**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, 2007**





**or**





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




**For
      the transition period from _____________ to _____________**





**Commission
      file number: 333-113564**





**Wako
      Logistics Group, 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)




**200
      E. Howard Avenue, Unit 232**


**Des
      Plaines, Illinois 60018**


(Address
      of principal executive offices with zip code)





**847-294-1600**


(Registrant's
      telephone number, including area code)





**N/A**


(Former
      name, former address and former


fiscal
      year, if changed since last report)





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





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





Large
                accelerated filero
            Accelerated
                filero
            Non-accelerated
                filerx





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


o Yes x No





As
      of
      August 14, 2007, the registrant had 25,390,080 shares of its common stock
      outstanding. ****








**Wako
      Logistics Group, Inc.**





**TABLE
      OF CONTENTS**





Part
                I:
            
            Financial
                Information
            F-1Item
                1:
            
            Financial
                Statements
            F-1Condensed
                Consolidated Statements of Operations for the Three and Six Months
                Ended
                June, 2007 and 2006
            F-1Condensed
                Consolidated Balance Sheets as of June 30, 2007 and December 31,
                2006
            F-3Condensed
                Consolidated Statements of Cash Flows for the Six Months Ended June
                30,
                2007 and 2006
            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
            14Item
                4:
            
            Controls
                and Procedures
            15Part
                II:
            
            Other
                Information
            16Item
                1:
            
            Legal
                Proceedings
            16Item
                1A:
            
            Risk
                Factors
            16Item
                2:
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            16Item
                3.
            
            Defaults
                Upon Senior Securities
            16Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            16Item
                5.
            
            Other
                Information
            16Item
                6:
            
            Exhibits
            16Signatures
            
            
            17




**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 Wako Logistics
      Group, Inc. (“WLG,” the “Company” or the “Group”) and its future operations,
      plans and other matters. Any statements that involve discussions with respect
      to
      predictions, expectations, beliefs, plans, projections, objectives, assumptions
      or future events or performance (often, but not always, using phrases such
      as
“expects”, or “does not expect”, “is expected”, “anticipates” or “does not
      anticipate”, “plans”, “estimates” or “intends”, or stating that certain actions,
      events or results “may”, “could”, “might”, or “will” be taken or occur or be
      achieved) are not statements of historical fact and may be “forward looking
      statements.”




The
      Company cautions readers regarding certain forward-looking statements in this
      document and in all of its communications to shareholders and others, including
      press releases, securities filings, and all other communications. WLG also
      cautions readers not to place undue reliance on any such forward-looking
      statements, which speak only as of the date made. Such forward-looking
      statements are based on the beliefs of WLG's management as well as on
      assumptions made by and information currently available to WLG at the time
      such
      statements were made. Forward-looking statements are subject to a variety of
      risks and uncertainties 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 costs, failure to gain
      or
      maintain approvals for the sale and expansion of WLG's services in the
      jurisdictions where WLG conducts its business or the failure to capitalize
      upon
      access to new markets and those factors referred to or identified in Item 1
      of
      our Report on Form 10-KSB for the year ended December 31, 2006 and in Item
      1A of
      our Report on Form 10-Q for the three months ended March 31,
      2007. 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.




2





**Part
      I: Financial Information**




**Item
      1: Financial Statements**




**Wako
          Logistics Group, Inc.**
 
 **Condensed
          Consolidated Statements of Operations**
 For
          the 3
          and 6 months ended June 30, 2006 and 2007
 *(Dollars
          in thousands except share data and per share amounts)*
  **3
                  months ended**
                **June
                  30,**
              
              **6
                  months ended**
                **June
                  30,****2006**
              
              **2007**
              
              **2006**
              
              **2007***Note*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$**(unaudited)*
              
              *(unaudited)*
              
              *(unaudited)*
              
              *(unaudited)***Revenues:**Freight
              
              
              
              
              
              13,363
              
              
              18,061
              
              
              25,258
              
              
              34,036Agency
                  services
              
              
              
              
              
              773
              
              
              1,096
              
              
              1,316
              
              
              2,157Other
                  services
              
              
              
              
              
              6,794
              
              
              12,724
              
              
              14,038
              
              
              24,998**Total
                  revenues**
              
              
              
              
              
              20,930
              
              
              31,881
              
              
              40,612
              
              
              61,191**Operating
                  expenses**Cost
                  of forwarding
              
              
              
              
              
              (17,496
              )
              
              (26,857
              )
              
              (34,031
              )
              
              (51,418
              )Selling
                  and administrative expenses
              
              
              
              
              
              (3,144
              )
              
              (4,399
              )
              
              (6,363
              )
              
              (8,606
              )Depreciation
                  and amortization
              
              
              
              
              
              (145
              )
              
              (245
              )
              
              (289
              )
              
              (487
              )Total
                  operating expenses
              
              
              
              
              
              (20,785
              )
              
              (31,501
              )
              
              (40,683
              )
              
              (60,511
              )**Income
                  / (Loss) from operations**
              
              
              
              
              
              145
              
              
              380
              
              
              (71
              )
              
              680**Other
                  income / (expense)**Interest
                  income
              
              
              
              
              
              6
              
              
              24
              
              
              22
              
              
              33Interest
                  expense
              
              
              
              
              
              (90
              )
              
              (86
              )
              
              (182
              )
              
              (205
              )Other
                  income, net
              
              
              
              
              
              4
              
              
              15
              
              
              67
              
              
              62**Income****/
                  (Loss) before income taxes**
              
              
              
              
              
              65
              
              
              333
              
              
              (164
              )
              
              570Provision
                  for income taxes
              
              
              
              
              
              (62
              )
              
              (123
              )
              
              (88
              )
              
              (211
              )**Net
                  Income / (Loss)**
              
              
              
              
              
              3
              
              
              210
              
              
              (252
              )
              
              359Dividend
                  on preferred stock
              
              
              
              
              
              (23
              )
              
              (23
              )
              
              (45
              )
              
              (45
              )**(Loss)
                  / Income applicable to common stock**
              
              
              
              
              
              (20
              )
              
              187
              
              
              (297
              )
              
              314Other
                  comprehensive incomeForeign
                  currency translation adjustment
              
              
              
              
              
              4
              
              
              67
              
              
              10
              
              
              95**Total
                  comprehensive (loss) / income**
              
              
              
              
              
              **(16**
              **)**
              
              **254**
              
              
              **(287**
              **)**
              
              **409**
  The
          financial statements should be read in conjunction with the accompanying
          notes.
  F-1
  **Wako
          Logistics Group, Inc.**
 
 **Condensed
          Consolidated Statements of Operations**
 For
          the 3
          and 6 months ended June 30, 2006 and 2007
 *(Dollars
          in thousands except share data and per share amounts)*
 **Net
                  (Loss) / Income per share:****Basic
                  (loss) / earnings per share**
              
              
              ***2***
              
              
              **(0.00**
              **)**
              
              **0.01**
              
              
              **(0.01**
              **)**
              
              **0.01****Diluted
                  (loss) / earnings per share**
              
              
              ***2***
              
              
              **(0.00**
              **)**
              
              **0.01**
              
              
              **(0.01**
              **)**
              
              **0.01****Weighted
                  average common shares outstanding**Basic
              
              
              
              
              
              25,390,080
              
              
              26,690,080
              
              
              25,390,080
              
              
              26,690,080Diluted
              
              
              
              
              
              25,390,080
              
              
              26,748,446
              
              
              25,390,080
              
              
              26,789,047
 
 The
          financial statements should be read in conjunction with the accompanying
          notes.
 F-2
  **Wako
        Logistics Group, Inc.**
  Condensed
        Consolidated Balance Sheets  For
        the 3
        and 6 months ended June 30, 2006 and 2007
 *(Dollars
        in thousands except share data and per share amounts)*
  **At**
                **December
                  31,**
                **2006**
              
              **At
                  June 30,**
                **2007***Note*
              
              *US$*
              
              *US$**(unaudited)***ASSETS****Current
                  assets**Cash
                  and cash equivalents
              
              
              
              
              
              1,528
              
              
              2,434Restricted
                  cash
              
              
              
              
              
              372
              
              
              739Certificates
                  of deposit, restricted
              
              
              
              
              
              245
              
              
              -Trade
                  receivables, net of allowance*(2006:
                  $520; 2007: $429)*
              
              
              
              
              
              14,635
              
              
              13,447Deposits,
                  prepayments and other current assets
              
              
              
              
              
              687
              
              
              890Prepaid
                  taxes
              
              
              
              
              
              108
              
              
              19Due
                  from related parties
              
              
              *5*
              
              
              198
              
              
              208**Total
                  current assets**
              
              
              
              
              
              17,773
              
              
              17,737Property,
                  plant and equipment, net
              
              
              
              
              
              927
              
              
              1,073Deposits
                  and other non-current assets
              
              
              
              
              
              216
              
              
              216Deferred
                  tax assets
              
              
              
              
              
              231
              
              
              282Intangible
                  assets, net
              
              
              
              
              
              4,052
              
              
              3,726Goodwill
              
              
              
              
              
              3,888
              
              
              3,888**Total
                  assets**
              
              
              
              
              
              27,087
              
              
              26,922**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Current
                  liabilities**Bank
                  overdrafts
              
              
              
              
              
              616
              
              
              574Trade
                  payables
              
              
              
              
              
              8,006
              
              
              8,226Accrued
                  charges and other creditors
              
              
              
              
              
              3,534
              
              
              3,901Bank
                  debt - maturing within one year
              
              
              *3*
              
              
              3,383
              
              
              2,519Current
                  portion of capital lease obligations
              
              
              
              
              
              138
              
              
              108Due
                  to a director
              
              
              *5*
              
              
              439
              
              
              340Income
                  tax payable
              
              
              
              
              
              287
              
              
              268**Total
                  current liabilities**
              
              
              
              
              
              16,403
              
              
              15,936**Non-current
                  liabilities**Non-current
                  portion of capital lease obligations
              
              
              
              
              
              38
              
              
              8Other
                  non-current liabilities
              
              
              
              
              
              28
              
              
              18Bank
                  debt - maturing after one year
              
              
              *3*
              
              
              800
              
              
              700866
              
              
              726Commitments
                  and contingencies
              
              
              *4*
              
              
              -
              
              
              -
  The
          financial statements should be read in conjunction with the accompanying
          notes.
  F-3
  **Wako
          Logistics Group, Inc.**
 
 **Condensed
          Consolidated Balance Sheets**
 At
          December 31, 2006 and June 30, 2007
 *(Dollars
          in thousands except share data and per share amounts)*
  **At**
                **December
                  31,**
                **2006**
              
              **At
                  June 30,**
                **2007***US$*
              
              *US$**(unaudited)***Stockholders'
                  equity**Preferred
                  stock, $0.001 par value, 5 million shares authorized and none
                  issued
              
              
              -
              
              
              -Convertible
                  redeemable preferred stock, $0.001 par value, 2.0 million shares
                  authorized and issued (Redemption and liquidation value
                  $1,500)
              
              
              2
              
              
              2Common
                  stock, $0.001 par value, 55 million shares authorized, 25,390,080
                  shares issued and outstanding
              
              
              25
              
              
              25Additional
                  paid-in capital
              
              
              8,014
              
              
              8,047Accumulated
                  other comprehensive income
              
              
              115
              
              
              210Retained
                  earnings
              
              
              1,662
              
              
              1,976**Total
                  stockholders' equity**
              
              
              9,818
              
              
              10,260**Total
                  liabilities and stockholders' equity**
              
              
              27,087
              
              
              26,922
 
 The
          financial statements should be read in conjunction with the accompanying
          notes.
  F-4
  **Wako
        Logistics Group, Inc.**
 
 **Condensed
        Consolidated Statements of Cash Flows**
 For
        the 6
        months ended June 30, 2006 and 2007
 *(Dollars
        in thousands except share data and per share amounts)*
 
 **6
                  months ended**
                **June
                  30,****2006**
              
              **2007***US$*
              
              *US$**(unaudited)*
              
              *(unaudited)***Cash
                  flows from****operating
                  activities:**Net(loss)
                  / income
              
              
              (252
              )
              
              359**Adjustments
                  to reconcile net income to net cash provided by****operating activities**Depreciation
              
              
              119
              
              
              161Amortization
              
              
              165
              
              
              326Bad
                  debts written off
              
              
              76
              
              
              12Other
                  non-cash items
              
              
              5
              
              
              33**Changes
                  in working capital:**Trade
                  receivables
              
              
              1,077
              
              
              1,177Deposits,
                  prepayments and other current assets
              
              
              (45
              )
              
              (203
              )Due
                  from related parties
              
              
              34
              
              
              4Trade
                  payables
              
              
              (655
              )
              
              220Accrued
                  charges and other creditors
              
              
              156
              
              
              401Due
                  to related parties
              
              
              (20
              )
              
              -Due
                  to a director
              
              
              (90
              )
              
              (99
              )Income
                  tax payable
              
              
              (103
              )
              
              19**Net
                  cash provided by operating activities**
              
              
              467
              
              
              2,410**Cash
                  flows from investing activities:**Acquisitions
                  of property, plant and equipment
              
              
              (53
              )
              
              (271
              )Due
                  from related parties
              
              
              29
              
              
              -**Net
                  cash used in investing activities**
              
              
              (24
              )
              
              (271
              )**Cash
                  flows from financing activities:**Restricted
                  cash
              
              
              (37
              )
              
              (122
              )Bank
                  overdrafts
              
              
              85
              
              
              (42
              )Bank
                  loans repaid
              
              
              (333
              )
              
              (964
              )Capital
                  lease obligations paid
              
              
              (54
              )
              
              (60
              )Payment
                  of dividend on preferred stock
              
              
              (45
              )
              
              (45
              )**Net
                  cash****used
                  in financing activities**
              
              
              (384
              )
              
              (1,233
              )**Net
                  increase in cash and cash equivalents**
              
              
              59
              
              
              906**Cash
                  and cash equivalents at beginning of period**
              
              
              1,212
              
              
              1,528**Cash
                  and cash equivalents at end of period**
              
              
              1,271
              
              
              2,434
 
 The
          financial statements should be read in conjunction with the accompanying
          notes.
  F-5
  **Wako
        Logistics Group, Inc.**
 
 **Notes
        to the Consolidated Financial Statements**
 For
        the 3
        and 6 months ended June 30, 2006 and 2007
 *(Dollars
        in thousands except share data and per share amounts)*
  **1.**  **ORGANIZATION
        AND BASIS OF PRESENTATION**
 
 Wako
        Logistics Group, Inc. (“WLG” or the “Company” or together with its subsidiaries,
        collectively the “Group”) is an international, non-asset-based logistics company
        that provides air and ocean freight forwarding, contract logistics, customs
        brokerage and other supply chain management services from its offices in
        Hong
        Kong, the Peoples Republic of China (“PRC” or “China”), Australia, United States
        (“US”), United Kingdom (“UK”) and through a worldwide network of
        independent cargo agents.
 
