SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





FORM
      10-QSB





(Mark
      One)





x
              Quarterly
                  report under Section 13 or 15(d) of the Securities Exchange Act
                  of 1934
                  for the quarterly period ended March 31,
                  2006




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 Small Business Issuer as Specified in Its Charter)
  Delaware
                    
                    20-0262555(State
                        or Other Jurisdiction
                        of
                    
                    (I.R.S.
                        EmployerIncorporation
                        or
                        Organization)
                    
                    Identification
                        No.)
  200
                          Howard Avenue, Suite 232, Des Plaines,
                          Illinois 60018(Address
                          of Principal Executive
                          Offices)
  (847)
                            294-1600(Issuer’s
                          Telephone Number, Including Area
                          Code)





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


Yes x No o







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


Yes o No x




As
      of May
      12, 2006 the registrant had 25,390,080 shares of common stock, $.001 par value,
      issued and outstanding.





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



















**WAKO
      LOGISTICS GROUP, INC.**





**FORM
      10-QSB**





**QUARTER
      ENDED MARCH 31, 2006**




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





**NOTE
      REGARDING FORWARD LOOKING STATEMENTS**





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





The
      Company cautions readers regarding certain forward-looking statements in this
      document and in all of its communications to shareholders and others, including
      press releases, securities filings, and all other communications. WLG also
      cautions readers not to place undue reliance on any such forward-looking
      statements, which speak only as of the date made. Such forward-looking
      statements are based on the beliefs of WLG's management as well as on
      assumptions made by and information currently available to WLG at the time
      such
      statements were made. Forward-looking statements are subject to a variety of
      risks and uncertainties which could cause actual events or results to differ
      from those reflected in the forward-looking statements. Actual results could
      differ materially from those projected in the forward-looking statements, as
      a
      result of either the matters set forth or incorporated in this report generally
      or certain economic and business factors, some of which may be beyond the
      control of WLG. These factors include adverse economic conditions, entry of
      new
      and stronger competitors, inadequate capital, unexpected costs, failure to
      gain
      or maintain approvals for the sale and expansion of WLG’s services in the
      jurisdictions where WLG conducts its business or the failure to capitalize
      upon
      access to new markets and
      those
      factors referred to or identified in Item 1 of our Report on Form 10-KSB for
      the
      year ended December 31, 2005.




WLG
      disclaims any obligation subsequently to revise any forward-looking statements
      to reflect events or circumstances after the date of such statements or to
      reflect the occurrence of anticipated or unanticipated events.









**PART
      I. FINANCIAL INFORMATION**





**ITEM
      1.**  **FINANCIAL
      STATEMENTS (UNAUDITED)**




**Wako
        Logistics Group, Inc.**
 
 **Consolidated
        Statements of Operations**
 3
        months
        ended March 31, 2005 and 2006
 
 *(Dollars
        in thousands except share data and per share amounts)*




**3
                  months ended**
                **March
                  31,****2005**
              
              **2006***(unaudited)*
              
              *(unaudited)**Note*
              *US$*
              
              *US$*Revenues:Freight
              
              
              
              
              
              5,889
              
              
              11,894Agency
                  services
              
              
              
              
              
              234
              
              
              543Other
                  services
              
              
              
              
              
              723
              
              
              7,245**Total
                  revenues**
              
              
              
              
              
              6,846
              
              
              19,682**Operating
                  expenses**Cost
                  of forwarding
              
              
              
              
              
              (5,748
              )
              
              (16,536
              )Selling
                  and administrative expenses
              
              
              
              
              
              (935
              )
              
              (3,217
              )Depreciation
                  and amortization
              
              
              
              
              
              (22
              )
              
              (144
              )Total
                  operating expenses
              
              
              
              
              
              (6,705
              )
              
              (19,897
              )**Income/(Loss)
                  from operations**
              
              
              
              
              
              **141**
              
              
              **(215**
              **)**Other
                  income/
                  (expense)Interest
                  income
              
              
              
              
              
              4
              
              
              6Interest
                  expense
              
              
              
              
              
              (4
              )
              
              (92
              )Other
                  income, net
              
              
              
              
              
              25
              
              
              72**Income****/(Loss)
                  before income taxes**
              
              
              
              
              
              166
              
              
              (229
              )Provision
                  for income taxes
              
              
              
              
              
              (40
              )
              
              (26
              )**Net
                  Income/(Loss)**
              
              
              
              
              
              126
              
              
              (255
              )**Dividend
                  on preferred stock**
              
              
              
              
              
              —
              
              
              (22
              )**Income/
                  (Loss) applicable to common stock**
              
              
              
              
              
              126
              
              
              (277
              )Other
                  comprehensive income, net of taxes:Foreign
                  currency translation adjustment
              
              
              
              
              
              —
              
              
              6**Total
                  comprehensive income (loss)**
              
              
              
              
              
              126
              
              
              (271
              )**Net
                  income/ (loss) per share:****Basic
                  earnings/ (loss)  per share**
              
              
              *2*
              
              
              0.01
              
              
              (0.01
              )**Diluted
                  earnings/ (loss)  per share**
              
              
              *2*
              
              
              0.01
              
              
              (0.01
              )**Weighted
                  average common shares outstanding****Basic**
              
              
              
              
              
              20,441,000
              
              
              25,390,080**Diluted**
              
              
              
              
              
              20,441,000
              
              
              26,915,755


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


F-1


**Wako
        Logistics Group, Inc.**
 
 **Consolidated
        Balance Sheets**
 At
        December 31, 2005 and March 31, 2006
 
 *(Dollars
        in thousands except share data and per share amounts)*
  **At**
                  **December
                    31,**
                  **2005**
                
                **At**
                  **March
                    31,**
                  **2006***(unaudited)**Note*
                *US$*
                
                *US$***ASSETS**Current
                    assetsCash
                    and cash equivalents
                
                
                
                
                
                1,212
                
                
                1,982Restricted
                    cash
                
                
                
                
                
                282
                
                
                282Certificates
                    of deposit, restricted
                
                
                
                
                
                245
                
                
                245Trade
                    receivables, net of allowance (2006 - $338, 2005 - $310)
                
                
                
                
                
                10,446
                
                
                8,159Deposits,
                    prepayments and other current assets
                
                
                
                
                
                525
                
                
                775Tax
                    prepaid
                
                
                
                
                
                67
                
                
                79Due
                    from related parties
                
                
                *5*
                
                
                542
                
                
                506**Total
                    current assets**
                
                
                
                
                
                13,319
                
                
                12,028Property,
                    plant and equipment, net
                
                
                
                
                
                850
                
                
                803Deferred
                    tax assets
                
                
                
                
                
                213
                
                
                187Intangible
                    assets
                
                
                
                
                
                2,105
                
                
                2,022Goodwill
                
                
                
                
                
                2,588
                
                
                2,588**Total
                    assets**
                
                
                
                
                
                19,075
                
                
                17,628**LIABILITIES
                    AND STOCKHOLDERS' EQUITY**Current
                    liabilitiesBank
                    overdrafts
                
                
                
                
                
                584
                
                
                527Trade
                    payables
                
                
                
                
                
                5,802
                
                
                4,913Accrued
                    charges and other creditors
                
                
                
                
                
                996
                
                
                1,433Bank
                    loan - maturing within one year
                
                
                *3*
                
                
                2,870
                
                
                2,380Current
                    portion of capital lease obligations
                
                
                
                
                
                122
                
                
                113Due
                    to related parties
                
                
                *5*
                
                
                46
                
                
                33Due
                    to directors
                
                
                *5*
                
                
                325
                
                
                263Dividend
                    payable
                
                
                
                
                
                —
                
                
                22Income
                    tax payable
                
                
                
                
                
                208
                
                
                124Total
                    current liabilities
                
                
                
                
                
                10,953
                
                
                9,808Non-current
                    liabilitiesNon-current
                    portion of capital lease obligations
                
