SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





FORM
      10-QSB





(Mark
      One)





x   Quarterly
      report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for
      the
      quarterly period ended June 30, 2006




OR




o   Transition
      report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for
      the
      transition period from ___________ to ____________





Commission
      File Number: 333-113564




WAKO
                LOGISTICS GROUP, INC.(Exact
                Name of Small Business Issuer as Specified in Its Charter)




Delaware
            
            20-0262555(State
                or Other Jurisdiction of
            
            (I.R.S.
                EmployerIncorporation
                or Organization)
            
            Identification
                No.)




200
                Howard Avenue, Suite 232, Des Plaines, Illinois 60018(Address
                of Principal Executive Offices)




(847)
                294-1600(Issuer’s
                Telephone Number, Including Area Code)





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


Yes x No o







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


Yes o No x




As
      of
      August 11, 2006 the registrant had 25,390,080 shares of common stock, $.001
      par
      value, issued and outstanding.





Transitional
      Small Business Disclosure Format (Check one): Yes o No x










**WAKO
      LOGISTICS GROUP, INC.**





**FORM
      10-QSB**





**QUARTER
      ENDED JUNE 30, 2006**




Item
                Number inForm
                10-QSB
            
            PagePART
                I. FINANCIAL INFORMATIONItem
                1.
            Financial
                statements
            F-1Item
                2.
            Management's
                Discussion and Analysis or Plan of Operation
            1Item
                3.
            Controls
                and Procedures
            11PART
                II. OTHER INFORMATIONItem
                1.
            Legal
                Proceedings
            11Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            11Item
                3.
            Defaults
                Upon Senior Securities
            12Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            12Item
                5.
            Other
                Information
            12Item
                6.
            Exhibits
            13Signatures





**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-QSB contains forward-looking statements concerning Wako Logistics
      Group, Inc. (“WLG,” the “Company” 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 which 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 costs, 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 1 of our Report on Form 10-KSB for
      the
      year ended December 31, 2005. 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 (UNAUDITED)**




**Wako
      Logistics Group, Inc.**


**Condensed
        Consolidated Statements of Operations**
 For
        the 3
        and 6 months ended June 30, 2005 and 2006
 *(Dollars
        in thousands except share data and per share amounts)*





**3
                  months ended**
                **June
                  30,**
              
              **6
                  months ended**
                **June
                  30,****2005**
              
              **2006**
              
              **2005**
              
              **2006***Note*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$**(unaudited)*
              
              *(unaudited)*
              
              *(unaudited)*
              
              *(unaudited)***Revenues:**Freight
              
              
              
              
              
              8,424
              
              
              13,363
              
              
              14,923
              
              
              25,258Agency
                  services
              
              
              
              
              
              (444
              )
              
              773
              
              
              (820
              )
              
              1,316Other
                  services
              
              
              
              
              
              1,431
              
              
              6,794
              
              
              2,155
              
              
              14,038**Total
                  revenues**
              
              
              
              
              
              9,411
              
              
              20,930
              
              
              16,258
              
              
              40,612**Operating
                  expenses**Cost
                  of forwarding
              
              
              
              
              
              (7,638
              )
              
              (17,496
              )
              
              (13,386
              )
              
              (34,031
              )Selling
                  and administrative expenses
              
              
              
              
              
              (1,659
              )
              
              (3,144
              )
              
              (2,595
              )
              
              (6,363
              )Depreciation
                  and amortization
              
              
              
              
              
              (53
              )
              
              (145
              )
              
              (75
              )
              
              (289
              )Total
                  operating expenses
              
              
              
              
              
              (9,350
              )
              
              (20,785
              )
              
              (16,056
              )
              
              (40,683
              )**Income
                  / (Loss) from operations**
              
              
              
              
              
              61
              
              
              145
              
              
              202
              
              
              (71
              )**Other
                  income (expense)**Interest
                  income
              
              
              
              
              
              2
              
              
              6
              
              
              6
              
              
              22Interest
                  expense
              
              
              
              
              
              (22
              )
              
              (90
              )
              
              (26
              )
              
              (182
              )Other
                  income, net
              
              
              
              
              
              15
              
              
              4
              
              
              39
              
              
              67**Income****/
                  (Loss) before income taxes**
              
              
              
              
              
              56
              
              
              65
              
              
              221
              
              
              (164
              )Provision
                  for income taxes
              
              
              
              
              
              (41
              )
              
              (62
              )
              
              (80
              )
              
              (88
              )**Net
                  Income / (Loss)**
              
              
              
              
              
              15
              
              
              3
              
              
              141
              
              
              (252
              )Dividend
                  on preferred stock
              
              
              
              
              
              -
              
              
              (23
              )
              
              -
              
              
              (45
              )**Income****/
                  (Loss) applicable to common stock**
              
              
              
              
              
              15
              
              
              (20
              )
              
              141
              
              
              (297
              )Other
                  comprehensive income, net of taxes:Foreign
                  currency translation adjustment
              
              
              
              
              
              -
              
              
              4
              
              
              -
              
              
              10**Total
                  comprehensive income / (loss)**
              
              
              
              
              
              **15**
              
              
              **(16**
              **)**
              
              **141**
              
              
              **(287**
              **)**
  The
          financial statements should be read in conjunction with the accompanying
          notes.
  F-1
 **Wako
          Logistics Group, Inc.**
 
 **Condensed
          Consolidated Statements of Operations**
 For
          the 3
          and 6 months ended June 30, 2005 and 2006
 *(Dollars
          in thousands except share data and per share amounts)*
   **Net
                  Income / (Loss) per share:****Basic
                  earnings / (loss) per share**
              
              
              ***2***
              
              
              **0.00**
              
              
              **(0.00**
              **)**
              
              **0.01**
              
              
              **(0.01**
              **)****Diluted
                  earnings / (loss) per share**
              
              
              ***2***
              
              
              **0.00**
              
              
              **(0.00**
              **)**
              
              **0.01**
              
              
              **(0.01**
              **)****Weighted
                  average common shares outstanding**Basic
              
              
              
              
              
              20,641,000
              
              
              25,390,080
              
              
              20,541,000
              
              
              25,390,080Diluted
              
              
              
              
              
              22,641,000
              
              
              27,422,512
              
              
              21,541,000
              
              
              27,422,966
  The
          financial statements should be read in conjunction with the accompanying
          notes.
 
 F-2
  **Wako
          Logistics Group, Inc.**
 
 **Condensed
          Consolidated Balance Sheets**
 At
          December 31, 2005 and June 30, 2006
 *(Dollars
          in thousands except share data and per share
          amounts)*
 
 **At**
                **December
                  31,**
                **2005**
              
              **At
                  June 30,**
                **2006***Note*
              
              *US$*
              
              *US$**(unaudited)***ASSETS****Current
                  assets**Cash
                  and cash equivalents
              
              
              
              
              
              1,212
              
              
              1,271Restricted
                  cash
              
              
              
              
              
              282
              
              
              319Certificates
                  of deposit,
                  restricted
              
              
              
              
              
              245
              
              
              245Trade
                  receivables, net of
                  allowance (2006 - $329; 2005 - $310)
              
              
              
              
              
              10,446
              
              
              9,293Deposits,
                  prepayments and other current assets
              
              
              
              
              
              525
              
              
              566Due
                  from related parties
              
              
              *5*
              
              
              542
              
              
              479Tax
                  prepaid
              
              
              
              
              
              67
              
              
              56**Total
                  current assets**
              
              
              
              
              
              13,319
              
              
              12,229Property,
                  plant and equipment, net
              
              
              
              
              
              850
              
              
              786Deferred
                  tax assets
              
              
              
              
              
              213
              
              
              194Intangible
                  assets, net
              
              
              
              
              
              2,105
              
              
              1,940Goodwill
              
              
              
              
              
              2,588
              
              
              2,588**Total
                  assets**
              
              
              
              
              
              19,075
              
              
              17,737**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Current
                  liabilities**Bank
                  overdrafts
              
              
              
              
              
              584
              
              
              669Trade
                  payables
              
              
              
              
              
              5,802
              
              
              5,147Accrued
                  charges and other creditors
              
              
              
              
              
              996
              
              
              1,151Bank
                  loans - maturing within one year
              
              
              *3*
              
              
              2,870
              
              
              2,537Current
                  portion of capital lease obligations
              
              
              
              
              
              122
              
              
              117Due
                  to related parties
              
              
              *5*
              
              
              46
              
              
              25Due
                  to directors
              
              
              *5*
              
              
              325
              
              
              235Income
                  tax payable
              
              
              
              
              
              208
              
              
              75Total
                  current liabilities
              
              
              
              
              
              10,953
              
              
              9,956**Non-current
                  liabilities**Non-current
                  portion of capital lease obligations
              
              
              
              
              
              150
              
              
              101Other
                  non-current liabilities
              
              
              
              
              
              21
              
              
              16171
              
              
              117Commitments
                  and contingencies
              
              
              *4*
              
              
              -
              
              
              -
  The
          financial statements should be read in conjunction with the accompanying
          notes.
  F-3
  **Wako
          Logistics Group, Inc.**
 
 **Condensed
          Consolidated Balance Sheets**
 At
          December 31, 2005 and June 30, 2006
 *(Dollars
          in thousands except share data and per share
          amounts)*
 **At**
                **December
                  31,**
                **2005**
              
              **At
                  June 30,**
                **2006***US$*
              
              *US$**(unaudited)***Stockholders'
                  equity**Preferred
                  stock, US$0.001 par value, 5 million shares authorized and nil
                  issued
              
              
              -
              
              
              -Convertible
                  redeemable preferred stock, $0.001 par value, 2.0 million shares
                  authorized and issued (Redemption and liquidation value $1.5
                  million)
              
              
              2
              
              
              2Common
                  stock US$0.001 par value, 55 million shares authorized, 25,390,080
                  (At
                  12.31.2005*:
                  25,390,080)*shares issued and outstanding
              
              
              25
              
              
              25Additional
                  paid-in capital
              
              
              6,714
              
              
              6,714Accumulated
                  other comprehensive income
              
              
              19
              
              
              29Employee
                  benefit compensation
              
              
              (8
              )
              
              (8
              )Retained
                  earnings
              
              
              1,199
              
              
              902**Total
                  stockholders' equity**
              
              
              7,951
              
              
              7,664**Total
                  liabilities and stockholders' equity**
              
              
              19,075
              
              
              17,737
 
  The
          financial statements should be read in conjunction with the accompanying
          notes.
 F-4
  **Wako
          Logistics Group, Inc.**
 
 **Condensed
          Consolidated Statements of Cash Flows**
 For
          the 6
          months ended June 30, 2005 and 2006
 *(Dollars
          in thousands except share data and per share amounts)*
 
 **6
                  months ended**
                **June
                  30,****2005**
              
              **2006***US$*
              
              *US$**(unaudited)*
              
              *(unaudited)***Cash
                  flows from****operating
                  activities:**Net
                  income/
                  (loss)
              
              
              141
              
              
              (252
              )**Adjustments
                  to reconcile net income to net cash provided by****operating activities**Depreciation
              
              
              49
              
              
              119Bad
                  debts written off
              
              
              -
              
              
              76Amortization
                  of intangible assets
              
              
              26
              
              
              165Other
                  non-cash items
              
              
              6
              
              
              5**Changes
                  in working capital:**Trade
                  receivables
              
              
              (681
              )
              
              1,077Deposits
                  and prepayments
              
              
              -
              
              
              (45
              )Due
                  from related parties
              
              
              193
              
              
              34Trade
                  payables
              
              
              764
              
              
              (655
              )Accrued
                  charges and other creditors
              
              
              (62
              )
              
              156Due
                  to related parties
              
              
              (53
              )
              
              (20
              )Due
                  to directors
              
              
              258
              
              
              (90
              )Income
                  tax payable
              
              
              63
              
              
              (103
              )**Net
                  cash provided by operating activities**
              
              
              704
              
              
              467**Cash
                  flows from investing activities:**Acquisitions
                  of property, plant and equipment
              
