UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


FORM
10-Q





(Mark One)




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




For
the quarterly period ended June 30, 2010





or





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




For
the transition period from _____________ to _____________





Commission
file number: 333-113564





WLG
INC.


(Exact
name of registrant as specified in its charter)




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




920
East Algonquin Road, Suite 120


Schaumburg,
IL 60173


(Address
of principal executive offices with zip code)





224-653-2800


(Registrant's
telephone number, including area code)




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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).    ̈
      Yes    ̈        
No




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





Large
      accelerated filer  ̈
            Accelerated
      filer  ̈Non-accelerated
      filer  ̈
      (Do not check if a smaller reporting company)
            Smaller
      reporting company x





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





On August
13, 2010, the registrant had 30,880,094 shares of common stock, $0.001 par value
per share, issued and outstanding.











WLG
Inc.





TABLE
OF CONTENTS




Part
      I:
            
            Financial
      InformationItem
      1.
            
            Financial
      StatementsCondensed
      Consolidated Statements of Operations for the Three and Six Months Ended
      June 30, 2010 and 2009
            
            F-1Condensed
      Consolidated Balance Sheets as of June 30, 2010 and December 31,
      2009
            
            F-3Condensed
      Consolidated Statements of Cash Flows for the Six Months Ended June 30,
      2010 and 2009
            
            F-5Notes
      to Condensed Consolidated Financial Statements
            
            F-6Item
      2.
            
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
            
            3Item
      3.
            
            Quantitative
      and Qualitative Disclosures About Market Risk
            
            17Item
      4.
            
            Controls
      and Procedures.
            
            17Part
      II:
            
            Other
      Information
            
            17Item
      1.
            
            Legal
      Proceedings
            
            17Item
      1A.
            
            Risk
      Factors
            
            17Item
      5
            
            Other
      InformationItem
      6.
            
            Exhibits
            
            17Signatures
            
            
            
            18




NOTE
REGARDING FORWARD LOOKING STATEMENTS




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





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









Part I: Financial Information





Item
1. Financial Statements




WLG
Inc.


Consolidated
Statements of Operations and other comprehensive income
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share amounts)


Three
      months ended
                      June
      30,
                    
                    
                    Six
      months ended
                      June
      30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Notes
                    
                    US$
                    
                    
                    US$
                    
                    
                    US$
                    
                    
                    US$(unaudited)
                    
                    
                    (unaudited)
                    
                    
                    (unaudited)
                    
                    
                    (unaudited)Revenues:Freight
                    
                    
                    
                    30,961
                    
                    
                    
                    15,105
                    
                    
                    
                    54,656
                    
                    
                    
                    30,052Other
      services
                    
                    
                    
                    15,536
                    
                    
                    
                    14,806
                    
                    
                    
                    30,625
                    
                    
                    
                    30,922Total
      revenues
                    
                    
                    
                    46,497
                    
                    
                    
                    29,911
                    
                    
                    
                    85,281
                    
                    
                    
                    60,974Operating
      expensesCost
      of forwarding/ customs
                    
                    
                    
                    (39,967
                    )
                    
                    
                    (24,271
                    )
                    
                    
                    (72,568
                    )
                    
                    
                    (50,830
                    )Selling
      and administrative
                    
                    
                    
                    (7,095
                    )
                    
                    
                    (5,658
                    )
                    
                    
                    (13,480
                    )
                    
                    
                    (11,010
                    )Depreciation
      and amortization
                    
                    
                    
                    (226
                    )
                    
                    
                    (247
                    )
                    
                    
                    (443
                    )
                    
                    
                    (490
                    )Total
      operating expenses
                    
                    
                    
                    (47,288
                    )
                    
                    
                    (30,176
                    )
                    
                    
                    (86,491
                    )
                    
                    
                    (62,330
                    )Loss
      from operations
                    
                    
                    
                    (791
                    )
                    
                    
                    (265
                    )
                    
                    
                    (1,210
                    )
                    
                    
                    (1,356
                    )Other
      income (expense)Interest
      income
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1
                    
                    
                    
                    1Interest
      expense
                    
                    
                    
                    (240
                    )
                    
                    
                    (142
                    )
                    
                    
                    (420
                    )
                    
                    
                    (302
                    )Other
      income  (expense), net
                    
                    
                    
                    59
                    
                    
                    
                    76
                    
                    
                    
                    76
                    
                    
                    
                    147Loss
      before income taxes
                    
                    
                    
                    (972
                    )
                    
                    
                    (331
                    )
                    
                    
                    (1,553
                    )
                    
                    
                    (1,510
                    )Income
      tax benefit (provision)
                    
                    
                    
                    94
                    
                    
                    
                    (78
                    )
                    
                    
                    56
                    
                    
                    
                    58Net
      loss
                    
                    
                    
                    (878
                    )
                    
                    
                    (409
                    )
                    
                    
                    (1,497
                    )
                    
                    
                    (1,452
                    )Dividends
      on preferred stock
                    
                    
                    
                    (22
                    )
                    
                    
                    (22
                    )
                    
                    
                    (45
                    )
                    
                    
                    (45
                    )Loss
      applicable to common stock
                    
                    
                    
                    (900
                    )
                    
                    
                    (431
                    )
                    
                    
                    (1,542
                    )
                    
                    
                    (1,497
                    )Other
      comprehensive (loss) income, net of taxes:Foreign
      currency translation adjustment
                    
                    
                    
                    (112
                    )
                    
                    
                    215
                    
                    
                    
                    (53
                    )
                    
                    
                    159Total
      comprehensive loss
                    
                    
                    
                    (1,012
                    )
                    
                    
                    (216
                    )
                    
                    
                    (1,595
                    )
                    
                    
                    (1,338
                    )
  The
financial statements should be read in conjunction with the accompanying
notes.
 
 F-1
 WLG
Inc.
 
 Consolidated
Statements of Operations and other comprehensive income
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share amounts)
 Weighted
      average common shares outstandingBasic
                
                
                
                
                
                
                30,880,094
                
                
                
                31,400,094
                
                
                
                31,023,740
                
                
                
                31,400,094Diluted
                
                
                
                
                
                
                30,880,094
                
                
                
                31,400,094
                
                
                
                31,023,740
                
                
                
                31,400,094
 Net
      loss per share:Basic
      loss per share
                  
                  
                  2
                  
                  
                  
                  (0.03
                  )
                  
                  
                  (0.01
                  )
                  
                  
                  (0.05
                  )
                  
                  
                  (0.05
                  )Diluted
      loss per share
                  
                  
                  2
                  
                  
                  
                  (0.03
                  )
                  
                  
                  (0.01
                  )
                  
                  
                  (0.05
                  )
                  
                  
                  (0.05
                  )
  The
financial statements should be read in conjunction with the accompanying
notes.
 F-2
 WLG
Inc.
 
 Consolidated
Balance Sheets
 At June
30, 2010 and December 31, 2009
 (Dollars
in thousands except share data and per share amounts)
 
 At
                                    June
      30,
                                    2010
                                  
                                  
                                  At
                                    December
      31,
                                    2009Notes
                                  
                                  
                                  US$
                                  
                                  
                                  US$(unaudited)ASSETSCurrent
      assetsCash
      and cash equivalents
                                  
                                  
                                  
                                  
                                  
                                  1,981
                                  
                                  
                                  
                                  1,899Restricted
      cash
                                  
                                  
                                  
                                  
                                  
                                  551
                                  
                                  
                                  
                                  601Trade
      receivables, net of allowance (2010: $529;
      2009:$570)
                                  
                                  
                                  
                                  
                                  
                                  20,728
                                  
                                  
                                  
                                  16,906Deposits,
      prepayments and other current assets
                                  
                                  
                                  
                                  
                                  
                                  1,545
                                  
                                  
                                  
                                  1,254Prepaid
      tax
                                  
                                  
                                  
                                  
                                  
                                  236
                                  
                                  
                                  
                                  149Total
      current assets
                                  
                                  
                                  
                                  
                                  
                                  25,041
                                  
                                  
                                  
                                  20,809Property,
      plant and equipment, net
                                  
                                  
                                  
                                  
                                  
                                  1,750
                                  
                                  
                                  
                                  1,427Deposits
      and other non-current assets
                                  
                                  
                                  
                                  
                                  
                                  107
                                  
                                  
                                  
                                  107Deferred
      tax assets
                                  
                                  
                                  
                                  
                                  
                                  288
                                  
                                  
                                  
                                  288Intangible
      assets, net
                                  
                                  
                                  
                                  
                                  
                                  1,966
                                  
                                  
                                  
                                  2,183Goodwill
                                  
                                  
                                  
                                  
                                  
                                  6,878
                                  
                                  
                                  
                                  6,878Total
      assets
                                  
                                  
                                  
                                  
                                  
                                  36,030
                                  
                                  
                                  
                                  31,692LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesBank
      overdraft
                                  
                                  
                                  3
                                  
                                  
                                  
                                  578
                                  
                                  
                                  
                                  603Trade
      payables
                                  
                                  
                                  
                                  
                                  
                                  
                                  13,847
                                  
                                  
                                  
                                  10,447Other
      accrued liabilities
                                  
                                  
                                  
                                  
                                  
                                  
                                  2,782
                                  
                                  
                                  
                                  2,897Bank
      loans - maturing within one year
                                  
                                  
                                  3
                                  
                                  
                                  
                                  5,349
                                  
                                  
                                  
                                  4,725Current
      portion of capital lease obligations
                                  
                                  
                                  
                                  
                                  
                                  
                                  80
                                  
                                  
                                  
                                  90Due
      to a director
                                  
                                  
                                  5
                                  
                                  
                                  
                                  640
                                  
                                  
                                  
                                  670Loan
      from majority shareholder
                                  
                                  
                                  5
                                  
                                  
                                  
                                  1,000
                                  
                                  
                                  
                                  -Income
      tax payable
                                  
                                  
                                  
                                  
                                  
                                  
                                  96
                                  
                                  
                                  
                                  117Total
      current liabilities
                                  
                                  
                                  
                                  
                                  
                                  
                                  24,372
                                  
                                  
                                  
                                  19,549Non-current
      liabilitiesNon-current
      portion of capital lease obligations
                                  
                                  
                                  
                                  
                                  
                                  
                                  76
                                  
                                  
                                  
                                  35Other
      non-current liabilities
                                  
                                  
                                  
                                  
                                  
                                  
                                  186
                                  
                                  
                                  
                                  187Bank
      loan – maturing after one year
                                  
                                  
                                  3
                                  
                                  
                                  
                                  428
                                  
                                  
                                  
                                  206690
                                  
                                  
                                  
                                  428Commitments
      and contingencies
                                  
                                  
                                  4Series
      B convertible redeemable preferred stock, $0.001 par value, 1.7 million
      shares authorized and issued (Redemption and liquidation value,
      $1,700)
                                  
                                  
                                  6
                                  
                                  
                                  
                                  1,700
                                  
                                  
                                  
                                  1,700
 The
financial statements should be read in conjunction with the accompanying
notes.
 
 F-3
 WLG
Inc.
 
 Consolidated
Balance Sheets
 At June
30, 2010 and December 31, 2009
 (Dollars
in thousands except share data and per share amounts)
 At
                        June
      30,
                        2010
                      
                      
                      At
                        December
      31,
                        2009US$
                      
                      
                      US$(unaudited)Stockholders'
      equityPreferred
      stock, $0.001 par value, 5 million shares
                        authorized
      and none issued
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      -Series
      A convertible redeemable preferred stock, $0.001 par
                        value,
      2.0 million shares authorized and issued
                        (Redemption
      and liquidation value $1,500)
                      
                      
                      
                      
                      
                      2
                      
                      
                      
                      2Series
      C convertible redeemable preferred stock, $0.001 par
                        value,
      978,000 shares authorized and issued
                        (Redemption
      and liquidation value $978)
                      
                      
                      7
                      
                      
                      
                      1
                      
                      
                      
                      -Common
      stock, $0.001 par value, 55 million shares
                        authorized,
      31,400,094 (2009:
      31,400,094) shares issued, 30,880,094 (2009: 31,400,094)
      shares outstanding
                      
                      
                      
                      
                      
                      
                      31
                      
                      
                      
                      31Additional
      paid-in capital
                      
                      
                      
                      
                      
                      
                      13,761
                      
                      
                      
                      12,784Statutory
      reserve
                      
                      
                      8
                      
                      
                      
                      167
                      
                      
                      
                      167Treasury
      stock, at cost, 520,000 (2009: Nil)shares
                      
                      
                      
                      
                      
                      
                      (130
                      )
                      
                      
                      -Accumulated
      other comprehensive income
                      
                      
                      
                      
                      
                      
                      186
                      
                      
                      
                      239-
      Foreign currency translation adjustmentsAccumulated
      losses
                      
                      
                      
                      
                      
                      
                      (4,750
                      )
                      
                      
                      (3,208
                      )Total
      stockholders' equity
                      
                      
                      
                      
                      
                      
                      9,268
                      
                      
                      
                      10,015Total
      liabilities and stockholders' equity
                      
                      
                      
                      
                      
                      
                      36,030
                      
                      
                      
                      31,692
 The
financial statements should be read in conjunction with the accompanying
notes.
 
 F-4
 WLG
Inc.
 
