Segment
Information





Air freight
operations:  Revenues from our air freight operations decreased
from $21.00 million for the first half of 2008, to about $9.45 million for the
first half  of 2009, for a decrease of $11.55 million.  Most
of the decrease is attributable to our China and Hong Kong operations, which
experienced a decline in revenues of $3.21 million and $6.00 million,
respectively.  Revenues fell because of a lack of demand for products
at destination and a reluctance of customers to incur the higher per unit costs
to ship goods by air. Our remaining subsidiaries reported a total decrease in
their air freight revenues of approximately $2.34 million.




Cost of
sales for our air freight operations decreased from $17.73 million for the six
months ended June 30, 2008, to $7.31 million for the same period in 2009, mainly
as a result of a decline in the volumes of cargo shipped and shipping
rates.





The
Group’s gross profit margin for its air freight business increased from 15.6%
for the six months ended June 30, 2008, to 22.7% for the same period in
2009.  Most of this increase is due to lower fuel surcharges and to a
decline in cargo rates charged by the airlines during the first half of 2009,
compared to the same period in 2008.





Segment
overhead for our air freight operations decreased by approximately $0.68
million, from $2.68 million for the six months ended June 30, 2008, to $2.00
million for the same period in 2009.  This decrease is after incurring
about $0.21 million for a new operation that was commenced in May 2009 in New
York to improve and widen our service capabilities in the US
market.


12


Net
segment income for our air freight operations is approximately $0.15 million for
the six months ended June 30, 2009, compared to net income of $0.60 million for
the same period in 2008, for a decrease of $0.45 million.  Our Hong
Kong and China air freight operations reported net incomes of approximately
$0.25 million and $63,000, respectively, for the six months ended June 30, 2009,
compared to net incomes of approximately $0.47 million and $97,000,
respectively, for the same period in 2008, for a combined decrease of $0.25
million.  In addition, Asean, WLG (UK) and WCS reported net losses of
$98,000, $43,000 and $44,000, respectively, compared to net incomes of $23,000,
$4,000 and $2,000, respectively, for the same period in 2008.  WLG
(USA) posted a net income of $15,000 for the first half of 2009, compared to a
net loss of $5,000 for the same period in 2008.




Sea freight
operations:  Revenues from our sea freight operations decreased
from approximately $56.74 million in the first half of 2008 to $28.61 million
for the same period in 2009, for a decrease of $28.13 million.  All of
our operating subsidiaries reported declines in their sea freight
revenues.  For the six months ended June 30, 2009, WEHK, WE China, WLG
(USA), MSA, WCS, Asean and WLG (UK) reported revenues of $3.12 million, $4.06
million, $2.01 million, $2.18 million, $10.02 million, $5.00 million and $2.22
million, respectively, compared to $5.46 million, $4.44 million, $4.28 million,
$4.99 million, $25.20 million, $9.12 million and $3.25 million, respectively,
for the same period in 2008.  In all cases, the decline in revenues
suffered by our operating companies resulted from less cargo shipped and falling
shipping rates.





Cost of
sales for our sea freight operations decreased from $48.72 million for the six
months ended June 30, 2008, to $22.24 million for the same period in 2009, as a
result of the decreases in cargo shipped and shipping rates.




The
Group’s gross profit margin increased from approximately 14.1% for the six
months ended June 30, 2008, to 22.2% for the same period in
2009.  Gross margins tend to rise in periods of falling shipping rates
because the amount we  earn per shipment is compared to a much lower
revenue amount, as shipping rates tend to fall faster and by a greater amount
than the amounts we earn on a per shipment basis.




Total
segment overhead attributable to our sea freight business decreased by $1.05
million, or 14%, from approximately $7.42 million for the six months ended June
30, 2008, to $6.37 million for the same period in 2009.  Most of this
reduction is due to decreases for personnel costs and for reductions in legal
and professional fees, travel and entertainment expenses.  The drop in
personnel costs is partially due to the reallocation of certain payroll costs
from this business segment to the Group’s parent company.