                
                
                
                
                150
                
                
                125Other
                    non-current liabilities
                
                
                
                
                
                21
                
                
                15171
                
                
                140Commitments
                    and contingencies
                
                
                *4*
                
                
                —
                
                
                —




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


F-2


**Wako
        Logistics Group, Inc.**
 
 **Consolidated
        Balance Sheets**
 At
        December 31, 2005 and March 31, 2006
 
 *(Dollars
        in thousands except share data and per share amounts)*




**At**
              **December
                31,**
              **2005**
            
            **At**
              **March
                31,**
              **2006***(unaudited)**US$*
            
            *US$***Stockholders'
                equity**Preferred
                stock, US$0.001 par value, 5 million shares authorized and nil
                issued
            
            
            —
            
            
            —Convertible
                redeemable preferred stock, $0.001 par value, 2.0 million shares
                authorized and issued
            
            
            2
            
            
            2Common
                stock, US$0.001 par value, 55 million shares authorized, 25,390,080
                (At
                12.31.2005: 25,390,080) shares issued and outstanding
            
            
            25
            
            
            25Additional
                paid-in capital
            
            
            6,714
            
            
            6,714Employee
                benefit compensation
            
            
            (8
            )
            
            (8
            )Accumulated
                other comprehensive income
            
            
            19
            
            
            25Retained
                earnings
            
            
            1,199
            
            
            922**Total
                stockholders' equity**
            
            
            7,951
            
            
            7,680**Total
                liabilities and stockholders' equity**
            
            
            19,075
            
            
            17,628








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


F-3


**Wako
        Logistics Group, Inc.**
 
 **Consolidated
        Statements of Cash Flows**
 3
        months
        ended March 31, 2005 and 2006
 
 *(Dollars
        in thousands except share data and per share amounts)*
 **3
                    months ended**
                  **March
                    31,****2005**
                
                **2006***(unaudited)*
                
                *(unaudited)**US$*
                
                *US$***Cash
                    flows from****operating
                    activities:**Net
                    income/(loss)
                
                
                126
                
                
                (255
                )**Adjustments
                    to reconcile net income****/
                    (loss) to net cash provided by operating
                    activities**Depreciation
                
                
                22
                
                
                59Amortization
                
                
                —
                
                
                82Bad
                    debts written off
                
                
                —
                
                
                74Other
                    non-cash items
                
                
                7
                
                
                3**Changes
                    in working capital:**Trade
                    receivables
                
                
                (558
                )
                
                2,213Deposits
                    and prepayments
                
                
                64
                
                
                (228
                )Due
                    from related parties
                
                
                37
                
                
                35Trade
                    payables
                
                
                1,037
                
                
                (889
                )Accrued
                    charges and other creditors
                
                
                —
                
                
                430Due
                    to related parties
                
                
                —
                
                
                (12
                )Due
                    to directors
                
                
                325
                
                
                (62
                )Income
                    tax payable
                
                
                40
                
                
                (76
                )**Net
                    cash provided by operating activities**
                
                
                1,100
                
                
                1,374**Cash
                    flows from investing activities:**Acquisitions
                    of property, plant and equipment
                
                
                (66
                )
                
                (25
                )**Net
                    cash used in investing activities**
                
                
                (66
                )
                
                (25
                )**Cash
                    flows from financing activities:**Certificates
                    of deposit
                
                
                115
                
                
                —Restricted
                    cash
                
                
                (179
                )
                
                —Bank
                    overdrafts
                
                
                (135
                )
                
                (56
                )Bank
                    loan repaid
                
                
                (73
                )
                
                (490
                )Due
                    from related parties
                
                
                27
                
                
                1Capital
                    lease obligations paid
                
                
                —
                
                
                (34
                )Advance
                    from a director
                
                
                1,000
                
                
                —**Net
                    cash****provided (used in) financing activities**
                
                
                755
                
                
                (579
                )**Net
                    increase in cash and cash equivalents**
                
                
                1,789
                
                
                770**Cash
                    and cash equivalents at beginning of period**
                
                
                306
                
                
                1,212**Cash
                    and cash equivalents at end of period**
                
                
                2,095
                
                
                1,982






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


F-4


**Wako
        Logistics Group, Inc.**
 
 **Notes
        to the Consolidated Financial Statements**
 3
        months
        ended March 31, 2005 and 2006
 
 **1.** **BASIS
          OF PRESENTATION**
 
 Wako
          Logistics Group, Inc. (“WLG,” the “Company,” or the “Group”) is an
          international, non-asset-based logistics company that provides air and
          ocean
          freight forwarding, contract logistics, customs brokerage and other supply
          chain management services, throughout the world, from its offices in Hong
          Kong,
          the Peoples Republic of China (“PRC”, or “China”), Australia and the United
          States. WLG serves its customers both through its offices and through a
          worldwide network of agents. WLG’s business is conducted by its operating
          subsidiaries, which include the following entities: Wako Express (HK) Co.
          Ltd.
          (“WEHK”), Wako Air Express (HK) Co. Ltd.  (“WAE”) , Wako Express (China)
          Co. Ltd. (“WE China”), a wholly-owned subsidiary of WEHK, WLG (USA) LLC (“WLG
          (US)”) (formerly dba “Kay O’Neill”), Asean Cargo Services Pty Limited (“Asean”)
          and Asean Logistics, Inc. (“ALI”).
 After
            the
            first quarter of 2005, the Group acquired WLG (US), ALI and Asean and
            established WLG (Aust), and their financial information is included in
            the
            Group’s consolidated financial statements for the three months ended March
            31,
            2006. As of March 31, 2006, all subsidiaries are wholly owned. All material
            intercompany balances and transactions have been eliminated in
            consolidation.
  The
          accompanying financial data as of March 31, 2006, and for the 3 months
          ended
          March 31, 2006 and 2005, have been prepared by the Company, without
          audit.
 
 Certain
          information and footnote disclosures normally included in financial statements
          prepared in accordance with accounting principles generally accepted in
          the
          United States of America have been condensed or omitted pursuant to such
          rules
          and regulations. However, the Company believes that the disclosures herein
          are
          adequate to make the information presented not misleading. These financial
          statements should be read in conjunction with the financial statements
          and the
          notes thereto included in the Company’s audited consolidated financial
          statements for the year ended December 31, 2005.
 
 The
          preparation of financial statements in conformity with accounting principles
          generally accepted in the United States of America requires management
          to make
          estimates that affect the reported amounts of assets, liabilities, revenues
          and
          expenses and the disclosure of contingent assets and liabilities. Actual
          results
          could differ from these estimates.
 
 The
          unaudited interim, consolidated financial statements of the Company have
          been
          prepared in accordance with accounting principles generally accepted in
          the
          United States for interim financial information. In the opinion of the
          management, all adjustments (which include only normal recurring adjustments)
          necessary to present fairly the financial position, results of operations
          and
          cash flows as of March 31, 2006, and for the 3 months ended March 31, 2006
          and
          2005, have been made. The results of operations for the 3 months ended
          March 31,
          2006 and 2005 are not necessarily indicative of the operating results for
          the
          full year.
 