 Consolidated
Statements of Cash Flows
 Six
months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share amounts)
 
 Six
      months ended
                      June
      30,2010
                    
                    
                    2009US$
                    
                    
                    US$(unaudited)
                    
                    
                    (unaudited)Cash
      flows from operating activities:Net
      loss
                    
                    
                    (1,497
                    )
                    
                    
                    (1,452
                    )Adjustments
      to reconcile net loss to net cash (used in) provided by operating
      activitiesDepreciation
                    
                    
                    227
                    
                    
                    
                    170Amortization
                    
                    
                    216
                    
                    
                    
                    320Allowance
      for bad debts
                    
                    
                    109
                    
                    
                    
                    389Share-based
      amortization
                    
                    
                    1
                    
                    
                    
                    7Changes
      in working capital:Trade
      receivables
                    
                    
                    (3,957
                    )
                    
                    
                    3,141Deposits,
      prepayments and other current assets
                    
                    
                    (421
                    )
                    
                    
                    (205
                    )Trade
      payables
                    
                    
                    3,400
                    
                    
                    
                    (1,063
                    )Other
      accrued liabilities
                    
                    
                    (87
                    )
                    
                    
                    198Due
      to a director
                    
                    
                    (29
                    )
                    
                    
                    (42
                    )Income
      tax payable
                    
                    
                    (108
                    )
                    
                    
                    (435
                    )Net
      cash (used in) provided by operating activities
                    
                    
                    (2,146
                    )
                    
                    
                    1,028Cash
      flows from investing activities:Acquisitions
      of property, plant and equipment (Note
i)
                    
                    
                    (499
                    )
                    
                    
                    (318
                    )Net
      cash used in investing activities
                    
                    
                    (499
                    )
                    
                    
                    (318
                    )Cash
      flows from financing activities:Restricted
      cash
                    
                    
                    50
                    
                    
                    
                    112Bank
      overdraft
                    
                    
                    (25
                    )
                    
                    
                    77Net
      increase (decrease) in bank loans
                    
                    
                    846
                    
                    
                    
                    (1,387
                    )Capital
      lease obligations paid
                    
                    
                    (47
                    )
                    
                    
                    (35
                    )Repayment
      to a director
                    
                    
                    (30
                    )
                    
                    
                    (375
                    )Loan
      from majority shareholder
                    
                    
                    1,000
                    
                    
                    
                    -Issuance
      of Series C convertible redeemable preferred stock
                    
                    
                    978
                    
                    
                    
                    -Dividend
      paid on preferred stock
                    
                    
                    (45
                    )
                    
                    
                    (45
                    )Net
      cash provided by (used in) financing activities
                    
                    
                    2,727
                    
                    
                    
                    (1,653
                    )Net
      increase (decrease) in cash and cash equivalents
                    
                    
                    82
                    
                    
                    
                    (943
                    )Cash
      and cash equivalents at beginning of period
                    
                    
                    1,899
                    
                    
                    
                    2,402Cash
      and cash equivalents at end of period
                    
                    
                    1,981
                    
                    
                    
                    1,459
 The
financial statements should be read in conjunction with the accompanying
notes.
 
 F-5
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share amounts)
 1.
              ORGANIZATION
      AND BASIS OF PRESENTATION
 
 WLG Inc.
(“WLG”, the “Company”, or the “Group”) (formerly known as Wako Logistics Group,
Inc.) was incorporated on December 2, 2003, pursuant to the laws of Delaware in
the United States of America, with authorized and outstanding share capital of
100 million shares of common stock, par value of $0.001 per share.  All
outstanding common stock was issued to Mr. Christopher Wood (“Mr
Wood”).
 
 On
January 8, 2004, WLG changed its name to Wako Logistics Group, Inc.  On the
same date, its authorized number of shares was reduced to 60 million shares, of
which 55 million shares were common stock, and 5 million shares were preferred
stock.
 
 Pursuant
to the Share Exchange Agreements entered into between WLG and Mr. Wood (and his
nominee) on January 18, 2004, WLG consummated a combination with Wako Express
(H.K.) Company Limited (“WEHK”) and Wako Air Express (H.K.) Company Limited
(“WAE”) (collectively, “Operating Subsidiaries”) by the issuance of 20,000,900
shares of WLG common stock to Mr. Wood in exchange for 100% of the outstanding
stock of WEHK and WAE.
 
 After the
share exchanges, WLG became the parent and controlling company of the Operating
Subsidiaries, and Mr. Wood became the controlling shareholder of
WLG.  In May 2010, Mr. Wood sold a sufficient number of his shares of
WLG common stock to Jumbo Glory Limited (“Jumbo”), a privately held Hong Kong
incorporated company, so that Jumbo acquired 51% of WLG’s common stock
and became WLG’s controlling shareholder.
 
 The
transfer of Mr. Wood’s interests in the Operating Subsidiaries to WLG was a
reorganization of companies under common control and has been accounted for
effectively as a pooling of interests.
 
 WEHK was
incorporated in Hong Kong on June 4, 1982.  Since its inception, WEHK’s
principal activity has been the provision of sea freight forwarding
services.
 
 WAE was
incorporated in Hong Kong on February 24, 1989, and since that date, WAE’s
principal activity has been the provision of air freight forwarding
services.
 
 In July
and November 2004, the Group established two 100% owned subsidiaries, Wako
Express (China) Co. Ltd. (“WE China”) in the People’s Republic of China (“PRC”)
and Wako Express (China) Co. Limited (“WECCL”) in Hong Kong.  WE China
began business in China in February 2005 as a full-service freight forwarding
company.  WECCL had not commenced business as of June 30,
2010.
 
 On April
1, 2005, WLG acquired 100% of the voting interests in Kay O’Neill (USA) LLC
(“KON”), an Illinois limited liability company based in Chicago, Illinois.
 KON also had an office in Detroit, Michigan. KON changed its name to WLG
(USA) LLC (“WLG (USA)”) in June 2005, and, as of the end of 2006, had
discontinued the use of the name KON.  The purchase price for KON consisted
of a $1,000 cash payment and a professional fee of $50.  WLG (USA) is a
non-asset based freight forwarding company and provides freight forwarding and
logistics services to its customers.  Effective July 1, 2010, WLG
(USA) merged into and with World Commerce Services LLC (“WCS”), which is a
subsidiary of WLG.
  F-6
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share
amounts)
 1.
              ORGANIZATION
      AND BASIS OF PRESENTATION
(CONTINUED)
 
 Effective
October 1, 2005, WLG acquired all of the issued and outstanding shares of common
stock of Asean Logistics, Inc. (“ALI”), a California corporation, in exchange
for 250,000 restricted shares of WLG’s common stock.  Concurrent with
the acquisition, WLG, by way of a contribution to capital, transferred all of
the ALI shares to WLG (USA).
 
 ALI
      was a non-asset based freight forwarding company and provided freight
      forwarding services to its customers, which shipped products primarily
      between Asia and the United States.  As of December 31,
      2007, all of ALI’s administrative and accounting functions had been
      assumed by WLG (USA), and by June 30, 2008, all of ALI’s remaining
      operations had been combined with those of WLG
  (USA).
 
 On
November 9, 2005, WLG (Australia) Pty Ltd. (“WLG (Aust)”), a wholly-owned
Australian subsidiary of WLG, completed the acquisition of all of the issued and
outstanding common stock of Asean Cargo Services Pty Limited (“Asean”) in
exchange for 3.5 million restricted shares of WLG’s common stock.  An
additional 1.3 million shares of WLG’s restricted common stock was issued
to the sellers of Asean in 2007 in recognition of Asean achieving certain
financial goals during the fifteen-month period ended December 31, 2006.
 
 Founded
in 1984 and based in Sydney, Australia, Asean also has offices in Melbourne and
Brisbane and maintains relationships with cargo agents in all of Australia’s
mainland states.  Asean provides freight forwarding and logistics
services, as well as customs brokerage services, to its customers, most of whom
ship products primarily between Asia and Australia.
 
 In
February 2006, WLG formed two United Kingdom (“UK”) subsidiaries, WLG (UK)
Holdings Limited (“WLG (UK) Holdings”) as a first tier subsidiary and WLG (UK)
Limited (“WLG (UK)”) as a subsidiary of WLG (UK) Holdings.  Effective
September 15, 2006, WLG (UK) acquired for cash the operating assets and assumed
limited liabilities of a division (“UK Division”) of a UK freight forwarding and
logistics company (“UK Co.”). This UK Division, which operated in Manchester,
UK, provided sea and air freight forwarding, customs clearance and warehouse
logistics services, mostly to UK based customers.  These activities are now
carried on by WLG (UK).
 
 On
December 1, 2006, WLG (USA) acquired for cash all of the voting shares of
Mares-Shreve & Associates, Inc. (“MSA”) and its wholly-owned subsidiary, Sea
Systems Ocean Line, Inc., (“Sea Systems”) (collectively, the “MSA Group”).
 MSA, which was incorporated on May 15, 1979, in Washington, provides
freight forwarding and customs brokerage services to its customers.  Sea
Systems, incorporated on February 26, 1991, in Washington, was a non-asset based
freight forwarder and provided air and sea freight forwarding and related
logistics services to its customers.  As of June 30, 2008, all of Sea
Systems’ operations had been combined with those of MSA.  MSA mainly
serves customers that ship products from Asia to the US.  Effective
December 31, 2009, MSA merged with and into WCS.
 
 On July
31, 2007, the Group acquired all of the membership interests in WCS.  WCS
is based in Schaumburg, Illinois, and also has offices in New York, Atlanta and
Los Angeles.  It is a non-asset based freight forwarding company and
provides a full range of logistics and customs brokerage services to its
customers, specializing in freight imports from Asia, mostly by sea, with an
emphasis on imports from China.
  F-7
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share amounts)


1.
              ORGANIZATION
      AND BASIS OF PRESENTATION
(CONTINUED)
 
 On December
7, 2007, the Company filed an amendment to the Company’s Restated Certificate of
Incorporation to change the Company’s name from Wako Logistics Group, Inc. to
WLG Inc., which became effective December 21, 2007.
 
 As of
June 30, 2010, all subsidiaries are wholly-owned and all material intercompany
balances and transactions have been eliminated in consolidation.
 
 The
accompanying financial data as of June 30, 2010, and for the three and six
months ended June 30, 2010 and 2009, have been prepared by the Company without
audit.
 
 Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to such rules
and regulations.  However, the Company believes that the disclosures
herein are adequate to make the information presented not
misleading.  These financial statements should be read in conjunction
with the Company’s audited consolidated financial statements and notes thereto
for the year ended December 31, 2009.
 
 The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates that affect the
reported amounts of assets, liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities.  Actual results could
differ from these estimates.
 
 The
unaudited, interim consolidated financial statements of the Company have been
prepared in accordance with U.S. generally accepted accounting principles for
interim financial information.  In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position as of June 30, 2010, and results of
operations for the three and six months ended June 30, 2010 and 2009, and cash
flows for the six months ended June 30, 2010 and 2009, have been
made.  The results of operations for the three and six months ended
June 30, 2010 and 2009, are not necessarily indicative of the operating results
for the full year.
 
 F-8
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share amounts)


2.
              LOSS
      PER SHARE
 
 Loss per share was computed as
follows:
 Three
      months ended June 30, 2010Loss
                        
                        
                        Weighted
      average number of shares
                        
                        
                        Per
      share amountUS$
                        
                        
                        
                        
                        
                        US$(unaudited)
                        
                        
                        
                        
                        
                        (unaudited)Net
      loss
                        
                        
                        (878
                        )Dividends
      on Series A convertible redeemable preferred stock
                        
                        
                        22
                        
                        
                        
                        2,000,000
                        
                        
                        
                        0.01Basic
      loss per shareNet
      loss attributable to common stockholders
                        
                        
                        (900
                        )
                        
                        
                        30,880,094
                        
                        
                        
                        (0.03
                        )Effect
      of dilutive securitiesEmployee
      stock options (Note
      #)Warrants
      (Note
      #)Series
      A convertible redeemable preferred stock (Note
#)
                        
                        
                        -
                        
                        
                        
                        -Series
      B convertible redeemable preferred stock (Note
#)
                        
                        
                        -
                        
                        
                        
                        -Series
      C convertible redeemable preferred stock (Note
#)
                        
                        
                        -
                        
                        
                        
                        -Diluted
      loss per shareNet
      loss available to common stockholders
                        
                        
                        (900
                        )
                        
                        
                        30,880,094
                        
                        
                        
                        (0.03
                        )
 F-9
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share amounts)
 2.
              LOSS
      PER SHARE (CONTINUED)
 
 Six
      months ended June 30, 2010Loss
                      
                      
                      Weighted
      average number of shares
                      
                      
                      Per
      share amountUS$
                      
                      
                      
                      
                      
                      US$(unaudited)
                      
                      
                      
                      
                      
                      (unaudited)Net
      loss
                      
                      
                      (1,497
                      )Dividends
      on Series A convertible redeemable
    preferred  stock
                      
                      
                      45
                      
                      
                      
                      2,000,000
                      
                      
                      
                      0.02Basic
      loss per shareNet
      loss attributable to common stockholders
                      
                      
                      (1,542
                      )
                      
                      
                      31,023,740
                      
                      
                      
                      (0.05
                      )Effect
      of dilutive securitiesEmployee
      stock options (Note
      #)Warrants
      (Note
      #)Series
      A convertible redeemable preferred stock (Note
#)
                      
                      
                      -
                      
                      
                      
                      -Series
      B convertible redeemable preferred stock (Note
#)
                      
                      
                      -
                      
                      
                      
                      -Series
      C convertible redeemable preferred stock (Note
#)
                      
                      
                      -
                      
                      
                      
                      -Diluted
      loss per shareNet
      loss available to common stockholders
                      
                      
                      (1,542
                      )
                      
                      
                      31,023,740
                      
                      
                      
                      (0.05
                      )
  F-10
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share
amounts)
 2.
              LOSS
      PER SHARE (CONTINUED)
 Three
      months ended June 30, 2009Loss
                      
                      
                      Weighted
      average number of shares
                      
                      
                      Per
      share amountUS$
                      
                      
                      
                      
                      
                      US$(unaudited)
                      
                      
                      
                      
                      
                      (unaudited)Net
      loss
                      
                      
                      (409
                      )Dividends
      on Series A convertible redeemable preferred stock
                      
                      
                      22
                      
                      
                      
                      2,000,000
                      
                      
                      
                      0.01Basic
      loss per shareNet
      loss attributable to common stockholders
                      
                      
                      (431
                      )
                      
                      
                      31,400,094
                      
                      
                      
                      (0.01
                      )Effect
      of dilutive securitiesEmployee
      stock options (Note
      #)
                      
                      
                      -
                      
                      
                      
                      -Warrants
      (Note
      #)
                      
                      
                      -
                      
                      
                      
                      -Series
      A convertible redeemable preferred stock (Note
#)
                      
                      
                      -
                      
                      
                      
                      -Series
      B convertible redeemable preferred stock (Note
#)
                      
                      
                      -
                      
                      
                      
                      -Diluted
      loss per shareNet
      loss available to common stockholders
                      
                      
                      (431
                      )
                      
                      
                      31,400,094
                      
                      
                      
                      (0.01
                      )
  F-11
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share
amounts)
 2.
              LOSS
      PER SHARE (CONTINUED)
  Six
      months ended June 30, 2009Loss
                      
                      
                      Weighted
      average number of shares
                      
                      
                      Per
      share amountUS$
                      
                      
                      
                      
                      
                      US$(unaudited)
                      
                      
                      
                      
                      
                      (unaudited)Net
      loss
                      
                      
                      (1,452
                      )Dividends
      on Series A convertible redeemable
    preferred  stock
                      
                      
                      45
                      
                      
                      
                      2,000,000
                      
                      
                      
                      0.02Basic
      loss per shareNet
      loss available to common stockholders
                      
                      
                      (1,497
                      )
                      
                      
                      31,400,094
                      
                      
                      
                      (0.05
                      )Effect
      of dilutive securitiesEmployee
      stock options (Note
      #)
                      
                      
                      -
                      
                      
                      
                      -Warrants
      (Note
      #)
                      
                      
                      -
                      
                      
                      
                      -Series
      A convertible redeemable preferred stock (Note
#)
                      
                      
                      -
                      
                      
                      
                      -Series
      B convertible redeemable preferred stock (Note
#)
                      
                      
                      -
                      
                      
                      
                      -Diluted
      loss per shareNet
      loss available to common stockholders
                      
                      
                      (1,497
                      )
                      
                      
                      31,400,094
                      
                      
                      
                      (0.05
                      )
 
 #
      :
              For
      the three and six months ended June 30, 2010, weighted average number of
      shares outstanding was not increased by the 100,000 outstanding
      warrants granted to a consultant in exchange for services
      rendered, the 245,000 outstanding options, the 2,000,000 shares
      related to the Series A convertible redeemable preferred stock, the
      500,000 shares of common stock issuable to the sellers of WCS upon
      conversion of the Series A convertible redeemable preferred stock, the
      2,428,571 shares related to the Series B convertible redeemable preferred
      stock and the 978,000 shares related to the Series C convertible
      redeemable preferred stock would be anti-dilutive. The Company’s potential
      obligation to issue 500,000 shares of common stock to the sellers of WCS
      terminated as of February 19, 2010.
 