Net
segment loss for our sea freight operations is approximately $4,000 for the six
months ended June 30, 2009, compared to net income of $0.61 million for the same
period in 2008.  WEHK and WE China reported net incomes of $0.24
million and $0.16 million, respectively, for the six months ended June 30, 2009,
which compares to $0.30 million and $0.14 million for the same period in
2008.  MSA and WCS reported net losses of $24,000 and $0.64 million,
respectively, for the six months ended June 30, 2009, compared to net incomes of
$0.13 million and $23,000 for the same period in 2008.  WLG (USA), WLG
(UK) and Asean reported net incomes of $0.15 million, $98,000 and $27,000,
respectively, for the six months ended June 30, 2009, compared to net losses of
$15,000 and $18,000 and net income of $51,000, respectively, for the same period
in 2008.





Customs brokerage
services:  Asean, MSA, WLG (UK) and WCS each have a division
that provides customs brokerage services.  For the first half of 2008,
revenues from customs brokerage services totaled approximately $33.96 million,
compared to $22.91 million for the same period in 2009, for a decrease of about
$11.05 million.  Some of the decline in revenues is due to the US
companies paying less duty on behalf of their customers and assisting them to
use certain procedures that allow customers to make direct payment of
customs duties to the government on credit terms.  Direct and
administrative costs for this segment totaled about $23.35 million, producing a
net loss of $0.44 million for the six months ended June 30, 2009, compared to a
net loss of $0.11 million for the same period in 2008.  Most of the
loss is attributable to Asean and WCS, which reported net losses of $0.13
million and $0.24 million, respectively, for the six months ended June 30, 2009,
compared to net incomes of $32,000 and $13,000 for the same period in
2008.  MSA’s net loss in this segment is approximately $2,000, which
compares to a net income of about $9,000 for the six months ended June 30,
2008.  WLG (UK) reduced its net loss by $99,000 for the six months
ended June 30, 2008, from $0.16 million to a net loss of $60,000 for
the same period in 2009.


13


Other
Operating Expenses





Salaries
and allowances




Salaries
and related expenses decreased by $0.60 million, or 7%, from $8.28 million for
the six months ended June 30, 2008, to $7.68 million for the same period in
2009.  Salary expenses decreased mainly due to reductions in staff in
our Hong Kong, US and UK operations.




Rent




Rent
expense for our facilities decreased by 7% from $0.94 million for the six months
ended June 30, 2008, to $0.87 million for the same period in 2009, for an
overall decrease of $0.07 million.  Rent expense of WLG (USA)
decreased by $29,000 because the lease for WLG (USA)’s Chicago office expired at
the end of September 2008, and was not renewed.  Shortly after the
acquisition of WCS, all of WLG (USA)’s Chicago-based operations were moved to
WCS’s Chicago office.  In addition, Asean and WLG (UK) reported a
decrease in rental expense of $42,000 and $54,000, respectively, because of a
weakening in their local currencies, and because WLG (UK) paid duplicate rent in
the first quarter of 2008 as part of its move to new office and warehouse
facilities.  WE China’s rent expense increased by $30,000 following
its move to a larger warehouse facility in Shanghai at the beginning of
2009.





Other
selling and administrative expenses





Other
SG&A expense for the six months ended June 30, 2009, totaled about $2.45
million, compared to $2.86 million for the same period in 2008, for a decrease
of $0.41 million.  This decline is attributable to cost control
measures taken by the Group in 2008, and continued in 2009.  Late in
2008, we took steps to reduce and/or limit our general overhead costs and these
steps included cutting back on many of our costs, including overseas travel,
entertainment, and legal and professional fees.





Depreciation
and Amortization




Depreciation
expense for property, plant and equipment decreased to $0.17 million for the
first half of 2009, compared to $0.21 million for the same period in 2008, for a
decrease of $40,000.