 **2.** **EARNINGS/
          (LOSS) PER SHARE**
 
 Earnings/
          (Loss) per share were computed as follows:
  ****3
                  months ended March 31, 2005******Income**
                
                **Weighted
                    average number of shares**
                
                **Per
                    share amount***US$*Net
                    income
                
                
                126Basic
                    earnings per shareIncome
                    available to common stockholders
                
                
                126
                
                
                20,441,000
                
                
                0.01Diluted
                    earnings per shareIncome
                    available to common stockholders
                
                
                126
                
                
                20,441,000
                
                
                0.01There
                    are no anti-dilutive shares.
   F-5
 **Wako
            Logistics Group, Inc.**
 
 **Notes
            to the Consolidated Financial Statements**
 3
            months
            ended March 31, 2005 and 2006
   **3
                    months ended March 31, 2006****Income
                    (Loss)**
                
                **Weighted
                    average number of shares**
                
                **Per
                    share**
                  **amount***US$*Net
                    loss
                
                
                (255
                )Dividends
                    on Convertible redeemable preferred stock
                
                
                (22
                )
                
                2,000,000
                
                
                0.01Basic loss
                    per shareLoss
                    available to common stockholders
                
                
                (277
                )
                
                25,390,080
                
                
                (0.01
                )Effect
                    of dilutive securitiesWarrants
                
                
                —
                
                
                32,432Convertible
                    redeemable preferred stock
                
                
                —
                
                
                1,493,243Diluted
                    loss per shareLoss
                    available to common stockholdersassuming
                    conversion
                
                
                (277
                )
                
                26,915,755
                
                
                (0.01
                )There
                    are no anti-dilutive shares.
 
 
 **3.** **BANKING
          FACILITIES**
 
 The
                    Group has obtained bank facilities from creditworthy commercial
                    banks as
                    follows:
 
 **At**
                  **December
                    31,**
                  **2005**
                
                **At**
                  **March
                    31,**
                  **2006***(unaudited)**US$*
                
                *US$***Facilities
                    granted**Committed
                    lines-
                    bank guarantee
                
                
                681
                
                
                676-
                    overdraft facilities
                
                
                425
                
                
                413-
                    bank loans
                
                
                3,520
                
                
                4,168Total
                    committed bank facilities
                
                
                4,626
                
                
                5,257
 
 
 The
          terms
          of the loan facilities, including the amounts, are agreed by the banks
          and the
          Group from time to time.
  The
          bank
          guarantees of $514 will expire within one year but may be renewed as long
          as the
          Group makes available to the banks the amounts of collateral that are required
          to support each guarantee. The remaining bank guarantee of $162 and overdraft
          facilities of $413 have no expiration date, and these may be terminated by
          the bank or WLG by giving 30 days notice. The bank loan facilities mature
          on
          various dates as follows: (i) $750 on August 1, 2006, (ii) $452 on October
          5,
          2006, and (iii) $ $129 on December 24, 2006. The remaining loan facility
          of
          $2,837 has no expiration date, but may be terminated by either the bank
          or the
          Company giving 30 days notice.
   F-6
 **Wako
            Logistics Group, Inc.**
 
 **Notes
            to the Consolidated Financial Statements**
 3
            months
            ended March 31, 2005 and 2006
 
  **3.** **BANKING
          FACILITIES (CONTINUED)**
 **At**
                  **December
                    31,**
                  **2005**
                
                **At**
                  **March
                    31,**
                  **2006***(unaudited)**US$*
                
                *US$***Utilized**Committed
                    lines-
                    bank guarantee
                
                
                681
                
                
                676-
                    overdraft facilities
                
                
                425
                
                
                413-
                    bank loans
                
                
                2,870
                
                
                2,380Total
                    utilized
                
                
                3,976
                
                
                3,469
  The
          bank
          guarantees of $676 are collateralized by cash of $514. The remaining bank
          guarantee of $162 is secured by a guarantee and Indemnity provided by WLG
          (Aust)
          and various individuals and entities associated with Asean, a registered
          mortgage debenture over all of the assets of Asean and real estate owned
          by
          various individuals associated with Asean. The overdraft facilities of
          $413 are
          secured by a guarantee and Indemnity from WLG (Aust) and personal guarantees
          provided by various individuals and entities associated with Asean, a registered
          mortgage debenture over all of the assets of Asean and real estate owned
          by
          various individuals associated with Asean .
  For the
          total loan facility granted of $4,168, (i) $581 is unsecured and repayable
          within two years by monthly installments, and (ii) $750 is secured by
          substantially all of the assets of WLG (US) and a personal guarantee provided
          by
          an employee of the Group and (iii) $2,837 is secured by accounts receivables
          of
          Asean, a registered mortgage over the assets of Asean and personal guarantees
          from the former shareholders of Asean. As of March 31, 2006, these bank
          loans
          carried interest rates of 6.75% to 10.85%.
  **4.** **COMMITMENTS
          AND CONTINGENCIES**
  ***Commitments
          under operating leases***
  The
                    Group rents office space, staff quarters and certain office equipment
                    under non-cancellable operating leases. The following table summarizes
                    these approximate future minimum lease payments for operating
                    leases in
                    effect as of March 31, 2006:
  **At**
                  **December
                    31,**
                  **2005**
                
                **At**
                  **March
                    31,**
                  **2006***(unaudited)**US$*
                
                *US$*Within
                    one year
                
                
                626
                
                
                657Over
                    one year but not exceeding two years
                
                
                456
                
                
                418Over
                    two years but not exceeding three years
                
                
                282
                
                
                233Over
                    three years but not exceeding four years
                
                
                98
                
                
                92Over
                    four years but not exceeding five years
                
                
                47
                
                
                23Thereafter
                
                
                —
                
                
                —Total
                    operating lease commitments
                
                
                1,509
                
                
                1,423
  Rent
                    expense under operating leases for the 3 months ended March 31,
                    2005 and
                    2006, was $54 and $169,
                    respectively.
 
 F-7
 **Wako
              Logistics Group, Inc.**
 
 **Notes
              to the Consolidated Financial Statements**
 3
              months
              ended March 31, 2005 and 2006
 **4.** **COMMITMENTS
          AND CONTINGENCIES (CONTINUED)**
 
 ***Cargo
                    space commitments***
 
 The
                    Group has entered into written agreements with various commercial
                    airfreight carriers pursuant to which the Group is committed
                    to utilize a
                    guaranteed minimum amount of cargo space each year. As of March
                    31, 2006,
                    the cost of the minimum amount of cargo space to be utilized
                    for the
                    coming twelve months is $5,974.
 
 ***Contingencies***
 
 The
          Group
          is subject to claims that arise primarily in the ordinary course of business
          and
          generally relate to cargo that it arranges to have shipped and for other
          services performed for its customers. In most cases, such claims are covered
          by
          insurance carried by the Group.
 
 As
          of
          March 31, 2006, the aggregate outstanding amount being claimed by third
          parties
          was approximately $5. It
          is the
          opinion of management that the disposition or ultimate resolution of such
          claims
          will not have a material adverse effect on the financial position of the
          Group.
 
 **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 subsidiariesPaul
                    Pomroy (‘’PP’’)
                
                PP
                    is a director of Asean and WLG (Aust) Pty LtdWako
                    Express (China) Company Limited (“WEC”)
                
                Common
                    shareholders and directorsAsean
                    Cargo Services Pty Ltd (“Asean”)
                
                CW
                    was a shareholder and director of Asean until June 25, 2004. On
                    November 9, 2005, Asean became a subsidiary of the
                    GroupAsean
                    Logistics Inc (“ALI”)
                
                PY
                    was a shareholder of ALI until January 3, 2005. On October 1,
                    2005, ALI
                    became a subsidiary of the GroupWako
                    Logistic (Thailand) Co. Ltd (“WLT”)
                
                CW
                    is a shareholder and director of WLTJoin
                    Wing Properties Limited (“JWP”)
                
                CW
                    is a shareholder and director of JWPAngus
                    International Freight Pty Limited (‘’AIFP’’)
                
                PP
                    is a director of AIFPWarehouse
                    Solutions International Pty Limited (‘’WSIP’’)
                
                PP
                    is a director of WSIPAsean
                    Cargo Services (Qld) Pty Limited (‘’ACSQ’’)
                
                PP
                    is a director of ACSQBettervale
                    Pty Limited (‘’BPL’’)
                
                PP
                    is a director of BPL
   F-8
 **Wako
              Logistics Group, Inc.**
 
 **Notes
              to the Consolidated Financial Statements**
 3
              months
              ended March 31, 2005 and 2006
 