 For the
three and six months ended June 30, 2009, weighted average number of shares
outstanding was not increased by the 100,000 outstanding warrants granted
to a consultant in exchange for services rendered, the 245,000 outstanding
options, the 2,000,000 shares related to the Series A convertible redeemable
preferred stock, the 500,000 shares of common stock issuable to the sellers of
WCS upon conversion of the Series A convertible redeemable preferred stock, the
2,428,571 shares related to the Series B convertible redeemable preferred stock
would be anti-dilutive. Under an agreement with the sellers of WCS, the Company
was potentially obligated to issue up to 1,962,506 shares of its common stock to
them if certain earnings targets were achieved. None of the earnings targets
were achieved as of March 31, 2009. The obligation to issue these shares
terminated as of July 31, 2009. The effect of this conversion would be
anti-dilutive.
 F-12
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share
amounts)
 3.
              BANKING
      FACILITIES
 
 The
      Group has bank facilities from creditworthy commercial banks as
      follows:
 
 At
                      June
      30,
                      2010
                    
                    
                    At
                      December
      31,
                      2009US$
                    
                    
                    US$(unaudited)Facilities
      granted-
      bank guarantees
                    
                    
                    1,114
                    
                    
                    
                    1,145-
      overdraft facility
                    
                    
                    578
                    
                    
                    
                    603-
      bank loans and revolving credit lines
                    
                    
                    7,006
                    
                    
                    
                    5,909-
      foreign exchange facilities
                    
                    
                    214
                    
                    
                    
                    223-
      lease facilities
                    
                    
                    214
                    
                    
                    
                    223Total
      bank facilities
                    
                    
                    9,126
                    
                    
                    
                    8,103
 
 The terms
of the revolving loan and bank overdraft facilities, including the amounts and
maturity dates, are set forth in agreements between the banks and the
Group.
 
 Bank
guarantees of $545 will expire within one year from June 30, 2010, but may be
renewed, provided the Group makes available the cash required by the banks to
collateralize each guarantee. A bank guarantee of $117 and the overdraft
facility have no expiry dates, but the bank or WLG may terminate either facility
by giving 30 days notice to the other party.  The remaining bank
guarantee of $452 has no fixed expiration date and is cancelable and/or
renewable at the option of the bank.
 
 The bank
loans and revolving loan facilities mature on various dates as follows: (i)
$3,000 revolving credit facility on February 24, 2011 and (ii) loan facility of
$3,425 is an on-going facility that is subject to review in 2010, and, by its
terms, may be terminated by either the bank or WLG giving 30 days notice to the
other party and (iii) two loan facilities of $258 and $323, which are repayable
in 60 monthly installments ending in December 2014 and January 2015,
respectively.
 
 The bank
loans and revolving credit facilities of $7,006 are secured as follows: (i)
$3,000 is secured by all assets of WCS and WLG (USA), including their accounts
receivables as well as a guarantee provided by the Group’s parent company, (ii)
$3,425 is secured by Asean’s accounts receivable and a registered mortgage
charge over the assets of Asean and (iii) $581 is secured by a guarantee
provided by the Group’s parent company and a guarantee given by the Hong Kong
Special Administrative Region Government.
 F-13
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share
amounts)
 3.
              BANKING
      FACILITIES (CONTINUED)
 
 Bank
guarantees of $545 are collaterized by cash of $545. Another bank guarantee of
$117 is secured by a letter of support from the Group’s parent company,
and  a registered mortgage debenture over all of Asean’s
assets.   The remaining bank guarantee of $452 is secured by a
fixed and floating charge on all of the assets of WLG (UK) and by a guarantee of
the Group’s parent company.
 
 Asean’s
overdraft facility of $578 is secured by (i) a comfort letter from the Group’s
parent company and (ii) a registered mortgage debenture over all of Asean’s
assets.
 
 Asean has
a foreign exchange facility of $214 and a leasing facility of $214, both of as
of June 30, 2010, had not been utilized.  In addition, both the
foreign exchange and leasing facility are secured by a comfort letter from the
Group’s parent company.  As of June 30, 2010, and December 31, 2009,
the weighted average interest rates of the Group’s bank borrowings were 9.52%
and 7.27% per annum, respectively.
 
 
 At
                      June
      30,
                      2010
                    
                    
                    At
                      December
      31,
                      2009US$
                    
                    
                    US$(unaudited)UtilizedCommitted
      lines-
      bank guarantees
                    
                    
                    1,114
                    
                    
                    
                    1,145-
      overdraft facility
                    
                    
                    578
                    
                    
                    
                    603-
      Bank loans and revolving credit lines
                    
                    
                    5,777
                    
                    
                    
                    4,931Total
      bank facilities utilized
                    
                    
                    7,469
                    
                    
                    
                    6,679
 F-14
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share
amounts)
 4.
              COMMITMENTS
      AND CONTINGENCIES
 
 Commitments under operating
leases
 The
      Group rents office and warehouse space, staff quarters and certain office
      equipment under non-cancellable operating leases.  The following
      table summarizes the approximate future minimum lease payments for
      operating leases in effect as of June 30, 2010, and December 31,
      2009:
 
 At
                        June
      30,
                        2010
                      
                      
                      At
                        December
      31,
                        2009US$
                      
                      
                      US$(unaudited)Within
      one year
                      
                      
                      1,943
                      
                      
                      
                      1,539Over
      one year but not exceeding two years
                      
                      
                      1,589
                      
                      
                      
                      1,038Over
      two years but not exceeding three years
                      
                      
                      1,146
                      
                      
                      
                      731Over
      three years but not exceeding four years
                      
                      
                      970
                      
                      
                      
                      472Over
      four years but not exceeding five years
                      
                      
                      683
                      
                      
                      
                      404Over
      five years
                      
                      
                      782
                      
                      
                      
                      984Total
      operating lease commitments
                      
                      
                      7,113
                      
                      
                      
                      5,168
 
 The
      Group has obligations under various operating lease agreements ranging
      from 3 months to 8 years.  Rent expense under operating leases
      for the six months ended June 30, 2010 and 2009, was $885 and $821,
      respectively.
 
 Cargo
      space commitments
 The
      Group, in the course of its business, enters into agreements with various
      air and ocean freight carriers pursuant to which the Group commits to
      utilize a minimum amount of cargo space each year. As of June 30, 2010,
      and December 31, 2009, the obligations for the minimum amount of such
      cargo space to be utilized in the coming 12 months were $2,625 and $2,249,
      respectively.
 
 Contingencies
– outstanding claims
 The
      Group is subject to claims that arise primarily in the ordinary course of
      business.  In general, such claims are covered by insurance
      policies issued for the Group’s
businesses.
 
 As of
June 30, 2010, and December 31, 2009, and subject to the legal proceedings as
described below, the aggregate, outstanding amount of claims was approximately
$123 and $40, respectively.  The Group believes that the ultimate
liability, if any, for all of these claims, both filed and potential, will not
have a material adverse effect on its financial position.
 F-15
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share
amounts)
 4.
              COMMITMENTS
      AND CONTINGENCIES (CONTINUED)
 
 Contingencies
– outstanding claims (Continued)
 
 WCS was
named as a third-party defendant in pending proceedings filed in the United
States District Court for the Southern District of New York and the United
States District Court, Central District of California relating to claims arising
out of the derailment of a Union Pacific train at Tyrone, Oklahoma on April 21,
2005. The total amount of damages sought equaled approximately $6,800, including
an unspecified amount for costs for delay, lost profits and lost revenue. In
December 2009, WCS settled the case for $100, with an initial payment of $50 at
the time of settlement and is obliged thereafter to make ten monthly payments of
$5 each. During the first quarter of 2010, the cost of this settlement, as well
as certain legal fees, has been reimbursed to the Group by the return of 520,000
shares of WLG’s common stock by a former shareholder of WCS. The 520,000 shares
of WLG’s common stock is shown as treasury stock as at June 30,
2010.
 
 
 5.
              RELATED
      PARTY TRANSACTIONS
 
 Name
      and relationship of related partiesName
                
                Relationship
      with the GroupChristopher
      Wood (“CW”)
                
                Shareholder,
      director and officer of WLGDavid
      Koontz (“DK”)
                
                Officer
      of WLGJoin
      Wing Properties Limited (“JWP”)
                
                CW
      is a shareholder and director of JWPJumbo
      Glory Limited (“Jumbo”)
                
                Majority
      shareholder of WLG
 
 
 Details
      of related partiesName
                
                Principal
      activities
                
                OwnershipName
      of owner
                
                %
      heldJWP
                
                Leases
      property to CW
                
                CW
                
                100%
 F-16
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share
amounts)
 5.
              RELATED
      PARTY TRANSACTIONS (CONTINUED)
 
 The
following is a summary of the amounts included in the accompanying balance
sheets:
 At
                      June
      30,
                      2010
                    
                    
                    At
                      December
      31,
                      2009US$
                    
                    
                    US$(unaudited)Loan from majority shareholder(Note
      iii)
                    
                    
                    1,000
                    
                    
                    
                    -Due to a director(Note i and
      ii)CW
                    
                    
                    640
                    
                    
                    
                    670
 
 Notes:
 
 (i)
                Amounts
      due to director are unsecured and interest-free, except for the director
      loan, which amounted to $570 and $600 as of June 30, 2010 and December
      2009, respectively, (see
      note (ii) below), which was used as part of the consideration to
      acquire the membership interests of WCS, repayment of bank loans and
      working capital.
 
 (ii)
              On
      July 1, 2008, the Group issued a $600 promissory note to CW, dated July 1,
      2008, (the “Note”) to set forth, among other things, the interest rate and
      repayment terms for $600 that CW had previously loaned to the
      Group.  The Note bears interest at the rate of 12% per annum and
      was to be repaid in twelve monthly installments of $50, with the first
      installment due on January 31, 2009.  Upon the maturity of the
      Note, CW has agreed that payments due under the Note may be deferred on a
      month to month basis. Principal repayments of $30 had been made to CW as
      of June 30, 2010.  The Note is secured by the Group’s assets and
      will become immediately due and payable upon the earlier to occur of (i)
      an event of default as defined in the Note, (ii) a change in control as
      defined in the Note, (iii) raising not less than $3,000 in new capital,
      and/or (iv) the termination of CW’s
employment.
 
 Under the
original terms of this Note, it became due and payable as a result of the change
of control of the Company that occurred in May 2010.  However, CW and
WLG agreed that commencing (i) June 1, 2010, and continuing until December 31,
2011, WLG may defer making principal payments to Mr. Wood under the Note, and
(ii) commencing June 1, 2010, and extending through December 31, 2011, the
annual interest rate on the Note shall be reduced from 12% to 0%.  The
Note shall be due and payable as of December 31, 2011.
  (iii)
              On
      June 3, 2010, WEHK issued a $1,000 promissory note to WLG’s majority
      shareholder which bears interest at 6% per annum and is due on June 3,
      2011.  No monthly payments of principal are due under the terms
      of this note.
  F-17
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share
amounts)
 5.
              RELATED
      PARTY TRANSACTIONS (CONTINUED)
 
 Additional
details of transactions
 Three
      months ended
                      June
      30,
                    
                    Six
      months ended
                      June
      30,2010
                    
                    2009
                    
                    2010
                    
                    2009(unaudited)
                    
                    (unaudited)
                    
                    (unaudited)
                    
                    (unaudited)US$
                    
                    US$
                    
                    US$
                    
                    US$Rental
      paid/payableJWP
                    27
                    
                    27
                    
                    54
                    
                    54
 
 
 Summary
of transactions for the six months ended June 30, 2010 and 2009, with directors
(unaudited):
 
 CW
                    
                    
                    DK
                    
                    
                    TotalUS$
                    
                    
                    US$
                    
                    
                    US$At
      January 1, 2010
                    
                    
                    670
                    
                    
                    
                    -
                    
                    
                    
                    670Interest
      accrued
                    
                    
                    125
                    
                    
                    
                    -
                    
                    
                    
                    125Interest
      paid
                    
                    
                    (96
                    )
                    
                    
                    -
                    
                    
                    
                    (96
                    )Repayment
      of loan
                    
                    
                    (30
                    )
                    
                    
                    -
                    
                    
                    
                    (30
                    )Repayment
      of advance
                    
                    
                    (29
                    )
                    
                    
                    -
                    
                    
                    
                    (29
                    )At
      June 30, 2010
                    
                    
                    640
                    
                    
                    
                    -
                    
                    
                    
                    640At
      January 1, 2009
                    
                    
                    615
                    
                    
                    
                    375
                    
                    
                    
                    990Reclassification
      from accrued liabilities
                    
                    
                    60
                    
                    
                    
                    -
                    
                    
                    
                    60Interest
      accrued
                    
                    
                    138
                    
                    
                    
                    13
                    
                    
                    
                    151Interest
      paid
                    
                    
                    (138
                    )
                    
                    
                    (13
                    )
                    
                    
                    (151
                    )Repayment
      of loan
                    
                    
                    -
                    
                    
                    
                    (375
                    )
                    
                    
                    (375
                    )Repayment
      of advance
                    
                    
                    (42
                    )
                    
                    
                    -
                    
                    
                    
                    (42
                    )At
      June 30, 2009
                    
                    
                    633
                    
                    
                    
                    -
                    
                    
                    
                    633
 F-18
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share
amounts)
 6.
              SERIES
      B CONVERTIBLE REDEEMABLE PREFERRED
STOCK
  On June
30, 2008, the Company entered into a conversion agreement with Christopher Wood,
then the Company’s Chief Executive Officer, director and shareholder,
pursuant to which Mr. Wood and the Company agreed to convert $1,700 of
outstanding loans that Mr. Wood had made to the Company into 1.7 million shares
of the Company’s Series B Convertible Redeemable Preferred Stock (“Series B
Preferred Stock”).  In connection therewith, in June 2008, the
Company’s Board of Directors approved the designation of a new series of
preferred stock consisting of 1.7 million shares of authorized, but unissued,
shares of preferred stock designated as Series B Preferred Stock, par value
$0.001.  The Series B Preferred Stock was issued on June 30, 2008. The
Series B Preferred Stock may be converted by the holder at any time into shares
of the Company’s common stock at a conversion price of $0.70 per share. The
Series B Preferred Stock has a stated, redemption and liquidation value of $1.00
per share, and shall pay an annual cumulative dividend equal to 12% of the
stated value per share.
 