Amortization
expense is attributable to the customer lists acquired in the acquisitions of
WLG (USA), Asean, WLG (UK), the MSA Group and WCS.  In connection with
the acquisition of WLG (USA), we recorded a customer list asset of $0.51
million, which is now being amortized on a straight-line basis over 4
years.  Asean's customer list was valued at $1.56 million and is being
amortized on a straight-line basis over 8 years.  WLG (UK)'s customer
list was valued at $0.83 million and is being amortized over 5
years.  A cost of $1.55 million was assigned to the MSA Group customer
list, which was being amortized over 10-years.  In 2007 and 2008, the
carrying cost of MSA’s customer list was reduced by $0.60 million and $0.80
million, respectively due to MSA not achieving certain earnings targets, and
pursuant to an agreement with MSA’s former shareholders by which they gave up
their rights to receive additional proceeds for the sale of their
shares.  As of the end of 2008, MSA's customer list was fully
amortized due to prior amortization and the reductions of $0.60 million and
$0.80 million described above.  WCS’s customer list was valued at
$2.84 million and is being amortized over 9 years.  The Group
periodically reviews the estimated useful lives of its intangible assets to
ensure that the rate of amortization is consistent with the expected pattern of
economic benefits to be received from the intangible assets.  This
review as of December 31, 2008, indicated that the remaining useful lives for
the intangible assets of WLG (USA) and WLG (UK) were 4 years and 5 years,
respectively.  Due to this review, the useful lives of the intangible
assets of WLG (USA) and WLG (UK) were extended from 1.25 years to 4 years and
from 3 years to 5 years, respectively, effective from January 1,
2009.  For the six months ended June 30, 2009, amortization expense
totaled $0.32 million, and is attributable to WLG (USA), Asean, WLG (UK) and WCS
in the approximate amounts of $16,000, $98,000, $48,000 and $0.16 million,
respectively.  Amortization expense for the six months ended June 30,
2008 was $0.43 million and related to WLG (USA), Asean, WLG (UK), the MSA Group
and WCS in the approximate amounts of $51,000, $98,000, $83,000, $44,000 and
$0.16 million, respectively.


14


Interest
Expense




Interest
expense declined from $0.44 million for the first half of 2008, to $0.30 million
for this same period in 2009, for a decrease of $0.14 million.  WLG
(USA) incurred no interest expense for the six months ended June 30, 2009,
compared to interest expense of $13,000 for the same period in 2008, due to the
repayment in full in 2008 of its bank debt.  Asean and WCS’s interest
expense fell by $77,000 and $66,000, respectively, mainly as a result of a
decrease in their bank borrowings.  In addition, the Group incurred
interest expense of about $0.14 million for a director’s loan of $0.60 million
and $1.7 million of Series B Preferred Stock.  Under US GAAP rules,
the dividends on the Series B Preferred Stock are reported as interest
expense.  Interest expense of $13,000 relates to a loan from another
director, which was fully repaid as of June 30, 2009.  All director
loans and the Series B Preferred Stock carry an interest rate of 12% per
annum.




Other
income/ expense





Other
income for the six months ended June 30, 2009, totaled $0.15 million, compared
to other expense of $78,000 for the same period in 2008, for an improvement of
$0.23 million.  The change from year to year is primarily due to
foreign exchange losses recorded during the first half of 2008, and to
miscellaneous items of other income and foreign exchange gains in the first half
of 2009.