 **5.** **RELATED
          PARTY TRANSACTIONS (CONTINUED)**
 
 **Details
                    of related parties**
  Name
                
                Principal
                    activities
                
                Ownership
                    (as of March 31, 2006)*Name
                    of owner*
                
                *%
                    held*WEC
                
                Provision
                    of sea freight and air freight forwarding services in the PRC
                    until Feb
                    2005 and dormant thereafter #
                
                CW
                  PY
                
                50%
                  50%Asean
                
                Provision
                    of sea freight and air freight forwarding services in Australia
                    #
                
                WLG
                    (Australia) Pty Ltd
                
                100%ALI
                
                Provision
                    of sea freight and air freight forwarding services in the United
                    States
                    #
                
                WLG
                    (USA)
                
                100%WLT
                
                Provision
                    of sea freight 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, 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 has to pay the freight cost is determined by both the shipper
          and the
          consignee, both the Group and the overseas agent only act in accordance
          with the
          customers’ instructions in the collection process. In case the collecting party
          is not the party who pays the freight cost to the carrier, the collecting
          party
          has to reimburse the other party to enable it to settle the freight
          cost.
  In
          both
          cases, either the Group or the overseas agent has to raise an invoice to
          the
          other party for an amount attributable to it. The amounts include the service
          fees earned and may also include the freight cost collected by the other
          party.
 
 During
          the periods indicated, four (after June 25, 2004: three, for the year ended
          December 31, 2005: two as of March 31, 2006) of these overseas agents either
          were or are related parties. For the purposes of identifying the related
          party
          transactions for accounting disclosure purposes, only the handling fee
          income
          earned by the Group from related party overseas agents and the handling
          fees
          paid by the Group to related party overseas agents are disclosed as related
          party transactions. The amounts that the Group billed to the related party
          overseas agents, who only acted as collection agents, are not shown as
          related
          party transactions. Likewise, the amounts that the related party overseas
          agents
          billed to the Group, who only acted as a collection agent, are not shown
          as
          related party transactions.
 
 F-9
  **Wako
              Logistics Group, Inc.**
 
 **Notes
              to the Consolidated Financial Statements**
 3
              months
              ended March 31, 2005 and 2006
  **5.** **RELATED
          PARTY TRANSACTIONS (CONTINUED)**
 
 The
          following is a summary of the amounts included in the accompanying balance
          sheets:
 
 **At**
                  **December
                    31,**
                  **2005**
                
                **At**
                  **March
                    31,**
                  **2006***(unaudited)**US$*
                
                *US$***Due
                    from related parties (Note (i))**WLT
                
                
                13
                
                
                23AIFP
                
                
                190
                
                
                177ACSQ
                
                
                179
                
                
                176WSIP
                
                
                146
                
                
                120BPL
                
                
                7
                
                
                1PP
                
                
                7
                
                
                9542
                
                
                506**Due
                    to related parties (Note (i))**ACSQ
                
                
                24
                
                
                23WSIP
                
                
                22
                
                
                1046
                
                
                33**Due
                    to directors (Note (i))**CW
                
                
                325
                
                
                263
 
 Notes :
 
 (i)
                With
                    the exception of amounts due to directors, the amounts due from
                    / to
                    related parties are unsecured, interest-free and repayable on
                    demand.
                    Movements in these accounts during the periods covered by these
                    financial
                    statements represented mainly:
 
 a)  amounts
          paid / collected on behalf of related parties;
 b) 
amounts
          paid / payable to and received / receivable from directors, including dividends;
          and
 c)  
            handling
            income receivable / handling fee payable / rental payable and related
            settlements.
 (ii)
                Effective
                    October 1, 2005, ALI and Asean became subsidiaries of the Group
                    and the
                    respective intercompany balances are eliminated in
                    consolidation.
 
 (iii)
                Amounts
                    due to directors are unsecured, interest free and repayable on
                    demand,
                    except for the Promissory Note, which prior to conversion to
                    Convertible
                    redeemable preferred stock, did bear interest at the rate of
                    6%
                    p.a.
 
 
 F-10
 **Wako
                Logistics Group, Inc.**
 
 **Notes
                to the Consolidated Financial Statements**
 3
                months
                ended March 31, 2005 and 2006
  **5.** **RELATED
          PARTY TRANSACTIONS (CONTINUED)**
 
 **Summary
          of transactions with related entities (unaudited):**
 
 **WSIP**
                
                **BPL**
                
                **WEC**
                
                **PP**
                
                **ACSQ**
                
                **ALI**
                
                **AIFP**
                
                **WLT**
                
                **Total***US$*
                
                *US$*
                
                *US$*
                
                *US$*
                
                *US$*
                
                *US$*
                
                *US$*
                
                *US$*
                
                *US$*January
                    1, 2005
                
                
                —
                
                
                —
                
                
                208
                
                
                —
                
                
                —
                
                
                97
                
                
                —
                
                
                11
                
                
                316—
                
                
                —
                
                
                
                
                
                —
                
                
                
                
                
                
                
                
                —Trade
                    transactions
                
                
                —
                
                
                —
                
                
                202
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                1
                
                
                203Expenses
                    paid
                
                
                —
                
                
                —
                
                
                92
                
                
                —
                
                
                —
                
                
                —
                
                
                
                
                
                —
                
                
                92Net
                    settlements
                
                
                —
                
                
                —
                
                
                (262
                )
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (2
                )
                
                (264
                )Reclassified
                    as non-related parties
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (97
                )
                
                —
                
                
                —
                
                
                (97
                )March
                    31, 2005
                
                
                —
                
                
                —
                
                
                240
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                10
                
                
                250January
                    1, 2006
                
                
                124
                
                
                7
                
                
                —
                
                
                7
                
                
                155
                
                
                —
                
                
                190
                
                
                13
                
                
                496Trade
                    transactions
                
                
                (42
                )
                
                (24
                )
                
                —
                
                
                —
                
                
                2
                
                
                —
                
                
                —
                
                
                22
                
                
                (42
                )Expenses
                    paid
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —Net
                    settlements
                
                
                28
                
                
                18
                
                
                —
                
                
                2
                
                
                (4
                )
                
                —
                
                
                (13
                )
                
                (12
                )
                
                19Reclassified
                    as non-related parties
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —March
                    31, 2006
                
                
                110
                
                
                1
                
                
                —
                
                
                9
                
                
                153
                
                
                —
                
                
                177
                
                
                23
                
                
                473
 
 Notes :
 
 ·
              Trade
                  transactions for WEC, Asean, ALI and WLT include revenues earned
                  by the
                  Group and amounts collected on behalf of the Group (or freight
                  costs
                  incurred by the Group and amounts collected on behalf of the agents)
                  in
                  the ordinary course of business. For BPL, the trade transactions
                  are for
                  rental expenses paid to BPL. For WSIP, the trade transactions refer
                  to
                  warehouse service fees of $49 paid to WSIP and rental income of
                  $7 paid by
                  WSIP. 
 ·
              Expenses
                  include amounts paid by the Group on the related parties’ behalf (or paid
                  by the related parties on the Group’s
                  behalf). 
 ·
              Net
                  settlements are the amounts that the Group paid (or received) in
                  respect
                  of the intercompany balances owed and/or
                  receivable. 
 F-11
 **Wako
                Logistics Group, Inc.**
 
 **Notes
                to the Consolidated Financial Statements**
 3
                months
                ended March 31, 2005 and 2006
  **5.** **RELATED
          PARTY TRANSACTIONS (CONTINUED)**
 
 **Additional
          details of transactions**
  **3
                    months ended**
                  **March
                    31,****2005**
                
                **2006***(unaudited)*
                
                *(unaudited)**US$*
                
                *US$***Handling
                    income received/receivable**WEC
                
                
                5
                
                
                —**Handling
                    fee paid/payable**WEC
                
                
                16
                
                
                1**Rental
                    paid/payable**JWP
                
                
                16
                
                
                27
 
 **Summary
          of transactions during the periods with directors /
          shareholders:**
  **CW***(unaudited)**US$*January
                      1, 2005
                  
                  
                  (733
                  )Advance
                  
                  
                  (1,325
                  )March
                      31, 2005
                  
                  
                  (2,058
                  )January
                      1, 2006
                  
                  
                  325Expenses
                      paid
                  
                  
                  (62
                  )March
                      31, 2006
                  
                  
                  263
 
 Notes :
 
 Expenses
          / loan repayment include amounts that were either paid directly to or for
          the
          benefit of CW.
 