 WLG’s
        business is conducted by its operating subsidiaries, which include the following
        entities: Wako Express (HK) Co. Ltd. (“WEHK”), Wako Air Express (HK) Co. Ltd.
 (“WAE”), Wako Express (China) Co. Ltd. (“WE China”), a wholly-owned
        subsidiary of WEHK, WLG (USA) LLC (“WLG (USA)”) (formerly dba “Kay O’Neill”),
        Asean Cargo Services Pty Limited (“Asean”) and Asean Logistics, Inc. (“ALI”),
        Mares-Shreve & Associates, Inc. (“MSA”) and its wholly owned subsidiary, Sea
        Systems Ocean Line, Inc. (“Sea Systems”) (collectively, “MSA Group”) and WLG
        (UK) Limited (“WLG (UK)”), which is wholly-owned by WLG (UK) Holdings Limited
        (“WLG UK Holdings”). With
        the
        exception of performing administrative, oversight and regulatory tasks, no
        other
        business activities are carried on by the Group's parent company, Wako Logistics
        Group, Inc.
 
 Wako
        Logistics Group, Inc. was incorporated on December 2, 2003, pursuant to the
        laws
        of Delaware in the United States of America. Pursuant to certain Share Exchange
        Agreements entered into on January 18, 2004, WLG consummated a combination
        with
        WEHK and WAE by the issuance of 20,000,900 shares of its common stock in
        exchange for 100% of the outstanding common stock of WEHK and WAE.
 
 WEHK
        was
        incorporated in Hong Kong on June 4, 1982, and its principal activity is
        the
        provision of sea freight forwarding services. WAE was incorporated in Hong
        Kong
        on February 24, 1989, to provide air freight forwarding services.
 
 In
        July
        2004, the Group established WE China as a wholly owned subsidiary of WEHK.
        WE
        China commenced business in February 2005 to provide sea and air freight
        forwarding and logistics services in China and to companies trading with
        China.
 
 On
        April
        1, 2005, WLG completed the acquisition of 100% of the voting interests in
        Kay
        O'Neill (USA) LLC, a company based in Chicago, Illinois. Kay O’Neill changed its
        name to WLG (USA) LLC in June 2005, and now operates as WLG (USA). WLG (USA)
        is
        a non-asset based freight forwarding company and provides freight forwarding
        and
        logistics services.
  Effective
        October 1, 2005, WLG acquired all of the issued and outstanding shares of
        common
        stock of Asean Logistics, Inc., a California corporation, and made it a first
        tier subsidiary of WLG (USA). ALI is a non-asset based freight forwarding
        company and provides freight-forwarding services to its customers, which
        ship
        products primarily between Asia and the United States. Substantially all
        of
        ALI’s administrative activities are performed by WLG (USA).
  F-6
 **Wako
          Logistics Group, Inc.**
 
 **Notes
          to the Consolidated Financial Statements**
 For
          the 3
          and 6 months ended June 30, 2006 and 2007
 *(Dollars
          in thousands except share data and per share amounts)*
 
 **1.**  **ORGANIZATION
        AND BASIS OF PRESENTATION (CONTINUED)**
 
 On
        November 9, 2005, the Group acquired all of issued and outstanding common
        stock
        of Asean, which is a non-asset based freight forwarding and logistics provider.
        Based in Sydney, Australia, with offices in Melbourne and Brisbane, Asean
        provides freight forwarding and logistics services, as well as customs brokerage
        services to its customers, who ship products primarily between Asia and
        Australia.
 
 On
        September 15, 2006, the Group’s UK subsidiary, WLG (UK) commenced business by
        acquiring the operating assets and assuming limited liabilities of a division
        of
        a UK freight forwarding and logistics company doing business in Manchester,
        England (“UK Division”). WLG (UK) is located in Manchester, England, and it now
        operates the former business of UK Division, which provides sea and air freight
        forwarding, warehousing and logistics services, mostly to UK based customers.
 
 The
        Group
        on December 1, 2006, acquired all of the voting shares of Mares-Shreve &
Associates, Inc. and its wholly owned subsidiary, Sea Systems Ocean Line,
        Inc.
        MSA, which was incorporated on May 15, 1979, in Washington State, provides
        customs brokerage services, and Sea Systems, incorporated in Washington State
        on
        February 26, 1991, is a non-asset based freight forwarder and provides air
        and
        sea freight forwarding and related logistics services. The MSA Group mainly
        serves customers that ship products from Asia to the US.
 
 As
        of
        June 30, 2007, 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, 2007, and for the 3 and 6 months
        ended June 30, 2007 and 2006, 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,
        2006.
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates that affect the reported amounts of assets, liabilities, revenues
        and
        expenses and the disclosure of contingent assets and liabilities. Actual
        results
        could differ from these estimates.
 
 The
        unaudited, interim consolidated financial statements of the Company have
        been
        prepared in accordance with accounting principles generally accepted in the
        United States for interim financial information. In the opinion of the
        management, all adjustments (which include only normal recurring adjustments)
        necessary to present fairly the financial position as of June 30, 2007, and
        results of operations and cash flows for the 3 and 6 months ended June 30,
        2007
        and 2006, have been made. The results of operations for the 3 and 6 months
        ended
        June 30, 2007 and 2006, are not necessarily indicative of the operating results
        for the full year.
  F-7
 
  Wako
            Logistics Group, Inc.
 
 **Notes
            to the Consolidated Financial Statements**
 For
            the 3
            and 6 months ended June 30, 2006 and 2007
 *(Dollars
            in thousands except share data and per share amounts)*
 **2.**  **EARNINGS
        / (LOSS) PER SHARE**
 
 Earnings
        / (Loss) per share were computed as follows:
 
 **3
                  months ended June 30, 2006****Income
                  /**
                **(Loss)**
              
              **Weighted
                  average number of shares**
              
              **Per
                  share amount***US$*Net
                  income
              
              
              3Dividends
                  on convertible redeemable preferred stock
              
              
              (23
              )
              
              2,000,000
              
              
              0.01Basic
                  loss per shareLoss
                  available to common stockholders
              
              
              (20
              )
              
              25,390,080
              
              
              (0.00
              )Effect
                  of dilutive securities (Note *)Warrants
              
              
              -
              
              
              -Convertible
                  redeemable preferred stock
              
              
              -
              
              
              -Diluted
                  loss per shareLoss
                  available to common stockholdersassuming
                  conversion of dilutive securities
              
              
              (20
              )
              
              25,390,080
              
              
              (0.00
              )
 
 **6
                  months ended June 30, 2006****Income
                  /**
                **(Loss)**
              
              **Weighted
                  average number of shares**
              
              **Per
                  share amount***US$*Net
                  loss
              
              
              (252
              )Dividends
                  on convertible redeemable preferred stock
              
              
              (45
              )
              
              2,000,000
              
              
              0.02Basic
                  loss per shareLoss
                  available to common stockholders
              
              
              (297
              )
              
              25,390,080
              
              
              (0.01
              )Effect
                  of dilutive securities (Note *)Warrants
              
              
              -
              
              
              -Convertible
                  redeemable preferred stock
              
              
              -
              
              
              -Diluted
                  loss per shareLoss
                  available to common stockholdersassuming
                  conversion of dilutive securities
              
              
              (297
              )
              
              25,390,080
              
              
              (0.01
              )
  There
        are
        no anti-dilutive shares.
  * 
Common
        stock is not increased by either the
        2,000,000 shares related to convertible preferred stock or the warrants
        representing 32,432 and 32,886 shares, respectively, for the 3 and 6 months
        ending June 30, 2006, as the effect of conversion of these securities would
        be
        anti-dilutive.
  F-8
 
 Wako
            Logistics Group, Inc.
 
 **Notes
            to the Consolidated Financial Statements**
 For
            the 3
            and 6 months ended June 30, 2006 and 2007
 *(Dollars
            in thousands except share data and per share
            amounts)*
  **2.** **EARNINGS
        / (LOSS) PER SHARE (CONTINUED)**
  **3
                  months ended June 30, 2007****Income
                  /**
                **(Loss)**
              
              **Weighted
                  average number of shares**
              
              **Per
                  share amount***US$*Net
                  income
              
              
              210Dividends
                  on convertible redeemable preferred stock
              
              
              (23
              )
              
              2,000,000
              
              
              0.01Basic
                  earnings per shareIncome
                  available to common stockholders
              
              
              
              
              
              25,390,080Additional
                  common stock to be issued as anearn-out
                  payment
              
              
              
              
              
              1,300,000187
              
              
              26,690,080
              
              
              0.01Effect
                  of dilutive securitiesShare
                  options
              
              
              -
              
              
              58,366Convertible
                  redeemable preferred stock*(Note
                  #)*
              
              
              -
              
              
              -Diluted
                  earnings per shareIncome
                  available to common stockholdersassuming
                  conversion of dilutive securities
              
              
              187
              
              
              26,748,446
              
              
              0.01
  **6
                  months ended June 30, 2007****Income
                  /**
                **(Loss)**
              
              **Weighted
                  average number of shares**
              
              **Per
                  share amount***US$*Net
                  income
              
              
              359Dividends
                  on convertible redeemable preferredstock
              
              
              (45
              )
              
              2,000,000
              
              
              0.02Basic
                  earnings per shareIncome
                  available to common stockholders
              
              
              
              
              
              25,390,080Additional
                  common stock to be issued as anearn-out
                  payment
              
              
              
              
              
              1,300,000314
              
              
              26,690,080
              
              
              0.01Effect
                  of dilutive securitiesShare
                  options
              
              
              -
              
              
              98,967Convertible
                  redeemable preferred stock*(Note
                  #)*
              
              
              -
              
              
              -Diluted
                  earnings per shareIncome
                  available to common stockholdersassuming
                  conversion of dilutive securities
              
              
              314
              
              
              26,789,047
              
              
              0.01
  *#
                :*
              *Common
                  stock is not increased by 2,000,000 shares related to convertible
                  preferred stock because the effect of conversion would be
                  anti-dilutive.*
  F-9
  Wako
          Logistics Group, Inc.
 
 **Notes
          to the Consolidated Financial Statements**
 For
          the 3
          and 6 months ended June 30, 2006 and 2007
 *(Dollars
          in thousands except share data and per share amounts)*
 **3.**  **BANKING
        FACILITIES**
 
 The
                  Group has obtained bank facilities from creditworthy commercial
                  banks as
                  follows:
 
 **At**
                **December
                  31,**
                **2006**
              
              **At**
                **June
                  30,**
                **2007***(unaudited)**US$*
              
              *US$***Facilities
                  granted**-
                  bank guarantees
              
              
              784
              
              
              1,236-
                  overdraft facilities
              
              
              616
              
              
              574-
                  bank loans
              
              
              5,266
              
              
              5,509-
                  foreign exchange facilities
              
              
              -
              
              
              212-
                  lease facilities
              
              
              -
              
              
              260Total
                  bank facilities
              
              
              6,666
              
              
              7,791
 
 The
        terms
        of the loan facilities, including the amounts and maturity dates, are agreed
        between the banks and the Group from time to time.
 
 Bank
        guarantees of $719 will expire within one year from June 30, 2007, but may
        be
        renewed, provided the Group makes available the cash required by the banks
        to
        collateralize each guarantee. A bank guarantee of $116 and the overdraft
        facilities 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 $401 has no fixed expiration date and is cancellable and/or
        renewable at the option of the bank. The bank loans mature on various dates
        as
        follows: (i) $114 on October 17, 2007, (ii) $1,000 revolving line of credit
        in
        October 2007, and (iii) $1,000 term loan in November 2011. The remaining
        loan
        facility of $3,395 is an ongoing facility that may be terminated by either
        the
        bank or WLG giving 30 days notice to the other party.
 
 For
        the
        bank loans of $5,509 granted by various banks, (i) term loan of
 $114, unsecured and repayable within one year by monthly
        installments, (ii) the $1,000 revolving line of credit and the $1,000 five
        year
        term loan are secured by a first position blanket lien on substantially all
        of
        the assets of WLG (USA) and MSA Group and a guarantee provided by the Group’s
        parent company, (iii) $3,395 is secured by Asean’s accounts receivable and a
        registered mortgage charge over the assets of Asean. As of June 30, 2007,
        these
        bank loans carried interest rates from 7.25% to 10.05% per annum.
 