Provision
for Income Taxes





For the
six months ended June 30, 2009, the Group recorded a net tax benefit of $58,000,
compared to a provision for income taxes of $0.23 million for the same period
last year.  Asean incurred an operating loss of $0.58 million for the
six months ended June 30, 2009, and recorded a tax benefit of $0.18 million, at
the rate 30%, which is the statutory rate of tax applicable to Asean’s
income.  Income tax of $0.11 million was provided on the combined net
income of $0.63 million attributable to our Hong Kong and China operations, for
an effective tax rate of 17%.  The US operations of WLG (USA), MSA and
WCS are included in a US consolidated federal income tax return with the Group's
parent company, and, together, these companies reported a consolidated pre-tax
loss of approximately $1.47 million.  No tax benefit was recorded for
the US losses. State income taxes of about $14,000 were provided for our US
operations.  WLG (UK) has a pre-tax loss of $88,000 and no tax
benefit was provided for this loss.  After giving effect to all
losses and to amortization and other expenses for which no income tax deduction
is allowed, the Group recorded a net tax benefit of $58,000 on its pre-tax loss
of $1.51 million.





LIQUIDITY
AND CAPITAL RESOURCES




For the
six months ended June 30, 2009, our operations provided cash of approximately
$1.03 million, compared with cash of $1.71 million provided by operations for
the same period in 2008.  For the six months ended June 30, 2009, cash
was provided by the following sources: amortization and depreciation expense of
$0.49 million; provision for bad debts of $0.39 million; other non-cash items of
$7,000; a decrease in trade receivables of $3.14 million; and an increase in
other accrued liabilities of $0.20 million.  Major components that
used cash for operations for the six months ended June 30, 2009, include: net
loss of $1.45 million; an increase in deposits and prepayments of $0.21 million;
decreases in trade payables of $1.06 million; decrease in due to director of
$42,000 and a decrease in income tax payable of $0.44 million.




Net cash
used for financing activities totaled about $1.65 million for the six months
ended June 30, 2009, compared to net cash of $0.39 million used by financing
activities for the same period in 2008.  Cash used by financing
activities for the six months ended June 30, 2008, included an increase in
restricted cash of $63,000; a decrease in bank debt of $1.86 million; repayment
of capital leases of $62,000 and cash dividends of $45,000 paid on preferred
stock.  Cash provided by financing activities for the six months ended
June 30, 2008, included loans from directors of $1.64 million. Cash used by
financing activities for the six months ended June 30, 2009, included a decrease
in  bank debts totaling $1.31 million; repayment of loan from a
director of $0.38 million; repayment of capital lease obligations of $35,000;
and cash dividends of $45,000 paid on our preferred stock.  Cash
provided by financing activities for the six months ended June 30, 2009,
included a decrease in restricted cash of $0.11 million.


15







As of
June 30, 2009, certain banks in Hong Kong and China had issued bank guarantees
of $0.54 million to several airlines on behalf of WAE and WE
China.  With these guarantees, the airlines, in turn, grant credit
terms to WAE and WE China.  In general, payments for air freight
shipments must be made to the airlines prior to the time we receive payments
from our customers.  These guarantees are secured by approximately
$0.54 million cash held in restricted bank accounts.  An Australian
bank has provided a guarantee of about $0.11 million in favor of the owner of
the office premises occupied by Asean.  In addition, a UK bank has
provided a guarantee of $0.50 million to the UK Customs and Excise Department
for the benefit of WLG (UK).  In return for this guarantee, the UK
Customs and Excise Department grants credit terms to WLG (UK).  A
parent company guarantee has been given to the UK bank.  A parent
company guarantee has also been given as support for the rental obligations
related to WLG (UK)’s office and warehouse facilities.  This latter
guarantee is limited to an amount equal to three years rent at the date the
guarantee is enforced.  As of June 30, 2009, our contingent obligation
under this guarantee was about $0.90 million.





In
October 2007, WEHK borrowed $0.28 million to pay income taxes, and this loan,
which was repayable in equal installments over twelve months, was repaid by
November 2008.  As of June 30, 2009, WEHK had no bank
debt.