              
              (137
              )
              
              (53
              )Acquisition
                  of subsidiary
              
              
              (1,000
              )
              
              -Due
                  from related parties
              
              
              93
              
              
              29**Net
                  cash used in investing activities**
              
              
              (1,044
              )
              
              (24
              )**Cash
                  flows from financing activities:**Restricted
                  cash
              
              
              (64
              )
              
              (37
              )Bank
                  overdrafts
              
              
              (137
              )
              
              85New
                  bank loan
              
              
              175
              
              
              -Bank
                  loan repaid
              
              
              (129
              )
              
              (333
              )Repayment
                  of capital lease obligations
              
              
              (1
              )
              
              (54
              )Dividend
                  paid
              
              
              -
              
              
              (45
              )Advance
                  from a director
              
              
              1,000
              
              
              -**Net
                  cash****provided
                  by (used in) financing activities**
              
              
              844
              
              
              (384
              )**Net
                  increase in cash and cash equivalents**
              
              
              504
              
              
              59**Cash
                  and cash equivalents at beginning of period**
              
              
              306
              
              
              1,212**Cash
                  and cash equivalents at end of period**
              
              
              810
              
              
              1,271
 
  The
          financial statements should be read in conjunction with the accompanying
          notes.
 F-5
  **Wako
          Logistics Group, Inc.**
 
 **Notes
          to the Consolidated Financial Statements**
 For
          the 3
          and 6 months ended June 30, 2005 and 2006
 *(Dollars
          in thousands except share data and per share amounts)*
 
 **1.**
              **BASIS
                  OF PRESENTATION**
  Wako
        Logistics Group, 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 from its
        offices in Hong Kong, the Peoples Republic of China (“PRC”, or “China”),
        Australia, the United States and through a worldwide network of agents. WLG’s
        business is conducted by its operating subsidiaries, which include the following
        entities: Wako Express (HK) Co. Ltd. (“WEHK”), Wako Air Express (HK) Co. Ltd.
 (“WAE”) , Wako Express (China) Co. Ltd. (“WE China”), a wholly-owned
        subsidiary of WEHK, WLG (USA) LLC (“WLG (USA)”) (formerly dba “Kay O’Neill”),
        Asean Cargo Services Pty Limited (“Asean”) and Asean Logistics, Inc.
        (“ALI”).
  The
        Group
        acquired WLG (USA) in April 2005, and acquired ALI and Asean and established
        WLG
        (Aust) in the fourth quarter of 2005. Each of these company’s financial
        information is included in the Group’s consolidated financial statements for the
        three months and six months ended June 30, 2006. As of June 30, 2006, all
        subsidiaries are wholly owned. All material intercompany balances and
        transactions have been eliminated in consolidation.
 
 The
        accompanying financial data as of June 30, 2006, and for the three months
        and
        six months ended June 30, 2006 and 2005, 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 financial statements and
        the
        notes thereto included in the Company’s audited, consolidated financial
        statements for the year ended December 31, 2005.
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America 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 accounting principles generally accepted in the
        United States for interim financial information. In the opinion of management,
        all adjustments (which include only normal recurring adjustments) necessary
        to
        present fairly the financial position, results of operations for the three
        and
        six months ended June 30, 2006 and 2005, and cash flows for the six months
        ended
        June 30, 2006 and 2005, have been made. The results of operations for the
        three
        and six months ended June 30, 2006 and 2005, are not necessarily indicative
        of
        the operating results for the full year.
  F-6
  **Wako
          Logistics Group, Inc.**
 
 **Notes
          to the Consolidated Financial Statements**
 For
          the 3
          and 6 months ended June 30, 2005 and 2006
 *(Dollars
          in thousands except share data and per share amounts)*
  **2.**
              **EARNINGS
                  / (LOSS) PER SHARE**
 
 Earnings
        / (Loss) per share were computed as follows:
 
 **3
                  months ended June 30, 2005****Income**
              
              **Weighted
                  average number of shares**
              
              **Per
                  share amount***US$*Net
                  income
              
              
              15Basic
                  earnings per shareIncome
                  available to common stockholders
              
              
              15
              
              
              20,641,000
              
              
              0.00Diluted
                  earnings per shareIncome
                  available to common stockholders
              
              
              15
              
              
              22,641,000
              
              
              0.00There
                  are no anti-dilutive shares.
  **6
                  months ended June 30, 2005****Income**
              
              **Weighted
                  average number of shares**
              
              **Per
                  share amount***US$*Net
                  income
              
              
              141Basic
                  earnings per shareIncome
                  available to common stockholders
              
              
              141
              
              
              20,541,000
              
              
              0.01Diluted
                  earnings per shareIncome
                  available to common stockholders
              
              
              141
              
              
              21,541,000
              
              
              0.01There
                  are no anti-dilutive shares.
  **3
                  months ended June 30, 2006****Income
                  (Loss)**
              
              **Weighted
                  average number of shares**
              
              **Per
                  share amount***US$*Net
                  income
              
              
              3Dividends
                  on convertible redeemable preferred stock
              
              
              (23
              )
              
              2,000,000
              
              
              0.01Basic
                  loss per shareLoss
                  available to common stockholders
              
              
              (20
              )
              
              25,390,080
              
              
              (0.00
              )Effect
                  of dilutive securitiesWarrants
              
              
              -
              
              
              32,432Convertible
                  redeemable preferred stock
              
              
              -
              
              
              2,000,000Diluted
                  loss per shareLoss
                  available to common stockholdersassuming
                  conversion
              
              
              (20
              )
              
              27,422,512
              
              
              (0.00
              )
  
 F-7
 
  **Wako
            Logistics Group, Inc.**
 
 **Notes
            to the Consolidated Financial Statements**
 For
            the 3
            and 6 months ended June 30, 2005 and 2006
 *(Dollars
            in thousands except share data and per share amounts)*
 **2.**
                **EARNINGS
                    / (LOSS) PER SHARE
                    (CONTINUED)**
 
 **6
                  months ended June 30, 2006****Income
                  (Loss)**
              
              **Weighted
                  average number of shares**
              
              **Per
                  share amount***US$*Net
                  loss
              
              
              (252
              )Dividends
                  on convertible redeemable preferred stock
              
              
              (45
              )
              
              2,000,000
              
              
              0.02Basic
                  loss per shareLoss
                  available to common stockholders
              
              
              (297
              )
              
              25,390,080
              
              
              (0.01
              )Effect
                  of dilutive securitiesWarrants
              
              
              -
              
              
              32,886Convertible
                  redeemable preferred stock
              
              
              -
              
              
              2,000,000Diluted
                  loss per shareLoss
                  available to common stockholdersassuming
                  conversion
              
              
              (297
              )
              
              27,422,966
              
              
              (0.01
              )There
                  are no anti-dilutive shares.
 
 
 **3.**
              **BANKING
                  FACILITIES**
 
 The
                  Group has obtained bank facilities from creditworthy commercial
                  banks as
                  follows:
 
 **At**
                **December
                  31,**
                **2005**
              
              **At**
                **June
                  30,**
                **2006***US$*
              
              *US$**(unaudited)***Facilities
                  granted**Committed
                  line - bank guarantees
              
              
              681
              
              
              718-
                  overdraft facilities
              
              
              425
              
              
              425-
                  bank loans
              
              
              3,520
              
              
              4,250Total
                  committed bank facilities
              
              
              4,626
              
              
              5,393
 
 The
        terms
        of the loan facilities, including the amounts, are agreed by the banks and
        the
        Group from time to time.
 
 Bank
        guarantees of $551 will expire within one year but may be renewed as long
        as the
        Group makes available to the banks the amounts of collateral that are required
        to support each guarantee. The remaining bank guarantee of $167 and the
        overdraft facilities have no expiry date but may be terminated by either
        the
        bank or WLG giving 30 days notice. The bank loan facilities mature on various
        dates as follows: (i) $750 on August 1, 2006, (ii) $452 in October 2006,
        and
        (iii) $129 on December 24, 2006. The remaining loan facilities of $2,919
        have no
        expiry date but may be terminated by giving 30 days notice.
  F-8
  **Wako
          Logistics Group, Inc.**
 
 **Notes
          to the Consolidated Financial Statements**
 For
          the 3
          and 6 months ended June 30, 2005 and 2006
 *(Dollars
          in thousands except share data and per share amounts)*
 
 **3.**  **BANKING
        FACILITIES (CONTINUED)**
  **At**
                **December
                  31,**
                **2005**
              
              **At**
                **June
                  30,**
                **2006***US$*
              
              *(unaudited)**US$***Utilized**Committed
                  line - bank guarantees
              
              
              681
              
              
              718-
                  overdraft facilities
              
              
              425
              
              
              425-
                  bank loans
              
              
              2,870
              
              
              2,537Total
                  bank facilities utilized
              
              
              3,976
              
              
              3,680
 
 
 Bank
        guarantees of $551 are collateralized by cash of $564. The remaining bank
        guarantee of $167 is secured by (i) a guarantee and Indemnity provided by
        WLG
        (Aust) and various individuals and entities associated with Asean, (ii) a
        registered mortgage debenture over all of the assets of Asean and (iii) real
        estate owned by various individuals associated with Asean. The overdraft
        facilities of $425 are secured by (i) a guarantee and Indemnity from WLG
        (Aust)
        and personal guarantees provided by various individuals and entities associated
        with Asean, (ii) a registered mortgage debenture over all of the assets of
        Asean
        and (iii) real estate owned by various individuals associated with
        Asean.
 
 For
        the
        total loan facility granted of $4,250, (i) $581 is unsecured and repayable
        within two years by monthly installments, (ii) $750 is secured by substantially
        all of the assets of WLG (US) and a personal guarantee provided by an employee
        of the Group, (iii) $2,919 is secured by accounts receivables of Asean and
        (iv)
        a registered mortgage charge over the assets of Asean and personal guarantees
        from the former shareholders of Asean. As of June 30, 2006, these bank loans
        carried interest rates of 7% to 10.85% per annum.
  F-9
 
 **Wako
          Logistics Group, Inc.**
 
 **Notes
          to the Consolidated Financial Statements**
 For
          the 3
          and 6 months ended June 30, 2005 and 2006
 *(Dollars
          in thousands except share data and per share amounts)*
 
 **4.**
              **COMMITMENTS
                  AND CONTINGENCIES**
 
 ***Commitments
        under operating leases***
 
 The
                  Group rents office space, staff quarters and certain office equipment
                  under non-cancelable operating leases. The following table summarizes
                  the
                  approximate future minimum lease payments for obligations in effect
                  as of
                  June 30, 2006:
 
 **At**
                **December
                  31,**
                **2005**
              
              **At**
                **June
                  30,**
                **2006***US$*
              
              *(unaudited)**US$*Within
                  one year
              
              
              626
              
              
              592Over
                  one year but not exceeding two years
              
              
              456
              
              
              389Over
                  two years but not exceeding three years
              
              
              282
              
              
              174Over
                  three years but not exceeding four years
              
              
              98
              
              
              95Over
                  four years but not exceeding five years
              
              
              47
              
              
              -Total
                  operating lease commitments
              
              
              1,509
              
              
              1,250
 
 Rent
                  expense under operating leases for the 6 months ended June 30,
                  2005 and
                  2006, was $170 and $374,
                  respectively.
 
 ***Cargo
                  space commitments***
 
 The
                  Group has entered into written agreements with various commercial
                  airfreight carriers pursuant to which the Group is committed to
                  utilize a
                  guaranteed minimum amount of cargo space each year. As of June
                  30, 2006,
                  the cost of the minimum amount of cargo space to be utilized for
                  the
                  coming twelve months is $4,616.
 
 ***Contingencies***
 
 The
                  Group is subject to claims that arise primarily in the ordinary
                  course of
                  business and generally relate to cargo that it arranges to have
                  shipped
                  and for other services performed for its customers. In most cases,
                  such
                  claims are covered by insurance carried by the
                  Group.
 