 Certain
        of the bank guarantees, totaling $719, are collateralized by cash of $739.
        In
        addition, a bank guarantee of $116 is secured by (i) a guarantee and
        Indemnity provided by WLG (Aust) and various individuals and entities associated
        with Asean, (ii) a registered mortgage debenture over all of the assets of
        Asean
        and (iii) real estate of the owned by various individuals associated with
        Asean.
        The remaining bank guarantee of $401 is secured by a fixed and floating charge
        on all assets of WLG (UK) and by a guarantee of the Group’s parent
        company. The overdraft facility of $574 is secured by (i) a guarantee and
        Indemnity from WLG (Aust) and personal guarantees provided by various
        individuals and entities associated with Asean, (ii) a registered mortgage
        debenture over all of Asean’s assets and (iii) real estate owned by various
        individuals associated with Asean.
 
 F-10
 **Wako
          Logistics Group, Inc.**
 
 **Notes
          to the Consolidated Financial Statements**
 For
          the 3
          and 6 months ended June 30, 2006 and 2007
 *(Dollars
          in thousands except share data and per share amounts)*
 **3.**  **BANKING
        FACILITIES (CONTINUED)**
 
 Asean
        has
        a foreign exchange facility in the amount of $212, which, at June 30, 2007,
        had
        not been utilized. Certain individuals associated with Asean have given personal
        guarantees as security for this facility. Asean has a leasing facility of
        $260, and $53 was outstanding as of June 30, 2007. This facility is secured
        by the assets under lease and the personal guarantees from the same individuals
        that have guaranteed the foreign exchange facility. As of June 30, 2007,
        the
        leasing facility carried interest rates of 7.27% to 8.44% per annum
 
 **At**
                **December
                  31,**
                **2006**
              
              **At**
                **June
                  30,**
                **2007***(unaudited)**US$*
              
              *US$***Utilized**-
                  bank guarantee
              
              
              784
              
              
              1,236-
                  overdraft facilities
              
              
              616
              
              
              574-
                  bank loans
              
              
              4,183
              
              
              3,219-
                  foreign exchange facilities
              
              
              -
              
              
              --
                  lease facilities
              
              
              -
              
              
              53Total
                  bank facilities utilized
              
              
              5,583
              
              
              5,082
  **4.**  **COMMITMENTS
        AND CONTINGENCIES**
 
 ***Commitments
        under operating leases***
 
 The
                  Group rents office space, staff quarters and office equipment under
                  non-cancellable operating leases. The following table summarizes
                  the
                  approximate future minimum lease payments for operating leases
                  in effect
                  as of December 31, 2006, and June 30,
                  2007.
 
 **At**
                **December
                  31,**
                **2006**
              
              **At**
                **June
                  30,**
                **2007***(unaudited)**US$*
              
              *US$*Within
                  one year
              
              
              790
              
              
              963Over
                  one year but not exceeding two years
              
              
              543
              
              
              659Over
                  two years but not exceeding three years
              
              
              300
              
              
              384Over
                  three years but not exceeding four years
              
              
              122
              
              
              66Over
                  four years but not exceeding five years
              
              
              8
              
              
              2Total
                  operating lease commitments
              
              
              1,763
              
              
              2,074
 
 Rent
                  expense under operating leases for the 6 months ended June 30,
                  2006 and
                  2007, was $374 and $449,
                  respectively.
  F-11
  **Wako
        Logistics Group, Inc.**
 
 **Notes
        to the Consolidated Financial Statements**
 For
        the 3
        and 6 months ended June 30, 2006 and 2007
 *(Dollars
        in thousands except share data and per share amounts)*
  **4.**  **COMMITMENTS
        AND CONTINGENCIES (CONTINUED)**
 
 ***Cargo
                  space commitments***
 
 The
                  Group in the course of its business enters into agreements with
                  various
                  air freight carriers pursuant to which the Group commits to utilize
                  a
                  minimum amount of cargo space each year. As of June 30, 2007, the
                  obligation for the minimum amount of cargo space to be used for
                  the
                  following twelve months is $2,964.
 
 ***Contingencies***
 
 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 to cover the
        Group’s businesses.
 
 As
        of
        June 30, 2007, the aggregate, outstanding amount of claims was approximately
        $34. Management
        believes that the disposition or ultimate resolution of such claims will
        not
        have a material adverse effect on the financial position of the Group.
  **5.**  **RELATED
        PARTY TRANSACTIONS**
  **Name
          and relationship of related parties**
  Name
              
              Relationship
                  to the GroupChristopher
                  Wood (“CW”)
              
              Shareholder
                  and director of WLGYip
                King Lin, Paul (“PY”)
              
              Director
                of the Group's subsidiaries until April 2006Paul
                  Pomroy (“PP”)
              
              PP
                  is a director of Asean and WLG (Aust)Wako
                  Logistic (Thailand) Co. Ltd (“WLT”)
              
              CW
                  is a shareholder and director of WLTJoin
                  Wing Properties Limited (“JWP”)
              
              CW
                  is a shareholder and director of JWPAngus
                  International Freight Pty Limited (“AIFP”)
              
              PP
                  was a director of AIFP until May 1, 2006Warehouse
                  Solutions International Pty Limited (“WSIP”)
              
              PP
                  was a director of WSIP until May 1, 2006Asean
                  Cargo Services (Qld) Pty Limited (“ACSQ”)
              
              PP
                  is a director of ACSQBettervale
                  Pty Limited (“BPL”)
              
              PP
                  was a director of BPL until May 1,
                  2006
  F-12
 **Wako
          Logistics Group, Inc.**
 
 **Notes
          to the Consolidated Financial Statements**
 For
          the 3
          and 6 months ended June 30, 2006 and 2007
 *(Dollars
          in thousands except share data and per share amounts)*
 
 **5.**  **RELATED
        PARTY TRANSACTIONS (CONTINUED)**
 
 **Details
                  of related parties**Name
              
              Principal
                  activities
              
              Ownership
                  *Name
                    of owner*
              
              *%
                  held*WLT
              
              Provision
                  of sea and air freight forwarding services in Thailand #
              
              CW
                Others
              
              50%
                50%JWP
              
              Leases
                  property to CW
              
              CW
              
              100%
 
 #:
              In
                  the normal course of business, the Group enters into agency agreements
                  with various overseas agents so that both the Group and the overseas
                  agents can jointly handle customer shipments on behalf of the other
                  in
                  both the port of loading and the port of
                  destination.
  Under
        these agency agreements, the Group and the overseas agents are obliged to
        perform their respective services at their own places of business and, in
        return, earn their respective service fees from the other party and either
        the
        shipper or the consignee.
 
 In
        addition to the above, under theses agency agreements, sometimes either the
        Group or the overseas agent is obliged to act as a “collection agent” to collect
        the freight revenue from customers (either the shipper or the consignee).
        Since
        the decision as to who is to pay the freight cost is determined by either
        the
        shipper and / or the consignee, both the Group and the overseas agent only
        act
        in accordance with the customers’ instructions in the collection process. In
        case the collecting party is not the party who pays the freight cost to the
        carrier, the collecting party has to reimburse the other party to enable
        it to
        settle the freight cost.
  In
        both
        cases, either the Group or the overseas agent has to issue an invoice to
        the
        other party for an amount attributable to it. The amounts include the service
        fees earned and may also include the freight cost collected by the other
        party.
 
 During
        the periods indicated, one overseas agent is a related party. In identifying
        the
        related party transactions for accounting disclosure purposes, only the handling
        fee income earned by the Group from the related party overseas agent and
        the
        handling fees paid by the Group to the related party overseas agent are
        disclosed as related party transactions. The amounts that the Group billed
        to
        the related party overseas agent, who only acted as a collection agent, are
        not
        shown as related party transactions. Similarly, the amounts that the related
        party overseas agent billed to the Group, who only acted as a collection
        agent,
        are not shown as related party transactions.
 
 F-13
  **Wako
          Logistics Group, Inc.**
 
 **Notes
          to the Consolidated Financial Statements**
 For
          the 3
          and 6 months ended June 30, 2006 and 2007
 *(Dollars
          in thousands except share data and per share amounts)*
 
 **5.**  **RELATED
        PARTY TRANSACTIONS (CONTINUED)**
 
 The
        following is a summary of the amounts included in the accompanying balance
        sheets:
 
 **At**
                **December
                  31,**
                **2006**
              
              **At**
                **June
                  30,**
                **2007***(unaudited)**US$*
              
              
              *US$***Due
                  from related parties**WLT
              
              
              18
              
              
              14ACSQ
              
              
              169
              
              
              182PP
              
              
              11
              
              
              12198
              
              
              208**Due
                  to a director**CW
              
              
              439
              
              
              340
 
 Notes :
 
 The
                  amounts due from related parties are unsecured, interest-free and
                  repayable on demand. Transactions in these accounts during the
                  periods
                  covered by these financial statements represented
                  mainly:
  a)
                amounts
                    paid/collected on behalf of related
                    parties;
 b)
              amounts
                  paid/payable to and received/receivable from directors, including
                  dividends; and
 
 c)
              handling
                  income receivable/handling fee payable/rental payable and related
                  settlements.
  F-14
 **Wako
          Logistics Group, Inc.**
 
 **Notes
          to the Consolidated Financial Statements**
 For
          the 3
          and 6 months ended June 30, 2006 and 2007
 *(Dollars
          in thousands except share data and per share amounts)*
 
 **5.**  **RELATED
        PARTY TRANSACTIONS (CONTINUED)**
 
 **Summary
        of transactions with related entities (unaudited):**
 
 **WSIP**
              
              **BPL**
              
              **PP**
              
              **ACSQ**
              
              **AIFP**
              
              **WLT**
              
              **Total***US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*January
                  1, 2006
              
              
              124
              
              
              7
              
              
              7
              
              
              156
              
              
              189
              
              
              13
              
              
              496Trade
                  transactions
              
              
              (27
              )
              
              (71
              )
              
              -
              
              
              -
              
              
              -
              
              
              38
              
              
              (60
              )Net
                  settlements
              
              
              (2
              )
              
              66
              
              
              3
              
              
              1
              
              
              (19
              )
              
              (31
              )
              
              18June
                  30, 2006
              
              
              95
              
              
              2
              
              
              10
              
              
              157
              
              
              170
              
              
              20
              
              
              454January
                  1, 2007
              
              
              -
              
              
              -
              
              
              11
              
              
              169
              
              
              -
              
              
              18
              
              
              198Net
                  settlements
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (4
              )
              
              (4
              )Exchange
                  alignment
              
              
              -
              
              
              -
              
              
              1
              
              
              13
              
              
              -
              
              
              -
              
              
              14June
                  30, 2007
              
              
              -
              
              
              -
              
              
              12
              
              
              182
              
              
              -
              
              
              14
              
              
              208
  **Additional
        details of transactions:**
  **3
                  months ended**
                **June
                  30,**
              
              **6
                  months ended**
                **June
                  30,****2006**
              
              **2007**
              
              **2006**
              
              **2007***(unaudited)*
              
              *(unaudited)*
              
              *(unaudited)*
              
              *(unaudited)**US$*
              
              *US$*
              
              *US$*
              
              *US$***Handling
                  fee paid/payable**WLT
              
              
              1
              
              
              -
              
              
              2
              
              
              -**Rental
                  paid/payable**JWP
              
              
              27
              
              
              27
              
              
              54
              
              
              54
  F-15
  **Wako
          Logistics Group, Inc.**
 
 **Notes
          to the Consolidated Financial Statements**
 For
          the 3
          and 6 months ended June 30, 2006 and 2007
 *(Dollars
          in thousands except share data and per share amounts)*
 
 **5.**  **RELATED
        PARTY TRANSACTIONS (CONTINUED)**
 
 **Summary
        of transactions during the periods with director /
        shareholder:**
 
 **CW***(unaudited)**US$*January
                  1, 2006
              
              
              (325
              )Expenses
                  paid
              
              
              90June
                  30, 2006
              
              
              (235
              )January
                  1, 2007
              
              
              439Expenses
                  paid
              
              
              (99
              )June
                  30, 2007
              
              
              340
 
 Notes :
 
 Expenses/loan
        repayments include amounts that were paid either directly to or for the benefit
        of CW.
  **6.**  **SUPPLEMENTAL
        DISCLOSURES OF CASH FLOW INFORMATION**
 
 **6
                  months ended**
                **June
                  30,****2006**
              
              **2007***(unaudited)*
              
              *(unaudited)**US$*
              
              *US$***Cash
                  paid for:**Interest
                  expense
              
              
              182
              
              
              205Income
                  taxes
              
              
              124
              
              
              192
  F-16
 **Wako
          Logistics Group, Inc.**
 
 **Notes
          to the Consolidated Financial Statements**
 For
          the 3
          and 6 months ended June 30, 2006 and 2007
 *(Dollars
          in thousands except share data and per share amounts)*
  **7.**  **STOCK
        OPTIONS**
 
 In
        April
        2005, the board and stockholders of the Company approved the Wako Logistics
        Group, Inc. 2005 Stock Incentive Plan (the “Plan”). The Plan, which is effective
        until April 19, 2015, provides for awarding stock options, stock appreciation
        rights and restricted stock to our officers, employees, directors and
        consultants, as well as to officers, employees, directors and consultants
        who
        provide services to any of the Group’s subsidiaries or affiliates. The Plan is
        administered by our board, provided, that the board in the future 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, 2007, the number of shares reserved under the Plan was increased
        to
        5,078,016.
 
 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
        significant latitude to allow the board to grant options with varying terms,
        such as changing the vesting period, the term and 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.
 
 As
        of
        August 2005, the Company had committed to award 200,000 options to purchase
        common stock to one of its officers, and as of that date, all substantial
        terms
        and conditions for the option were communicated to, and agreed with, the
        officer. To date, the board has not yet formally approved the award, but
        it has
        approved the employment agreement containing the terms of the option commitment.
        As such, the Company views approval of this option to be a formality and
        has
        established August 2005 as the grant date for this option. Effective January
        15,
        2007, the board approved and awarded options to three employees to purchase
        an
        aggregate of 20,000 shares of the Company’s common stock.
 