 The
Company may require a conversion of the Series B Preferred Stock in the event of
a change in control of the Company.  Commencing 24 months after the
date of issuance of the Series B Preferred Stock, the Company has the right to
redeem all or a portion of the then outstanding shares of Series B Preferred
Stock at a price of $1.00 per share, subject to adjustment.  In
addition, commencing on the earlier to occur of 24 months after the issuance
date, Mr. Wood’s retirement or his holding less than 50.1% of the outstanding
common stock of the Company, Mr. Wood may cause the Company to redeem any or all
of his outstanding shares of Series B Preferred Stock, at a price of $1.00 per
share, subject to adjustment.
 
 Pursuant
to the waiver agreement dated June 1, 2010, WLG and CW have agreed to waive
certain terms of the Series B Preferred Stock so that effective June 1, 2010,
and extending through December 31, 2011, the annual dividend rate on the Series
B Preferred Stock shall be reduced from 12% to 8% per annum.  Due to
the change in control of the Company that occurred in May 2010, CW had the right
to require a redemption and the Company had the right to seek a conversion of
the Series B Preferred Stock.  Neither party exercised its conversion
or redemptions rights for the Series B Preferred Stock.
 
 For the
six months ended June 30, 2010 and 2009, the dividends on the Series B Preferred
Stock were included in interest expense in the amounts of $96 and $102,
respectively.
 F-19
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share
amounts)
 7.
              SERIES
      C CONVERTIBLE REDEEMABLE PREFERRED
STOCK
 
 On May
14, 2010, Jumbo transferred $978 to WLG which was later applied to the purchase
of the Series C Preferred Stock.  In June, 2010, WLG entered into a
securities purchase agreement with Jumbo, the controlling shareholder of WLG,
pursuant to which Jumbo purchased 978,000 shares of the Company’s newly issued
Series C Convertible Redeemable Preferred Stock (“Series C Preferred Stock”). In
connection therewith, in June 2010, the Company’s Board of Directors approved
the designation of a new series of preferred stock consisting of 1 million
shares of preferred stock designated as Series C Preferred Stock, par value
$0.001, and the Series C Preferred Stock was issued on June 3, 2010. The
Series C Preferred Stock may be converted by the holder at any time into shares
of the Company’s common stock at a conversion price of $0.25 per
share.  The Series C Preferred Stock has a stated, redemption and
liquidation value of $1.00 per share, and shall not pay a cash
dividend.
 
 The
Company may require a conversion of the Series C Preferred Stock in the event of
a change in control of the Company.  Commencing 24 months after the
date of issuance of the Series C Preferred Stock, the Company has the right to
redeem all or a portion of the then outstanding shares of Series C Preferred
Stock at a price of $1.00 per share, subject to adjustment.  Since the
issue of the Series C Preferred Stock no event has occurred that would allow the
Company to require a conversion of the Series C Preferred Stock.
 
 
 8.
              STATUTORY
      RESERVE
 
 WE China
(“the PRC subsidiary”) is a wholly-owned foreign investment enterprise (“WOFIE”)
registered in the PRC.  Under the laws and regulations applicable to a
WOFIE, such enterprises are required to maintain certain statutory reserves for
specific purposes, which include a general reserve, an enterprise development
fund and a staff welfare and bonus fund.  The board of directors of
the PRC Subsidiary shall make an annual determination based on its PRC statutory
financial statements of the amount to be transferred to statutory
reserves.
 
 Minimum
annual transfers to statutory reserves shall be at least 10% of a WOFIE’s after
tax profit which shall be determined in accordance with the PRC accounting rules
and regulations.  Annual transfers to the general reserve shall
continue until such reserve balance reaches 50% of a WOFIE’s registered
capital.  The general reserve can only be utilized to offset prior
years' losses or as additional paid-in capital.  No distribution of
the remaining general reserve shall be made other than upon liquidation of the
PRC Subsidiary.
 
 No after
tax profit has been appropriated to the general reserve in respect of the six
months ended June 30, 2010 and 2009, as the transfers are to be made based on
the PRC Subsidiary’s statutory financial statements at the completion of its
fiscal year.
 F-20
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share amounts)
 
 9.
              SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW
INFORMATION
 
 Six
      months ended
                      June
      30,2010
                    
                    
                    2009(unaudited)
                    
                    
                    (unaudited)US$
                    
                    
                    US$Cash
      (refund) paid for:Interest
      expense
                    
                    
                    391
                    
                    
                    
                    302Income
      taxes
                    
                    
                    (34
                    )
                    
                    
                    190
 
 
 10.
              SHARE-BASED
      PAYMENT
 
 In April
2005, the board and stockholders of the Company approved the Wako Logistics
Group, Inc. 2005 Stock Incentive Plan (the “Plan”).  The Plan, which
is effective until April 19, 2015, provides for awarding stock options, stock
appreciation rights and restricted stock to its officers, employees, directors
and consultants, as well as to officers, employees, directors and consultants
who provide services to any of the Group’s subsidiaries or
affiliates.  The Plan is administered by our board, provided that the
board may appoint a committee to administer the Plan.  At the
inception of the Plan, 4,000,000 shares of common stock were approved for the
issuance of awards under the Plan, which amount shall be automatically increased
(but not decreased) to 20% of the total number of the Company’s shares of common
stock issued and outstanding on January 1st of each year beginning on January 1,
2006.  Based on shares outstanding as of January 1, 2010, the number
of shares reserved under the Plan is 6,280,019.
 
 In
general, stock options awarded under the Plan vest over three years and expire
in a maximum of ten years from their effective dates.  However, the
Plan permits the board to grant options with varying terms, such as changing the
vesting period, the term and/or exercise price.  Once the board, under
provisions of the Plan, grants an option, the Company will estimate the fair
value of the option, and compensation expense will be recognized over the
vesting period of the option.
 
 Effective January 15, 2007, the board approved and awarded
stock options to three employees permitting them to purchase an aggregate of
20,000 shares of the Company’s common stock.  The vesting period for
the January 2007 options is 3 years, and these options are now fully
vested.
 
 Effective
January 8, 2008, the board approved and awarded stock options to an employee for
the purchase of 25,000 shares of the Company’s common stock.  The
vesting period for the January 2008 options is 3 years.
 
 Effective
December 1, 2008, the board approved and awarded stock options to an employee
for the purchase of 150,000 shares of Company’s common stock.  The
vesting period for December 2008 options is 2 years. The options lapsed upon the
termination of employment of this employee during 2009.
 F-21
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share
amounts)
 10.
              SHARE-BASED
      PAYMENT (CONTINUED)
 
 The
Company accounts for stock-based compensation in accordance with FASB ASC 718,
Compensation – Stock Compensation.  Under ASC 718, compensation
expense related to the fair value of stock options charged to the consolidated
statement of operations for the six months ended June 30, 2010 and 2009, was $1
and $7, respectively.  As of June 30, 2010, and December 31, 2009, the
future compensation expense related to non-vested options totaled $1 and $2, and
was expected to be recognized over 6 months and 12 months,
respectively.  The total intrinsic value of the options outstanding
and options exercisable as of June 30, 2010, and December 31, 2009, was
zero.  No tax benefit was recognized for the stock option expense
recorded for the six months ended June 30, 2010 and 2009.
 
 The
      Company estimates the fair value of stock options using the Black-Scholes
      option pricing model, with the following
  assumptions:
 
 Options granted
      onAugust
      1,
                        2005
                      
                      
                      January
      15,
                        2007
                      
                      
                      January
      8,
                        2008
                      
                      
                      December
      1,
                        2008Risk-free
      interest rate per annum
                      
                      
                      4.60
                      %
                      
                      
                      4.60
                      %
                      
                      
                      3.59
                      %
                      
                      
                      0.63
                      %Expected
      life
                      
                      2
      years
                      
                      
                      3
      years
                      
                      
                      3
      years
                      
                      
                      2
      yearsExpected
      volatility (Note
      #)
                      
                      
                      45.00
                      %
                      
                      
                      57.79
                      %
                      
                      
                      46.00
                      %
                      
                      
                      5.03
                      %Expected
      dividend yield
                      
                      
                      0.00
                      %
                      
                      
                      0.00
                      %
                      
                      
                      0.00
                      %
                      
                      
                      0.00
                      %Post
      vesting terminations
                      
                      No
                      
                      
                      No
                      
                      
                      No
                      
                      
                      NoWeighted
      average grant-date fair
                        value(per
      share)
                      
                      $
                      0.28
                      
                      
                      $
                      1.22
                      
                      
                      $
                      0.23
                      
                      
                      $
                      0.06
 Note:
 
 #:
              The
      expected volatility is based on the underlying share price of WLG’s shares
      and a comparison of the volatility of the share prices of peer
      companies.
 F-22
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share
amounts)
 10.
              SHARE-BASED
      PAYMENT (CONTINUED)
 
 The
following table sets forth the outstanding options granted under the
Plan:
  Shares
                                
                                
                                Weighted
      ave. exercise price
                                
                                
                                Weighted
      ave. remaining contractual term (years)Outstanding
      at April 30, 2005 (inception of Plan)
                                
                                
                                -
                                
                                
                                
                                -Granted
      in 2005
                                
                                
                                200,000
                                
                                
                                
                                1.00Outstanding
      at December 31, 2005
                                
                                
                                200,000
                                
                                
                                
                                1.00
                                
                                
                                
                                9.58Granted
      in 2007
                                
                                
                                20,000
                                
                                
                                
                                2.85Outstanding
      at December 31, 2007
                                
                                
                                220,000
                                
                                
                                
                                1.17
                                
                                
                                
                                7.71Granted
      in 2008
                                
                                
                                175,000
                                
                                
                                
                                0.61Outstanding
      at December 31, 2008
                                
                                
                                395,000
                                
                                
                                
                                0.92
                                
                                
                                
                                8.07Forfeited
      in 2009
                                
                                
                                (150,000
                                )
                                
                                
                                0.60Outstanding
      at December 31, 2009
                                
                                
                                245,000
                                
                                
                                
                                1.12
                                
                                
                                
                                5.95Outstanding
      at June 30, 2010
                                
                                
                                245,000
                                
                                
                                
                                1.12
                                
                                
                                
                                5.45Exercisable
      at June 30, 2010
                                
                                
                                236,167
                                
                                
                                
                                1.13
                                
                                
                                
                                5.37
 
 
 11.
                FAIR
      VALUE DISCLOSURES
 
 The
carrying value of cash and cash equivalents, restricted cash, trade receivables,
deposits, prepayments and other current assets, prepaid tax, trade payables,
other accrued liabilities, amounts due to directors, bank overdraft and bank
loans contained in the consolidated balance sheet approximates fair
value.
 F-23
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share
amounts)
 12.
              SEGMENTS
      OF THE BUSINESS
 
 (a)
              Business
      segments
 
 The Group
operates mainly in three business segments, being the provision of (i) air
forwarding, (ii) sea forwarding and (iii) customs brokerage
services.  The Group’s operations by air, sea and customs brokerage
services are summarized in the following table:
 
 (i)
              During
      the three months ended June 30, 2010 and 2009
  (unaudited)
 
 Air
      forwarding
                
                
                Sea
      forwarding
                
                
                Customs
      brokerage
                
                
                TotalThree
      months ended June 30
                
                
                Three
      months ended June 30
                
                
                Three
      months ended June 30
                
                
                Three
      months ended June 302010
                
                
                2009
                
                
                2010
                
                
                2009
                
                
                2010
                
                
                2009
                
                
                2010
                
                
                2009US$
                
                
                US$
                
                
                US$
                
                
                US$
                
                
                US$
                
                
                US$
                
                
                US$
                
                
                US$Revenue
                
                
                15,572
                
                
                
                4,922
                
                
                
                18,375
                
                
                
                14,130
                
                
                
                12,550
                
                
                
                10,859
                
                
                
                46,497
                
                
                
                29,911Costs
      of forwarding/customs
                
                
                (13,574
                )
                
                
                (3,747
                )
                
                
                (14,937
                )
                
                
                (10,610
                )
                
                
                (11,456
                )
                
                
                (9,914
                )
                
                
                (39,967
                )
                
                
                (24,271
                )Depreciation
                
                
                (25
                )
                
                
                (15
                )
                
                
                (68
                )
                
                
                (53
                )
                
                
                (25
                )
                
                
                (20
                )
                
                
                (118
                )
                
                
                (88
                )Interest
      income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Interest
      expense
                
                
                (40
                )
                
                
                (18
                )
                