In
November 2006, WLG (USA) obtained a $1.0 million revolving line of credit and a
five year, $1.0 million term loan from a US bank.  The term loan was
to be repaid ratably over 60 months.  Both loans were secured by all
of the assets of WLG (USA) and MSA and by a guarantee given by the Group’s
parent company.  Under these two loan facilities, WLG (USA) had to
maintain certain financial ratios, including minimum cash flow coverage and
maximum funded debt to earnings before taxes, interest and non-cash items, each
of which was to be measured on a rolling basis at the end of each calendar
quarter.  The term loan of approximately $0.75 million was fully
repaid in first half of 2008.  The line of credit had a balance of
$0.13 million at the time it was repaid, which was on April 15,
2008.  These loans were repaid from the Group’s working capital and
from a loan provided to the Group by a director.





Asean has
a revolving loan facility in the face amount of approximately $3.22 million,
which is secured by, and based on, 100% and 80% of its accounts receivable,
respectively.  It also has an overdraft facility with a limit of about
$0.54 million.  At June 30, 2009, Asean's bank debt under its
revolving loan and overdraft facility was $1.27 million and $0.54 million,
respectively, with interest rates of approximately 8.93% for the receivables
line and 8.03% for the overdraft facility.  Asean's bank, in addition
to having a charge over all of its accounts receivable, holds a first registered
mortgage over all of its remaining assets.  Asean’s overdraft
facility is guaranteed by the Group’s parent company.




WCS has a
revolving loan facility from a bank in the face amount of $3.0
million.  This facility, which is secured in part by all of the trade
receivables of WCS, MSA and WLG (USA), allows borrowings equal to 80% of
eligible receivables of all three companies.  As of June 30, 2009, WCS
owed approximately $1.24 million under this facility, which carried an interest
rate of 5.25% per annum.  This loan facility is secured by all of the
assets of WCS, WLG (USA), MSA and by a guarantee from the Group’s parent
company.  The maturity date of this loan facility is September 30,
2009.




In our
past reports, we have expressed a strong intent to continue executing our
business plan, which, among other things, calls for us to make strategic
acquisitions to supplement our internal growth.  In 2005, we completed
the acquisitions of three freight forwarding and logistics companies, one of
which had a customs brokerage business.  We followed this in 2006 by
acquiring two freight forwarding and customs brokerage companies.  In
July of 2007, we acquired WCS, which operates both a freight forwarding business
and customs brokerage practice.  And in May of 2009, we hired
approximately 10 individuals that that had previously worked with an
international freight forwarding company doing business in New
York.  Several of the new employees have strong business connections
in Asia and specialize in air-freight shipments in the US-Asia trade
lanes.  We paid no money to hire these individuals,, but we did
incur some capital costs and also added office space to our existing branch
office in New York.  Finding and hiring capable and experienced
personnel in this industry is a means to expand out services and increase our
revenues at a minimal cost and is a practice that we will follow in the future
as opportunities arise.  Our long-term strategy to acquire
companies offering strong growth opportunities and to pursue aggressive internal
growth has not changed.  However due to the global downturn in
business that began in 2008, we have delayed any acquisition plans that we might
have until there is greater visibility and certainty in the global markets that
affect our industry.


16





Our
approximate contractual cash obligations as of June 30, 2009, are set forth in
the table below and are expected to equal approximately $0.40 million per month
over the following twelve months.





Payments Due by Period (in thousands)Contractual Obligations
                  
                  Total
                  
                  
                  Less than
                    1year
                  
                  
                  1-3 years
                  
                  
                  4-5 years
                  
                  
                  After 5
                    yearsShort-term debt
                  
                  $
                  600
                  
                  
                  $
                  600
                  
                  
                  $
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Facilities
      rental and equipment leases
                  
                  $
                  5,197
                  
                  
                  $
                  1,540
                  
                  
                  $
                  1,594
                  
                  
                  $
                  878
                  
                  
                  $
                  1,185Cargo
      space commitments
                  
                  $
                  2,630
                  
                  
                  $
                  2,630
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Redeemable
      preferred stock
                  