 The
        fair
        value of each option granted during the six months ended June 30, 2007, and
        the
        option granted in August 2005, was estimated as of the grant date for each
        option using the Black-Scholes option-pricing model. The assumptions used
        for
        the model were as follows: (1) expected life of 2 and 3 years for the August
        2005 and January 2007 options, respectively; (2) zero dividend yield; (3)
        volatilities of 45% and 57.7% for the August 2005 and January 2007 options,
        respectively; (4) no post vesting terminations; and (5) a risk free interest
        rate of 4.6%. The weighted average grant-date fair value of the options granted
        in August 2005 and January 2007 was $0.28 and $1.22 per share,
        respectively.
 
 Effective
        January 1, 2006, the Company adopted the fair value recognition provisions
        of SFAS No. 123(R) using the modified prospective transition method. Under
        this
        method, the compensation expense related to the fair value of stock options
        charged to income for the six months ended June 30, 2007, was $33. As of
        June
        30, 2007, the compensation expense related to non-vested options totaled
        $26 and
        is expected to be recognized over 2.5 years. The total intrinsic value of
        the
        options outstanding and options exercisable as of June 30, 2007, was $70
        and
        $68, respectively. No tax benefit was recognized for the stock option expense
        recorded for the six months ended June 30, 2007.
  F-17
 
 **Wako
          Logistics Group, Inc.**
 
 **Notes
          to the Consolidated Financial Statements**
 For
          the 3
          and 6 months ended June 30, 2006 and 2007
 *(Dollars
          in thousands except share data and per share amounts)*
  **7.**  **STOCK
        OPTION (CONTINUED)**
 
 The
        following table shows 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 2006
              
              
              -Outstanding
                  at December 31, 2006
              
              
              200,000
              
              
              
              
              
              8.58Granted
                  during the six months ended June 30, 2007
              
              
              20,000
              
              
              2.85Outstanding
                  at June 30, 2007
              
              
              220,000
              
              
              1.17
              
              
              8.21Exercisable
                  at June 30, 2007
              
              
              197,083
              
              
              1.17
              
              
              8.11
 
 The
        following schedule presents shares of common stock issued and outstanding
        and
        reserved for future issuance as of June 30, 2007:
 
 Shares
                  of common stock outstanding
              
              
              25,390,080Reserved
                  for future issuance:Options
                  granted to employees and officer
              
              
              220,000Earn-Out
                  shares earned but not issued
              
              
              1,300,000Warrants
              
              
              100,0001,620,000Total
                  shares issued and outstanding and reserved for future issuance
                  at June 30,
                  2007
              
              
              27,010,080
 
 F-18
  **Wako
          Logistics Group, Inc.**
 
 **Notes
          to the Consolidated Financial Statements**
 For
          the 3
          and 6 months ended June 30, 2006 and 2007
 *(Dollars
          in thousands except share data and per share amounts)*
 
 **8.**  **INCOME
        TAX**
 
 In
        July
        2006, the Financial Accounting Standards Board (FASB) issued Interpretation
        No.
        48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB
        Statement No. 109 (FIN 48), which clarifies the accounting and disclosure
        for
        uncertainty in tax positions, as defined, and prescribes the measurement
        process
        and a minimum recognition threshold for a tax position, taken or expected
        to be
        taken in a tax return, that is required to be met before being recognized
        in the
        financial statements. Under FIN 48, the Company must recognize the tax benefit
        from an uncertain position only if it is more likely than not the tax position
        will be sustained on examination by the taxing authority, based on the technical
        merits of the position. The tax benefits recognized in the financial statements
        attributable to such position are measured based on the largest benefit that
        has
        a greater than 50% likelihood of being realized upon the ultimate resolution
        of
        the tax position.
 
 As
        of
        January 1, 2007, the Company became subject to the provisions of FIN 48,
        and has
        analyzed its filing positions in all of the federal, state and foreign
        jurisdictions where it is required to file income tax returns, as well as
        for
        all open years for those jurisdictions. As of December 31, 2006, and June
        30,
        2007, the Company has identified the following jurisdictions as “major” tax
        jurisdictions, as defined, in which it is required to file income tax returns:
        United States; United Kingdom; Hong Kong; Australia and China. Based on the
        evaluations noted above, the Company has concluded that there are no significant
        uncertain tax positions requiring recognition in its consolidated financial
        statements. The evaluations were performed for the tax years that remain
        open
        for examination which are the following: (1) United States - December 31,
        2003
        through 2006; (2) United Kingdom - December 31, 2006; (3) Hong Kong - April
        30,
        2001 to December 31, 2006; (4) Australia -- June 30, 2001, through December
        31,
        2006 and (5) China - calendar years 2005 and 2006. Based on a review of tax
        positions for all open years, the Company did not record a cumulative effect
        adjustment related to the adoption of FIN 48. No reserves for uncertain income
        tax positions have been recorded pursuant to FIN 48 during the six months
        ended
        June 30, 2007, and the Company does not anticipate that it is reasonably
        possible that any material increase or decrease in its unrecognized tax benefits
        will occur within twelve months.
 
 Upon
        adoption of FIN 48 on January 1, 2007, and as of June 30, 2007, the Company
        had
        no unrecognized tax benefits or accruals for the potential payment of interest
        and penalties. The Company’s policy for recording interest and penalties
        associated with unrecognized tax benefits and tax audits is to record such
        items
        as a component of the provision for income tax expense. For the six months
        ended
        June 30, 2007, no interest or penalties were recorded relating to the settlement
        of any income tax audits.
  F-19
 
 **Wako
        Logistics Group, Inc.**
 
 **Notes
        to the Consolidated Financial Statements**
 For
        the 3
        and 6 months ended June 30, 2006 and 2007
 *(Dollars
        in thousands except share data and per share amounts)*
 
 **9. 
        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 are summarized in the following
        table:
 
 **(i)**  **For
        the 3 months ended June 30, 2006 and 2007 (unaudited)**
 
 **Air
                  forwarding**
              
              **Sea
                  forwarding**
              
              **Customs
                  brokerage**
              
              **Total****2006**
              
              **2007**
              
              **2006**
              
              **2007**
              
              **2006**
              
              **2007**
              
              **2006**
              
              **2007***US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*Revenue
              
              
              7,143
              
              
              7,506
              
              
              8,205
              
              
              16,163
              
              
              5,582
              
              
              8,212
              
              
              20,930
              
              
              31,881Costs
                  of forwarding/customs
              
              
              (6,079
              )
              
              (6,072
              )
              
              (6,258
              )
              
              (13,257
              )
              
              (5,159
              )
              
              (7,528
              )
              
              (17,496
              )
              
              (26,857
              )Depreciation
              
              
              (19
              )
              
              (30
              )
              
              (34
              )
              
              (127
              )
              
              (7
              )
              
              (42
              )
              
              (60
              )
              
              (199
              )Interest
                  income
              
              
              1
              
              
              13
              
              
              5
              
              
              10
              
              
              -
              
              
              1
              
              
              6
              
              
              24Interest
                  expense
              
              
              (25
              )
              
              (18
              )
              
              (37
              )
              
              (51
              )
              
              (28
              )
              
              (17
              )
              
              (90
              )
              
              (86
              )Other
                  segment income
              
              
              9
              
              
              7
              
              
              (5
              )
              
              8
              
              
              -
              
              
              1
              
              
              4
              
              
              16Other
                  segment expenses
              
              
              (959
              )
              
              (1,101
              )
              
              (1,640
              )
              
              (2,439
              )
              
              (386
              )
              
              (645
              )
              
              (2,985
              )
              
              (4,185
              )Taxation
              
              
              (3
              )
              
              (43
              )
              
              (55
              )
              
              (72
              )
              
              (4
              )
              
              (8
              )
              
              (62
              )
              
              (123
              )Segment
                income
              
              
              68
              
              
              262
              
              
              181
              
              
              235
              
              
              (2
              )
              
              (26
              )
              
              247
              
              
              471Corporate
                  expenses
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (244
              )
              
              (261
              )Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3
              
              
              210Segment
                  assets
              
              
              6,130
              
              
              5,749
              
              
              5,568
              
              
              10,996
              
              
              1,473
              
              
              2,530
              
              
              13,171
              
              
              19,275Unallocated
                  assets
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,566
              
              
              7,647Total
                  assets
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              17,737
              
              
              26,922Property,
                  plant and equipment - additions
              
              
              6
              
              
              43
              
              
              18
              
              
              91
              
              
              3
              
              
              58
              
              
              27
              
              
              192
  F-20
 **Wako
          Logistics Group, Inc.**
 
 **Notes
          to the Consolidated Financial Statements**
 For
          the 3
          and 6 months ended June 30, 2006 and 2007
 *(Dollars
          in thousands except share data and per share amounts)*
 
 **9. 
        SEGMENTS OF THE BUSINESS (CONTINUED)**
 
 The
        Group
        operates mainly in three business segments, being the provision of (i) air
        forwarding, (ii) sea forwarding, and (iii) customs brokerage services. The Group ’s
        operations by air, sea and customs brokerage are summarized in the following
        table:
 
 **(ii)**  **For
        the 6 months ended June 30, 2006 and 2007 (unaudited)**
  **Customs****Air
                      forwarding**
                
                **Sea
                      forwarding**
                
                **brokerage**
                
                **Total****2006**
                
                **2007**
                
                **2006**
                
                **2007**
                
                **2006**
                
                **2007**
                
                **2006**
                
                **2007***US$*
                
                *US$*
                
                *US$*
                
                *US$*
                
                *US$*
                
                *US$*
                
                *US$*
                
                *US$*Revenue
                
                
                13,339
                
                
                14,754
                
                
                16,096
                
                
                30,191
                
                
                11,177
                
                
                16,246
                
                
                40,612
                
                
                61,191Costs
                    of forwarding/customs
                
                
                (11,235
                )
                
                (12,087
                )
                
                (12,312
                )
                
                (24,385
                )
                
                (10,484
                )
                
                (14,946
                )
                
                (34,031
                )
                
                (51,418
                )Depreciation
                
                
                (38
                )
                
                (54
                )
                
                (69
                )
                
                (234
                )
                
                (12
                )
                
                (50
                )
                
                (119
                )
                
                (338
                )Interest
                    income
                
                
                13
                
                
                17
                
                
                9
                
                
                14
                
                
                -
                
                
                2
                
                
                22
                
                
                33Interest
                    expense
                
                
                (47
                )
                
                (44
                )
                
                (84
                )
                
                (117
                )
                
                (51
                )
                
                (44
                )
                
                (182
                )
                
                (205
                )Other
                    segment income
                
                
                14
                
                
                18
                
                
                53
                
                
                33
                
                
                -
                
                
                12
                
                
                67
                
                
                63Other
                    segment expenses
                
                
                (1,926
                )
                
                (2,202
                )
                
                (3,456
                )
                
                (4,824
                )
                
                (695
                )
                
                (1,201
                )
                
                (6,077
                )
                
                (8,227
                )Taxation
                
                
                (12
                )
                
                (42
                )
                
                (86
                )
                
                (153
                )
                
                10
                
                
                (16
                )
                
                (88
                )
                
                (211
                )Segment
                    income
                
                
                108
                
                
                360
                
                
                151
                
                
                525
                
                
                (55
                )
                
                3
                
                
                204
                
                
                888Corporate
                    expenses
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (456
                )
                
                (529
                )Net
                    (loss) / income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (252
                )
                
                359Segment
                    assets
                
                
                6,130
                
                
                5,749
                
                
                5,568
                
                
                10,996
                
                
                1,473
                
                
                2,530
                
                
                13,171
                
                
                19,275Unallocated
                    assets
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                4,566
                
                
                7,647Total
                    assets
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                17,737
                
                
                26,922Property,
                    plant and equipment - additions
                
                
                16
                
                
                51
                
                
                31
                
                
                150
                
                
                5
                
                
                70
                
                
                52
                
                
                271
  F-21
  **Wako
          Logistics Group, Inc.**
 
 **Notes
          to the Consolidated Financial Statements**
 For
          the 3
          and 6 months ended June 30, 2006 and 2007
 *(Dollars
          in thousands except share data and per share amounts)*
 **9. 
        SEGMENTS OF THE BUSINESS (CONTINUED)**
 
 (b)
              The
                  table below summarizes the percentage of the Group’s revenues during the
                  three months and six months ended June 30, 2006, and 2007, analyzed
                  by
                  geographical locations:
 
 **3
                  months ended June 30,**
              
              **6
                  months ended June 30,****2006**
              
              **2007**
              
              **2006**
              
              **2007***(unaudited)*
              
              *(unaudited)*
              
              *(unaudited)*
              
              *(unaudited)*%
              
              %
              
              %
              
              %**Revenues**Americas
              
              
              6
              
              
              15
              
              
              13
              
              
              14Asia
                  and others
              
              
              46
              
              
              51
              
              
              40
              
              
              52Australia
              
              
              30
              
              
              19
              
              
              30
              
              
              20Europe
              
              
              18
              
              
              15
              
              
              17
              
              
              14100
              
              
              100
              
              
              100
              
              
              100
 
 (c)
              The
                  Group made no sales during the three months and six months ended
                  June 30,
                  2006 and 2007, which qualified as sales to a major customer (a
                  major
                  customer is defined as a customer for which sales to it represent
                  10% or
                  more of total revenues).
  **10.**  **POST
          BALANCE SHEET EVENT**
 
 On
          July
          31, 2007, the Group acquired all of the membership interests in World Commerce
          Services, LLC (“WC”), in exchange for 4,710,014 shares of its common stock, of
          which 2,943,759 shares were issued to the Sellers and 1,766,255 shares
          were
          placed in an escrow account. In addition to the issuance of shares of its
          common
          stock, the Group paid cash of $2,550 to retire certain obligations of WC.
          Under
          the terms of the purchase agreement, the Group is obligated to issue up
          to
          1,962,506 shares of its common stock to the Sellers if WC achieves certain
          levels of earnings as defined in the purchase agreement and which
          are to be measured during the 24 months following the closing date. In
          addition, the Group may have to issue 500,000 shares of its common stock
          in the
          event all of the Group’s Series A Convertible Preferred Stock (the “Series A
          Preferred Stock”) is converted to common stock. If all earnings targets are
          achieved and if all of the Series A Preferred Stock is converted to common
          stock, the Sellers would be entitled to receive 7,172,520 shares of the
          Company’s common stock. WC is incorporated in Illinois and carries on business
          as a non-asset based freight forwarder and customs broker.
  F-22
   *Unaudited
                  Consolidated Financial Statements*
                ***Wako
                  Logistics Group, Inc.***
                *6
                  months period ended June 30, 2006 and
                  2007*





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





**General**





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





WLG's
      business is conducted by its operating subsidiaries, which include the following
      entities: Wako Express (HK) Co. Ltd. (“WEHK”), Wako Air Express (HK) Co. Ltd.
      (“WAE”), Wako Express (China) Co. Ltd. (“WE China”), WLG (USA) LLC (“WLG (USA)”)
      (formerly dba “Kay O'Neill”), Mares-Shreve & Associates, Inc. (“MSA”), Sea
      Systems Ocean Line, Inc. (“Sea Systems”), Asean Cargo Services Pty Limited
      (“Asean”), Asean Logistics, Inc. (“ALI”) and WLG (UK) Limited (“WLG
      (UK)”).