                
                (94
                )
                
                
                (26
                )
                
                
                (50
                )
                
                
                (26
                )
                
                
                (184
                )
                
                
                (70
                )Other
      segment income
                
                
                9
                
                
                
                19
                
                
                
                36
                
                
                
                62
                
                
                
                14
                
                
                
                (5
                )
                
                
                59
                
                
                
                76Other
      segment expenses
                
                
                (1,783
                )
                
                
                (1,075
                )
                
                
                (3,404
                )
                
                
                (3,186
                )
                
                
                (1,114
                )
                
                
                (1,068
                )
                
                
                (6,301
                )
                
                
                (5,329
                )Income
      tax benefit (provision)
                
                
                14
                
                
                
                (18
                )
                
                
                47
                
                
                
                (69
                )
                
                
                33
                
                
                
                9
                
                
                
                94
                
                
                
                (78
                )Segment
      income (loss)
                
                
                173
                
                
                
                68
                
                
                
                (45
                )
                
                
                248
                
                
                
                (48
                )
                
                
                (165
                )
                
                
                80
                
                
                
                151Unallocated
      parent company  expenses
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (958
                )
                
                
                (560
                )Net
      loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (878
                )
                
                
                (409
                )Property,
      plant and equipment – additions
                
                
                91
                
                
                
                14
                
                
                
                186
                
                
                
                127
                
                
                
                118
                
                
                
                77
                
                
                
                395
                
                
                
                218
 F-24
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share
amounts)
 
 
 12.
              SEGMENTS
      OF THE BUSINESS (CONTINUED)
 
 (ii)
              During
      the six months ended June 30, 2010 and 2009
  (unaudited)
 
 Air
      forwarding
                
                
                Sea
      forwarding
                
                
                Customs
      brokerage
                
                
                TotalSix
      months ended June 30
                
                
                Six
      months ended June 30
                
                
                Six
      months ended June 30
                
                
                Six
      months ended June 302010
                
                
                2009
                
                
                2010
                
                
                2009
                
                
                2010
                
                
                2009
                
                
                2010
                
                
                2009US$
                
                
                US$
                
                
                US$
                
                
                US$
                
                
                US$
                
                
                US$
                
                
                US$
                
                
                US$Revenue
                
                
                23,729
                
                
                
                9,454
                
                
                
                35,869
                
                
                
                28,607
                
                
                
                25,683
                
                
                
                22,913
                
                
                
                85,281
                
                
                
                60,974Costs
      of forwarding/customs
                
                
                (20,167
                )
                
                
                (7,307
                )
                
                
                (28,968
                )
                
                
                (22,243
                )
                
                
                (23,433
                )
                
                
                (21,280
                )
                
                
                (72,568
                )
                
                
                (50,830
                )Depreciation
                
                
                (47
                )
                
                
                (27
                )
                
                
                (130
                )
                
                
                (105
                )
                
                
                (50
                )
                
                
                (38
                )
                
                
                (227
                )
                
                
                (170
                )Interest
      income
                
                
                -
                
                
                
                -
                
                
                
                1
                
                
                
                1
                
                
                
                -
                
                
                
                -
                
                
                
                1
                
                
                
                1Interest
      expense
                
                
                (64
                )
                
                
                (32
                )
                
                
                (153
                )
                
                
                (68
                )
                
                
                (78
                )
                
                
                (51
                )
                
                
                (295
                )
                
                
                (151
                )Other
      segment income
                
                
                19
                
                
                
                32
                
                
                
                43
                
                
                
                121
                
                
                
                14
                
                
                
                (6
                )
                
                
                76
                
                
                
                147Other
      segment expenses
                
                
                (3,334
                )
                
                
                (1,994
                )
                
                
                (6,637
                )
                
                
                (6,299
                )
                
                
                (2,252
                )
                
                
                (2,030
                )
                
                
                (12,223
                )
                
                
                (10,323
                )Income
      tax benefit (provision)
                
                
                25
                
                
                
                19
                
                
                
                5
                
                
                
                (18
                )
                
                
                26
                
                
                
                57
                
                
                
                56
                
                
                
                58Segment
      income (loss)
                
                
                161
                
                
                
                145
                
                
                
                30
                
                
                
                (4
                )
                
                
                (90
                )
                
                
                (435
                )
                
                
                101
                
                
                
                (294
                )Unallocated
      parent company expenses
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,598
                )
                
                
                (1,158
                )Net
      loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,497
                )
                
                
                (1,452
                )Property,
      plant and equipment – additions
                
                
                134
                
                
                
                43
                
                
                
                288
                
                
                
                188
                
                
                
                154
                
                
                
                87
                
                
                
                576
                
                
                
                318
 
 (iii)
              As
      of  June 30, 2010 and December 31,
  2009
  Air
      forwarding
                
                
                Sea
      forwarding
                
                
                Customs
      brokerage
                
                
                TotalAt
      June 30, 2010
                
                
                At
      December 31, 2009
                
                
                At
      June 30, 2010
                
                
                At
      December 31, 2009
                
                
                At
      June 30, 2010
                
                
                At
      December 31, 2009
                
                
                At
      June 30, 2010
                
                
                At
      December 31, 2009US$
                
                
                US$
                
                
                US$
                
                
                US$
                
                
                US$
                
                
                US$
                
                
                US$
                
                
                US$(unaudited)
                
                
                
                
                
                (unaudited)
                
                
                
                
                
                (unaudited)
                
                
                
                
                
                (unaudited)Segment
      assets
                
                
                8,987
                
                
                
                5,150
                
                
                
                11,682
                
                
                
                10,122
                
                
                
                6,479
                
                
                
                7,340
                
                
                
                27,148
                
                
                
                22,612Unallocated
      assets
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                8,882
                
                
                
                9,080Total
      assets
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                36,030
                
                
                
                31,692
  F-25
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share
amounts)
 12.
                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, 2010 and 2009, analyzed by
      geographical locations:
  Three
      months ended
                              June
      30,
                            
                            
                            Six
      months ended
                              June
      30,2010
                            
                            
                            2009
                            
                            
                            2010
                            
                            
                            2009(unaudited)
                            
                            
                            (unaudited)
                            
                            
                            (unaudited)
                            
                            
                            (unaudited)%
                            
                            
                            %
                            
                            
                            %
                            
                            
                            %RevenuesAmericas
                            
                            
                            31
                            
                            
                            
                            35
                            
                            
                            
                            31
                            
                            
                            
                            37Asia
      and others
                            
                            
                            36
                            
                            
                            
                            23
                            
                            
                            
                            31
                            
                            
                            
                            22Australia
                            
                            
                            28
                            
                            
                            
                            34
                            
                            
                            
                            32
                            
                            
                            
                            32Europe
                            
                            
                            5
                            
                            
                            
                            8
                            
                            
                            
                            6
                            
                            
                            
                            9100
                            
                            
                            
                            100
                            
                            
                            
                            100
                            
                            
                            
                            100
 
 
 (c)
              The
      Group made no sales during the three months and six months ended June 30,
      2010 and 2009, which qualified as sales to a major customer (defined as a
      customer where sales to it represent 10% or more of total
      revenues).
 
 
 13.
              RECENT
      ACCOUNTING PRONOUNCEMENTS
 
 In May
2009, the FASB issued FASB ASC 855, Subsequent Events, which
provides guidance on events that occur after the balance sheet date but prior to
the issuance of the financial statements. The provisions distinguish events
requiring recognition in the financial statements and those that may require
disclosure in the financial statements and requires disclosure of the date
through which subsequent events were evaluated. The Company adopted ASC 855
since the second quarter of 2009. In February 2010, the FASB issued ASU 2010-9,
Subsequent Events, Amendments
to Certain Recognition and Disclosure Requirements, which amends FASB ASC
855, to require SEC filers to evaluate subsequent events through the date that
the financial statements are issued. However, non–SEC filers are required to
evaluate subsequent events through the date that the financial statements are
available to be issued. In addition, ASU 2010-9 exempts SEC filers from
disclosing the date through which subsequent events were evaluated. ASU 2010-9
is effective upon issuance. The adoption of the provisions did not have a
material impact on the Company’s consolidated financial statements.
 
 In
February 2010, the FASB issued ASU 2010-09, Subsequent event. This ASC
amends certain recognition and disclosure requirements to FASB ASC 855. ASU
2010-09 requires an entity that is an SEC filter or is a conduit bond obligor
for conduit debt securities that are traded in a public market to evaluate
subsequent events through the date that the financial statements are issued but
removes the requirement for an SEC filer to disclose a date in both issued and
revised financial statements. These amendments are effective upon issuance of
the final Update, except of the use of the issued date for conduit debt
obligors. That amendment is effective for interim or annual periods ending after
June 15, 2010. The adoption of this ASU is not expected to have a material
impact on the Group’s financial statements.
 F-26
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
six months ended June 30, 2010 and 2009
 (Dollars
in thousands except share data and per share
amounts)
 
 13.
              RECENT
      ACCOUNTING PRONOUNCEMENTS
(CONTINUED)
 
 In March 2010, the FASB issued ASU
No. 2010-11, Derivatives
and Hedging. This ASU amends Subtopic 815-15, scope exception related to
embedded credit derivatives. The adoption of ASU 2010-11 did not have a material
impact on the Group’s results of operations or financial
position.
 
 In April
2010, the FASB issued ASU 2010-13, Compensation – Stock
Compensation. This ASC provides amendments to FASB ASC 718 to clarify
that an employee share-based payment award with an exercise price denominated in
the currency of a market in which a substantial portion of the entity’s equity
securities trade should not be considered to contain a condition that is not a
market, performance, or service condition. As a result, an entity would not
classify such an award as a liability if it otherwise qualifies as equity. The
amendments are effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2010. The adoption of this ASU
is not expected to have a material impact on the Group’s financial
statements.
 
 In April
2010, the FASB issued ASU 2010-18, Receivables. The ASC provides amendments to
FASB ASC 310 As a result, modifications of loans within a pool under the ASC do
not result in the removal of those loans from the pool even it the modifications
of those loans would otherwise be considered a troubled debt restructuring.
Effective for modifications of loans accounted for within pools under Subtopic
310-30 occurring in the first interim or annual period ending on or after July
15, 2010. The amendments are to be applied prospectively. Early application is
permitted. The adoption of this ASU is not expected to have a material impact on
the Group’s financial statements.
 
 In
January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair
Value Measurements. This ASU amends FASB ASC 820 to require a number of
additional disclosures regarding fair value measurements. Specifically, this ASU
requires entities to disclose: (1) the amount of significant transfers between
Level 1 and Level 2 of the fair value hierarchy and the reasons for these
transfers; (2) the reasons for any transfers in or out of Level 3; and (3)
information in the reconciliation of recurring Level 3 measurements about
purchases, sales, issuances and settlements on a gross basis. Except for the
requirement to disclose information about purchases, sales, issuances, and
settlements in the reconciliation of recurring Level 3 measurements on a gross
basis, which is effective for fiscal years beginning after December 15, 2010,
all the amendments to FASB ASC 820 made by this ASU are effective for interim
and annual reporting periods beginning after December 15, 2009. The adoption of
this ASU is not expected to have a material impact on the Group’s financial
statements.
 
 
 14.
              SUBSEQUENT
      EVENTS
 
 On July
6, 2010, the bank that provides a $3.0 million revolving credit facility
for the Group’s US operations amended its loan agreement to increase the credit
facility by $1.0 million to a face amount of $4.0 million.  In
consideration of being granted the additional credit of $1.0 million, the Group
paid an origination fee equal to 1% of the increase and also paid all of the
banks legal fees in connection with amending the loan
agreement.  Other than increasing the loan facility by $1.0
million, no other changes were made to the loan agreement.





F-27
 
  Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations





General





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





WLG's
business is conducted by its operating subsidiaries, which, as of June 30, 2010,
included the following entities: Wako Express (HK) Co. Ltd. (“WEHK”), Wako Air
Express (HK) Co. Ltd. (“WAE”), Wako Express (China) Co. Ltd. (“WE China”), Asean
Cargo Services Pty Limited (“Asean”), WLG (UK) Limited (“WLG (UK)”) and World
Commerce Services, LLC, (“WCS”).





WLG was
incorporated in Delaware on December 2, 2003, under the name Wako Logistics,
Inc., and, in January 2004, changed its name to Wako Logistics Group, Inc. In
December 2007, we changed our name to WLG Inc.  Under our certificate
of incorporation, we were initially authorized to issue 100 million shares of
common stock, par value $0.001 per share.  On the date of our first
name change, we reduced the number of authorized shares to 60 million, of which
55 million shares were designated as common stock, and 5 million shares were
designated as blank check preferred stock.   Immediately
following the formation of WLG, Mr. Christopher Wood (“Mr. Wood”) became our
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.  In two transactions
occurring on February 8, 2010, and May 11, 2010, Mr., Wood sold a sufficient
number of his shares of WLG’s common stock to Jumbo Glory Ltd. ("Jumbo"), a Hong
Kong based private company, to allow it to acquire 51% of WLG’s common stock.
Effective with the second transaction that was completed on May 11, 2010, Jumbo
became the majority shareholder of WLG.





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




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





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




On April
1, 2005, we completed the acquisition of all of the voting interests in Kay
O'Neill (USA) LLC, an Illinois limited liability company.  Kay O'Neill
operated a US based logistics business, which primarily served US customers by
providing services similar to those offered by the Group in Asia and
elsewhere.  At the time of the acquisition, Kay O'Neill had only one
office in the US, which was in Des Plaines, Illinois.  As part of the
process of creating brand identity for the Group in the United States, Kay
O'Neill, on June 29, 2005, changed its name to WLG (USA) LLC and began
immediately to operate as WLG (USA).   In June of 2005, WLG (USA)
opened an office in Taylor, Michigan.  As of July 1, 2010, WLG (USA)
was merged into and with WCS.




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









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




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





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





On
December 1, 2006, we acquired all of the voting shares of MSA and its
wholly-owned subsidiary, Sea Systems, (“MSA Group”). MSA, which was incorporated
on May 15, 1979, in Washington, provides customs brokerage and freight
forwarding services to its customers.  Sea Systems, incorporated on
February 26, 1991, in Washington, is a non-asset based freight forwarder and
provided air and sea freight forwarding and related logistics services to its
customers.  The MSA Group mainly serves customers that ship products
from Asia to the West Coast of the U.S. for onward shipment to locations
throughout the country.   Historically, the business of the MSA
Group had been more focused on its customs brokerage practice rather than on its
freight forwarding operations.  Prior to its acquisition by WLG, the
MSA Group and WLG had not worked together.  As of the end of 2008, all
of the activities of Sea Systems had been assumed by MSA, and, as of December
31, 2009, MSA was merged into and with WCS.