 F-12
 **Wako
                Logistics Group, Inc.**
 
 **Notes
                to the Consolidated Financial Statements**
 3
                months
                ended March 31, 2005 and 2006
 
 **6.** **SUPPLEMENTAL
          DISCLOSURES OF CASH FLOW INFORMATION**
  **3
                    months ended**
                  **March
                    31,****2005**
                
                **2006***(unaudited)*
                
                *(unaudited)**US$*
                
                *US$***Cash
                    paid for:**Interest
                    expense
                
                
                4
                
                
                92Income
                    taxes
                
                
                —
                
                
                58
   
 F-13
 **Wako
                Logistics Group, Inc.**
 
 **Notes
                to the Consolidated Financial Statements**
 For
                the 3
                months ended March 31, 2005 and 2006
  **7.** **SEGMENTS
          OF THE BUSINESS**
 
 **(a)**
                **Business
                    segments**  The
                  Group operates mainly in three business segments, being the provision
                  of
                  (i) air forwarding and (ii) sea forwarding services and (iii) customs
                  brokerage services. The Group’s operations by air, sea and customs
                  brokerage segments are summarized in the following table
                  :
  **(i)**
                **During
                    the 3 months ended March 31, 2005 and 2006
                    (unaudited)**
  **Air
                    forwarding**
                
                **Sea
                    forwarding**
                
                **Customs
                    brokerage**
                
                **Elimination**
                
                **Total****2005**
                
                **2006**
                
                **2005**
                
                **2006**
                
                **2005**
                
                **2006**
                
                **2005**
                
                **2006**
                
                **2005**
                
                **2006***US$*
                
                *US$*
                
                *US$*
                
                *US$*
                
                *US$*
                
                *US$*
                
                *US$*
                
                *US$*
                
                *US$*
                
                *US$*Revenue
                
                
                4,121
                
                
                6,497
                
                
                3,058
                
                
                7,591
                
                
                —
                
                
                5,594
                
                
                (333
                )
                
                
                
                
                6,846
                
                
                19,682Cost
                    of forwarding
                
                
                (3,742
                )
                
                (5,458
                )
                
                (2,339
                )
                
                (5,753
                )
                
                —
                
                
                (5,325
                )
                
                333
                
                
                
                
                
                (5,748
                )
                
                (16,536
                )Depreciation
                
                
                (7
                )
                
                (19
                )
                
                (15
                )
                
                (35
                )
                
                —
                
                
                (5
                )
                
                
                
                
                
                
                
                (22
                )
                
                (59
                )Interest
                    income
                
                
                4
                
                
                3
                
                
                —
                
                
                3
                
                
                —
                
                
                —
                
                
                
                
                
                
                
                
                4
                
                
                6Interest
                    expense
                
                
                (1
                )
                
                (23
                )
                
                (3
                )
                
                (46
                )
                
                —
                
                
                (23
                )
                
                
                
                
                
                
                
                (4
                )
                
                (92
                )Other
                    segment income
                
                
                5
                
                
                12
                
                
                56
                
                
                57
                
                
                —
                
                
                1
                
                
                (36
                )
                
                
                
                
                25
                
                
                70Other
                    segment expenses
                
                
                (325
                )
                
                (964
                )
                
                (626
                )
                
                (1,815
                )
                
                —
                
                
                (310
                )
                
                36
                
                
                
                
                
                (915
                )
                
                (3,089
                )Taxation
                
                
                (12
                )
                
                (9
                )
                
                (28
                )
                
                (31
                )
                
                —
                
                
                14
                
                
                
                
                
                
                
                
                (40
                )
                
                (26
                )43
                
                
                39
                
                
                103
                
                
                (29
                )
                
                —
                
                
                (54
                )
                
                
                
                
                
                
                
                146
                
                
                (44
                )Corporate
                    expenses
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (20
                )
                
                (233
                )Income/
                    (loss) applicable to common stock
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                126
                
                
                (277
                )Segment
                    assets
                
                
                4,050
                
                
                5,137
                
                
                4,717
                
                
                6,516
                
                
                —
                
                
                1,331
                
                
                (2,409
                )
                
                
                
                
                6,358
                
                
                12,984Unallocated
                    assets
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,114
                
                
                4,644Total
                    assets
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                7,472
                
                
                17,628Property,
                    plant and equipment - additions
                
                
                45
                
                
                10
                
                
                21
                
                
                12
                
                
                —
                
                
                3
                
                
                
                
                
                
                
                
                66
                
                
                25
  (b)
            The
            table below summarizes the percentage of the Group’s revenues during the three
            months ended March 31, 2006, and 2005, analyzed by geographical
            locations:
  3
                      months ended
                    March
                      31,2005
                  
                  2006*(unaudited)*
                  
                  *(unaudited)*%
                  
                  %**Revenues**Americas
                  
                  
                  10
                  
                  
                  20Asia
                      and others
                  
                  
                  5
                  
                  
                  33Australia
                  
                  
                  57
                  
                  
                  30Europe
                  
                  
                  28
                  
                  
                  17100
                  
                  
                  100
  (c)
            The
            Company made sales during the three months ended March 31, 2005, which
            qualified as sales to a major customer (a major customer is defined as
            a customer for which sales to it represent 10% or more of total sales).
            Sales to
            this customer as a percentage of total sales are as follows:
 
 3
                      months ended
                    March
                      31,2005
                  
                  2006*(unaudited)*
                  
                  *(unaudited)*%
                  
                  %Customer
                      A
                  
                  
                  11
                  
                  
                  —
 F-14






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





OVERVIEW





Wako
      Logistics Group, Inc. (“WLG,” the “Company,” or the “Group”) is an
      international, non-asset-based logistics company that provides air and ocean
      freight forwarding, contract logistics, customs brokerage and other supply
      chain
      management services, throughout the world, from its offices in Hong Kong, the
      Peoples Republic of China (“PRC”, or “China”), Australia and the United States.
      We serve our customers both through our offices and through a worldwide network
      of agents. WLG’s business is conducted by its operating subsidiaries, which
      include the following entities: Wako Express (HK) Co. Ltd. (“WEHK”), Wako Air
      Express (HK) Co. Ltd.  (“WAE”) , Wako Express (China) Co. Ltd. (“WE
      China”), a wholly-owned subsidiary of WEHK, WLG (USA) LLC (“WLG (US)”) (formerly
      dba “Kay O’Neill”), Asean Cargo Services Pty Limited (“Asean”) and Asean
      Logistics, Inc. (“ALI”).





Wako
      Logistics Inc. was incorporated in Delaware on December 2, 2003 and, on January
      8, 2004, changed its name to Wako Logistics Group, Inc. Under our certificate
      of
      incorporation, we were initially authorized to issue 100 million shares of
      common stock, par value US$0.001 per share. On the date of our name change,
      we
      reduced the number of authorized shares to 60 million shares, of which 55
      million shares were designated as common stock, and 5 million shares were
      designated as blank check preferred stock. Immediately following the formation
      of Wako Logistics Group, Inc., Mr. Christopher Wood (“Mr. Wood”) became its sole
      shareholder.