Wako
      Logistics Inc. was incorporated in Delaware on December 2, 2003, and, on January
      8, 2004, changed its name to Wako Logistics Group, Inc. Immediately following
      the formation of Wako Logistics Group, Inc., Mr. Christopher Wood (“Mr. Wood”)
      became its sole shareholder. Pursuant to certain Share Exchange Agreements
      entered into on January 18, 2004, between us and Mr. Wood (and his
      nominee), we consummated a combination with WEHK and WAE by issuing 20,000,900
      shares of our common stock to Mr. Wood in exchange for 100% of the outstanding
      shares of common stock of WEHK and WAE.





WEHK, incorporated
      in Hong Kong on September 4, 1982, carries on the business of handling sea
      freight for its customers, both export and import, between Hong Kong and the
      rest of the world, with a particular concentration, historically, on the
      Asia-Australian trade lanes and, more recently, 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 the handling of air freight, both export and import,
      between Hong Kong and the rest of the world, particularly to Australia, but
      also
      to the US and Europe.




On
      April
      1, 2005, we completed the acquisition of all of the voting interests in Kay
      O'Neill (USA) LLC (“Kay O'Neill”), an Illinois limited liability company. Kay
      O'Neill was a US based logistics business, which primarily served US
      based customers by providing services similar to those offered by the Group
      in
      Asia and elsewhere. At the date of 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,
      and
      at the beginning of 2006, it registered to do business in Texas to provide
      services for contract logistics projects.





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





Effective
      October 1, 2005, WLG acquired all of the voting stock of ALI, a company
      incorporated in California in September 1999. ALI, based in Torrance,
      California, is a non-asset based freight forwarding company and provides
      traditional freight forwarding services to its customers that ship products
      primarily between Asia and the United States. Prior to the acquisition, WLG
      and
      ALI worked closely together pursuant to the terms of an agency
      agreement.





On
      November 9, 2005, WLG, through a newly formed and wholly-owned Australian
      subsidiary, WLG (Australia) Pty. Ltd., completed the acquisition of all of
      the
      issued and outstanding common stock of Asean, a non-asset based freight
      forwarding and logistics company. Asean, incorporated in March 1984, and based
      in Sydney, Australia, 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 Asia-Australian trade lanes. Prior to WLG's acquisition of
      Asean, both companies had worked closely with each other for over 20 years,
      providing transportation and logistics services to the customers of the other
      through an agency agreement.




3




On
      December 1, 2006, we acquired all of the voting shares of MSA and its wholly
      owned subsidiary, Sea Systems, (collectively, "MSA Group”). MSA, which was
      incorporated on May 15, 1979, in Washington State, provides customs brokerage
      services to its customers. Sea Systems, incorporated in Washington State on
      February 26, 1991, is a non-asset based freight forwarder and provides 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 United States.
      Traditionally, the business of the MSA Group has been more focused on its
      customs brokerage practice than its freight forwarding operations. Prior to
      the
      acquisition, the MSA Group and WLG had not worked together.





Subsequent
      to June 30, 2007, WLG acquired all of the membership interests of World Commerce
      Services, LLC, (“WC”), in exchange for its common stock and cash. The details of
      the transaction, which closed on July 31, 2007, are more fully set forth in
      our
      Form 8-K, filed on August 3, 2007, and should be read in conjunction with this
      Report. WC, incorporated in Illinois in January 2004, is the successor to a
      company of the same name, which began business in 1976. WC
      is a
      non-asset basedfreight
      forwardingcompany
      and provides a full range ofair
      and
      seafreight
      forwarding,logisticsand
      customs brokerage services. It serves a wide range of customers that
      primarily import product by sea from Asia, with a heavy emphasis on China.
      In
      addition to its head office in Schaumburg Illinois, WC has offices in Rosedale,
      New York, Atlanta, Georgia and two offices in California located in Los Angeles
      and San Francisco. Prior to the acquisition, the Group and WC had not worked
      together.




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





**Overview**





WLG
      is an
      international, non-asset-based logistics company that provides air and ocean
      freight forwarding, contract logistics, customs clearances and other supply
      chain management services to its customers throughout the world. 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 to provide both
      regional and international freight forwarding services to our customers. Our
      revenues are generated from the air, sea and local freight transportation
      services that we arrange, customs brokerage services we perform and other valued
      added services such as price ticketing and warehousing provided by us. We
      believe that our customers benefit from the extensive experience we have in
      arranging the transportation of freight and performing customs clearance
      services in the many countries in which we operate and in which we have agency
      relationships. For our freight forwarding business, this experience allows
      us to
      focus on large cargo shipments, as the shipment of large cargos usually requires
      sophisticated logistical networks in many countries.





**Freight
      Forwarding and Related Services**





Due
      to
      the volume of shipments we arrange, we are generally able to negotiate
      buy rates that are lower than the rates our customers could negotiate
      directly with transportation providers. Often, the shipping rates we negotiate
      may be reduced due to the amount of freight volumes 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.





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





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





A
      substantial portion of our direct freight costs are incurred pursuant to
      contracts for the advance purchase of cargo space from air carriers for which
      we
      guarantee a minimum volume of shipments. Under these contracts, we are required
      to pay for the minimum amount of space we guarantee, even if we do not use
      the
      guaranteed amount. In the normal course of business, we seek to minimize our
      risk of loss 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.




4




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





The
      VAS
      that we provide may also involve receiving goods from one or multiple factories
      on behalf of the 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 are price-tagged, ready for sale in
      each retail location. We see the demand for these kinds of services increasing
      because a large portion of the 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.
      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 may vary with the type of services performed, but they
      often are 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, and Long Beach, California. In each case, we
      acquired an existing business. The revenue and expense streams for this segment
      of our business tend to be more predictable than those of our freight forwarding
      operations. However, customs brokerage is a commodity type business and pricing
      is very competitive. Consequently, operating margins in this business are often
      small, and are less than those in our freight operations. In some cases, we
      accept low margin brokerage business as a strategic decision to obtain
      additional freight forwarding customers or to retain the ones we have. Also,
      due
      to competitive factors, we often advance funds on behalf of our brokerage
      customers to pay the duty on their freight imports, and, as a result, we do
      incur credit risk, which may be substantial, particularly as measured against
      the profit from a specific job or customer. Because the return on an individual
      customs account may be small and the credit risk large, we exercise a heightened
      degree of oversight in accepting and retaining customs brokerage
      clients.





Generally,
      billings for customs services are based on the number of freight clearances
      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 and pick-up of documentation for the shipments. The specific amounts
      we bill are normally similar to what other brokerage companies charge in a
      specific geographical area. Because this business tends to be stable and
      recurring, we are able to estimate with a degree of certainty what our personnel
      needs are, with personnel costs being the largest expense for this
      business.





**Global
      Agency Network**





We
      work
      with approximately 525 independent cargo agents in overseas locations, many
      of
      whom have offices in strategic cities in Europe, North and South America, Africa
      and the Middle East. As a result, we may be represented by more than one agent
      in some cities, so that we generally do not have to rely on a single agent
      in
      any one city.





All
      of
      our arrangements with other cargo agents are on a non-exclusive basis. Under
      these arrangements, the agents are not authorized to make any commitments or
      to
      execute any contracts on our behalf. The fees payable to and received from
      these
      agents are usually shared 50:50 and may include additional charges for specific
      services.





By
      working with these independent cargo agents, we may be able to expand our
      business without the costs typically associated with the ownership and
      maintenance of company-owned branch offices. Given the importance of overseas
      cargo agents to our business, we believe it is essential 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. However, it is also true that because
      we
      often have to split the revenue with these cargo agents, the profit we earn
      is
      less than what we may earn if our own offices handle both sides, import and
      export, of a shipping transaction.




5




**Results
      of Operations**





THREE
      MONTHS ENDED JUNE 30, 2007, COMPARED WITH THREE MONTHS ENDED JUNE 30,
      2006.





Total
      revenue for the three months ended June 30, 2007, increased approximately 52%,
      compared with total revenue for the three months ended June 30, 2006, growing
      from approximately $20.93 million to $31.88 million. Of this increase, revenues
      from our existing business grew by $5.09 million, and the two companies acquired
      in the fourth quarter of 2006 added $5.86 million in revenues.




In
      analyzing the revenue growth in our existing
      business, approximately
      $1.77 million, or 35% of the increase is from Asean, our subsidiary in
      Australia. Our US operations, WLG (USA) and ALI, added revenues of
      approximately $1.73 million, or 34% of the total increase. The operations in
      Hong Kong contributed new revenues of approximately $0.80 million, or 16% of
      the
      increase. Revenues from our operations in China grew by $0.79 million over
      the
      same period last year, adding approximately 15% to the total increase.
      The UK acquisition, which we completed in September 2006, added $3.07
      million, and the MSA Group, which we acquired on December 1, 2006, increased
      reported revenues by $2.79 million, and together added revenues to the Group
      of $5.86 million.





Gross
      profit rose from $3.43 million in the three months ended June 30, 2006, to
      $5.02
      million for the same period in 2007, for an increase of $1.59 million, or 46%.
      Of this increase, our Hong Kong and China operations contributed $0.35 million;
      Asean added $0.23 million; our US operations, WLG (USA) and ALI, added $0.20
      million and WLG (UK) and MSA, the two acquisitions completed in 2006, added
      $0.59 million and $0.22 million, respectively. The Group's overall gross margin
      decreased slightly, from 16.4% for the three months ended June 30, 2006, to
      15.8% for the three month ended June 30, 2007, mostly due to adding more customs
      revenue, which carries a lower gross margin than that of our freight
      business.





During
      the three months ended June 30, 2007, total operating expenses increased to
      about $4.64 million, as compared to approximately $3.29 million for the same
      period in 2006, for an increase of $1.35 million, or 41%. Of this increase,
      salaries and related personnel costs increased nearly 48% from $2.07 million
      to
      $3.07 million. Other selling and administrative costs grew by approximately
      23%
      from $1.08 million to $1.33 million, which, when combined with the increase
      in
      personnel costs, results in a total increase of almost $1.25 million. 
Amortization and depreciation expense increased from $0.14 million to $0.24
      million, or 71%.  Of the total increase in operating costs of $1.35
      million, approximately $0.94 million is attributable to WLG (UK) and MSA, the
      two acquisitions completed in 2006. The remaining increase of about $0.41
      million represents a quarter to quarter increase of 12% and is attributable
      to
      our existing business. This increase of 12% in operating expenses compares
      to a
      sales increase of 24% reported by our existing operations for this same period.
       See *discussion of Operating Expenses* below.





After
      the
      provision for income taxes, the Group's net income for the three months ended
      June 30, 2007, is $210,000 and compares to net income of $3,000 for the same
      period in 2006. Our operating subsidiaries, WAE, WEHK, WLG (USA) and Asean
      reported a combined net profit of $613,000, representing an increase of
      $395,000, compared with net income of $218,000 for these entities for the same
      period in 2006. The improvement in their net incomes is mainly due to an
      increase in revenues and slower growth in overhead expenses. MSA, ALI and
      WLG (UK) incurred losses of $55,000, $8,000 and $65,000 during the three months
      ended June 30, 2007, respectively, and these losses were offset by the growth
      in
      income of our other operations.




**Segment
      Information**





***Air
      freight operations*** :
      Revenue
      from air freight operations for the three months ended June 30, 2007, increased
      to about $7.51 million from approximately $7.14 million, or approximately 5%,
      when compared to the same period in 2006. Asean and Hong Kong’s operations
      both
      reported a growth in their air-freight revenue, contributing 18% and 31% of
      the
      overall growth, respectively. Revenues from WE China accounted for 6% of the
      total growth of this segment. In general air freight revenues increased because
      of a growth in shipments to the US and Australia from Asia. MSA and WLG (UK)
      accounted for 2% and 43% of the growth. WLG (USA) reported a decrease of about
      $325,000 in its air freight revenues for the three months ended June 30, 2007,
      or 41%, when compared to its revenue for the same period in 2006.





Cost
      of
      sales for our air freight operations decreased slightly from about $6.08 million
      to $6.07 million. In general, the rates we obtained from co-loaders for
      shipments in 2007 were lower than the rates obtained for shipments during the
      same period in 2006. Obtaining better rates from the carriers helped to hold
      down our costs.