 As
        of
        June 30, 2006, the aggregate outstanding amounts claimed by third parties
        was
        approximately $22. It is the opinion of management that the disposition or
        ultimate resolution of such claims will not have a material, adverse effect
        on
        the financial position of the Group.
   F-10
 
  **Wako
            Logistics Group, Inc.**
 
 **Notes
            to the Consolidated Financial Statements**
 For
            the 3
            and 6 months ended June 30, 2005 and 2006
 *(Dollars
            in thousands except share data and per share amounts)*
 **5.**
              **RELATED
                  PARTY TRANSACTIONS**
 
 **Name
                  and relationship of related parties**Name
              Relationship
                  to the GroupChristopher
                  Wood (“CW”)
              Shareholder
                  and director of WLGYip
                  King Lin, Paul (“PY”)
              Director
                  of the Group’s subsidiaries until April 2006Paul
                  Pomroy (‘’PP’’)
              Director
                  of Asean and WLG (Aust) Pty LtdWako
                  Express (China) Company Limited (“WEC”)
              Common
                  shareholders and directorsAsean
                  Cargo Services Pty Ltd (“Asean”)
              CW
                  was a shareholder and director of Asean until June 25, 2004. On
                  November
                  9, 2005, Asean became a subsidiary of the Group.Asean
                  Logistics Inc (“ALI”)
              PY
                  was a shareholder of ALI until January 3, 2005. On October 1, 2005,
                  ALI
                  became a subsidiary of the GroupWako
                  Logistic (Thailand) Co. Ltd (“WLT”)
              CW
                  is a shareholder and director of WLTJoin
                  Wing Properties Limited (“JWP”)
              CW
                  is a shareholder and director of JWPAngus
                  International Freight Pty Limited (“AIFP”)
              PP
                  is a director of AIFPWarehouse
                  Solutions International Pty Limited (“WSIP”)
              PP
                  is a director of WSIPAsean
                  Cargo Services (Old) Pty Limited (“ACSQ”)
              PP
                  is a director of ACSQBettervale
                  Pty Limited (“BPL”)
              PP
                  is a director of BPL
 
 F-11
 
  **Wako
            Logistics Group, Inc.**
 
 **Notes
            to the Consolidated Financial Statements**
 For
            the 3
            and 6 months ended June 30, 2005 and 2006
 *(Dollars
            in thousands except share data and per share amounts)*
 **5.**
              **RELATED
                  PARTY TRANSACTIONS
                  (CONTINUED)**
 
 **Details
                  of related parties**Name
              
              Principal
                  activities
              
              Ownership
                  (as of June 30, 2006)*Name
                  of owner*
              
              *%
                  held*WEC
              
              Provision
                  of sea freight and air freight forwarding services in the PRC until
                  Feb
                  2005 and then became dormant #
              
              CW
                PY
              
              50%
                50%Asean
              
              Provision
                  of sea freight and air freight forwarding services in Australia
                  #
              
              WLG
                  (Australia) Pty Ltd
              
              100%ALI
              
              Provision
                  of sea freight and air freight forwarding services in the United
                  States
                  #
              
              WLG
                  (US)
              
              100%WLT
              
              Provision
                  of sea freight and air freight forwarding services in Thailand
                  #
              
              CW
                Others
              
              50%
                50%JWP
              
              Property
                  holding for letting to the Wako Group
              
              CW
              
              100%
 
 #:
              In
                  the normal course of its business, the Group enters into agency
                  agreements
                  with various overseas agents so that both the Group and the overseas
                  agents can jointly handle customer shipments on behalf of the other
                  in
                  both the port of loading and the port of destination.
 
 Under
        these agency agreements, the Group and the overseas agents are obliged to
        perform their respective services at their own places of business and, in
        return, earn their respective service fees from the other party and either
        the
        shipper or the consignee.
 
 In
        addition to the above, under the agency agreements, sometimes either the
        Group
        or the overseas agent is obliged to act as “collection agent” to collect the
        freight revenue from customers (either the shipper or the consignee). Since
        the
        decision as to who has to pay the freight cost is solely determined by both
        the
        shipper and the consignee, both the Group and the overseas agent only act
        in
        accordance with the customers’ instructions in the collection process. In case
        the collecting party is not the party who pays the freight cost to the carrier,
        the collecting party has to reimburse the other party to enable it to settle
        the
        freight cost.
 
 In
        both
        cases, either the Group or the overseas agent has to raise an invoice to the
        other party for an amount attributable to it. The invoice amounts include
        the
        services fees earned and may also include the freight cost collected by the
        other party.
 
 During
        the periods indicated, three of these overseas agents either were or are
        related parties. For the purposes of identifying the related party transactions
        for accounting disclosure purposes, only the handling fee income earned by
        the
        Group from related party overseas agents and the handling fees paid by the
        Group
        to related party overseas agents are disclosed as related party transactions.
        The amounts that the Group billed to the related party overseas agents, who
        only
        acted as collection agents, are not shown as related party transactions.
        Likewise, the amounts that the related party overseas agents billed to the
        Group, who only acted as a collection agent, are not shown as related party
        transactions.
   F-12
 
 **Wako
            Logistics Group, Inc.**
 
 **Notes
            to the Consolidated Financial Statements**
 For
            the 3
            and 6 months ended June 30, 2005 and 2006
 *(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**
                **December
                  31,**
                **2005**
              
              **At**
                **June
                  30,**
                **2006***US$*
              
              *(unaudited)**US$***Due
                  from related parties (Note (i))**WLT
              
              
              13
              
              
              20AIFP
              
              
              190
              
              
              171ACSQ
              
              
              179
              
              
              181WSIP
              
              
              146
              
              
              96BPL
              
              
              7
              
              
              2PP
              
              
              7
              
              
              9542
              
              
              479**Due
                  to related parties (Note (i))**ACSQ
              
              
              24
              
              
              24WSIP
              
              
              22
              
              
              146
              
              
              25**Due
                  to directors**CW
              
              
              325
              
              
              235
 
 Notes :
 
 (i)
              With
                  the exception of amounts due to directors, the amounts due from
                  / to
                  related parties are unsecured, interest-free and repayable on demand.
                  Movements in these accounts during the periods covered by these
                  financial
                  statements represented mainly:
 
 a)
              amounts
                  paid / collected on behalf of related
                  parties;
 
 b)
              amounts
                  paid / payable to and received / receivable from directors, including
                  dividends; and
 
 c)
              handling
                  income receivable / handling fees payable / rental payable and
                  related
                  settlements.
 
 (ii)
              Effective
                  October 1, 2005, ALI and Asean became subsidiaries of the Group
                  and the
                  respective intercompany balances were eliminated in
                  consolidation.
 
 (iii)
              Amounts
                  due to directors are unsecured, interest free and repayable on
                  demand,
                  except for the Promissory Note, which prior to conversion to convertible
                  redeemable preferred stock, did bear interest at the rate of 6%
                  p.a.
  
 F-13
  **Wako
          Logistics Group, Inc.**
 
 **Notes
          to the Consolidated Financial Statements**
 For
          the 3
          and 6 months ended June 30, 2005 and 2006
 *(Dollars
          in thousands except share data and per share amounts)*
  **5.**
              **RELATED
                  PARTY TRANSACTIONS
                  (CONTINUED)**
 
 **Summary
        of transactions with related entities (unaudited):**
 
 **WEC**
              
              **ACSP**
              
              **ALI**
              
              **WLT**
              
              **Total***US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*January
                  1, 2005
              
              
              208
              
              
              -
              
              
              97
              
              
              11
              
              
              316Trade
                  transactions
              
              
              203
              
              
              -
              
              
              -
              
              
              10
              
              
              213Expenses
                  paid
              
              
              128
              
              
              -
              
              
              -
              
              
              -
              
              
              128Net
                  settlements
              
              
              (458
              )
              
              -
              
              
              -
              
              
              (19
              )
              
              (477
              )Reclassified
                  as non-related parties
              
              
              -
              
              
              -
              
              
              (97
              )
              
              -
              
              
              (97
              )June
                  30, 2005
              
              
              81
              
              
              -
              
              
              -
              
              
              2
              
              
              83
 
 **AIFP**
              
              **ACSQ**
              
              **WSIP**
              
              **BPL**
              
              **PP**
              
              **WLT**
              
              **Total***US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*January
                  1, 2006
              
              
              189
              
              
              156
              
              
              124
              
              
              7
              
              
              7
              
              
              13
              
              
              496Trade
                  transactions
              
              
              -
              
              
              -
              
              
              (27
              )
              
              (71
              )
              
              -
              
              
              38
              
              
              (60
              )Net
                  settlements
              
              
              (19
              )
              
              1
              
              
              (2
              )
              
              66
              
              
              3
              
              
              (31
              )
              
              18June
                  30, 2006
              
              
              170
              
              
              157
              
              
              95
              
              
              2
              
              
              10
              
              
              20
              
              
              454
 
 Notes :
 
 ·
            Trade
                transactions for WEC, Asean, ALI and WLT include revenues earned
                by the
                Group and amounts collected on behalf of the Group (or freight costs
                incurred by the Group and amounts collected on behalf of the agents)
                in
                the ordinary course of business. For BPL, the trade transactions
                are for
                rental expenses paid to BPL. For WSIP, the trade transactions refer
                to
                warehouse service fees of $61 paid to WSIP and rental income of $28
                paid
                by WSIP. 
 ·
            Expenses
                include amounts paid by the Group on the related parties’ behalf (or paid
                by the related parties on the Group’s
                behalf). 
 ·
            Net
                settlements are the amounts that the Group paid (or received) in
                respect
                of the intercompany balances owed and/or
                receivable.   F-14
 
 **Wako
            Logistics Group, Inc.**
 
 **Notes
            to the Consolidated Financial Statements**
 For
            the 3
            and 6 months ended June 30, 2005 and 2006
 *(Dollars
            in thousands except share data and per share amounts)*
 **5.**
              **RELATED
                  PARTY TRANSACTIONS
                  (CONTINUED)**
 
 **Additional
        details of transactions:**
 **3
                  months ended**
                **June
                  30**
              
              **6
                  months ended**
                **June
                  30,****2005**
              
              **2006**
              
              **2005**
              
              **2006***(unaudited)*
              
              *(unaudited)*
              
              *(unaudited)*
              
              *(unaudited)**US$*
              
              *US$*
              
              *US$*
              
              *US$***Handling
                  income received/receivable**WEC
              
              
              -
              
              
              -
              
              
              5
              
              
              -WLT
              
              
              -
              
              
              -
              
              
              1
              
              
              -**Handling
                  fee paid/payable**WEC
              
              
              -
              
              
              -
              
              
              16
              
              
              -WLT
              
              
              -
              
              
              1
              
              
              -
              
              
              2**Rental
                  paid/payable**JWP
              
              
              27
              
              
              27
              
              
              43
              
              
              54
 
 **Summary
        of transactions during the periods with directors /
        shareholders:**
 
 **CW***(unaudited)**US$*January
                  1, 2005
              
              
              (733
              )Advance
              
              
              (1,325
              )Expense/draws
              
              
              68June
                  30, 2005
              
              
              (1,990
              )January
                  1, 2006
              
              
              (325
              )Expense/repayment
              
              
              90June
                  30, 2006
              
              
              (235
              )
 
 Notes :
  Expenses
        / loan repayment include amounts that were either paid directly to or for
        the
        benefit of CW.
   F-15
 
  **Wako
            Logistics Group, Inc.**
 
 **Notes
            to the Consolidated Financial Statements**
 For
            the 3
            and 6 months ended June 30, 2005 and 2006
 *(Dollars
            in thousands except share data and per share amounts)*
 **6.**
              **SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW
                  INFORMATION**
 