Effective
July 31, 2007, WLG acquired all of the membership interests of WCS in exchange
for WLG common stock and cash.  WCS, incorporated in Illinois in
January 2004, is the successor to a company of the same name, which began
business in 1976.  Like its predecessor, WCS is a non-asset based
freight forwarding company and provides a full range of air and sea freight
forwarding, logistics and customs brokerage services.  It serves a
wide range of customers that primarily import products by sea from Asia, with a
heavy emphasis on shipments from China.  In addition to its head
office in Schaumburg, Illinois, WCS has offices in Long Island, New York, and
Los Angeles, California.  Prior to the acquisition, the Group and WCS
had not worked together.  As of July 1, 2010, and following its merger
with WLG (USA), WCS began to operate under the name of WLG (USA).









With the
exception of performing administrative, oversight and regulatory tasks, the
Group’s parent company, WLG Inc., carries on no other business
activities.





Overview





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





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





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





Freight
Forwarding and Value Added Services (VAS)





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





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





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





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









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





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




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




Customs
Brokerage Operations





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





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





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









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





Global
Agency Network





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





At the
latest count, we work with over 600 overseas agents which have offices in
strategic cities around the world.  As a result, we may be represented
by more than one agent in many cities, and we do not generally need to rely on a
single agent in any one city.




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




Results
of Operations





THREE
MONTHS ENDED JUNE 30, 2010 COMPARED WITH THREE MONTHS ENDED JUNE 30,
2009.




Results
of Operations





Group
revenues for the three months ended June 30, 2010, increased by about $16.59
million, from approximately $29.91 million to $46.50 million or 55%, when
compared with the same period in 2009.   Our Hong Kong
based-operations reported increased revenues of $6.55 million, and revenues
from our China offices increased by $3.57 million.  Our US operations
reported a combined increase in revenues of $4.00 million, and Asean’s revenues
grew by $2.64 million.  Revenues in our UK operations declined by
$0.19 million.





Gross
profit for the Group increased from $5.64 million for the three months ended
June 30, 2009, to $6.53 million for the same period in 2010, for an increase of
$0.89 million, or about 16%. The increase is primarily due to higher
volumes of freight shipped by our customers.  Of this increase in
gross profit, approximately $0.41 million is attributable to our Hong Kong
operations, about $0.22 million is from our offices in China, roughly $0.27
million is from our US operations and $0.24 million is from
Asean.  Gross profit in the UK fell by $0.25 million in this quarter
compared to the second quarter of 2009.









The
Group's gross margin declined from 18.9% for the three months ended June 30,
2009, to 14.0% for the same period in 2010.  The decrease in our gross
margin is primarily due to increased freight rates in all of our markets
for both sea and air shipments. As freight rates increase, our gross margin will
fall because the gross profit we earn per shipment is measured against higher
revenues.  In 2010, freight rates for both sea and air shipments have
increased significantly over rates in 2009.




Total
operating expenses increased to about $7.32 million for the three months ended
June 30, 2010, as compared to approximately $5.90 million for the same period in
2009, for an increase of $1.42 million.  Of the total growth in
operating expenses, approximately $0.81 million is attributable to compensation
expense which has increased primarily because of a net increase in
headcount.  Total compensation expense for the second quarter of 2010
was $4.75 million, which compares to $3.94 million at the end of the second
quarter of 2009. The Group had about 339 employees as of the end of June 2009,
and this number has grown to about 374 persons as of June 30, 2010. Most of
the additional headcount is in Hong Kong, China, Australia and the parent
company.  On a quarter to quarter comparison, the headcount for our US
operations declined by 20 persons.  Additions to the parent company were
for management personnel, and the salaries of these individuals are generally
higher and account for a greater proportion of the overall increase in
compensation expense.  Other selling and administrative costs
increased by approximately 37% from $1.72 million to $2.35 million, which, when
combined with the increase in personnel costs, resulted in a total increase of
approximately $1.44 million in operating costs, not including amortization and
depreciation.  Amortization and depreciation expense decreased from
$0.25 million to $0.23 million.  Most of this reduction relates to a
decrease in the amortization for WCS’s customer list.  In 2009, we
recorded a $0.72 million impairment charge to reflect a decline in the value of
WCS’s customer list, and this has resulted in less monthly amortization expense
for this asset.  SeeOther Operating Expenses  below.




After recording
a benefit for income taxes, the Group posted a net loss of $0.88
million for the three months ended June 30, 2010, compared to a net loss of
$0.41 million for the same period in 2009.   Hong Kong and China’s
operations reported a combined net income of $0.37 million for the three months
ended June 30, 2010, compared to net income of $0.37 million for the same period
in 2009, resulting in no change from quarter to quarter.  Our US
operations recorded a combined net loss of $0.07 million for the three months
ended June 30, 2010, compared to a net loss of $0.31 million for the same period
in 2009.   Asean reported a net loss of $0.09 million for the
three months ended June 30, 2010, compared to net income of $0.13 million for
the same period in 2009.  WLG (UK) reported a net loss of $0.12
million for the three months ended June 30, 2010, compared to a net loss of
$0.05 million for the same period in 2009.  The parent company’s loss
increased to $0.96 million (before allocation of expenses to the operating
companies) for the three months ended June 30, 2010, compared to $0.56 million
for same period in 2009.  Most of the increase for the parent company
is due to higher salaries for management personnel that joined in the Group in
January and March of 2010 and to a one-time charge for investment banking
services.




Segment
Information





Air freight
operations:  Revenues from our air freight operations increased
from $4.92 million for the three months ended June 30 2009, to about $15.6
million for the same period in 2010, for an increase of $10.68
million.  Our Hong Kong and China operations reported a combined
increase in revenues of $8.23 million, increasing from $2.95 million for the
three months ended June 30, 2009, to revenues of $11.18 million for the same
period in 2010.  In addition, our US air freight
revenues  increased by $2.52 million, compared to the same period in
2009.  Our remaining subsidiaries reported a net decrease of
approximately $0.10 million in their air freight revenues for the three months
ended June 30, 2010, compared to the same period in 2009.




Cost of
sales for our air freight operations increased by $9.82 million from $3.75
million for the three months ended June 30, 2009, to $13.57 million for the same
period in 2010, mainly as a result of an increase in the volumes of cargo
shipped and to significant increases in rates charged by the
airlines.





The
Group’s gross profit margin for its air freight business decreased from 23.9%
for the three months ended June 30, 2009, to 12.8% for the same period in
2010.  All of our operations, except those in the US, experienced
large declines in the gross margins for air their freight business, which is
mainly attributable to the increase in shipping rates in 2010 over
2009.









Segment
overhead for our air freight operations was $1.11 million for the three months
ended June 30, 2009, which compares to $1.83 million for the same period in
2010.  Our operating costs increased in order to handle the higher volumes
of freight shipped in 2010 compared to 2009, and to compensation costs for new
personnel added to our offices in Hong Kong and China.




Net
segment income for our air freight operations is approximately $0.17 million for
the three months ended June 30, 2010, compared to net income of $0.07 million
for the same period in 2009.  For the three months ended June 30,
2010, our Hong Kong and China air freight operations reported a combined net
income of approximately $0.25 million, compared to combined net income of
approximately $0.19 million for the same period in 2009, for an increase of
$60,000.  In addition, our UK and USA operations posted net
losses of $35,000 and $24,000, respectively, for the second quarter of 2010,
compared to net losses of $39,000 and $15,000 for the same period in
2009.  Asean  reported a net income of $19,000 for the three
months ended June 30, 2010, compared to a net income of $67,000 for the same
period in 2009.




Sea freight
operations:  Revenues from our sea freight operations increased
from approximately $14.13 million in the three months ended June 30, 2009, to
$18.38 million for the same period in 2010, for an increase of $4.25
million, or about 30%.  Our China and Hong Kong operations
reported increases in revenues of $0.69 million and $1.20 million,
respectively.  In addition, Asean posted an increase in revenues of
$1.84 million. Our US operations reported a net increase in their sea freight
revenues of approximately $0.71 million, while revenues in our UK business
declined by about $0.20 million.





Cost of
sales for our sea freight operations increased from $10.61 million for the
second quarter of 2009 to $14.94 million for the same period in 2010, due to
an increase in the volumes of cargo shipped and significant increases
in shipping rates.




The
Group’s gross profit margin decreased from 24.9% for the three months ended June
30, 2009 to 18.7% in 2010.




Total
segment overhead attributable to our sea freight business increased by $0.21
million, or about 6.5%, from approximately $3.27 million for the three months
ended June 30, 2009, to $3.48 million for the same period in 2010.





Our sea
freight operations posted a net loss of approximately $44,000 for the three
months ended June 30, 2010, compared to net income of $0.25 million for the same
period in 2009.  In the second quarter of 2010, WEHK and WE China
reported net incomes of $18,000 and $97,000, respectively, which compares to net
incomes of $82,000 and $101,000, respectively, for the same period in
2009.  In addition, Asean and our US operations
posted  net losses of $51,000 and $24,000, respectively, for the three
months ended June 30, 2010, compared to a net income of $0.29 million and a net
loss of $0.22 million for the same period in 2009.  WLG (UK) reported
a net loss of $84,000 for the second quarter of 2010, compared to a net income
of $2,000 for the same period in 2009.




Customs brokerage
services:  Asean, WLG (UK) and WCS each have a division that
provides customs brokerage services.  For the three months ended June
30, 2010, revenues from customs brokerage services totaled approximately $12.55
million, compared to $10.86 million for the same period in 2009, for an increase
of about $1.69 million.  Direct and administrative costs for this
segment totaled about $12.60 million, producing a net loss of $48,000 for the
three months ended June 30, 2010, compared to a net loss of $0.17 million for
the same period in 2009.   For the three months ended June 30, 2010,
WCS and Asean  reported  net losses of $26,000 and $22,000,
respectively, compared to net losses of $70,000 and $88,000,
respectively, for same period last year.   WLG (UK)’s customs
practice broke even for the three months ended June 30, 2010, and reported a net
loss of about $10,000 for the same period in 2009.





Other
Operating Expenses





Salaries
and allowances




Salaries
and related expenses increased by $0.80 million, from $3.94 million for the
three months ended June 30, 2009 to $4.74 million for the same period in
2010.  Compensation expense increased in all of our operating
locations, including our parent company, with the exception of the US and the
UK.  The increase in salary costs for our operations in Asia is due to
salary increases granted in 2010 and to the team of over 20 persons that we
added during the final quarter of 2009 and the first six months of
2010.  Parent company salary costs increased as a result of adding two
management personnel.  Asean’s compensation expense increased due to
additions to its warehouse staff, salary increases given to staff and a
strengthening of the Australian currency against the US
dollar.   Salary costs in our US and UK operations declined due
to a reduction in headcount and a change in the mix of
employees.





Rent




Rent
expense for our facilities remained the same, being about $0.45 million for the
periods ended June 30, 2009 and June 30, 2010.    There were
rent increases and decreases in each of our operating locations when comparing
the second quarter of 2009 to 2010, but all of the amounts were small and tended
to offset one another.





Other
selling and administrative expenses





Other
SG&A expense totaled about $1.89 million for the three months ended June 30,
2010, compared to $1.27 million for the same period in 2009, for an increase of
$0.62 million.  Approximately $0.27 million of the increase was
incurred by the Group’s parent company, with about $0.21 million of
that amount being attributable to legal and financial service
fees.  Asean’s legal fees for the quarter ended June 30, 2010, were
higher by about $64,000 than the legal fees incurred for the same quarter in
2009. The remaining increase in SG&A expenses was incurred to cope with the
growth in our business during the second quarter of 2010.




Depreciation
and Amortization




For the
three months ended June 30, 2010, depreciation expense for property, plant and
equipment was $0.12 million, compared to $88,000 for the same period in 2009,
for an increase of $32,000.  Asean acquired new office equipment and
furniture and fixtures which increased its depreciation expense by about
$19,000.





Amortization
expense is attributable to the customer lists acquired in the acquisitions of
WLG (USA), Asean, WLG (UK) and WCS.  In connection with the
acquisition of WLG (USA), we recorded a customer list asset of $0.51 million,
which is now being amortized on a straight-line basis over 4
years.  Asean's customer list was valued at $1.56 million and is being
amortized on a straight-line basis over 8 years.  WLG (UK)'s customer
list was valued at $0.83 million and was being amortized over 5
years.  In 2009, WLG (UK)’s customer list became fully amortized due
to prior amortization and a reduction in carrying value of $0.60 million,
resulting from the cancellation of an earn-out arrangement.  WCS’s
customer list was valued at $2.84 million and is being amortized over 9
years.   In addition, the Group periodically reviews the book value
and estimated useful lives of its intangible assets to ensure that the rate of
amortization is consistent with the expected pattern of economic benefits to be
received from its intangible assets.  This review for 2009 resulted in
the Group recognizing an impairment charge of $0.72 million to WCS’s customer
list.  In 2008, a similar review indicated that the remaining useful
lives for the intangible assets of WLG (USA) and WLG (UK) were 4 years and 5
years, respectively.  Due to this review, the useful lives of the
intangible assets of WLG (USA) and WLG (UK) were extended from 1.25 years to 4
years and from 3 years to 5 years, respectively, effective from January 1,
2009. For the three months ended June 30, 2010, amortization expense
totaled $0.11 million, and is attributable to WLG (USA), Asean and WCS in the
approximate amounts of $8,000, $49,000 and $51,000,
respectively.  Amortization expense for the three months ended June
30, 2009, was $0.16 million and related to WLG (USA), Asean, WLG (UK) and WCS in
the approximate amounts of $8,000, $49,000, $24,000 and $79,000,
respectively.