Gross
      profit margins increased from 14.9% for the three months ended June 30, 2006,
      to
      19.1% for the same period in 2007. This increase in gross profit margins was
      primarily attributable to the gross profit margins for WLG (UK)'s air freight
      business, which reported a gross margin of 22.4%, and to improvements in the
      profit margins of WAE.




6




Total
      overhead attributable to our air freight operations increased by approximately
      $0.17 million, or 17%, from approximately $1.00 million for the three months
      ended June 30, 2006, to $1.17 million, for the same period in 2007. Of this
      increase, approximately $0.09 million is attributable to the overhead costs
      of
      WLG (UK) and MSA, which were acquired near the end of 2006. Segment overhead
      incurred by our other subsidiaries for the three months ended June 30, 2007
      increased by approximately $0.08 million, compared to the same period in
      2006.




Net
      segment income for our air freight operations is approximately $262,000 for
      the
      three months ended June 30, 2007, which compares to net income of $68,000 for
      the same period in 2006, for an increase of $194,000. This growth is mainly
      due
      to improvements in Hong Kong’s air freight operations, which experienced a loss
      of approximately $25,000 for the three months ended June 30, 2006, compared
      to
      a net income of $187,000 for the same period in 2007. The increase in
      income posted by Hong Kong’s air freight operation offset a decrease in
      income of about $19,000 reported by WE China.





***Sea
      freight operations:*** Revenues
      from sea freight operations for the three months ended June 30, 2007, increased
      approximately 97%, when compared to the same period in 2006, growing from
      approximately $8.21 million to $16.16 million. Much of this improvement is
      a
      result of the internal growth of our existing operations, which showed an
      increase in revenues of nearly 58% over last year. WLG (USA) and ALI, our US
      subsidiaries, contributed revenues accounting for 28% of the growth. Revenues
      from Asean's sea freight business contributed 16% of the growth. In addition,
      our Hong Kong business accounted for 8% of the increase, and revenues generated
      by WE China's operations accounted for 6% of the growth.   The two
      acquisitions completed in 2006 accounted for the remaining increase of revenues,
      or about 42%. Of this increase, the MSA Group contributed $2.15 million, or
      27%,
      and WLG (UK) contributed $1.17 million, or 15%. ****




Cost
      of
      sales for our sea freight operations increased 112% from $6.26 million for
      the
      three months ended June 30, 2006, to $13.26 million for the same period in
      2007.
      This increase is attributable to a corresponding increase in sea freight
      revenues, increased ocean rates and to the acquired costs of WLG (UK) and
      MSA.





Gross
      profit margins decreased from approximately 23.7% for the three months ended
      June 30, 2006, to 18.0% for the same period in 2007. The decrease is due to
      increasing freight rates charged by the shipping lines and lower profit margins
      attributable to MSA and WLG (USA), which recorded gross margins of 8.1% and
      14.1%, respectively, for the three months ended June 30, 2007.  The lower
      margins attributable to WLG (USA) are due to our decision to grow WLG (USA)'s
      import business from Asia to the US. Previously, WLG (USA) had focused more
      on
      its export business rather than on imports. We were not able to pass on to
      our customers all of the increases in freight rates that we were charged by
      the shipping lines.





Total
      segment overhead attributable to our sea freight business increased by $0.90
      million, or 51%, from approximately $1.77 million for the three months ended
      June 30, 2006, to $2.67 million for the same period in 2007. The increase is
      partially attributable to the acquisitions of WLG (UK) and MSA, which together,
      added overhead expenses of $0.61 million during the three months ended June
      30,
      2007. The remaining increase in overhead expense of $0.29 million
      is attributable to our existing subsidiaries and was incurred by them to
      cope with increases in their sea freight business.




Sea
      freight net segment income is approximately $235,000 for the three months ended
      June 30, 2007, compared to net income of $181,000 for the same period in
      2006. The improvement in net income is mainly attributable to increases in
      the
      net incomes of WEHK, Asean and WLG (USA), which reported increases
      of $88,000, $11,000 and $51,000, respectively. In addition, WLG (UK) and
      MSA. which were not part of the Group during the second quarter of 2006,
      reported net losses of $66,000 and $37,000, respectively.





***Customs
      brokerage services:*** Asean,
      MSA and WLG (UK)'s operations each include a division that provides customs
      brokerage services. For the three months ended June 30, 2007, revenue from
      customs brokerage services totaled approximately $8.21 million, compared with
      $5.58 million for the same period in 2006, for an increase of approximately
      $2.63 million. The increase is mainly attributable to revenues of $1.56 million
      and $0.64 million, respectively, generated by WLG (UK) and MSA. Asean's customs
      revenues increased by about $0.43 million in the second quarter of 2007,
      compared to 2006, or about 8%. Direct and administrative costs for this segment
      of our business totaled about $8.24 million, producing a net loss of
      $26,000 for the three months ended June 30, 2007, compared to a net loss of
      $2,000 for the second quarter of 2006, which included only Asean's custom
      brokerage business. The net loss for the three months ended June 30, 2007 is
      mainly from WLG (UK) and MSA, which reported net losses of $28,000 and $17,000,
      respectively. Asean's customs practice reported net income of $19,000 for the
      three months ended June 30, 2007.




7




**Other
      Operating Expenses**





*Salaries
      and allowances*




Salaries
      and related allowances increased by $1.0 million, to $3.07 million for the
      same
      period in 2007, or 48%, from $2.07 million for the three months ended June
      30,
      2006. This increase is attributable to several factors, including normal
      increments in employee salaries given at the beginning of 2007, increases in
      the
      number of operational staff and management personnel during the period, and
      the
      acquisitions of MSA and WLG (UK) in the last quarter of 2006.  WLG (UK) and
      MSA increased our employee count by 33 and added personnel costs of $0.57
      million in the second quarter of 2007. The remaining increase of $0.43 million
      in salaries is attributable to salary increases in our existing operations
      and to the recognition of stock option expense, as well as an increase in
      headcount of 15 personnel. As of June 30, 2007, the Group's employee headcount
      was 257, compared to 209 employees at June 30, 2006.




*Rent*




Rent
  expense for our facilities increased 53% from $217,000 for the three months
  ended June 30, 2006, to $333,000 for the same period in 2007, for an overall
  increase of $116,000. Asean added rent expense of $43,000, mainly attributable
  to an increase in office rent and the rental of a new warehouse facility. In
  addition, WLG (UK) and MSA, the two acquisitions completed in 2006, added rent
  expense of $103,000 and $13,000, respectively.





*Other
      selling and administrative expenses*





Other
      SG&A expense for the three months ended June 30, 2007, totaled about $1.0
      million compared to $0.86 million for the same period in 2006, for an increase
      of about $0.14 million.  While the acquisitions of WLG (UK) and MSA added
      other SG&A costs of $127,000 and $37,000, respectively, for the three months
      ended June 30, 2007, ALI and WLG (USA) reduced their combined other SG&A
      costs by $22,000 by merging their administrative operations.




*Depreciation
      and Amortization*




Depreciation
      expense for property, plant and equipment increased from $60,000 for the three
      months ended June 30, 2006, to $82,000 for the same period in 2007. This
      increase of $22,000 is partially due to the aggregate depreciation expense
      of $12,000 for WLG (UK) and MSA, which were not part of the Group until the
      last
      quarter of 2006. The remaining increase of $10,000 is attributable to the
      additions of office and computer equipment and to leasehold improvements for
      our
      new Hong Kong office.





Amortization
      expense is attributable to the customer lists acquired in the acquisitions
      of
      WLG (USA), ALI, Asean, WLG (UK), MSA and Sea Systems.  In connection with
      the acquisition of WLG (USA), we recorded a customer list asset of $512,000,
      which is being amortized on a straight-line basis over 5 years. Asean's customer
      list was valued at $1.56 million and is being amortized on a straight-line
      basis
      over 8 years. A five-year life and a value of $164,000 were assigned to ALI's
      customer list, which, due to an impairment write-down in 2006, will be fully
      amortized by the end of 2007. WLG (UK)'s customer list was valued at $833,268
      and is being amortized over five years. A cost of $1.55 million was assigned
      to
      the customer lists of MSA and Sea Systems, which are being amortized
      over a 10-year life. During the three months ended June 30, 2007, amortization
      expense totaled $162,660. This sum is attributable to WLG (USA), Asean, ALI,
      WLG
      (UK) and the MSA Group in the amounts of $25,614, $48,832, $7,797, $41,664
      and $38,753, respectively. Total amortization expense in 2006 was $82,653 and
      related to WLG (USA), Asean and ALI in the amounts of $25,614, $48,832 and
      $8,207, respectively. The MSA Group and the UK business of WLG (UK) were
      acquired in the fourth quarter of 2006, and no amortization expense was
      recorded for the customer lists of these two companies until the end
      of 2006.





*Interest
      Expense*




Interest
      expense decreased from $90,000 for the three months ended June 30, 2006, to
      $86,000 for the same period in 2007. WLG (USA) added interest expense of
      approximately $23,000, which results from an increase in its revolving line
      of
      credit of $250,000 and from a five-year $1.0 million term loan incurred to
      acquire the MSA Group. The additional interest expense of WLG (USA) is offset
      by
      a decrease in interest expense of approximately $24,000 for Asean, which is
      mainly attributable to a decrease in the rate of interest and to a credit for
      interest incorrectly charged on its receivables facility.




8




*Provision
      for Income Taxes*





The
  provision for income taxes increased from $62,000 for the three months ended
  June 30, 2006, to $123,000 for the same period in 2007, mainly attributable
  to income recorded by our Hong Kong and Australian operations. Income tax of
  $108,000 was provided on the combined net income of $616,000 attributable to
  Hong Kong and Asean's operations, for an effective tax rate of 18%, which includes
  the effect of an operating loss carryforward attributable to Hong Kong. The
  US operations of ALI and WLG (USA) are included in a US consolidated income
  tax return with the Group's parent company, and, together, these companies reported
  a consolidated loss.  As such, no provision for US federal or state income
  taxes is required for the three months ended June 30, 2007, and no income tax
  benefit, was taken for their losses, which totaled $160,000. After consideration
  of all losses and amortization expense, for which no income tax benefit is provided,
  the effective tax rate on the Group's income of $333,000 reported for the three
  months ended June 30, 2007, is approximately 37%.




SIX
      MONTHS ENDED JUNE 30, 2007, COMPARED WITH SIX MONTHS ENDED JUNE 30,
      2006.





Total
      revenue for the six months ended June 30, 2007, increased by about $20.58
      million, or 51%, compared with total revenue for the six months ended June
      30,
      2006, growing from approximately $40.61 million to $61.19 million. Of this
      increase, revenues from our existing business grew by $8.73 million, and the
      two
      companies acquired in the fourth quarter of 2006 added $11.85 million in
      revenues.





From
      our
      existing operations, approximately $3.40 million, or 39% of the increase in
      revenues, is from Asean, our subsidiary in Australia. Our Hong Kong business
      contributed about $1.55 million in new revenues, or 18% of the increase.
      Revenues from our operations in China grew by $0.97 million over the same period
      last year, adding approximately 11% to the total increase. The US operations
      of
      WLG (USA) and ALI added revenues of approximately $2.81 million, or 32% of
      the
      total increase. Our two acquisitions in 2006 generated revenues
      of $11.85 million for the first six months of 2007. The UK
      acquisition, which we completed in September 2006, added $6.36 million, and
      the
      MSA Group, which we acquired on December 1, 2006, increased reported revenues
      by
      $5.49 million.





Gross
      profit rose from $6.58 million for the six months ended June 30, 2006, to $9.77
      million for the same period in 2007, for an increase of $3.19 million, or 48%.
      Of this increase, our Hong Kong and China operations contributed $0.56 million.
      Our US operations, WLG (USA) and ALI, added $0.31 million and Asean added $0.62
      million. WLG (UK) and MSA, our two acquisitions completed in 2006, added $1.27
      million and $0.43 million, respectively. The Group's overall gross margin
      decreased slightly, from 16.2% for the six months ended June 30, 2006, to 16.0%
      for the six months ended June 30, 2007. This reduction in gross margin is mainly
      due to a higher percentage of customs revenues to total revenues in 2007,
      compared to 2006. Customs revenues yield a lower gross margin than revenues
      in
      our freight forwarding operations.




During
      the six months ended June 30, 2007, total operating expenses increased to about
      $9.09 million, as compared to approximately $6.65 million for the same period
      in
      2006, for an increase of $2.44 million, or 37%. Of this increase, salaries
      and
      related personnel costs increased nearly 47% from $4.08 million to $5.98
      million. Other selling and administrative costs grew by approximately 15% from
      $2.29 million to $2.63 million, which, when combined with the increase in
      personnel costs, results in a total increase of almost $2.24 million. 
Amortization and depreciation expense increased from $0.28 million to $0.48
      million, or 71%.  Of the total increase in operating costs of $2.44
      million, approximately $1.85 million is attributable to WLG (UK) and MSA, the
      two companies acquired in 2006. The remaining increase of about $0.59 million,
      which is attributable to our existing operations, represents a 9% increase
      in
      operating expenses, and compares to a sales increase reported by our existing
      business of 22% for this same period.  See *discussion of Operating Expenses* below.





After
      the
      provision for income taxes, the Group's net income for the six months ended
      June
      30, 2007, is $359,000, compared to a net loss of $252,000 for the same period
      in
      2006. WAE, WEHK, WLG (USA) and Asean reported a combined net income of
      $1,027,000, representing an increase of $806,000, compared with net income
      of
      $221,000 for these entities for the same period in 2006. The improvement in
      their net incomes is mainly due to an increase in revenues and a slower growth
      in overhead expenses. MSA, ALI and WLG (UK) incurred losses of $73,000, $27,000
      and $50,000, respectively, during the six months ended June 30, 2007. Theses
      losses were offset by the growth in net income from our other operating
      subsidiaries.