 **6
                  months ended**
                **June
                  30,****2005**
              
              **2006***(unaudited)*
              
              *(unaudited)**US$*
              
              *US$***Cash
                  paid for:**Interest
                  expense
              
              
              26
              
              
              182Income
                  taxes
              
              
              -
              
              
              124
  
 F-16
 
  **Wako
            Logistics Group, Inc.**
 
 **Notes
            to the Consolidated Financial Statements**
 For
            the 3
            and 6 months ended June 30, 2005 and 2006
 *(Dollars
            in thousands except share data and per share amounts)*
 **7.**
              **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)**  **For
        the 3 months ended June 30, 2005 and 2006 (unaudited)**
 
 **Air
                  forwarding**
              
              **Sea
                  forwarding**
              
              **Customs
                  brokerage**
              
              **Elimination**
              
              **Total****2005**
              
              **2006**
              
              **2005**
              
              **2006**
              
              **2005**
              
              **2006**
              
              **2005**
              
              **2006**
              
              **2005**
              
              **2006***US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*Revenue
              
              
              4,957
              
              
              7,143
              
              
              4,454
              
              
              8,205
              
              
              -
              
              
              5,582
              
              
              
              
              
              
              
              
              9,411
              
              
              20,930Costs
                  of forwarding/customs
              
              
              (4,327
              )
              
              (6,079
              )
              
              (3,311
              )
              
              (6,258
              )
              
              -
              
              
              (5,159
              )
              
              
              
              
              
              
              
              (7,638
              )
              
              (17,496
              )Depreciation
              
              
              (10
              )
              
              (19
              )
              
              (17
              )
              
              (34
              )
              
              -
              
              
              (7
              )
              
              
              
              
              
              
              
              (27
              )
              
              (60
              )Interest
                  income
              
              
              2
              
              
              1
              
              
              -
              
              
              5
              
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              2
              
              
              6Interest
                  expense
              
              
              (3
              )
              
              (25
              )
              
              (5
              )
              
              (37
              )
              
              -
              
              
              (28
              )
              
              
              
              
              
              
              
              (8
              )
              
              (90
              )Other
                  segment income
              
              
              9
              
              
              9
              
              
              60
              
              
              (5
              )
              
              -
              
              
              -
              
              
              (54
              )
              
              
              
              
              15
              
              
              (4
              )Other
                  segment expenses
              
              
              (592
              )
              
              (959
              )
              
              (1,083
              )
              
              (1,640
              )
              
              -
              
              
              (386
              )
              
              54
              
              
              
              
              
              (1,621
              )
              
              (2,985
              )Taxation
              
              
              (15
              )
              
              (3
              )
              
              (26
              )
              
              (55
              )
              
              -
              
              
              (4
              )
              
              
              
              
              
              
              
              (41
              )
              
              (62
              )21
              
              
              68
              
              
              72
              
              
              181
              
              
              -
              
              
              (2
              )
              
              
              
              
              
              
              
              93
              
              
              247Corporate
                  expenses
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (78
              )
              
              (244
              )Net
                  Income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              15
              
              
              3Segment
                  assets
              
              
              3,436
              
              
              6,130
              
              
              4,073
              
              
              5,568
              
              
              -
              
              
              1,473
              
              
              
              
              
              
              
              
              7,509
              
              
              13,171Unallocated
                  assets
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,254
              
              
              4,566Total
                  assets
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              8,763
              
              
              17,737Property,
                  plant and equipment - additions
              
              
              23
              
              
              6
              
              
              48
              
              
              18
              
              
              -
              
              
              3
              
              
              
              
              
              
              
              
              71
              
              
              27
 
  F-17
 
  **Wako
            Logistics Group, Inc.**
 
 **Notes
            to the Consolidated Financial Statements**
 For
            the 3
            and 6 months ended June 30, 2005 and 2006
 *(Dollars
            in thousands except share data and per share amounts)*
 **7.**
              **SEGMENTS
                  OF THE BUSINESS
                  (CONTINUED)**
 
 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:
 
 **(ii)**  **For
        the 6 months ended June 30, 2005 and 2006 (unaudited)**
 
 **Air
                  forwarding**
              
              **Sea
                  forwarding**
              
              **Customs
                  brokerage**
              
              **Elimination**
              
              **Total****2005**
              
              **2006**
              
              **2005**
              
              **2006**
              
              **2005**
              
              **2006**
              
              **2005**
              
              **2006**
              
              **2005**
              
              **2006***US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*Revenue
              
              
              9,079
              
              
              13,339
              
              
              7,179
              
              
              16,096
              
              
              -
              
              
              11,177
              
              
              
              
              
              
              
              
              16,258
              
              
              40,612Costs
                  of forwarding/customs
              
              
              (8,069
              )
              
              (11,235
              )
              
              (5,317
              )
              
              (12,312
              )
              
              -
              
              
              (10,484
              )
              
              
              
              
              
              
              
              (13,386
              )
              
              (34,031
              )Depreciation
              
              
              (17
              )
              
              (38
              )
              
              (32
              )
              
              (69
              )
              
              -
              
              
              (12
              )
              
              
              
              
              
              
              
              (49
              )
              
              (119
              )Interest
                  income
              
              
              5
              
              
              13
              
              
              1
              
              
              9
              
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              6
              
              
              22Interest
                  expense
              
              
              (5
              )
              
              (47
              )
              
              (7
              )
              
              (84
              )
              
              -
              
              
              (51
              )
              
              
              
              
              
              
              
              (12
              )
              
              (182
              )Other
                  segment income
              
              
              14
              
              
              14
              
              
              116
              
              
              53
              
              
              -
              
              
              -
              
              
              (91
              )
              
              -
              
              
              39
              
              
              67Other
                  segment expenses
              
              
              (915
              )
              
              (1,926
              )
              
              (1,712
              )
              
              (3,456
              )
              
              -
              
              
              (695
              )
              
              91
              
              
              -
              
              
              (2,536
              )
              
              (6,077
              )Taxation
              
              
              (27
              )
              
              (12
              )
              
              (53
              )
              
              (86
              )
              
              -
              
              
              10
              
              
              
              
              
              
              
              
              (80
              )
              
              (88
              )65
              
              
              108
              
              
              175
              
              
              151
              
              
              -
              
              
              (55
              )
              
              
              
              
              
              
              
              240
              
              
              204Corporate
                  expenses
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (99
              )
              
              (456
              )Net
                  Income / (Loss)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              141
              
              
              (252
              )Segment
                  assets
              
              
              3,436
              
              
              6,130
              
              
              4,073
              
              
              5,568
              
              
              -
              
              
              1,473
              
              
              
              
              
              
              
              
              7,509
              
              
              13,171Unallocated
                  assets
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,254
              
              
              4,566Total
                  assets
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              8,763
              
              
              17,737Property,
                  plant and equipment - additions
              
              
              50
              
              
              16
              
              
              87
              
              
              31
              
              
              -
              
              
              5
              
              
              
              
              
              
              
              
              137
              
              
              52
 
 
 F-18
 
  **Wako
            Logistics Group, Inc.**
 
 **Notes
            to the Consolidated Financial Statements**
 For
            the 3
            and 6 months ended June 30, 2005 and 2006
 *(Dollars
            in thousands except share data and per share amounts)*
 **7.**
              **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, 2006, and 2005, analyzed
                  by
                  geographical locations:
  **3
                  months ended June 30,**
              
              **6
                  months ended June 30,****2005**
              
              **2006**
              
              **2005**
              
              **2006***(unaudited)*
              
              *(unaudited)*
              
              *(unaudited)*
              
              *(unaudited)*%
              
              %
              
              %
              
              %**Revenues**Americas
              
              
              10
              
              
              6
              
              
              10
              
              
              13Asia
                  and others
              
              
              16
              
              
              46
              
              
              11
              
              
              40Australia
              
              
              53
              
              
              30
              
              
              55
              
              
              30Europe
              
              
              21
              
              
              18
              
              
              24
              
              
              17100
              
              
              100
              
              
              100
              
              
              100
 
 
 (c)
              The
                  Group made sales during the three months and six months ended June
                  30,
                  2006, and 2005, which qualified as sales to a major customer (a
                  major
                  customer is defined as a customer for which sales to it represent
                  10% or
                  more of total revenues).
                  Sales to this customer as a percentage of total sales are as
                  follows:
   **3
                  months ended June 30,**
              
              **6
                  months ended June 30,****2005**
              
              **2006**
              
              **2005**
              
              **2006***(unaudited)*
              
              *(unaudited)*
              
              *(unaudited)*
              
              *(unaudited)*%
              
              %
              
              %
              
              %Customer
                  A
              
              
              15
              
              
              -
              
              
              14
              
              
              -




F-19





**ITEM
      2.**  **MANAGEMENT’S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**





OVERVIEW





Wako
      Logistics Group, 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 Peoples
      Republic of China (“PRC”, or “China”), Australia, the United States and through
      a worldwide network of agents. WLG’s business is conducted by its operating
      subsidiaries, which include the following entities: Wako Express (HK) Co. Ltd.
      (“WEHK”), Wako Air Express (HK) Co. Ltd.  (“WAE”), Wako Express (China) Co.
      Ltd. (“WE China”), a wholly-owned subsidiary of WEHK, WLG (USA) LLC (“WLG
      (USA)”) (formerly dba “Kay O’Neill”), Asean Cargo Services Pty Limited (“Asean”)
      and Asean Logistics, Inc. (“ALI”).





Wako
      Logistics Inc. was incorporated in Delaware on December 2, 2003 and, on January
      8, 2004, changed its name to Wako Logistics Group, Inc. Under our certificate
      of
      incorporation, we were initially authorized to issue 100 million shares of
      common stock, par value US$0.001 per share. On the date of our name change,
      we
      reduced the number of authorized shares to 60 million shares, 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 Wako Logistics Group, Inc., 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
      handling sea freight for its customers, both export and import, between Hong
      Kong and the rest of the world, with a particular concentration, historically,
      on the Asia-Australian trade lanes and, more recently, in the trade lanes
      running from Asia to the U.S. and Europe.




1




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





All
      of
      our Asian business 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.





With
      the
      exception of performing administrative, oversight and regulatory tasks, no
      other
      business activities are carried on by the Group’s parent company, Wako Logistics
      Group, Inc.





On
      April
      1, 2005, we completed the acquisition of all of the voting interests in Kay
      O’Neill (USA) LLC (“Kay O’Neill”), an Illinois limited liability company. Kay
      O’Neill is a U.S. based logistics business with offices in Des Plaines,
      Illinois, and Taylor, Michigan, and primarily serves U.S. based customers by
      providing services similar to those offered by the Group in Asia and elsewhere.
      On June 29, 2005, Kay O’ Neill changed its name to WLG (USA) LLC, and, with
      effect from the second quarter of 2006, is now using the name WLG (USA) LLC
      as
      part of the process of creating brand identity for the Group in the United
      States. In 2006, WLG (USA) registered to do business in Texas in the U.S.A.,
      and
      is now conducting a business of providing services for contract logistics
      projects.





Pursuant
      to the Closer Economic Partnership Agreement (“CEPA”) signed in September 2003,
      between Hong Kong and the PRC, Hong Kong incorporated companies are permitted
      to
      establish wholly-owned enterprises in China to provide a full-range of logistics
      services. In July 2004, our Hong Kong subsidiary, WEHK which qualifies 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 both air and sea
      freight handling services for exports and imports between China and the rest
      of
      the world. WE China has eight offices in China, including offices in what we
      believe are China’s three most important commercial centers: Beijing; Shanghai
      and Guangzhou.





Effective
      October 1, 2005, WLG acquired all of the voting stock of ALI, a California
      corporation incorporated in September 1999 and based in Torrance, California.
      ALI is a non-asset based freight forwarding company and provides traditional
      freight-forwarding services to its customers, who ship products primarily
      between Asia and the United States. 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, 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 an office in Melbourne 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 Asia-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
      addition to our subsidiaries and branch offices, we also have working
      relationships with over 200 overseas agents, many of whom have offices in
      strategic cities in Europe, North and South America, and the Middle East. As
      a
      result, we are represented by more than one agent in many cities and do not
      generally need to rely on a single agent in any one city.