Interest
Expense




Interest
expense grew from $0.14 million for the three months ended June 30, 2009, to
$0.24 million for the same period in 2010, for an increase of about $0.10
million.  Asean’s interest expense was higher by $34,000, mainly as a
result of  increases in its bank borrowings and related interest
rates, as well as a strengthening of Australia's currency.  WCS’s
interest expense increased from $20,000 for the three months ended June 30,
2009, to about $91,000 for the same period in 2010.  The increase in
WCS’s interest expense is due to higher bank borrowing, higher interest rates
and other charges attributable to its new loan facility that it obtained at the
end of February 2010.  In addition, WEHK and WAE obtained new bank
loans at the beginning of 2010 and incurred interest expense of $8,000 for this
new debt. Interest expense for the director’s loans and Series B Preferred Stock
decreased from $73,000 for the three months ended June 30, 2009, to $57,000 for
the same period in 2010, as one of the loans was fully repaid in
2009.  All director loans and the Series B Preferred Stock through
June 1, 2010, carried an interest and dividend rate of 12% per
annum.  Subsequent to that date, the interest rate on the director’s
loan became nil, and the dividend rate on the Series B Preferred Stock was
reduced to 8%.




Other
income / expense





Other
income for the three months ended June 30, 2010, totaled $59,000, compared to
other income of $76,000, for the same period in 2009, for a decrease of
$17,000.  The decline is mainly attributable to a decrease in
exchanges gains reported by our operating companies.





Provision
for Income Taxes





An income
tax benefit of $94,000 was recorded for the three months ended June 30, 2010,
compared to income tax expense of about $78,000 provided for the same period in
2009.  Income tax of $16,000 and $6,000, respectively, was provided on
WEHK and WAE’s combined net incomes of $0.14 million, for an effective tax rate
of 16.5%.   WLG (UK) reported a net loss of $0.19 million and recorded
no tax benefit. WE China recorded a net income of only $20,000 and was not
required to record a tax provision. Asean  reported a net loss of
$0.43 million and recorded an income tax benefit of $0.13 million. The US
operations of WLG (USA) and WCS are included in a US consolidated federal income
tax return with the Group's parent company, and, together, these companies
reported a consolidated pre-tax loss of approximately $0.52 million, which
included amortization expense of $0.11 million that is not deductible for income
tax purposes.  No federal tax benefit was provided for the
US losses, but the US companies did record an expense for state income tax of
about $10,000.








SIX MONTHS ENDEDJUNE 30,
2010COMPARED
WITH SIX MONTHS ENDEDJUNE 30, 2009.





Results
of Operations





Group
revenues for the six months ended June 30, 2010, increased by about $24.31
million from approximately $60.97 million to $85.28 million, or 40%, when
compared with the same period in 2009,   Our Hong Kong
based-operations reported increased revenues of $8.21
million.  Revenues from our China offices increased by $5.01
million.  Our US operations reported a combined increase in revenues
of $4.17 million and Asean’s revenues grew by $7.28 million.  Revenues
in our UK operations declined by $0.36 million.





Gross
profit increased from $10.14 million for the six months ended June 30, 2009, to
$12.71 million for the same period in 2010, for an increase of $2.57 million, or
about 25%. The increase is primarily due to higher volumes of freight
shipped by our customers.  Of this increase in gross profit,
approximately $0.53 million attributable to our Hong Kong operations, about
$0.24 million is from our offices in China, $0.53 million is from our US
operations and $1.72 million is from Asean.  Gross profit in the UK
fell by $0.45 million in the first half of 2010, when compared to the same
period in 2009.





The
Group's gross margin declined from 16.6% for the six months ended June 30, 2009,
to 14.9% for the same period in 2010.  The decrease in our gross
margin is due mainly to increased freight rates in all of our markets for
both sea and air shipments. As freight rates increase, our gross margin will
fall because the gross profit we earn per shipment is measured against higher
revenues.  In 2010, air and sea freight rates have increased
significantly over rates in 2009.










Total
operating expenses increased to about $13.92 million for the six months ended
June 30, 2010, as compared to approximately $11.50 million for the same period
in 2009, for an increase of $2.42 million.  Of the total growth in
operating expenses, approximately $1.57 million is attributable to compensation
expense which increased because of a net increase in headcount.  Total
compensation expense for the first half of 2010 was $9.25 million, which
compares to $7.68 million for the first half of 2009. The Group had about 339
employees as of the end June 2009, and this number has grown to about 374
persons as of June 30, 2010.  Most of the additional headcount is in
Hong Kong, China, Australia and the parent company.  Compared to the
first half of 2009, the headcount for our US operations declined by 20
persons.  Additions to the parent company were for management
personnel, and the salaries of these individuals are generally higher and
account for a greater proportion of the overall increase in compensation
expense.  Other selling and administrative costs increased by
approximately 27% from $3.33 million to $4.23 million, which, when combined with
the increase in personnel costs, resulted in a total increase of approximately
$2.47 million in operating costs, not including amortization and
depreciation.  Amortization and depreciation expense decreased from
$0.49 million to $0.44 million.  Most of this reduction relates to a
decrease in the amortization for WCS’s customer list.  In 2009, we
recorded a $0.72 million impairment charge to reflect a decline in the value of
WCS’s customer list, and this has resulted in less monthly amortization expense
for this asset.  SeeOther Operating Expenses below.




After the
provision of a benefit for income taxes, the Group recorded a net
loss of $1.50 million for the six months ended June 30, 2010, compared to a net
loss of $1.45 million for the same period in 2009.   Hong Kong and
China’s operations reported a combined net income of $0.50 million for the six
months ended June 30, 2010, compared to net income of $0.71 million for the same
period in 2009, for a decrease of $0.21 million.  Our US operations
recorded a combined net loss of $0.23 million for the six months ended June 30,
2010, compared to a net loss of $0.80 million for the same period in
2009.  Asean reported a net income of $62,000 for the six months ended
June 30, 2010, compared to net income of $0.20 million for the same period in
2009.  WLG (UK) reported a net loss of $0.22 million for the six
months ended June 30, 2010, compared to a net loss of $4,000 for the same period
in 2009.  The parent company’s loss increased to $1.60 million (before
allocation of expenses to the operating companies) for the six months ended June
30, 2010, compared to $1.16 million for same period in 2009.  Most of
the increase for the parent company is due to higher salaries for management
personnel that joined in the Group in January and March of 2010 and to a
one-time charge for investment banking services.




Segment
Information





Air freight
operations:  Revenues from our air freight operations increased
from $9.45 million for the first half of 2009 to about $23.73 million for the
same period in 2010, for an increase of $14.28 million.  Our Hong Kong
and China operations reported a combined increase in revenues of $10.50 million,
increasing from $5.92 million for the six months ended June 30, 2009, to $16.42
million for the same period in 2010.  In addition, our US air freight
revenues increased by $3.54 million, compared to the same period in 2009. Our
remaining subsidiaries reported a net increase in their air freight revenues of
approximately $0.23 million for the first six months of 2010, compared to the
same period in 2009.




Cost of
sales for our air freight operations increased by $12.86 million from $7.31
million for the six months ended June 30, 2009, to $20.17 million for the same
period in 2010, mainly as a result of an increase in the volumes of cargo
shipped and significant increases in  rates charged by the
airlines.





The
Group’s gross profit margin for its air freight business decreased from 22.7%
for the six months ended June 30, 2009, to 15.0% for the same period in
2010.  All of our operations, except those in the US, experienced
large declines in the gross margins for air their freight business, which is
mainly attributable to the increase in shipping rates in 2010 over
2009.





Segment
overhead for our air freight operations was $2.00 million for the six months
ended June 30, 2009, which compares to $3.40 million for the same period in
2010.  Our operating costs increased in order to handle the higher volumes
of freight shipped in 2010 compared to 2009, and to the compensation costs for
new personnel added to our offices in Hong Kong and China









Net
segment income for our air freight operations is approximately $0.16 million for
the six months ended June 30, 2010, compared to net income of $0.14 million for
the same period in 2009.  For the six months ended June 30, 2010, our
Hong Kong and China air freight operations reported a combined net income of
approximately $0.30 million, compared to combined net income of approximately
$0.32 million for the same period in 2009, for a decrease of $0.02
million.  In addition, our UK and USA operations posted net
losses of $0.10 million and $48,000, respectively, for the first half of 2010,
compared to net losses of $43,000 and $30,000 for the same period in
2009.  Asean reported a net income of $11,000 for the six months ended
June 30, 2010, compared to a net loss of $98,000 for the same period in
2009.




Sea freight
operations:  Revenues from our sea freight operations increased
from approximately $28.61 million in the six months ended June 30, 2009, to
$35.87 million for the same period in 2010, for an increase of $7.26
million, or an increase of 25%.  Our China and Hong Kong
operations reported increases in revenues of $1.16 million and $1.56 million,
respectively.  In addition, Asean posted an increase in revenues of
$5.07 million. Our US operations reported a net decrease in their sea freight
revenues of approximately $0.14 million, and revenues in our UK business
declined by about $0.39 million.





Cost of
sales for our sea freight operations increased from $22.24 million for the first
half of 2009 to $28.97 million for the same period in 2010, due to
an increase in the volumes of cargo shipped and significant increases
in shipping rates.




The
Group’s gross profit margin decreased from 22.2% for the six months ended June
30, 2009 to 19.2% in 2010.




Total
segment overhead attributable to our sea freight business increased by $0.50
million, or about 7.8%, from approximately $6.37 million for the six months
ended June 30, 2009, to $6.87 million for the same period in 2010.





Our sea
freight operations posted a net income of approximately $30,000 for the six
months ended June 30, 2010, compared to a net loss of $4,000 for the same period
in 2009.  In the first half of 2010, WEHK and WE China reported net
incomes of $86,000 and $0.11 million, respectively, which compares to net
incomes of $0.24 million and $0.16 million, respectively, for the same period in
2009.  In addition, Asean posted a net income of $34,000 for the
six months ended June 30, 2010, compared to a net income of $27,000 for the same
period in 2009.  WLG (UK) and our US operation reported net losses of
$0.12 million and $87,000, respectively, for the first half of 2010, compared to
a net income of $98,000 and a net loss of $0.52 million for the same period in
2009.




Customs brokerage
services:  Asean, WLG (UK) and WCS each have a division that
provides customs brokerage services.  For the six months ended June
30, 2010, revenues from customs brokerage services totaled approximately $25.68
million, compared to $22.91 million for the same period in 2009, for an increase
of about $2.77 million.  Direct and administrative costs for this
segment totaled about $25.77 million, producing a net loss of $90,000 for the
six months ended June 30, 2010, compared to a net loss of $0.44 million for the
same period in 2009.   For the six months ended June 30, 2010, WCS,
and UK reported net losses of $97,000 and $9,000, respectively, compared to net
losses of $0.24 million and $60,000, respectively, for same period last
year.   Asean’s customs practice posted a net income of $17,000 for
the six months ended June 30, 2010, compared to a net loss of about $0.13
million for the same period in 2009.





Other
Operating Expenses





Salaries
and allowances




Salaries
and related expenses increased by $1.57 million, from $7.68 million for the six
months ended June 30, 2009, to $9.25 million for the same period in
2010.  Compensation expense increased in all of our operating
locations, including our parent company, with the exception of the US and the
UK. Salary costs for our operations in Asia increased by about $0.61 million for
the first six months of 2010, compared to the same period in
2009.  The increase is mainly due to salary increases granted in 2010
and to salary costs attributable to the team of over 20 persons that we added
during the final quarter of 2009 and the first six months of 2010.  Parent
company salary costs increased in the first six months of 2010 by about $0.31
million over the same period last year as a result of adding two management
personnel in the first three months of 2010.  Asean’s compensation
costs in the first six months of 2010 increased by $0.98 million, when compared
to the first six months of 2009, and the increase is due to salary adjustments,
an increase in warehouse staff and a strengthening of the Australian currency
against the US dollar.  Salary costs in our US and UK operations
declined due to a reduction in headcount and a change in the mix of
employees.









Rent




Rent
expense for our facilities increased by approximately $50,000 to about $0.93
million for the six months ended June 30, 2010, compared to rent expense of
$0.88 million for the same period last year.    Asean’s rent
expense increased by about $58,000 for office and warehouse space added
during the first six months of 2010, compared to the same period in
2009. There was a small decrease in rent expense for our remaining
operations.





Other
selling and administrative expenses





Other
SG&A expense totaled about $3.30 million for the six months ended June 30,
2010, compared to $2.45 million for the same period in 2009, for an increase of
$0.85 million.  Approximately $0.26 of the increase was incurred by
the Group’s parent company, with about $0.21 million of that amount being
attributable to higher legal and financial service fees.  Asean’s
legal fees for the six months ended June 30, 2010, were higher by about $0.18
million than the legal fees incurred during the same period in 2009. All
companies in the Group, with the exception of WLG (UK), reported increases their
SG&A expenses in 2010 compared to 2009.  In general, our SG&A
expenses increased to cope with the growth in our business.




Depreciation
and Amortization




For the
six months ended June 30, 2010, depreciation expense for property, plant and
equipment was $0.23 million, compared to $0.17 million for the same period in
2009, for an increase of about $57,000.  Asean acquired new office
equipment and furniture and fixtures which increased its depreciation expense by
about $38,000 for the first six months of 2010, compared to the same period in
2009..





Amortization
expense is attributable to the customer lists acquired in the acquisitions of
WLG (USA), Asean, WLG (UK) and WCS.  In connection with the
acquisition of WLG (USA), we recorded a customer list asset of $0.51 million,
which is now being amortized on a straight-line basis over 4
years.  Asean's customer list was valued at $1.56 million and is being
amortized on a straight-line basis over 8 years.  WLG (UK)'s customer
list was valued at $0.83 million and was being amortized over 5
years.  In 2009, WLG (UK)’s customer list became fully amortized due
to prior amortization and a reduction in carrying value of $0.60 million
resulting from the cancellation of an earn-out arrangement.  WCS’s
customer list was valued at $2.84 million and is being amortized over 9
years.   In addition, the Group periodically reviews the book value
and estimated useful lives of its intangible assets to ensure that the rate of
amortization is consistent with the expected pattern of economic benefits to be
received from its intangible assets.  This review for 2009 resulted in
the Group recognizing an impairment charge of $0.72 million to WCS’s customer
list.  In 2008, a similar review indicated that the remaining useful
lives for the intangible assets of WLG (USA) and WLG (UK) were 4 years and 5
years, respectively.  Due to this review, the useful lives of the
intangible assets of WLG (USA) and WLG (UK) were extended from 1.25 years to 4
years and from 3 years to 5 years, respectively, effective from January 1,
2009. For the six months ended June 30, 2010, amortization expense totaled
$0.22 million, and is attributable to WLG (USA), Asean and WCS in the
approximate amounts of $16,000, $98,000 and $103,000,
respectively.  Amortization expense for the six months ended June 30,
2009 was $0.32 million and related to WLG (USA), Asean, WLG (UK) and WCS in the
approximate amounts of $16,000, $98,000, $49,000 and $158,000,
respectively.