9




**Segment
      Information**





***Air
      freight operations*** :
      Revenue
      from air freight operations for the six months ended June 30, 2007, increased
      to
      about $14.75 million from approximately $13.34 million, or approximately 11%,
      when compared to the same period in 2006.   Revenues from Hong Kong
      accounted for 13% of the total growth of this segment, mainly due to an increase
      in shipments to the US and Australia. Asean and WE China’s operations both
      reported increases in air freight revenue, contributing 26% and 6% of the
      overall growth, respectively. MSA and WLG (UK) accounted for 3% and 52% of
      the
      growth. WLG (USA) reported a decrease of about $148,000 in its air freight
      revenues for the six months ended June 30, 2007, or 12%, when compared to
      the same period in 2006.





Cost
      of
      sales for our air freight operations increased by approximately 8%, from about
      $11.24 million for the six months ended June 30, 2006, to $12.09 million for
      the
      same period in 2007. This increase was due to higher volumes of freight traffic
      arranged by us, but, this increase, as a percentage, was less than the 11%
      increase in revenues for this segment. In general, the rates we obtained from
      co-loaders for shipments in the first six months of 2007, were lower than the
      rates obtained for shipments during the first half of 2006, and this helped
      to
      improve our margins.





Gross
      profit margins increased from 15.8% for the six months ended June 30, 2006,
      to
      18.1% for the same period in 2007. This increase in gross profit margins was
      primarily attributable to the gross profit margins for WLG (UK)'s air freight
      business, which reported a gross margin of 20.6%, and to improvements in the
      profit margins of WAE.




Segment
      overhead attributable to our air freight operations increased by approximately
      $0.31 million, or 16%, from approximately $2.00 million for the six months
      ended
      June 30, 2006, to $2.31 million, for the same period in 2007. Of this increase,
      approximately $0.22 million is attributable to the overhead expenses of WLG
      (UK)
      and MSA, which were added to the Group near the end of 2006. Segment overhead
      incurred by our other subsidiaries for the six months ended June 30, 2007,
      increased by approximately $0.09 million, compared to the same period in
      2006.




Net
      segment income for our air freight operations is approximately $360,000 for
      the
      six months ended June 30, 2007, compared to net income of $108,000 for the
      same
      period in 2006, for an increase of $252,000. Most of this growth is attributable
      to Hong Kong's air freight operations, which reported an increase of
      approximately $263,000, mainly as a result of an increase in freight volumes
      and
      an improvement in its profit margin. In addition, Asean reported a net income
      of
      $23,000 for the six months ended June 30, 2007, compared with a net loss of
      approximately $42,000 for the same period in 2006. The increase in income posted
      by Hong Kong and Asean offset a decrease in income of about $51,000
      reported by WE China, and a combined net loss of $9,000 from the operations
      of
      WLG (UK) and MSA.




***Sea
  freight operations:*** Revenues from sea freight operations for the six months ended June 30, 2007,
  rose by about 88%, when compared to the same period in 2006, growing from approximately
  $16.10 million to $30.19 million, for a total increase of $14.09 million. Much
  of this improvement is a result of the internal growth of our existing operations,
  which generated an increase in revenues of nearly 46% over the same period last
  year. Our Hong Kong business accounted for 10% of the increase, and revenues
  generated by WE China's operations accounted for 6% of the growth.  WLG
  (USA) and ALI, our US subsidiaries, contributed revenues accounting for 22%
  of the growth.  In addition, revenues from Asean's sea freight business
  contributed 15% of the growth. The two acquisitions completed in 2006 accounted
  for the remaining increase of $6.66 million in revenues, or about 47%. Of this
  increase, the MSA Group contributed $4.41 million, or, 31%, and WLG (UK) contributed
  about $2.25 million, or 16%.




Cost
      of
      sales for our sea freight operations increased 98% from $12.31 million for
      the
      six months ended June 30, 2006, to $24.38 million for the same period in 2007.
      This increase is mainly attributable to a corresponding increase in sea freight
      revenues, higher ocean rates and to the acquired costs of WLG (UK) and
      MSA.





Gross
      profit margins decreased from approximately 23.5% for the six months ended
      June
      30, 2006, to 19.2% for the same period in 2007. The decrease is due to
      increasing freight rates charged by the shipping lines and lower profit margins
      attributable to MSA and WLG (USA), which recorded gross margins of 8.7% and
      14.7%, respectively, for the six months ended June 30, 2007.  The lower
      margins attributable to WLG (USA) are due to our decision to grow WLG (USA)'s
      import business from Asia to the US. Previously WLG (USA) had focused more
      on
      its export business than on imports. We were not able to pass on to our
      customers all of the increases in freight rates that we were charged by the
      shipping lines.





Total
      segment overhead attributable to our sea freight business increased by $1.65
      million, or 45%, from approximately $3.63 million for the six months ended
      June
      30, 2006, to $5.28 million for the same period in 2007. In part, this increase
      is attributable to the acquisitions of WLG (UK) and MSA, which together, added
      overhead expenses of $1.16 million during the six months ended June 30, 2007.
      The remaining increase of $0.49 million in overhead expense is attributable
      to our other operating subsidiaries and was incurred by them to cope with
      increases in their business.




10




Net
      segment income for our sea freight operations is approximately $525,000 for
      the
      six months ended June 30, 2007, which compares to net income of $151,000
      for the same period in 2006. The improvement in net income is mainly
      attributable to increases in the net incomes of WEHK, Asean and WLG (USA),
      which reported increases of $196,000, $87,000 and $115,000,
      respectively. ALI reduced its net loss by $113,000, because most of its
      administrative operations were taken over by WLG (USA). Our new subsidiaries,
      WLG (UK) and MSA, reported net losses of $27,000 and $56,000, respectively.
      WE
      China’s net income declined by $54,000, which is attributable to higher carrier
      costs, the inability to pass these costs on to our customers and to an exchange
      loss caused by a strengthening of the Chinese currency against the US
      dollar.





***Customs
      brokerage services:*** Asean,
      MSA and WLG (UK)'s operations each include a division that provides customs
      brokerage services. For the six months ended June 30, 2007, revenue from customs
      brokerage services totaled approximately $16.25 million, compared with $11.18
      million for the same period in 2006, for an increase of approximately $5.07
      million. The increase is mainly attributable to revenues of $3.24 million and
      $1.03 million, respectively, generated by WLG (UK) and MSA. Asean's customs
      revenues increased by about $0.80 million in the first half of 2007, compared
      to
      2006, or about 7%. Direct and administrative costs totaled about $16.24
      million, producing net income of $3,000 for the six months ended June 30, 2007,
      compared to a net loss of $55,000 for the same period in 2006, which included
      only Asean's custom brokerage business. MSA and WLG (UK) reported losses of
      $16,000 and $15,000, respectively, for the six months ended June 30,
      2007.




**Other
      Operating Expenses**





*Salaries
      and allowances*




Salaries
      and related allowances increased by $1.90 million, or 47%, from $4.08 million
      for the six months ended June 30, 2006, to $5.98 million for the same period
      in
      2007. This increase was attributable to several factors, including normal
      increments in employee salaries given at the beginning of 2007, increases in
      the
      number of operational staff and management personnel during the period, and
      the
      acquisitions of WLG (UK) and MSA in the last quarter of 2006.  WLG (UK) and
      MSA increased our employee count by 33 and added personnel costs of $1.13
      million in the first six months of 2007. The remaining increase of $0.77 million
      in salaries is attributable to salary increases in our existing operations
      and to the recognition of stock option expense, as well as to an increase in
      headcount of 15 personnel. As of June 30, 2007, the Group's employee headcount
      was 257, compared to 209 employees at June 30, 2006.




*Rent*




Rent
      expense for our facilities increased 67% from $371,000 for the six months ended
      June 30, 2006, to $621,000 for the same period in 2007, for an overall increase
      of $250,000. WLG (UK) and MSA, the two acquisitions completed in 2006, added
      rent expense of $198,000 and $24,000, respectively. In addition, Asean added
      rent expenses of $54,000, mainly attributable to an increase in office rent
      and the rental of a new warehouse facility.





*Other
      selling and administrative expenses*





Other
      SG&A expense for the six months ended June 30, 2007, totaled about $1.91
      million compared to $2.01 million for the same period in 2006, for an increase
      of about $0.10 million.  While the acquisitions of WLG (UK) and MSA added
      other SG&A costs of $257,000 and $58,000, respectively, for the six months
      ended June 30, 2007, ALI and WLG (USA) reduced their combined other SG&A
      costs by $96,000 by merging their administrative operations. In addition, we
      have also reduced corporate legal and consulting fees by about $47,000 during
      the six months ended June 30, 2007, compared to the same period in
      2006.




*Depreciation
      and Amortization*




Depreciation
      expense for property, plant and equipment increased from $118,000 for the six
      months ended June 30, 2006, to $161,000 for the same period in 2007. This
      increase of $43,000 is partially due to the aggregate depreciation expense
      of $24,000 for WLG (UK) and MSA, which were not part of the Group until the
      last
      quarter of 2006. The remaining increase of $19,000 is attributable to the
      additions of office and computer equipment and to leasehold improvements for
      our
      new Hong Kong office.





Amortization
      expense is attributable to the customer lists acquired in the acquisitions
      of
      WLG (USA), ALI, Asean, WLG (UK). MSA and Sea Systems.  In connection with
      the acquisition of WLG (USA), we recorded a customer list asset of $512,000,
      which is being amortized on a straight-line basis over 5 years. Asean's customer
      list was valued at $1.56 million and is being amortized on a straight-line
      basis
      over 8 years. A five-year life and a value of $164,000 were assigned to ALI's
      customer list, which, due to an impairment write-down in 2006, will be fully
      amortized by the end of 2007. WLG (UK)'s customer list was valued at $833,268
      and is being amortized over five years. A cost of $1.55 million was
      assigned to the customer lists of MSA and Sea Systems, which are being
      amortized over a 10-year life. During the six months ended June 30, 2007,
      amortization expense totaled $325,312. This sum is attributable to WLG (USA),
      Asean, ALI, WLG (UK) and the MSA Group in the amounts of $51,228, $97,664,
      $15,593, $83,327 and $77,500, respectively. Total amortization expense in 2006
      was $165,306 and related to WLG (USA), Asean and ALI in the amounts of $51,228,
      $97,664 and $16,414, respectively. The MSA Group and the UK business of WLG
      (UK) were acquired in the fourth quarter of 2006, and no amortization
      expense was recorded for the customer lists of these two companies until the
      end
      of 2006.




11




*Interest
      Expense*




Interest
      expense increased from $182,000 for the six months ended June 30, 2006, to
      $205,000 for the same period in 2007. This increase is mainly attributable
      to
      additional interest expense of approximately $46,000 for WLG (USA), which
      results from an increase of $250,000 in its revolving line of credit
      to $1.0 million and to a five-year $1.0 million term loan incurred to
      acquire the MSA Group. Interest expense in Asean decreased by $18,000, mainly
      as
      a result of a decrease in the rate of interest charged for its receivables
      loan
      facility.




*Provision
      for Income Taxes*





The
      provision for income taxes increased from $88,000 for the six months ended
      June
      30, 2006, to $211,000 for the same period in 2007, mainly attributable to income
      reported by Hong Kong and Asean's operations. Income tax of $183,000, or an
      effective tax rate of 18% which included the use of an operating loss
      carryforward in Hong Kong, was provided on the combined net income of $1,042,000
      attributable to our operations in Hong Kong and Australia. The US
      operations of ALI and WLG (USA) are included in a US consolidated income tax
      return with the Group's parent company, and, together, these companies reported
      a consolidated loss.  As such, no provision for US federal or state income
      taxes is required for the six months ended June 30, 2007, and no income tax
      benefit, was taken for their losses, which totaled $291,000. After consideration
      of all losses and amortization expense, for which no income tax benefit is
      provided, the effective tax rate on the Group's income of $570,000 reported
      for
      the six months ended June 30, 2007, is approximately 37%.




**LIQUIDITY
      AND CAPITAL RESOURCES**




For
      the
      six months ended June 30, 2007, our operations provided net cash of
      approximately $2.41 million, compared with cash of $0.47 million provided by
      our
      operations for the same period in 2006. In 2007, cash was provided by the
      following sources: decrease of trade receivables of $1.18 million, increase
      in
      accrued charges of $401,000, increase in trade payables of $220,000,
      amortization and depreciation expense of $487,000, provision for bad debts
      of
      $12,000, net income of $359,000, an increase in taxes payable of $19,000 and
      other non-cash items of $33,000. Major components that used cash for operations
      in 2007 included an increase in deposits and prepayments of $203,000 and the
      repayment of $99,000 to a director.




Net
      cash
      used by financing activities totaled about $1.23 million for the six months
      ended June 30, 2007, compared to net cash of about $0.38 million used in
      financing activities during the first six months of 2006. Cash used by financing
      activities in 2006 consisted primarily of the repayment of bank debt and capital
      lease obligations of $333,000 and $54,000, respectively. Cash used by financing
      activities in 2007 consists of the repayment of bank debt of $1.01 million
      and
      the repayment of capital lease obligations totaling $60,000. In addition, we
      paid dividends of $45,000 on our preferred stock. We also increased restricted
      cash and pledged deposits by $122,000 for bank guarantees to support our
      airfreight business.




As
  of June 30, 2007, we had given bank guarantees of $719,000 to certain airlines
  to support credit facilities provided by banks to one of our subsidiaries. 
  These guarantees provide credit support to the airlines, which in turn grant
  credit terms to us.  In general, we must make freight payments to the airlines
  prior to receiving payment from our customers. These guarantees are secured
  by restricted cash deposited in separate bank accounts, which, in the aggregate,
  total approximately $739,000. We have also given a bank guarantee of approximately
  $116,000 in favor of the owner of the office premises occupied by our subsidiary
  in Australia.