                  $
                  1,700
                  
                  
                  
                  —
                  
                  
                  $
                  1,700
                  
                  
                  
                  —
                  
                  
                  
                  —Total
      contractual cash obligations
                  
                  $
                  10,127
                  
                  
                  $
                  4,770
                  
                  
                  $
                  3,294
                  
                  
                  $
                  878
                  
                  
                  $
                  1,185




During
the six months ended June 30, 2009 and 2008, we have not engaged in
any:





·
            material
      off-balance sheet activities, including the use of structured finance or
      special purpose entities;





·
            trading
      activities in non-exchange traded
contracts.





ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





This item
is not applicable because the Company is a smaller reporting
company.





ITEM 4. CONTROLS AND
PROCEDURES





Evaluation
of Disclosure Controls and Procedures





The
Company's management, with the participation of the Company's Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the
Company's disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as Amended
(the “Exchange Act”)) as of the end of the period covered by this Quarterly
Report on Form 10-Q.   Based on such evaluation, the Company's
Chief Executive Officer and Chief Financial Officer have concluded that, as of
the end of such period, the Company's disclosure controls and procedures are
effective, as of the end of the period covered by this Report on Form 10-Q, in
ensuring that material information relating to the Company required to be
disclosed by the Company in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported on a timely
basis.




Changes
in Internal Control Over Financial Reporting





There has
been no change in the Company’s internal control over financial reporting during
the period covered by the Report on Form 10-Q that has materially affected, or
is reasonably likely to materially affect, the Company’s internal control over
financial reporting.


17





Part
II: Other Information




Item
1: Legal Proceedings:





As noted
in our Report on Form 10-Q for the three months ended March 31, 2009, the Group
was notified by several manufacturers in China that they intended to file claims
against the Group unless payment was made to them for certain cargoes that were
allegedly released by the Company without having proper documentation and for
which the purchaser of the goods did not made payment.  Subsequent to
March 31, 2009, two China manufacturers did file claims against the Group in the
approximate amount of $125,000.  As of June 30, 2009, the Company had
provided a reserve of approximately $148,000, including legal and related
legal costs of about $23,000, to settle the above claims and, in July 2009,
it made payment of approximately $125,000 in complete settlement of these
claims.





During
the three months ended June 30, 2009, there have been no material changes to
legal proceedings from those discussed in our Annual Report on Form 10-K for the
year ended December 31, 2008, and in our Quarterly Report on Form 10-Q filed for
the three months ended March 31, 2009.





Items 1A: Risk Factors: There
have been no material changes in the Risk Factors set forth in WLG's Annual
Report on Form10-K for the year ended December 31, 2008, and in our Quarterly
Report on Form 10-Q for the three months ended March 31, 2009.




Item
6. Exhibits.





Exhibits





31.1
                
                Certification
      of the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002 (Rule15d-14(a)).31.2
                
                Certification
      of the Chief Financial Officer to Section 302 of the Sarbanes-Oxley Act of
      2002 (Rule 15d-14(a).32.1
                
                Certification
      of the Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002 (Rule
15d-14(b)).


18




SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.





WLG
      INC.Date:
      August 14, 2009
                    By:
                    /s/ Christopher
      WoodChristopher
      WoodChief
      Executive Officer,
                      (
      Principal Executive Officer) and DirectorDate:
      August 14, 2009
                    By:
                    /s/ David
      L. KoontzDavid
      L. KoontzChief Financial Officer,
                      (Principal Financial Officer and Accounting Officer)
                      and Director


19




EXHIBIT
INDEX





Exhibit
                Number
              
              Description of Exhibit31.1
              
              Certification
      of the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002(Rule 15d-14(a)).31.2
              
              Certification
      of the Chief Financial Officer to Section 302 of the Sarbanes-Oxley Act of
      2002 (Rule15d-14(a)).32.1
              
              Certification
      of the Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002 (Rule
15d-14(b)).


20