2





We
      have obtained a listing for our shares of common stock, and our shares are
      traded on the Over the Counter Bulletin Board under the symbol WKOL.OB.





WLG
      does
      not own or operate any aircraft, ships, river barges or railroads. We contract
      with commercial freight air carriers, ships, river barges and railroads to
      provide the transportation services required for forwarding freight on behalf
      of
      our customers. As part of our normal services, we will arrange for the pick
      up
      of a shipment at the customer’s location and either deliver the goods directly
      to a commercial carrier or to a third party warehouse where we may be engaged
      by
      our customers to provide certain value-added services, such as packing or
      consolidation of a shipment before the goods are delivered to the applicable
      commercial carrier. The goods are then delivered by the commercial carrier
      to
      the destination airport, shipping warehouse, ship, or railway station. Then
      we
      may arrange for the customs clearance, pick up and delivery of the goods to
      the
      recipient’s location. Although we deliver packages and shipments of any size, we
      focus primarily on large shipments of cargo. As a result of the size of our
      average shipment and the fact that we are a non-asset based logistics provider,
      we do not generally compete with overnight couriers or expedited small package
      companies such as Federal Express Corporation, United Parcel Service of America,
      Inc. or the local postal services.





Revenue
      derived from our freight forwarding services is based on the rates that we
      charge our customers for the movement of their freight from origin to
      destination and from the charges for value-added and other services, such as
      customs brokerage. Carriers contract directly with us, not with our customers,
      and as such, we are responsible for the payment of the carrier’s charges. As a
      matter of industry practice, we are also liable for any claims for damages
      to a
      customer’s goods while they are in transit. In most cases, we are able to obtain
      reimbursement from the carriers for any such damage claims, but since many
      shippers do not carry insurance sufficient to cover all potential losses, we
      also carry insurance to cover any unreimbursed claims for freight that may
      be
      lost, damaged or destroyed.




Gross
      revenues for our freight business, value added services and customs brokerage
      practice represent the total dollar value of the services we provide to our
      customers. Our costs for transportation and handling include only the direct
      cost of transportation, including ground transportation, rail, ocean, air and
      other related costs. We act principally as a service provider to add value
      and
      expertise in the procurement and execution of these services for our customers.
      Our gross profit (gross revenues less the direct costs of transportation,
      handling and services) is the primary indicator of our ability to source, add
      value and resell transportation and other services that are provided by third
      parties.




Due
      to
      the volume of shipments we arrange, we are generally able to negotiate shipping
      rates that are better than the rates our customers could negotiate directly
      with
      transportation providers. Often, the shipping rates we pay may be reduced due
      to
      the increase in the freight volumes that we arrange to have shipped. As a
      result, our customers, by placing their freight shipments through us benefit
      from theses lower rates, and we, in turn, benefit by increasing our revenues.





A
      significant portion of our expenses for each of our business segments is
      variable and relates directly to the amount of business we book, or the services
      we provide. Direct transportation costs are our largest variable expense. Staff
      costs represent our second largest expense. Due to the nature of our business
      and, given our experience, we are generally able to staff our operations based
      on the number of customer orders we fulfill. Nonetheless, staff costs are less
      flexible than other variable costs, and, for short periods, we may not be able
      to reduce or increase our staff levels to adjust for unexpected peaks and
      downturns in our business.




3





We
      also
      derive a significant portion of our revenues from the consolidation of cargo.
      In
      this part of our business, we always seek to combine a mix of light and heavy
      cargo in order to enable us to maximize the weight and cubic capacity for all
      of
      our shipments.





With
      the
      acquisition of Asean, we are now able to provide in-house customs brokerage
      services to our customers, but this business tends to be high volume and to
      have
      profit margins that are less than those of our traditional freight forwarding
      operations.





A
      substantial portion of our costs are incurred pursuant to contracts for the
      advance purchase of cargo space from commercial air carriers for which we
      guarantee a minimum volume of shipments. Under these contracts, we are required
      to pay for the minimum amount of space we guarantee, even if we do not use
      the
      minimum amount. In the past, we have been able to minimize our risk of loss
      by
      carefully gauging customer demand, and by entering into arrangements with other
      freight forwarders that will pay us to use the excess cargo space that we are
      unable to fill. However, we are not able to require our customers to ship
      minimum amounts, and, as such, we can not pass this risk on to our customers.





Even
      though a majority of our costs are paid to third party carriers for the shipment
      of freight and are thus variable, we also have significant costs that in short
      periods, such as three months, are essentially the same as fixed costs.





Our
      business is seasonal, and, historically, the first two quarters of the calendar
      year have been our slowest periods. Because of the seasonality of our business
      and the level of fixed operating costs in the first half of 2006, our operating
      results for this period are less than the results we expect to record for the
      remaining quarters of calendar 2006. However, with the increase in sales of
      about $1.2 million over sales in the first quarter and the improvement in
      our gross profit margin during the second quarter of 2006, we have recorded
      net
      income before taxation of $65,000 for the three months ended June 30, 2006.





We
      completed two acquisitions in the fourth quarter of last year. The smaller
      of
      the two acquisitions, ALI, incurred an operating loss for both the first and
      second quarters of 2006. The second and larger acquisition, Asean, incurred
      an
      operating loss in the first quarter, but reported an operating profit for the
      second quarter of 2006. As part of the integration plans for Asean, an effort
      was undertaken by it to review its customer base with a view to eliminating
      low
      margin customers, and this has been done. In response to this work, Asean’s
      airfreight margins increased in the second quarter to 26%, compared to 17%
      for
      the same period in 2005. The operating losses of these two entities have
      negatively impacted our results for the first six months of 2006. The business
      of each of these companies is seasonal.




A
      number of factors, other than seasonality, contributed
      to the operating losses reported by ALI. And a number of steps have been taken
      to correct these. In the second quarter of 2006, we continued to implement
      a
      series of changes to improve the profitability of ALI. Management was replaced
      and substantially all of ALI’s administrative and customer service functions
      were moved to our Chicago office, which was able to absorb this work without
      increasing its staff. Steps are still underway to introduce new business to
      ALI
      and to improve its operating margins. With these improvements, ALI’s operating
      loss was reduced from nearly $103,000 in the first quarter to only about $30,000
      for the second quarter of 2006.




WAE,
      which provides airfreight services from Hong Kong, incurred an operating loss
      in
      the second quarter of this year. This loss was unanticipated and resulted from
      both seasonal delays and a general downturn in the airfreight market for
      shipments from Hong Kong. Increasing fuel prices and fuel surcharges have
      discouraged customers from using air carriers to ship their goods.






4





During
      the first half of 2006, we continued to incur costs and management time to
      both
      integrate the three acquisitions made in 2005, and the new offices in China
      with
      the Group’s existing operations. These costs and the related time are a
      necessary part of the Group’s plan to grow its business, and are important to
      ensure that both the three new companies and the China offices become
      synergistic to the business of the Group.





Finally,
      our business has and may continue to be impacted by increasing fuel prices
      and
      political events, such as rising protectionism and trade tariffs, particularly
      between China and the U.S. and the on-going events in the Middle-East. One
      or
      all of these occurrences could negatively impact our sales and operating profits
      for the remainder of 2006.





We
      would
      caution that a full understanding of the changes that have occurred in 2005,
      as
      well as the changes that may occur in 2006, are needed to make a meaningful
      comparison of our 2006 results to those reported for 2005. We do not anticipate
      providing sales and profit projections until our new acquisitions and China
      offices are more fully integrated into the Group.





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





Total
      revenue for the three months ended June 30, 2006, increased approximately 122%
      compared with total revenue for the three months ended June 30, 2005, growing
      from approximately $9.41 million to $20.93 million, respectively. Approximately
      $0.83 million or 7% of this increase is attributable to the growth of our Hong
      Kong business. Revenues from our operations in China grew by $1.01 million
      over
      the same period last year, adding approximately 9% to the total increase.
      Revenue from WLG (USA) for the three months ended June 30, 2006, increased
      approximately $1.11 million, or 10%, mainly attributable to internal growth
      and
      from the operations of its new office in Michigan. ALI, which was acquired
      on
      October 1, 2005, added approximately $0.2 million in revenues, accounting for
      2%
      of the total increase. The remaining increase of $8.37 million is from Asean
      in
      Australia, which, for reporting purposes, was considered as having been
      acquired on October 1, 2005.





Gross
      profit rose from $1.77 million in the three months ended June 30, 2005, to
      $3.43
      million for an increase of $1.66 million for the three months ended June 30,
      2006. Of this increase, our existing Hong Kong, China and WLG (USA) operations
      contributed $0.45 million. ALI and Asean added $1.21 million. The Group’s
      overall gross margin was 16.4% for the three months ended June 30, 2006,
      compared to 18.8% for the same period in 2005. The decrease is mainly due to
      the
      lower profit margin of Asean’s customs brokerage operations, which reported a
      gross margin of about 7.5% for the three months ended June 30, 2006.




During
      the three months ended June 30, 2006, our operating expenses increased to about
      $3.29 million, as compared to approximately $1.71 million for the three months
      ended June 30, 2005, for an increase of 92%. Selling and administrative costs
      increased by approximately 89% from $1.66 to $3.14 million. These cost increases
      are in line with the growth in our sales revenue and the additional operating
      costs attributable to the operations of ALI and Asean. We also incurred legal
      and other advisory expenses, as well as other public company administrative
      expenses, to permit the Group to meet various reporting and governance
      requirements to maintain our status as a publicly listed company. In addition,
      personnel salaries and related costs increased significantly as a result of
      the
      addition of new employees and management staff, as well as for normal salary
      increases for our employees. See *Salaries
      and Allowances* below.




5





Amortization
      expense totaled approximately $85,000 for the three months ended June 30, 2006,
      compared to $26,000 for the same period in 2005. The increased amortization
      expense is attributable to the intangible assets recorded as part of the two
      acquisitions, ALI and Asean, completed in the fourth quarter of 2005.





After
      the
      provision for income taxes, the Group had net income of $3,000 for the three
      months ended June 30, 2006, compared to net income of $15,000 for the same
      period in 2005. Two of our subsidiaries, WAE and ALI reported net losses for
      the
      three months ended June 30, 2006. WAE’s loss, after a tax benefit of about
      $5,000, totaled approximately $25,000, and was mainly attributable to low
      freight volumes for air shipments caused by a softening in the market during
      the
      second quarter of 2006, as well as an increase in overhead when compared with
      the same period of 2005. ALI’s loss for the period was about $30,000 before
      deduction for amortization of $8,000, and represents an improvement over the
      loss of $103,000 reported by ALI for the first quarter of 2006.








**Segment
      Information**





***Airfreight
      operations*** :
      Revenue
      from airfreight operations for the three months ended June 30, 2006, increased
      from approximately $4.96 million to $7.14 million, or approximately 44% when
      compared with the same period in 2005. Of this increase in revenues,
      approximately 2% is attributable to the growth of our Hong Kong business,
      improvements in our agency network and from the addition of new clients. As
      part
      of the development of our airfreight business in China, we signed space
      commitment agreements with airlines serving China to ensure space for shipments
      from this market. Taking this step increased business generated by WE China’s
      operations, accounting for 30% of the total growth of this segment. Revenues
      of
      WLG (USA) accounted for 19% of the growth in our airfreight business. ALI in
      the
      U.S., which was not part of the Group during the first half of 2005, contributed
      3% of the growth. Asean, our subsidiary in Australia, which was acquired during
      the fourth quarter of 2005, accounted for the remaining growth in revenues
      of
      46%.





Cost
      of
      sales for our airfreight forwarding operations increased by approximately 40%,
      from about $4.33 million to $6.08 million. This increase was due to an overall
      increase in freight traffic arranged by us, but more specifically, was
      attributable to the same factors described in the foregoing paragraph with
      respect to increases in sales revenue.