In
      October 2004, WEHK and WAE (the “Hong Kong Subsidiaries”) obtained a bank loan
      of $449,000, which was used to pay income taxes and for general working capital
      needs. This loan was repayable in 24 equal monthly installments, with interest
      at the best rate charged by the lending bank, less one percent. The interest
      rate on this loan was 7% per annum and the loan was repaid in full by October
      2006. In October 2005, the Hong Kong Subsidiaries obtained an additional loan
      of
      approximately $129,000, and used the loan proceeds to pay income taxes and
      for
      general working capital purposes. This loan was repaid by November, 2006.
 During 2006, the Hong Kong Subsidiaries borrowed approximately $114,000 to
      pay income taxes and to use as working capital.  At June 30, 2007, the
      principal amount of this loan was approximately $39,000 and carried an interest
      rate of 7.25%, which is indexed to the bank's prime rate.




12




As
      of
      June 30, 2007, WLG (USA) owed $784,000 under a $1.0 million revolving line
      of
      credit and $899,998 on a five-year $1.0 million term loan pursuant to loan
      facilities granted by a bank in the last quarter of 2006.  The revolving
      line of credit expires in October 2007, and the term loan matures in November
      2011. Both loans carry interest at LIBOR plus 2.75%, which at June 30,
      2007, was 8.1%. In addition, the term loan requires monthly principal
      payments of $16,667, plus accrued interest.  Principal payments of $200,000
      are due in 2007 and in each of the following four years until maturity
      at November 31, 2011.  Total borrowings under the revolving line of
      credit and the term loan are limited to 75% of the eligible trade receivables,
      as defined in the loan agreement, between the bank and WLG (USA) and the MSA
      Group.  All borrowings under these loan facilities are secured by a first
      position blanket lien on substantially all of WLG (USA) and the MSA
      Group's assets and a guarantee provided by the Group's parent
      company.  The loan agreement calls for the maintenance of certain financial
      covenant ratios for the operations of WLG (USA) and the MSA Group, including
      minimum cash flow coverage and maximum funded debt to earnings before taxes,
      interest and non-cash items, each of which is to be applied on a rolling
      basis at the end of each calendar quarter.  In addition, WLG (USA) may not
      pay dividends without approval from its bank. WLG (USA) and the MSA Group were
      in compliance with all covenants as of June 30, 2007.




Asean
      has
      a receivables loan facility in the face amount of approximately $3.40 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 $574,000.
      At June 30, 2007, Asean's bank debt under its receivables line and overdraft
      facility was $1.50 million and $574,000, respectively, with
      interest rates of approximately 10.05% for the receivables line and 9.15% for
      the overdraft facility. Asean's bank, in addition to having a charge over all
      of
      Asean's accounts receivable, holds a first registered mortgage over all of
      Asean's assets. The bank also has personal guarantees from each of Asean’s
      former shareholders as security for the overdraft facility.




An
      important part of our business plan calls for us to make strategic acquisitions
      to supplement our internal growth. In 2005, we completed the acquisitions of
      three freight forwarding and logistics companies, one of which had a customs
      brokerage business. We followed this in 2006 by acquiring two freight forwarding
      and customs brokerage companies. As set forth in our Form 8K filed on August
      3,
      2007, we completed the acquisition of World Commerce Services, LLC, a freight
      forwarding and customs brokerage company, on July 31. 2007. We expect to make
      additional strategic acquisitions as a means of expanding our business to allow
      us to provide a full range of logistics services on a global scale. To the
      extent that we are unable to use our common stock in the acquisitions of other
      companies, we will likely need to raise additional capital if we are to be
      successful in executing our business plan. At this point, we are not certain
      of
      the amount of capital we may need because the amount will vary with the size,
      type and nature of consideration required for the prospective acquisitions.
      However, there can be no assurance that we will be successful in identifying
      suitable acquisition targets and, if we are, there can be no certainty that
      we
      will be able to complete the acquisitions. Nor can there be any assurance that
      we would be successful in our efforts to raise additional capital, either in
      the
      form of long-tem debt and/or equity.




Our
      approximate contractual cash obligations as of June 30, 2007, are set forth
      in
      the table below, which includes our equipment lease and office rental
      obligations, as well as payments due under our cargo space commitments. These
      cash obligations are expected to equal approximately $327,000 per month over
      the
      following twelve months.




Payments
                    Due by Period (in thousands)Contractual
                    Obligations
                
                Total
                
                Less
                    than 1 year
                
                1-3
                    years
                
                4-5
                    years
                
                After
                    5 yearsFacilities
                    rental and equipment lease obligations
                
                $
                2,074
                
                $
                963
                
                $
                1,043
                
                $
                68
                
                $
                —Cargo
                    space commitments
                
                $
                2,964
                
                $
                2,964
                
                
                —
                
                
                —
                
                
                —Total
                    contractual cash obligations
                
                $
                5,038
                
                $
                3,927
                
                $
                1,043
                
                $
                68
                
                $
                —


****


During
      the six months ended June 30, 2007 and 2006, 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.


13




**Item
      3 Quantitative and Qualitative Disclosures About Market
      Risk**




The
      Company is exposed to market risk in the ordinary course of its business. These
      risks are primarily related to foreign exchange rate risk arising from making
      sales and incurring expenses in currencies other than the US dollar, incurring
      debt denominated in foreign currencies and to changes in short-term interest
      rates. The potential impact on the Company for these risks is presented
      below:




**FOREIGN
      EXCHANGE RISK**




We
      conduct business in many different countries and in many currencies. As such,
      we
      routinely issue invoices for our services in a currency different from the
      currency used to pay expenses related to the services. Billing in one currency
      and incurring expenses in a different currency results in a foreign exchange
      rate risk to us. In these cases, the market risk associated with doing business
      in foreign currencies may be quantified by a foreign exchange rate sensitivity
      analysis that estimates the impact of a hypothetical change in the value of
      our
      functional currency, the US Dollar (“USD”), relative to the other currencies in
      which we transact business. Our subsidiaries transact business mostly in the
      following foreign currencies: Hong Kong Dollars (“HKD”); British Pounds (“GBP”);
      Australian Dollars (“AUD”); and the Chinese Yuan (“CNY”). Two of our major
      subsidiaries use the HKD as their functional currency. The HKD has long been
      pegged to the USD at a rate of HKD 7.80 to USD 1.00. Because of the peg, there
      has been, and is no material change in the foreign exchange risk for
      transactions denominated in HKD's. All of the other currencies in which we
      transact business float freely against the USD, with the possible exception
      of
      the CNY. The value of the CNY is believed to be managed and controlled to some
      extent by the Chinese government.




Assuming
      that the HKD peg to the USD was terminated and taking all other currencies
      in
      which we conduct business into consideration, an average, hypothetical 10%
      weakening of the USD against all other currencies for the six months ended
      June
      30, 2007, would have had the effect of decreasing our net income by
      approximately $436,000. An average, hypothetical 10% strengthening of the USD
      for the same period would have had the effect of increasing our net income
      by
      approximately $392,000. As of June 30, 2007, no techniques, such as derivative
      financial instruments or hedging transactions, were used as a means to limit
      our
      exposure to foreign currency exchange rate risks.




We
      also
      incur funded debt that is denominated in foreign currencies, which,
      historically, has been in AUD and HKD. For Hong Kong funded debt, which is
      not
      material in amount, as long as the HKD remains linked to the USD, we will not
      incur any foreign exchange rate risk for this debt. We do incur foreign exchange
      rate risk for debt denominated in AUD. If there was an average, hypothetical
      10%
      weakening of the USD against the AUD, our financial position as of June 30,
      2007, would have decreased by $257,000. If there was a an average, hypothetical
      10% strengthening of the USD against the AUD, our financial position as of
      June
      30, 2007, would have been improved by $210,000. To date, we have not utilized
      any type of derivative financial instruments to protect against our exposure
      to
      foreign currency exchange rate risks for funded debt.




**INTEREST
      RATE RISK**




As
      of
      June 30, 2007, the Company had cash and cash equivalents and restricted cash
      of
      $3.17 million and bank debt of approximately $3.79 million, all subject to
      variable interest rates tied to indexes such as Libor or to a bank's prime
      lending rate. An average, hypothetical change in interest rates of 10%
      would have had an insignificant impact on our earnings for the six months ended
      June 30, 2007. We do not use derivative financial instruments of any type to
      hedge against changes in interest rates.




14





**Item
      4 Controls and Procedures**




Our
      Chief
      Executive Officer and Chief Financial Officer are responsible for establishing
      and maintaining “disclosure controls and procedures” as such term is defined in
      Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act
      of
      1934, as amended (the “Exchange Act”). Accordingly, our Company's Chief
      Executive Officer and Chief Financial Officer designed such disclosure controls
      and procedures, or caused such disclosure controls and procedures to be designed
      under their supervision, to ensure that material information relating to the
      Company, including its consolidated subsidiaries, is made known to them by
      others within those entities. Our Chief Executive Officer and our Chief
      Financial Officer have evaluated the effectiveness of our disclosure controls
      and procedures as of the end of the period covered by this Report on Form 10-Q.
      Based on this evaluation and, subject to the deficiencies described below,
      they
      have concluded that the Company's disclosure controls and procedures were
      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.
      Notwithstanding the deficiencies described below, our management has concluded
      that the consolidated financial statements included in this Report on Form
      10-Q
      fairly state, in all material respects, our financial condition, results of
      operations and cash flows for the periods presented in conformity with generally
      accepted accounting principles.





At
      the
      conclusion of the audit of the Group's consolidated financial statements for
      the
      year ended December 31, 2006, the Company's management and Board of Directors
      were notified by Blackman Kallick Bartelstein, LLP, (“BKB”), the auditor for the
      Company's subsidiary, WLG (USA) LLC and its subsidiaries (collectively “WLG
      (USA) Group”), that during the course of their audit of WLG (USA) Group's
      consolidated financial statements for the year ended December 31, 2006,
      they identified deficiencies in WLG (USA) Group's internal control over
      financial reporting (“internal control”) that they considered to be significant
      deficiencies. The deficiencies related to the following: (1) with respect to
      related party transactions with the Company and the Company's other
      subsidiaries, a lack of regular reconciliation of inter-company account
      balances; (2) a lack of regular review and reconciliation of WLG (USA) Group's
      general ledgers and financial statements and failure to maintain proper
      segregation of accounting duties; (3) WLG (USA) Group's year-end closing
      procedures did not include developing estimates to state accounts receivable
      at
      net realizable value or properly adjust revenues for subsequent adjustments
      to
      sales; and (4) WLG (USA)'s chief executive officer's ability to record
      transactions in the general ledger. In addition to the forgoing, BKB identified
      certain control deficiencies in WLG (USA) Group's IT security policies and
      procedures that they did not consider to be significant
      deficiencies.





CHANGES
      IN INTERNAL CONTROL OVER FINANCIAL REPORTING.





The
      Company is working to address the deficiencies identified by BKB and will
      implement and test the necessary controls and procedures to remediate the
      deficiencies in the internal control of WLG (USA) Group. As part of this
      work, we intend to evaluate the internal control of WLG (USA) Group using the
      guidance provided by COSO in “Internal Control over Financial Reporting -
      Guidance for Smaller Public Companies” and “Enterprise Risk Management -
      Integrated Framework.” The forgoing notwithstanding, there was no change in the
      Company's internal control identified in connection with the evaluation required
      by Rule 13a-15(d) and Rule 15d-15(d) of the Exchange Act that occurred during
      the period covered by this Report on Form 10-Q and that has materially affected,
      or is reasonably likely to materially affect, the Company's internal control
      over financial reporting.




The
      Company is continuing the process of reviewing and formalizing its internal
      control and procedures for financial reporting in accordance with the Securities
      and Exchange Commission's rules implementing the internal control reporting
      requirements included in Section 404 of the Sarbanes Oxley Act. The Company
      has
      not completed this process, and this process will require significant amounts
      of
      management time and resources. In the course of evaluation and testing,
      management may identify deficiencies that will need to be addressed and
      remediated




15





**Part
      II: Other Information**





**Item
      1: Legal Proceedings:** None




**Items
      1A: Risk Factors:** There
      have been no material changes in the Risk Factors set forth in WLG's Annual
      Report on Form 10-KSB for the year ended December 31, 2006 and its
      Report on Form 10-Q for the three months ended March 31, 2007.





**Item
      2: Unregistered Sales of Equity Securities and Use of
      Proceeds:** None




**Item
      3. Defaults Upon Senior Securities:** None




**Item
      4. Submission of Matters to a Vote of Security Holders:** None




**Item
      5. Other Information:** None





**Item
      6. Exhibits.**





Exhibits
      (filed herewith)





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





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




32.1
            Certification
                of the Chief Executive Officer and Chief Financial Officer pursuant
                to 18
                U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002 (Rule
                13a-14(b)).




16





**SIGNATURES**





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




WAKO
                LOGISTICS GROUP, INC.Date: August
                14, 2007
            By:
            /s/ Christopher
                WoodChristopher
                WoodChief
                Executive Officer,
              (
                Principal Executive Officer) and
                Director




Date: August
                14, 2007
            By:
            /s/ David
                L. KoontzDavid
                L. KoontzChief
                Financial Officer,
              (Principal
                Financial Officer and Accounting Officer)
              and
                Director




17





**EXHIBIT
      INDEX**




**Exhibit**
              **Number**
            
            **Description
                of Exhibit**31.1
            
            Certification
                of the Chief Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002 (Rule 13a-4(a)).31.2
            
            Certification
                of the Chief Financial Officer to Section 302 of the Sarbanes-Oxley
                Act of
                2002 (Rule 13a-4(a)).32.1
            
            Certification
                of the Chief Executive Officer and Chief Financial Officer pursuant
                to 18
                U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002 (Rule
                13a-14(b)).




18