Interest
Expense




Interest
expense grew from $0.30 million for the six months ended June 30, 2009, to $0.42
million for the same period in 2010, for an increase of about $0.12
million.  Asean’s interest expense was higher by $60,000, mainly as a
result of increases in its bank borrowings and interest rates as well as a
strengthening of Australia's currency against the US dollar.  WCS’s
interest expense increased from $44,000 for the six months ended June 30, 2009,
to about $113,000 for the same period in 2010.  The increase in WCS’s
interest expense is due to higher bank borrowing, higher interest rates and
other charges attributable to the new loan facility it obtained at the end
of February 2010. In addition, WEHK and WAE obtained new bank loans at the
beginning of 2010 and incurred interest expense of $14,000 for this debt.
Interest expense for the director’s loans and Series B Preferred Stock decreased
from $0.15 million for the six months ended June 30, 2009, to $0.13 million for
the same period in 2010, as one of the loans was fully repaid in
2009.  All director loans and the Series B Preferred Stock until June
1, 2010, carried an interest and dividend rate of 12% per
annum.  Subsequent to that date, the interest rate on the director’s
loan became nil, and the dividend rate on the Series B Preferred Stock was
reduced to 8%.




Other
income / expense





Other
income for the six months ended June 30, 2010, totaled $77,000, compared to
other income of $148,000 for the same period in 2009, for a decrease of
$71,000.  The decline is mainly attributable to a decrease in
miscellaneous income offset by an increase in exchanges gains.





Provision
for Income Taxes





An income
tax benefit of $55,000 was recorded for the six months ended June 30, 2010,
compared to income tax benefit of about $58,000 provided for the same
period in 2009.  Income tax of $44,000 was provided on WEHK’s income
of $0.27 million, for an effective tax rate of 16.5%.   WAE reported a
net loss of about $61,000 and recorded a tax benefit of $10,000.  WLG
(UK) reported a net loss of $0.35 million and recorded no tax
benefit.  WE China recorded a net loss of only $24,000 and was
not required to record a tax provision. Asean reported a net loss of $0.35
million and recorded an income tax benefit of $0.10 million. The US operations
of WLG (USA) and WCS are included in a US consolidated federal income tax return
with the Group's parent company, and, together, these companies reported a
consolidated pre-tax loss of approximately $0.84 million, which included
amortization expense of $0.22 million that is not deductible for income tax
purposes.  No federal tax benefit was provided for the US
losses, but the US companies did record an expense for state income tax of about
$10,000.








LIQUIDITY
AND CAPITAL RESOURCES




Our
operations used cash of approximately $2.15 million for the six months ended
June 30, 2010, compared to cash of $1.03 million provided by operations for the
same period in 2009.  During the first six months of 2010, cash was
provided by the following sources: amortization and depreciation expense of
$0.44 million; provision for bad debts of $0.11 million;  and an
increase in trade payables of $3.4 million.  Major components that used
cash for operations during the first half of 2010 include: net loss of $1.50
million; increase in trade receivables of $3.96 million; increases in deposits
and prepayments of $0.42 million; a decrease in other accrued liabilities of
$87,000; decrease in due to director of $29,000 and a decrease in income tax
payable of $0.11 million.





Net cash
provided by financing activities totaled about $2.73 million for the six months
ended June 30, 2010, compared to net cash of $1.65 million used by financing
activities for the same period in 2009.  Cash used by financing
activities in the first six months of 2009 included a decrease in bank debt of
$1.31 million; repayment of capital leases of $35,000; repayment of a director’s
loan of $0.38 million and cash dividends of $45,000 paid on preferred
stock.  Cash provided by financing activities in the six months of
2009 included a decrease in restricted cash of $0.11 million. Cash used by
financing activities for the six months ended June 30, 2010, included repayment
of a loan from a director of $30,000; repayment of capital lease obligations of
$47,000; and cash dividends of $45,000 paid on preferred stock.  Cash
provided by financing activities for the six months ended June 30, 2010,
included an increase in bank debt of $0.85 million; a decrease in restricted
cash of $50,000 and a loan of $1.0 million and the purchase of $0.98 million of
the Company’s Series C Preferred stock by the Group’s new majority
shareholder.









As of
June 30, 2010, certain banks in Hong Kong and China had issued bank guarantees
of $0.54 million to several airlines on behalf of WAE and WE
China.  With these guarantees, the airlines, in turn, grant credit
terms to WAE and WE China.  In general, payments for air freight
shipments must be made to the airlines prior to the time we receive payments
from our customers.  These guarantees are secured by cash of
approximately $0.54 million held in restricted bank
accounts.





An
Australian bank has provided a guarantee of about $0.12 million in favor of the
owner of the office premises occupied by Asean.  In addition, a UK
bank has provided a guarantee of $0.45 million to the UK Customs and Excise
Department for the benefit of WLG (UK).  In return for this guarantee,
the UK Customs and Excise Department grants credit terms to WLG
(UK).  A parent company guarantee has been given to the UK
bank.  In addition, a parent company guarantee has been given as
support for the  rental obligations related to WLG (UK)’s office and
warehouse facilities.  This latter guarantee is limited to an amount
equal to three years rent plus rates at the date the guarantee is
enforced.  As of June 30, 2010, our contingent obligation under this
guarantee was about $0.91 million, plus assessed rates.





In
January 2010, WEHK borrowed $0.32 million for use as general working capital,
and this loan is repayable in equal installments over five years. As of June 30,
2010, the outstanding balance of this loan was $0.30 million





In
December 2009, WAE borrowed $0.26 million for use as general working capital,
and this loan is repayable in equal installments over five years. As of June 30,
2010, the outstanding balance of this loan was $0.24 million





Asean has
a revolving loan facility in the face amount of approximately $3.68 million,
which is secured by, and based on, 100% and 80% of its accounts receivable,
respectively.  It also has an overdraft facility with a limit of about
$0.62 million.  At June 30, 2010, Asean's bank debt under its
revolving loan and overdraft facilities was $2.44 million and $0.58 million,
respectively, with interest rates of approximately 10.43% for the receivables
line and 9.53% for the overdraft facility.  Asean's bank, in addition
to having a charge over all of its accounts receivable, holds a first registered
mortgage over all of its remaining assets.  Asean’s overdraft
facility is guaranteed by the Group’s parent company.




During
2008, WCS had a revolving loan facility from a bank in the face amount of $3.0
million.  This facility, which was secured in part by all of the trade
receivables of WCS, MSA and WLG (USA), allowed borrowings equal to 80% of the
eligible receivables of all three companies.  The loan facility was
renewed in October 2009 in the face amount of $2.5 million, but was subsequently
reduced to $2.08 million when it was renewed in November 2009. This loan
facility expired on February 28, 2010, and was not renewed. In February
2010, WCS and WLG (USA) obtained a revolving banking facility of $3.0
million from another lender, and this new facility will expire in
February 2011. This new loan facility, which permits borrowings equal to about
78% of eligible receivables and carries a minimum interest rate of 9.5% per
annum, is secured by all of the assets of WCS and WLG (USA) and by a guarantee
from the Group’s parent company.  In addition, an origination and
commitment fee totaling 2% of the loan facility, a monthly collateral management
fee of .35% per month of the outstanding loan balance and certain other charges
are payable for this loan facility. As of June 30, 2010, our US companies
owed approximately $2.84 million to the bank.   Effective July 6,
2010, WCS’s bank amended the $3.0 million revolving loan facility to increase it
by $1.0 million to a face amount of $4.0 million.  In exchange for the
additional credit facility of $1.0 million, WCS paid an origination fee to the
bank equal to 1% of $1.0 million, and paid all of the bank’s legal fees in
connection with amending the loan agreement.





In our
past reports, we have expressed a strong intent to continue executing our
business plan, which, among other things, called for us to make strategic
acquisitions to supplement our internal growth.  In 2005, we completed
the acquisitions of three freight forwarding and logistics companies, one of
which had a customs brokerage business.  We followed this in 2006 by
acquiring two freight forwarding and customs brokerage companies.  In
July of 2007, we acquired WCS, which operates both a freight forwarding business
and customs brokerage practice.  In May of 2009, we hired
approximately 10 individuals that had previously worked with an international
freight forwarding company in New York.  Several of the new
employees have strong business connections in Asia and specialize in air-freight
shipments in the US-Asia trade lanes.  We paid no cash to hire these
individuals, but we did incur some capital costs and also added office
space to our existing branch office in New York.   Late in 2009
and during the first quarter of 2010, we added over twenty
new employees to our operations in Hong Kong and China without incurring
any outlay of funds, except for on-going salaries.  All of these
individuals previously worked for a large multi-national freight forwarding and
logistics company and have strong backgrounds in sales,
air-freight forwarding and logistics.  During the second three
months of 2010, the Group did experience operating cash shortages. To overcome
these shortages, the Group raised additional operating funds by selling
a new Series C Preferred Stock and a 6% note to Jumbo Glory Ltd., its
majority shareholder, in the amounts of $1.0 million and $1.0 million,
respectively.  Based on its expected operating needs for the remainder
of the year, the Group anticipates that it will need to raise additional funds
during the second six months of 2010 by way of issuing new debt, bringing in new
equity, selling assets or a combination of all three.  With the
additional cash resources, we intend to focus on growing our existing business
and improving our profitability.









Our
approximate contractual cash obligations as of June 30, 2010, for the periods
shown are set forth in the table below and are expected to equal approximately
$0.54 million per month over the following twelve months.


Payments Due by Period (in thousands)Contractual Obligations
                  
                  Total
                  
                  
                  Less than
                    1year
                  
                  
                  1-3 years
                  
                  
                  4-5 years
                  
                  
                  After 5
                    yearsShort-term debt
                  
                  $
                  544
                  
                  
                  $
                  544
                  
                  
                  $
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Facilities
      rental and equipment leases
                  
                  $
                  7,113
                  
                  
                  $
                  1,943
                  
                  
                  $
                  2,735
                  
                  
                  $
                  1,653
                  
                  
                  $
                  782Cargo
      space commitments
                  
                  $
                  2,625
                  
                  
                  $
                  2,625
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Redeemable
      preferred stock
                  
                  $
                  1,700
                  
                  
                  
                  —
                  
                  
                  $
                  1,700
                  
                  
                  
                  —
                  
                  
                  
                  —Total
      contractual cash obligations
                  
                  $
                  11,982
                  
                  
                  $
                  5,112
                  
                  
                  $
                  4,435
                  
                  
                  $
                  1,653
                  
                  
                  $
                  782




During
the periods ended June 30, 2010 and 2009, we have not engaged in
any:





·
            material
      off-balance sheet activities, including the use of structured finance or
      special purpose entities;·
            trading
      activities in non-exchange traded
contracts.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





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





ITEM 4. CONTROLSANDPROCEDURES





Evaluation
of Disclosure Controls and Procedures





The
Company's management, with the participation of the Company's principal
executive officer and principal financial officer, has evaluated the
effectiveness of the Company's disclosure controls and procedures (as such term
is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as Amended (the “Exchange Act”)) as of the end of the period covered by
this Quarterly Report on Form 10-Q.   In the course of such
evaluation, the principal executive and principal financial officers noted that
during the period covered by this Quarterly Report on Form 10-Q, certain
information required to be included in Current Reports on Form 8-K did not
become available on a timely basis. This was determined to be attributable to
the changes in the control of the Company and its management during this period,
and to a number of transactions connected with the change in control and in
management and to raising additional operating funds.  The Company’s
management believes it has addressed this situation.  In light of the
foregoing, and based on the evaluation by the Company’s principal executive and
principal financial officers, the Company's principal executive officer and
principal financial officer have concluded that, as of the end of such period,
the Company's disclosure controls and procedures are effective, as of the end of
the period covered by this Report on Form 10-Q, in ensuring that material
information relating to the Company required to be disclosed by the Company in
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported on a timely basis.









Changes
in Internal Control Over Financial Reporting





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





Part
II: Other Information




Item
1: Legal Proceedings





During
the three months ended June 30, 2010, there have been no material changes to
legal proceedings from those discussed in our Annual Report on Form 10-K for the
year ended December 31, 2009.





Items 1A: Risk Factors There
have been no material changes in the Risk Factors set forth in our Annual Report
on Form10-K for the year ended December 31, 2009.





Item
5.  Other Information




The Board
elected to renew its employment agreement with David Koontz, the Company’s Chief
Financial Officer for a two year period commencing as of January 1, 2010 and
ending on January 1, 2012.  A copy of Mr. Koontz’ employment agreement
was filed as Exhibit 10.9 to the Company’s Annual Report on Form 10-KSB filed
with the SEC on March 31, 2006.








Item
6. Exhibits.





Exhibits





10.21
              
              Letter
      Agreement renewing the employment agreement between David Koontz and WLG
      Inc.31.1
              
              Certification
      of the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002 (Rule15d-14(a)).31.2
              
              Certification
      of the Chief Financial Officer to Section 302 of the Sarbanes-Oxley Act of
      2002 (Rule 15d-14(a).32.1
              
              Certification
      of the Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002 (Rule
15d-14(b)).










SIGNATURES





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





WLG
      INC.Date:
      August 16, 2010
            By:
            /s/ Andrew
      JillingsAndrew
      JillingsChief
      Executive Officer,
              (
      Principal Executive Officer) rDate:
      August 16, 2010
            By:
            /s/ David
      L. KoontzDavid
      L. KoontzChief Financial Officer,
              (Principal Financial Officer and Accounting Officer)











EXHIBIT
INDEX





Exhibit
                Number
              
              Description of Exhibit10.21
              
              Letter
      Agreement renewing the employment agreement between David Koontz and WLG
      Inc.31.1
              
              Certification
      of the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002(Rule 15d-14(a)).31.2
              
              Certification
      of the Chief Financial Officer to Section 302 of the Sarbanes-Oxley Act of
      2002 (Rule15d-14(a)).32.1
              
              Certification
      of the Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002 (Rule
15d-14(b)).