Gross
      profit margins increased from 12.7% for the three months ended June 30, 2005,
      to
      14.8% for the same period in 2006. This increase was primarily attributable
      to
      the higher gross profit margins in Asean’s airfreight business, which reported
      gross margins of 25.9%, compared to 17.0% for the same period in 2005. The
      improvement in Asean's gross margin is a result of the company not
      retaining low margin business, hiring of an additional export
      representative in its Melbourne office whose efforts have improved sales and
      margins, and an improvement of profits sharing ratios with certain of its
      agents.





Total
      segment overhead attributable to our airfreight operations increased by
      approximately 64%, from approximately $609,000 for the three months ended June
      30, 2005, to $996,000 for the same period in 2006. Approximately $292,000 of
      this increase is attributable to the overhead costs arising from the
      acquisitions of ALI and Asean. We have also added more resources to accelerate
      the development of WE China’s airfreight operations, causing its overhead to
      increase by $66,000. In addition, WLG (USA)’s overhead costs increased by
      approximately $10,000 to cope with the increase in its freight volumes. The
      overhead for Hong Kong’s business increased by approximately $19,000.




6





Net
      segment income for our airfreight operations totaled approximately $68,000
      for
      the three months ended June 20, 2006, compared to net income of $21,000 in
      the
      prior period of 2005, an increase of $47,000. Asean and ALI’s operations
      accounted for approximately $13,000 in this increase of $47,000, and our China
      airfreight business added about $34,000 to this growth.




***Sea
      freight operations:*** Revenues
      from sea freight operations for the three months ended June 30, 2006, increased
      approximately 84% when compared with 2005, growing from approximately $4.45
      million to $8.21 million. Growth in our Hong Kong business accounted for 13%
      of
      the increase, and the revenues generated by WE China’s operations accounted for
      16% of the growth. Revenues of WLG (USA) contributed 19% of the growth. In
      addition, Asean and ALI’s sea freight business, which we acquired in the fourth
      quarter of 2005, provided 52% of the increase in revenues.





Cost
      of
      sales for our sea freight operations increased 89% from $3.31 million for the
      three months ended June 30, 2005, to $6.26 million for the same period in 2006.
      The increase is mainly attributable to a corresponding increase in sea freight
      revenues for the reasons cited above.





Gross
      profit margins decreased from approximately 25.6% for the three months ended
      June 30, 2005, to 23.8% for the same period in 2006. The decrease is due to
      increasing freight costs and a lower profit margin attributable to ALI, which
      recorded a gross margin of 15.7% for the three months ended June 30,
      2006.





Total
      segment overhead attributable to our sea freight business increased by
      approximately 65%, from approximately $1.07 million for the three months ended
      June 30, 2005 to $1.77 million for the same period in 2006. About $506,000
      of
      this increase is attributable to the overhead costs added by the acquisitions
      of
      ALI and Asean. Overhead for WE China increased by $107,000 to cope with the
      increase in business in the PRC. In addition, WLG (USA)’s overhead expenses
      increased by approximately $82,000 to cope with its increase in freight volumes.
      There was no significant change in the overhead costs for our Hong Kong
      business.




Net
      segment income for our seafreight operations was approximately $181,000,
      compared to net income of $72,000 in the prior period of 2005. ALI recorded
      a loss of approximately $40,000, mainly attributable to low shipment volumes.
      The loss incurred by ALI was offset by the growth in the net incomes of our
      Hong
      Kong, China and US operations, which recorded a combined net income of $206,000.
      Asean contributed net income for this segment of approximately
      $15,000.




***Customs
      brokerage services:*** ****** Asean’s
      operations include a division that provides customs brokerage services. During
      the three months ended June 30, 2006, revenue from customs duty services totaled
      approximately $5.58 million. Direct and administrative costs, including
      taxation, also totaled $5.58 million for the period. Taken together, this
      business segment of Asean generated a net loss of $2,000 for the three months
      ended 2006.




**Other
      Operating Expenses**




*Salaries
      and allowances*




Salaries
      and salary related allowances for the three months ended June 30, 2006,
      increased 89% from $0.92 million to $1.74 million. These increases were
      attributable to normal increments in employee salaries at the beginning of
      2006,
      and to increases in the number of operational staff and management personnel,
      mostly as a result of our acquisitions. The acquisitions of Asean and ALI and
      the start up of business in China added about 130 new employees to our
      headcount. As of June 30, 2006, we had 209 personnel.




7




*Sales
      Commissions*




Sales
      commissions payable by us during the three months ended June 30, 2006, were
      $39,000, compared to $29,000 for the same period in 2005, reflecting an increase
      of 34%. This increase is attributable to higher sales revenues generated by
      the
      sales staff for our Hong Kong freight business.




*Rent*




Rent
      expense for our facilities increased 97% from $110,000 for the three months
      ended June 30, 2005, to $217,000 in 2006. Four offices of WE China moved to
      larger offices near the end of 2005 in anticipation of increased business in
      China. In addition, WLG (USA) opened one additional office in the U.S. We added
      two offices with the acquisition of Asean and one more office following the
      acquisition of ALI.




*Depreciation
      and Amortization*




Depreciation
      on property, plant and equipment increased from $27,000 for the three months
      ended June 30, 2005, to $60,000 for the same period in 2006. This increase
      of
      $33,000 related to the combined depreciation expense attributable to the
      operations of ALI and Asean, which recorded depreciation expense of $1,000
      and
      $19,000, respectively, and additional depreciation expense for computer and
      office equipment acquired during the period.




Amortization
      expense is attributable to the customer lists acquired in conjunction with
      the
      acquisitions of WLG (USA), ALI and Asean. In connection with the acquisition
      of
      WLG (USA), we recorded a customer list asset of $512,000 and are amortizing
      this
      cost on a straight-line basis over 5 years. Asean’s customer list was valued at
      $1.56 million and is being amortized on a straight-line basis over 8 years.
      A
      value of $164,000 was assigned to ALI’s customer list, which is being amortized
      over five years. During the three months ended June 30, 2006, amortization
      expense attributable to WLG (USA), Asean and ALI was $25,614, $48,831 and
      $8,207, respectively. WLG (USA) was acquired on April 1, 2005, and the
      amortization expense attributable to its customer list for the three months
      ended June 30, 2005, was $25,614.




*Interest
      Expense*




Interest
      expense increased from $22,000 for the three months ended June 30, 2005, to
      $90,000 for the same period in 2006. This increase is mainly attributable to
      interest of $76,000 for the bank debt of Asean.




*Provision
      for Income Taxes*




The
      provision for income taxes increased from $41,000 for the three months ended
      June 30, 2005, to $62,000 for the same period in 2006. The provision is
      attributable to $19,000 for Asean’s net income, $35,000
      for Hong Kong’s seafreight operations and $13,000 for income in China, less a
      credit of $5,000 for a loss in Hong Kong’s airfreight business.Our U.S.
      operations of ALI and WLG (USA) have a consolidated operating loss and no
      provision for U.S. federal and state income taxes was required, and no benefit
      was given for their losses.




8




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





Total
      revenue for the six months ended June 30, 2006, increased approximately 150%
      compared with total revenue for the same period in 2005, growing from
      approximately $16.26 million to $40.61 million, respectively. Approximately
      $0.52 million or 2% of this increase is attributable to the growth of our Hong
      Kong business. Revenues from our operations in China, which commenced in
      February 2005, grew by $2.91 million over the same period last year, adding
      approximately 12% to the total increase. The acquisition of WLG (USA) in the
      U.S., which occurred on April 1, 2005, added revenues of approximately $3.41
      million, or 14%, for the six months ended June 30, 2006. Our second U.S.
      acquisition, ALI, which was acquired on October 1, 2005, added approximately
      $0.65 million, accounting for 3% of the total increase. The remaining increase
      of $16.86 million in revenue is from Asean, our Australian subsidiary, which,
      for reporting purposes, was considered as having been acquired on
      October 1, 2005.





Gross
      profits rose from $2.87 million for the six months ended June 30, 2005, to
      $6.58
      million for the same period in 2006, for an increase of $3.71 million. Of this
      increase, our Hong Kong operations contributed $0.22 million and our China
      operations and the three acquisitions completed in 2005 added $3.49 million.
      The
      Group’s overall gross margin was 16.2 % for the six months ended June 30, 2006,
      compared to 17.7% for the same period in 2005. This decrease in gross margin
      is
      mainly due to the lower profit margins for Asean’s customs service operations,
      which reported a gross margin of about 6.2% for the six months ended June 30,
      2006.




During
      the six months ended June 30, 2006, our operating expenses increased to about
      $6.65 million, as compared to approximately $2.67 million for the six months
      ended June 30, 2005, for an increase of 149%. Selling and administrative costs
      increased by approximately 145% from $2.60 million to $6.36 million. These
      cost
      increases are in line with the increases in our sales revenue and the additional
      operating costs attributable to the operations of WE China, WLG (US), ALI and
      Asean. Adding to our operating costs was a bad debt of approximately $61,000
      resulting from the bankruptcy of a major customer in the United Kingdom. Lastly,
      our administrative expenses increased as a result of the need to incur legal
      and
      other advisory expenses to permit the Group to meet the reporting and governance
      requirements to maintain our status as a publicly listed company. In
      addition, personnel salaries and related costs increased significantly as a
      result of the addition of new employees and management staff, as well as for
      normal salary increases for our existing employees. See *Salaries
      and Allowances* below.





Amortization
      expense totaled approximately $170,000 for the six months ended June 30, 2006,
      as compared to $26,000 for the same period in 2005. Amortization expense of
      $165,000 is attributable to the intangible assets recorded as part of the three
      acquisitions completed during last year. For the first half of 2005, there
      was
      only three months’ amortization expense for WLG (USA), following its acquisition
      on April 1, 2005. The increase in amortization expense is attributable to the
      intangible assets recorded as part of the two acquisitions, ALI and Asean,
      completed at the start of the fourth quarter of 2005.





After
      the
      provision for income taxes, the Group incurred a loss of $252,000 for the six
      months ended June 30, 2006, compared to net income of $141,000 for the same
      period in 2005. WEHK, WE China, along with WLG (USA) in the U.S. all reported
      operating profits in the six months ended June 30, 2006. WAE had an after-tax
      loss of about $23,000 during the six months ended June 30, 2006. In addition,
      the two companies acquired in the fourth quarter of 2005, Asean and ALI, both
      reported after-tax losses for the six months ended June 30, 2006. Asean’s loss,
      before deduction for amortization expense of $98,000, was approximately
      $166,000, net of a tax benefit of $31,000. ALI’s loss, before deducting
      amortization expense of $16,000, was about $134,000. No tax benefit was recorded
      for ALI’s loss.




9








**Segment
      Information**





***Airfreight
      operations*** :
      Revenue
      from airfreight operations for the six months ended June 30, 2006, increased
      from approximately $9.08 million to $13.34 million, or approximately 47% when
      compared with the same period in 2005. Of this increase in revenues,
      approximately 36% is attributable to the growth in the business generated from
      WE China’s operations. WLG (USA), which was acquired during the second quarter
      of 2005, contributed revenues equal to 22% of the growth. ALI’s operations in
      the U.S., which were not part of the Group during the first half of 2005,
      contributed revenues accounting for 2% of the growth. Our subsidiary in
      Australia, which was acquired during the fourth quarter of 2005, accounted
      for
      the remaining growth of 40%. Due to a softening in the general market for
      airfreight, the revenue of our Hong Kong operations recorded a decrease of
      about
      14%.





Cost
      of
      sales for our airfreight operations increased by approximately 39%, from about
      $8.07 million to $11.24 million. This increase was due to an increase in freight
      traffic arranged by us, but, more specifically, is attributable to the same
      factors described in the foregoing paragraph with respect to increases
      in revenue.





Gross
      profit margins increased from 11.1% for the six months ended June 30, 2005
      to
      15.7% for the same period in 2006. This increase in gross profit margins was
      primarily attributable to the higher gross profit margins for the airfreight
      business attributable to Asean, which reported gross margins of 21.8%.
      The gross margin of Asean is as a result of not retaining business with
      poor margins, hiring of an additional export representative in its Melbourne
      office whose efforts haves improved sales and margins, and an improvement of
      profit sharing ratios with certain of its agents.