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





WEHK
      was
      incorporated in Hong Kong on September 4, 1982, and carries on the business
      of
      handling sea freight for its customers, both export and import, between Hong
      Kong and the rest of the world, with particular concentration historically
      on
      Australian trade lanes and more recently, on the trade lanes with the U.S.
      and
      Europe.





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





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. All of our Asian business operations have been conducted by our
      two
      Hong Kong based subsidiaries from January 18, 2004 (the date we acquired WEHK
      and WAE) to March 31, 2006, and through WE China, following the commencement
      of
      business by it in February 2005.





On
      April
      1, 2005, we completed the acquisition of all of the voting interests in Kay
      O’Neill, an Illinois limited liability company. Kay O’Neill is a U.S. based
      logistics business with offices in Des Plaines, Illinois, and Taylor, Michigan,
      and primarily serves U.S. based customers by providing services similar to
      those
      offered by the Group in Asia and elsewhere. On June 29, 2005, Kay O Neill
      changed its name to WLG (USA) LLC., and is now using the name WLG (USA) LLC
      as
      part of the process of creating brand identity for the Group in the North
      American market.





1





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





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





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





In
      addition to our subsidiaries and branch offices, we also have working
      relationships with approximately 149 overseas agents, many of whom have offices
      in strategic cities in Europe, North and South America, and the Middle East.
      As
      a result, we are represented by more than one agent in many cities and do not
      generally need to rely on a single agent in any one city.





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





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





2


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




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




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





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





We
      also
      derive a significant portion of our revenues from the consolidation of cargo.
      In
      this part of our business, we always seek to combine a mix of light and heavy
      cargo in order to enable us to maximize the weight and cubic capacity for all
      of
      our shipments. With the acquisition of Asean, we are now able to provide
      in-house customs brokerage services to our customers, but this business tends
      to
      be high volume, and to have profit margins that are less than those of our
      traditional freight forwarding operations





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





Even
      though a majority of our costs are paid to third party carriers for the shipment
      of freight and are thus variable, we also have significant costs which in short
      periods, such as three months, are essentially the same as fixed costs. Our
      business is seasonal and, historically, the first quarter of the calendar year
      has been our slowest period. Because of the seasonality of our business and
      the
      level of fixed operating costs in the first quarter of 2006, our operating
      results for this period are less than the results we expect to record for the
      remaining quarters of calendar 2006





3


Two
      of
      the acquisitions we completed in the fourth quarter of last year, ALI and Asean,
      incurred operating losses for the first quarter of 2006, and this negatively
      impacted our results for this period. The business of both companies is
      seasonal, particularly that of Asean, which was the larger of the two
      acquisitions.





A
      number
      of factors, other than seasonality, also contributed to the operating loss
      reported by Asean. In the first quarter of 2006, the volume of Asean’s less
      profitable customs business was greater than its freight forwarding business,
      producing a lower overall gross margin. Also, Asean suffered lower than expected
      margins on some of its freight business, and it is taking steps to raise its
      rates for some of its lower margin customers as a means of improving its overall
      margins in this segment of its business. Its results were also negatively
      impacted by of a weakening of the Australian currency. With the exception of
      the
      customs brokerage and currency issues, many of these same issues were
      encountered at ALI. Steps are underway to improve ALI’s margins and reduce its
      operating costs. This latter step is being accomplished by consolidating the
      customer service and administrative operations of ALI with those of WLG
      (US).





During
      the first quarter of 2006, costs and management time continued to be incurred
      to
      integrate the three acquisitions made in 2005. These costs and the related
      time
      are a part of the Group’s plan to grow its business, and are necessary to ensure
      that the three new companies become synergistic to the business of the
      Group.





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





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





THREE
      MONTHS ENDED MARCH 31, 2006 COMPARED WITH THREE MONTHS ENDED MARCH 31,
      2005





Total
      revenue for the three months ended March 31, 2006, increased approximately
      187%
      compared with total revenue for the three months ended March 31, 2005, growing
      from approximately $6.85 million to $19.68 million, respectively. Approximately
      $1.01 million or 8% of this increase is attributable to the growth of our Hong
      Kong business. Revenues from our operations in China, which commenced in
      February 2005, grew by $0.64 million over the same period last year, adding
      approximately 5% to the total increase. The acquisition of WLG (US) in the
      U.S.,
      which occurred on April 1, 2005, added revenues of approximately $2.27 million,
      or 18%, for the three months ended March 31, 2006, and our second U.S.
      acquisition, ALI, which was acquired on October 1, 2005, added approximately
      $0.45 million, accounting for 3% of the total increase. The remaining increase
      of $8.46 million is from Asean, our Australian subsidiary which was acquired
      effective October 1, 2005.





4


Gross
      profits rose from $1.10 million in the three months ended March 31, 2005, to
      $3.15 million for the three months ended March 31, 2006, for an increase of
      $2.05 million for the first quarter of 2006 as compared to the first quarter
      of
      2005. Of this increase, our Hong Kong operations contributed $0.11 million
      and
      our China business and new acquisitions added $1.94 million. The Group’s overall
      gross margin was 16.0 % for the three months ended March 31, 2006, compared
      to
      16.03% for the same period in 2005.




During
      the three months ended March 31, 2006, our operating expenses increased to
      about
      $19.90 million, as compared to approximately $6.71 million for the three months
      ended March 31, 2005, for an increase of 197%. Selling and administrative costs
      increased by approximately 244% from $935,000 to $3.22 million. These cost
      increases are in line with the increases in our sales revenue and the additional
      operating costs attributable to the operations of WE China, WLG (US), ALI and
      Asean. Adding to our operating costs was a bad debt of approximately $61,000
      resulting from the bankruptcy of a major customer in the United Kingdom. Lastly,
      our administrative expenses increased as a result of the need to incur the
      necessary legal and other advisory expenses, to permit the Group to meet the
      reporting and governance requirements to maintain its status as a publicly
      listed company. In addition, personnel salaries and related costs increased
      significantly as a result of the addition of new employees and management staff,
      as well as for normal salary increases for our existing employees. See *Salaries
      and Allowances* below.





Amortization
      expense totaled approximately $83,000 in the first quarter of 2006, and was
      nil
      for the same period in 2005. The amortization expense is attributable to the
      intangible assets recorded as part of the three acquisitions completed during
      last three quarters of 2005.





After
      the
      net provision for income taxes, the Group incurred a loss of $255,000 for the
      three months ended March 31, 2006, compared to net income of $126,000 for the
      same period in 2005. Our subsidiaries in Hong Kong and China, along with WLG
      (US) in the U.S. all reported operating profits in the three months ended March
      31, 2006. However, the two companies acquired in the fourth quarter of 2005,
      both reported operating losses for the three months ended March 31, 2006.
      Asean’s loss, before amortization expense of $49,000, was approximately $182,000
      and ALI’s loss, before deducting amortization expense of $8,000, was about
      $103,000.








**Segment
      Information**





***Airfreight
      operations*** :
      Revenue
      from airfreight operations for the three months ended March 31, 2006, increased
      from approximately $4.12 million to $6.50 million, or approximately 58% when
      compared with the same period in 2005. This increase in revenues, which was
      attributable to the growth of our existing Hong Kong business, improvements
      in
      our agency network and from the addition of new clients, accounted for 30%
      of
      the increase. Business generated from WE China’s operations in the PRC added 6%
      of the growth, and revenues of WLG (US) and ALI in U.S, which were not part
      of
      the Group during the first quarter of 2005, contributed 19% of the growth.
      Our
      subsidiary in Australia, which was acquired during the fourth quarter of 2005,
      accounted for the remaining growth of 45%.





Costs
      for
      our airfreight forwarding operations increased by approximately 46%, from about
      $3.74 million to $5.46 million. This increase was due to an increase in freight
      traffic arranged by us, but more specifically, the increase is attributable
      to
      the same factors described in the foregoing paragraph with respect to increases
      in sales revenue.