Total
      segment overhead attributable to our airfreight operations increased by
      approximately 111%, from approximately $0.95 million for the six months ended
      June 30, 2005 to $2.0 million for the same period in 2006. Approxumately
      $579,000 of this increase is attributable to the overhead costs for the
      acquisitions of ALI and Asean. We have also added more resources to accelerate
      the development of WE China’s airfreight operations, which commenced in
      February, 2005, resulting in an increase of $0.36 million in overhead costs.
      In
      addition, WLG (USA)’s overhead costs increased by approximately $82,000 to cope
      with its increase in freight volumes. Overhead costs for our operations in
      Hong
      Kong increased by approximately $33,000.





Net
      segment income for our airfreight operations totaled approximately $108,000
      for
      the first half of 2006, compared to net income of $65,000 in the prior period
      of
      2005. Asean’s airfreight operations reported a loss of approximately $42,000 in
      the six months ended June 30, 2006, but this loss was offset by the growth
      in
      net income in our China airfreight business.




***Sea
      freight operations:*** Revenues
      from sea freight operations for the six months ended June 30, 2006, increased
      approximately 124% when compared with the same period in 2005, growing from
      approximately $7.18 million to $16.10 million. Growth in our Hong Kong business
      accounted for 12% of the increase, and the revenues generated by WE China’s
      operations in the PRC accounted for 13% of the growth. Revenues of WLG (USA)
      in
      the U.S, which was not part of the Group until April 1, 2005, contributed
      29% of the growth. In addition, Asean and ALI’s sea freight businesses, which we
      acquired in the fourth quarter of 2005, provided 40% and 6% of the increase
      in
      revenues, respectively.




10





Cost
      of
      sales for our sea freight operations increased 131% from $5.32 million for
      the
      six months ended June 30, 2005, to $12.31 million for the same period in 2006.
      This increase is mainly attributable to a corresponding increase in sea freight
      revenues for the reasons cited above.





Gross
      profit margins decreased from approximately 25.9% for the six months ended
      June
      30, 2005 to 23.5% for the same period in 2006. The decrease is due to increasing
      freight rates and to lower profit margins attributable to ALI, which recorded
      a
      gross margin of only 11.1% for the six months ended June 30, 2006.





Total
      segment overhead attributable to our sea freight business increased by 115%,
      from approximately $1.69 million for the six months ended June 30, 2005, to
      $3.63 million for the same period in 2006. The increase is partially
      attributable to the acquisitions of ALI and Asean, which added overhead costs
      of
      $1.15 million to the Group. Overhead for WE China increased by $0.29 million
      to
      cope with the increase in its business. In addition, WLG (USA)’s overhead added
      approximately $0.49 million to the Group following its acquisition on April
      1,
      2005. Overhead costs in our Hong Kong businesses increased by only $22,000.





Net
      segment income for our seafreight operations was approximately $151,000 for
      the
      six month ended June 30, 2006, compared to net income of $175,000 in the prior
      period of 2005. ALI recorded a loss of approximately $137,000, mainly
      attributable to insufficient shipment volumes arranged by it during the first
      six months of 2006. ALI’s loss was offset by the growth in the net
      income of our Hong Kong, China and US operations, which together recorded
      net income of $357,000. Asean’s sea freight business recorded a loss of $69,000
      during the six months ended June 30, 2006. Asean’s loss is partly due to
      seasonal factors as the first two quarters are historically the slowest season
      of the year, and to rate pressures due to a slowing of business in the
      Asia-Australian trade lanes.




***Customs
      brokerage services:*** ****** Asean’s
      operations include a division that provides customs brokerage services. During
      the six months ended June 30, 2006, revenue from customs duty services was
      approximately $11.18 million. Direct and administrative costs, net of a $10,000
      tax benefit, totaled approximately $11.23 million. This business segment of
      Asean incurred a loss of $55,000 for the six months ended June 30, 2006.




**Other
      Operating Expenses**




*Salaries
      and allowances*




Salaries
      and salary related allowances for the six months ended June 30, 2006, increased
      146% from $1.48 million to $3.64 million. This increase was attributable to
      normal increments in employee salaries given at the beginning of 2006, and
      to
      increases in the number of operational staff and management personnel. The
      acquisitions of Asean and ALI and the start up of business in China added about
      130 new employees to our headcount. As of June 30, 2006, we had 209
      personnel.




*Sales
      Commissions*




Sales
      commissions payable by us during the six months ended June 30, 2006, were
      $70,000 compared to $59,000 for the same period in 2005, reflecting an increase
      of 19%. This increase is attributable to higher sales revenues generated by
      the
      sales staff for our Hong Kong freight business.




11




*Rent*




Rent
      expense for our facilities increased 130% from $161,000 for the six months
      ended
      June 30, 2005, to $371,000 in 2006. We leased eight offices for our operation
      in
      China beginning February 2005, and four of these locations moved to larger
      offices near the end of 2005 in anticipation of a growth in business in the
      PRC
      during 2006. WLG (USA) opened one additional office in the U.S. Two more offices
      were added with the acquisition of Asean and one more office was added following
      the acquisition of ALI. Asean and ALI were acquired in the fourth quarter of
      2005.




*Depreciation
      and Amortization*




Depreciation
      on property, plant and equipment increased from $49,000 for the six months
      ended
      June 30, 2005 to $118,000 for the same period in 2006. This increase of $69,000
      is largely due to the combined depreciation expense of ALI and Asean, which
      totaled $40,000. The remaining increase is attributable to additional
      depreciation expense for the additions of office and computer equipment.






Amortization
      expense is mainly attributable to the customer lists acquired in conjunction
      with the acquisitions of WLG (USA), ALI and Asean. In connection with the
      acquisition of WLG (USA), we recorded a customer list asset of $512,000, which
      is being amortized on a straight-line basis over 5 years. Asean’s customer list
      was valued at $1.56 million and is being amortized on a straight-line basis
      over
      8 years. A value of $164,000 was assigned to ALI’s customer list, and is being
      amortized over five years. During the six months ended June 30, 2006,
      amortization expense attributable to WLG (USA), Asean and ALI was $51,228,
      $97,663 and $16,414, respectively. WLG (USA) was acquired on April 1, 2005,
      and
      the amortization expense attributable to its customer list for the six months
      ended June 30, 2005 was $25,614.




*Interest
      Expense*




Interest
      expense increased from $26,000 for the six months ended June 30, 2005, to
      $182,000 for the same period in 2006. This increase is mainly attributable
      to
      interest of $153,000 for the bank debt of Asean.




*Provision
      for Income Taxes*




The
      provision for income taxes increased from $80,000 for the six months ended
      June
      30, 2005 to $88,000 for the same period in 2006, mainly attributable to income
      recorded by our Hong Kong and China operations. Income
      tax of $72,000 and $52,000 was provided for the net income of Hong Kong’s
      seafreight business and China’s operations, respectively.The U.S.
      operations of ALI and WLG (USA) had a consolidated loss and no provision for
      U.S. federal or state income taxes was required, and no tax benefit was given
      for their losses. Hong
      Kong's airfreight business andAsean’s operations each reported an
      operating loss for the six months ended June 30, 2006. Income tax credits of
      approximately $31,000 and $5,000 were recorded by Asean and Hong Kong's
      airfreight operations, respectively.




12




**LIQUIDITY
      AND CAPITAL RESOURCES**




For
      the
      six months ended June 30, 2006, our operations generated net cash of
      approximately $467,000 compared with $704,000 of cash provided for the six
      months ended June 30, 2005. In 2006, cash was provided by the following items:
      a
      decrease in trade receivables of about $1.08 million, an increase of accrued
      charges of $156,000, amortization and depreciation of $289,000, provision for
      bad debts of $76,000 and a decrease in current assets of $34,000. Major
      components that used cash in the first six months included a decrease in trade
      payables of $655,000, an increase in deposits and prepayments of $45,000, a
      net
      loss from operations of $252,000, a decrease in income tax payable of $103,000,
      and a decrease in amounts owed to related parties of $110,000.




Net
      cash
      used by financing activities totaled about $384,000 for the six months ended
      June 30, 2006, compared with $844,000 net cash provided for the same period
      in
      2005. Cash provided for financing activities for the six months ended June
      30,
      2005, consisted primarily of a loan of $1.0 million from the Company’s Chief
      Executive Officer and controlling shareholder in March 2005, for the purchase
      of
      WLG (USA). The loan was converted to convertible redeemable preferred stock
      during the fourth quarter of 2005. Cash provided by financing activities for
      the
      six months ended June 30, 2006, consists of an increase in bank overdrafts
      of
      $85,000. Cash used by financing activities for the six months ended June 30,
      2006, consisted primarily of the repayment of bank loans and capital lease
      obligations of $333,000 and $54,000, respectively. In addition, we paid a
      dividend of $45,000 on our preferred stock. We also increased restricted cash
      and pledged deposits by $37,000 for bank guarantees used to support our
      airfreight business.




As
      of
      June 30, 2006, we have provided bank guarantees of $551,000 to certain airlines
      as support for credit facilities provided to a subsidiary to allow it to make
      freight payments, which must be paid to the airlines prior to payments being
      received from its customers. These guarantees are secured by restricted cash
      deposited in separate bank accounts, along with certificates of deposit, which
      in the aggregate total approximately $564,000. We also have given a bank
      guarantee of approximately $167,000 in favor of the owner of the premises
      occupied by our subsidiary in Australia.




In
      April
      2004, WEHK and WAE (“The Hong Kong Subsidiaries”) obtained a short-term bank
      loan of approximately $67,000, of which $45,000 was used for the purchase of
      capital assets. The remaining $22,000 was used for general working capital
      purposes. This short-term bank loan was repaid in full by June 30, 2005. In
      October 2004, the Hong Kong Subsidiaries obtained an additional bank loan of
      $449,000, which was used to pay income taxes, and for general working capital
      needs. This loan is repayable in 24 equal monthly installments, with interest
      at
      the best rate charged by the lending bank, less 1 percent. The interest rate
      on
      this loan was 7% per annum and the outstanding principal amount was
      approximately $75,000 as of June 30, 2006. In October 2005, the Hong Kong
      Subsidiaries obtained an additional loan of approximately $129,000, and used
      the
      proceeds to pay income taxes and for general working capital purposes. By June
      30, 2006, the principal amount of this loan had been reduced to approximately
      $55,000, and it carried an annual interest rate of 8%.




At
      June
      30, 2006, WLG (USA) owed $653,000 in bank debt for funds used by it for general
      working capital needs. This bank loan, which bore interest at the rate of 8.25%
      as of June 30, 2006, is secured by substantially all of the assets of WLG (USA)
      and the personal guarantee of WLG (USA)’s Chief Executive Officer. WLG (USA)’s
      borrowings are subject to certain covenants, including the maintenance of its
      tangible net worth which must be at least $200,000 and debt service coverage
      of
      at least 1.2 to 1.0. WLG (USA) was in violation of the debt service covenant
      as
      of December 31, 2005, but the violation was waived by its bank until the
      maturity date of the loan facility, which is August 1, 2006. Negotiations are
      underway with the bank to increase and renew this loan facility.




13




Asean
      has
      a receivables loan facility of approximately $2.9 million, which is secured
      by
      and based on its accounts receivable. It also has an overdraft facility of
      $426,000. At June 30, 2006, Asean’s outstanding bank debt for both facilities
      was approximately $2.18 million, with interest rates of approximately 8.4%
      for
      the overdraft facility and 10.85% for the receivables loan facility,
      respectively. In addition to a charge over all of Asean’s accounts receivable,
      the bank also holds a first registered mortgage over all of Asean’s assets, and
      it has personal guarantees from each of the former shareholders of the
      company.




Part
      of
      our business plan is to make strategic acquisitions as means of expanding our
      business on a global scale. In all likelihood, we will need to raise additional
      capital if we are to be successful in executing our business plan. At this
      point, we are not certain of the amount of new capital that may be required
      because the amount will vary with the size, type and nature of the prospective
      acquisitions. However, there can be no assurance that we will be successful
      in
      identifying suitable acquisition targets and, if we do, there can be no
      certainty that we will be able to complete the acquisitions of the target
      companies. Nor can there be any assurance that we would be successful in our
      efforts to raise additional capital either in the form of long-tem debt or
      equity.




Our
      approximate contractual cash obligations as of June 30, 2006, are outlined
      in
      the table below which includes our equipment lease and office rental
      obligations, as well as payments due under our cargo space commitments. These
      cash obligations are expected to equal approximately $434,000 per month for
      coming twelve months.





Payments
                Due by Period
              (in
                thousands)Contractual
                Obligations
            
            Total
            
            Less
                than 1 year
            
            1-3
                years
            
            4-5
                years
            
            After
                5 yearsFacilities
                Obligations: Equipment lease and office rental obligations
            
            $
            1,250
            
            $
            592
            
            $
            563
            
            $
            95
            
            $
            -Other
                Obligations: Cargo space commitment
            
            $
            4,616
            
            $
            4,616
            
            
            -
            
            
            -
            
            
            -Total
                Contractual Cash Obligations
            
            $
            5,866
            
            $
            5,208
            
            $
            563
            
            $
            95
            
            $
            -




During
      the six months ended June 30, 2006 and 2005, 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.





14




**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**




Management's
      discussion and analysis of financial condition and results of operations are
      based upon our consolidated financial statements. These statements have been
      prepared in accordance with generally accepted accounting principles in the
      United States of America. All intercompany balances and transactions have been
      eliminated.




**Use
      of estimates in preparation of financial statements**




The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make certain estimates, judgments
      and assumptions that affect the reported amounts of assets, liabilities,
      revenues and expenses, and related disclosure of contingent assets and
      liabilities. On an on-going basis, we evaluate our estimates, based on
      historical experience, and various other assumptions that are believed to be
      reasonable under the circumstances, the results of which form the basis for
      making judgments about the carrying values of assets and liabilities that are
      not readily apparent from other sources. Actual results may differ from these
      estimates under different assumptions or conditions. The following critical
      accounting policies rely upon assumptions, judgments and estimates and were
      used
      in the preparation of our consolidated financial statements:




**Revenue
      Recognition Policy**




Because
      of the way we conduct our business, we recognize revenue gross as a principal
      rather than net as an agent. We recognize revenue in this manner because, as
      a
      freight forwarder as distinguished from other logistics forwarders who may
      recognize revenues net of certain expenses as an agent, we are subject to credit
      risk, inventory/cargo risk, and insurance risk.




As
      a
      non-asset based carrier, we do not own transportation assets. Rather, we
      generate the major portion of our air and ocean freight revenues by purchasing
      transportation services from direct (asset-based) carriers and reselling those
      services to our customers. The sell rate is the rate we bill to customers and
      the buy rate is the rate we pay to the carriers.




Airfreight
      revenues reflect income for shipments when we act as a freight consolidator.
      Ocean freight revenues reflect income for shipments when we act as a Non-Vessel
      Operating Common Carrier. In each case we are acting as an indirect carrier.
      When acting as an indirect carrier, revenues related to shipments are recognized
      when freight is received from the shipper (for import freight) or when freight
      leaves the carrier's terminal (for export freight) with accrual of the estimated
      direct costs to complete delivery of the freight-in-transit.




Revenues
      realized in other capacities, for instance, when we act as an agent for the
      shipper, include only the commissions and fees earned for the services
      performed. These revenues are recognized upon completion of the
      services.




Gross
      customs brokerage revenue is derived from services provided to facilitate the
      clearance of inbound cargo through relevant government authorities and the
      provision of logistics services for final delivery of the goods. Revenue is
      recognized upon completion of the broker clearance services and the clearance
      and delivery of the respective goods.




Other
      services include fees earned for the provision of terminal and documents
      handling services. These revenues are recognized upon completion of the
      services.




15




**Recognition
      of Cost of Forwarding**




The
      receipt of invoices for the cost of freight forwarding services is usually
      delayed. As a result, we must estimate the cost of purchased transportation
      and
      services, and accrue an amount on a shipment by shipment basis in a manner
      that
      is consistent with revenue recognition. Such estimates are based on past trends
      and on the judgment of management. Historically, upon completion of the payment
      cycle (receipt and payment of transportation bills), the actual aggregate
      transportation costs are not materially different than the amount accrued.
      Any
      differences where actual costs vary significantly from the accrued costs would
      require an adjustment at the time the actual amounts are known.




**Accounting
      for Income Taxes**




Income
      taxes are accounted for using the liability method in accordance with SFAS
      No. 109, “Accounting for Income Taxes.” Under SFAS No. 109, we are required
      to estimate actual current tax expense, identify permanent differences between
      financial income and taxable income, and assess temporary differences resulting
      from the differing treatment of items for income tax and accounting purposes.
      Temporary timing differences result in deferred tax assets and liabilities,
      which are included in our consolidated balance sheet. We must then assess the
      likelihood that our deferred tax assets will be recovered from future taxable
      income, and to the extent that we believe that recovery is not likely, we must
      establish a valuation allowance. To the extent we establish a valuation
      allowance, we must include an expense within the tax provision of the statement
      of income in each period in which the allowance is increased.




Significant
      judgments are required in determining the provision for income taxes, deferred
      tax assets and liabilities, and the valuation allowances for deferred tax
      assets. In the event that actual results differ from these estimates or the
      estimates are adjusted in future periods, we may then need to establish an
      additional valuation allowance, which could materially impact our financial
      position and results of operations. Based on our current financial projections,
      we currently believe that we will realize 100% of our deferred tax assets.





**Foreign
      Subsidiaries**





The
      Company has foreign subsidiaries whose local currency has been determined to
      be
      the functional currency. For these foreign subsidiaries, the assets and
      liabilities have been translated using the current exchange rates, and the
      income and expenses have been translated using the weighted average of
      historical exchange rates during the reporting period. The adjustments resulting
      from translation have been recorded separately in shareholders’ equity as “other
      comprehensive income (loss)” and are not included in determining the
      consolidated net loss. As of June 30, 2006, other comprehensive income
      (loss) included approximately $10,000 of cumulative income from foreign
      currency translation.




**Off-balance
      Sheet Arrangements**





We
      currently have no off-balance sheet arrangements that have or are reasonably
      likely to have a current or future material effect on our financial condition,
      changes in financial condition, revenues or expenses, results of operations,
      liquidity, capital expenditures or capital resources.




16





**Accounting
      for Stock-Based Compensation**





Statement
      of Financial Accounting Standards No. 123, Accounting for Stock-Based
      Compensation (SFAS 123) provided companies with a choice to follow the
      provisions of SFAS 123 in determination of stock-based compensation expenses
      or
      to continue with the provisions of Accounting Principles Board Opinion
      No. 25, Accounting for Stock Issued to Employees (APB 25). In
      December 2004, the FASB issued SFAS No. 123 (revised 2004),
“Share-Based Payment” (SFAS No. 123(R)), which replaces SFAS No. 123 and
      supersedes APB Opinion No. 25. SFAS No 123(R) requires all share-based
      payments to employees, including grants of employee stock options, to be
      recognized in the financial statements based on their fair values beginning
      with
      the first interim period after December 15, 2005, with early adoption
      encouraged. The pro forma disclosures previously permitted under SFAS
      No. 123 will no longer be an alternative to financial statement
      recognition. Under SFAS No. 123(R), the Company must determine the
      appropriate fair value model to be used for valuing share-based payments, the
      amortization method for compensation cost and the transition method to be used
      at the date of adoption. The permitted transition methods include retrospective,
      prospective or modified prospective adoption. Under the retrospective option,
      prior periods may be restated either as of the beginning of the year of adoption
      or for all periods presented. The prospective method only relates to the options
      that were issued prior to January 1, 2006 and have historically been accounted
      for under the minimum value method. Such options continue to be accounted for
      under the provisions of APB Opinion No. 25. The modified prospective method
      requires that compensation expense be recorded for all unvested stock options
      at
      the beginning of the first quarter of adoption of SFAS No. 123(R), while
      the retrospective methods would record compensation expense for all unvested
      stock options beginning with the first period presented. The Company anticipates
      adopting the modified prospective method to account for stock options starting
      in 2006.





On
      April
      19, 2005, the Company adopted the Wako Logistics Group 2005 Stock Incentive
      Plan
      (the “Stock Plan”), for which the Board of Directors has authorized 4,000,000
      shares of common stock to be reserved for future issuance under the Plan. In
      September 2005, the Company agreed the terms of an employment contract by which
      it committed to grant a stock option to an employee for the purchase of 200,000
      shares of common stock pursuant to the Stock Plan, but no grant of an option
      to
      purchase these shares has been made. Other than this commitment, as of June
      30,
      2006, the Company has not granted any other stock options, stock awards or
      committed to make any similar awards pursuant to this Plan.




17





**ITEM
      3.**  **CONTROLS
      AND PROCEDURES**





The
      term "disclosure controls and procedures" is defined in Rules 13a-15(e) and
      15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”). This term refers to the controls and procedures of a company that are
      designed to ensure that information required to be disclosed by a company in
      the
      reports that it files under the Exchange Act is recorded, processed, summarized
      and reported within the required time periods. Our Chief Executive Officer
      and
      our Chief Financial Officer have evaluated the effectiveness of our disclosure
      controls and procedures as of the end of the period covered by this quarterly
      report (the “Evaluation Date”). Based on such evaluation, such officers have
      concluded that, as of the Evaluation Date, our disclosure controls and
      procedures are effective.





During
      the most recent fiscal quarter, there has not been any change in our internal
      control over financial reporting or in other factors that have materially
      affected, or are reasonably likely to materially affect internal control over
      financial reporting.




18





**PART
      II. OTHER INFORMATION**




**ITEM
      1.**  **LEGAL
      PROCEEDINGS**




We
      have a
      number of claims currently outstanding, relating to lost or damaged cargo
      occurring in the normal course of our business. We expect many of these claims
      to be settled by the carriers we engage to ship goods on behalf of our
      customers. In the event that we are ultimately responsible to our customers
      for
      any of these claims, we believe that such claims are sufficiently insured under
      the insurance policies we have obtained to cover such losses. At June 30, 2006,
      and through the date of filing of this quarterly report, we are not aware of
      any
      uninsured claim that would have a materially adverse economic effect on the
      company.




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




None
      in
      the quarter ending June 30, 2006, and through the date of this
      report.





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES.**





None





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





None





**ITEM
      5. OTHER INFORMATION**





None




19







**ITEM
      6. EXHIBITS**





Exhibits
      (filed herewith)





31.1
            Certification
                of the Chief Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002 (Rule
                13a-4(a)).





31.2
            Certification
                of the Chief Financial Officer to Section 302 of the Sarbanes-Oxley
                Act of
                2002 (Rule 13a-4(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
                13a-14(b)).












***Remainder
      of Page Intentionally Left Blank***






20











**SIGNATURES**





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




WAKO
                LOGISTICS GROUP, INC.Date: August
                14, 2006
            By:
            /s/ Christopher
                WoodChristopher
                Wood
              Chief
                Executive Officer, ( Principal Executive Officer) and
                DirectorDate: August
                14, 2006
            By:
            /s/ David
                L. KoontzDavid
                L. Koontz
              Chief
                Financial Officer, (Principal Financial Officer and Accounting
                officer)







21







**EXHIBIT
      INDEX**




**Exhibit**
              **Number**
            
            **Description
                of Exhibit**31.1
            
            Certification
                of the Chief Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002 (Rule 13a-4(a)).31.2
            
            Certification
                of the Chief Financial Officer to Section 302 of the Sarbanes-Oxley
                Act of
                2002 (Rule 13a-4(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
                13a-14(b)).




22