5


Gross
      profit margins increased from 9.2% for the three months ended March 31, 2005,
      to
      16.0% for the same period in 2006. This increase in gross profit margins was
      primarily attributable to the higher gross profit margins for the airfreight
      business attributable to WE China, WLG (US) and Asean, which reported gross
      margins of 17.7%, 16.8% and 18.1%, respectively.





Total
      segment overhead attributable to our airfreight operations increased by
      approximately 198%, from approximately $336,000 for the three months ended
      March
      31, 2005, to $1.0 million for the same period in 2006. This increase is
      attributable to the new overhead costs attributable to the operations of WE
      China, and to the acquisitions of WLG (US), ALI and Asean. Combined, the
      increase in overhead for WE China and the three acquisitions for the first
      quarter was $650,000. The overhead for the existing Hong Kong business only
      increased by approximately $14,000.





Net
      segment income for our airfreight operations was approximately $39,000, compared
      to net income of $43,000 in the prior period of 2005. Asean’s air freight
      operations lost approximately $46,000 in the first quarter of 2006, but this
      loss was offset by the growth in net income in our Hong Kong and China
      airfreight businesses. Even though Asean’s airfreight margins were the highest
      in the Group for the first quarter, Asean’s loss was attributable to low revenue
      volumes caused by the seasonality of its business.




***Sea
      freight operations:*** Revenues
      from sea freight operations for the three months ended March 31, 2006, increased
      approximately 148% when compared with 2005, growing from approximately $3.06
      million to $7.59 million. Growth in our Hong Kong business accounted for 7%
      of
      the increase, and the revenues generated by WE China’s operations in the PRC
      accounted for 4% of the growth. Revenues of WLG (US) and ALI in U.S, which
      were
      not part of the Group during the first quarter of 2005, contributed 50% of
      the
      growth. In addition, Asean’s sea freight business, which we acquired in the
      fourth quarter of 2005, provided 39% of the increase in revenues.





Costs
      for
      our sea freight forwarding operations increased 148% from $2.34 million for
      the
      three months ended March 31, 2005, to $5.75 million for the same period in
      2006.
      This increase is mainly attributable to a corresponding increase in sea freight
      revenues for the reasons cited above.





Gross
      profit margins improved slightly from approximately 23.5% for the three months
      ended March 31, 2005, to 24.2% for the same period in 2006. The increase is
      due
      to higher gross profit margin attributable to WE China’s sea-freight business,
      which recorded a gross margin of 25.1% for the three months ended March 31,
      2006.





Total
      segment overhead attributable to our sea freight business increased by 204%,
      from approximately $616,000 for the three months ended March 31, 2005, to $1.87
      million for the same period in 2006. This increase is attributable the operating
      costs of WE China and the three acquisitions, which combined totaled $1.22
      million for the first quarter of 2006. Overhead costs in the existing Hong
      Kong
      business increased by only $37,000.




There
      was
      a net segment loss of approximately $29,000 for our seafreight operations in
      this quarter, compared to a net income of $103,000 in the prior period of 2005.
      This reduction in our sea freight income is largely attributable to losses
      of
      $97,000 and $83,000, for ALI and Asean respectively. The losses are partly
      due
      to seasonal factors as the first quarter is usually the slowest season of the
      year, while most of each company’s administrative expenses are fixed for
      relatively short periods such as one to three months. In
      addition, Asean had certain jobs for which the total direct costs exceeded
      the
      revenue, thereby creating a net loss for these jobs.





***Customs
      brokerage services:*** Asean’s
      operations include a division that provides customs brokerage services. During
      the three months ended March 31, 2006, revenue from customs duty services was
      approximately $5.59 million. Direct and administrative costs, less a tax
      benefit of $14, totaled approximately $5.66 million. Taken together, this
      business segment of Asean incurred a loss of $54,000 for the first quarter
      of 2006.





6


**Other
      Operating Expenses**





*Salaries
      and allowances*





Salaries
      and salary related allowances for the three months ended March 31, 2006,
      increased 239% from $0.56 million to $1.90 million. These increases were
      attributable to normal increases in employee salaries at the beginning of 2006,
      and to increases in the number of operational staff and management personnel.
      WE
      China’s salary costs are included for a full three months for the period ended
      March 31, 2006, compared to only one and one-half months for the first quarter
      of last year. From the inception of its business in February 2005, WE China
      has
      added approximately 81 employees to our personnel headcount. With the
      acquisitions of WLG (US), ALI and Asean, the Group added a further 69 employees
      bringing our total headcount as of March 31, 2006, to 210
      personnel.




*Sales
      Commissions*




Sales
      commissions payable by us during the three months ended March 31, 2006, were
      $31,000 compared to $29,000 for the same period in 2005, reflecting an increase
      of 7%. This increase is attributable to higher sales revenues generated by
      the
      sales staff for our Hong Kong freight business.




*Rent*




Rent
      expense for our facilities increased 204% from $51,000 for the three months
      ended March 31, 2005, to $155,000 in 2006. The increase was mostly due to the
      offices of our new subsidiaries, which were added to the Group in 2005. We
      have
      leased eight offices for our operations in China, and these offices only
      incurred rental expense from March 2005, except the Beijing office which began
      paying rent in February 2005. In addition, WLG (US) and ALI’s operations occupy
      three offices in the U.S., and we added two more office premises with the
      acquisition of Asean. WLG (US), ALI and Asean were all acquired after the first
      quarter of 2005.




*Depreciation
      and Amortization*




Depreciation
      on property, plant and equipment increased from $22,000 for the three months
      ended March 31, 2005 to $59,000 for the same period in 2006. This increase
      of
      $37,000 mainly related to the combined depreciation expense of nearly $29,000,
      which is attributable to the operations of WLG (US), ALI and Asean for the
      first
      quarter of 2006.





Amortization
      expense is attributable to the customer lists acquired in conjunction with
      the
      acquisitions of WLG (US), ALI and Asean. In connection with the acquisition
      of
      WLG (US), we recorded a customer list asset of $512,000 and are amortizing
      this
      cost on a straight-line basis over 5 years. Asean’s customer list was valued at
      $1.56 million and is being amortized on a straight-line basis over 8 years.
      A
      value of $164,000 was assigned to ALI’s customer list, which is being amortized
      over five years. During the three months ended March 31, 2006, amortization
      expense attributable to WLG (US), Asean and ALI was $25,614, $48,831 and $8,207,
      respectively. There was no amortization expense for the three months ended
      March
      31, 2005.




7


*Interest
      Expense*





Interest
      expense increased from $4,000 for the three months ended March 31, 2005, to
      $92,000 for the same period in 2006. This increase is attributable to interest
      of $77,000 for the bank debt of Asean and interest of $11,000 attributable
      to
      bank debt of WLG (US).





*Provision
      for Income Taxes*





The
      provision for income taxes decreased from $40,000 for the three months ended
      March 31, 2005 to $26,000 for the same period in 2006 because of the losses
      incurred by Asean and ALI. Our U.S. operations of ALI and WLG (US) have a
      consolidated loss and no provision for income taxes is required for U.S. taxes
      or state income taxes, nor was any benefit given for their losses. Asean’s
      operations reported an operating loss for the three months ended March 31,
      2006,
      and an income tax credit of approximately $50,000 was recorded by
      it.




**LIQUIDITY
      AND CAPITAL RESOURCES**




For
      the
      three months ended March 31, 2006, our operations generated net cash of
      approximately $1.37 million compared with $1.10 million of cash provided by
      operations for the three months ended March 31, 2005. In 2006, cash was provided
      by the following items: a decrease of trade receivables of about $2.21 million,
      an increase of accrued charges of $430,000, amortization and depreciation of
      $141,000, provision for bad debts of $74,000, decrease in current assets of
      $35,000 and other items totaling $3,000. Major components that used cash in
      the
      first quarter included a decrease in trade payables of $889,000, an increase
      in
      deposits and prepayments of $228,000, a net loss from operations of $255,000,
      a
      decrease in income tax payable of $76,000, and a net decrease in amounts owed
      to
      related parties of $74,000.





Net
      cash
      used by financing activities totaled about $579,000 for the three months ended
      March 31, 2006, compared with $755,000 net cash provided by financing activities
      for the same period in 2005. Cash provided for financing activities for the
      three months ended March 31, 2005, consisted primarily of a loan of $1.0 million
      from the Company’s Chief Executive Officer and controlling shareholder in March
      2005, for the purchase of WLG (US). The loan was converted to Convertible
      redeemable preferred stock during the year ended December 31, 2005. Cash used
      by
      financing activities for the three months ended March 31, 2006, consisted
      primarily of the repayment of bank loans and overdraft facilities of $489,000
      and $57,000, respectively. In addition, we repaid a capital lease obligation
      of
      $33,000.





As
      of
      March 31, 2006, we have provided bank guarantees to certain airlines in the
      amount of $514,000 as support for credit facilities provided to a subsidiary
      to
      allow it to make freight payments, which must be advanced to the airlines by
      the
      subsidiary prior to payments being received from its customers. These guarantees
      are secured by restricted cash deposited in separate bank accounts, along with
      certificates of deposit, which in the aggregate total approximately $527,000.
      We
      also have given a bank guarantee of approximately $162,000 in favor of the
      owner
      of premises occupied by our subsidiary in Australia.




In
      April 2004, WEHK and WAE, ("The Hong Kong
      subsidiaries"), obtained
      a short-term bank loan of approximately $67,000, of which $45,000 was for the
      purchase of capital assets. The remaining $22,000 was used for general working
      capital purposes. This short-term bank loan was repaid in full by March 31,
      2005. In October 2004, the Hong Kong subsidiaries obtained an additional bank
      loan of $449,000, which was used to pay income taxes and for general working
      capital needs. This loan is repayable in 24 equal monthly installments, with
      interest at the best rate charged by the lending bank, less 1 percent. The
      interest rate on this loan was 6.75% per annum and the outstanding principal
      amount was approximately $132,000 as of March 31, 2006. In October 2005, the
      Hong Kong subsidiaries obtained an additional loan of approximately $129,000,
      and used the proceeds to pay income taxes and for general working capital
      purposes. By March 31, 2006, the principal amount of this loan had been reduced
      to approximately $87,000, and it carried an annual interest rate of
      7.75%.





8


At
      March
      31, 2006, WLG (US) owed $656,000 in bank debt for funds used by it for general
      working capital needs. This bank loan, which bore interest at the prime rate
      of
      7.75% as of March 31, 2006, is secured by substantially all of the assets of
      WLG
      (US) and the personal guarantee of WLG (US)’s Chief Executive Officer. WLG
      (US)’s borrowings are subject to certain covenants, including the maintenance of
      its tangible net worth which must be at least $200,000 and debt service coverage
      of at least 1.2 to 1.0. WLG (US) was in violation of the debt service covenant
      as of December 31, 2005, but the violation was waived by its bank until the
      maturity date of the loan facility, which is August 2006.





Asean
      has
      a receivables loan facility of approximately $2.8 million which is secured
      by
      and based on its accounts receivable, and it also has an overdraft facility
      of
      $413,000. At March 31, 2006, Asean’s outstanding bank debt for both facilities
      was approximately $1.92 million, with an interest rate of approximately 10.85%.
      In addition to the charge over all of Asean’s accounts receivable, the bank also
      holds a first registered mortgage over all of Asean’s assets, and it has
      personal guarantees from each of the former shareholders of the
      company.





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





Our
      approximate contractual cash obligations at March 31, 2006, are outlined in
      the
      table below which includes our equipment lease and office rental obligations,
      as
      well as payments due under our cargo space commitments. These cash obligations
      are expected to equal approximately $552,000 per month for coming twelve
      months.




Payments
                Due by Period
              (in
                thousands)Contractual
                Obligations
            
            Total
            
            Less
                than 1 year
            
            1-3
                years
            
            4-5
                years
            
            After
                5 yearsFacilities
                Obligations: Equipment lease and office rental obligations
            
            $
            1,423
            
            $
            657
            
            $
            743
            
            $
            23
            
            $
            —Other
                Obligations: Cargo space commitment
            
            
            5,970
            
            $
            5,970
            
            
            —
            
            
            —
            
            
            —Total
                Contractual Cash Obligations
            
            $
            7,393
            
            $
            6,627
            
            $
            743
            
            $
            23
            
            $
            —





9


During
      the three months ended March 31, 2006 and 2005, we have not engaged in
      any:





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





•
trading
      activities in non-exchange traded contracts.







**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**




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





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




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




**Revenue
      Recognition Policy**




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





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





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




10


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





Gross
      customs brokerage revenue is derived from services provided to facilitate the
      clearance of inbound cargo by the governmental customs authorities. Revenue
      is
      recognized upon completion of the brokerage clearance services and the clearance
      of the respective goods.





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




**Recognition
      of Cost of Forwarding**




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






**Accounting
      for Income Taxes**




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





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





**Foreign
      Subsidiaries**





The
      Company has foreign subsidiaries whose local currency has been determined to
      be
      the functional currency. For these foreign subsidiaries, the assets and
      liabilities have been translated using the current exchange rates, and the
      income and expenses have been translated using the weighted average of
      historical exchange rates during the reporting period. The adjustments resulting
      from translation have been recorded separately in shareholders’
(deficit) equity as “other comprehensive income (loss)” and are not
      included in determining the consolidated net loss. As of March 31, 2006,
      other comprehensive income (loss) included approximately $6,000 of
      cumulative income from foreign currency translation.




11





**Off-balance
      Sheet Arrangements**





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





**Accounting
      for Stock-Based Compensation**





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





On
      April
      19, 2005, the Company adopted the Wako Logistics Group 2005 Stock Incentive
      Plan
      (the “Stock Plan”), for which the Board of Directors has authorized 4,000,000
      shares of common stock to be reserved for future issuance under the Plan. In
      September 2005, the Company agreed the terms of an employment contract by which
      it committed to grant a stock option to an employee for the purchase of 200,000
      shares of common stock pursuant to the Stock Plan, but no grant of an option
      to
      purchase these shares had been made as of March 31, 2006. Other than this
      commitment, as of March 31, 2006, the Company has not granted any other stock
      options, stock awards or committed to make any similar awards pursuant to this
      Plan.





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





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


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


12




**PART
      II. OTHER INFORMATION**




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




We
      have a
      number of claims, currently outstanding, relating to lost or damaged cargo
      occurring in the normal course of our business. We expect many of these claims
      to be settled by the carriers we engage to ship goods on behalf of our
      customers. In the event that we are ultimately responsible to our customers
      for
      any of these claims, we believe that such claims are sufficiently insured under
      the insurance policies we have obtained to cover such losses. At March 31,
      2006,
      and through the date of filing of this quarterly report, we are not aware of
      any
      uninsured claim that would have a materially adverse economic effect on the
      company.





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





None
      in
      the quarter ending March 31, 2006, and through the date of this
      report.





ITEM
      3.DEFAULTS
      UPON SENIOR SECURITIES




None




**ITEM
        4.** **SUBMISSION
        OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 None
 
 **ITEM
        5. OTHER INFORMATION**
 
 None


**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)).





13





**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: May
                15, 2006
            By:
            /s/ Christopher
                WoodChristopher
                Wood
              Chief
                Executive Officer, ( Principal Executive Officer) and
                DirectorDate: May
                15, 2006
            By:
            /s/ David
                L. KoontzDavid
                L. Koontz
              Chief
                Financial Officer, (Principal Financial Officer and Accounting
                officer)















**Exhibit
      Index**





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)).